Two Harbors Investment Corp

Please stand by. Good morning. My name is Ruth, and I will be your conference facilitator. At this time, I would like to welcome everyone to 2's fourth quarter 2025 financial results call. All participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer period. I would now like to turn the call over to Maggie Carr.

Good morning, everyone, and welcome to our call to discuss 2's fourth quarter 2025 financial results. With me on the call this morning are Bill Greenberg, our President and Chief Executive Officer, Nick Letica, our Chief Investment Officer, and William Dallal, our Chief Financial Officer. The earnings press release and presentation associated with today's call have been filed with the SEC and are available on the SEC's website, as well as the investor relations page of our website at 2inv.com. In our earnings release and presentation, we have provided reconciliations of GAAP to non-GAAP financial measures, and we urge you to review this information in conjunction with today's call. As a reminder, our comments today will include forward-looking statements, which are subject to risks and uncertainties that may cause our results to differ materially from expectations. These are described on page two of the presentation and in our Form 10-K and subsequent reports filed with the SEC. Except as may be required by law, who does not update forward-looking statements and disclaims any obligation to do so. I will now turn the call over to Bill.

Thank you, Maggie. Good morning, everyone, and welcome to our fourth quarter earnings call. I'm very excited to be able to speak to you all publicly for the first time about our recently announced merger with United Wholesale Mortgage. The rationale for this transaction should be familiar to most mortgage market participants and observers. and was especially fitting given our own history as a company. So let me take a step back and describe why I say that. We were one of the first, if not the first, mortgage REIT to invest in MSR as part of our asset mix, obtaining our GSE approvals and state licenses to own and manage MSR, and then buying our first pool in 2013. We started out using third-party subservicers to service the asset, but as our servicing portfolio grew to a certain scale, it became clear to us that we could extract even more value from the asset and increase returns by bringing the servicing in-house, which we did in 2023 through our acquisition of RoundPoint. The last several years, really post-COVID, have highlighted the need for investors to be able to protect their MSR portfolio by providing recapture capabilities. Hence, we spun up a direct-to-consumer lending platform in 2024. However, in 2025, the mortgage finance landscape shifted again the scale becoming more important than ever. It became clear to us that in order to succeed and compete effectively, our origination effort needed to be much, much bigger. This merger brings us together with the number one mortgage originator in the country, in UWM, and doubles the size of the MSR portfolio to a pro forma $400 billion. UWM, in turn, also benefits from our expertise in capital markets and asset management, and they can leverage RoundPoint's best-in-class and low-cost servicing capabilities. In many ways, this transaction is the culmination of the business plan that we've been aiming at for some time, and it creates, I believe, a very powerful strategic alignment and positions the combined company for accelerated growth and enhanced outcomes, which should deliver meaningful upside to shareholders. Now please just turn to slide three. Our investment portfolio performed well as mortgage assets significantly outperformed their hedges, and our low-coupon MSR continued to behave as it was designed to do, earning its carry. For the fourth quarter, we generated a total economic return of positive 3.9%. For the full calendar year 2025, we generated a total economic return on book value of negative 12.6%, though if you exclude the previously recorded litigation settlement expense of $3.60 per share, we returned a positive 12.1%. Mortgage assets have thus far continued to outperform into the first quarter, driven in part by increased GSE buying and announcements from the administration committing to buying significant sizes of MBS. In situations like this, we take the administration's clear desire for lower mortgage rates at face value, and we recognize the possibility that they will ultimately succeed and create increased mortgage and origination activity in 2026. One question that we've heard from investors is around our securities portfolio and if, following the merger, we intend to liquidate the portfolio. In the short term, the answer is that we intend to manage our business in the ordinary course. Looking further out, I would say that while no decisions have been made yet, we will be thoughtful about how we proceed. There are some paths that lead to selling some or all of these assets over time, and there are other paths where the combined company will need many, or even more than, our existing TBA and specified pool positions. These are still early days with respect to the merger, so when those details are more clear, we will be sure to update you. Please turn to slide four. Performance across fixed income was positive in the fourth quarter. The release of major conventional economic indicators was severely interrupted by the federal government shutdown, leaving the Fed and market participants without key data often used to assess the economy. Despite this, and in line with market expectations seen in Figure 1, the Fed still delivered two 25 basis point cuts in October and December. As a result, and as you can see in Figure 2, the yield curve steepened, with 2-year Treasury yields down 14 basis points to 3.47%, while 10-year Treasury yields rose by 2 basis points to 4.17%, returning the yield curve to its steepest level since January 2022. Equity markets continue to react positively to the Fed cuts, with the S&P 500 up by 2.3% at quarter end after setting all-time record highs earlier in the quarter. Please turn to slide five. We settled on the sale of an additional $10 billion UPV of MSR out of our portfolio, increasing our total third-party subservicing to $40 billion at year end compared to $30 billion at the end of the third quarter. while reducing our total owned servicing to approximately $162 billion from $176 billion the prior quarter. Despite its small size, our DTC platform is punching above its weight and had a record quarter, funding $94 million in first and second liens, a 90% increase from the third quarter. At quarter end, we had an additional $38 million in our pipeline. We also brokered $58.5 million in second liens in the quarter which is nearly unchanged quarter over quarter. Looking ahead, we are confident that the partnership with UWM will bring the benefits we have envisioned from the increased scale, and we believe this merger is extraordinarily positive for our company and for our shareholders. Now I'd like to hand the call over to William to discuss our financial results.