Two Harbors Investment Corp. Q1 FY2026 earnings call

• Merger developments: Received unsolicited all-cash proposal from Cross Country Mortgage, terminated prior merger with UWM, signed amendment increasing per share cash consideration to $11.30, board recommends shareholders vote in favor, special meeting on May 19th.
• Mortgage performance: RMBS performance buoyed initially by declining implied volatility and GSE purchase announcement, then deteriorated due to Middle East conflict. Forecasts for inflation and growth uncertain, Fed left rates unchanged, yield curve bear flattened.
• DTC platform: Made progress with funding and brokering loans, pipeline at quarter end, expects origination efforts to increase with merger.
• Financial results: Book value decreased, comprehensive loss incurred, components of net interest and servicing income and mark-to-market gains/losses detailed.

Book value decreased to $10.57 per share at March 31st from $11.13 per share at December 31st, including a $0.34 common stock dividend, resulting in a negative 2% quarterly economic return. Net interest and servicing income decreased due to lower float earnings rates, lower balances, and lower servicing fee collections, partially offset by lower financing rates. Mark-to-market losses on agency RMBS and TVAs were due to higher interest rates and wider spreads. Decrease in mark-to-market losses on MSR was due to favorable valuation input change and lower portfolio runoff. Other derivative instruments had net mark-to-market gains in Q1 vs net losses in Q4. DTC platform funded $92 million in first and second liens and brokered $38 million in second liens in Q1, with $57 million in pipeline at quarter end.

• Merger expected to close in second half of 2026, not subject to financing condition.
• Intend to continue paying regular quarterly dividends prior to closing.
• Forward-looking projection of portfolio returns: 65% of capital allocated to servicing with static return 11-14%, remaining to securities with 11-15%, static return on common equity 7.3-12.9% or prospective quarterly static return per share 19-34 cents.

• Geopolitical tensions in Middle East remain a primary driver of market sentiment and economic outlook, with uncertain economic disruptions.
• Uncertainty in interest rate volatility, which is a key dependency for RMBS performance.
• Merger subject to shareholder vote and potential competing proposals within the merger agreement's prescribed details.

Q: Can you walk us through the financing package supporting the $11.30 cash consideration and merger agreement details?

A: As disclosable, refer to publicly filed merger agreements.

Q: Can you update on book value quarter to date and merger situation with UWM?

A: Up about 2% in book value quarter to date, merger with CCM in process, shareholder vote on May 19th, merger agreement prescribes details for competing bids