Company: TWO-PC
Filing Date: 2025-07-29
Form Type: 10-Q
Source: 0001465740-25-000140
Chunk: 268

Company: TWO HARBORS INVESTMENT CORP.
Filing Date: 2025-07-29
Form: 10-Q
Item: Item 8
Chunk 268
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$47,773Other operating expenses:Certain operating expenses (1)$2,754$(624)$2,860$574All other operating expenses18,55318,32338,95238,177Total other operating expenses$21,307$17,699$41,812$38,751Annualized operating expense ratio8.5 %7.0 %8.6 %7.8 %Annualized operating expense ratio, excluding non-cash equity compensation and certain operating expenses (1)7.6 %6.8 %7.5 %7.0 %

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(1)Certain operating expenses predominantly consists of expenses incurred in connection with the Company’s ongoing litigation with PRCM Advisers, as discussed within Note 14 to the consolidated financial statements, included under Item 1 of this Quarterly Report on Form 10-Q. 

The increase in total operating expenses during the three and six months ended June 30, 2025, as compared to the same periods in 2024, was primarily driven by higher expenses incurred in connection with the Company’s ongoing litigation with PRCM Advisers, as well as slightly higher compensation and benefits and other operating expenses. The increase in our annualized operating expense ratios was primarily driven by the lower average equity balances in the denominator as a result of comprehensive losses incurred and dividends declared during the three and six months ended June 30, 2025. 

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Loss Contingency Accrual

As discussed within Note 14 to the consolidated financial statements, included under Item 1 of this Quarterly Report on Form 10-Q, we recorded a loss contingency accrual of $199.9 million for both the three and six months ended June 30, 2025 in connection with our ongoing litigation with PRCM Advisers. This amount is reflective of the $139.8 million termination fee that the Company believes would have been payable to PRCM Advisers for termination on the basis of unfair compensation pursuant to the Management Agreement, plus applicable pre-judgment interest on such termination fee that has accrued through June 30, 2025.

Income Taxes

During the three and six months ended June 30, 2025, we recognized a provision for income taxes of $1.7 million and $2.1 million, respectively, which was primarily due to net income from MSR servicing and mortgage loan origination activities, partially offset by net losses recognized on MSR and operating expenses incurred in our TRSs