Annual report pursuant to Section 13 and 15(d)

CONSOLIDATED STATEMENTS OF CASH FLOWS

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
 12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Cash Flows From Operating Activities:      
Net income attributable to common stockholders $ 579,039 $ 291,906 $ 127,432
Adjustments to reconcile net income to net cash (used in) provided by operating activities:      
Amortization of premiums and discounts on available-for-sale securities, net 19,022 1,003 (235)
Other-than-temporary impairment losses 1,662 10,952 5,102
Realized and unrealized losses (gains) on investment securities, net 54,608 (122,466) (36,520)
Loss (gain) on mortgage loans held-for-sale 33,846 (2,270) 0
Gain on mortgage loans held-for-investment and collateralized borrowings in securitization trusts (14,204) 0 0
Increase in fair value of mortgage servicing rights (13,881) 0 0
(Gain) loss on termination of interest rate swaps and swaptions (12,293) 29,579 16,970
Unrealized (gain) loss on interest rate swaps and swaptions (291,458) 91,748 44,916
Unrealized (gain) loss on other derivative instruments (95) 542 7,424
Gain on contribution of entity 0 (10,641) 0
Equity based compensation expense (511) (488) (279)
Depreciation of fixed assets 607 212 39
Depreciation of real estate 0 1,520 0
Amortization of intangible assets 1,067 0 0
Purchases of mortgage loans held-for-sale (993,813) (57,954) (5,782)
Proceeds from sales of mortgage loans held-for-sale 25,113 0 0
Proceeds from repayment of mortgage loans held-for-sale 35,267 5,521 0
Net change in assets and liabilities:      
Increase in accrued interest receivable (7,690) (19,176) (18,054)
Decrease/(increase) in deferred income taxes, net 83,598 (37,793) (5,837)
Decrease/(increase) in income taxes receivable 4,323 (4,166) (157)
Increase in prepaid and fixed assets (1,658) (1,401) (351)
Decrease/(increase) in other receivables 29,772 (31,872) 0
Increase (Decrease) in Servicing Advances 7,298 0 0
Increase in Federal Home Loan Bank stock (10) 0 0
Increase in accrued interest payable 1,217 12,604 5,671
Increase/(decrease) in income taxes payable 757 (3,898) 3,897
Increase in accrued expenses and other liabilities 14,014 4,383 6,849
Net change in assets and liabilities due to purchase of entity 3,306 0 0
Net change in assets and liabilities of discontinued operations 0 4,313 0
Net cash (used in) provided by operating activities (454,671) 163,134 151,643
Cash Flows From Investing Activities:      
Purchases of available-for-sale securities (4,472,671) (10,800,018) (6,321,303)
Proceeds from sales of available-for-sale securities 4,432,696 3,411,580 1,046,628
Principal payments on available-for-sale securities 1,111,906 825,889 323,294
Purchases of other derivative instruments (55,038) (388,171) (285,350)
Proceeds from sales of other derivative instruments 163,657 138,171 51,214
Purchases of trading securities (995,625) (996,016) (2,019,884)
Proceeds from sales of trading securities 1,000,946 1,001,904 1,222,959
Purchases of beneficial interests in securitization trusts (30,550) 0 0
Proceeds from repayment of mortgage loans held-for-investment in securitization trusts 41,314 0 0
Purchases of mortgage servicing rights (499,024) 0 0
Purchases of investments in real estate 0 (293,745) 0
Purchase of entity (6,404) 0 0
(Decrease)/increase in due to counterparties, net (79,126) 359,909 (206,442)
Increase in restricted cash (99,325) (135,735) (144,039)
Increase in escrow deposits of discontinued operations 0 (30,208) 0
Contribution of cash to Silver Bay 0 (995) 0
Net cash provided by (used in) investing activities 512,756 (6,907,435) (6,332,923)
Cash Flows From Financing Activities:      
Proceeds from repurchase agreements 214,649,749 70,643,808 29,792,780
Principal payments on repurchase agreements (215,023,809) (64,679,446) (24,302,435)
Proceeds from issuance of collateralized borrowings in securitization trusts 307,119 0 0
Principal payments on collateralized borrowings in securitization trusts (42,490) 0 0
Proceeds from issuance of common stock, net of offering costs 763,557 1,362,747 1,006,847
Proceeds from exercise of warrants 107,514 213,593 0
Repurchase of common stock (23,894) 0 0
Dividends paid on common stock (591,452) (335,309) (119,796)
Net cash provided by financing activities 146,294 7,205,393 6,377,396
Net increase in cash and cash equivalents 204,379 461,092 196,116
Cash and cash equivalents at beginning of period 821,108 360,016 163,900
Cash and cash equivalents at end of period 1,025,487 821,108 360,016
Supplemental Disclosure of Cash Flow Information:      
Cash paid for interest 99,189 11,766 17,039
Cash (received) paid for taxes (4,266) 3,637 991
Noncash Investing and Financing Activities:      
Transfers of mortgage loans held-for-sale to mortgage loans held-for-investment in securitization trusts 413,848 0 0
Consolidation of mortgage loans held-for-investment in securitization trusts 442,767 0 0
Consolidation of collateralized borrowings in securitization trusts 412,217 0 0
Contribution of Two Harbors Property Investment LLC to Silver Bay 0 (319,040) 0
Equity securities and other assets received from Silver Bay 0 330,676 0
Distribution of Silver Bay common stock 343,481 0 0
Cashless exercise of warrants 75 268 0
Dividends declared but not paid at end of period 0 164,347 56,239
Reconciliation of mortgage loans held-for-sale:      
Mortgage loans held-for-sale at beginning of period 58,607 5,782 0
Purchases of mortgage loans held-for-sale 993,813 57,954 5,782
Transfers to mortgage loans held-for-investment in securitization trusts (413,848) 0 0
Proceeds from sales of mortgage loans held-for-sale (25,113) 0 0
Proceeds from repayment of mortgage loans held-for-sale (35,267) (5,521) 0
Realized and unrealized (losses) gains on mortgage loans held-for-sale (33,611) 392 0
Mortgage loans held-for-sale at end of period $ 544,581 $ 58,607 $ 5,782