Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Financial Fourth Quarter 2010 Financial Results Conference Call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions. (Operator Instructions). This conference call is being recorded today, February 14. I would now like to turn the conference over to your host, Sara Brown, Company Counsel. Please go ahead.

Before we start I would like to remind everyone that certain statements made during this conference call including statements concerning future strategies, intentions and plans may constitute forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical in nature and can be identified by words such as "believe," "expect," "anticipate," "estimate," "project," "plan," "should," or similar expressions or by reference to strategies plans, or intentions. As describe under item 1A or our annual report on Form 10-K, filed on March 14, 2012, and under item 1A of our quarterly report on our Form 10-Q, filed on May 9, 2012, forward-looking statements are subject to a variety of risk and uncertainties that could cause the company's actual result differ from its belief, expectations, estimate and projection. Consequently, you should not rely on these forward-looking statements as predictions of future events. Statements made during this conference call are made as of the date of this call and the company undertakes no obligation to update or revise any forward-looking statement whether as a result of new information, future events or otherwise. I have with me today on this call Larry Penn, Chief Executive Officer of Ellington Financial; Mark Tecotzky, our Co-Chief Investment Officer; and Lisa Mumford our Chief Financial Officer.

Thanks Sara. Once again, it is our pleasure to speak with our shareholders this morning as we release our fourth quarter and full year 2012 results. And as always we appreciate your taking the time to participate on the call today. We will follow the same format as we have for the past several quarters. First, our CFO Lisa Mumford will run thorough our financial result. Then our Co-CIO Mark Tecotzky will discuss how the MBS market performed over the course of the quarter, how we positioned our portfolio, and what our market outlook is going-forward. Then, I will close our prepared remarks and we will take some questions. In addition to our earnings release, yesterday evening we posted a fourth quarter earnings conference call presentation to our website www.ellingtonfinancial.com. You will find it right on our shareholders page or alternatively on the presentations page of the website. Lisa and Mark's prepared remark will track the presentation. So, it will be helpful if you have this presentation in front of you, and turn to page three to follow on. And while you are getting that in front of you I am going to turn it over to our CFO, Lisa Mumford.

Thank you, Larry, and good morning every one. On page three of the presentation we provide our P&L attributes in table. There you can see for the quarter we earned $24.8 million or a $1.19 per share bringing our total full year P&L to $97.1 million or $5.31 per share. Our return on equity was 23.5%. Our predominant Non-Agency Strategy, which also include the MBS and commercial mortgage loans, provided the lion's share of our P&L, actually 91% of our gross P&L in this quarter and 86% for the year. Our agency strategy also performed very well during the quarter and the year especially when you consider that it only utilizes a relatively small amount of our capital. In our Non-Agency Strategy, our income was driven by interest income and net realized and unrealized gains. The weighted average book yields on the portfolio declined slightly to 9.7% from 10.2% but our average holding quarter-over-quarter decreased by approximately $50 million resulting in an increase in income but a decline in the per share contribution to income. Trading gains and net valuation gains combined to add $1.28 per share for this quarter result. In our Agency Strategy, our income (inaudible) of interest and net realized gains (inaudible), our weighted average book yield was essentially flat quarter-over-quarter at 2.7% but our average agency holding increased in size by about $69 million. Valuations declines reduced our quarter result. Within both our non-agency and agency portfolio, we continued to sell securities where we felt there was limited remaining upside potential and rotated it so where we see greater value. Our overall average consequence declined 2 basis points during the quarter to 0.99% as the composition of our average borrowing has not changed much quarter-over-quarter. However, our leverage ration increased to 1.79 to 1 since weighted for the end of this quarter, we increased our holding of Agency RMBS which we generally finance with repo and decrease our repo non-agency holding. Core expenses which includes other operating expenses and bates management fees and exclude incentive fees and financing cost, payment at 2.8% of average equity on an annualized basis and was in-line with our expectations. Our diluted book value per share was $24.38 at the end of December, compared to $23.88 per share at the end of September and $22.03 at the end of December 2011. Year-over-year, this represents an increase of 10.7%. Finally, our quarterly dividends of $0.77 per share represent a 10% increase from the divided we paid for the first three quarters of 2012 and represents an annualized yield of 12.7% based on our closing price yesterday of $25.68 adjusted for our fourth quarter and special dividend. With that I will now turn further presentation over to Mark.

Thanks Lisa. Before I walkthrough the slide, I want to give you some views on the past quarter. The confluence of strong fundamentals, strong technicals and additional cap allocated to non-agencies lead to a strong quarter. The result of QE3 was to push some mortgage investors out of the agency market into the non-agency market. That same backdrop has largely carried into 2013. Technicals and fundamentals are good but the question not is valuation. EFC is over five year old. We have been through times of terrible fundamentals and technicals but they have been great times to invest because the valuations are so compelling. First quarter of 2009, for example, I can't imagine worst fundamentals and technical but the valuations reflected and stayed the world far worst than what it actually was. Let's turn to the presentation. Page 10, you can see we grew our portfolio in the fourth quarter by $47 million. That allowed us to participate even more fully in the Q4 rally. One sector we shrunk was CMBS. The part of the CMBS capital structure that we owned (inaudible) significantly in price and are highly levered, so it makes sense to take some gains and reduce risk. On page 11, you can see our yields are down from last quarter but still compelling versus other sectors of fixed income especially given the likely impacted QE3 on this CapEx. With stock price were much more likely to go up and down in the quarter and that was the thinking behind growing (inaudible). Page 12, hedges. There is no big change, we sit in the last earnings call we thought that we would keep our credit hedges light given our belief that housing is in the early stages of a multiyear recovery. On the page 14, the agency portfolio.…

Thanks Mark. Our fourth quarter results represent a continuation of our financial performance with the first three quarters of 2012. Both of our strategy, our non-agency MBS strategy, which includes CMBS and commercial mortgage loan, and our agency MBS strategy did extremely well in 2012. We did not just ride the tide in a rising non-agency MBS market. As we have discussed on previous calls, we have been actively rotating our non-agency MBS portfolio by selling higher priced securities and using the proceeds to reinvest into lower price securities where we see greater value. In 2012, our portfolio turnover rate was just a bit below 100% per year. Now, that does not mean we sold almost every security in our portfolio that we started the year with. We churned some of our capital although more frequently and some less frequently. But what it does illustrate is the notion that active management, it is fundamental that how we operate. Within our Agency MBS strategy we have been very successful at identifying fixed rate pools with prepayment protection characteristics, as evidenced by the very slow prepayment piece of our portfolio under 10% CPR during the fourth quarter. However, we've also been successful at selling our prepayments expected pools at the right time when it is time to rotate into different prepayment protected pools. In the fourth quarter, we decreased our Agency RMBS holding as prices and payoffs reached an all time high. But since then as we have seen a relative value in the sector improve a bit, we have reloaded somewhat, again illustrating the benefit of our active management style. And because our strategy is to generate trading gains as a significant component of our earning, we have the luxury of being able to operate with much more conservative leverage ratios…

Thank you sir. We will now begin the question and answer session. (Operator instructions). Our first question is from the line of Trevor Cranston with JMP Securities. Please go ahead.

Given your comments about valuation particularly in the non-agency space and the increase in prices which is continuing since the end of the year, can you guys talk a little bit about how you are thinking about the hedge book on the credit portfolio today? And also maybe talk a little bit about how you think about relative value between opportunities maybe in the whole loan or MSR space versus the MBS market? Thanks.

I just think that on the cash side you have seen yields come in but they sort of came in for reason, for a long-time respectively it is too cheap and we think it will continue to perform. We just do not think the rate of acceleration in price is going to be the same as what you saw in 2012. Now, as we start to look at other opportunities, we evaluate among the same metric and we spend a lot of time with our housing model which gets down to this level. I think we have a very good understanding of what drives borrower default. So, we will apply the same model and we will just look at different sectors relative value of expected return but just bearing in mind that some of other opportunities might bring with them a little bit greater franchise value than what we get with this trading of portfolio field security.

Thank you. Our next question is from the line of James Winchester with QVP. Please go ahead.

I have just a general question. I saw in your remarks you mentioned on of the factors that is driving valuation is obviously the increasing level of home purchasing activity and decline in shadow inventory. I was wondering if you could just comment on, first of all, generally speaking, how large or how you quantify that shadow inventory? And secondly, how much granularity you feel you have with regard to that figure that dynamic? And lastly, is there -- just as a secondary question, when you look at the level home purchasing activity in United States today, do you distinguish at all between how much of that activity is driven by basically financial investors as a pose to ultimate end home owner, and do you think that really matters?

This is Mike Vranos. So, I guess in terms of some numbers and granularity I do agree with Larry that we are buying rather geographically diverse pools of asset -- I mean in the asset that backed upon. We have some rather geographically diverse in terms of the number and area the loans are in. That said, when you are looking at any particular trust that has some percentage of delinquency, granularity does matter, right?

Right.

So we are looking through on a sub-MSA basis especially, we have loans that we discussed that are highly delinquent. We have a database of about 38 million loans and we are very active in terms of updating what the shadow inventory is right now. Offered across the country I believe are above $68 billion worth a property for sale that are presumably distressed from bad loans, loans going bad. There is another $3 million to $4 million of shadow inventory that we update on a regular basis. Investor activity from OREO to rental I know from personal experience being involved in that market too it seems like there is a lot going on and there has been probably $10 billion plus in capital raise, but compared to the numbers I just mentioned I think it is still small, right. So, $680,000 in loans, $100,000 of property, $68 billion compared to what may be 10 floating around 5 by institutional and for the institutional investors. And then, of course all of the mom and pop players that are buying and renting. I think they do provide a floor to the market in many, many areas and they are not to be discounted at all. But we are talking about a lot of -- a very large shadow inventory. So, 3 million to 4 million homes, very close to a $0.5 trillion worth of property to come up within next four or five years.

Thank you. Our next question is from the line of Steven Laws with Deutsche Bank. Please go ahead.

Hi. Good morning. Thanks for taking my question and congratulations on a great quarter and excellent year. I apologize if you address this in your prepared remarks. I was a little bit late during the call. But I noticed on the press release you talked about buying a non-performing commercial mortgage whole loan. Can you maybe expand a little bit on your commercial strategy and help potentially how big of a piece that could be going-forward or is that really something that is just going to be more one off opportunistic investments?

Yeah. I think it is hard to tell. It is something -- commercials in general is -- I think it is an important part of our strategy in Ellington Financial. We have dialed that up and down. The market has been volatile. It is our returns certainly on capital where we've deployed capital in that space has been very high, we have been very nimble. And as I said in my prepared remarks, if I had to guess commercials will be a bigger component of our strategy in 2013 than they were in 2012. Then new issue market is quite robust there, and it is exactly the kind of volatility that we like. In terms of that non-performing loan at the business that we have done here at Ellington for a while and something that we like for Ellington Financial and it is very opportunistic its not something that you see offered by dealers or something that we actually source ourselves here at Ellington, and it could be one of those things, it could be a bigger component of our strategy going forward. So, now --

Larry, can I add to it please?

Yeah. Sure. Go ahead, Mike.

Yeah. So, in terms of the size and the opportunity, we over the last few years have privately purchased over $200 million of loan balance amount for investment amount of about a $130 million in non-performing multifamily loans and small balance loans. And we were two threefold over that period of time somewhat capital constrained. So, that gives you an idea of sort of like what the lower limits of opportunity have been for us over the last few years.

Is it more just distressed sellers coming to you looking for liquidity, is it a situation where you are more optimistic on the recovery than may be what the sellers are asking? Or what whole loans being a little bit more difficult to value I guess, can you talk about the due diligence you guys were able to perform there that create these opportunities for you?

Yeah. I mean obviously, we perform a lot of due diligence on each loan. The opportunities come mostly from bank. There are few other types of sellers as well where there they have a lot of problems in their portfolio in terms of non-performing commercial loans and they want to focus their work and effort on bigger loans frankly. And so, often they will sell their smaller loans and it is just a great opportunity for us. It's sort of a -- it is an asset class, which is not real estate although, may become real estate pretty soon, it is a loan but is a nonperforming loan which sort of takes the lot of debt players out of the market. So, it's a market where there is not a natural audience for it, that's that deep. And we are playing at a level, not the trophy properties, if you will, where we can buy very attractive investment. These are fairly short-term in nature. Our experience so far has been less than a one year average holding period to resolution of disposition. So, we just look forward to it, frankly, it is just yet another arrow in our quiver.

Thank you. There appear to be no additional questions at this time. I would now like to turn the floor back to Larry Penn for any closing remarks.

No, that will do it. Thanks to everyone. And we look forward to seeing you for our next quarter's release.

Ladies and gentlemen, this concludes today's Ellington Financial's fourth quarter 2012 financial results conference call. You may now disconnect.