Executive Summary

Q1 2025 delivered positive economic return of 2.6% on higher EAD and improved net interest margin, despite a modest $0.11 book value decline to $8.81 and a dividend reduction to $0.34 per share .
EAD per share of $0.64 beat S&P Global consensus EPS of $0.57; GAAP EPS was $0.26. Net interest income rose to $18.8M as average cost of funds fell 67 bps q/q to 4.46% (bolded beat below; S&P Global disclaimer) .
April volatility tied to U.S. trade policy drove estimated book value down to $7.74–$8.06 and leverage down to ~6.4x as IVR proactively reduced risk and increased hedges; management said book value was up ~1% early May as markets stabilized .
Portfolio mix remained concentrated in higher-coupon Agency RMBS (83.7% of fair value) with Agency CMBS at 15.0%; debt-to-equity increased to 7.1x at quarter end and then was trimmed in April to ~6.4x .

What Went Well and What Went Wrong

What Went Well

“Earnings available for distribution per common share(1) of $0.64 compared to $0.53 in Q4 2024,” supporting coverage of the reduced $0.34 dividend; EAD rose to $40.0M and effective interest rate margin improved to 3.27% .
Management executed risk reductions in April: “we sought to reduce risk and maintain ample liquidity by selling assets…bring our leverage ratio back down to the mid-6s…we did increase our hedge ratio” .
CEO tone was constructive long term: “Our long-term outlook for Agency RMBS is favorable…investor demand to strengthen in higher coupons…steeper yield curve,” with Agency CMBS supported by “limited issuance, strong fundamental performance and stable cash flow profiles” .

What Went Wrong

Book value per share fell $0.11 q/q to $8.81 and management estimated an additional April decline to $7.74–$8.06 due to “significant increase in interest rate volatility” and tighter swap spreads .
Macro headwinds: “financial markets reacted negatively to proposed U.S. fiscal and trade policies,” and “Agency RMBS sharply underperformed Treasuries in April,” pressuring risk assets and book value .
Revenue-related metrics and spreads faced pressure amid swap spread tightening; management highlighted cautious near-term stance and narrowed leverage range given policy uncertainty .

Financial Results

Headline Metrics vs Prior Quarters

Metric	Q3 2024	Q4 2024	Q1 2025
Total interest income ($USD Millions)	$73.825	$76.110	$73.846
Net interest income ($USD Millions)	$7.510	$13.679	$18.821
GAAP EPS (Basic, $)	$0.63	($0.09)	$0.26
EAD per share ($)	$0.68	$0.53	$0.64
Book value per common share ($)	$9.37	$8.92	$8.81
Average net interest rate margin (%)	0.01%	0.47%	0.99%
Period-end weighted avg net interest margin (%)	0.26%	0.62%	1.04%
Debt-to-equity (x)	6.1x	6.7x	7.1x
Economic return (%)	5.4%	(0.5)%	2.6%

Segment Mix (Fair Value Composition)

Segment	Q3 2024	Q4 2024	Q1 2025
Agency RMBS (%)	87.0%	83.4%	83.7%
Agency CMBS (%)	11.5%	15.0%	15.0%
Agency CMO (%)	1.2%	1.3%	1.2%
Non-Agency RMBS/CMBS (%)	~0.3%	~0.3%	~0.1%

KPIs and Liquidity

KPI	Q3 2024	Q4 2024	Q1 2025
Average earning asset yields (%)	5.31%	5.60%	5.45%
Average cost of funds (%)	5.30%	5.13%	4.46%
Period-end weighted avg asset yield (%)	5.41%	5.42%	5.51%
Unrestricted cash + unencumbered investments ($USD Millions)	$521	$389	$372

Results vs Wall Street Consensus (S&P Global)

Metric	Q1 2025 Consensus	Q1 2025 Actual	Surprise
Primary EPS ($)	0.573*	0.64	+0.067*
Revenue ($USD Millions)	45.150*	24.300*	-20.850*

Values marked with * retrieved from S&P Global. Note: S&P “Revenue” classification for mortgage REITs may not be directly comparable to company-reported net interest income or interest income.

Guidance Changes

Metric	Period	Previous Guidance/Reference	Current Guidance/Update	Change
Dividend per common share ($)	Q1 2025	$0.40 (Q4 2024)	$0.34 (declared Mar 25, paid Apr 25)	Lowered
Book value per common share ($)	As of Apr 30, 2025	$8.81 (Mar 31, 2025)	$7.74–$8.06 estimate	Lowered
Debt-to-equity (x)	As of Apr 30, 2025	7.1x (Mar 31, 2025)	~6.4x estimate	Lowered
Total investment portfolio ($B)	As of Apr 30, 2025	$5.9B (Mar 31, 2025)	$5.1B estimate	Lowered
Unrestricted cash + unencumbered ($M)	As of Apr 30, 2025	$372M (Mar 31, 2025)	~$336M estimate	Lowered

Earnings Call Themes & Trends

Topic	Q-2 (Q3 2024)	Q-1 (Q4 2024)	Current (Q1 2025)	Trend
Tariffs/macro policy	Election and monetary policy uncertainty; BV down ~5.8% post-9/30; cautious on funding pressures	Disinflation stalled; policy uncertainty elevated; cautious near term	April tariff shock; swap spreads tightened; BV hit, later modest May recovery	Volatility up then easing in May
Hedging mix (swaps vs futures)	Increasing use of Treasury futures to mitigate swap spread risk	Further rotated to Treasury futures (~30% of hedge notional)	Increased hedge ratio in April; mix within 20–30% futures	More defensive hedging
Leverage posture	Comfortable ~9x debt-to-common, liquidity strong	Debt-to-equity 6.7x at YE; improved capital structure	Reduced leverage ~0.5 turn in April to mid-6s	Lower near-term leverage
Agency RMBS vs CMBS allocation	Added Agency CMBS to diversify and dampen BV volatility	Agency CMBS ~15% exposure; disciplined adds	RMBS 83.7%, CMBS 15.0%; levered ROEs low-20s in higher coupons	Mix steady; RMBS favored
Dividend stance	Competitive and sustainable; watch ROEs and environment	Evaluating ROEs vs dividend; cautious but constructive	Dividend reduced to $0.34; “comfortably covering” per Q&A	Coverage improved post-cut
Bank demand/regulatory	Expect stronger bank demand as deregulation and steeper curve emerge	Banks added ~$50B in H2’24; expect continued demand	Anticipate bank demand later in 2025 as uncertainty fades	Improving medium term

Management Commentary

CEO: “This resulted in an economic return for the quarter of 2.6%, consisting of our $0.34 dividend per common share and an $0.11 decline in book value per common share.”
CEO (April update): “Our book value per common share declined as a result and is estimated to be between $7.74 and $8.06 as of April 30, 2025.”
CIO: “Levered ROEs are kind of in the low 20s on higher coupons.”
CIO: “We did increase our hedge ratio…closer to home…20% to 30% range of Treasury futures relative to swaps.”
CEO: “Our long-term outlook for Agency RMBS is favorable…demand to strengthen in higher coupons…eventual decline in interest rate volatility, and a steeper yield curve.”

Q&A Highlights

Leverage management: Reduced leverage by ~0.5x in April amid policy uncertainty; allow some drift but act near high end of range .
Hedge ratio and mix: Raised hedge ratio in April; maintain 20–30% Treasury futures share to mitigate swap spread risk .
Dividend coverage: After reduction to $0.34, management stated dividend is “comfortably covering” and supported by current ROEs .
Returns and spreads: Higher coupon Agency RMBS offering low-20s levered ROEs; spreads attractive vs swaps; cautious stance given potential fewer Fed cuts .
Credit exposure: Exited remaining credit investments; portfolio now 100% agency; not adding commercial credit near term .

Estimates Context

EPS: Primary EPS consensus for Q1 2025 was $0.573 vs EAD per share of $0.64, a clear beat likely to prompt modest upward revisions to forward EAD expectations (bolded in table above)*.
Revenue: S&P Global “Revenue” consensus was $45.15M vs reported “actual” $24.30M*, but company-reported total interest income was $73.85M; differences reflect classification nuances for mortgage REITs, so revenue surprises should be interpreted cautiously .

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

Q1 was operationally solid: higher EAD ($0.64) and improved net interest margin backed the dividend cut, yielding a positive 2.6% economic return despite BV pressure .
April’s macro shock (tariffs, volatility, swap spread tightening) drove a temporary BV drawdown (to $7.74–$8.06) and prompted defensive actions (leverage to ~6.4x, higher hedge ratio); early May stabilization lifted BV ~1% per management .
Strategic mix remains consistent: 83.7% Agency RMBS / 15.0% Agency CMBS, focused on higher coupons and specified pools with favorable prepayment characteristics .
Funding and cost improvements continue: average cost of funds fell to 4.46% (from 5.13%), supporting net interest income growth to $18.8M q/q .
Near-term stance: cautious on policy-driven volatility; medium-term constructive as a steeper curve and moderating volatility should support Agency RMBS demand (banks, overseas, REITs) .
EPS beat vs consensus may be a catalyst for EAD-driven estimate revisions; revenue “miss” vs SPGI is not directly comparable given mREIT reporting differences (S&P Global disclaimer)* .
Watch catalysts: tariff policy developments, swap spread normalization, bank demand, and dividend actions; management’s proactive risk controls and hedge adjustments are aimed at dampening BV volatility .

Invesco Mortgage Capital Inc. (IVR)·Q1 2025 Earnings Summary