Executive Summary

Q2 2025 results were mixed: Earnings available for distribution (EAD) per share was $0.58, slightly above Wall Street consensus of $0.573*, while GAAP EPS was a net loss of $0.40 due to negative marks on derivatives as swap spreads tightened *.
Book value per common share fell to $8.05 (down $0.76 QoQ), driving an economic return of (4.8)% in the quarter; debt-to-equity was reduced to 6.5x from 7.1x to adopt a more defensive posture .
Management highlighted tariff-related volatility in early April and notably tighter swap spreads as primary drivers of the book value decline, but noted an intra-quarter BVPS recovery estimate to $7.99–$8.31 as of July 18, 2025 .
Dividend was maintained at $0.34 per share, supported by attractive levered ROEs on higher-coupon Agency RMBS and stable repo financing; stock catalysts include swap-spread normalization, Fed easing, and bank demand for MBS later in 2025–2026 .

What Went Well and What Went Wrong

What Went Well

EAD remained resilient at $38.2m ($0.58 per share), with effective interest rate margin expanding to 3.44% from 3.27% QoQ, reflecting strong carry despite market volatility .
Liquidity and funding stable: Management maintained $362m of unrestricted cash and unencumbered investments, and repo capacity stayed robust with haircuts unchanged and spreads at SOFR +15–18 bps (per call commentary) .
Strategic positioning in higher-coupon specified pools; management expects long-term favorable demand with a steeper curve and stabilizing rate vol: “our longer-term outlook for [Agency RMBS] is favorable… demand to strengthen in higher coupons… steeper yield curve” (CEO) .

What Went Wrong

Book value per share fell $0.76 QoQ to $8.05, producing an economic return of (4.8)%; management cited swap-spread tightening and tariff-driven volatility as key headwinds .
GAAP results swung to a net loss attributable to common of $(26.6)m (EPS $(0.40)), driven by negative marks on derivative instruments (realized and unrealized losses) and investment losses .
Agency RMBS underperformed early April and swap hedges detracted: “valuations on our interest rate swap hedges were negatively impacted… swap spreads notably tighter” (CEO); CIO added the swap-spread tightening hurt book value despite RMBS’ modest outperformance versus Treasuries later in the quarter .

Financial Results

Income, EPS, Book Value, Leverage

Metric	Q2 2024	Q1 2025	Q2 2025
Interest income ($USD Millions)	$68.028	$73.846	$70.624
Interest expense ($USD Millions)	$59.393	$55.025	$52.895
Net interest income ($USD Millions)	$8.635	$18.821	$17.729
Net income (loss) to common ($USD Millions)	$(18.766)	$16.289	$(26.567)
GAAP EPS (Basic, $)	$(0.38)	$0.26	$(0.40)
EAD per share (Non-GAAP, $)	$0.86	$0.64	$0.58
Book value per common share ($)	N/A	$8.81	$8.05
Debt-to-equity (x)	N/A	7.1x	6.5x

Margins and Cost of Funds

Metric	Q2 2024	Q1 2025	Q2 2025
Average earning asset yield (%)	5.61%	5.45%	5.56%
Average cost of funds (%)	5.59%	4.46%	4.62%
Average net interest rate margin (%)	0.02%	0.99%	0.94%
Effective cost of funds (%)	1.52%	2.18%	2.12%
Effective interest rate margin (%)	4.09%	3.27%	3.44%

Versus Wall Street Consensus (S&P Global)

Metric	Actual Q2 2025	Consensus Q2 2025	Surprise
Primary EPS ($)	0.58	0.57305*	+$0.00695 (beat)
Revenue ($USD Millions)	$(18.455)*	$46.211*	$(64.666) (miss)

Values retrieved from S&P Global. An apparent revenue “miss” reflects IVR’s GAAP revenue construct where “Revenue” includes net interest income plus net losses on investments and derivatives; Q2 recorded $(36.184)m “total other income (loss)”, which, combined with $17.729m net interest income, yields negative total revenue .

Segment/Portfolio Composition

Segment	Q1 2025 Fair Value ($USD Thousands)	Q1 2025 % Portfolio	Q2 2025 Fair Value ($USD Thousands)	Q2 2025 % Portfolio	Period-end WA Yield (%)
30Y Agency RMBS (all pass-through)	4,974,663	83.7%	4,222,203	81.4%	5.61% (Q1) / 5.58% (Q2)
Agency CMBS	890,372	15.0%	891,521	17.2%	4.62%
Agency CMO	73,539	1.2%	71,835	1.4%	~10%
Total MBS	5,945,789	100.0%	5,185,559	100.0%	5.51% (Q1) / 5.46% (Q2)

Key Performance Indicators (KPIs)

KPI	Q1 2025	Q2 2025
Effective net interest income ($USD Millions)	$46.900	$46.360
EAD ($USD Millions)	$40.047	$38.191
Dividend per common share ($)	$0.34	$0.34
Liquidity (Unrestricted cash + unencumbered investments, $USD Millions)	$372 (Q1 end)	$362 (Q2 end)
Repurchase agreements outstanding ($USD Thousands)	5,354,561	4,635,881
Interest rate swaps notional ($USD Thousands)	3,640,000	3,505,000
U.S. Treasury futures notional short ($USD Thousands)	902,500	830,000
Debt-to-equity (x)	7.1x	6.5x

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance/Update	Change
Common dividend per share ($)	Q2 2025	$0.34 (Q1 precedent)	$0.34 (declared June 24; paid July 25)	Maintained
Book value per share (estimate)	Q3-to-date (as of Jul 18, 2025)	$8.05 at Q2 end	$7.99–$8.31 intra-quarter estimate	Update (range given)
Leverage stance (Debt-to-equity)	Ongoing	7.1x (Q1)	6.5x (Q2); more defensive posture	Lowered
Formal revenue/expense guidance	FY/Q3	None	None	N/A

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2024)	Previous Mentions (Q1 2025)	Current Period (Q2 2025)	Trend
Tariffs/macro volatility	Cautious on shifting monetary/fiscal policy; elevated rate vol	Negative market reaction to fiscal/trade policies; BVPS estimated lower as of Apr 30	Tariff announcements triggered April spike in rate vol; 90-day pause led to recovery	Volatility spiked then moderated; cautious near term
Swap spreads	Increased use of Treasury futures to reduce swap-spread exposure	Stable funding; swaps/futures mix evolving	Swap spreads tightened materially, hurting hedge returns; management expects eventual widening	Tightened in Q2; expected to widen
Leverage posture	Increased to 6.7x (capital structure changes)	7.1x at Q1-end	Reduced to 6.5x; “modestly more defensive posture”	Lower leverage into uncertainty
Funding/repo markets	Robust; haircuts unchanged	Robust; repo spreads SOFR+15–18 bps (slides/call)	Funding remained stable; capacity robust	Stable/robust
Asset allocation: Agency RMBS vs CMBS	RMBS underperformed; CMBS premiums improved	Portfolio ~85% RMBS/15% CMBS; higher coupons favored	RMBS reduced; CMBS share rose to 17.2%; prefer specified pools over TBAs	Incremental tilt toward CMBS; remain RMBS-focused
Bank demand for MBS	N/A	Long-term RMBS outlook favorable; expect demand as vol declines/curve steepens	Expect bank demand to increase in H2 amid deregulation and a steeper curve	Improving later 2025

Management Commentary

CEO: “These factors resulted in an economic return for the quarter of (4.8)%, consisting of our $0.34 dividend per common share and a $0.76 decline in book value per common share.”
CEO: “As of July 18, 2025, we estimate book value per common share to be between $7.99 and $8.31… Although our near-term outlook for Agency RMBS remains cautious, our longer-term outlook… is favorable.”
CIO: “Our allocation to interest rate swaps negatively impacted book value during the second quarter as… swap spreads… tightened… we estimate our book value per share to be up a little more than 1% since the end of the second quarter.”
CIO: “We prefer specified pools over TBA given more attractive and stable funding and a more predictable prepayment behavior.”

Q&A Highlights

High-coupon RMBS positioning: CIO described risk-reward across 5.5–6.0% coupons, reduced 6.5% exposure to manage prepayment/volatility risk; emphasized specified pools (low loan balance stories) for protection .
Leverage philosophy: Comfortable at current 6.5x; focus on carry covering dividend; leverage could increase when Fed cuts and rate vol declines but balanced against book value sensitivity .
Swap spreads and hedge mix: Currently near max allocation to swaps; expect spreads to widen over time; would rotate toward Treasury futures as environment normalizes .
Carry vs total return: Team leaning toward carry until more clarity on monetary policy and tariff impact; limited scope for major spread tightening near term .
Agency CMBS: Financing robust even through April volatility; spreads likely to tighten alongside RMBS when Fed eases; position is levered consistent with broader book .

Estimates Context

EPS: EAD per share of $0.58 slightly exceeded consensus $0.57305, reflecting stable effective net interest income and carry from swaps despite market volatility (significant beat/miss not observed)* .
Revenue: Reported “Revenue” (SPGI construct including net interest income plus valuation/derivative impacts) was negative $(18.455)m vs consensus $46.211m*, driven by $(36.184)m “total other income (loss)” and lower net interest income QoQ; highlights sensitivity to swap spreads/hedge marks rather than core carry *.
Implication: Street EAD/core metrics likely remain anchored; GAAP revenue volatility from hedge marks suggests limited read-through to dividend capacity, which management indicated remains supported by attractive ROEs and stable funding .

Values retrieved from S&P Global.

Key Takeaways for Investors

EAD/Cash earnings held up: $0.58 EAD/share with improved effective margin to 3.44% supports maintained $0.34 dividend, even as GAAP results were pressured by swap-spread marks .
Risk management tightened: Leverage cut to 6.5x and RMBS exposure reduced; expect measured redeployment as Fed easing and vol decline create better entry points .
Hedge dynamics are the swing factor: Swap-spread normalization is a potential tailwind for book value/GAAP prints; near-term volatility remains a watch item .
Asset mix diversification: CMBS allocation increased to 17.2% with robust financing; provides prepayment protection and fixed maturities to offset RMBS rate-vol sensitivity .
Liquidity strong: $362m in cash/unencumbered assets provides cushion for stress and optionality for opportunistic buys .
Macro catalysts: Tariff implementation path, Fed cuts (two in 2025, further in 2026 per management view), and bank demand resurgence could tighten spreads and boost total returns .
Trading setup: Near-term narrative centered on carry stability vs hedge-mark volatility; monitor swap spreads and BVPS updates; positive prints on BVPS and spread tightening likely stock catalysts .

Sources

Q2 2025 8-K 2.02 press release and exhibits .
Q2 2025 earnings call transcript .
Q2 2025 press release (PRNewswire) .
Q1 2025 press release (PRNewswire) .
Q2 dividend announcement PR .
Q4 2024 8-K press release and exhibits .

Values retrieved from S&P Global for estimates.

Invesco Mortgage Capital Inc. (IVR)·Q2 2025 Earnings Summary