Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Information

Certain statements contained in this Form 10-Q are "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and currently available information. However, since these statements are based on factors that involve risks and uncertainties, our performance and results may differ materially from those described or implied by such forward-looking statements. Words such as "believe," "anticipate," "expect," "estimate," "project," "should," "intend," "will," "may" or words or phrases of similar meaning are intended to identify forward-looking statements. We caution that the forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause actual results to differ materially from those in the forward-looking statements, including, without limitation, the risk factors set forth in "Part II. Other Information - Item 1A. Risk Factors" and "Item 1A. Risk Factors" of our Annual Report on Form 10-K ("Form 10-K") for the fiscal year ended March 31, 2026 ("fiscal 2026"), including the following:

 Changes in general business, economic, and geopolitical conditions, including trade policy, as well as in consumer demand and the competitive environment in the automotive markets in the United States;

 Changes in interest rates and credit spreads;

 A decline in Toyota Motor North America, Inc. ("TMNA") sales volume and the level of TMNA sponsored subvention, cash, and contractual residual value support incentive programs;

 Extreme weather conditions, natural disasters, changes in fuel prices, manufacturing disruptions and production suspensions of Toyota and Lexus vehicles and related parts supply;

 Increased competition from other financial institutions seeking to increase their share of financing Toyota and Lexus vehicles;

 Changes in consumer behavior;

 Recalls announced by TMNA or private label companies and the perceived quality of Toyota, Lexus, and any private label vehicles;

 Availability and cost of financing;

 Failure or interruption in our operations, including our communications and information systems, or as a result of our failure to retain existing or to attract new key personnel;

 Increased cost, credit and operating risk exposure, or our failure to realize the anticipated benefits, from our private label financial services to third-party automotive and mobility companies;

 Changes in our credit ratings and those of our ultimate parent, Toyota Motor Corporation ("TMC") and changes in our credit support arrangements;

 Changes in our financial position and liquidity, or changes or disruptions in our funding sources or access to the global capital markets;

 Adequacy of our allowance for credit losses;

 Adequacy of our design, implementation and use of quantitative models and adequacy of the estimates and assumptions that are used to determine the value of certain assets;

 Fluctuations in the value or market prices of our investment securities;

 Changes in prices of used vehicles and their effect on residual values of our off-lease vehicles and return rates;

 Failure of our customers or dealers to meet the terms of any contract with us, or otherwise perform as agreed;

 Market risks including changes in interest rates and foreign currency exchange rates and market prices;

 Failure or changes in commercial soundness of our counterparties and other financial institutions;

 Insufficient establishment of reserves, or the failure of a reinsurer to meet its obligations, in our voluntary protection operations;

 A security breach or a cyber-attack;

 Failure to maintain compliant enterprise data practices, including the collection, use, sharing, and security of personally identifiable and financial information of our customers and employees;

 Compliance with current laws and regulations or becoming subject to more stringent laws, regulatory requirements and regulatory scrutiny; and

 Changes in the economies and applicable laws in the states where we have concentration risk.

Forward-looking statements speak only as of the date they are made. We will not update the forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking statements.

OVERVIEW

Key Performance Indicators and Factors Affecting Our Business

In our finance operations, we generate revenue, income, and cash flows by providing retail, lease, and dealer financing to dealers and their customers. We measure the performance of our finance operations using the following metrics: financing volume, market share, Net financing revenues, Operating and administrative expense, residual value and credit loss metrics.

In our voluntary protection operations, we generate revenue primarily through underwriting and providing claims administration for products that cover certain risks of customers. We measure the performance of our voluntary protection operations using the following metrics: issued contract volume, average number of contracts in force, loss metrics and investment income.

Our financial results are affected by a variety of economic and industry factors including, but not limited to, new and used vehicle markets, Toyota, Lexus, and private label new vehicle production volume, vehicle inventory levels, vehicle sales and incentive programs, consumer behavior, employment levels, our ability to respond to changes in inflation and interest rates with respect to both contract pricing and funding, the actual or perceived quality, safety or reliability of Toyota, Lexus, and private label vehicles, the financial health of the dealers we finance, and competitive pressure. Our financial results may also be affected by the regulatory environment in which we operate, including as a result of new legislation or changes in regulation and any compliance costs or changes we may be required to make to our business practices. All of these factors can influence consumer contract and dealer financing volume, the number of consumer contracts and dealers that default and the loss per occurrence, our inability to realize originally estimated contractual residual values on leased vehicles, the volume and performance of our voluntary protection operations, and our Net financing revenues on consumer and dealer financing volume. Changes in the volume of vehicle sales, sales of our voluntary protection products, or the level of voluntary protection expenses and insurance losses could materially and adversely impact our voluntary protection operations. Additionally, our funding programs and related costs are influenced by changes in the global capital markets, prevailing interest rates, and our credit ratings and those of our parent companies, which may affect our ability to obtain cost-effective funding to support earning asset growth.

Fiscal 2027 First Three Months Operating Environment

During the first quarter of the fiscal year ending March 31, 2027 ("fiscal 2027"), the U.S. economy continued to experience uncertainties surrounding geopolitical events (including the current conflict in the Middle East), international trade policy, taxation policy, and the future path of monetary policy which impact the outlook for future economic growth. The continued imposition of elevated tariffs and import fees imposed by the U.S. and other governments could continue to disrupt supply chains, increase costs, and limit market access, further complicating the economic outlook. Automotive industry specific tariffs in the U.S. could continue to impact costs of automotive suppliers and manufacturers, which may continue to change levels of production and availability of new vehicles, as well as increase consumer costs and lower consumer demand. Changes in the economy that adversely impact the volume of Toyota and Lexus vehicles produced or sold in the U.S. could have a material adverse effect on our business, results of operations, and financial condition.

Industry-wide vehicle sales and sales incentives in the U.S. increased slightly during the first quarter of fiscal 2027, as compared to the same period in fiscal 2026. Our market share of TMNA sales increased approximately 4 percentage points for the first quarter of fiscal 2027, compared to the same period in fiscal 2026, primarily due to higher levels of subvention and other incentive programs.

Average used vehicle values during the first quarter of fiscal 2027 increased compared to the same period in fiscal 2026.

Global capital markets were generally stable during the first quarter of fiscal 2027, despite uncertainty about the future path of U.S. monetary policy and the conflict in the Middle East. We continue to maintain broad global access to both domestic and international markets. Future disruptions and changes in interest rates in the U.S. and foreign markets could result in volatility in our interest expense, which could affect our results of operations.

RESULTS OF OPERATIONS

The following table summarizes total net income by our reportable operating segments:

1 Refer to Note 13 - Segment Information of the Notes to Consolidated Financial Statements for the total asset balances of our finance and voluntary protection operations.

Our consolidated net income was $837 million for the first quarter of fiscal 2027, compared to $812 million for the same period in fiscal 2026.

The increase in net income for the first quarter of fiscal 2027, compared to the same period in fiscal 2026, was primarily due to a $68 million decrease in interest expense, a $62 million increase in investment and other income, net, a $28 million increase in voluntary protection contract revenues and insurance earned premiums, and a $16 million decrease in provision for credit losses, partially offset by an $82 million increase in operating and administrative expense, a $25 million increase in voluntary protection contract expenses and insurance losses, a $24 million increase in depreciation on operating leases, and a $15 million increase in provision for income taxes.

Our overall capital position increased $835 million, bringing total shareholder's equity to $18.7 billion at June 30, 2026 as compared to $17.8 billion at March 31, 2026. Our debt decreased to $123.5 billion at June 30, 2026 from $125.2 billion at March 31, 2026. Our debt-to-equity ratio decreased to 6.6 at June 30, 2026 from 7.0 at March 31, 2026.

Finance Operations

The following table summarizes key results of our Finance Operations:

Our finance operations reported net income of $604 million for the first quarter of fiscal 2027, compared to $641 million for the same period in fiscal 2026.

The decrease in net income from finance operations for the first quarter of fiscal 2027, compared to the same period in fiscal 2026 was primarily due to an $84 million increase in operating and administrative expenses, a $24 million increase in depreciation on operating leases, and a $12 million decrease in investment and other income, net, partially offset by a $65 million decrease in interest expense and a $16 million decrease in provision for credit losses.

Financing Revenues

Total financing revenues remained relatively consistent during the first quarter of fiscal 2027 compared to the same period in fiscal 2026 due to the following:

As a result of the above, our total portfolio yield, which includes operating lease, retail and dealer financing revenues, was 6.9 percent for the first quarter of fiscal 2027, compared to 7.0 percent for the same period in fiscal 2026.

Depreciation on Operating Leases

We recorded depreciation on operating leases of $1.0 billion for the first quarter of both fiscal 2027 and 2026. The slight increase in depreciation on operating leases for the first quarter of fiscal 2027, compared to the same period in fiscal 2026, was primarily due to higher residual value losses.

Declines in used vehicle values resulting from increases in the supply of new vehicles and increases in new vehicle sales incentives could unfavorably impact return rates, residual values, and depreciation expense in the future.

Interest Expense

Our liabilities consist mainly of fixed and variable rate debt, denominated in U.S. dollars and various other currencies, which we issue in the global capital markets, while our assets consist primarily of U.S. dollar denominated, fixed rate receivables. We enter into interest rate swaps and foreign currency swaps to economically hedge the interest rate and foreign currency risks that result from the different characteristics of our assets and liabilities. The following table summarizes the components of interest expense:

During the first quarter of fiscal 2027, total interest expense decreased to $1.2 billion from $1.3 billion for the same period in fiscal 2026, due to net gains on U.S. dollar interest rate swaps and a decrease in interest expense on debt and derivatives, partially offset by a decrease in gains on foreign currency debt and swaps.

Interest expense on debt and derivatives for the first quarter of fiscal 2027 remained relatively consistent compared to fiscal 2026. Changes in interest expense on debt and derivatives are primarily attributable to changes in interest rates. Gains or losses on U.S. dollar interest rate swaps and foreign currency debt and swaps are primarily driven by changes in the valuation of the swaps.

Future changes in interest and foreign currency exchange rates could continue to result in significant volatility in our interest expense, thereby affecting our results of operations.

Investment and Other Income, Net

We recorded investment and other income, net of $160 million for the first quarter of fiscal 2027, compared to $172 million for the same period in fiscal 2026. The decrease in investment and other income, net for the first quarter of fiscal 2027, compared to the same period in fiscal 2026, was primarily due to lower average balances on our cash and cash equivalents, partially offset by higher affiliate service fee revenue and higher affiliate note receivable balances.

Provision for Credit Losses

We recorded a provision for credit losses of $29 million for the first quarter of fiscal 2027, compared to $45 million for the same period in fiscal 2026. The decrease in the provision for credit losses for the first quarter of fiscal 2027, compared to the same period in fiscal 2026, was primarily due to a refinement of purchasing practices which has improved the overall quality of our portfolio.

Operating and Administrative Expenses

We recorded operating and administrative expenses of $397 million for the first quarter of fiscal 2027, compared to $313 million for the same period in fiscal 2026. The increase in operating and administrative expenses for the first quarter of fiscal 2027 compared to the same period in fiscal 2026, was due to higher technology and employee expenses.

Voluntary Protection Operations

The following table summarizes key results of our Voluntary Protection Operations:

Our voluntary protection operations reported net income of $233 million for the first quarter of fiscal 2027, compared to $171 million for the same period in fiscal 2026.

The increase in net income from voluntary protection operations for the first quarter of fiscal 2027, compared to the same period in fiscal 2026, was primarily due to a $77 million increase in investment and other income, net and a $28 million increase in voluntary protection contract revenues and insurance earned premiums, partially offset by a $25 million increase in voluntary protection contract expenses and insurance losses and a $20 million increase in provision for income taxes.

Contracts issued increased 4 percent for the first quarter of fiscal 2027, compared to the same period in fiscal 2026, primarily due to higher issuances in prepaid maintenance and guaranteed auto protection contracts. The average number of contracts in force increased 5 percent for the first quarter of fiscal 2027, compared to the same period in fiscal 2026, due to net growth in the voluntary protection product portfolio most notably in prepaid maintenance contracts, certified pre-owned vehicle limited warranties, and vehicle service contracts.

Revenue from Voluntary Protection Operations

Our voluntary protection operations reported voluntary protection contract revenues and insurance earned premiums of $348 million for the first quarter of fiscal 2027, compared to $320 million for the same period in fiscal 2026. Voluntary protection contract revenues and insurance earned premiums represent revenues from in force contracts and are affected by issuances as well as the level of coverage, age, and mix of in force contracts. Voluntary protection contract revenues and insurance earned premiums are recognized over the term of the contracts in relation to the timing and level of anticipated claims. The increase in voluntary protection contract revenues and insurance earned premiums for the first quarter of fiscal 2027, compared to the same period in fiscal 2026, was primarily due to an increase in our average in force contracts resulting from net growth in the voluntary protection portfolio.

Investment and Other (Loss) Income, Net

Our voluntary protection operations reported investment and other income, net of $267 million for the first quarter of fiscal 2027, compared to investment and other income, net of $190 million for the same period in fiscal 2026. Investment and other income, net, consists primarily of dividend and interest income, realized gains and losses on investments in marketable securities, changes in fair value from equity and available-for-sale debt securities for which the fair value option was elected, and credit loss expense on available-for-sale debt securities, if any. The increase in investment and other income, net for the first quarter of fiscal 2027, compared to the same period in fiscal 2026, was primarily due to higher gains from changes in fair value on our equity investments as a result of market volatility.

Voluntary Protection Contract Expenses and Insurance Losses

Our voluntary protection operations reported voluntary protection contract expenses and insurance losses of $199 million for the first quarter of fiscal 2027, compared to $174 million for the same period in fiscal 2026. Voluntary protection contract expenses and insurance losses incurred are a function of the amount of covered risks, the frequency and severity of claims associated with in force contracts, and the level of risk retained by our voluntary protection operations. Voluntary protection contract expenses and insurance losses include amounts paid and accrued for reported losses, estimates of losses incurred but not reported, and any related claim adjustment expenses. The increase in voluntary protection contract expenses and insurance losses for the first quarter of fiscal 2027, compared to the same period in fiscal 2026, was primarily due to an increase in frequency and severity of claims in our prepaid maintenance and vehicle service contracts.

Operating and Administrative Expenses

Our voluntary protection operations reported operating and administrative expenses of $112 million for the first quarter of fiscal 2027, compared to $114 million for the same period in fiscal 2026.

Provision for Income Taxes

Our provision for income taxes was $268 million for the first quarter of fiscal 2027, compared to $253 million for the same period in fiscal 2026. Our effective tax rate was 24 percent for both the first quarter of fiscal 2027, as well as for the same period in fiscal 2026. The change in the provision for income taxes for the first quarter of fiscal 2027, compared to the same period in fiscal 2026 was primarily due to the increase in income before income taxes.

FINANCIAL CONDITION

Vehicle Financing Volume and Net Earning Assets

The composition of our vehicle contract volume and market share is summarized below:

Vehicle Financing Volume

The volume of our retail and lease contracts, which are acquired primarily from Toyota, Lexus, and private label dealers, is dependent upon TMNA and private label sales volume, the level of TMNA, private label, and third-party sponsored subvention and other incentive programs, as well as TMCC competitive rate and other incentive programs.

Our financing volume increased 14 percent for the first quarter of fiscal 2027, compared to the same period in fiscal 2026, due to higher levels of subvention and other incentive programs as well as refinement of contract pricing.

Our market share of TMNA sales increased approximately 4 percentage points for the first quarter of fiscal 2027, compared to the same period in fiscal 2026 due to higher levels of subvention and other incentive programs.

The composition of our net earning assets is summarized below:

1 Includes wholesale and other credit arrangements in which we participate as part of a syndicate of lenders.

Retail Contract Volume and Earning Assets

Our new retail contract volume increased 16 percent for the first quarter of fiscal 2027, compared to the same period in fiscal 2026, primarily due to the higher levels of subvention and other incentive programs.

Our used retail contracts increased 30 percent for the first quarter of fiscal 2027, compared to the same period in fiscal 2026, primarily due to refinement of contract pricing.

Our retail finance receivables, net, were relatively consistent at June 30, 2026, as compared to March 31, 2026.

Lease Contract Volume and Earning Assets

Our lease contract volume decreased 4 percent for the first quarter of fiscal 2027, compared to the same period in fiscal 2026, primarily due to consumer preference for retail contracts. Our investments in operating leases, net, were relatively consistent at June 30, 2026, compared to March 31, 2026.

Dealer Financing and Earning Assets

Dealer financing, net increased 3 percent at June 30, 2026, as compared to March 31, 2026, due to an increase in wholesale and working capital.

Residual Value Risk

The primary factors affecting our exposure to residual value risk are the levels at which residual values are established at lease inception, current economic conditions and outlook, projected end-of-term market values, and the resulting impact on depreciation expense and lease return rates. Higher average operating lease units outstanding and the resulting increase in future maturities, a higher supply of used vehicles, as well as future deterioration in actual and expected used vehicle values for Toyota, Lexus, and private label vehicles could unfavorably impact return rates, residual values, and depreciation expense.

On a quarterly basis, we review the estimated end-of-term market values of leased vehicles to assess the appropriateness of our carrying values. To the extent the estimated end-of-term market value of a leased vehicle is lower than the residual value established at lease inception, the residual value of the leased vehicle is adjusted downward so that the carrying value at lease end will approximate the estimated end-of-term market value. For investments in operating leases, adjustments are made on a straight-line basis over the remaining terms of the lease contracts and are included in Depreciation on operating leases in our Consolidated Statements of Income as a change in accounting estimate.

Depreciation on Operating Leases

Depreciation on operating leases and average operating lease units outstanding are as follows:

Depreciation expense on operating leases increased 2 percent for the first quarter of fiscal 2027, compared to the same period in fiscal 2026 primarily due to higher residual value losses.

Declines in used vehicle values resulting from increases in the supply of new vehicles and increases in new vehicle sales incentives could unfavorably impact return rates, residual values, and depreciation expense in the future.

Consumer Origination, Credit Loss, and Delinquency Experience

Our credit loss experience may be affected by a number of factors including the economic environment, our purchasing, servicing and collections practices, used vehicle market conditions and subvention. Changes in the economy that impact the consumer such as increasing interest rates, and a rise in the unemployment rate as well as higher debt balances, coupled with deterioration in actual and expected used vehicle values, could increase our credit losses. In addition, a decline in the effectiveness of our collection practices could also increase our credit losses. We continuously evaluate and refine our purchasing practices and collection efforts to optimally manage credit risk. In addition, subvention contributes to our overall portfolio quality, as subvened contracts typically have higher credit scores than non-subvened contracts.

The following table provides information related to our origination experience:

1 Retail loan origination greater than or equal to 78 months was 11% as of June 30, 2026, March 31, 2026, and June 30, 2025.

While we have included the average origination FICO score to illustrate origination trends, we also use a proprietary credit scoring system to evaluate an applicant's risk profile. Refer to Part I. Item 1. Business "Finance Operations" in our fiscal 2026 Form 10-K for further discussion of the proprietary manner in which we evaluate risk.

The following table provides information related to our consumer finance receivables and investment in operating leases:

1 The ratio for net charge-offs have been annualized using three-month results for the periods ended June 30, 2026 and 2025. Net charge-off includes the write-offs of accounts deemed to be uncollectable and accounts greater than 120 days past due.

2 Average loss per unit upon disposition of repossessed vehicles or charge-off prior to repossession.

3 Substantially all retail receivables do not involve recourse to the dealer in the event of customer default.

4 Includes accounts in bankruptcy and excludes accounts for which vehicles have been repossessed.

Our net charge-offs as a percentage of average finance receivables for the first quarter of fiscal 2027 increased to 0.76 percent from 0.72 percent for the same period in fiscal 2026. Our average finance receivables loss severity per unit for the first quarter of fiscal 2027 increased to $13,503 from $13,103 in the same period in fiscal 2026. The increases in net charge-offs and loss severity per unit were due to higher average amounts financed and higher delinquencies.

Our aggregate balances for accounts 60 or more days past due as a percentage of finance receivables was 0.83 percent at June 30, 2026, compared to 0.77 percent at June 30, 2025. Our aggregate balances for accounts 60 or more days past due as a percentage of operating leases was 0.38 percent at June 30, 2026, compared to 0.36 percent at June 30, 2025. The economic conditions, including consumer price increases, have negatively impacted some consumers ability to make scheduled payments which has resulted in an increase in consumer delinquencies and charge-offs.

Allowance for Credit Losses

We maintain an allowance for credit losses which is measured by an impairment model that reflects lifetime expected losses.

The allowance for credit losses for our retail loan portfolio is measured on a collective basis when loans have similar risk characteristics such as loan-to-value ratio, book payment-to-income ratio, FICO score at origination, collateral type (new or used, Lexus, Toyota, or private label), contract term, and other relevant factors. We use statistical models to estimate lifetime expected credit losses of our retail loan portfolio segment by applying probability of default and loss given default to the exposure at default on a loan level basis. Probability of default models are developed from internal risk scoring models which consider variables such as delinquency status, historical default frequency, and other credit quality indicators. Other credit quality indicators include loan-to-value ratio, book payment-to-income ratio, FICO score at origination, collateral type, and contract term. Loss given default models forecast the extent of losses given that a default has occurred and consider variables such as collateral, trends in recoveries, historical loss severity, and other contract structure variables. Exposure at default represents the expected outstanding principal balance, including the effects of expected prepayment when applicable. The lifetime expected credit losses incorporate the probability-weighted forward-looking macroeconomic forecasts for baseline, favorable, and adverse scenarios. The loan lifetime is regarded by management as the reasonable and supportable period. We use macroeconomic forecasts from a third party and update such forecasts quarterly. On an ongoing basis, we review our models, including macroeconomic factors, the selection of macroeconomic scenarios and their weighting to ensure they reflect the risk of the portfolio.

For the allowance for credit losses for our dealer portfolio, an allowance for credit losses is established for both outstanding dealer finance receivables and certain unfunded off-balance sheet lending commitments. The allowance for credit losses is measured on a collective basis when loans have similar risk characteristics such as dealer group internal risk rating and loan-to-value ratios. We measure lifetime expected credit losses of our dealer products portfolio segment by applying probability of default and loss given default to the exposure at default on a loan level basis. Probability of default is primarily established based on internal risk assessments. Loss given default is established based on the nature and market value of the collateral, loan-to-value ratios and other credit quality indicators. The probability of default model and applicable loss given default models also consider qualitative factors related to macroeconomic outlooks. Exposure at default represents the expected outstanding principal balance. The lifetime of the loan or lending commitment is regarded by management as the reasonable and supportable period. On an ongoing basis, we review our models and the macroeconomic outlook, to ensure they reflect the risk of the portfolio.

If management does not believe the models adequately reflect lifetime expected credit losses, a qualitative adjustment is made to reflect management judgment regarding observable changes in recent or expected economic trends and conditions, portfolio composition, and other relevant factors.

The following table provides information related to our allowance for credit losses for finance receivables and certain off-balance sheet lending commitments:

1 Ending balances as of June 30, 2026 and 2025 include $30 million and $69 million, respectively, of allowance for credit losses recorded in Other liabilities on the Consolidated Balance Sheets which is related to off-balance-sheet lending commitments.

Our allowance for credit losses decreased by $194 million from June 30, 2025 to June 30, 2026, primarily due to a refinement of purchasing practices which has improved the overall quality of our portfolio.

Future changes in the economy that impact the consumer and consumer confidence such as increasing interest rates and a rise in the unemployment rate as well as higher debt balances, coupled with deterioration in actual and expected used vehicle values, could result in further increases to our allowance for credit losses. In addition, a decline in the effectiveness of our collection practices could also increase our allowance for credit losses.

LIQUIDITY AND CAPITAL RESOURCES

Cash Requirements

Our primary material cash requirements include the acquisition of finance receivables and investment in operating leases from dealers, providing various financing to dealers, payments related to debt and swaps, operating expenses, voluntary protection contract expenses, income taxes, and dividend payments.

Guarantees

TMCC has guaranteed the payments of principal and interest with respect to the bond obligations that were issued by Putnam County, West Virginia and Gibson County, Indiana to finance the construction of pollution control facilities at manufacturing plants of certain TMCC affiliates. Refer to Note 9 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for further discussion.

Commitments

A description of our lending commitments is included under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources" and Note 12 - Related Party Transactions of the Notes to Consolidated Financial Statements in our fiscal 2026 Form 10-K, as well as in Note 9 - Commitments and Contingencies of the Notes to Consolidated Financial Statements.

Indemnification

Refer to Note 9 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for a description of agreements containing indemnification provisions.

Liquidity

Liquidity risk is the risk relating to our ability to meet our financial obligations when they come due. Our liquidity strategy is to ensure that we maintain the ability to fund assets and repay liabilities in a timely and cost-effective manner, even in adverse market conditions. Our strategy includes raising funds via the global capital markets and through loans, credit facilities, and other transactions as well as generating liquidity from our earning assets. This strategy has led us to develop a diversified borrowing base that is distributed across a variety of markets, geographies, investors, and financing structures.

Liquidity management involves forecasting and maintaining sufficient capacity to meet our cash needs, including unanticipated events. To ensure adequate liquidity through a full range of potential operating environments and market conditions, we conduct our liquidity management and business activities in a manner that will preserve and enhance funding stability, flexibility and diversity. Key components of this operating strategy include a strong focus on developing and maintaining direct relationships with commercial paper investors and wholesale market funding providers and maintaining the ability to sell certain assets when and if conditions warrant.

We develop and maintain contingency funding plans and regularly evaluate our liquidity position under various operating circumstances, allowing us to assess how we will be able to operate through a period of stress when access to normal sources of capital is constrained. The plans project funding requirements during a potential period of stress, specify and quantify sources of liquidity, and outline actions and procedures for effectively managing through the problem period. In addition, we monitor the ratings and credit exposure of the lenders that participate in our credit facilities to ascertain any issues that may arise with potential draws on these facilities if that contingency becomes warranted.

We maintain broad access to a variety of domestic and global markets and may choose to realign our funding activities depending upon market conditions, relative costs, and other factors. We believe that our funding sources, combined with operating and investing activities, provide sufficient liquidity to meet future funding requirements and business growth. For liquidity purposes, we hold cash in excess of our immediate funding needs. These excess funds are invested in short-term, highly liquid and investment grade money market instruments, which provide liquidity for our short-term funding needs and flexibility in the use of our other funding sources. We maintained excess funds ranging from $5.2 billion to $12.7 billion with an average balance of $8.0 billion during the quarter ended June 30, 2026. The amount of excess funds we hold excludes amounts related to voluntary protection operations, and may fluctuate, depending on market conditions and other factors. We also have access to liquidity under a $5.0 billion credit facility with Toyota Motor Sales U.S.A., Inc. ("TMS"), which as of June 30, 2026, had no outstanding balance as further described in Note 7 - Debt and Credit Facilities of the Notes to the Consolidated Financial Statements. We believe we have sufficient capacity to meet our short-term funding requirements and manage our liquidity, including payment of dividends.

Credit support is provided to us by our indirect parent Toyota Financial Services Corporation ("TFSC"), and, in turn to TFSC by TMC. Taken together, these credit support agreements provide an additional source of liquidity to us, although we do not rely upon such credit support in our liquidity planning and capital and risk management. The credit support agreements are not a guarantee by TMC or TFSC of any securities or obligations of TFSC or TMCC, respectively. The fees paid pursuant to these agreements are disclosed in Note 11 - Related Party Transactions of the Notes to Consolidated Financial Statements.

TMC's obligations under its credit support agreement with TFSC rank pari passu with TMC's senior unsecured debt obligations. Refer to Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations "Liquidity and Capital Resources" in our fiscal 2026 Form 10-K for further discussion.

We routinely monitor global financial conditions and our financial exposure to our global counterparties, particularly in those countries experiencing significant economic, fiscal or political strain, and the corresponding likelihood of default. As of June 30, 2026, our exposure to foreign sovereign and non-sovereign counterparties was not significant. Refer to the "Liquidity and Capital Resources - Credit Facilities and Letters of Credit" section and Part I, Item 1A. Risk Factors - "The failure or commercial soundness of our counterparties and other financial institutions may have an effect on our liquidity, results of operations or financial condition" in our fiscal 2026 Form 10-K for further discussion.

Funding

The following table summarizes the components of our outstanding debt which includes unamortized premiums, discounts, debt issuance costs and the effects of foreign currency translation adjustments:

Unsecured notes and loans payable

The following table summarizes the significant activities by program of our Unsecured notes and loans payable:

1 Changes in Commercial paper and certain Other unsecured notes are shown net due to their short duration.

Commercial paper

Short-term funding needs are met through the issuance of commercial paper in the U.S. Commercial paper outstanding under our commercial paper programs ranged from approximately $17.8 billion to $18.4 billion during the quarter ended June 30, 2026, with an average outstanding balance of $18.0 billion. Our commercial paper programs are supported by the credit facilities discussed under the heading "Credit Facilities and Letters of Credit." We believe we have sufficient capacity to meet our short-term funding requirements and manage our liquidity.

MTN program

We maintain a shelf registration statement with the Securities and Exchange Commission ("SEC") to provide for the issuance of debt securities in the U.S. capital markets to retail and institutional investors. We currently qualify as a well-known seasoned issuer under SEC rules, which allows us to issue under our registration statement an unlimited amount of debt securities during the three-year period ending January 2027. Debt securities issued under the U.S. shelf registration statement are issued pursuant to the terms of an indenture which requires TMCC to comply with certain covenants, including negative pledge and cross-default provisions. We are currently in compliance with these covenants.

EMTN program

Our EMTN program, shared with our affiliates Toyota Motor Finance (Netherlands) B.V., Toyota Credit Canada Inc. and Toyota Finance Australia Limited (TMCC and such affiliates, the "EMTN Issuers"), provides for the issuance of debt securities in the international capital markets. In September 2025, the EMTN Issuers renewed the EMTN program for a one-year period. The maximum aggregate principal amount authorized under the EMTN Program to be outstanding at any time is €60.0 billion or the equivalent in other currencies. The authorized amount is shared among all EMTN Issuers. The authorized aggregate principal amount under the EMTN program may be increased from time to time. Debt securities issued under the EMTN program are issued pursuant to the terms of an agency agreement. Certain debt securities issued under the EMTN program are subject to negative pledge provisions. We are currently in compliance with these covenants.

Other debt

TMCC has entered into term loan agreements with various banks. These term loan agreements contain covenants and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on certain consolidations, mergers and sales of assets. We are currently in compliance with these covenants and conditions.

We may borrow from affiliates on terms based upon a number of business factors such as funds availability, cash flow timing, relative cost of funds, and market access capabilities. Amounts borrowed from affiliates are recorded in Other liabilities on our Consolidated Balance Sheets and are therefore excluded from Debt amounts.

Secured Notes and Loans Payable

Asset-backed securitization of our earning asset portfolio provides us with an alternative source of funding. We regularly execute public or private securitization transactions.

The following table summarizes the significant activities of our Secured notes and loans payable:

We securitize finance receivables and beneficial interests in investments in operating leases ("Securitized Assets") using a variety of structures. Our securitization transactions involve the transfer of Securitized Assets to bankruptcy-remote special purpose entities. These bankruptcy-remote entities are used to ensure that the Securitized Assets are isolated from the claims of creditors of TMCC and that the cash flows from these assets are available solely for the benefit of the investors in these asset-backed securities. Investors in asset-backed securities do not have recourse to our other assets, and neither TMCC nor our affiliates guarantee these obligations. We are not required to repurchase or make reallocation payments with respect to the Securitized Assets that become delinquent or default after securitization. As seller and servicer of the Securitized Assets, we are required to repurchase or make a reallocation payment with respect to the underlying assets that are subsequently discovered not to have met specified eligibility requirements. This repurchase obligation is customary in securitization transactions. With the exception of our revolving asset-backed securitization program, funding obtained from our securitization transactions is repaid as the underlying Securitized Assets amortize.

We service the Securitized Assets in accordance with our customary servicing practices and procedures. Our servicing duties include collecting payments on Securitized Assets and submitting them to a trustee for distribution to security holders and other interest holders. We prepare monthly servicer certificates on the performance of the Securitized Assets, including collections, investor distributions, delinquencies, and credit losses. We also perform administrative services for special purpose entities.

Our use of special purpose entities in securitizations is consistent with conventional practice in the securitization market. None of our officers, directors, or employees hold any equity interests or receive any direct or indirect compensation from our special purpose entities. These entities do not own our stock or the stock of any of our affiliates. Each special purpose entity has a limited purpose and generally is permitted only to purchase assets, issue asset-backed securities, and make payments to the security holders, other interest holders and certain service providers as required under the terms of the transactions.

Our securitizations are structured to provide credit enhancement to reduce the risk of loss to security holders and other interest holders in the asset-backed securities. Credit enhancement may include some or all of the following:

In addition to the credit enhancement described above, we may enter into interest rate swaps with our special purpose entities that issue variable rate debt. Under the terms of these swaps, the special purpose entities are obligated to pay TMCC a fixed rate of interest on payment dates in exchange for receiving a floating rate of interest on notional amounts equal to the outstanding balance of the secured notes and loans payable. This arrangement enables the special purpose entities to mitigate the interest rate risk inherent in issuing variable rate debt that is secured by fixed rate Securitized Assets.

Securitized Assets and the related debt remain on our Consolidated Balance Sheets. We recognize financing revenue on the Securitized Assets. We also recognize interest expense on the secured notes and loans payable issued by the special purpose entities and maintain an allowance for credit losses on the Securitized Assets to cover estimated lifetime expected credit losses using a methodology consistent with that used for our non-securitized asset portfolio. The interest rate swaps between TMCC and the special purpose entities are considered intercompany transactions and therefore are eliminated in our consolidated financial statements.

Our secured notes also include a revolving asset-backed securitization program backed by a revolving pool of finance receivables and cash collateral. Cash flows from these receivables during the revolving period in excess of what is needed to pay certain expenses of the securitization trust and contractual interest payments on the related secured notes may be used to purchase additional receivables, provided that certain conditions are met following the purchase. The secured notes feature a scheduled revolving period, with the ability to repay the secured notes in full, after which an amortization period begins. The revolving period may also end with the amortization period beginning upon the occurrence of certain events that include certain segregated account balances falling below their required levels, credit losses or delinquencies on the pool of assets supporting the secured notes exceeding specified levels, the adjusted pool balance falling to less than 50% of the initial principal amount of the secured notes, or interest not being paid on the secured notes.

Public Securitization

We maintain a shelf registration statement with the SEC to provide for the issuance of securities backed by Securitized Assets in the U.S. capital markets during the three-year period ending December 2027. We regularly sponsor public securitization trusts that issue securities backed by retail finance receivables, including registered securities that we retain. None of these securities have defaulted, experienced any events of default or failed to pay principal in full at maturity. As of June 30, 2026 and March 31, 2026, we did not have any outstanding lease securitization transactions registered with the SEC.

Credit Facilities and Letters of Credit

For additional liquidity purposes, we maintain credit facilities, which may be used for general corporate purposes, as described below:

364-Day Credit Agreement, Three-Year Credit Agreement and Five-Year Credit Agreement

TMCC, Toyota Credit de Puerto Rico Corp. ("TCPR"), a wholly owned subsidiary, and other Toyota affiliates are party to a $5.0 billion 364-day syndicated bank credit facility, a $5.0 billion three-year syndicated bank credit facility, and a $5.0 billion five-year syndicated bank credit facility, expiring in fiscal years ending March 31, 2027, 2029 and 2031, respectively.

The ability to make draws is subject to covenants and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on certain consolidations, mergers and sales of assets. These credit facilities had no outstanding balances as of June 30, 2026 and March 31, 2026. We are currently in compliance with the covenants and conditions of the credit agreements described above.

Committed Revolving Asset-backed Facility

We are party to a 364-day revolving securitization facility with certain bank-sponsored asset-backed conduits and other financial institutions expiring in fiscal year ending March 31, 2028. Under the terms and subject to the conditions of this facility, the committed lenders under the facility have committed to make advances up to a facility limit of $9.0 billion backed by eligible retail finance receivables transferred by us to a special-purpose entity acting as borrower. We utilized $4.4 billion and $5.1 billion of this facility as of June 30, 2026 and March 31, 2026, respectively.

Other Unsecured Credit Agreements

TMCC is party to additional unsecured credit facilities with various banks. As of June 30, 2026, TMCC had committed bank credit facilities totaling $4.1 billion of which $2.0 billion, $1.7 billion, $200 million, and $200 million mature in fiscal years ending March 31, 2027, 2029, 2030, and 2032, respectively.

These credit agreements contain covenants and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on certain consolidations, mergers and sales of assets. These credit facilities had no outstanding balances as of June 30, 2026 and March 31, 2026. We are currently in compliance with the covenants and conditions of the credit agreements described above.

TMCC is party to a $5.0 billion 364-day revolving credit facility with TMS expiring March 31, 2027. This credit facility had no outstanding balance as of June 30, 2026 and March 31, 2026.

From time to time, we may borrow from affiliates based upon a number of business factors such as funds availability, cash flow timing, relative cost of funds, and market access capabilities.

Credit Ratings

The cost and availability of unsecured financing is influenced by credit ratings, which are intended to be an indicator of the creditworthiness of a particular company, security, or obligation. Lower ratings generally result in higher borrowing costs as well as reduced access to capital markets. Credit ratings are not recommendations to buy, sell, or hold securities, and are subject to revision or withdrawal at any time by the assigning credit rating organization. Each credit rating organization may have different criteria for evaluating risk, and therefore ratings should be evaluated independently for each organization. Our credit ratings depend in part on the existence of the credit support agreements of TFSC and TMC. Refer to "Part I, Item 1A. Risk Factors - Our borrowing costs and access to the unsecured debt capital markets depend significantly on the credit ratings of TMCC and its parent companies and our credit support arrangements" in our fiscal 2026 Form 10-K.

Derivative Instruments

Our liabilities consist mainly of fixed and variable rate debt, denominated in U.S. dollars and various other currencies, which we issue in the global capital markets, while our assets consist primarily of U.S. dollar denominated, fixed rate receivables. We enter into interest rate swaps and foreign currency swaps to economically hedge the interest rate and foreign currency risks that result from the different characteristics of our assets and liabilities. Our use of derivative transactions is intended to reduce long-term fluctuations in the fair value of assets and liabilities caused by market movements. All of our derivatives are categorized as not designated for hedge accounting, and all of our derivative activities are authorized and monitored by our management and our Asset-Liability Committee which provides a framework for financial controls and governance to manage market risk.

Refer to Note 6 - Derivatives, Hedging Activities and Interest Expense of the Notes to Consolidated Financial Statements for further discussion and disclosure on derivative instruments.

NEW ACCOUNTING STANDARDS

Refer to Note 1 - Interim Financial Data of the Notes to Consolidated Financial Statements.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make certain estimates which affect reported financial results. The evaluation of the factors used in determining each of our critical accounting estimates involves significant assumptions, complex analyses, and management judgment. Changes in the evaluation of these factors may have a significant impact on the consolidated financial statements. Additionally, due to inherent uncertainties in making estimates, actual results could differ from those estimates, and those differences could be material. The critical accounting estimates that affect the consolidated financial statements and the judgment and assumptions used are consistent with those described in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations, Critical Accounting Estimates" in our fiscal 2026 Form 10-K.