AHFC's Q3 Net Income Dips Amidst Derivative Swings, Debt Rises

TL;DR

**AHFC's Q3 net income drop is a red flag, signaling potential credit quality issues and volatile derivative impacts despite growing receivables.**

AI Summary

AMERICAN HONDA FINANCE CORPORATION (AHFC) reported total revenues of $2,660 million for the three months ended September 30, 2025, an increase from $2,345 million in the prior year period. Net income attributable to AHFC decreased to $251 million for the three months ended September 30, 2025, down from $298 million in the same period of 2024. This decline was primarily driven by a significant gain on derivative instruments of $139 million in Q3 2025 compared to a loss of $288 million in Q3 2024, and a loss on foreign currency revaluation of debt of $79 million in Q3 2025 versus a gain of $283 million in Q3 2024. Finance receivables, net, increased to $54,101 million as of September 30, 2025, from $52,516 million at March 31, 2025. Investment in operating leases, net, also grew to $32,173 million from $30,596 million over the same period. The allowance for credit losses on finance receivables increased to $430 million as of September 30, 2025, from $396 million at March 31, 2025, reflecting higher expected credit losses. Total debt rose to $65,950 million from $62,547 million, indicating increased funding needs.

Why It Matters

AHFC's performance is a bellwether for the health of Honda's automotive sales and the broader auto financing market. The increase in finance receivables and operating leases suggests continued demand for Honda and Acura vehicles, but the rise in the allowance for credit losses to $430 million signals potential headwinds in credit quality, which could impact future profitability. For investors in Honda Motor Co., Ltd. (HMC), AHFC's financing capabilities are crucial for supporting vehicle sales. Employees and customers are directly affected by the availability and terms of financing, while the competitive landscape sees AHFC vying with other major auto lenders, making its financial stability key to market share.

Risk Assessment

Risk Level: medium — The company faces medium risk due to increased provision for credit losses, which rose to $189 million for the six months ended September 30, 2025, from $158 million in the prior year, indicating deteriorating credit quality. Additionally, significant volatility in derivative instruments, with a $139 million gain in Q3 2025 compared to a $288 million loss in Q3 2024, introduces earnings unpredictability.

Analyst Insight

Investors should monitor AHFC's credit loss trends closely, as the rising allowance for credit losses suggests potential future write-offs. Given the volatility in derivative and foreign currency revaluation gains/losses, investors should scrutinize the underlying drivers of these non-operating items to assess the sustainability of core earnings.

Financial Highlights

debt To Equity

3.93

revenue

$2,660M

operating Margin

N/A

total Assets

$92,054M

total Debt

$65,950M

net Income

$251M

eps

$0.00

gross Margin

N/A

cash Position

$3,186M

revenue Growth

+13.4%

Revenue Breakdown

Key Numbers

• $2,660M — Total revenues (Increased from $2,345 million in Q3 2024)
• $251M — Net income attributable to AHFC (Decreased from $298 million in Q3 2024)
• $54,101M — Finance receivables, net (Increased from $52,516 million at March 31, 2025)
• $32,173M — Investment in operating leases, net (Increased from $30,596 million at March 31, 2025)
• $430M — Allowance for credit losses (Increased from $396 million at March 31, 2025)
• $65,950M — Total debt (Increased from $62,547 million at March 31, 2025)
• $139M — Gain on derivative instruments (Compared to a $288 million loss in Q3 2024)
• $79M — Loss on foreign currency revaluation of debt (Compared to a $283 million gain in Q3 2024)
• $189M — Provision for credit losses (six months) (Increased from $158 million in the prior year period)
• $14,202M — Secured debt of consolidated VIEs (Increased from $12,384 million at March 31, 2025)

Key Players & Entities

• AMERICAN HONDA FINANCE CORPORATION (company) — registrant
• American Honda Motor Co., Inc. (company) — wholly-owned subsidiary of Honda Motor Co., Ltd. and parent of AHFC
• Honda Motor Co., Ltd. (company) — ultimate parent company
• Honda Canada Finance Inc. (company) — majority-owned subsidiary of AHFC
• Honda Canada Inc. (company) — affiliate of AHFC and holder of noncontrolling interest in HCFI
• New York Stock Exchange (regulator) — exchange where AHFC's medium-term notes are registered
• SEC (regulator) — Securities and Exchange Commission
• FASB (regulator) — Financial Accounting Standards Board
• ASU 2023-09 (regulator) — Accounting Standards Update on Income Taxes
• ASU 2024-03 (regulator) — Accounting Standards Update on Expense Disaggregation Disclosures

FAQ

Risk Factors

• Economic and Business Conditions [high — market]: Changes in economic and general business conditions, including inflationary pressures, interest rate fluctuations, and declining consumer sentiment, could negatively impact AHFC's financial performance. For example, interest rate changes directly affect interest expense and the profitability of financing operations.
• Funding and Capital Markets Access [high — financial]: Disruptions in funding sources or access to capital markets pose a significant risk. AHFC relies on debt financing, and any adverse changes in credit ratings or market conditions could increase borrowing costs or limit availability of funds.
• Credit Risk and Allowance for Losses [medium — financial]: The allowance for credit losses increased to $430 million from $396 million, reflecting higher expected credit losses. Deterioration in the financial condition of customers or dealers could lead to increased defaults and higher provisions for credit losses.
• Interest Rate and Currency Fluctuations [medium — market]: Fluctuations in interest rates and currency exchange rates present a risk. For instance, a $79 million loss on foreign currency revaluation of debt was recorded in Q3 2025, contrasting with a $283 million gain in the prior year, highlighting volatility.
• Residual Value of Leased Vehicles [medium — operational]: AHFC's inability to recover the estimated residual value of leased vehicles at the end of their lease terms could lead to losses. This is particularly relevant given the significant revenue generated from operating leases ($1,803 million in Q3 2025).
• Regulatory and Compliance Risks [low — regulatory]: Changes in regulations applicable to the automotive or financial services industries could impact AHFC's operations and compliance costs. The company must adhere to various financial regulations.
• Competition [low — market]: Increased competition from other financial institutions seeking to finance Honda and Acura products could pressure margins and market share.

Industry Context

The automotive finance industry is closely tied to new and used vehicle sales, interest rate environments, and consumer credit availability. AHFC operates within a competitive landscape where manufacturers' captive finance arms and independent lenders vie for market share. Trends include increasing reliance on leasing, evolving digital customer experiences, and managing credit risk in uncertain economic conditions.

Regulatory Implications

AHFC, as a finance company, is subject to various financial regulations, including those related to lending practices, consumer protection, and capital adequacy. Changes in these regulations, particularly those impacting credit loss provisioning or securitization, could affect its operations and profitability.

What Investors Should Do

1. Monitor interest rate sensitivity
2. Assess credit quality trends
3. Evaluate lease portfolio performance
4. Analyze debt structure and funding costs

Glossary

Finance receivables, net

The total amount of money owed to AHFC from loans made to customers for vehicle purchases or leases, after deducting the allowance for potential credit losses. (This is a core asset for AHFC, representing its primary lending business. An increase to $54,101 million indicates growth in its loan portfolio.)

Investment in operating leases, net

The net book value of vehicles that AHFC has leased to customers under operating lease agreements. (This is a significant revenue-generating segment for AHFC, with net investment growing to $32,173 million, showing expansion in this area.)

Allowance for credit losses

An estimate of the amount of finance receivables that AHFC expects will not be collected from borrowers. (An increase to $430 million suggests rising concerns about borrower creditworthiness or an expansion of riskier loans in the portfolio.)

Derivative instruments

Financial contracts whose value is derived from an underlying asset, index, or rate, often used for hedging purposes. (Significant fluctuations in gains ($139 million in Q3 2025) and losses ($288 million in Q3 2024) from these instruments can heavily impact net income, as seen in the results.)

Foreign currency revaluation of debt

The change in the value of outstanding debt due to fluctuations in foreign exchange rates. (A substantial swing from a $283 million gain in Q3 2024 to a $79 million loss in Q3 2025 demonstrates the impact of currency volatility on AHFC's financial results.)

Variable Interest Entities (VIEs)

Entities where equity investors do not have sufficient equity at risk for the entity to finance its activities without additional financial support from other parties. AHFC consolidates these entities. (The secured debt of consolidated VIEs increased to $14,202 million, indicating greater reliance on securitization or off-balance sheet financing structures.)

Noncontrolling interest in subsidiary

The portion of equity in a subsidiary that is not attributable to the parent company. (This represents the ownership stake in subsidiaries (like Honda Canada Finance Inc.) not owned by AHFC, impacting the net income attributable to AHFC.)

Year-Over-Year Comparison

Compared to the fiscal year ended March 31, 2025, AHFC has seen a notable increase in total revenues for the three months ended September 30, 2025, rising to $2,660 million from $2,345 million in the prior year period. However, net income attributable to AHFC declined to $251 million from $298 million, primarily due to significant swings in derivative and foreign currency revaluation results. Key balance sheet items show growth, with finance receivables, net, increasing to $54,101 million and investment in operating leases, net, growing to $32,173 million, indicating portfolio expansion. The allowance for credit losses also rose, signaling increased caution regarding credit risk.

Filing Documents

• ahfc-20250930.htm (10-Q) — 2340KB
• ahfc-ex311q22026.htm (EX-31.1) — 18KB
• ahfc-ex312q22026.htm (EX-31.2) — 19KB
• ahfc-ex321q22026.htm (EX-32.1) — 7KB
• ahfc-ex322q22026.htm (EX-32.2) — 7KB
• 0000864270-25-000016.txt ( ) — 10820KB
• ahfc-20250930.xsd (EX-101.SCH) — 60KB
• ahfc-20250930_cal.xml (EX-101.CAL) — 95KB
• ahfc-20250930_def.xml (EX-101.DEF) — 305KB
• ahfc-20250930_lab.xml (EX-101.LAB) — 675KB
• ahfc-20250930_pre.xml (EX-101.PRE) — 507KB
• ahfc-20250930_htm.xml (XML) — 2203KB

– FINANCIAL INFORMATION

PART I – FINANCIAL INFORMATION Item 1.

Financial Statements

Financial Statements 1 Consolidated Balance Sheets 1 Consolidated Statements of Income 2 Consolidated Statements of Comprehensive Income 2 Consolidated Statements of Changes in Equity 3 Consolidated Statements of Cash Flows 4

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 6 Note 1 – Summary of Business and Significant Accounting Policies 6 Note 2 – Finance Receivables 7 Note 3 – Investment in Operating Leases 12 Note 4 – Debt 14 Note 5 – Derivative Instruments 16 Note 6 – Transactions Involving Related Parties 17 Note 7 – Income Taxes 19 Note 8 – Commitments and Contingencies 20 Note 9 – Securitizations and Variable Interest Entities 21 Note 10 – Other Assets 22 Note 11 – Other Liabilities 22 Note 12 – Fair Value Measurements 22 Note 13 – Segment and Geographic Information 26 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 30 Overview 30 Results of Operations 31 Financial Condition 38 Liquidity and Capital Resources 44 Derivatives 49 Off-Balance Sheet Arrangements 49 New Accounting Standards 49 Critical Accounting Estimates 50 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 50 Item 4.

Controls and Procedures

Controls and Procedures 51

– OTHER INFORMATION 52

PART II – OTHER INFORMATION 52 Item 1.

Legal Proceedings

Legal Proceedings 52 Item 1A.

Risk Factors

Risk Factors 52 Item 2. Unregistered Sale of Equity Securities and Use of Proceeds 52 Item 3. Defaults Upon Senior Securities 52 Item 4. Mine Safety Disclosures 52 Item 5. Other Information 52 Item 6. Exhibits 53 Exhibit Index Signature i Cautionary Statement Regarding Forward-Looking Statements Certain statements included herein constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that involve a number of risks and uncertainties. Certain such forward-looking statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "seeks," "scheduled," or "anticipates" or similar expressions or the negative thereof or other variations thereof or comparable terminology, or by discussions of strategy, plans, or intentions. In addition, all information included herein with respect to projected or future results of operations, cash flows, financial condition, financial performance, or other financial or statistical matters constitute forward-looking statements. Such forward-looking statements are necessarily dependent on assumptions, data, or methods that may be incorrect or imprecise and that may be incapable of being realized. The following factors, among others, could cause actual results and other matters to differ materially from those in such forward-looking statements: duration and severity of supply chain disruptions on the production of new vehicles and other products and related impact on dealer inventory levels; declines in the financial condition or performance of Honda Motor Co., Ltd. and subsidiaries or the sales of Honda or Acura products; risks with HMC's current business alliances and joint ventures and any future potential business alliances, joint ventures, or business combinations; changes in economic and general business conditions, both domestically and internationally, including, but not limited to,

– FINANCIAL INFORMATION

PART I – FINANCIAL INFORMATION Item1. Financial Statements AMERICAN HONDA FINANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (U.S. dollars in millions, except share data) September 30, 2025 March 31, 2025 Assets Cash and cash equivalents $ 3,186 $ 4,052 Finance receivables, net of allowance for credit losses of $ 430 and $ 396 54,101 52,516 Investment in operating leases, net 32,173 30,596 Due from Parent and affiliated companies 100 146 Income taxes receivable 434 — Other assets 1,263 1,270 Derivative instruments 797 389 Total assets $ 92,054 $ 88,969 Liabilities and Equity Debt $ 65,950 $ 62,547 Due to Parent and affiliated companies 137 181 Income taxes payable 94 505 Deferred income taxes 5,642 5,302 Other liabilities 1,682 1,635 Derivative instruments 780 1,120 Total liabilities 74,285 71,290 Commitments and contingencies (Note 8) Shareholder's equity: Common stock, $ 100 par value. Authorized 15,000,000 shares; issued and outstanding 13,660,000 shares as of September 30, 2025 and March 31, 2025 1,366 1,366 Retained earnings 15,484 15,448 Accumulated other comprehensive loss ( 170 ) ( 209 ) Total shareholder's equity 16,680 16,605 Noncontrolling interest in subsidiary 1,089 1,074 Total equity 17,769 17,679 Total liabilities and equity $ 92,054 $ 88,969 The following table presents the assets and liabilities of consolidated variable interest entities. These assets and liabilities are included in the consolidated balance sheets presented above. Refer to Note 9 for additional information. September 30, 2025 March 31, 2025 Finance receivables, net $ 14,939 $ 12,969 Other assets 729 755 Total assets $ 15,668 $ 13,724 Secured debt $ 14,202 $ 12,384 Other liabilities 24 22 Total liabilities $ 14,226 $ 12,406 See accompanying Notes to Consolidated Financial Statements (Unaudited) . 1 AMERICAN HONDA FINANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (U.S.

Notes to Consolidated Financial Statements (Unaudited)

Notes to Consolidated Financial Statements (Unaudited) Note 1. Summary of Business and Significant Accounting Policies Organizational Structure American Honda Finance Corporation (AHFC) is a wholly-owned subsidiary of American Honda Motor Co., Inc. (AHM or the Parent). Honda Canada Finance Inc. (HCFI) is a majority-owned subsidiary of AHFC. Noncontrolling interest in HCFI is held by Honda Canada Inc. (HCI), an affiliate of AHFC. AHM is a wholly-owned subsidiary and HCI is an indirect wholly-owned subsidiary of Honda Motor Co., Ltd. (HMC). AHM and HCI are the sole authorized distributors of Honda and Acura products, including motor vehicles, other products, and parts and accessories in the United States and Canada. Unless otherwise indicated by the context, all references to the "Company", "we", "us", and "our" in this report include AHFC and its consolidated subsidiaries, and references to "AHFC" refer solely to American Honda Finance Corporation (excluding AHFC's subsidiaries). Basis of Presentation The unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim information, and instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, these unaudited interim financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods presented. Results for interim periods should not be considered indicative of results for the full year or for any other interim period. These unaudited interim financial statements should be read in conjunction with the Company's audited consolidated financial statements, significant accounting policies, and the other notes to the consolidated financial statements for the fiscal year ended March 31, 2025 included in the Company's Annual Report on Form 10-K, which was filed with the Securities and Exchan

Notes to Consolidated Financial Statements (Unaudited)

Notes to Consolidated Financial Statements (Unaudited) Note 2. Finance Receivables Finance receivables consisted of the following: September 30, 2025 Retail Dealer Total (U.S. dollars in millions) Finance receivables $ 50,129 $ 4,544 $ 54,673 Allowance for credit losses ( 421 ) ( 9 ) ( 430 ) Deferred dealer participation and other deferred costs 657 — 657 Unearned subsidy income ( 799 ) — ( 799 ) Finance receivables, net $ 49,566 $ 4,535 $ 54,101 March 31, 2025 Retail Dealer Total (U.S. dollars in millions) Finance receivables $ 48,698 $ 4,344 $ 53,042 Allowance for credit losses ( 387 ) ( 9 ) ( 396 ) Deferred dealer participation and other deferred costs 616 — 616 Unearned subsidy income ( 746 ) — ( 746 ) Finance receivables, net $ 48,181 $ 4,335 $ 52,516 Finance receivables include retail loans with a net carrying amount of $ 15.0 billion and $ 13.0 billion as of September 30, 2025 and March 31, 2025, respectively, which have been transferred to bankruptcy-remote Special Purpose Entities (SPEs) and are considered to be legally isolated but do not qualify for sale accounting treatment. These retail loans are restricted and serve as collateral for the payment of the related secured debt obligations. Refer to Note 9 for additional information. 7 AMERICAN HONDA FINANCE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Notes to Consolidated Financial Statements (Unaudited) Allowance for Credit Losses The following is a summary of the activity in the allowance for credit losses of finance receivables: Three and six months ended September 30, 2025 Retail Dealer Total (U.S. dollars in millions) Beginning balance as of July 1, 2025 $ 426 $ 9 $ 435 Provision 86 — 86 Charge-offs ( 129 ) — ( 129 ) Recoveries 39 — 39 Effect of translation adjustment ( 1 ) — ( 1 ) Ending balance as of September 30, 2025 $ 421 $ 9 $ 430 Beginning balance as of April 1, 2025 $ 387 $ 9 $ 396 Provision 189 — 189 Charge-offs ( 231 ) — ( 231 ) Recoveries 76 — 76 Effect of translation adjustment — — — Ending balance as of September 30, 2025 $ 421 $ 9 $ 430 Three and six months ended September 30, 2024 Retail Dealer Total (U.S. dollars in millions) Beginning balance as of July 1, 2024 $ 383 $ 8 $ 391 Provision 87 — 87 Charge-offs ( 97 ) — ( 97 ) Recoveries 31 — 31 Effect of translation adjustment — — — Ending balance as of September 30, 2024 $ 404 $ 8 $ 412 Beginning balance as of April 1, 2024 $ 345 $ 8 $ 353 Provision 158 — 158 Charge-offs ( 176 ) — ( 176 ) Recoveries 77 — 77 Effect of translation adjustment — — — Ending balance as of September 30, 2024 $ 404 $ 8 $ 412 The allowance increased during the six months ended September 30, 2025 primarily due to the expected credit losses recognized on the high volume of retail loan acquisitions during the period and the increase to the estimate of expected credit losses attributable to the increasing trend of delinquencies and net charge offs. 8 AMERICAN HONDA FINANCE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Notes to Consolidated Financial Statements (Unaudited) Delinquencies Collection experience provides an indication of the credit quality of finance receivables. For retail loans, delinquencies are a good predictor of charge-offs in the near term. The likelihood of accounts charging off is significantly higher once an account becomes 60 days delinquent. Retail loans are considered delinquent if more than 10 % of a scheduled payment is contractually past due on a cumulative basis. Dealer loans are considered delinquent when any payment is contractually past due. The following is an aging analysis of past due finance receivables: 30 – 59 days past due 60 – 89 days past due 90 days or greater past due Total past due Current or less than 30 days past due Total finance receivables (U.S. dollars in millions) September 30, 2025 Retail loans: New automobile $ 384 $ 101 $ 24 $ 509 $ 39,220 $ 39,729 Used and certified automobile 175 53 12 240 8,388 8,628 Motorcycle and other 22 10 5 37 1,593 1,630 Total retail loans 581 164 41 786 49,201 49,987 Dealer loans: Wholesale flooring — — 1 1 3,085 3,086 Commercial loans — — — — 1,458 1,458 Total dealer loans — — 1 1 4,543 4,544 Total finance receivables $ 581 $ 164 $ 42 $ 787 $ 53,744 $ 54,531 March 31, 2025 Retail loans: New automobile $ 331 $ 73 $ 20 $ 424 $ 38,105 $ 38,529 Used and certified automobile 155 38 10 203 8,291 8,494 Motorcycle and other 18 7 4 29 1,516 1,545 Total retail loans 504 118 34 656 47,912 48,568 Dealer loans: Wholesale flooring — — 1 1 3,005 3,006 Commercial loans — — — — 1,338 1,338 Total dealer loans — — 1 1 4,343 4,344 Total finance receivables $ 504 $ 118 $ 35 $ 657 $ 52,255 $ 52,912 Credit Quality Indicators Credit losses are an expected cost of extending credit. The majority of our credit risk is with consumer financing and to a lesser extent with dealer financing. Exposure to credit risk in retail loans is managed through regular monitoring and periodic adjusting of unde

Notes to Consolidated Financial Statements (Unaudited)

Notes to Consolidated Financial Statements (Unaudited) A - Borrowers classified as very low credit risks. Based on their application and credit bureau report, they have the ability to pay and have shown a willingness to pay. Generally, A credit borrowers have an extensive credit history, an excellent payment record and extensive financial resources. B - Borrowers classified as relatively low credit risks. Based on their application and credit bureau report, they have the ability to pay and have shown a willingness to pay. Generally, B credit borrowers may have one or more conditions that could reduce the internal credit score, such as a shorter credit history or a minor credit weakness. C - Borrowers classified as moderate credit risks. Based on their application and credit bureau report, they may have limited financial resources, limited credit history, or a weakness in credit history. D - Borrowers classified as relatively higher credit risks. Based on their application and credit bureau report, they may have very limited financial resources, very limited or no credit history, or a poor credit history. Others - Borrowers, including businesses, without credit bureau reports. The following table summarizes the amortized cost of retail loans by internal credit grade: Retail loans by vintage fiscal year 2026 2025 2024 2023 2022 Prior Total (U.S. dollars in millions) September 30, 2025 Credit grade A $ 7,598 $ 11,748 $ 7,401 $ 2,717 $ 1,161 $ 608 $ 31,233 Credit grade B 2,061 3,240 2,367 1,067 452 24

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