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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended March 31 2021, 2023

OR

For the transition period from _______ to _______

Commission file number 1-9961

TOYOTA MOTOR CREDIT CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (469) (469) 486-9300

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

(Title (Title of class)

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 30, 2021,2023, the number of outstanding shares of capital stock, no par value per share, of the registrant was 91,500, all of which shares were held by Toyota Financial Services International Corporation.

Documents incorporated by reference: None

Reduced Disclosure Format

The registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format.

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TOYOTA MOTOR CREDIT CORPORATION

FORM 10-K

For the fiscal year ended March 31, 20212023

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PART I

ITEM 1. BUSINESS

GENERAL

Toyota Motor Credit Corporation (“TMCC”) was incorporated in California in 1982 and commenced operations in 1983. References herein to “TMCC” denote Toyota Motor Credit Corporation, and references herein tothe “Company”, “we”, “our”, and “us” denote Toyota Motor Credit Corporation and its consolidated subsidiaries. We are wholly-owned by Toyota Financial Services International Corporation (“TFSIC”), a California corporation, which is a wholly-owned subsidiary of Toyota Financial Services Corporation (“TFSC”), a Japanese corporation. TFSC, in turn, is a wholly-owned subsidiary of Toyota Motor Corporation (“TMC”), a Japanese corporation. TFSC manages TMC’s worldwide financial services operations. TMCC is marketed under the brands of Toyota Financial Services, Lexus Financial Services, and Mazda Financial Services.

We provide a variety of finance and voluntary vehicle and payment protection products and services to authorized Toyota and Lexus dealers or dealer groups, private label dealers or dealer groups, and to a lesser extent, other domestic and import franchise dealers (collectively referred to as “dealers”) and their customers in the United States of America (excluding Hawaii) (the “U.S.”) and Puerto Rico. Our products and services fall primarily into the following categories:

We support growth in earning assets through funding obtained primarily in the global capital markets as well as funds provided by investing and operating activities. Refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Liquidity and Capital Resources”for a discussion of our funding activities.

In fiscal 2020,2021, we announced the restructuring of our fieldcustomer service operations to better serve our dealer partnerscustomers by relocating and streamlining our field office structurethe customer service operation and investing in new technology. ThisThe restructuring is substantially complete, and our field operations now consist ofinclude three regional dealer serviceexperience centers (“DSCs”(each, an "Experience Center" and together the "Experience Centers") located in Chandler, Arizona (serving the West region), Plano, Texas (serving the Central region) and Alpharetta, Georgia (serving the East region). Each respective Experience Center maintains dealer service functions and customer service functions.

The dealer service functions in the regional DSCsExperience Centers acquire retail and lease contracts from dealers, and market our voluntary protection products to dealers.

The dealer lending function is centralized at the DSC located in Plano, Texas,Central region Experience Center and supports the dealers by providing wholesale financing and other dealer financing activities such as business acquisitions, facilities refurbishment, real estate purchases, and working capital requirements.

We currently service contracts through three regionalThe customer service centers (“CSCs”) located throughoutfunctions in the U.S.  The CSCsregional experience centers support customer account servicing functions such as collections, lease terminations, and administration of both retail and lease contract customer accounts. The Central region CSCRegion Experience Center also supports voluntary protection operations by providing contract and claims administrative services.  On March 24, 2021, we

In fiscal 2022, TMCC announced, that we will restructure our customer service operations to better serve our customers by relocating and streamlining the customer service operation and investing in new technology.  Over the next two years, we will move our three regional CSCs to be co-located with regional DSCs.

On April 1, 2020, we began providingfurtherance of its private label financial services to third-partyinitiative for third party automotive and mobility companies, commencingthat we entered into a nonbinding letter of intent with Great American Outdoors Group LLC, the provisionparent company of servicesBass Pro Shops, Cabela’s and the White River Marine Group (“Bass Pro Shops”) to Mazda Motor of America, Inc. (“Mazda”).  We currently offer exclusiveprovide private label automotive retail, lease,financial services for Bass Pro Shop’s boats, all-terrain vehicle products, and dealerother mobility products. The Company began to provide inventory financing for Bass Pro Shops, its affiliates, and authorized independent dealers in fiscal 2023, with additional private label services, including consumer financing and voluntary protection products and services marketed under the brand Mazda Financial Services to Mazda customers and dealers in the United States.  On August 1, 2020, we launched a full suite of voluntary protection products under the name of Mazda Protection Products (MPP).  The agreement with Mazda is for an initial term of approximately five years.be added over time. We are currently leveraging our existing processes and personnel to originate and service the new assets, however,and we will continueexpect to evaluate the private label financial services business, which may include partnering with or transitioning the business to our affiliates, some of which are not consolidated with TMCC.  We have also mademake certain technology investments to support the Mazda program and future private label customers.  We did not acquire any existing Mazda assets or liabilities pursuant to the agreement and our launch costs were not significant in fiscal year 2021.Bass Pro Shops program.

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Available Information

Our filings with the Securities and Exchange Commission (“SEC”) may be found by accessing the SEC website (http:https://www.sec.gov). A link to the SEC website and certain of our SEC filings are containedavailable free of charge on our website located at: www.toyotafinancial.com under “Investor Relations, SEC Filings”.

Investors and others should note that we announce material financial information using the investor relations section of our website. We use our website, press releases, as well as social media to communicate with our investors, customers and the general public about our company, our services and other issues. While not all of the information that we post on our website or on social media is of a material nature, some information could be material. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the investor relations section of our website and our Twitter feed. We are not incorporating any of the information set forth on our website or on social media channels into this filing on Form 10-K.

Seasonality

Revenues generated by our retail and lease contracts are generally not subject to seasonal variations. Financing volume is subject to a certain degree of seasonality. This seasonality does not have a significant impact on revenues as collections, generally in the form of fixed payments, occur over the course of several years. We are subject to seasonal variations in credit losses, which are historically higher in the first and fourth calendar quarters of the year.

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FINANCE OPERATIONS

The table below summarizes our financing revenues, net of depreciation by product.

Retail and Lease Financing

Pricing

We utilize a tiered pricing program, whichTMCC matches interest rates with customer risk as defined by credit bureau scores and other factors for a range of price and risk combinations. Each application is assigned a credit tier.  Rates vary based on customer credit tier,experience, contract term, loan-to-value and collateral, including whether a new or used vehicle is financed. In addition, special rates may apply as a result of promotional activities. We review and adjust interest rates based on competitive and economic factors and distribute the rates by tier, to dealers.

Underwriting

Dealers transmit customer credit applications electronically through our online system for contract acquisition. The customer may submit a credit application directly to our website, in which case, the credit application is sent to the dealer of the customer’s choice and is considered by us for preapproval. Upon receipt of the credit application, our loan origination system automatically requests a credit bureau report from one of the major credit bureaus. We use a proprietary credit scoring system to evaluate an applicant’s risk profile. Factors used by the credit scoring system (based on the applicant’s credit history) include the contract term, ability to pay, debt ratios, amount financed relative to the value of the vehicle to be financed, and credit bureau attributes such as number of trade lines, utilization ratio and number of credit inquiries.

Credit applications are subject to systematic evaluation. Our loan origination system evaluates each application to determine if it qualifies for automatic approval or decline without manual intervention (“auto-decisioning”) using specific requirements, including internal credit score and other application characteristics. Typically, the highest quality credit applications are approved automatically, and the lowest quality credit applications are automatically declined.

Credit analysts (working inout of our field operations)Experience Centers) approve or decline all credit applications that are not auto-decisioned and may also approve an application that has been the subject of an automated decline. Failure to be automatically approved through auto-decisioning does not mean that an application does not meet our underwriting guidelines. A credit analyst decisions applications based on an evaluation that considers an applicant’s creditworthiness and projected ability to meet the monthly payment obligation, which is derived from, among other things, the amount financed and the contract term. A credit analyst will verify information contained in the credit application if the application presents an elevated level of credit risk. Our proprietary scoring system assists the credit analyst in the credit review process. The credit analyst’s final credit decision is made based upon the degree of credit risk perceived by the credit analyst after assessing the strengths and weaknesses of the application.

Completion of the financing process is dependent upon whether the transaction is a retail or lease contract. For a retail contract, we acquire the retail contract from the dealer and obtain a security interest in the vehicle. We perfect our security interests in the financed retail vehicles through the applicable state department of motor vehicles (or equivalent) with certificate of title filings or with Uniform Commercial Code (“UCC”) filings, as appropriate. For a lease contract, except as described below under “Servicing”, we acquire the lease contract and concurrently assume ownership of the leased vehicle. We have the right to pursue collection actions against a delinquent customer, as well as repossess a vehicle if a customer fails to meet contractual obligations.

We regularly review and analyze our consumer portfolio to evaluate the effectiveness of our underwriting guidelines and purchasing criteria. If external economic factors, credit losses, delinquency experience, market conditions or other factors change, we may adjust our underwriting guidelines and purchasing criteria in order to change the asset quality of our portfolio or to achieve other goals and objectives.

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Subvention and Incentive Programs

Toyota Motor Sales, U.S.A., Inc. (“TMS”), a subsidiary of Toyota Motor North America, Inc. (“TMNA”), is the primary distributor of Toyota and Lexus vehicles in the United States. In partnership with TMNA and certain non-affiliated third-party distributors, we may offer special promotional rates, which we refer to as subvention programs. TMNA and third-party distributors pay us the majority of the difference between our standard rate and the promotional rate. Amounts received in connection with these programs allow us to maintain yields at levels consistent with standard program levels. The level of subvention program activity varies based on the marketing strategies of TMNA and third-party distributors, economic conditions, vehicle inventory levels, and volume of new and used vehicle sales. The amount of subvention received varies based on the mix of vehicles included in the promotional rate programs and the timing of the programs. The majority of our lease contracts and a significant portion of our retail contracts are subvened. We may also offer cash and contractual residual value support incentive programs in partnership with TMNA or third-party distributors. Subvention and other cash incentive program payments offered in partnership with TMNA or third-party distributors are settled at the beginning of the retail or lease contract. We may also offer our own cash incentives and other competitive rate programs. We defer the payments and recognize them over the life of the contract as a yield adjustment for retail contracts and as rental income or a reduction to depreciation expense for lease contracts.

Servicing

Our CSCsExperience Centers are responsible for servicing the consumer portfolio. A centralized department manages third-party vendor relationships responsible for bankruptcy administration, liquidation and post charge-off recovery activities, certain administrative activities, customer services activities and pre-charge-off collections with support from the CSCs.  Experience Centers.

We use an online collection and auto dialer system that prioritizes collection efforts and signals our collections personnel to make telephone contact with delinquent customers. We also use a behavioral-based collection strategy to minimize risk of loss and employ various collection methods based on behavioral scoring models (which analyze borrowers’ payment performance, vehicle valuation and credit bureau scores to predict future payment behavior). We generally determine whether to commence repossession efforts after an account is approximately 80 days past due. Repossessed vehicles are held for sale to comply with statutory requirements and then sold at private auctions unless public auctions are required by state law. Any unpaid amounts remaining after the repossessed vehicle is sold or after taking the full balance charge-off are pursued by us to the extent practical and legally permissible. Any surplus amounts remaining after recovery fees, disposition costs, and other expenses have been paid, and after any reserve charge-backs, dealer guarantees and optional product refunds have been credited to the customer’s account, are refunded to the customers. Collections of post-sale deficiencies and full-balance charge-offs are handledmanaged by third-party vendors and the CSCs.Experience Centers. We charge-off uncollectible portions of accounts when an account is deemed to be uncollectible or when the account balance becomes 120 days contractually delinquent, whichever occurs first. However, the CSCsExperience Centers will continue to collect or pursue recovery of the vehicle up to 190 days after the account is past due.

We may, in accordance with our customary servicing procedures, offer rebates or waive any prepayment charge, late payment charge, or any other fees that may be collected in the ordinary course of servicing the consumer portfolio. In addition, we may defer a customer’s obligation to make a payment by extending the contract term. Refer to Item 1A. Risk Factors “Industry, “Industry and Business Risk”-“We face various risks related to health epidemics and other outbreaks, which have had and may continue to have material adverse effects on our business, financial condition, results of operations and cash flows” and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Fiscal 2021 Operating Environment” for further discussion of payment relief programs offered to customers affected by the coronavirus..

Substantially all of our retail and lease contracts are purchased as non-recourse from the dealers. This relieves the dealers of financial responsibility in the event of a customer default.

We may experience a higher risk of loss if customers fail to maintain the required insurance coverage. The terms of our retail contracts require customers to maintain physical damage insurance covering loss or damage to the financed vehicle in an amount not less than the full value of the vehicle and to provide evidence of such insurance upon our request. The terms of each contract allow but do not require us to obtain any such insurance coverage on behalf of the customer. In accordance with our customary servicing procedures, we do not exercise our right to obtain insurance coverage on behalf of the customer. Our lease contracts require lessees to maintain minimum liability insurance and

physical damage insurance covering loss or damage to the leased vehicle in an amount not less than the full value of the vehicle. We currently do not monitor ongoing customer insurance coverage as part of our customary servicing procedures for the consumer portfolio.

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Toyota Lease Trust, a Delaware business trust (the “Titling Trust”), acts as lessor and holds title to leased vehicles in the U.S. This arrangement was established to facilitate lease securitizations. TMCC services lease contracts acquired by the Titling Trust from Toyota, Lexus, and Lexusprivate label dealers. TMCC holds an undivideda beneficial interest in certain lease contracts owned by the Titling Trust, and these lease contracts are included in Investments in operating leases, net on our Consolidated Balance Sheets. Refer to Note 5 – Investments in Operating Leases, Net and Note 8 – Variable Interest Entities of the Notes to Consolidated Financial Statements for further information.

Remarketing

The lessee may purchase the leased vehicle at the contractual residual value or return the leased vehicle to the dealer. If the leased vehicle is returned to the dealer, the dealer may purchase the leased vehicle or return it to us. We are responsible for disposing of the leased vehicle if the lessee or dealer does not purchase the vehicle at lease maturity.

In order to minimize losses when vehicles are returned to us, we have developed remarketing strategies to maximize proceeds and minimize disposition costs on used vehicles. We use various channels to sell vehicles returned at lease-end or repossessed prior to lease-end, including a dealer direct programand auction sale platforms (“Dealer Direct”) and physical auctions.

The goal of Dealer Direct is to increase dealer purchases of off-lease vehicles thereby reducing the disposition costs of such vehicles. Through Dealer Direct, the dealer accepting return of the lease vehicle (the “grounding dealer”) has the option to purchase the vehicle at the contractual residual value, purchase the vehicle at an assessed market value, or return the vehicle to us. Vehicles not purchased by the grounding dealer are made available to all Toyota and Lexus dealers through the Dealer Direct online auction. Vehicles not purchased through Dealer Direct are sold at physical vehicle auction sites throughout the country. Where deemed necessary, we recondition used vehicles prior to sale at auction in order to enhance the vehicle values.

Dealer Financing

Dealer financing is comprised of wholesale financing and other financing options designed to meet dealer business needs.

Wholesale Financing

We provide wholesale financing to dealers for inventories of new and used Toyota, Lexus, private label, and other domestic and import vehicles. We acquire a security interest in the vehicle inventory, and/or other dealership assets, as appropriate, which we perfect through UCC filings. Wholesale financing may also be backed by corporate or individual guarantees from, or on behalf of, affiliated dealers, dealer groups, or dealer principals. In the event of a dealer default under a wholesale loan agreement, we have the right to liquidate assets in which we have a perfected security interest and to seek legal remedies pursuant to the wholesale loan agreement and any applicable guarantees.

Additionally, TMNA and other manufacturers may be obligated by applicable law, or under agreements with us, to repurchase or to reassign new vehicle inventory we financed that meets certain mileage and model year parameters, curtailing our risk. We also provide other types of wholesale financing to certain Toyota and Lexus dealers and other third parties, at the request of TMNA or private Toyota distributors, and TMNA or the applicable private distributor guarantees the payments by such borrowers.

Other Dealer Financing

We provide fixed and variable rate working capital loans, revolving lines of credit, and real estate financing to dealers and various multi-franchise organizations referred to as dealer groups for facilities construction and refurbishment, working capital requirements, real estate purchases, business acquisitions and other general business purposes. These loans are typically secured with liens on real estate, vehicle inventory, and/or other dealership assets, as appropriate, and may be guaranteed by individual or corporate guarantees of affiliated dealers, dealer groups, or dealer principals. Although the loans are typically collateralized or guaranteed, the value of the underlying collateral or guarantees may not be sufficient to cover our exposure under such agreements. Our pricing reflects market conditions, the competitive environment, the level of support dealers provide for our retail, lease and voluntary protection products and the creditworthiness of each dealer.

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Before establishing a wholesale loan or other dealer financing agreement, we perform a credit analysis of the dealer. During this analysis, we:

On the basis of this analysis, we may approve the issuance of a loan or financing agreement and determine the appropriate amount to lend.

As part of our monitoring processes, we require dealers to submit periodic financial statements. We also perform periodic physical audits of vehicle inventory as well as monitor the timeliness of dealer inventory financing payoffs in accordance with the agreed-upon terms to identify possible risks.

Competition

We operate in a highly competitive environment and compete with other financial institutions including national and regional commercial banks, credit unions, savings and loan associations, online banks, finance companies, and alternative financing sources. To a lesser extent, we compete with other automobile manufacturers’ affiliated finance companies that actively seek to purchase retail contracts through Toyota, Lexus, and private label dealers. We also compete with national and regional commercial banks and other automobile manufacturers’ affiliated finance companies for dealer financing. No single competitor is dominant in the industry. We compete primarily through service quality, our relationship with TMNA and third-party automotive and mobility companies to whom we provide financial services, and financing rates. We seek to provide exceptional customer service and competitive financing programs to our dealers and to their customers. Our affiliation with TMNA and relationships with third-party automotive and mobility companies to whom we provide financial services offers an advantage in providing financing or leasing of Toyota, Lexus, and private label vehicles.

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VOLUNTARY PROTECTION OPERATIONS

TMIS offers voluntary protection products on Toyota, Lexus, and other domestic and import vehicles that are primarily sold by dealers as part of the dealer’s sale of a vehicle. The majority of the voluntary protection products offered by TMIS are not regulated as insurance products. However, certain states require the Company’s contracts be backed by policies issued by a regulated insurance company. To satisfy the aforementioned requirement, TMIS utilizes its insurance company subsidiaries to underwrite certain risks. Vehicle service contracts offer vehicle owners and lessees mechanical breakdown protection for new and used vehicles secondary to the manufacturer’s new vehicle warranty. Guaranteed auto protection contracts provide coverage for a lease or retail contract deficiency balance in the event of a total loss or theft of the covered vehicle. Prepaid maintenance contracts provide maintenance services at manufacturer recommended intervals. Excess wear and use contracts are available on leases and protect against excess wear and use charges that may be assessed at lease termination. Tire and wheel protection contracts provide coverage in the event that a covered vehicle’s tires or wheels become damaged as a result of a road hazard or structural failure due to a defect in material or workmanship, to the extent not covered by the manufacturer or the tire distributor warranties. Certain tire and wheel protection contracts also cover expenses related either to replacing or reprogramming a vehicle key or vehicle key remote in the event of loss or damage. Key replacement protection contracts provide stand-alone coverage for expenses related either to replacing or reprogramming a vehicle key or vehicle key remote in the event of loss or damage. Used vehicle limited warranty contracts are included with the purchase of a used vehicle and providesprovide for the repair or replacement of certain covered components that have mechanically failed on the covered used vehicle.

TMIS provides TMNA contractual indemnity insurance coverage for limited warranties on certified Toyota and Lexus pre-owned vehicles. TMIS also provides umbrella liability insurance to TMNA and other affiliates covering certain dollar value layers of risk above various primary or self-insured retentions. On all layers in which TMIS provides coverage, 99 percent of the risk is ceded to a reinsurer.

Competition for the voluntary protection products is primarily from national and regional independent service contract providers. We compete primarily through service quality, our relationship with TMNA and third-party automotive and mobility companies to whom we provide financial services and product benefits. Our affiliation with TMNA provides an advantage in selling our voluntary protection products.

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RELATIONSHIPS WITH AFFILIATES

TMCC is party to agreements with TMNA and certain TMNA subsidiaries. For ease of reference herein, we refer solely to the parent entity, TMNA. As a result, all references to the agreements or activities of TMNA herein that are carried out by a TMNA subsidiary are deemed to also make reference to and include the applicable TMNA subsidiary.

TMNA sponsors subvention, cash and contractual residual value support incentive programs on certain new and used Toyota and Lexus vehicles. The level of incentive program activity varies based on TMNA marketing strategies, economic conditions, vehicle inventory levels, and volume of vehicle sales.

TMNA may be obligated by applicable law, or under agreements with us, to repurchase or to reassign new vehicle inventory we financed that meets certain mileage and model year parameters. We also provide financing to certain Toyota and Lexus dealers and other third parties at the request of TMNA or private Toyota distributors, and TMNA or the applicable private distributor guarantees the payments by such borrowers.

TMNA provides shared services to TMCC, including certain technological and administrative services, such as information systems support, facilities, insurance coverage, human resources and other corporate services. TMCC also provides shared services to TMNA, including certain treasury and procurement services.

TMCC is a participating employer in certain retirement and post-retirement medical care, life insurance and other benefits sponsored by TMNA, as discussed further in Note 10 – Pension and Other Benefit Plans of the Notes to Consolidated Financial Statements.

TMCC is party to agreements with TMNA and other affiliates relating to the team member vehicle benefit program, which allows team members to lease Toyota and Lexus vehicles on terms exclusive to the benefit program. TMNA serves as the chief administrator of the program. TMCC acquires and services team member leases after origination. A portion of the vehicles used for the team member vehicle benefit program are acquired from TMNA. TMCC receives a per vehicle contribution from participating affiliates to assist with the costs of its contribution to the benefit program, and TMCC pays a per vehicle participation fee to TMNA to participate in the benefit program.

TMCC and Toyota Financial Savings Bank (“TFSB”), a Nevada thrift company owned by TFSIC, are parties to a master shared services agreement under which TMCC and TFSB provide certain services to each other. TMCC and TFSB are also parties to an expense reimbursement agreement, which provides that TMCC will reimburse certain expenses incurred by TFSB in connection with providing certain financial products and services to TMCC’s customers and dealers in support of TMCC’s customer loyalty strategy and programs.

TMCC is partyreceives support from and provides support to TFSC and other affiliates in the form of promissory notes and various loan and credit facility agreements, including a revolving credit facility with TMS expiring in fiscal 2025 which may be used for general corporate purposes. This agreement is further discussed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Liquidity and Capital Resources.”

Credit support agreements exist between TMCC and TFSC and between TFSC and TMC. These agreements are further discussed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Liquidity and Capital Resources.”Resources”.

TMIS provides administrative services and various types of coverage to TMNA and other affiliates, including contractual indemnity coverage for limited warranties on TMNA’s certified pre-owned vehicle program and umbrella liability insurance.

Refer to Note 12 – Related Party Transactions of the Notes to Consolidated Financial Statements for further information.

COMPETITION

We operate in a highly competitive environment and compete with other financial institutions including national and regional commercial banks, credit unions, savings and loan associations, online banks, and finance companies.  To a lesser extent, we compete with other automobile manufacturers’ affiliated finance companies that actively seek to purchase retail contracts through Toyota, Lexus, and private label dealers. We also compete with national and regional commercial banks and other automobile manufacturers’ affiliated finance companies for dealer financing.  No single competitor is dominant in the industry.  We compete primarily through service quality, our relationship with TMNA and third-party automotive and mobility companies to whom we provide financial services, and financing rates.  We seek to provide exceptional customer service and competitive financing programs to our dealers and to their customers.  Our affiliation with TMNA and relationships with third-party automotive and mobility companies to whom we provide financial services offers an advantage in providing financing or leasing

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Table of Toyota, Lexus, and private label vehicles.

Contents

Competition for the voluntary protection products is primarily from national and regional independent service contract providers.  We compete primarily through service quality, our relationship with TMNA and third-party automotive and mobility companies to whom we provide financial services and product benefits.  Our affiliation with TMNA provides an advantage in selling our voluntary protection products.

REGULATORY ENVIRONMENT

Our finance and voluntary protection products are regulated under both federal and state law.

Federal Consumer Finance Regulation

Our finance operations are governed by, among other federal laws, the Equal Credit Opportunity Act, the Truth in Lending Act, the Consumer Leasing Act, the Fair Credit Reporting Act, the Servicemembers Civil Relief Act, the unfair, deceptive and abusive practices (UDAAP) provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), and the consumer data privacy and security provisions of the Gramm-Leach Bliley Act.

The Equal Credit Opportunity Act is designed to prevent credit discrimination on the basis of certain protected classes, requires the distribution of specified credit decision notices and limits the information that may be requested and considered in a credit transaction. The Truth in Lending Act and the Consumer Leasing Act place disclosure and substantive transaction restrictions on consumer credit and leasing transactions. The Fair Credit Reporting Act imposes restrictions and requirements regarding our use and sharing of credit reports, the reporting of data to credit reporting agencies including the accuracy and integrity of information reported, credit decision notices, consumer dispute handling procedures and identity theft prevention requirements. The Servicemembers Civil Relief Act provides additional protections for certain customers in the military. For example, it requires us, in most circumstances, to reduce the interest rate charged to customers who have subsequently joined, enlisted, been inducted or called to active military duty, and also requires us to allow eligible servicemembers to terminate their lease agreements with us early without penalty. UDAAP laws prohibit practices that are unfair, deceptive or abusive towards consumers.

Federal privacy and data security laws place restrictions on our use and sharing of consumer data, impose privacy notice requirements, give consumers the right to opt out of certain uses and sharing of their data and impose safeguarding rules regarding the maintenance, storage, transmission and destruction of consumer data. Cybersecurity and data privacy are areas of heightened legislative and regulatory focus. The timing and effects of potential legislative or regulatory changes to data privacy regulations is uncertain.

In addition, the dealers who originate our retail and lease contracts also must comply with federal credit and trade practice statutes and regulations. Failure of the dealers to comply with these statutes and regulations could result in remedies that could have an adverse effect on us.

The Consumer Financial Protection Bureau (“CFPB”) has broad rulemaking, supervisory and enforcement authority over entities offering consumer financial services or products, including non-bank companies, such as TMCC (“Covered Entities”).

The CFPB’s supervisory authority has focused on fair lending compliance, repossessions, debt collection, the treatment of customers during the COVID-19 pandemic, credit reporting, and the marketing and sale of certain optional products, including voluntary protection products we finance or sell through TMIS.

The CFPB’s supervisory authority permits it to examine Covered Entities for compliance with consumer financial protection laws. These examinations could result in enforcement actions, regulatory fines and mandated changes to our business, products, policies and procedures.

The CFPB’s enforcement authority permits it to conduct investigations (which may include a joint investigation with other agencies and regulators) of, and initiate enforcement actions related to, violations of federal consumer financial protection laws.laws, including discriminatory practices not directly covered by the Equal Credit Opportunity Act. The CFPB has the authority to obtain cease and desist orders (which can include orders for restitution or rescission of contracts, as well as other types of affirmative relief), or other forms of remediation, and/or impose monetary penalties. The CFPB and the Federal Trade Commission (“FTC”) may investigate the products, services and operations of credit providers, including banks and other finance companies engaged in auto finance activities. As a result of such investigations, both the CFPB and FTC have announced various enforcement actions against lenders in the past few years involving significant penalties, consent orders, cease and desist orders and similar remedies that, if applicable to us or the products, services and operations we offer, may require us to cease or alter certain business practices, which could have a material adverse effect on our results of operations, financial condition, and liquidity.

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State Regulation

A majority of states (and Puerto Rico) have enacted legislation establishing licensing requirements to conduct financing activities. We must renew these licenses periodically. Most states also impose limits on the maximum rate of finance charges, while other state and federal legislatures are also discussing an all-in rate cap that would include finance charges plus charges on our ancillary products such as voluntary protection products. In certain states, the margin between the present statutory maximum interest rates and borrowing costs is sufficiently narrow that, in periods of rapidly increasing or high interest rates, there could be an adverse effect on our operations in these states if we were unable to pass on increased interest costs to our customers. Some state laws impose rate and other restrictions on credit transactions with customers in active military status in addition to those imposed by the Servicemembers Civil Relief Act.

State laws also impose requirements and restrictions on us with respect to, among other matters, required credit application and finance and lease disclosures, late fees and other charges, the right to repossess a vehicle for failure to pay or other defaults under the retail or lease contract, other rights and remedies we may exercise in the event of a default under the retail or lease contract, and other consumer protection matters. Many states are also focusing on cybersecurity and data privacy as areas warranting consumer protection. Some states have passed complex legislation dealing with consumer information, which impacts companies such as TMCC. In some jurisdictions, these laws and regulations provide a private right of action that would allow customers to bring suit directly against us for mishandling their data for certain violations of these laws and regulations.

TMIS operations are subject to state regulations and licensing requirements. State laws vary with respect to which products are regulated and what types of corporate licenses and filings are required to offer certain products. Certain products offered by TMIS are covered by state privacy laws as well as new cybersecurity and data privacy legislation. Our insurance company subsidiaries must be appropriately licensed in certain states in which they conduct business, must maintain minimum capital requirements and file annual financial information as determined by their state of domicile and the National Association of Insurance Commissioners. Failure to comply with these requirements could have an adverse effect on voluntary protection operations in a particular state. We actively monitor applicable laws and regulations in each state in order to maintain compliance.

State regulators are taking a more stringent approach to supervising and regulating providers of financial products and services subject to their jurisdiction. In addition, we are subject to governmental and regulatory examinations, information-gathering requests and investigations from time to time. We expect to continue to face greater supervisory scrutiny and enhanced supervisory requirements for the foreseeable future.

Other Federal and International Regulation

Under the Volcker Rule, companies affiliated with U.S. insured depository institutions are generally prohibited from engaging in “proprietary trading” and certain transactions with certain privately offered funds. The activities prohibited by the Volcker Rule are not core activities for us. However, the federal financial regulatory agencies charged with implementing the Volcker Rule could further amend the rule or change their approach to administering, enforcing or interpreting the rule, which could negatively affect us and potentially require us to limit or change our activities or operations.

The Dodd-Frank Act amended the U.S. Commodity Exchange Act (“CEA”) to establish a comprehensive framework for the regulation of certain over-the-counter (“OTC”) derivatives referred to as swaps. Under the Dodd-Frank Act, the Commodity Futures Trading Commission (“CFTC”) is required to adopt certain rules and regulations governing swaps. The CFTC has completed almost all of its regulations in this area, most of which are in effect.

The OTC derivatives provisions of the CEA, as amended by the Dodd-Frank Act, impose clearing, trading and margin requirements on certain contracts.  At present, we qualify for exceptions from these requirements for the swaps that we enter into to hedge our commercial risks.  However, if we were to no longer qualify for such exceptions, we could become subject to some or all of these requirements, which would increase our cost of entering into and maintaining such hedging positions.  

If we reduce our use of OTC derivatives as a result of the Dodd-Frank Act and resulting regulations, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures.

We continually review our operations for compliance with applicable laws. Future administrative rulings, judicial decisions, legislation, regulations and regulatory guidance, and supervision and enforcement actions may result in monetary penalties, increase our compliance costs, require changes in our business practices, affect our competitiveness, impair our profitability, harm our reputation or otherwise adversely affect our business.

Concern over climate change or other environmental matters may result in new or increased legal and regulatory requirements and new financial incentives regarding electrified vehicles intended to mitigate factors contributing to, or intended to address the potential impacts of, climate change or other environmental concerns. In August 2022, the Inflation Reduction Act (“the Act”) was signed into law. The Act modifies climate and clean energy corporate tax provisions, including, among other things, amendments to the federal tax credit for plug-in vehicles available under current tax law. Such regulations (including laws related to greenhouse gas emitting products or services) and government incentives may require us to alter our proposed business plans, lead to increased compliance costs and changes to our operations and could have an adverse effect on our business, results of operations and financial condition.

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Refer to Part 1, Item 1A. Risk Factors , "Regulatory, Legal, and Other Risks"– “The regulatory environment in which we operate could have a material adverse effect on our business and results of operations.”

HUMAN CAPITAL

Employees

At April 30, 2021,March 31, 2023, we had approximately 3,6003,800 employees. We consider our employee relations to be satisfactory. We are not subject to any collective bargaining agreements with our employees. Depending on business needs, and as appropriate, we have implemented hybrid work models, which permit a mix of onsite and remote work arrangements for certain roles.

Culture

Our human capital objective in managing our business is to attract, retain, and fully engage the talent oftalented team members who share our team members.core values, including continuous improvement and respect for people. Toyota’s corporate culture is driven by “The Toyota Way”Philosophy”, our guiding philosophyroadmap of the company we want to be, which is woven intounderpinned by our core values, including continuous improvementmission of producing happiness for all and respectour vision of creating mobility for people.all. Our team members are actively involved in Toyota’s transformation toward becoming a mobility company and promoting our mission of happiness for all and our vision of creating mobility for all.company. We offer a variety of training opportunities and career development resources to enhance the skills of our team members, encourage innovation, and encourage innovation.create an attractive workplace where employees want to stay and grow. Our hybrid work schedules (offered as appropriate) are intended to provide flexibility to our team members, strengthen employee retention, and enable us to attract a broad and inclusive workforce. We encourage teamwork and collaboration and know that valuing diverse backgrounds, experiences, and perspectives areis the right thing to do not only for our team members, but also for our business.

Diversity and Inclusion

We envision a world made better by a future of boundless physical and economic mobility for all – driven by the power of engaged, diverse, and inclusive environments.  We believe in equality, respect, and the inclusive treatment of all people.people, and we promote a workplace where all team members can play an active role. We believe that our team membersfostering a company culture that values and promotes diversity and inclusion helps us to achieve higher levels of productivity, enhances our competitiveness and ability to innovate, spurs creativity among our team members, and deepens our ability to understand and serve our customers.

We sponsor Business Partnering Groups, which are more creative,employee-driven networks based on common identities, affinities, experiences, and more innovative when we foster a companyallyship, that allow team members to connect with each other, grow professionally, support our business goals, and help build the inclusive culture that activates inclusionrepresents the future of our company. We also offer trainings and diversity at all levels.  workshops to educate team members and foster an inclusive and supportive environment.

Our Executive Diversity and Inclusion Committee endeavors to guide, endorse and support our diversity and inclusion strategic efforts. We have also appointed certain team members as Diversity Champions who are responsible for providing diversity and inclusion leadership and strategic support. These Diversity Champions serve as visible role models who create positive impact by helping apply diversity and inclusion subject matter to ongoing business priorities. Toyota’s external Diversity Advisory Board works in partnership with our executive and senior leaders wholeadership to reinforce diversity and inclusion strategies toand offer insight and perspective that helps Toyota cultivate a diversity and inclusion mindset across the enterprise.

Health and Safety

We recognize the health, safety, and well-being of our team members is a top priority. Actively cultivating a culture, environment, and team member experience that embraces, empowers, and respects all people - including their health, wellbeing, and safety - drives innovation and relevancy. For example, in responseWe offer a variety of support and benefits to the COVID-19 pandemic, we consulted with medical professionals and instituted policies and practices to protect our team members beyond traditional healthcare, including adoption and fertility benefits, parental leave, mental and financial health services, wellness programs, and support to enable people with disabilities to fully utilize their families.  We transitioned nearly alltalents.

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Contents

ITEM 1A. RISK FACTORS

We are exposed to certain risks and uncertainties that could have a material adverse impact on our business, results of operations and financial condition. There may be additional risks and uncertainties not presently known to us or that we currently consider immaterial that may also have a material adverse impact on our business, results of operations and financial condition.

Industry and Business RiskINDUSTRY AND BUSINESS RISK

We face various risks related to health epidemics and other outbreaks, which have had and are expected to continue to have material adverse effects on our business, financial condition, results of operations and cash flows.

We face various risks related to health epidemics and other outbreaks, including the global outbreak of coronavirus (“COVID-19”).  The COVID-19 pandemic has led, and will likely continue to lead, to disruption and volatility in the global capital markets and in the economies of many nations.  In the United States, the COVID-19 pandemic has caused an unprecedented level of unemployment claims, resulted in a decline in consumer confidence and spending, and economic volatility.

The negative economic conditions arising from the COVID-19 pandemic impacted certain of our financial results during fiscal year 2021, including higher provision for credit losses on our retail loan portfolio primarily due to the increase in expected credit losses, as well as higher funding costs during the first quarter of fiscal year 2021.  In addition, the COVID-19 pandemic and restrictions intended to slow the spread of COVID-19 have adversely affected the business of our affiliate, TMNA, and our ultimate parent, TMC, in a number of ways, including a decrease in new inventory resulting from production halts and supply shortages.

The long-term and ultimate impacts of the social, economic and financial disruptions caused by the COVID-19 pandemic are unknown.  The ultimate duration or possible resurgence of the COVID-19 pandemic or similar public health issues are also uncertain.  Further, if new strains of COVID-19 develop or sufficient amounts of vaccines are not available, not widely administered for a significant period of time, not used by consumers, or otherwise prove ineffective, the impact of COVID-19 on the global economy, and, in turn, on our financial condition, liquidity and results of operations could be material.  The extension of curtailed economic activities as a result of further outbreak of COVID-19, extended or additional government restrictions intended to slow the spread of the virus, delayed consumer response once restrictions have been lifted, or permanent behavior changes in consumer spending, could have further negative impact on consumer economics, dealerships, and auction sites, which could have a material adverse impact on our future results of operations.  In addition, a possible resurgence of the COVID-19 may subject us to, among several other things, increased delinquencies and defaults by our customers and dealers, the reinstatement of certain payment relief options, closures of plants by TMNA, and disruption among our supply chain and with other third-party vendors.

General business, economic, and geopolitical conditions, as well as other market events, may adversely affect our business, results of operations and financial condition.

Our results of operations and financial condition are affected by a variety of factors, including changes in the overall market for retail contracts, wholesale motor vehicle financing, leasing or dealer financing, the new and used vehicle market, changes in the level of sales of Toyota, Lexus, and private label vehicles, the rate of growth in the number and average balance of customer accounts, the U.S. regulatory environment, competition from other financiers, rate of default by our customers, the interest rates we are required to pay on the funding we require to support our business, amounts of funding available to us, changes in the U.S. and international wholesale capital funding markets, our credit ratings, the success of efforts to expand our product lines, levels of operating and administrative expenses including, but not limited to, personnel costs, technology costs and premises costs (including costs associated with reorganization or relocation), general economic conditions, inflation, consequences from changes in tax laws, and fiscal and monetary policies in the U.S., Europe and other countries in which we issue debt. Further, a significant and sustained increase in fuel prices could lead to lower new and used vehicle purchases. This could reduce the demand for retail, lease, and wholesale financing. In turn, lower used vehicle values could affect return rates, charge-offs, and depreciation on operating leases.

Economic slowdown and recession in the United States has generally led, and may continue to lead to diminished consumer and business confidence, inflation, lower household incomes, increases in unemployment rates, higher consumer debt levels as well as higher consumer and commercial bankruptcy filings, any of which could adversely affect vehicle sales and discretionary consumer spending. These conditions may decrease the demand for our financing products, as well as increase our delinquencies and credit losses. In addition, because our credit exposures are generally collateralized by vehicles, the severity of losses can be particularly affected by declines in used vehicle values.

Dealers are also affected by economic slowdown and recession, which increases the risk of default of certain dealers within our dealer portfolio.

Elevated levels of market disruption and volatility such asglobally or in the U.S., Europe and Asia, could increase our cost of capital and adversely affect our ability to access the global capital markets and fund our business in a similar manner, and at a similar cost to the funding raised in the past. These market conditions could also have an adverse effect on our results of operations and financial condition by diminishing the value of our investment portfolio and increasing our cost of funding. If as a result we increase the rates we charge to our customers and dealers, our competitive position could be negatively affected.

Challenging market conditions such as those that we saw during the beginning of the COVID-19 pandemic, may result in less liquidity, greater volatility, widening of credit spreads and lack of price transparency in credit markets. Changes in investment markets, including changes in interest rates, exchange rates and returns from equity, property, and other investments, will affect (directly or indirectly) our financial performance.

If there isDuring a continued and sustained period of market disruption and volatility:

Any of these developments could have an adverse effect on our results of operations and financial condition.

Geopolitical conditions and other market events may also impact our results of operations. Restrictive exchange or import controls or other disruptive trade policies, disruption of operations as a result of systemic political or economic instability (including any uncertainty over the U.S. government debt ceiling), adverse changes to tax laws and regulations, social unrest, outbreak of war or expansion of hostilities (including the current conflict in Ukraine), health epidemics and other outbreaks, climate-related risk, and acts of terrorism, could each have a material adverse effect on our results of operations and financial condition.  For example, while we operate in the U.S. and Puerto Rico, the global financial, trade, and legal implications of the United Kingdom’s withdrawal from the European Union (“Brexit”) could lead to among other things, declines in market liquidity and activity levels, volatile market conditions, a contraction of available credit, inflation, fluctuations in interest rates, weaker economic growth, and reduced business confidence on an international level, each of which could have a material adverse effect on our results of operations and financial condition.

Changes in interest rates and credit spreads may adversely affect our business, results of operations and financial condition.

U.S. benchmark interest rates and credit spreads have both increased during fiscal 2023. When interest rates are high or increasing, we generally expect to earn higher financing revenue from our new originations. However, during fiscal 2023, increasing rates have and in the future could continue to have an adverse effect on our business, financial condition and results of operations by increasing our cost of capital and the rates we charge to our customers and dealers, which could, in turn, decrease our financing volumes and market share, as a result of customers and dealers seeking alternative solutions or increasing the amount of cash purchases, thereby resulting in a decline in our competitive position. On the other hand, a low or negative interest rate environment may increase our financing volumes and market share, however it could also have an adverse effect on our business, financial condition and results of operations by reducing returns on our investments in marketable securities and compressing our net interest margin. When credit spreads widen, it becomes more expensive for us to borrow. Our credit spreads may widen or narrow not only in response to events and circumstances that are specific to us but also as a result of general economic and geopolitical events and conditions. Changes in credit spreads will affect, positively or negatively, the value of our derivatives, which could result in volatility in our results of operations, financial condition, and cash flows.

Our results of operations and financial condition are substantially dependent upon the sale of Toyota, Lexus, and private label vehicles, as well as our ability to offer competitive financing and voluntary protection products.

We primarily provide a variety of finance and voluntary protection products to authorized Toyota, Lexus, and private label dealers and their customers in the U.S. Accordingly, our business is substantially dependent upon the sale of Toyota, Lexus, and private label vehicles in the U.S. Changes in the volume of sales may result from governmental action or changes in governmental regulation or trade policies, changes in consumer demand, new vehicle incentive programs, recalls, the actual or perceived quality, safety or reliability of Toyota, Lexus, and private label vehicles, economic conditions, inflation, increased competition, increases in the price of vehicles due to increased raw material costs, changes in import fees or tariffs on raw materials or imported vehicles, changes to or withdrawals from trade agreements, currency fluctuations, fluctuations in interest rates, decreased or delayed vehicle production due to extreme weather conditions, natural disasters, supply chain interruptions, including shortages of parts, components or raw materials, or other events. For example, our affiliate, TMNA, and our ultimate parent, TMC, have continued to experience a decrease in new inventory resulting from production constraints due to supply shortages affecting the severe weather that many parts ofautomotive industry and continued steady demand in the U.S. experienced during the fourth quarter of fiscal 2021, resulted in a shortage of petrochemicals that affected the production at certain of TMNA’s production facilities.for new vehicles. Any negative impact on the volume of Toyota, Lexus, and private label vehicle sales in the U.S. could have a material adverse effect on our business, results of operations, and financial condition.

TMS a subsidiary of TMNA, is the primary distributor of Toyota and Lexus vehicles in the U.S. While TMNA conducts extensive market research before launching new or refreshed vehicles and introducing new services, many factors both within and outside TMNA’s control affect the success of new or existing products and services in the marketplace. Offering vehicles and services that customers want and value can mitigate the risks of increasing price competition and declining demand, but products and services that are perceived to be less desirable (whether in terms of product mix, price, quality, styling, safety, overall value, fuel efficiency, or other attributes) and the level of

availability of products and services that are desirable can exacerbate these risks. With increased consumer interconnectedness through the internet, social media, and other media, mere allegations relating to quality, safety, fuel efficiency, corporate social responsibility (including related to climate change or other environmental issues), or other key attributes can negatively impact TMNA’s reputation or market acceptance of its products or services, even where such allegations prove to be inaccurate or unfounded. Any negative impact to TMNA’s reputation or market acceptance of its products or services could have an adverse impact on vehicle sales, which could have an adverse effect on our business, results of operations and financial condition.

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The volume of TMNA sales may also be affected by Toyota’s ability to successfully grow through investments in the area of emerging opportunities such as mobility and connected services, vehicle electrification, fuel cell technology and autonomy, which depends on many factors, including advancements in technology, regulatory changes, and other factors that are difficult to predict.

We operate in a highly competitive environment and compete with other financial institutions and, to a lesser extent, other automobile manufacturers’ affiliated finance companies primarily through service, quality, our relationship with TMNA, and financing rates. TMNA sponsors subvention, cash, and contractual residual value support incentive programs offered by us on certain new and used Toyota and Lexus vehicles. Our ability to offer competitive financing and voluntary protection products in the U.S. depends in part on the level of TMNA sponsored subvention, cash, and contractual residual value support incentive program activity, which varies based on TMNA marketing strategies, economic conditions, and the volume of vehicle sales, among other factors. Any negative impact on the level of TMNA sponsored subvention, cash, and contractual residual value support incentive programs could in turn have a material adverse effect on our business, results of operations, and financial condition.

Changes in consumer behavior could affect the automotive industry, TMNA and TMC, and, as a result, our business, results of operations and financial condition.

A number of trends are affecting the automotive industry. These include a market shift from cars to sport utility vehicles (“SUVs”) and trucks, high demand for incentives, the rise of mobility services such as vehicle sharing and ride hailing, the development of autonomous and alternative-energy vehicles, the impact of demographic shifts on attitudes and behaviors toward vehicle ownership and use, the development of flexible alternatives to traditional financing and leasing such as subscription service offerings, changing expectations around the vehicle buying experience, increased focus on climate-related initiatives and regulation, adjustments in the geographic distribution of new and used vehicle sales, and advancements in communications and technology. Any one or more of these trends could adversely affect the automotive industry, TMNA and TMC, and could in turn have an impact on our business, results of operations and financial condition.

Recalls and other related announcements by TMNA or private label companies could affect our business, results of operations and financial condition.

TMNA, or other manufacturers of the vehicles we finance, periodically conducts vehicle recalls which could include temporary suspensions of sales and production of certain Toyota, Lexus, and private label vehicle models. Because our business is substantially dependent upon the sale of Toyota and Lexus vehicles, such events could adversely affect our business. A decrease in the level of sales, including as a result of the actual or perceived quality, safety or reliability of Toyota, Lexus, and private label vehicles or a change in standards of regulatory bodies will have a negative impact on the level of our financing and voluntary protection products volume, earning assets, Net financing revenues and VoluntaryVoluntary protection contract revenues and insurance earned premiums.premiums. The credit performance of our dealer and consumer portfolios may also be adversely affected. In addition, a decline in the values of used Toyota, Lexus, and private label vehicles would have a negative effect on residual values and return rates, which, in turn, could increase depreciation expense and credit losses. Further, certain of TMCC’s affiliated entities are or may become subject to litigation and governmental investigations and have been or may become subject to fines or other penalties. These factors could affect sales of Toyota, Lexus and private label vehicles and, accordingly, could have a negative effect on our business, results of operations and financial condition.

If we are unable to compete successfully or if competition increases in the businesses in which we operate, our results of operations could be negatively affected.

We operate in a highly competitive environment. We compete with other financial institutions including national and regional commercial banks, credit unions, savings and loan associations, finance companies, and to a lesser extent, other automobile manufacturers’ affiliated finance companies. In addition, online financing options provide consumers with alternative financing sources. Increases in competitive pressures could have an adverse impact on our contract volume, market share, Net financing revenues, Voluntary protection contract revenues and insurance earned premiums. Further, the financial condition and viability of our competitors and peers may have an adverse impact on the financial services industry in which we operate, resulting in a decrease in the demand for our products and services. This could have an adverse impact on the volume of our business and our results of operations.

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A failure or interruption in our operations could adversely affect our results of operations and financial condition.

Operational risk is the risk of loss resulting from, among other factors, lack of established processes, inadequate or failed processes, systems or internal controls, theft, fraud, extreme weather conditions, natural disasters (such as wildfires, floods, tornadoes, earthquakes, hurricanes including an increase in the frequency of such conditions and disasters as the result of climate change) or other catastrophes (including without limitation, explosions, fires, floods, earthquakes, terrorist attacks, riots, civil disturbances and health epidemics and other outbreaks). Operational risk can occur in many forms including, but not limited to, errors, business interruptions, failure of controls, failure of systems or other technology, deficiencies in our voluntary protection product operations risk management program, inappropriate behavior or misconduct by our employees or those contracted to perform services for us, and vendors that do not perform in accordance with their contractual agreements. We have established business recovery plans to address interruptions in our operations, but we can give no assurance that these plans will be adequate to remediate all events that we may face. A catastrophic event that results in the destruction or disruption of any of our critical business or information technology systems could harm our ability to conduct normal business operations. These events can potentially result in financial losses or other damage to us, including damage to our reputation.

We rely on a framework of internal controls designed to provide a sound and well-controlled operating environment. Due to the complexity of our business and the challenges inherent in implementing control structures across large organizations, control issues could be identified in the future that could have a material adverse effect on our operations.

We are currently in the process of restructuring our customer service operations to better serve our customers by relocating and streamlining the customer service operation, moving our three regional CSCs to be co-located with the regional DSCs, and investing in new technology.  We can give no assurance that the restructuring of our customer service operations will be completed as planned or within the expected timing or budget, and the expected benefits may not be fully realized due to associated disruption to customer service operations and personnel.

In addition, many parts of our business, including software, technology, marketing and finance, are dependent on key personnel. Competition for such employees is intense, which may increase our operating and administrative expenses and lead to other changes including flexible work arrangements and other considerations. Our future success depends on our ability to retain existing, and attract, hire and integrate new key personnel and other necessary employees. Any failure to do so could adversely affect our business, results of operations and financial condition.

Our private label financial services for third-party automotive and mobility companies may expose us to additional risks that could adversely affect our business, results of operations and financial condition.

On April 1, 2020,In fiscal 2021, we began providing private label financial services to third-party automotive and mobility companies commencing with the provision of services to Mazda Motor of America, Inc. (“Mazda”). Pursuant to the agreement with Mazda, we currently offer exclusive private label automotive retail, lease, voluntary protection products and dealer financing products and services marketed under the brands Mazda Financial Services and Mazda Protection Products to Mazda customers and dealers in the United States.U.S. The agreement with Mazda is for an initial term of approximately five years.

In fiscal 2022, we announced that we entered into a nonbinding letter of intent with Bass Pro Shops to provide private label financial services for Bass Pro Shop’s boats, all-terrain vehicle products, and other mobility products. The Company began to provide inventory financing for Bass Pro Shops, its affiliates, and authorized independent dealers in fiscal 2023, with additional private label services, including consumer financing and voluntary protection products and services, to be added over time.

We are currently leveraging our existing processes and personnel to originate and service the new assets and we expect to make certain technology investments to support the Bass Pro Shops program; however, we will continue to evaluate the private label financial services business, which may include partnering with or transitioning the business to our affiliates, some of which are not consolidated with TMCC.

Although we intend to leverage our strengths and capabilities to serve and retain new private label customers, we may encounter additional costs and may fail to realize the anticipated benefits of our private label financial services program. The provision and or servicing of wholesale and retail financing to private label dealers and customers may result in additional credit risk exposure, which if we are unable to appropriately monitor and mitigate may result in an adverse effect on our results of operations and financial condition. Our private label financial services may also expose us to additional operating risks related to consumer demand for private label vehicles or mobility products, the profitability and financial condition of private label companies, the level of the private label incentivized retail financing, recalls announced by the private label and the perceived quality, safety or reliability of the private label vehicles or mobility products, and changes in prices of the private label used vehicles and their effect on residual values of the private label off-lease vehicles and return rates, each of which may adversely affect our business, results of operations and financial condition.

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Financial MarketWe face various risks related to health epidemics and Economic Risksother outbreaks, which have had and may continue to have material adverse effects on our business, financial condition, results of operations and cash flows.

We face various risks related to health epidemics and other outbreaks, such as the global outbreak of coronavirus (“COVID-19”), which have led, and may in the future lead, to periodic disruption and volatility in the global capital markets and in the economies of many nations, including the United States, and which in turn, could have a material impact on our financial condition, liquidity, and results of operations. Although U.S. and global economies have begun to recover from the COVID-19 pandemic, certain adverse consequences of the pandemic, including labor shortages, disruptions of global supply chains and inflationary pressures, continue to impact the U.S. and global economies, which have continued to impact certain of our financial results during fiscal year 2023, including a decrease in financing volume due to lower dealer inventory levels, which has resulted in lower levels of subvention and incentives as well as increased competition from other financial institutions. The long-term and ultimate impacts of the social, economic, and financial disruptions caused by the COVID-19 pandemic, including negative impacts on our financial condition, liquidity and results of operations, will depend on future developments that remain uncertain, including, for example, future actions taken by governmental authorities, central banks and other parties in response to the pandemic and its adverse consequences, and the effects on our customers, dealers, and competitors.

The likelihood of future health epidemics or other outbreaks, the ultimate duration of any pandemic, and the possibility of a resurgence of the COVID-19 pandemic or similar public health issues are uncertain. A new pandemic or the resurgence of the COVID-19 pandemic may subject us to, among several other things, increased delinquencies and defaults by our customers and dealers, the reinstatement of certain payment relief options, closures of plants by TMNA, and disruption among our supply chain and with other third-party vendors.

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FINANCIAL MARKET AND ECONOMIC RISKS

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.

The availability and cost of financing is influenced by credit ratings, which are intended to be an indicator of the creditworthiness of a particular company, security or obligation. Our credit ratings depend, in large part, on the existence of the credit support arrangements with TFSC and TMC and on the financial condition and results of operations of TMC. If these arrangements (or replacement arrangements acceptable to the rating agencies) become unavailable to us, or if the credit ratings of the credit support providers were lowered, our credit ratings would be adversely impacted.

Credit rating agencies which rate the credit of TMC and its affiliates, including TMCC, may qualify or alter ratings at any time. Global economic conditions, including the ongoing impact of COVID-19 and other geopolitical factors may directly or indirectly affect such ratings. Any downgrade in the sovereign credit ratings of the U.S. or Japan may directly or indirectly have a negative effect on the ratings of TMC and TMCC. Downgrades or placement on review for possible downgrades could result in an increase in our borrowing costs as well as reduced access to the global unsecured debt capital markets. These factors would have a negative impact on our competitive position, results of operations, liquidity and financial condition.

A disruption in our funding sources and access to the capital markets would have an adverse effect on our liquidity.

Liquidity risk is the risk arising from our ability to meet obligations in a timely manner when they come due. Our liquidity strategy is to maintain the capacity to fund assets and repay liabilities in a timely and cost-effective manner even in adverse market conditions. A disruption in our funding sources may adversely affect our ability to meet our obligations as they become due. An inability to meet obligations in a timely manner would have a negative impact on our ability to refinance maturing debt and fund new asset growth and would have an adverse effect on our results of operations and financial condition.

Refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Liquidity and Capital Resources”for further discussion of liquidity risk.

Our allowance for credit losses may not be adequate to cover actual losses, which may adversely affect our results of operations and financial condition.

We maintain an allowance for credit losses to cover lifetime expected credit losses as of the balance sheet date resulting from the non-performance of our customers and dealers under their contractual obligations. The determination of the allowance involves significant assumptions, complex analyses, and management judgment and requires us to make significant estimates of current credit risks using existing qualitative and quantitative information. Actual results may differ from our estimates or assumptions. For example, we review and analyze external factors, including changes in economic conditions, actual or perceived quality, safety and reliability of Toyota, Lexus, and private label vehicles, unemployment levels, the used vehicle market, and consumer behavior, among other factors. Internal factors, such as purchase quality mix and operational changes are also considered. A change in any of these factors would cause a change in estimated lifetime expected credit losses. As a result, our allowance for credit losses may not be adequate to cover our actual losses. In addition, changes in accounting rules and related guidance, new information regarding existing portfolios, and other factors, both within and outside of our control, may require changes to the allowance for credit losses. A material increase in our allowance for credit losses may adversely affect our results of operations and financial condition.

Refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Critical Accounting Estimates” for further discussion of the estimates involved in determining the allowance for credit losses and Note 4 – Allowance for Credit Losses of the Notes to Consolidated Financial Statements for further discussion of the methodology used in determining the allowance for credit losses.

Our business and operations make extensive use of quantitative models, estimates and assumptions. If our design, implementation or use of models is flawed or if actual results differ from our estimates or assumptions, our results of operations and financial condition could be materially and adversely affected.

We use quantitative models, estimates and assumptions to price products and services, measure risk, estimate asset and liability values, assess liquidity, manage our balance sheet, and otherwise conduct our business and operations. If the design, implementation, or use of any of these models is flawed or if actual results differ from our estimates or assumptions, it may adversely affect our results of operations and financial condition. In addition, to the extent that any inaccurate model outputs are used in reports to regulatory agencies or the public, we could be subjected to

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supervisory actions, litigation, and other proceedings that may adversely affect our business, results of operations and financial condition.

Assumptions and estimates often involve matters that require the exercise of management’s judgment, are inherently difficult to predict and are beyond our control (for example, macro-economic conditions). In addition, such assumptions and estimates often involve complex interactions between a number of dependent and independent variables, factors, and other assumptions. As a result, our actual experience may differ materially from these estimates and assumptions. A material difference between our estimates and assumptions and our actual experience may adversely affect our results of operations and financial condition.

Fluctuations in the valuation of investment securities or significant fluctuations in investment market prices could negatively affect our Net financing revenues and results of operations.

Investment market prices, in general, are subject to fluctuation, which may result from perceived changes in the underlying characteristics of the investment, the relative price of alternative investments, geopolitical conditions, or general market conditions. Negative fluctuations in the fair value of equity investments and credit losses on available-for-sale debt securities may adversely affect our Net financing revenues and results of operations. Additionally, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value and could negatively affect our Net financing revenues and other revenues.

A decrease in the residual values of our off-lease vehicles and a higher number of returned lease assets could negatively affect our results of operations and financial condition.

We are exposed to residual value risk on the disposition of leased vehicles if sales proceeds realized upon the sale of returned lease assets are not sufficient to cover the residual value that was estimated at lease inception and if the number of returned lease assets is higher than anticipated. 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 resulting in additional depreciation expense over the term of the lease contract so that the carrying value at lease-end will approximate the estimated end-of-term market value. Among other factors, local, regional and national economic conditions, inflation, new vehicle pricing, new vehicle incentive programs, new vehicle sales, the actual or perceived quality, safety or reliability of our vehicles, future plans for new Toyota, Lexus, and private label product introductions, competitive actions and behavior, product attributes of popular vehicles, the mix of used vehicle supply, the level of current used vehicle values and inventory levels, and fuel prices heavily influence used vehicle values and thus the actual residual value of off-lease vehicles. Differences between the actual residual values realized on leased vehicles and our estimates of such values at lease inception could have a negative impact on our results of operations and financial condition, due to the impact of higher-than-anticipated Depreciation on operating leases recorded in our Consolidated Statements of Income. Actual return volumes may be higher than expected which can be impacted by higher contractual lease-end residual values relative to market values, a higher market supply of certain models of used vehicles, new vehicle incentive programs, and general economic conditions. The return of a higher number of leased vehicles could also impact the amount of depreciation expense recorded in our Consolidated Statements of Income, which could adversely affect our results of operations and financial condition.

Refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Financial Condition – Residual Value Risk”, “Financial“Financial Condition – Disposition of Off-Lease Vehicles” and “Financial“Financial Condition – Depreciation on Operating Leases” for further discussion of current lease trends.

We are exposed to customer and dealer credit risk, which could negatively affect our results of operations and financial condition.

Credit risk is the risk of loss arising from the failure of a customer or dealer to meet the terms of any retail, lease or dealer financing contract with us or otherwise fail to perform as agreed. An increase in credit risk would increase our provision for credit losses, which would have a negative impact on our results of operations and financial condition. There can be no assurance that our monitoring of credit risk and our efforts to mitigate credit risk are or will be sufficient to prevent an adverse effect on our results of operations and financial condition.

The level of credit risk in our retail loan portfolio is influenced primarily by two factors: the total number of contracts that experience default (“default frequency”) and the amount of loss per occurrence (“loss severity”), which in turn are influenced by various economic factors, the used vehicle market, purchase quality mix, contract term length, and operational changes. The used vehicle market is impacted by the supply of, and demand for, used vehicles, interest rates, inflation, new vehicle incentive programs, the manufacturer’s actual or perceived reputation for quality, safety, and reliability, and the general economic outlook.

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The level of credit risk in our dealer portfolio is influenced primarily by the financial strength of dealers within our portfolio, dealer concentration, collateral quality, and other economic factors. The financial strength of dealers within our portfolio is influenced by general macroeconomic conditions, the overall demand for new and used vehicles, and the financial condition of automotive manufacturers, among other factors.

Economic slowdown and recession in the U.S., extreme weather conditions, natural disasters, health epidemics, and other factors increase the risk that a customer or dealer may not meet the terms of a retail, lease or dealer financing contract with us or may otherwise fail to perform as agreed. A weak economic environment evidenced by, among other things, unemployment, underemployment, and consumer bankruptcy filings, may affect some of our customers’ and dealers’ ability to make their scheduled payments.

Our results of operations, financial condition and cash flows may be adversely affected by market risks related to changes in interest rates, foreign currency exchange rates and market prices.

Market risk is the risk that changes in interest rates and foreign currency exchange rates cause volatility in our results of operations, financial condition and cash flows.  An increase in interest rates could have an adverse effect on our business, financial condition and results of operations by increasing our cost of capital and the rates we charge to our customers and dealers, which could, in turn, decrease our financing volumes and market share, thereby resulting in a decline in our competitive position. We use various derivative instruments to manage our market risk. However, changes in interest rates, foreign currency exchange rates and market prices cannot always be predicted or hedged. Changes in interest rates or foreign currency exchange rates (due to inflationary pressure or other factors) could affect our interest expense and the value of our derivatives, which could result in volatility in our results of operations, financial condition, and cash flows.

Uncertainty about theThe transition away from the London Interbank Offered Rate (“LIBOR”) and the adoption of alternative reference rates (“ARRs”) could adversely impact our business and results of operations.

We are exposed to LIBOR-based financial instruments, including through certain of our dealer financing activities, derivative contracts, secured and unsecured debt, and investment securities.

In July 2017, The transition away from the Chief Executive of the United Kingdom Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calculationuse of LIBOR to alternative rates and other potential interest rate benchmark reforms is continuing. These reforms have caused and may in the administrator of LIBOR after 2021. Further,future cause such rates to perform differently than in July 2018 the FCA announced that LIBOR may ceasepast, or to disappear entirely, or have other consequences which cannot be a regulated “benchmark.”  predicted.

The announcement indicates that the continuation of LIBOR on the current basis (or at all) cannot and will not be guaranteed after 2021. In November 2020, ICE Benchmark Administration, the administrator of LIBOR, announced its intention to continue publication of overnightnon-U.S. dollar LIBOR rates on a representative basis, as well as the publication of the lesser used 1-week and one-, three-, six- and 12-month2-month U.S. dollar LIBOR rates throughtenors, ceased as of the end of December 2021. The most commonly used U.S. dollar LIBOR tenors are expected to continue to be published until June 30, 2023. However, the United States Federal Reserve and other regulatory agencies issued guidance encouraging banks to cease entering into new contracts that use U.S. dollar LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021.  On March 5, 2021, the FCA announced that certain LIBOR rates will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021 (or, in the case of overnight and one-, three-, six- and 12-month U.S. dollar LIBOR rates, immediately after June 30, 2023).  It is impossible to predict the impact of this announcement on LIBOR rates, whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR or whether any additional reforms to LIBOR may be enacted.

In June 2017, the New York Federal Reserve’s Alternative Reference Rates Committee announcedrecommended the Secured Overnight Financing Rate (“SOFR”) as its recommendedan alternative to U.S. dollar LIBOR. On December 16, 2022, the Federal Reserve Board adopted the final rule that implemented The Adjustable Interest Rate (LIBOR) Act passed by Congress in March 2022 (“LIBOR Act”). The LIBOR Act identified benchmark replacement rates based on SOFR for covered derivative transactions and cash transactions where a practicable interest rate fallback method has not been established by June 30, 2023.

The composition and characteristics of SOFR are not the same as those of LIBOR. SOFR is a broad U.S. Treasury repurchase agreement market financing rate that represents overnight secured funding transactions.  This means that SOFR is fundamentally different from LIBOR for two key reasons. First, SOFR is a secured rate, while LIBOR is an unsecured rate. Second, SOFR is an overnight rate, while LIBOR represents interbank funding over different maturities. As a result, there can be no assurance that SOFR or any alternative reference rateARR will perform in the same way as LIBOR would have at any time, including, without limitation, as a result of changes in interest and yield rates in the market, market volatility or global or regional economic, financial, political, regulatory, judicial or other events. For example, since publication of SOFR began on April 3, 2018, daily changes in SOFR have, on occasion, been more volatile than daily changes in comparable benchmark or other market rates.  With limited operating history, it remains unknown whether SOFR will be broadly accepted, whether it will continue to evolve and what the effects of its implementation may be on the markets for financial instruments. If SOFR or another rate does not achieve wide acceptance asAlthough the alternativeLIBOR Act and its implementing regulations include safe harbors if the Federal Reserve Board’s SOFR-based replacement rates are used, these safe harbors are untested, and we could still be exposed to LIBOR, there likely will be disruption to the markets relying on the availability of a broadly accepted reference rate.risks associated with disputes and litigation with counterparties and other market participants in connection with implementing replacement rates for LIBOR.

To facilitate an orderly transition from LIBOR to alternative reference rates,ARRs, we have established an initiative led by senior management, with Board and committee oversight. We are evaluatingAs a result of this initiative, we have committed to using SOFR linked rates in connection with various borrowing arrangements and Prime as alternative reference rates, and working to assess and mitigate risks associatedin connection with the discontinuation of LIBOR. Even if an alternative

reference rate becomes widely accepted,various lending arrangements. Nevertheless, we may continue to be subject to risk on certain outstanding instruments which rely on LIBOR. ForThose risks arise in connection with transitioning such instruments to a new reference rate, the taking of discretionary actions (for example, ifunder fallback provisions) or the negotiation of fallback provisions and final amendments to existing LIBOR based agreements. If a contract or instrument is not transitioned to a new reference rate and LIBOR ceases to exist, we may experience increased interest rate risk. In addition, we may be dependent on third parties to upgrade their systems, software, and other critical functions to assist in our orderly transition from LIBOR. A failure to properly transition away from LIBOR could expose us to various financial, operational, and regulatory risks, which could have a significant impact on our financial condition and results of operations.

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Refer to “LIBOR Transition” within Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information.

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.

We have exposure to many different financial institutions, and we routinely execute transactions with counterparties in the financial industry. Our debt, derivative and investment transactions, and our ability to borrow under committed and uncommitted credit facilities, could be adversely affected by the actions and commercial soundness of other financial institutions. We cannot guarantee that our ability to borrow under committed and uncommitted credit facilities will continue to be available on reasonable terms or at all. Deterioration of social, political, labor, or economic conditions in a specific country or region may also adversely affect the ability of financial institutions, including our derivative counterparties and lenders, to perform their contractual obligations. Financial institutions are interrelated as a result of trading, clearing, lending and other relationships, and as a result, financial and political difficulties in one country or region may adversely affect financial institutions in other jurisdictions, including those with which we have relationships. The failure of any financial institutions and other counterparties to which we have exposure, directly or indirectly, to perform their contractual obligations, and any losses resulting from that failure, may materially and adversely affect our liquidity, results of operations or financial condition.

Our voluntary protection operations could suffer losses if our reserves are insufficient to absorb actual losses.

Our voluntary protection operations are subject to the risk of loss if our reserves for unearned voluntary protection contract revenues and insurance earned premiums on contracts in force are not sufficient. Using historical loss experience as a basis for recognizing revenue over the term of the contract or policy may result in the timing of revenue recognition varying materially from the actual loss development. Our voluntary protection operations are also subject to the risk of loss if our reserves for reported losses, losses incurred but not reported, and loss adjustment expenses are not sufficient. Because we use estimates in establishing reserves, actual losses may vary from amounts established in earlier periods as a result of changes in frequency and severity.

We are exposed to risk transfer credit risk which could negatively impact our voluntary protection operations.

Risk transfer credit risk is the risk that a reinsurer or other company assuming liabilities relating to our voluntary protection operations will be unable to meet its obligations under the terms of our agreement with them. Such failure could result in losses to our voluntary protection operations.

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Changes in accounting standards issued by the Financial Accounting Standards Board (“FASB”) could adversely affect our results of operations and financial condition.REGULATORY, LEGAL AND OTHER RISKS

Our accounting and financial reporting policies conform to accounting principles generally accepted in the U.S., which are periodically revised and/or expanded. The application of accounting principles is also subject to varying interpretations over time. Accordingly, we are required to adopt new or revised accounting standards or comply with revised interpretations that are issued from time to time by various parties, including accounting standard setters and those who interpret the standards, such as the FASB and the SEC and our independent registered public accounting firm. The FASB has proposed new financial accounting standards that may result in significant changes that could adversely affect our results of operations and financial condition.

Refer to Note 1 – Basis of Presentation and Significant Accounting Policies of the Notes to the Consolidated Financial Statements for further discussion of these new accounting standards, including the potential impact to TMCC’s consolidated financial statements.  

A failure or interruption of our information systems could adversely affect our business, results of operations and financial condition.

We rely on our own information systems and third-party information systems to manage our operations, which creates meaningful operational risk for us. Any failure or interruption of our information systems or the third-party information systems on which we rely as a result of inadequate or failed processes or systems, human errors, employee

misconduct, catastrophic events, security breaches, acts of vandalism, computer viruses, malware, ransomware, misplaced or lost data, or other events could disrupt our normal operating procedures, damage our reputation and have an adverse effect on our business, results of operations and financial condition. These operational risks may be increased as a result of remote or hybrid work arrangements due to the COVID-19 pandemic.arrangements.

In addition, we periodically upgrade or replace our existing transaction systems, which could have a significant impact on our ability to conduct our core business operations and increase our risk of loss resulting from disruptions of normal operating processes and procedures that may occur during and after the implementation of new systems. For example, the development and implementation of these new systems and any future upgrades related thereto may require significant expenditures and divert management’s attention and other resources from our core business operations. There are no assurances that these new systems will provide us with the anticipated benefits and efficiencies. There can also be no assurance that the time and resources our management will need to devote to implementation and upgrades, potential delays in the implementation or upgrade or any resulting service interruptions, or any impact on the reliability of our data from any upgrade of our legacy system, will not have a material adverse effect on our business, results of operations and financial condition.

A security breach or a cyber-attack could adversely affect our business, results of operations and financial condition.

We collect and store certain personal and financial information from customers, employees, and other third parties. Security breaches or cyber-attacks involving our systems or facilities, or the systems or facilities of third-party providers, could expose us to a risk of loss of personal information of customers, employees and third parties or other confidential, proprietary or competitively sensitive information, business interruptions, regulatory scrutiny, actions and penalties, litigation, reputational harm, a loss of confidence, and other financial and non-financial costs, all of which could potentially have an adverse impact on our future business with current and potential customers, results of operations and financial condition.

We rely on encryption and other information security technologies licensed from third parties to provide security controls necessary to help in securing online transmission of confidential information pertaining to customers, employees and other aspects of our business. Advances in information system capabilities, new discoveries in the field of cryptography or other events or developments may result in a compromise or breach of the technology that we use to protect sensitive data. A party who is able to circumvent our security measures by methods such as hacking, fraud, trickery or other forms of deception could misappropriate proprietary information or cause interruption in our operations. We may be required to expend capital and other resources to protect against such security breaches or cyber-attacks or to remediate problems caused by such breaches or attacks. Our security measures are designed to protect against security breaches and cyber-attacks, but our failure to prevent such security breaches and cyber-attacks could subject us to liability, decrease our profitability and damage our reputation. Even if a failure of, or interruption in, our systems or facilities is resolved timely or an attempted cyber incident or other security breach is successfully avoided or thwarted, it may require us to expend substantial resources or to take actions that could adversely affect customer satisfaction or behavior and expose us to reputational harm.

We could also be subjected to cyber-attacks that could result in slow performance and loss or temporary unavailability of our information systems. Information security risks have increased because of new technologies, the use of the internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions, and the increased sophistication and activities of state-sponsored actors, organized crime, perpetrators of fraud, terrorists, and others. In addition, we may have increased cyber-security risks and increased vulnerability to security breaches and other information technology disruptions as a result of the COVID-19 pandemic and increased remote or hybrid work arrangements among our colleagues. We may not be able to anticipate or implement effective preventative measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources. The occurrence of any of these events could have a material adverse effect on our business, results of operations and financial condition.

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Our enterprise data practices, including the collection, use, sharing, disposal and security of personal and financial information of our customers, employees, and third-party individuals are subject to increasingly complex, restrictive, and punitive laws and regulations which could adversely affect our business, results of operations and financial condition.

Under these laws and regulations, the failure to maintain compliant data practices could result in consumer complaints, lawsuits and regulatory inquiry, resulting in civil or criminal penalties, as well as brand impact or other harm to our business. In addition, increased consumer sensitivity to real or perceived failures in maintaining acceptable data practices could damage our reputation and deter current and potential customers from using our products and services. For example, well-publicized allegations involving the misuse or inappropriate sharing of personal

information have led to expanded governmental scrutiny of practices relating to the safeguarding of personal information and the use or sharing of personal data by companies in the U.S. and other countries. That scrutiny has in some cases resulted in, and could in the future lead to, the adoption of stricter laws and regulations relating to the use and sharing of personal information. For example, some states have enacted and others are considering enacting data protection regimes that grant consumers broad new rights including access to, deletion of, and limiting the sharing of personal information that is collected by businesses and requiring regulated entities to establish measures to identify, manage, secure, track, produce, update and delete personal information. In some jurisdictions, these laws and regulations provide a private right of action that would allow customers to bring suit directly against us for certain violations of these laws and regulations. These types of laws and regulations could prohibit or significantly restrict financial services providers such as TMCC from sharing information among affiliates or with third parties such as vendors, and thereby increase compliance costs, or could restrict TMCC’s use of personal data when developing or offering products or services to customers. These restrictions could inhibit TMCC’s development or marketing of certain products or services or increase the costs of offering them to customers. Because many of these laws and regulations are new, there is little clarity as to their interpretation, as well as a lack of precedent for the scope of enforcement. In addition, these laws are state specific and have specific details that are not uniform state-to-state. The cost of compliance with these laws and regulations will be high and is likely to increase in the future. Any failure or perceived failure to comply with applicable privacy or data protection laws and regulations could result in requirements to modify or cease certain operations or practices, significant liabilities or fines, penalties or other sanctions.

The regulatory environment in which we operate could have a material adverse effect on our business and results of operations.

Regulatory risk includes risk arising from failure or alleged failure to comply with applicable regulatory requirements and risk of liability and other costs imposed under various laws and regulations, including changes in applicable law, regulation and regulatory guidance.

Consumer Finance Regulation

As a provider of finance and voluntary protection products, we operate in a highly regulated environment. We are subject to state licensing requirements and state, and federal laws and regulations. In addition, we are subject to governmental and regulatory examinations, information-gathering requests, and investigations from time to time at the state and federal levels. Compliance with applicable law is costly and can affect our results of operations. Compliance requires forms, processes, procedures, controls and the infrastructure to support these requirements. Compliance may create operational constraints and place limits on pricing, as the laws and regulations in the financial services industry are designed primarily for the protection of consumers. Changes in laws and regulations could restrict our ability to operate our business as currently operated, could impose substantial additional costs or require us to implement new processes, which could adversely affect our business, prospects, financial performance or financial condition. The failure to comply with applicable laws and regulations could result in significant statutory civil and criminal fines, penalties, monetary damages, attorney or legal fees and costs, restrictions on our ability to operate our business, possible revocation of licenses and damage to our reputation, brand and valued customer relationships. Any such costs, restrictions, revocations or damage could adversely affect our business, prospects, results of operations or financial condition.

Our principal consumer finance regulator at the federal level is the CFPB, which has broad regulatory, supervisory and enforcement authority over us. The CFPB’s supervisory authority allows it, among other things, to conduct comprehensive and rigorous examinations to assess our compliance with consumer financial protection laws, which could result in enforcement actions, regulatory fines and mandated changes to our business products, policies and procedures.

The CFPB’s rulemaking authority includes the authority to promulgate rules regarding, among other practices, debt collection practices that would apply to third-party collectors and first-party collectors, such as ourselves, and rules regarding consumer credit reporting practices. The timing and impact of these rules on our business remain uncertain.

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In addition, the CFPB has focused on the area of auto finance, particularly with respect to indirect financing arrangements, dealer compensation and fair lending compliance, and questioned the value and increased scrutiny of the marketing and sale of certain ancillary or add-on products, including products similar to those we finance or sell through TMIS.

The CFPB and FTC may investigate the products, services and operations of credit providers, including banks and other finance companies engaged in auto finance activities. As a result of such investigations, the CFPB and FTC have announced various enforcement actions against lenders in the past few years involving significant penalties,

consent orders, cease and desist orders and similar remedies that, if applicable to us or the products, services and operations we offer, may require us to cease or alter certain business practices, which could have a material adverse effect on our results of operations, financial condition, and liquidity. Supervision and investigations by these agencies may result in monetary penalties, increase our compliance costs, require changes in our business practices, affect our competitiveness, impair our profitability, harm our reputation or otherwise adversely affect our business.

Refer to Item 1. Business, “Regulatory Environment” for further discussion of the CFPB’s authority and activities.

At the state level, state regulators are taking a more stringent approach to supervising and regulating financial products and services subject to their jurisdiction. For example, certain states have proposed rate cap bills that would put limits on the maximum rate of finance charges. We expect to continue to face greater supervisory scrutiny and enhanced supervisory requirements for the foreseeable future.

Other Federal Regulation

Under the Volcker Rule companies affiliated with U.S. insured depository institutions are generally prohibited from engaging in “proprietary trading” and certain transactions with certain privately offered funds. The activities prohibited by the Volcker Rule are not core activities for us. However, the federal financial regulatory agencies charged with implementing the Volcker Rule could further amend the rule or change their approach to administering, enforcing or interpreting the rule, which could negatively affect us and potentially require us to limit or change our activities or operations.

Environmental Related Regulation

Concern over climate change or other environmental matters may result in new or increased legal and regulatory requirements and new financial incentives regarding electrified vehicles intended to mitigate factors contributing to, or intended to address the potential impacts of, climate change or other environmental concerns. In August 2022, the Inflation Reduction Act (the "Act") was signed into law. The Dodd-Frank Act amendedmodifies climate and clean energy corporate tax provisions, including, among other things, amendments to the CEAfederal tax credit for plug-in vehicles available under current tax law. Such regulations (including laws related to establish a framework for the regulation of certain OTC derivatives referredgreenhouse gas emitting products or services) and government incentives may require us to as swaps.  The OTC derivatives provisions of the CEA, as amended by the Dodd-Frank Act, impose clearing, tradingalter our proposed business plans, lead to increased compliance costs and margin requirementschanges to our operations and could have an adverse effect on certain contracts.  At present, we qualify for exceptions from these requirements for the swaps that we enter into to hedge our commercial risks.  However, if we were to no longer qualify for such exceptions, we could become subject to some or all of these requirements, which would increase our cost of entering into and maintaining such hedging positions.  

If we reduce our use of OTC derivatives as a result of the Dodd-Frank Act and resulting regulations, ourbusiness, results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures.financial condition.

Refer to Item 1. Business, “Regulatory Environment” for additional information on our regulatory environment.

Adverse economic conditions or changes in state laws in states in which we have customer concentrations may negatively affect our results of operations and financial condition.

We are exposed to geographic customer concentration risk on our retail, lease, dealer, and voluntary protection products in certain states. Factors adversely affecting the economies and applicable laws in the states where we have concentration risk could have an adverse effect on our results of operations and financial condition.

Refer to Note 1 – Basis of Presentation and Significant Accounting Policies of the Notes to Consolidated Financial Statements for additional information and disclosure about customer concentrations in certain states.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

There are no unresolved SEC staff comments to report.

ITEM 2. PROPERTIES

Our headquarters operations are located in Plano, Texas, and our facilities are leased from TMNA.

Additional operations for both finance and voluntary protection products are located in three CSCs and three DSCs.regional Experience Centers. The Central region CSCExperience Center is locatedco-located with our headquarters in Cedar Rapids, Iowa, and is leased from TMNA.Plano, Texas. The Western region CSCRegion Experience Center is located in Chandler, Arizona. The Eastern region CSC is located in Owings Mills, Maryland.  The Central DSC is located in Plano, Texas.  The Western DSC is located in Chandler, Arizona.  The Eastern DSCExperience Center is located in Alpharetta, Georgia. Our dealer lending function is centralized at the Central DSC.region Experience Center. We also have a sales and operations office in Puerto Rico. All premises are occupied under lease.

While weWe believe that our properties are suitable to meet the current requirements of our business, over the next two years, we plan to move our three CSCs to be co-located with the regional DSCs to better serve our customers.  business. Refer to Item 1. Business, “General” for further discussion of the field operations restructuring.

ITEM 3. LEGAL PROCEEDINGS

For a discussion of legal proceedings, see Note 9 – Commitments and Contingencies of the Notes to Consolidated Financial Statements - Litigation and Governmental Proceedings.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

TMCC is a wholly-owned subsidiary of TFSIC, and accordingly, all shares of TMCC’s stock are owned by TFSIC. There is no market for TMCC's stock.

ITEM 6. SELECTED FINANCIAL DATA[RESERVED]

The Company has elected to early adopt the amendment to Item 30126

Table of Regulation S-K and is no longer required to provide the information required by Item 6 of Form 10-K.

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ITEM 7. 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-K 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 such as the following that may cause actual results to differ materially from those stated:

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.

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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, operatingOperating and administrative expense, residual value and credit loss metrics.

In our voluntary protection operations, we generate revenue primarily through marketing, 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 sales volume, new vehicle production volume, vehicle inventory levels, vehicle sales and incentive programs, consumer behavior, employment levels, our ability to respond to changes in 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.

Our primary competitors are other financial institutions including national and regional commercial banks, credit unions, savings and loan associations, independent voluntary protection product contract providers, online banks, finance companies, alternative financing sources and, to a lesser extent, other automobile manufacturers’ affiliated finance companies that actively seek to purchase consumer contracts through Toyota, Lexus, and private label dealers. We strive to achieve the following:

Exceptional Customer Service: Our relationship with Toyota, Lexus, and private label dealers and their customers offeroffers us a competitive advantage. We seek to leverage this opportunity by providing exceptional service to the dealers and their customers. Through our DSCs and CSCs,Experience Centers, we work closely with the dealers to improve the quality of service we provide to them. We also focus on assisting the dealers with the quality of their customer service operations to enhance customer loyalty for the dealers and the Toyota, Lexus, and private label brands. By providing consistent and reliable support, training, and resources to our dealer network, we continue to develop and improve our dealer relationships. In addition to marketing programs targeted toward customer retention, we work closely with TMNA, private label companies, and other third-party distributors to offer special retail, lease, dealer financing, and voluntary protection products. We also focus on providing a positive customer experience to existing retail, lease, and voluntary protection product customers through our CSCs.Experience Centers.

Risk-Based Origination and Pricing: We price and structure our retail and lease contracts to compensate us for the credit risk we assume. The objective of this strategy is to maximize operating results and better match contract rates across a broad range of risk levels. To achieve this objective, we evaluate our existing portfolio for key opportunities to expand volume in targeted markets. We deliver timely strategic information to the dealers to assist them in benefiting from market opportunities. We continuously strive to refine our strategy and methodology for risk-based pricing.

Liquidity: Our liquidity strategy is to maintain the capacity to fund assets and repay liabilities in a timely and cost-effective manner even in adverse market conditions. This capacity is primarily driven by our ability to raise funds in the global capital markets and through loans, credit facilities, and other transactions, as well as our ability to generate liquidity from our earnings assets. Our pursuit of this strategy has led us to develop a diversified borrowing base that is distributed across a variety of markets, geographies, investors, and financing structures, among other factors.

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Fiscal 20212023 Operating Environment

During the fiscal year ending March 31, 20212023 (“fiscal 2021”2023”), the U.S. economy continued to be significantlywas impacted by uncertainties related to inflationary pressures, higher interest rates, banking industry disruptions, the ongoing effects of the global outbreak of COVID-19coronavirus and related variants (“COVID-19”) pandemic, and the extraordinary governmental measures intended to slow its spread,conflict in Ukraine. The economic conditions, including quarantines, government-mandated actions, stay-at-home ordersconsumer price increases and other restrictions.  The outbreak and curtailments, which began at the end of fiscal year 2020, continued to severely curtail economic activities and resulted in a global economic contraction thathigher interest rates, have negatively impacted our business, and the business of our affiliate, TMNA, and our ultimate parent, TMC, in a number of ways, and adversely impacted certain of our fiscal 2021 financial results.

The historic high levels of unemployment and reduction in household income during a portion of the COVID-19 pandemic has affected some of our customers’consumers ability to make their scheduled payments.  To provide support to our customers and dealers adversely affected by the pandemic, we took a number of actions during fiscal 2021, including:

From March 13, 2020 through June 30, 2020, we granted retail loan payment extensions and lease payment deferrals to approximately 13% of our retail customers and approximately 12% of our lease customers, which have all since expired.

The following table summarizes the aging of accounts that have previously been granted payments extensions and deferrals as of March 31, 2021:

Due to the duration of, and number of customers and dealers who participated in our payment relief programs, we have seen a negative impact on our total portfolio yield and expect that our future results of operations will also be adversely impacted.  Although the increase in retail loan payment extensions and lease payment deferrals temporarily decreased incoming funds, the relief granted under our payment relief programs did not have an impact on our overall liquidity position required to maintain operations due to our net cash provided by operating activities and continued access to capital markets.  For additional information, refer to the “Liquidity and Capital Resources” section.

We continue to experience a higher provision for credit losses on our retail loan portfolio primarily due to an increase in the size of the portfolioconsumer delinquencies and the increase in expected credit losses driven bycharge-offs. The ongoing challenging economic conditions caused by the COVID-19 pandemic and the restrictions designed to slow the spread of COVID-19,geopolitical conflicts, including stay-at-home orders, increased unemployment, and decreased consumer spending.  Refer to “Financial Condition” for further discussion of the COVID-19 pandemic impact on the provision for credit losses.

From March 23, 2020 to May 8, 2020, TMNA suspended production at all of its automobile and components plants in North America at various timesconstraints due to the increasing social and economic impact of the COVID-19 pandemic and a significant decline in vehicle demand.  Although TMNA and many of its suppliers have resumed production, delayssupply shortages affecting the supply chain or logistics network have impactedautomotive industry, such as the ongoing shortage of semiconductor chips, and could continue to negatively impact dealer inventory levels, vehicle sales, the sale of our financing and voluntary protection products, dealer profitability and creditworthiness, and our future results of operations.  

Our business is dependent upon the sale of Toyota, Lexus, and private label vehicles.  On April 1, 2020, TMCC began providing private label financial services to Mazda which has led to incremental financing volume, which helped offset the decline in sales of Toyota and Lexus vehicles in the first half of fiscal 2021, as compared to the same period in fiscal 2020, as dealers temporarily closed showrooms for a period of time early in the first quarter.  Additionally, dealers have adjusted their operations and consumers have adjusted their behavior in response to restrictions designed to slow the spread of COVID-19 and an unprecedented increase in unemployment claims and a significant decline in consumer spending.  To mitigate these trends, dealers have increased their utilization of online sales channels and we have partnered with TMNA and Mazda, respectively, to offer competitive incentive programs, including 0% financing and/or first payment deferred 90 days on select models.  We will continue to look for opportunities to optimize our financial services operations, including private label financial services.  We are currently leveraging our existing processes and personnel to originate and service the new private label assets, however, we will continue to evaluate the private label financial services business, which may include partnering with or transitioning the business to our affiliates, some of which are not consolidated with TMCC.

Average used vehicle values experienced significant fluctuations in fiscal 2021.  The economic conditions caused by the COVID-19 pandemic resulted in a decrease in used vehicle values early in the first quarter; however, by the end of the first quarter the used vehicle values had increased to be higher than the values at the beginning of the fiscal year, and they continued to increase in the second quarter and remained at the increased values through the remainder of the fiscal year.  Overall, the increase in average used vehicle values during fiscal 2021, as compared to the prior fiscal year was primarily due to the lack of availability of new vehicles as a result of the temporary suspended production of automobiles and components and theadditional delays affecting the supply chain and logistics network.  Declinesnetworks, have continued to limit the inventory levels of new vehicles. The new vehicle inventory constraints have resulted in decreases in industry-wide vehicle sales incentives in the U.S. in fiscal 2023, compared to fiscal 2022.

While average used vehicle values in fiscal 2023 remained elevated compared to pre-pandemic levels, primarily due to the new vehicle inventory constraints, there has been a decline in values in the current fiscal year. Future declines in used vehicle values resulting from increases in the supply of new and used vehicles and increases in new vehicle sales incentives could unfavorably impact return rates, residual values, depreciation expense and credit losses in the future.losses.

During fiscal 2021,2023, the global capital markets experienced periods of significantheightened volatility as a resultin response to the ongoing conflict in Ukraine, increases in the inflation rate, uncertainty regarding the path of U.S. monetary policy, and instability in the COVID-19 pandemic.  However, after the first quarter of fiscal 2021, funding conditions were generally stableglobal banking sector. U.S. benchmark interest rates and credit spreads tightened in responseboth increased during fiscal 2023. While we continue to measures takenmaintain broad global access to support the economyboth domestic and corporate creditinternational markets, by the Federal Reserve and global central banks.  While our abilitythese events could lead to access the capital markets remains intact, the ongoing economic uncertainty caused by the pandemic and regulatory changes could cause further disruptions in the capital markets and increaseincreases in our funding costs. Future 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.  For additional information, refer to the “Liquidity and Capital Resources” section.

The continued curtailment of economic activities as a result of further outbreak of COVID-19, extended or additional government restrictions intended to slow the spread of the virus, or delayed consumer response once restrictions have been lifted could have further negative impact on used vehicle values, consumer economics, dealerships, and auction sites, which could have a material adverse impact on the future results of operations.  If the number of our customers and dealers experiencing hardship increases or it becomes necessary to further extend our payment relief options, it could have a material adverse effect on our business, financial condition and our future results of operations.

Although the duration and severity of the COVID-19 pandemic is uncertain, and its ultimate impact on our results of operations is difficult to predict, it has and may continue to have a material adverse effect on our business, financial condition and our future results of operations.

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RESULTS OF OPERATIONS

Fiscal 20212023 Compared to Fiscal 20202022

Our consolidated net income was $2,017$979 million in fiscal 2021,2023, compared to $913 million$2.5 billion in fiscal 2020.2022. The increasedecrease in net income for fiscal 20212023 compared to fiscal 20202022 was primarily due to an $888 million decrease in depreciation on operating leases, a $532 million decrease$1.7 billion increase in interest expense, a $164$627 million decrease in total financing revenues, a $477 million increase in provision for credit losses, an $88and a $79 million increase in investment and other income, net, an $86 million decrease in voluntary protection contract expenses and insurance losses, and a $74 million decrease in operating and administrative expense, partially offset by a $521 million increase in provision for income taxes, and a $230 million decrease in total financing revenues.

Our overall capital position, taking into account the payment of a $700 million dividend in March 2021 to TFSIC, increased $1.1 billion, bringing total shareholder’s equity to $15.6 billion at March 31, 2021, as compared to $14.5 billion at March 31, 2020.    The adoption of ASU 2016-13 resulted in a cumulative-effect adjustment to decrease opening retained earnings by approximately $218 million, net of taxes, resulting from a pretax increase to our allowance for credit losses on finance receivables of approximately $292 million.  Our debt increased to $109.7 billion at March 31, 2021 from $97.7 billion at March 31, 2020.  Our debt-to-equity ratio increased to 7.0 at March 31, 2021 from 6.7 at March 31, 2020.

Fiscal 2020 Compared to Fiscal 2019

Our consolidated net income was $913 million in fiscal 2020, compared to $795 million in fiscal 2019.  The increase in net income for fiscal 2020 compared to fiscal 2019 was primarily due to a $389 million increase in total financing revenues, an $89$724 million decrease in depreciation on operating leases, a $71$460 million decrease in provision for income taxes, and a $30$123 million increase in investment and other income, net.

Our overall capital position decreased $1.6 billion, taking into account a $2.5 billion dividend in February 2023 to TFSIC, bringing total shareholder’s equity to $16.5 billion at March 31, 2023, as compared to $18.1 billion at March 31, 2022. Our debt increased to $111.7 billion at March 31, 2023 from $109.2 billion at March 31, 2022. Our debt-to-equity ratio increased to 6.8 at March 31, 2023 from 6.0 at March 31, 2022.

Fiscal 2022 Compared to Fiscal 2021

Our consolidated net partially offset byincome was $2.5 billion in fiscal 2022, compared to $2.0 billion in fiscal 2021. The increase in net income for fiscal 2022 compared to fiscal 2021 was primarily due to a $218$901 million increasedecrease in interest expense, a $190 million decrease in provision for credit losses, a $176$121 million increase in total financing revenues, an $86 million decrease in depreciation on operating leases, partially offset by a $436 million decrease in investment and other income, net, a $210 million increase in operating and administrative expense, and a $87$157 million increase in interest expense.provision for income taxes.

Our overall capital position increased $0.9$2.5 billion, bringing total shareholder’sshareholder's equity to $14.5$18.1 billion at March 31, 2020,2022, as compared to $13.6$15.6 billion at March 31, 2019.2021. Our debt decreased to $97.7$109.2 billion at March 31, 20202022 from $92.9$109.7 billion at March 31, 2019.  As a result, our2021. Our debt-to-equity ratio decreased to 6.76.0 at March 31, 20202022 from 6.87.0 at March 31, 2019.  2021.

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Finance Operations

The following table summarizes key results of our Finance Operations:

Our finance operations reported net income of $1,606 million$1.0 billion and $684 million$2.4 billion during fiscal 20212023 and 2020,2022, respectively. The increasedecrease in net income from finance operations for fiscal 20212023 compared to fiscal 20202022 was primarily due to an $888a $1.7 billion increase in interest expense, a $627 million decrease in total financing revenues, and a $477 million increase in provision for credit losses, partially offset by a $724 million decrease in depreciation on operating leases, a $552 million decrease in interest expense, a $164$409 million decrease in provision for credit losses,income taxes, and a $73$269 million decrease in operating and administrative expenses, partially offset by a $463 million increase in provision for income taxes, a $230 million decrease in total financing revenues, and a $62 million decrease in investment and other income, net.

Financing Revenues

Total financing revenues decreased 25 percent during fiscal 20212023 compared to fiscal 20202022 due to the following:

As a result of the above, our total portfolio yield, which includes operating lease, retail and dealer financing revenues, increased to 5.1 percent for fiscal 2021,2023, compared to 4.65.0 percent for fiscal 2020.2022.

Depreciation on Operating Leases

We recorded depreciation on operating leases of $5,932 million$5.1 billion during fiscal 20212023 compared to $6,820 million$5.8 billion during fiscal 2020.  Depreciation expense on operating leases decreased during fiscal 2021, as compared to the same period in fiscal 2020,2022. The decrease is primarily due to lower residual value losses and lower average operating lease units outstanding. The lower residual value losses are a result of an increase in average used vehicle values and lower expectations of residual value losses.  Theongoing challenging economic conditions caused byhave resulted in a decrease in the COVID-19 pandemic resulted inavailability of new vehicles from pre-pandemic levels. The new vehicle inventory constraints and higher off-lease vehicle purchases by consumers and dealers duehave led to increasedhistorically high levels of average used vehicle values. Declines in used vehicle values resulting from increases in the supply of new vehicles and decreasedincreases in new vehicle inventory as there was a temporary suspension of automobilesales incentives could unfavorably impact return rates, residual values, and component manufacturing and additional delays affecting the supply chain and logistics networks that resulted in an increasedepreciation expense in the salefuture.

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Table of used vehicles due to their availability.Contents

As discussed in Note 1 – Basis of Presentation and Significant Accounting Policies, in conjunction with the adoption of ASU 2016-13, we updated our depreciation policy for operating leases and changed our presentation for reporting early termination expenses related to our investments in operating leases.  We now present the effects of operating lease early termination in Depreciation on operating leases.  

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 interest rate floors 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 fiscal 2021,2023, total interest expense decreasedincreased to $2,302 million$3.1 billion from $2,834 million$1.4 billion in fiscal 2020.2022. The decreaseincrease in total interest expense is primarily attributable to a decreasean increase in interest expense on debt, and derivatives combined, and losses on debt denominated in foreign currencies, partially offset by gains on U.S. dollar interest rate swaps.  swaps, partially offset by interest income on derivatives.

Interest expense on debt and derivatives primarily represents contractual net interest settlements and changes in accruals on secured and unsecured notes and loans payable and derivatives, and includes amortization of discounts, premiums, and debt issuance costs. During fiscal 2021,2023, interest expense on debt and derivatives decreasedincreased to $2,374 million$2.4 billion from $2,668 million$1.6 billion in fiscal 2020, primarily2022. The increase in interest expense on debt is due to an increase in interest rates. The decrease in interest expense on our debt portfolio, resulting fromderivatives is primarily due to a decrease in weighted average interest rates, partially offset by an increase in our overall debt portfolio.  Decrease in interest expense on debt waspay-fixed swaps, partially offset by an increase in interest expense on derivatives, which was primarily driven by decrease in interest income on our pay-fixedpay-float swaps.

Gains or losses on debt denominated in foreign currencies represent the impact of translation adjustments. We use foreign currency swaps to economically hedge the debt denominated in foreign currencies. During fiscal 2021,2023 and fiscal 2022, we recorded net losses of $51$191 million and $380 million, respectively, primarily as a result ofdue to increases in foreign currency swap rates across the various currencies in which our debt is denominated.  During fiscal 2020, we recorded net gains of $53 million, primarily as a result of decreases in foreign currency swap rates across the various currencies in which our debt is denominated.  

Gains or losses on U.S. dollar interest rate swaps represent the change in the valuation of interest rate swaps. During fiscal 2021,2023, we recorded losses of $513 million, primarily due to net interest income becoming realized on our pay-fixed swaps partially offset by an upward shift of U.S. dollar swap rates resulting in gains on pay-fixed swaps exceeding losses on our pay-float swaps. During fiscal 2022, we recorded gains of $123$584 million, as gains on our pay-fixed swaps exceeded losses on our pay-float swaps, primarily as a result ofdue to increases in U.S. dollar swap rates.  During fiscal 2020, we recorded losses of $219 million, asrates and net interest income on our pay-fixed swaps exceeding losses on our higher notional, shorter-term pay-fixed swaps exceeded the gains on our longer-term pay-float swaps, primarily as a result of decreases in U.S. dollar swap rates.  swaps.

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

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Investment and Other Income, Net

We recorded investment and other income, net of $93$314 million for fiscal 2021,2023, compared to $155$45 million for fiscal 2020.2022. The decreaseincrease in investment and other income, net for fiscal 20212023 compared to fiscal 20202022 was primarily due to a decreasehigher yields on our investment in interest income attributable to a decrease in interest rates.marketable securities portfolio.

Provision for Credit Losses

We recorded a provision for credit losses of $426$713 million for fiscal 2021,2023, compared to $590$236 million for fiscal 2020.2022. The sharp decline in economic conditions have resulted in an increase in consumer delinquencies and charge-offs as well as higher expectations of credit losses in the fourth quarter of fiscal 2020 due toretail loan portfolio. These factors combined with the COVID-19 pandemic resulted in a significant increase in probable credit losses on both our consumer and dealer portfolios for which $264 million additional provision for credit losses was recorded in fiscal 2020.  

In fiscal 2021, additional expected credit losses forsize of our retail loans were driven by a further declineloan portfolio have led to an increase in economic conditions caused by the COVID-19 pandemic and the restrictions designed to slow the spread of COVID-19, which resulted in stay-at-home orders, increased unemployment, and decreased consumer spending.  By the fourth quarter of fiscal 2021, the expected economic outlook had improved from the first half of the fiscal year, but the impact on the provision for credit losses was offset by the growth of our retail portfolio and our adoption of ASU 2016-13 infor fiscal 2021, which replaced the incurred loss impairment model with a model that reflects expected credit losses over the expected life of the finance receivables and certain off-balance lending commitments. The additional amount of provision for credit losses on our retail portfolio were partially offset by lower provision for credit losses on our dealer portfolio as a result of improved dealer financial performance.2023 compared to fiscal 2022.

Operating and Administrative Expenses

We recorded operating and administrative expenses of $1,124 million during$1.3 billion for each of fiscal 2021 compared to $1,197 million during2023 and fiscal 2020.  The decrease2022. During fiscal 2023, increases in operatingtechnology expenses and administrativeemployee expenses for fiscal 2021, compared to fiscal 2020, was due towere offset by a decrease in marketing and general operating expenses.

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Voluntary Protection Operations

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