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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of January 31, ~~2018,~~2021, 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.

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

	Three Months Ended						Nine Months Ended					Three months ended				Nine months ended
	December 31,						December 31,					December 31,				December 31,
	2017			2016			2017			2016		2020		2019		2020		2019
Financing revenues:
Operating lease	$	2,068		$	1,946		$	6,065		$	5,762	$	2,122	$	2,212	$	6,365	$	6,593
Retail		498			468			1,462			1,383		749		661		2,144		1,888
Dealer		140			123			424			346		103		171		312		544
Total financing revenues		2,706			2,537			7,951			7,491		2,974		3,044		8,821		9,025
Depreciation on operating leases		1,778			1,722			5,178			4,994		1,450		1,712		4,484		4,920
Interest expense		428			701			1,328			1,305		491		755		1,534		2,065
Net financing revenues		500			114			1,445			1,192		1,033		577		2,803		2,040

Insurance earned premiums and contract revenues		220			202			657			594		241		231		714		692
Investment and other income, net		63			52			165			133		179		57		445		272
Realized gains, net on investments in marketable securities		3			157			45			240
Net financing revenues and other revenues		786			525			2,312			2,159		1,453		865		3,962		3,004

Expenses:
Provision for credit losses		108			183			320			396		118		128		366		264
Operating and administrative		323			325			973			921		354		406		1,088		1,101
Insurance losses and loss adjustment expenses		100			92			316			272		98		116		265		344
Total expenses		531			600			1,609			1,589		570		650		1,719		1,709

Income (loss) before income taxes		255			(75	)		703			570
(Benefit) provision for income taxes		(2,821	)		(29	)		(2,655	)		212
Income before income taxes													883		215		2,243		1,295
Provision for income taxes													215		34		546		296

Net income (loss)	$	3,076		$	(46	)	$	3,358		$	358
Net income												$	668	$	181	$	1,697	$	999

Three Months Ended

Nine Months Ended

December 31,

December 31,

2017

2016

2017

2016

Net income (loss)

$
3,076

$
(46
)

$
3,358

$
358

Other comprehensive loss, net of tax:

Net unrealized (losses) gains on available-for-sale marketable
   securities [net of tax benefit (provision) of $8, $40, ($7)
   and $8, respectively]

(13
)

(66
)

13

(14
)
Reclassification adjustment for net gains on available-for-sale
   marketable securities included in realized gains, net on
   investments in marketable securities [net of tax provision of
   $1, $60, $17 and $92, respectively]

(2
)

(97
)

(28
)

(148
)
Other comprehensive loss

(15
)

(163
)

(15
)

(162
)
Comprehensive income (loss)

$
3,061

$
(209
)

$
3,343

$
196

	Three months ended						Nine months ended
	December 31,						December 31,
	2020			2019			2020			2019
Net income	$	668		$	181		$	1,697		$	999
Other comprehensive income, net of tax
Net unrealized gains (losses) on available-for-sale marketable securities [net of tax benefit (provision) of $0, $1, ($6) and ($4), respectively]		2			(2	)		26			14
Reclassification adjustment for net gains on available-for-sale marketable securities included in investment and other income, net [net of tax provision of $0, $1, $4 and $1, respectively]		(2	)		(1	)		(15	)		(2	)
Other comprehensive income (loss)		0			(3	)		11			12
Comprehensive income	$	668		$	178		$	1,708		$	1,011

	December 31,		March 31,		December 31,		March 31,
	2017		2017		2020		2020
ASSETS
Cash and cash equivalents	$	3,116	$	4,198	$	10,622	$	6,790
Restricted cash and cash equivalents		1,643		1,087		1,446		1,739
Investments in marketable securities		6,114		5,692		4,596		3,820
Finance receivables, net		68,908		68,462
Finance receivables, net of allowance for credit losses of $1,162 and $727						78,800		73,996
Investments in operating leases, net		38,947		38,152		36,294		36,387
Other assets		2,006		2,044		2,733		2,823
Total assets	$	120,734	$	119,635	$	134,491	$	125,555

LIABILITIES AND SHAREHOLDER’S EQUITY
Debt	$	98,497	$	98,233	$	108,972	$	97,740
Deferred income taxes		5,396		7,926		3,589		5,458
Other liabilities		3,974		3,952		5,937		7,854
Total liabilities		107,867		110,111		118,498		111,052

Commitments and contingencies (Refer to Note 12)
Commitments and contingencies (Refer to Note 9)

Shareholder’s equity:
Capital stock, no par value (100,000 shares authorized; 91,500 issued and outstanding) at December 31, 2017 and March 31, 2017		915		915
Capital stock, no par value (100,000 shares authorized; 91,500 issued and outstanding) at December 31, 2020 and March 31, 2020						915		915
Additional paid-in capital		2		2		2		2
Accumulated other comprehensive income		10		25		26		15
Retained earnings		11,940		8,582		15,050		13,571
Total shareholder's equity		12,867		9,524		15,993		14,503
Total liabilities and shareholder's equity	$	120,734	$	119,635	$	134,491	$	125,555

The following table presents the assets and liabilities of our consolidated variable interest entities (Refer to Note ~~10)~~8).

	December 31,		March 31,		December 31,		March 31,
	2017		2017		2020		2020
ASSETS
Finance receivables, net	$	12,076	$	12,865	$	19,334	$	12,375
Investments in operating leases, net		5,491		4,888		6,268		5,586
Other assets		118		87		100		131
Total assets	$	17,685	$	17,840	$	25,702	$	18,092

LIABILITIES
Debt	$	13,714	$	14,319	$	21,720	$	14,568
Other liabilities		8		6		16		12
Total liabilities	$	13,722	$	14,325	$	21,736	$	14,580

	Three months ended December 31, 2019
					Accumulated
			Additional		other
	Capital		paid-in		comprehensive			Retained
	stock		capital		income (loss)			earnings		Total
Balance at September 30, 2019	$	915	$	2	$	18		$	13,476	$	14,411

Net income		0		0		0			181		181
Other comprehensive loss, net of tax		0		0		(3	)		0		(3	)
Balance at December 31, 2019	$	915	$	2	$	15		$	13,657	$	14,589


	Nine months ended December 31, 2019
					Accumulated
			Additional		other
	Capital		paid-in		comprehensive			Retained
	stock		capital		income			earnings		Total
Balance at March 31, 2019	$	915	$	2	$	3		$	12,658	$	13,578

Net income		0		0		0			999		999
Other comprehensive income, net of tax		0		0		12			0		12
Balance at December 31, 2019	$	915	$	2	$	15		$	13,657	$	14,589

	Three months ended December 31, 2020
					Accumulated
			Additional		other
	Capital		paid-in		comprehensive		Retained
	stock		capital		income		earnings			Total
Balance at September 30, 2020	$	915	$	2	$	26	$	14,382		$	15,325

Net income		0		0		0		668			668
Other comprehensive income, net of tax		0		0		0		0			0
Balance at December 31, 2020	$	915	$	2	$	26	$	15,050		$	15,993


	Nine months ended December 31, 2020
					Accumulated
			Additional		other
	Capital		paid-in		comprehensive		Retained
	stock		capital		income		earnings			Total
Balance at March 31, 2020	$	915	$	2	$	15	$	13,571		$	14,503

Cumulative-effect of adoption of ASU 2016-13		-		-		-		(218	)		(218	)
Net income		0		0		0		1,697			1,697
Other comprehensive income, net of tax		0		0		11		0			11
Balance at December 31, 2020	$	915	$	2	$	26	$	15,050		$	15,993

	Nine months ended December 31,
	2020			2019
Cash flows from operating activities:
Net income	$	1,697		$	999
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,572			5,003
Recognition of deferred income		(1,864	)		(1,861	)
Provision for credit losses		366			264
Amortization of deferred costs		572			525
Foreign currency and other adjustments to the carrying value of debt, net		1,806			151
Net gains from investments in marketable securities		(222	)		(54	)
Net change in:
Derivative assets		(9	)		6
Other assets and accrued interest		140			(245	)
Deferred income taxes		(1,797	)		201
Derivative liabilities		(21	)		(24	)
Other liabilities		993			92
Net cash provided by operating activities		6,233			5,057

Cash flows from investing activities:
Purchase of investments in marketable securities		(1,862	)		(1,402	)
Proceeds from sales of investments in marketable securities		405			232
Proceeds from maturities of investments in marketable securities		916			520
Acquisition of finance receivables		(29,164	)		(22,807	)
Collection of finance receivables		20,390			19,102
Net change in wholesale and certain working capital receivables		3,261			782
Acquisition of investments in operating leases		(11,777	)		(12,243	)
Disposals of investments in operating leases		8,570			9,060
Long term loans to affiliates		(200	)		(200	)
Payments on long term loans from affiliates		406			19
Other, net		(48	)		(26	)
Net cash used in investing activities		(9,103	)		(6,963	)

Cash flows from financing activities:
Proceeds from issuance of debt		38,669			17,830
Payments on debt		(21,909	)		(15,778	)
Net change in commercial paper and other short-term financing		(7,334	)		2,410
Payment on loan from affiliate		(3,000	)		0
Net change in financing support provided by affiliates		(17	)		43
Dividend paid		0			(10	)
Net cash provided by financing activities		6,409			4,495
Net increase in cash and cash equivalents and restricted cash and cash equivalents		3,539			2,589
Cash and cash equivalents and restricted cash and cash equivalents at the beginning of the period		8,529			3,183
Cash and cash equivalents and restricted cash and cash equivalents at the end of the period	$	12,068		$	5,772
Supplemental disclosures:
Interest paid, net	$	1,909		$	1,971
Income taxes paid, net	$	1,177		$	105

Accumulated

Additional

other

Capital

paid-in

comprehensive

Retained

stock

capital

income

earnings

Total

Balance at March 31, 2016

$
915

$
2

$
165

$
8,315

$
9,397

Net income

-

-

-

358

358

Other comprehensive loss, net of tax

-

-

(162
)

-

(162
)
Balance at December 31, 2016

$
915

$
2

$
3

$
8,673

$
9,593

Balance at March 31, 2017

$
915

$
2

$
25

$
8,582

$
9,524

Net income

-

-

-

3,358

3,358

Other comprehensive loss, net of tax

-

-

(15
)

-

(15
)
Balance at December 31, 2017

$
915

$
2

$
10

$
11,940

$
12,867

Nine Months Ended December 31,

2017

2016

Cash flows from operating activities:

Net income

$
3,358

$
358

Adjustments to reconcile net income to net cash provided by operating
activities:

Depreciation and amortization

5,237

5,040

Recognition of deferred income

(1,467
)

(1,328
)
Provision for credit losses

320

396

Amortization of deferred costs

459

471

Foreign currency and other adjustments to the carrying value of debt, net

1,219

(1,065
)
Net realized gains on available-for-sale securities

(45
)

(240
)
Net change in:

Restricted cash

147

117

Derivative assets

(27
)

17

Other assets (Note 8) and accrued interest

(79
)

(220
)
Deferred income taxes

(2,520
)

149

Derivative liabilities

(46
)

(6
)
Other liabilities

70

220

Net cash provided by operating activities

6,626

3,909

Cash flows from investing activities:

Purchase of investments in marketable securities

(6,501
)

(2,837
)
Proceeds from sales of investments in marketable securities

1,333

832

Proceeds from maturities of investments in marketable securities

4,757

2,770

Acquisition of finance receivables

(19,257
)

(19,519
)
Collection of finance receivables

18,003

18,151

Net change in wholesale and certain working capital receivables

758

(1,171
)
Acquisition of investments in operating leases

(12,562
)

(13,825
)
Disposals of investments in operating leases

7,221

7,786

Net change in financing support provided to affiliates

244

288

Cash equivalents (restricted) to acquire finance
receivables and investment in operating leases, net

(703
)

-

Other, net

(53
)

(63
)
Net cash used in investing activities

(6,760
)

(7,588
)

Cash flows from financing activities:

Proceeds from issuance of debt

16,124

18,790

Payments on debt

(18,486
)

(17,509
)
Net change in commercial paper

1,407

2,388

Net change in financing support provided by affiliates

7

(6
)
Net cash (used in) provided by financing activities

(948
)

3,663

Net decrease in cash and cash equivalents

(1,082
)

(16
)
Cash and cash equivalents at the beginning of the period

4,198

2,701

Cash and cash equivalents at the end of the period

$
3,116

$
2,685

Supplemental disclosures:

Interest paid, net

$
1,302

$
1,031

Income taxes paid, net

$
73

$
42

The information furnished in these unaudited interim consolidated financial statements as of and for the three and nine months ended December 31, ~~2017~~2020 and ~~2016~~2019 has been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). In the opinion of management, the unaudited consolidated financial information reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods presented. The results of operations for the three and nine months ended December 31, ~~2017~~2020 do not necessarily indicate the results which may be expected for the full fiscal year ending March 31, ~~2018~~2021 (“fiscal ~~2018”~~2021”).

These financial statements should be read in conjunction with the Consolidated Financial Statements ~~significant accounting policies,~~ and ~~other~~ Notes to Consolidated Financial Statements included in Toyota Motor Credit Corporation’s Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended March 31, ~~2017~~2020 (“fiscal ~~2017”~~2020”), which was filed with the Securities and Exchange Commission on June ~~1, 2017.~~4, 2020. References herein to “TMCC” denote Toyota Motor Credit Corporation, and references herein to “we”, “our”, and “us” denote Toyota Motor Credit Corporation and its consolidated subsidiaries.

~~Related party transactions are disclosed in Note 14 – Related Party Transactions.~~Other Matters

~~In May 2014, the Financial Accounting Standards Board ("FASB") issued new guidance on the recognition~~As of revenue from contracts with customers. This comprehensive standard will supersede virtually all existing revenue recognition guidance. In August 2015, the FASB issued a one-year deferral of the effective date, with early adoption as of the original effective date permitted. The FASB also subsequently issued guidance amending and clarifying various aspects of the new revenue recognition standard. We will adopt the new revenue guidance effective April 1, ~~2018~~2020, TMCC 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”). We currently offer exclusive private label automotive retail, lease, and dealer financing products and services marketed under the brand Mazda Financial Services to Mazda customers and dealers in the United States. As of August 1, 2020, we launched a ~~cumulative-effect adjustment~~full suite of insurance products under the name of Mazda Protection Products (MPP) that includes Vehicle Service Agreements, Guaranteed Auto Protection, Prepaid Maintenance, Excess Wear and Use, Tire and Wheel and Key Replacement. TMCC’s agreement with Mazda is for an initial term of approximately five years. We are leveraging our existing processes and personnel to service the newly originated assets, and we have made certain technology investments to support the Mazda program. TMCC did not acquire any existing Mazda assets or liabilities pursuant to the ~~current period opening balance of retained earnings. We are substantially complete with our analysis of the impacts of the new revenue recognition standard~~agreement and do not expect that the adoption of this standard will have a material impact on our Total financing revenues as the majority of those revenues are outside the scope of the standard. However, certain service agreements within our insurance operations fall within the scope of this guidance. Based on our evaluation of these agreements, we expect the application of this guidance will result in changes to the timing of recognition for revenues and expenses. However, we do not expect ~~these changes~~launch costs to ~~have a material impact on our income before income taxes.~~

In January 2016, the FASB issued new guidance that addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments and will require entities to measure equity investments at fair value and recognize any changes in fair value in earnings.be significant through fiscal year 2021. We will ~~adopt this new guidance on April 1, 2018~~continue to look for opportunities to optimize our private label financial services by partnering with a cumulative-effect adjustment to the current period opening balance of retained earnings. This guidance also requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from changes in instrument-specific credit risk for instruments where the entity has elected the fair value option. The adoption of this guidance will not have a material impact on our ~~consolidated financial statements.~~affiliates.

In February 2016, the FASB issued new guidance that introduces a lessee model that brings most leases on the balance sheet and aligns many of the underlying principles of the new lessor model with those in the new revenue recognition standard. The new leasing standard represents a wholesale change to lease accounting for lessees and requires additional disclosures regarding leasing arrangements. Upon adoption, we expect to recognize lease liabilities and right-of-use assets (at their present value) in our Consolidated Balance Sheets related to predominantly all of the future minimum lease payments as disclosed in Note 12 – Commitments and Contingencies. This accounting guidance is effective for us on April 1, 2019. We are currently evaluating the other potential impacts of this guidance for both lessees and lessors on our consolidated financial statements and related disclosures.

In June 2016, the FASB issued new guidance that introduces a new impairment model based on expected losses rather than incurred losses for certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. Upon adoption, we expect this new guidance will result in an increase in our allowance for credit losses with a cumulative-effect adjustment to the current period opening balance of retained earnings. The magnitude of the increase in our allowance for credit losses is under evaluation. This accounting guidance is effective for us on April 1, 2020. We are currently evaluating the other potential impacts of this guidance on our consolidated financial statements.

We adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), along with the subsequently issued guidance amending and clarifying various aspects of ASU 2016-13, using the modified retrospective method as required. In accordance with that method, the comparative period’s information continues to be reported under the relevant accounting guidance in effect for that period. Upon adoption of ASU 2016-13, the incurred loss impairment method was replaced with a new impairment model that reflects lifetime expected losses for our finance receivables. 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. Additionally, we have changed the presentation of accrued interest related to finance receivables in the Consolidated Balance Sheets from Finance receivables, net to Other assets. As of April 1, 2020, we have reclassified accrued interest of $190 million from Finance receivables, net to Other assets. The adoption of this new guidance did not result in a material impact to our available-for-sale debt securities portfolio.

Refer to Note 2 – Investments in Marketable Securities, Note 3 – Finance Receivables, Net, and Note 5 – Allowance for Credit Losses for additional information.

In ~~August 2016,~~conjunction with the adoption of ASU 2016-13, we updated our depreciation policy for operating leases so that the useful life of the vehicles incorporates our historical experience on early terminations due to customer defaults. As a result, we changed the presentation for reporting early termination expenses related to customer defaults on investments in operating leases. We now present the effects of operating lease early terminations as part of accumulated depreciation within Investments in operating leases, net in the Consolidated Balance Sheets and Depreciation on operating leases in the Consolidated Statements of Income. The comparative period’s information continues to be reported under the relevant accounting presentation in effect for that period. Refer to Note 4 – Investments in Operating Leases, Net for additional information.

We adopted ASU 2018-13, Fair Value Measurement (Topic 820), which modifies disclosure requirements related to fair value measurement. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.

We adopted ASU 2018-15, Intangibles – Goodwill and Other-Internal-Use Software, which aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.

We adopted ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The adoption of this guidance related to Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments did not have a material impact on our consolidated financial statements and related disclosures. The impact on our consolidated financial statements for Topic 326, Financial Instruments – Credit Losses is discussed above.

We adopted ASU 2018-17, Consolidation (Topic 810), which requires that an indirect interest held through related parties in common control arrangements are to be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, along with subsequently issued guidance, which provides temporary optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. Entities may apply the provisions of the new standard as of the beginning of the reporting period when the election is made. The provisions of this update are available until December 31, 2022. We plan to adopt this guidance ~~that~~on April 1, 2021. The adoption of this guidance will not have a material impact on our consolidated financial statements and related disclosures.

In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables-Nonrefundable Fees and Other Costs, which requires an entity to reevaluate the amortization period for callable debt securities held at a premium each reporting period. The premium is ~~intended~~amortized to ~~reduce diversity in practice in~~ the ~~classification~~earliest call date of ~~certain items in~~ the ~~statement of cash flows.~~debt security. This ~~accounting guidance~~ASU is effective for us on April 1, ~~2018.~~2021. The adoption of this guidance will not have a material impact on our consolidated financial statements and related disclosures.

In November 2016, the FASB issued new guidance that clarifies how restricted cash and cash equivalents should be classified and presented in the statement of cash flows and requires new disclosures related to restricted cash and cash equivalents. This guidance was intended to reduce diversity in practice in the classification of restricted cash and cash equivalents on the statement of cash flows. This accounting guidance is effective for us on April 1, 2018 at which time we will no longer report the change in restricted cash and cash equivalents in the operating or investing sections in our Consolidated Statements of Cash Flows, and cash and cash equivalents at the beginning and end of the period will include restricted cash and cash equivalents. These changes will be applied using a retrospective transition method to each period presented and will not have a material impact on our consolidated financial statements and related disclosures.

In March 2017, the FASB issued new guidance that requires certain premiums on callable debt securities to be amortized to the earliest call date. This accounting guidance is effective for us on April 1, 2019. We are currently evaluating the potential impact of this guidance on our consolidated financial statements.

In August 2017, the FASB issued new guidance that makes targeted improvements to accounting for hedging activities. This guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires, for qualifying hedges, the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance provides new alternatives for applying hedge accounting and measuring the hedged item in fair value hedges of interest rate risk. The guidance also modifies the accounting for components excluded from the assessment of hedge effectiveness, eases documentation and assessment requirements and modifies certain disclosure requirements. This accounting guidance is effective for us on April 1, 2019. We are currently evaluating the potential impact of this guidance on our consolidated financial statements and disclosures.

In April 2017, we adopted new FASB accounting guidance, which clarifies that a change in the counterparty to a designated derivative hedging instrument does not, in and of itself, require de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The adoption of this guidance did not have an impact on our consolidated financial statements.

In April 2017, we adopted new FASB accounting guidance, which clarifies whether an embedded contingent put or call option is clearly and closely related to the debt host when bifurcating an embedded derivative. The adoption of this guidance did not have an impact on our consolidated financial statements.

In April 2017, we adopted new FASB accounting guidance that further amends the analysis a reporting entity must perform to determine whether it should consolidate certain legal entities. This guidance specifically addresses interests held through related parties that are under common control. The adoption of this guidance did not change our consolidation conclusions and therefore did not have an impact on our consolidated financial statements.

Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables summarize our financial assets and financial liabilities measured at fair value on a recurring basis by level within the fair value hierarchy except for certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient and are excluded from the leveling information provided in the tables below. Fair value amounts presented below are intended to permit reconciliation of the fair value hierarchy to the amounts presented in our Consolidated Balance Sheets.

December 31, 2017

Counterparty

netting &

Fair

Level 1

Level 2

Level 3

collateral

value

Cash equivalents:

Money market instruments

$
314

$
389

$
-

$
-

$
703

U.S. government and agency obligations

10

-

-

-

10

Certificates of deposit

-

1,750

-

-

1,750

Commercial paper

-

65

-

-

65

Cash equivalents total

324

2,204

-

-

2,528

Restricted cash equivalents - money market instruments

703

-

-

-

703

Available-for-sale securities:

Debt instruments:

U.S. government and agency obligations

2,932

25

-

-

2,957

Municipal debt securities

-

11

-

-

11

Certificates of deposit

-

475

-

-

475

Commercial paper

-

112

-

-

112

Corporate debt securities

35

190

8

-

233

Mortgage-backed securities:

U.S. government agency

-

40

-

-

40

Non-agency residential

-

-

2

-

2

Non-agency commercial

-

-

34

-

34

Asset-backed securities

-

-

38

-

38

Equity instruments:

Fixed income mutual funds:

Fixed income mutual funds measured at
net asset value

670

Total return bond funds

1,542

-

-

-

1,542

Available-for-sale securities total

4,509

853

82

-

6,114

Derivative assets:

Interest rate swaps

-

563

-

-

563

Interest rate floors

-

1

-

-

1

Foreign currency swaps

-

376

-

-

376

Counterparty netting and collateral

-

-

-

(862
)

(862
)
Derivative assets total

-

940

-

(862
)

78

Assets at fair value

5,536

3,997

82

(862
)

9,423

Derivative liabilities:

Interest rate swaps

-

(288
)

(2
)

-

(290
)
Foreign currency swaps

-

(285
)

-

-

(285
)
Counterparty netting and collateral

-

-

-

575

575

Liabilities at fair value

-

(573
)

(2
)

575

-

Net assets at fair value

$
5,536

$
3,424

$
80

$
(287
)

$
9,423

Note 2 – ~~Fair Value Measurements (Continued)~~Investments in Marketable Securities

Investments in marketable securities consist of debt securities and equity investments. We classify all of our debt securities as available-for-sale.

March 31, 2017

Counterparty

netting &

Fair

Level 1

Level 2

Level 3

collateral

value

Cash equivalents:

Money market instruments

$
287

$
1,045

$
-

$
-

$
1,332

Certificates of deposit

-

2,630

-

-

2,630

Cash equivalents total

287

3,675

-

-

3,962

Available-for-sale securities:

Debt instruments:

U.S. government and agency obligations

2,273

33

2

-

2,308

Municipal debt securities

-

11

-

-

11

Certificates of deposit

105

650

-

-

755

Corporate debt securities

211

150

8

-

369

Mortgage-backed securities:

U.S. government agency

-

45

-

-

45

Non-agency residential

-

-

2

-

2

Non-agency commercial

-

-

37

-

37

Asset-backed securities

-

-

31

-

31

Equity instruments:

Fixed income mutual funds:

Fixed income mutual funds measured at
net asset value

1,740

Total return bond funds

394

-

-

-

394

Available-for-sale securities total

2,983

889

80

-

5,692

Derivative assets:

Interest rate swaps

-

474

1

-

475

Interest rate floors

-

2

-

-

2

Foreign currency swaps

-

122

-

-

122

Counterparty netting and collateral

-

-

-

(548
)

(548
)
Derivative assets total

-

598

1

(548
)

51

Assets at fair value

3,270

5,162

81

(548
)

9,705

Derivative liabilities:

Interest rate swaps

-

(271
)

(6
)

-

(277
)
Foreign currency swaps

-

(1,114
)

(62
)

-

(1,176
)
Counterparty netting and collateral

-

-

-

1,407

1,407

Liabilities at fair value

-

(1,385
)

(68
)

1,407

(46
)
Net assets at fair value

$
3,270

$
3,777

$
13

$
859

$
9,659

	December 31, 2020
	Amortized		Unrealized		Unrealized			Fair
	cost		gains		losses			value
Available-for-sale debt securities:
U.S. government and agency obligations	$	223	$	9	$	(2	)	$	230
Municipal debt securities		8		2		0			10
Commercial paper		200		0		0			200
Corporate debt securities		159		18		0			177
Mortgage-backed securities:
U.S. government agency		35		2		0			37
Non-agency residential		1		0		0			1
Non-agency commercial		47		2		(2	)		47
Asset-backed securities		51		4		0			55
Total available-for-sale debt securities	$	724	$	37	$	(4	)	$	757
Equity investments									3,839
Total investments in marketable securities								$	4,596

	March 31, 2020
	Amortized		Unrealized		Unrealized			Fair
	cost		gains		losses			value
Available-for-sale debt securities:
U.S. government and agency obligations	$	160	$	16	$	0		$	176
Municipal debt securities		9		2		0			11
Certificates of deposit		250		0		(1	)		249
Commercial paper		604		0		(3	)		601
Corporate debt securities		188		10		(1	)		197
Mortgage-backed securities:
U.S. government agency		47		2		0			49
Non-agency residential		1		0		0			1
Non-agency commercial		47		0		(2	)		45
Asset-backed securities		75		0		(3	)		72
Total available-for-sale debt securities	$	1,381	$	30	$	(10	)	$	1,401
Equity investments									2,419
Total investments in marketable securities								$	3,820

A portion of our equity investments is investments in funds that are privately placed and managed by an open-end investment management company (the “Trust”). If we elect to redeem shares, the Trust will normally redeem all shares for cash, but may, in unusual circumstances, redeem amounts exceeding the lesser of $250 thousand or 1 percent of the Trust’s asset value by payment in kind of securities held by the respective fund during any 90-day period.

We also invest in actively traded open-end mutual funds. Redemptions are subject to normal terms and conditions as described in each fund’s prospectus.

Note 2 – ~~Fair Value Measurements~~Investments in Marketable Securities (Continued)

Available-for-sale debt securities in a continuous loss position for less than twelve months and greater than twelve months were not significant as of December 31, 2020 and March 31, 2020.

We adopted ASU 2016-13 on April 1, 2020, on a modified retrospective basis, as further described in Note 1 – Interim Financial Data. Under the new guidance, once it is determined that a credit loss has occurred, an allowance for credit losses is established. Prior to adoption of this standard, when a decline in fair value of a debt security was determined to be other- than-temporary, an impairment charge for the credit component was recorded in Investment and other income, net and a new cost basis in the investment was established. As of December 31, 2020, management determined that credit losses did not exist for securities in an unrealized loss position. This analysis considered a variety of factors including, but not limited to, performance indicators of the ~~fair value hierarchy~~issuer, default rates, industry analyst reports, credit ratings, and other relevant information, which indicated that contractual cash flows are ~~recognized at the end of their respective reporting periods. Transfers between levels of the fair value hierarchy during the three~~expected to occur.

Gains and ~~nine months ended December 31, 2017 and 2016 resulted from changes in the transparency of inputs and were not significant.~~Losses on Securities

The following ~~tables summarize the rollforward~~table represents gains and losses on our investments in marketable securities presented in our Consolidated Statements of ~~all assets~~Income:

The amortized cost and ~~liabilities measured at~~ fair value, ~~on a recurring basis using significant unobservable inputs:~~by contractual maturity of available-for-sale debt securities are summarized in the following table. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations.

Three Months Ended December 31, 2017

Total net

Derivative

assets

Available-for-sale securities

instruments, net

(liabilities)

Total

Corporate

Mortgage-

Asset-

available-

Interest

debt

backed

backed

for-sale

rate

securities

securities

securities

securities

swaps

Fair value, October 1, 2017

$
8

$
40

$
36

$
84

$
(12
)

$
72

Total gains (losses)

Included in earnings

-

-

-

-

6

6

Included in other comprehensive income

-

-

(1
)

(1
)

-

(1
)
Purchases, issuances, sales, and settlements

Purchases

-

-

10

10

-

10

Issuances

-

-

-

-

-

-

Sales

-

-

-

-

-

-

Settlements

-

(4
)

(7
)

(11
)

4

(7
)
Transfers in to Level 3

-

-

-

-

-

-

Transfers out of Level 3

-

-

-

-

-

-

Fair value, December 31, 2017

$
8

$
36

$
38

$
82

$
(2
)

$
80

The amount of total gains
  (losses) included in earnings
  attributable to assets held
  at the reporting date

$
6

$
6

	December 31, 2020
	Amortized cost		Fair value
Available-for-sale debt securities:
Due within 1 year	$	236	$	237
Due after 1 year through 5 years		133		142
Due after 5 years through 10 years		141		151
Due after 10 years		80		87
Mortgage-backed and asset-backed securities¹		134		140
Total	$	724	$	757

Three Months Ended December 31, 2016

Total net

assets

Available-for-sale securities

Derivative instruments, net

(liabilities)

U.S.

Total

Total

government

Corporate

Mortgage-

Asset-

available-

Interest

Foreign

derivative

and agency

debt

backed

backed

for-sale

rate

currency

assets

obligations

securities

securities

securities

securities

swaps

swaps

(liabilities)

Fair value, October 1, 2016

$
2

$
8

$
41

$
34

$
85

$
33

$
(49
)

$
(16
)

$
69

Total gains (losses)

Included in earnings

-

-

-

-

-

(47
)

(17
)

(64
)

(64
)
Included in other comprehensive income

-

-

(1
)

1

-

-

-

-

-

Purchases, issuances, sales, and settlements

Purchases

-

-

-

-

-

-

-

-

-

Issuances

-

-

-

-

-

-

-

-

-

Sales

-

-

-

-

-

-

-

-

-

Settlements

-

-

(4
)

(5
)

(9
)

3

(3
)

-

(9
)
Transfers in to Level 3

-

-

-

-

-

-

-

-

-

Transfers out of Level 3

-

-

-

-

-

-

-

-

-

Fair value, December 31, 2016

$
2

$
8

$
36

$
30

$
76

$
(11
)

$
(69
)

$
(80
)

$
(4
)
The amount of total gains
  (losses) included in earnings
  attributable to assets held
  at the reporting date

$
(47
)

$
(17
)

$
(64
)

$
(64
)

¹	Mortgage-backed and asset-backed securities are shown separately from other maturity groupings as these securities have multiple maturity dates.

Nine Months Ended December 31, 2017

Total net

assets

Available-for-sale securities

Derivative instruments, net

(liabilities)

U.S.

Total

Total

government

Corporate

Mortgage-

Asset-

available-

Interest

Foreign

derivative

and agency

debt

backed

backed

for-sale

rate

currency

assets

obligations

securities

securities

securities

securities

swaps

swaps

(liabilities)

Fair value, April 1, 2017

$
2

$
8

$
39

$
31

$
80

$
(5
)

$
(62
)

$
(67
)

$
13

Total gains (losses)

Included in earnings

-

-

-

-

-

24

7

31

31

Included in other comprehensive income

-

-

-

-

-

-

-

-

-

Purchases, issuances, sales, and settlements

Purchases

-

-

5

26

31

-

-

-

31

Issuances

-

-

-

-

-

-

-

-

-

Sales

-

-

-

-

-

-

-

-

-

Settlements

-

-

(8
)

(19
)

(27
)

(21
)

55

34

7

Transfers in to Level 3

-

-

-

-

-

-

-

-

-

Transfers out of Level 3

(2
)

-

-

-

(2
)

-

-

-

(2
)
Fair value, December 31, 2017

$
-

$
8

$
36

$
38

$
82

$
(2
)

$
-

$
(2
)

$
80

The amount of total gains
  (losses) included in earnings
  attributable to assets held
  at the reporting date

$
24

$
-

$
24

$
24

Nine Months Ended December 31, 2016

Total net

assets

Available-for-sale securities

Derivative instruments, net

(liabilities)

U.S.

Total

Total

government

Corporate

Mortgage-

Asset-

available-

Interest

Foreign

derivative

and agency

debt

backed

backed

for-sale

rate

currency

assets

obligations

securities

securities

securities

securities

swaps

swaps

(liabilities)

Fair value, April 1, 2016

$
2

$
7

$
45

$
37

$
91

$
39

$
(14
)

$
25

$
116

Total gains (losses)

Included in earnings

-

-

-

-

-

(27
)

(49
)

(76
)

(76
)
Included in other comprehensive income

-

1

-

1

2

-

-

-

2

Purchases, issuances, sales, and settlements

Purchases

-

-

-

3

3

-

-

-

3

Issuances

-

-

-

-

-

-

-

-

-

Sales

-

-

-

-

-

-

-

-

-

Settlements

-

-

(9
)

(11
)

(20
)

(23
)

(6
)

(29
)

(49
)
Transfers in to Level 3

-

-

-

-

-

-

-

-

-

Transfers out of Level 3

-

-

-

-

-

-

-

-

-

Fair value, December 31, 2016

$
2

$
8

$
36

$
30

$
76

$
(11
)

$
(69
)

$
(80
)

$
(4
)
The amount of total gains
  (losses) included in earnings
  attributable to assets held
  at the reporting date

$
(27
)

$
(49
)

$
(76
)

$
(76
)

Nonrecurring fair value measurements include Level 3 net finance receivables that are not measured at fair value on a recurring basis, but are subject to fair value adjustments utilizing the fair value of the underlying collateral when there is evidence of impairment. We did not have any significant nonrecurring fair value items as of December 31, 2017 and March 31, 2017.

The Level 3 financial assets and liabilities recorded at fair value which are subject to recurring and nonrecurring fair value measurement, and the corresponding change in the fair value measurements of these assets and liabilities, were not significant to our Consolidated Balance Sheets or Consolidated Statements of Income as of and for the three and nine months ended December 31, 2017 and as of and for the year ended March 31, 2017.

~~The following tables provide information about assets and liabilities not carried at fair value on a recurring basis on our Consolidated Balance Sheets:~~

December 31, 2017

Carrying

Total Fair

value

Level 1

Level 2

Level 3

Value

Financial assets

Finance receivables, net

Retail loan

$
51,945

$
-

$
-

$
51,823

$
51,823

Wholesale

9,980

-

-

10,040

10,040

Real estate

4,547

-

-

4,471

4,471

Working capital

2,269

-

-

2,301

2,301

Financial liabilities

Commercial paper

$
28,041

$
-

$
28,041

$
-

$
28,041

Unsecured notes and loans payable

56,742

-

55,078

2,355

57,433

Secured notes and loans payable

13,714

-

-

13,708

13,708

March 31, 2017

Carrying

Total Fair

value

Level 1

Level 2

Level 3

Value

Financial assets

Finance receivables, net

Retail loan

$
50,682

$
-

$
-

$
50,733

$
50,733

Wholesale

10,819

-

-

10,881

10,881

Real estate

4,602

-

-

4,459

4,459

Working capital

2,218

-

-

2,222

2,222

Financial liabilities

Commercial paper

$
26,632

$
-

$
26,632

$
-

$
26,632

Unsecured notes and loans payable

57,282

-

55,838

2,385

58,223

Secured notes and loans payable

14,319

-

-

14,322

14,322

The carrying value of each class of finance receivables includes accrued interest and deferred fees and costs, net of deferred income and the allowance for credit losses. Finance receivables, net, excludes related party transactions, for which the fair value approximates the carrying value, of $162 million and $136 million at December 31, 2017 and March 31, 2017, respectively. Fair values of related party finance receivables, net are classified in Level 3 of the fair value hierarchy.

We classify all of our investments in marketable securities as available-for-sale. The amortized cost and estimated fair value of investments in marketable securities and related unrealized gains and losses were as follows:

December 31, 2017

Amortized

Unrealized

Unrealized

Fair

cost

gains

losses

value

Available-for-sale securities:

Debt instruments:

U.S. government and agency obligations

$
2,974

$
-

$
(17
)

$
2,957

Municipal debt securities

9

2

-

11

Certificates of deposit

475

-

-

475

Commercial paper

112

-

-

112

Corporate debt securities

230

4

(1
)

233

Mortgage-backed securities:

U.S. government agency

39

1

-

40

Non-agency residential

1

1

-

2

Non-agency commercial

35

-

(1
)

34

Asset-backed securities

38

-

-

38

Equity instruments:

Fixed income mutual funds:

Short-term floating NAV fund II

20

-

-

20

U.S. government sector fund

205

4

(1
)

208

Municipal sector fund

8

-

-

8

Investment grade corporate sector fund

99

-

(2
)

97

High-yield sector fund

22

2

-

24

Mortgage sector fund

159

1

-

160

Asset-backed securities sector fund

58

1

-

59

Emerging market sector fund

38

3

-

41

International sector fund

54

-

(1
)

53

Total return bond funds

1,523

19

-

1,542

Total investments in marketable securities

$
6,099

$
38

$
(23
)

$
6,114

March 31, 2017

Amortized

Unrealized

Unrealized

Fair

cost

gains

losses

value

Available-for-sale securities:

Debt instruments:

U.S. government and agency obligations

$
2,314

$
1

$
(7
)

$
2,308

Municipal debt securities

10

1

-

11

Certificates of deposit

755

-

-

755

Corporate debt securities

368

2

(1
)

369

Mortgage-backed securities:

U.S. government agency

45

1

(1
)

45

Non-agency residential

2

-

-

2

Non-agency commercial

37

1

(1
)

37

Asset-backed securities

31

-

-

31

Equity instruments:

Fixed income mutual funds:

Short-term floating NAV fund II

39

-

-

39

U.S. government sector fund

389

-

-

389

Municipal sector fund

20

-

-

20

Investment grade corporate sector fund

252

9

-

261

High-yield sector fund

83

6

-

89

Real return sector fund

147

5

-

152

Mortgage sector fund

390

2

-

392

Asset-backed securities sector fund

140

10

-

150

Emerging market sector fund

105

7

-

112

International sector fund

136

-

-

136

Total return bond funds

389

5

-

394

Total investments in marketable securities

$
5,652

$
50

$
(10
)

$
5,692

The Fixed income mutual funds, exclusive of the Total return bond funds, are investments in funds that are privately placed and managed by an open-end investment management company (the “Trust”). If we elect to redeem shares, the Trust will normally redeem all shares for cash, but may, in unusual circumstances, redeem amounts exceeding the lesser of $250 thousand or 1 percent of the Trust’s asset value by payment in kind of securities held by the respective fund during any 90-day period.

~~The Total return bond funds are investments in actively traded open-end mutual funds. Redemptions are subject to normal terms and conditions as described in each fund’s prospectus.~~

~~Investments in marketable securities in a continuous loss position for less than twelve months and for greater than twelve months were not significant as of December 31, 2017 and March 31, 2017.~~

~~The following table represents realized gains and losses on our available-for-sale securities presented in our Consolidated Statements of Income:~~

The amortized cost, fair value, and contractual maturities of available-for-sale debt instruments are summarized in the following table. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations.

Finance receivables, net ~~consist~~consists of the retail ~~receivables~~loan and the dealer ~~financing,~~products portfolio segments, which includes ~~accrued interest and~~ deferred ~~fees and~~ costs, net of the allowance for credit losses and deferred income. Finance receivables, net also includes securitized retail receivables, which represent retail receivables that have been sold for legal purposes to securitization trusts but continue to be included in our consolidated financial statements, as discussed further in Note 108 – Variable Interest Entities. Cash flows from these securitized retail receivables are available only for the repayment of debt issued by these trusts and other obligations arising from the securitization transactions. They are not available for payment of our other obligations or to satisfy claims of our other creditors.

Upon adoption of ASU 2016-13, we elected the accounting policy to present accrued interest related to finance receivables within Other assets in the Consolidated Balance Sheets. As of December 31, 2020, accrued interest related to finance receivables is $196 million and is included in Other assets. The comparative period’s information continues to be reported within Finance receivables, net. Upon adoption of ASU 2016-13, we no longer reverse accrued interest receivables from interest income for our dealer products portfolio when an account is deemed to be uncollectible. For both retail loan and dealer products portfolio segments, accrued interest is written off within allowance for credit losses at the earlier of when an account is deemed to be uncollectible or when an account is greater than 120 days past due.

	December 31,			March 31,			December 31,			March 31,
	2017			2017			2020			2020
Retail receivables	$	40,608		$	38,338
Securitized retail receivables		12,284			13,071
Retail receivables ¹							$	65,102		$	57,088
Dealer financing		17,092			17,899			15,212			17,873
		69,984			69,308			80,314			74,961

Deferred origination (fees) and costs, net		640			644
Deferred origination costs								1,083			890
Deferred income		(1,225	)		(1,023	)		(1,435	)		(1,128	)
Allowance for credit losses
Retail and securitized retail receivables		(357	)		(344	)		(1,052	)		(486	)
Dealer financing		(134	)		(123	)		(110	)		(241	)
Total allowance for credit losses		(491	)		(467	)		(1,162	)		(727	)
Finance receivables, net	$	68,908		$	68,462		$	78,800		$	73,996

¹ Includes securitized retail receivables of $19.6 billion and $12.7 billion as of December 31, 2020 and March 31, 2020, respectively.

We are exposed to credit risk on our finance receivables. Credit risk is the risk of loss arising from the failure of customers or dealers to meet the terms of their contracts with us or otherwise fail to perform as agreed.

The retail loan portfolio segment consists of one class of finance receivables. While we use various credit quality metrics to develop our allowance for credit losses on the retail loan portfolio segment, we primarily utilize the aging of the individual accounts to monitor the credit quality of these finance receivables. Based on our experience, the payment status of borrowers is the strongest indicator of the credit quality of the underlying receivables. Payment status also impacts charge-offs.

Individual borrower accounts within the retail loan portfolio segment are segregated into aging categories based on the number of days outstanding. The aging for each class of finance receivables is updated monthly.

The following table presents the amortized cost basis of our retail loan portfolio by credit quality indicator based on number of days outstanding by origination year at December 31, 2020:

The amortized cost of retail loan portfolio excludes accrued interest of $166 million at December 31, 2020. The table includes contracts greater than 120 days past due, which are recorded at the fair value of collateral less estimated costs to sell, and contracts in bankruptcy.

The following table presents our retail loan portfolio by credit quality indicator at March 31, 2020:

~~For the~~The dealer products portfolio segment consists of three classes of finance ~~receivables within the dealer products portfolio segment (wholesale,~~receivables: wholesale, real estate and working ~~capital), all~~capital. All loans outstanding for an individual dealer or dealer group, which includes affiliated entities, are aggregated and evaluated collectively by dealer or dealer group. This reflects the interconnected nature of financing provided to our individual dealer and dealer group customers, and their affiliated entities.

When assessing the credit quality of the finance receivables within the dealer products portfolio segment, we segregate the finance receivables account balances into four categories representing distinct credit quality indicators based on internal risk assessments. The internal risk assessments for all finance receivables within the dealer products portfolio segment are updated on a monthly basis.

The ~~tables below present each~~following table presents the amortized cost basis of our dealer products portfolio by credit quality indicator based on internal risk assessments by ~~class of finance receivables:~~origination year at December 31, 2020:

	Wholesale				Real Estate				Working Capital				Amortized Cost Basis by Origination Fiscal Year
	December 31,		March 31,		December 31,		March 31,		December 31,		March 31,		2021		2020		2019		2018		2017		2016 and Prior		Revolving loans		Total
	2017		2017		2017		2017		2017		2017
Credit quality indicators:
Wholesale
Performing	$	8,804	$	9,592	$	3,962	$	4,010	$	2,120	$	2,082	$	0	$	0	$	0	$	0	$	0	$	0	$	7,133	$	7,133
Credit Watch		1,184		1,269		637		613		149		143		0		0		0		0		0		0		275		275
At Risk		72		12		30		45		31		5		0		0		0		0		0		0		34		34
Default		54		78		43		45		6		5		0		0		0		0		0		0		15		15
Wholesale total													$	0	$	0	$	0	$	0	$	0	$	0	$	7,457	$	7,457
Real estate
Performing													$	1,571	$	355	$	601	$	386	$	358	$	1,652	$	0	$	4,923
Credit Watch														34		49		7		20		9		107		0		226
At Risk														14		0		0		0		5		17		0		36
Default														0		0		0		13		9		0		0		22
Real estate total													$	1,619	$	404	$	608	$	419	$	381	$	1,776	$	0	$	5,207
Working Capital
Performing													$	412	$	346	$	206	$	47	$	114	$	197	$	1,154	$	2,476
Credit Watch														6		24		14		0		0		19		1		64
At Risk														0		0		0		0		8		0		0		8
Default														0		0		0		0		0		0		0		0
Working capital total													$	418	$	370	$	220	$	47	$	122	$	216	$	1,155	$	2,548
Total	$	10,114	$	10,951	$	4,672	$	4,713	$	2,306	$	2,235	$	2,037	$	774	$	828	$	466	$	503	$	1,992	$	8,612	$	15,212

19The amortized cost of the dealer products portfolio excludes accrued interest of $30 million at December 31, 2020. As of December 31, 2020, the amount of line-of-credit arrangements that are converted to term loans in each reporting period was insignificant.

The following table ~~summarizes the information related to~~presents our ~~impaired loans by class of finance receivables:~~

Impaired

Individually Evaluated

Finance Receivables

Unpaid Principal Balance

Allowance

December 31,

March 31,

December 31,

March 31,

December 31,

March 31,

2017

2017

2017

2017

2017

2017

Impaired account balances individually evaluated for impairment with an allowance:

Wholesale

$
111

$
93

$
111

$
93

$
16

$
12

Real estate

80

94

80

94

3

12

Working capital

37

31

37

31

33

9

Total

$
228

$
218

$
228

$
218

$
52

$
33

Impaired account balances individually evaluated for impairment without an allowance:

Wholesale

$
74

$
134

$
74

$
134

Real estate

134

105

134

105

Working capital

22

-

22

-

Total

$
230

$
239

$
230

$
239

Impaired account balances aggregated and evaluated for impairment:

Retail loan

$
222

$
220

$
220

$
217

Total impaired account balances:

Retail loan

$
222

$
220

$
220

$
217

Wholesale

185

227

185

227

Real estate

214

199

214

199

Working capital

59

31

59

31

Total

$
680

$
677

$
678

$
674

~~As of December 31, 2017 and March 31, 2017, the impaired finance receivables balance for accounts in the~~ dealer products portfolio ~~segment that were on nonaccrual status was $237 million and $251 million, respectively, and there were no charge-offs against the allowance for~~by credit ~~losses for these finance receivables. Therefore, the impaired~~quality indicator at March 31, 2020:

Substantially all finance receivables ~~balance is equal~~do not involve recourse to the ~~unpaid principal balance. As of December 31, 2017 and March 31, 2017, impaired finance receivables~~dealer in the ~~retail portfolio segment~~event of customer default. Finance receivables include contracts greater than 120 days past due, which are recorded at the fair value of ~~the~~ collateral less estimated ~~selling~~ costs ~~were not significant~~to sell, and ~~therefore excluded from~~contracts in bankruptcy. Contracts for which vehicles have been repossessed are excluded. For all finance receivables, we define “past due” as any payment, including principal and interest, that is at least 30 days past the ~~table above. Refer to Note 6 – Allowance~~contractual due date. For any customer who is granted a payment extension under an extension program, the aging of the receivable is adjusted for ~~Credit Losses for details related to~~ the ~~retail loan portfolio segment’s impaired account balances which are aggregated and evaluated for impairment when determining~~number of days of the ~~allowance for credit losses.~~extension granted.

20The following tables summarize the aging of the amortized cost basis of our finance receivables by class:

Finance receivables excludes accrued interest of $196 million as of December 31, 2020.

~~The following table summarizes the average impaired loans by class of finance receivables as of the balance sheet date and the interest income recognized on these loans:~~

Average Impaired Finance Receivables

Interest Income Recognized

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended December 31,

Nine Months Ended December 31,

2017

2016

2017

2016

2017

2016

2017

2016

Impaired account balances individually evaluated for impairment with an allowance:

Wholesale

$
93

$
78

$
101

$
73

$
1

$
-

$
2

$
1

Real estate

84

89

89

97

-

1

2

2

Working capital

41

33

39

34

-

-

1

1

Total

$
218

$
200

$
229

$
204

$
1

$
1

$
5

$
4

Impaired account balances individually evaluated for impairment without an allowance:

Wholesale

$
86

$
125

$
110

$
158

$
1

$
1

$
3

$
3

Real estate

116

112

108

107

2

1

4

4

Working capital

11

-

6

1

1

-

1

-

Total

$
213

$
237

$
224

$
266

$
4

$
2

$
8

$
7

Impaired account balances aggregated and evaluated for impairment:

Retail loan

$
221

$
221

$
222

$
223

$
3

$
4

$
11

$
12

Total impaired account balances:

Retail loan

$
221

$
221

$
222

$
223

$
3

$
4

$
11

$
12

Wholesale

179

203

211

231

2

1

5

4

Real estate

200

201

197

204

2

2

6

6

Working capital

52

33

45

35

1

-

2

1

Total

$
652

$
658

$
675

$
693

$
8

$
7

$
24

$
23

The primary source of interest income recognized on the loans in the table above is from performing troubled debt restructurings. Interest income recognized using a cash-basis method of accounting during the three and nine months ended December 31, 2017 and 2016 was not significant.

For accounts not under bankruptcy protection, the amount of finance receivables modified as a troubled debt restructuring during the three and nine months ended December 31, ~~2017~~2020 and ~~2016~~2019 was not significant for each class of finance receivables. Troubled debt restructurings for ~~non-bankrupt~~ accounts not under bankruptcy protection within the retail loan class of finance receivables are comprised exclusively of contract term extensions that reduce the monthly payment due from the customer. For the three classes of finance receivables within the dealer products portfolio segment, troubled debt restructurings include contract term extensions, interest rate adjustments, waivers of loan covenants, or any combination of the three. Troubled debt restructurings of accounts not under bankruptcy protection did not include forgiveness of principal or interest rate adjustments during the three and nine months ended December 31, ~~2017~~2020 and ~~2016.~~2019.

We consider finance receivables under bankruptcy protection within the retail loan class to be troubled debt restructurings as of the date we receive notice of a customer filing for bankruptcy protection, regardless of the ultimate outcome of the bankruptcy proceedings. The bankruptcy court may impose modifications as part of the proceedings, including interest rate adjustments and forgiveness of principal. For the three and nine months ended December 31, ~~2017~~2020 and ~~2016,~~2019, the financial impact of troubled debt restructurings related to finance receivables under bankruptcy protection was not significant to our Consolidated Statements of Income and Consolidated Balance Sheets.

~~Finance receivables modified as~~We have offered several programs to provide relief to customers during the COVID-19 pandemic. These programs, which were broadly available to our customers, included retail loan payment extensions and lease payment deferrals. We concluded that these programs did not meet troubled debt ~~restructurings for which there was a subsequent payment default during~~restructuring criteria due to the ~~three and nine months ended December 31, 2017 and 2016, and for which the modification occurred within twelve months~~short-term nature of the modifications with no change in the contractual interest rate. To provide relief for our dealers we offered certain temporary interest reductions, interest payment ~~default,~~deferrals, and interest waivers on dealer floorplan financing, and principal payment deferrals on dealer floorplan financing, dealer real estate and working capital loans. We also concluded that these programs did not meet troubled debt restructuring criteria as the finance receivables from the dealers were ~~not significant for all classes of such receivables.~~current.

Investments in operating leases, net primarily consists of vehicle lease contracts acquired from dealers. Generally, lessees have the ability to extend their lease term in six month increments up to a total of 12 months from the original lease maturity date. A lease can be terminated at any time by satisfying the obligations under the lease contract. Early termination programs may be occasionally offered to eligible lessees. At the end of the lease, the customer has the option to buy the leased vehicle or return the vehicle to the dealer.

Securitized investments in operating leases represent beneficial interests in a pool of certain vehicle leases that have been sold for legal purposes to securitization trusts but continue to be included in our consolidated financial statements as discussed further in Note 8 - Variable Interest Entities. Cash flows from these securitized investments in operating leases are available only for the repayment of debt issued by these trusts and other obligations arising from the securitization transactions. They are not available for payment of our other obligations or to satisfy claims of our other creditors.

Operating lease revenues are recognized on a straight-line basis over the term of the lease. We have made an accounting policy election to exclude from the consideration in the contract, and from variable payments not included in the consideration in the contract, sales and other taxes assessed by a governmental authority that are both imposed on and concurrent with a specific lease revenue-producing transaction and collected from customers. Deferred fees and costs include incentive payments made to dealers and acquisition fees collected from customers. Deferred income includes payments received on affiliate sponsored subvention and other incentive programs. Both deferred fees and costs and deferred income are capitalized or deferred and amortized on a straight-line basis over the contract term. The accrual of revenue on investments in operating leases is discontinued at the time an account is determined to be uncollectible and subsequent revenue is recognized only to the extent a payment is received. Operating leases may be restored to accrual status when future payments are reasonably assured.

Contractual residual values of vehicle lease contracts are estimated at lease inception by examining external industry data, the anticipated Toyota, Lexus, and Mazda product pipeline and our own experience. Factors considered in this evaluation include, macroeconomic forecasts, new vehicle pricing, new vehicle incentive programs, new vehicle sales, vehicle features and specifications, the mix and level of used vehicle supply, the level of current used vehicle values, and fuel prices. We are exposed to a risk of loss to the extent the customer returns the vehicle and the value of the vehicle is lower than the residual value estimated at inception of the lease or if the number of returned vehicles is higher than anticipated.

Depreciation on operating leases is recognized using the straight-line method over the lease term. The depreciable basis is the original acquisition cost of the vehicle less the estimated residual value of the vehicle at the end of the lease term. On a quarterly basis, we review the estimated end-of-term market values and return rates of leased vehicles to assess the appropriateness of the carrying values at lease-end. Factors affecting the estimated end-of-term market value are similar to those considered in the evaluation of residual values at lease inception discussed above. Adjustments to depreciation expense to reflect revised estimates of expected market values at lease termination and revised return rates are recorded prospectively on a straight-line basis over the remaining lease term.

We use various channels to sell vehicles returned at lease-end. Upon disposition, the difference between the net book value of the lease and the proceeds received from the disposition of the asset, including any insurance proceeds is recorded as an adjustment to depreciation on operating leases.

We evaluate our investment in operating leases portfolio for potential impairment when we determine a triggering event has occurred. When a triggering event has occurred, we perform a test of recoverability by comparing the expected undiscounted future cash flows (including expected residual values) over the remaining lease terms to the carrying value of asset group. If the test of recoverability identifies a possible impairment, the asset groups fair value is measured in accordance with the fair value measurement framework. An impairment charge would be recognized for the amount by which the carrying value of the asset group exceeds its estimated fair value and would be recorded in our Consolidated Statements of Income.

In conjunction with the adoption of ASU 2016-13 on April 1, 2020, we updated our depreciation policy for operating leases so that the useful life of the vehicles incorporates our historical experience on early terminations due to customer defaults. As a result, we changed the presentation for reporting early termination expenses related to customer defaults on investments in operating leases. Previously, we presented the early termination expenses reserve on operating leases as part of the allowance for credit losses which reduced Investments in operating leases, net in the Consolidated Balance Sheets, and as part of Provision for credit losses in the Consolidated Statements of Income. We now consider the effects of operating lease early terminations when determining depreciation estimates, which are included as part of accumulated depreciation within Investments in operating leases, net in the Consolidated Balance Sheets and Depreciation on operating leases in the Consolidated Statements of Income. As of April 1, 2020, the change in presentation increased accumulated depreciation and decreased allowance for credit losses by $90 million. The comparative period’s information continues to be reported under the relevant accounting presentation in effect for that period.

¹Includes securitized investments in operating leases of $8.8 billion and $7.9 billion as of December 31, 2020 and March 31, 2020, respectively.

~~Investments in operating leases, net consist~~Upon adoption of ~~leases, net of deferred fees~~ASU 2016-13 on April 1, 2020, the incurred loss impairment method was replaced with a new impairment model that reflects lifetime expected losses. Management develops and ~~costs, deferred income, accumulated depreciation and~~documents the allowance for credit ~~losses. Securitized investments~~losses on finance receivables based on two portfolio segments. The determination of portfolio segments is based primarily on the qualitative consideration of the nature of our business operations and the characteristics of the underlying finance receivables, as follows:

Management’s estimate of lifetime expected credit losses is based on an evaluation of relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the future collectability of the finance receivables. Management’s evaluation takes into consideration the risks in ~~operating leases represent beneficial interests~~the retail loan portfolio and dealer products portfolio, past loss experience, delinquency trends, underwriting and collection practices, changes in portfolio composition, economic forecasts and other relevant factors.

The allowance for credit losses is measured on a ~~pool~~collective basis when loans have similar risk characteristics. Loans that do not share similar risk characteristics are evaluated on an individual basis. We generally use a discounted cash flow approach for determining allowance for credit losses for finance receivables modified as a troubled debt restructuring that are granted with interest rate concessions, and a non-discounted cash flow approach for other loans.

We measure expected losses of ~~certain vehicle leases~~all components of finance receivables on an amortized cost basis, excluding accrued interest, and off-balance-sheet lending commitments that ~~have been sold~~are not unconditionally cancellable by TMCC. Estimated expected credit losses for ~~legal purposes to securitization trusts but continue to be~~off-balance-sheet lending commitments within our dealer products portfolio is included in Other liabilities in the Consolidated Balance Sheets. We have elected to exclude accrued interest from the measurement of expected credit losses as we apply policies and procedures that result in the timely write-offs of accrued interest.

The level of credit risk in our ~~consolidated financial statements~~retail loan portfolio segment is influenced by various factors such as ~~discussed further in Note 10 - Variable Interest Entities. Cash flows from these securitized investments in operating leases are available only~~economic conditions, the used vehicle market, credit quality, contract structure, and collection strategies and practices. The allowance for ~~the repayment of debt issued by these trusts~~credit losses is measured on a collective basis when loans have similar risk characteristics such as loan-to-value ratio, book payment-to-income ratio, FICO score at origination, collateral type, term count, and other ~~obligations arising from the securitization transactions. They are not available for payment~~relevant factors. We use statistical models to estimate lifetime expected credit losses of our retail loan portfolio segment by applying probability of default and loss given default to the exposure at default on a loan level basis. Probability of default models are developed from internal risk scoring models which consider variables such as delinquency status, historical default frequency, and other ~~obligations~~credit quality indicators such as loan-to-value ratio, book payment-to-income ratio, FICO score at origination, collateral type (new or ~~to satisfy claims~~used, Lexus, Toyota, or Mazda), and term count. Loss given default models forecast the extent of ~~our~~losses given that a default has occurred and considers variables such as collateral, trends in recoveries, historical loss severity, and other ~~creditors.~~contract structure variables. Exposure at default represents the expected outstanding principal balance, including the effects of expected prepayment when applicable. The lifetime expected credit losses incorporate the probability-weighted forward-looking macroeconomic forecasts for baseline, favorable, and adverse scenarios. The loan lifetime is regarded by management as the reasonable and supportable period. We use macroeconomic forecasts from a third party and update such forecasts quarterly.

On an ongoing basis, we review our models, including macroeconomic factors, the selection of macroeconomic scenarios and their weighting to ensure they reflect the risk of the portfolio.

If management does not believe the models reflect lifetime expected credit losses, a qualitative adjustment is made to reflect management judgment regarding observable changes in recent or expected economic trends and conditions, portfolio composition, and other relevant factors. While management uses the best information available to make such evaluations, future adjustments to the allowance for credit losses may be necessary if conditions differ substantially from the assumptions used in making the evaluations.

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

The following ~~table provides~~tables provide information related to our allowance for credit losses onfor finance receivables and ~~investments in operating leases:~~certain off-balance sheet lending commitments by portfolio segment:

Three Months Ended

Nine Months Ended

December 31,

December 31,

2017

2016

2017

2016

Allowance for credit losses at beginning of period

$
636

$
526

$
622

$
535

Provision for credit losses

108

183

320

396

Charge-offs, net of recoveries

(110
)

(143
)

(308
)

(365
)
Allowance for credit losses at end of period

$
634

$
566

$
634

$
566

	Three months ended December 31, 2020
	Retail loan			Dealer products			Total
Beginning balance, October 1, 2020	$	1,020		$	154		$	1,174
Charge-offs		(113	)		0			(113	)
Recoveries		12			8			20
Provision for credit losses		133			(15	)		118
Ending balance, December 31, 2020 ²	$	1,052		$	147		$	1,199

	Nine months ended December 31, 2020
	Retail loan			Dealer products			Total
Beginning balance, April 1, 2020	$	486		$	241		$	727
Adoption of ASU 2016-13 ¹		281			11			292
Charge-offs		(228	)		0			(228	)
Recoveries		33			9			42
Provision for credit losses		480			(114	)		366
Ending balance, December 31, 2020 ²	$	1,052		$	147		$	1,199

Charge-offs are shown net of recoveries of $18 million and $63 million for the three and nine months ended December 31, 2017, respectively, and recoveries of $19 million and $59 million for the three and nine months ended December 31, 2016, respectively.

~~The following tables provide information related to our allowance for credit losses for finance receivables and finance receivables by portfolio segment:~~

Three Months Ended December 31, 2017

Retail Loan

Dealer Products

Total

Allowance for Credit Losses for Finance Receivables:

Beginning balance, October 1, 2017

$
359

$
123

$
482

Charge-offs

(92
)

-

(92
)
Recoveries

9

-

9

Provisions

81

11

92

Ending balance, December 31, 2017

$
357

$
134

$
491

Nine Months Ended December 31, 2017

Retail Loan

Dealer Products

Total

Beginning balance, April 1, 2017

$
344

$
123

$
467

Charge-offs

(257
)

-

(257
)
Recoveries

35

-

35

Provisions

235

11

246

Ending balance, December 31, 2017

$
357

$
134

$
491

Allowance for Credit Losses for Finance Receivables:

Ending balance: Individually evaluated for impairment

$
-

$
52

$
52

Ending balance: Collectively evaluated for impairment

$
357

$
82

$
439

Finance Receivables:

Ending balance, December 31, 2017

$
52,892

$
17,092

$
69,984

Ending balance: Individually evaluated for impairment

$
-

$
458

$
458

Ending balance: Collectively evaluated for impairment

$
52,892

$
16,634

$
69,526

The ending balance of finance receivables collectively evaluated for impairment in the above table includes approximately $222 million of finance receivables within the retail loan portfolio segment that are specifically identified as impaired. These amounts are aggregated within their respective portfolio segment when determining the allowance for credit losses as of December 31, 2017, as they are deemed to be insignificant for individual evaluation, and we have determined that the allowance for credit losses is not significant and would not be materially different if the amounts had been individually evaluated for impairment. The ending balance of financeFinance receivables for the dealer products portfolio segment ~~collectively evaluated for impairment~~ as of December 31, ~~2017~~2020 includes ~~$1,089~~$1,025 million in finance receivables that are guaranteed by Toyota Motor ~~Sales, U.S.A.,~~North America, Inc. (“~~TMS”~~TMNA”), and ~~$165~~$164 million in finance receivables that are guaranteed by third party private Toyota distributors. These finance receivables are related to certain Toyota and Lexus dealers and other third parties to whom we provided financing at the request of ~~TMS~~TMNA and third party private Toyota distributors.

Three Months Ended December 31, 2016

Retail Loan

Dealer Products

Total

Allowance for Credit Losses for Finance Receivables:

Beginning balance, October 1, 2016

$
295

$
94

$
389

Charge-offs

(113
)

-

(113
)
Recoveries

12

-

12

Provisions

120

13

133

Ending balance, December 31, 2016

$
314

$
107

$
421

Nine Months Ended December 31, 2016

Retail Loan

Dealer Products

Total

Beginning balance, April 1, 2016

$
289

$
132

$
421

Charge-offs

(294
)

-

(294
)
Recoveries

38

-

38

Provisions

281

(25
)

256

Ending balance, December 31, 2016

$
314

$
107

$
421

Allowance for Credit Losses for Finance Receivables:

Ending balance: Individually evaluated for impairment

$
-

$
26

$
26

Ending balance: Collectively evaluated for impairment

$
314

$
81

$
395

Finance Receivables:

Ending balance, December 31, 2016

$
51,570

$
17,219

$
68,789

Ending balance: Individually evaluated for impairment

$
-

$
438

$
438

Ending balance: Collectively evaluated for impairment

$
51,570

$
16,781

$
68,351

~~The ending balance~~During the first nine months of finance receivables collectively evaluated for impairment in the above table includes approximately $219 million of finance receivables within the retail loan portfolio segment that are specifically identified as impaired. These amounts are aggregated within their respective portfolio segment when determiningfiscal 2021, the allowance for credit losses ~~as of December 31, 2016, as they are deemed~~increased $472 million, reflecting an increase to ~~be insignificant for individual evaluation and we have determined that~~ the allowance for credit losses ~~is not significant~~of $292 million related to the adoption of ASU 2016-13 in fiscal 2021, and ~~would not~~an increase of $180 million primarily due to the increase in expected credit losses for the retail loan portfolio driven by economic conditions caused by the COVID-19 pandemic and the restrictions designed to slow the spread of COVID-19, including stay-at-home orders, increased unemployment, and decreased consumer spending. In addition to the initial adoption impact, ASU 2016-13 has led to an increase in the provision of credit losses with the growth of our retail loan portfolio as this standard replaces 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 sheet lending commitment.

¹The comparative period’s information continues to be ~~materially different if~~reported under the ~~amounts had been individually evaluated~~relevant accounting presentation in effect for ~~impairment. The ending balance of finance~~that period.

Finance receivables for the dealer products portfolio segment ~~collectively evaluated for impairment~~ as of December 31, ~~2016~~2019 includes ~~$1,071~~$1,024 million in finance receivables that are guaranteed by ~~TMS,~~TMNA, and ~~$173~~$137 million in finance receivables that are guaranteed by third party private Toyota distributors. These finance receivables are related to certain Toyota and Lexus dealers and other third parties to whom we provided financing at the request of ~~TMS~~TMNA and third party private Toyota distributors.

Note 6 – ~~Allowance for Credit Losses (Continued)~~Derivatives, Hedging Activities and Interest Expense

Our liabilities consist mainly of fixed and ~~Investments~~variable rate debt, denominated in ~~Operating Leases~~

~~The following table shows aggregate balances of finance receivables~~U.S. dollars and ~~investments in operating leases 60 or more days past due:~~

~~Substantially all finance receivables and investments in operating leases do not involve recourse to the dealer~~various other currencies, which we issue in the ~~event~~global capital markets, while our assets consist primarily of ~~customer default. Finance receivables~~U.S. dollar denominated, fixed rate receivables. We enter into interest rate swaps, and ~~investments~~foreign currency swaps to economically hedge the interest rate and foreign currency risks that result from the different characteristics of our assets and liabilities. Our use of derivative transactions is intended to reduce long-term fluctuations in ~~operating leases 60 or more days past due include contracts in bankruptcy and contracts greater than 120 days past due, which are recorded at~~ the fair value of assets and liabilities caused by market movements. All of our derivative activities are authorized and monitored by our management and our Asset-Liability Committee which provides a framework for financial controls and governance to manage market risk.

Accounting guidance permits the net presentation on our Consolidated Balance Sheets of derivative receivables and derivative payables with the same counterparty and the related cash collateral ~~less estimated costs~~when a legally enforceable master netting agreement exists. When we meet this condition, we elect to ~~sell. Contracts for~~present such balances on a net basis.

Our International Swaps and Derivatives Association (“ISDA”) Master Agreements are our master netting agreements which ~~vehicles~~permit multiple transactions to be cancelled and settled with a single net balance paid to either party. The master netting agreements also contain reciprocal collateral agreements which require the transfer of cash collateral to the party in a net asset position across all transactions. Our collateral agreements with substantially all our counterparties include a zero threshold, full collateralization arrangement. Although we have ~~been repossessed~~daily valuation and collateral exchange arrangements with all of our counterparties, due to the time required to move collateral, there may be a delay of up to one day between the exchange of collateral and the valuation of our derivatives. We would not be required to post additional collateral to the counterparties with whom we were in a net liability position at December 31, 2020 if our credit ratings were to decline, since we fully collateralize without regard to credit ratings with these counterparties. In addition, as our collateral agreements include legal right of offset provisions, collateral amounts are ~~excluded.~~

~~The following tables summarize~~netted against derivative assets or derivative liabilities, the ~~aging~~net amount of ~~finance receivables by class:~~

which is included in Other assets or Other liabilities in our Consolidated Balance Sheets.

The following tables show the financial statement line item and amount of our derivative assets and liabilities that are reported in our Consolidated Balance Sheets:

	December 31, 2020					March 31, 2020
			Fair					Fair
	Notional		value			Notional		value
Other assets:
Interest rate swaps	$	38,555	$	1,285		$	30,362	$	1,410
Foreign currency swaps		10,424		745			488		27
Total	$	48,979	$	2,030		$	30,850	$	1,437

Counterparty netting				(794	)				(966	)
Collateral held				(1,176	)				(420	)
Carrying value of derivative contracts – Other assets			$	60				$	51

Other liabilities:
Interest rate swaps	$	56,256	$	1,361		$	69,079	$	1,826
Foreign currency swaps		2,312		109			13,181		1,290
Total	$	58,568	$	1,470		$	82,260	$	3,116

Counterparty netting				(794	)				(966	)
Collateral posted				(652	)				(2,105	)
Carrying value of derivative contracts – Other liabilities			$	24				$	45

As of December 31, 2020 and March 31, 2020, we held excess collateral of $12 million and $10 million, respectively, which we did not use to offset derivative assets and was recorded in Other liabilities in our Consolidated Balance Sheets. As of December 31, 2020 and March 31, 2020, we posted excess collateral of $1 million, respectively, which we did not use to offset derivative liabilities and was recorded in Other assets in our Consolidated Balance Sheets.

The following table summarizes the components of interest expense, including the location and amount of gains and losses on derivative instruments and related hedged items, as reported in our Consolidated Statements of Income:

Interest expense on debt and derivatives represents net interest settlements and changes in accruals. Gains and losses on derivatives and debt denominated in foreign currencies exclude net interest settlements and changes in accruals. Cash flows associated with derivatives are reported in Net cash provided by operating activities in our Consolidated Statements of Cash Flows.

Debt and the related weighted average contractual interest rates are summarized as follows:

The carrying value of our debt includes unamortized premiums, discounts, debt issuance costs and the effects of foreign currency translation adjustments.

Weighted average contractual interest rates are calculated based on original notional or par value before consideration of premium or discount and approximate the effective interest rates. Debt is callable at par value.

Our unsecured notes and loans payable consist of commercial paper and fixed and variable rate debt. Short-term funding needs are met through the issuance of commercial paper in the U.S. Amounts outstanding under our commercial paper programs were $19.0 billion and $27.0 billion as of December 31, 2020 and March 31, 2020, respectively.

Upon issuance of fixed rate debt, we generally elect to enter into pay-float swaps to convert fixed rate payments on debt to floating rate payments. Certain unsecured notes and loans payable are denominated in various foreign currencies. The debt is translated into U.S. dollars using the applicable exchange rate at the transaction date and retranslated at each balance sheet date using the exchange rate in effect at that date. Concurrent with the issuance of these foreign currency unsecured notes and loans payable, we enter into currency swaps in the same notional amount to convert non-U.S. currency payments to U.S. dollar denominated payments. Gains and losses related to foreign currency transactions are included in Interest expense in our Consolidated Statements of Income.

Certain of our unsecured notes and loans payable contain covenants and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on certain consolidations, mergers and sales of assets. We are currently in compliance with these covenants and conditions.

Our secured notes and loans payable are denominated in U.S. dollars and consist of both fixed and variable rate debt. Secured notes and loans payable are issued using on-balance sheet securitization trusts, as further discussed in Note 8 – Variable Interest Entities. These notes are repayable only from collections on the underlying securitized retail finance receivables and the beneficial interests in investments in operating leases and from related credit enhancements. Some of our secured notes are backed by a revolving pool of finance receivables and cash collateral, with the ability to repay the notes in full after the revolving period ends, after which an amortization period begins.

For additional liquidity purposes, we maintain credit facilities as described below:

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

In November 2020, TMCC, Toyota Credit de Puerto Rico Corp. (“TCPR”) and other Toyota affiliates re-entered into a $5.0 billion 364 day syndicated bank credit facility expiring in fiscal 2022. In November 2019, TMCC, TCPR and other Toyota affiliates entered into a $5.0 billion three year syndicated bank credit facility and a $5.0 billion five year syndicated bank credit facility, expiring in fiscal 2023 and 2025, respectively.

The ability to make draws is subject to covenants and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on certain consolidations, mergers and sales of assets. These agreements may be used for general corporate purposes and 0ne were drawn upon as of December 31, 2020 and March 31, 2020. We are currently in compliance with the covenants and conditions of the credit agreements described above.

In July 2020, we entered into a 364 day revolving securitization facility with certain bank-sponsored asset-backed conduits and other financial institutions. Under the terms and subject to the conditions of this facility, the committed lenders under the facility have committed to make advances up to a facility limit of $6.5 billion backed by eligible retail finance receivables transferred by us to a special-purpose entity acting as borrower. This revolving facility allows us to obtain term funding and, with the consent of the committed lenders, may be renewed on an annual basis. Any utilized portion of the facility that is not renewed is repaid as the underlying assets amortize. As of December 31, 2020, $3.6 billion of this facility was utilized. We may obtain additional funding as we pay down the outstanding debt in conjunction with the amortization of transferred receivables, subject to having a sufficient amount of eligible receivables. Our utilization and renewal strategies are driven by economic considerations as well as our funding and liquidity needs.

TMCC has entered into additional unsecured credit facilities with various banks. As of December 31, 2020, TMCC had committed bank credit facilities totaling $4.4 billion, of which $350 million, $1.9 billion, $1.8 billion and $300 million mature in fiscal 2021, 2022, 2023, and 2024, respectively.

These credit agreements contain covenants and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on certain consolidations, mergers and sales of assets. These credit facilities were 0t drawn upon as of December 31, 2020 and March 31, 2020. We are currently in compliance with the covenants and conditions of the credit agreements described above.

TMCC is party to a $5.0 billion three year revolving credit facility with Toyota Motor Sales U.S.A., Inc. expiring in fiscal 2022. This credit facility was drawn upon in fiscal 2020 for a principal amount of $3.0 billion with an interest rate of 1.86%, and on July 30, 2020, we voluntarily repaid the draw and accrued interest in full. The amount was recorded in Other liabilities on our Consolidated Balance Sheet and funds were used for general corporate purposes.

From time to time, we may borrow from affiliates based upon a number of business factors such as funds availability, cash flow timing, relative cost of funds, and market access capabilities. Amounts borrowed from affiliates are recorded in Other liabilities on our Consolidated Balance Sheets.

Our liabilities consist mainly of fixed and floating 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, interest rate caps and foreign currency swaps to hedge the interest rate and foreign currency risks that result from the different characteristics of our assets and liabilities. Our use of derivative transactions is intended to reduce long-term fluctuations in the fair value of assets and liabilities caused by market movements. All of our derivative activities are authorized and monitored by our management and our Asset Liability Committee which provides a framework for financial controls and governance to manage market risk.

Our derivative contracts are governed by International Swaps and Derivatives Association (“ISDA”) Master Agreements. Substantially all of these ISDA Master Agreements contain reciprocal ratings triggers providing either party with an option to terminate the agreement at market value in the event of a ratings downgrade of the other party below a specified threshold. As of December 31, 2017, we have daily valuation and collateral exchange arrangements with all of our counterparties. Our collateral agreements with substantially all of our counterparties include a zero threshold, full collateralization arrangement. However, due to the time required to move collateral, there may be a delay of up to one day between the exchange of collateral and the valuation of our derivatives. We would not be required to post additional collateral to the counterparties with whom we were in a net liability position at December 31, 2017 if our credit ratings were to decline, since we fully collateralize without regard to credit ratings with these counterparties.

~~The following tables show the financial statement line item and amount of our derivative assets and liabilities that are reported in our Consolidated Balance Sheets:~~

December 31, 2017

Hedge accounting

Non-hedge

derivatives

accounting derivatives

Total

Fair

Fair

Fair

Notional

value

Notional

value

Notional

value

Other assets:

Interest rate swaps

$
-

$
-

$
73,683

$
563

$
73,683

$
563

Interest rate floors

-

-

847

1

847

1

Foreign currency swaps

271

19

7,373

357

7,644

376

Total

$
271

$
19

$
81,903

$
921

$
82,174

$
940

Counterparty netting and collateral held

(862
)
Carrying value of derivative
contracts – Other assets

$
78

Other liabilities:

Interest rate swaps

$
-

$
-

$
37,809

$
290

$
37,809

$
290

Foreign currency swaps

93

3

5,773

282

5,866

285

Total

$
93

$
3

$
43,582

$
572

$
43,675

$
575

Counterparty netting and collateral posted

(575
)
Carrying value of derivative
contracts – Other liabilities

$
-

As of December 31, 2017, we held collateral of $465 million, which offset derivative assets, and posted collateral of $178 million, which offset derivative liabilities. We also held excess collateral of $4 million, which we did not use to offset derivative assets, and we posted excess collateral of $42 million which we did not use to offset derivative liabilities.

March 31, 2017

Hedge accounting

Non-hedge

derivatives

accounting derivatives

Total

Fair

Fair

Fair

Notional

value

Notional

value

Notional

value

Other assets:

Interest rate swaps

$
-

$
-

$
62,525

$
475

$
62,525

$
475

Interest rate floors

-

-

1,673

2

1,673

2

Foreign currency swaps

271

28

1,648

94

1,919

122

Total

$
271

$
28

$
65,846

$
571

$
66,117

$
599

Counterparty netting and collateral held

(548
)
Carrying value of derivative
contracts – Other assets

$
51

Other liabilities:

Interest rate swaps

$
-

$
-

$
45,297

$
277

$
45,297

$
277

Interest rate caps

-

-

30

-

30

-

Foreign currency swaps

93

1

12,570

1,175

12,663

1,176

Total

$
93

$
1

$
57,897

$
1,452

$
57,990

$
1,453

Counterparty netting and collateral posted

(1,407
)
Carrying value of derivative
contracts – Other liabilities

$
46

As of March 31, 2017, we held collateral of $154 million which offset derivative assets, and posted collateral of $1,013 million which offset derivative liabilities. We also held excess collateral of $5 million which we did not use to offset derivative assets, and we posted excess collateral of $5 million which we did not use to offset derivative liabilities.

Three Months Ended

Nine Months Ended

December 31,

December 31,

2017

2016

2017

2016

Interest expense on debt

$
490

$
397

$
1,441

$
1,133

Interest (income) expense on derivatives

(13
)

2

(47
)

(5
)
Interest expense on debt and derivatives, net

477

399

1,394

1,128

Loss on hedge accounting derivatives:

Foreign currency swaps

4

62

14

25

Loss on hedge accounting derivatives

4

62

14

25

Less hedged item:  change in fair value of fixed rate
  debt denominated in a foreign currency

(4
)

(62
)

(14
)

(25
)
Ineffectiveness related to hedge accounting derivatives

-

-

-

-

Loss (gain) on debt denominated in foreign currencies
   and U.S. dollar non-hedge accounting derivatives:

Loss (gain) on non-hedge accounting debt denominated
  in foreign currencies

123

(907
)

1,146

(969
)
(Gain) loss on non-hedge accounting foreign currency swaps

(108
)

1,127

(1,141
)

1,159

(Gain) loss on U.S. dollar non-hedge accounting interest
  rate swaps

(64
)

82

(71
)

(13
)
Total interest expense

$
428

$
701

$
1,328

$
1,305

Interest expense on debt and derivatives represents net interest settlements and changes in accruals. Gains and losses on hedge accounting derivatives and debt denominated in foreign currencies exclude net interest settlements and changes in accruals. Cash flows associated with hedge accounting, non-hedge accounting, and de-designated derivatives are reported in Net cash provided by operating activities in our Consolidated Statements of Cash Flows.

The relative fair value allocation of derivative credit value adjustments for counterparty and non-performance credit risk within interest expense was not significant for the three and nine months ended December 31, 2017 and 2016 as we are fully collateralized on substantially all of our derivatives without regard to credit ratings.

~~Debt and the related weighted average contractual interest rates are summarized as follows:~~

The carrying value of our debt includes unamortized premiums, discounts and debt issuance costs of $326 million and $307 million as of December 31, 2017 and March 31, 2017, respectively. The face value of commercial paper, unsecured notes and loans payable and secured notes and loans payable was $28.1 billion, $57.0 billion, and $13.7 billion, respectively, as of December 31, 2017, and $26.7 billion, $57.4 billion and $14.3 billion, respectively, as of March 31, 2017.

As of December 31, 2017, our commercial paper had a weighted average remaining maturity of 77 days, while our unsecured and secured notes and loans payable mature on various dates through fiscal 2047. Weighted average contractual interest rates are calculated based on original notional or par value before consideration of premium or discount.

Our unsecured notes and loans payable consist of both fixed and variable rate debt with contractual interest rates ranging from 0.0 percent to 5.8 percent at December 31, 2017 and March 31, 2017. Upon issuance of fixed rate notes, we generally elect to enter into interest rate swaps to convert fixed rate payments on notes to floating rate payments.

Our unsecured notes and loans payable contain covenants and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on certain consolidations, mergers and sales of assets. We are currently in compliance with these covenants and conditions.

Certain unsecured notes and loans payable are denominated in various foreign currencies, and include the impact of translation adjustments. At December 31, 2017 and March 31, 2017, the carrying values of these foreign currency denominated unsecured notes and loans payable were $13.4 billion and $13.3 billion, respectively. Concurrent with the issuance of these foreign currency unsecured notes and loans payable, we entered into currency swaps in the same notional amount to convert non-U.S. currency payments to U.S. dollar denominated payments.

Our secured notes and loans payable are denominated in U.S. dollars and consist of both fixed and variable rate debt with contractual interest rates ranging from 1.0 percent to 2.1 percent at December 31, 2017 and 0.8 percent to 2.1 percent at March 31, 2017. Secured notes and loans payable are issued using on-balance sheet securitization trusts, as further discussed in Note 10 – Variable Interest Entities. These notes are repayable only from collections on the underlying securitized retail finance receivables and the beneficial interests in investments in operating leases and from related credit enhancements.

We use one or more special purpose entities that are considered Variable Interest Entities (“VIEs”) to issue asset-backed securities to third party bank-sponsored asset-backed securitization vehicles and to investors in securitization transactions. The securities issued by these VIEs are backed by the cash flows related to retail finance receivables and beneficial interests in investments in operating leases (“Securitized Assets”). We hold variable interests in the VIEs that could potentially be significant to the VIEs. We determined that we are the primary beneficiary of the securitization trusts because (i) our servicing responsibilities for the Securitized Assets give us the power to direct the activities that most significantly impact the performance of the VIEs, and (ii) our variable interests in the VIEs give us the obligation to absorb losses and the right to receive residual returns that could potentially be significant.

The following tables show the assets and liabilities related to our VIE securitization transactions that were included in our Consolidated Balance Sheets:

	December 31, 2017												December 31, 2020
			VIE Assets						VIE Liabilities						VIE Assets				VIE Liabilities
			Gross		Net										Net
	Restricted Cash		Securitized Assets		Securitized Assets		Other Assets		Debt		Other Liabilities		Restricted cash		securitized assets		Other assets		Debt		Other liabilities
Retail finance receivables	$	679	$	12,284	$	12,076	$	6	$	10,094	$	6	$	1,116	$	19,334	$	44	$	17,367	$	15
Investments in operating leases		241		7,474		5,491		112		3,620		2		330		6,268		56		4,353		1
Total	$	920	$	19,758	$	17,567	$	118	$	13,714	$	8	$	1,446	$	25,602	$	100	$	21,720	$	16

	March 31, 2017												March 31, 2020
			VIE Assets						VIE Liabilities						VIE Assets				VIE Liabilities
			Gross		Net										Net
	Restricted Cash		Securitized Assets		Securitized Assets		Other Assets		Debt		Other Liabilities		Restricted cash		securitized assets		Other assets		Debt		Other liabilities
Retail finance receivables	$	856	$	13,071	$	12,865	$	7	$	11,017	$	5	$	694	$	12,375	$	5	$	10,933	$	10
Investments in operating leases		211		6,502		4,888		80		3,302		1		302		5,586		126		3,635		2
Total	$	1,067	$	19,573	$	17,753	$	87	$	14,319	$	6	$	996	$	17,961	$	131	$	14,568	$	12

Restricted Cash, including cash equivalents, shown in the table above represents collections from the underlying ~~Gross Securitized Assets shown in the table above~~Net securitized assets and certain reserve deposits held by TMCC for the VIEs and is included as part of Restricted cash and cash equivalents on our Consolidated Balance Sheets. ~~Gross Securitized Assets represent finance receivables and beneficial interests in investments in operating leases~~Net securitized ~~for the asset-backed securities issued. Net Securitized Assets~~assets shown in the table above are presented net of deferred fees and costs, deferred income, accumulated depreciation and the allowance for credit losses. Other Assets represent used vehicles held-for-sale that were repossessed by or returned to TMCC for the benefit of the VIEs. The related debt of these consolidated VIEs is presented net of ~~$1,519~~$1,284 million and ~~$1,526~~$1,182 million of securities retained by TMCC at December 31, ~~2017~~2020 and March 31, ~~2017,~~2020, respectively. Other ~~Liabilities represents~~liabilities represent accrued interest on the debt of the consolidated VIEs.

In conjunction with the adoption of ASU 2016-13, we have changed the presentation of accrued interest related to finance receivables in the Consolidated Balance Sheets from Finance receivables, net to Other assets. As a result, Other assets as of December 31, 2020 include accrued interest related to securitized retail finance receivables. The comparative period’s information continues to be reported under the relevant accounting presentation in effect for that period.

The assets of the VIEs and the restricted cash and cash equivalents held by TMCC serve as the sole source of repayment for the asset-backed securities issued by these entities. Investors in the notes issued by the VIEs do not have recourse to us or our other assets, with the exception of customary representation and warranty repurchase provisions and indemnities.

As the primary beneficiary of these entities, we are exposed to credit, residual value, interest rate, and prepayment risk from the Securitized Assets in the VIEs. However, our exposure to these risks did not change as a result of the transfer of the assets to the VIEs. We may also be exposed to interest rate risk arising from the secured notes issued by the VIEs.

In addition, we entered into interest rate swaps with certain ~~of these~~ special purpose entities that issue variable rate debt. Under the terms of these swaps, the special purpose entities are obligated to pay TMCC a fixed rate of interest on certain payment dates in exchange for receiving a floating rate of interest on notional amounts equal to the outstanding balance of the secured debt. This arrangement enables the special purpose entities to mitigate the interest rate risk inherent in issuing variable rate debt that is secured by fixed rate Securitized Assets.

The transfers of the Securitized Assets to the special purpose entities in our securitizations are considered to be sales for legal purposes. However, the Securitized Assets and the related debt remain on our Consolidated Balance Sheets. We recognize financing revenue on the Securitized Assets and interest expense on the secured debt issued by the special purpose entities. We also maintain an allowance for credit losses on the ~~Securitized Assets to cover estimated probable credit losses~~securitized retail finance receivables using a methodology consistent with that used for our non-securitized asset portfolio. The interest rate swaps between TMCC and the special purpose entities are considered intercompany transactions and therefore are eliminated in our consolidated financial statements.

We provide lending to Toyota and Lexus dealers through the Toyota Dealer Investment Group’s Dealer Capital Program (“TDIG Program”) operated by our affiliate ~~TMS,~~TMNA, which has an equity interest in these dealerships. Dealers participating in this program have been determined to be VIEs. We do not consolidate the dealerships in this program as we are not the primary beneficiary and any exposure to loss is limited to the amount of the credit facility. Amounts due from these dealers under the TDIG Program that are classified as Finance receivables, net in our Consolidated Balance Sheets as of December 31, ~~2017~~2020 and March 31, ~~2017~~2020 and revenues earned from these dealers ~~during~~for the three and nine months ended December 31, ~~2017~~2020 and ~~2016~~2019 were not significant.

We also have other lending relationships, which have been determined to be VIEs, but these relationships are not consolidated as we are not the primary beneficiary. Amounts due ~~under these relationships as of December 31, 2017 and March 31, 2017~~ and revenues earned under these relationships ~~during~~as of and for the three and nine months ended December 31, ~~2017~~2020 and ~~2016~~2019 were not significant.

We have entered into certain commitments and guarantees for which the maximum unfunded amounts are summarized in the table below:

Wholesale financing is not considered to be a contractual commitment as the arrangements are not binding arrangements under which TMCC is required to perform.

We provide fixed and variable rate working capital loans, revolving lines of ~~Credit~~

~~For additional liquidity purposes, we maintain syndicated~~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 our retail, lease and insurance business and the credit worthiness of each dealer. Amounts drawn under these facilities are reviewed for collectability on a quarterly basis, in conjunction with our evaluation of the allowance for credit losses. We have also extended credit facilities ~~with certain banks.~~to affiliates as described in Note 12 – Related Party Transactions in our fiscal 2020 Form 10-K.

Our operating lease portfolio consists of real estate leases. Total operating lease expense, including payments to affiliates, was $28 million and ~~Five Year Credit Agreement~~

~~In November 2017, TMCC, Toyota Credit de Puerto Rico Corp. (“TCPR”)~~$8 million for the first nine months and ~~other Toyota affiliates entered into a $5.0 billion 364 day syndicated bank credit facility, a $5.0 billion three year syndicated bank credit facility~~third quarter of fiscal 2021, respectively, as compared to $27 million and ~~a $5.0 billion five year syndicated bank credit facility, expiring~~$9 million in the same periods in fiscal ~~2019, 2021,~~2020. We have a lease agreement through August 2032 with TMNA for our headquarters facility in Plano, Texas. Commitments under operating lease agreements in the table above include $95 million and ~~2023, respectively.~~

The ability to make draws is subject to covenants and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on certain consolidations, mergers and sales of assets. These agreements may be used$102 million for ~~general corporate purposes and none were drawn upon as of~~facilities leases with affiliates at December 31, ~~2017~~2020 and March 31, ~~2017.~~2020, respectively.

Lease terms may contain renewal and extension options or early termination features. Generally, these options do not impact the lease term because TMCC is not reasonably certain that it will exercise the options. These lease agreements do not impose restrictions on our ability to pay dividends, engage in debt or equity financing transactions or enter into further lease agreements, nor do they have residual value guarantees. We ~~are currently in compliance~~exclude from our Consolidated Balance Sheets leases with ~~the covenants~~a term equal to one year or less and ~~conditions of the credit agreements described above.~~do not separate non-lease components from our real estate leases.

TMCC has entered into additional unsecured credit facilities with various banks. As of December 31, 2017, TMCC had committed bank credit facilities totaling $5.5 billion of which $200 million, $2.3 billion, $525 million, and $2.5 billion mature in fiscal 2018, 2019, 2020, and 2021, respectively.

These credit agreements contain covenants and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on certain consolidations, mergers and sales of assets. These credit facilities were not drawn upon as of December 31, 2017 and March 31, 2017. We are currently in compliance with the covenants and conditions of the credit agreements described above.

Operating lease liabilities and right-of-use (“ROU”) assets are recognized at the lease commencement date based on the present value of the future minimum lease payments over the lease term.As the interest rate implicit in the lease contract is typically not readily determinable, we utilize our incremental borrowing rate at the lease commencement date for the duration of the lease term.

The following table provides additional information related to operating lease agreements for which we are the lessee:

TMCC has guaranteed bond obligations totaling $100 million in principal that were issued by Putnam County, West Virginia and Gibson County, Indiana to finance the construction of pollution control facilities at manufacturing plants of certain TMCC affiliates. The bonds mature in the following fiscal years ending March 31: 2028 - $20 million; 2029 - $50 million; 2030 - $10 million; 2031 - $10 million; and 2032 - $10 million. TMCC would be required to perform under the guarantees in the event of non-payment on the bonds and other related obligations. TMCC is entitled to reimbursement by the applicable affiliates for any amounts paid. TMCC receives a nominal annual fee for guaranteeing such payments. TMCC has not been required to perform under any of these affiliate bond guarantees as of December 31, 2020 and March 31, 2020.

In the ordinary course of business, we enter into agreements containing indemnification provisions standard in the industry related to several types of transactions, including, but not limited to, debt funding, derivatives, securitization transactions, and our vendor, supplier and service agreements. Performance under these indemnities would generally occur upon a breach of the representations, warranties, covenants or other commitments made or given in the agreement, or as a result of a third party claim. In addition, we have agreed in certain debt and derivative issuances, and subject to certain exceptions, to gross-up payments due to third parties in the event that withholding tax is imposed on such payments. In addition, certain of our funding arrangements may require us to pay lenders for increased costs due to certain changes in laws or regulations. Due to the difficulty in predicting events which could cause a breach of the indemnification provisions or trigger a gross-up or other payment obligation, we are not able to estimate our maximum exposure to future payments that could result from claims made under such provisions. We have not made any material payments in the past as a result of these provisions, and as of December 31, 2020, we determined that it is not probable that we will be required to make any material payments in the future. As of December 31, 2020 and March 31, 2020, 0 amounts have been recorded under these indemnification provisions.

We perform periodic reviews of pending claims and actions to determine the probability of adverse verdicts and resulting amounts of liability. We establish accruals for legal claims when payments associated with the claims become probable and the potential loss can be reasonably estimated. When we are able, we also determine estimates of reasonably probable loss or range of loss, whether in excess of any related accrued liability or where there is no accrued liability. Given the inherent uncertainty associated with legal matters, the actual costs of resolving legal claims and associated costs of defense may be substantially higher or lower than the amounts for which accruals have been established. Based on available information and established accruals, we do not believe it is reasonably probable that the results of these proceedings, either individually or in the aggregate, will have a material adverse effect on our consolidated financial condition or results of operations.

On November 24, 2020, the Consumer Financial Protection Bureau (“CFPB”) issued a civil investigative demand to the Company seeking, among other things, certain information relating to the Company’s vehicle and payment protection products and credit reporting policies and procedures and reporting records. We are cooperating with the inquiry and cannot predict the eventual scope, duration or outcome at this time. As a result, we are unable to estimate the amount or range of any potential loss arising from this investigation.

Our effective tax rate was 24 percent for the three and nine months ended December 31, 2020, respectively, compared to 16 percent and 23 percent for the same periods in fiscal 2020. Our provision for income taxes was $215 million and $546 million for the three and nine months ended December 31, 2020, respectively, compared to $34 million and $296 million for the same periods in fiscal 2020. The increase in the provision for income taxes for the three and nine months ended December 31, 2020, compared to the same periods in fiscal 2020, was primarily due to the increase in income before income taxes. The higher effective tax rate for the three and nine months ended December 31, 2020, compared to the same periods in fiscal 2020 was primarily attributable to the tax benefit from the federal tax credit recognized in the third quarter of fiscal 2020. The federal tax credit for fuel cell vehicles was extended by the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (H.R.1865) in December 2019 and applied retroactively to fuel cell vehicles purchased on or after January 1, 2018.

As of December 31, 2020, we remain under IRS examination for fiscal 2021, 2020, 2019 and 2018.

We periodically review our uncertain tax positions. Our assessment is based on many factors including any ongoing IRS audits. For the three months ended December 31, 2020, our assessment did not result in a material change in unrecognized tax benefits.

Our deferred tax assets include the deferred deduction of allowance for credit losses and residual value loss estimates and other deferred costs. The total deferred tax liability, net of these deferred tax assets, was $3.6 billion and $5.5 billion at December 31, 2020 and March 31, 2020, respectively. The decrease in our net deferred tax liability was primarily due to the reversal of the temporary difference between depreciation expense reported for financial statement and that reported for income tax purposes. Although realization of the deferred tax assets is not assured, management believes it is more likely than not that the deferred tax assets will be realized. The amount of the deferred tax assets considered realizable could be reduced if management’s estimates change.

~~We have entered into certain commitments and guarantees for which the maximum unfunded amounts are summarized in the table below:~~

~~Wholesale financing is not considered to be a contractual commitment as the arrangements are not binding arrangements under which TMCC is required to perform.~~

In July 2017, we entered into a 15-year lease agreement, which expires in August 2032, with Toyota Motor North America, Inc. (“TMNA”) for our new headquarters facility in Plano, Texas. Minimum lease commitments in the table above include $107 million and $10 million for facilities leases with affiliates at December 31, 2017 and March 31, 2017, respectively. At December 31, 2017, minimum future commitments under lease agreements to which we are a lessee, including those with affiliates, are as follows:

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 our retail, lease and insurance business and the credit worthiness of each dealer. Amounts drawn under these facilities are reviewed for collectability on a quarterly basis, in conjunction with our evaluation of the allowance for credit losses.Related Party Transactions

As of December 31, 2017, we substantially completed the process of moving our corporate headquarters operations from Torrance, California to Plano, Texas as part of Toyota Motor Corporation’s consolidation of its three North American headquarters for manufacturing, sales and marketing, and finance operations to a single new headquarters facility. Relocation costs for employees and other relocation expenses are currently estimated to be approximately $119 million and are being expensed as incurred. To date, the Company has incurred $109 million in relocation expenses. The relocation costs incurred during the three and nine months ended December 31, 2017 were $13 million and $47 million, respectively, compared to $13 million and $30 million during the same periods in fiscal 2017. We have not incurred significant lease termination costs as a result of our relocation.

TMCC has guaranteed bond obligations totaling $100 million in principal that were issued by Putnam County, West Virginia and Gibson County, Indiana to finance the construction of pollution control facilities at manufacturing plants of certain TMCC affiliates. The bonds mature in the following fiscal years ending March 31: 2028 - $20 million; 2029 - $50 million; 2030 - $10 million; 2031 - $10 million; and 2032 - $10 million. TMCC would be required to perform under the guarantees in the event of non-payment on the bonds and other related obligations. TMCC is entitled to reimbursement by the applicable affiliates for any amounts paid. TMCC receives an annual fee of $78 thousand for guaranteeing such payments. TMCC has not been required to perform under any of these affiliate bond guarantees as of December 31, 2017 and March 31, 2017.

In the ordinary course of business, we enter into agreements containing indemnification provisions standard in the industry related to several types of transactions, including, but not limited to, debt funding, derivatives, securitization transactions, and our vendor and supplier agreements. Performance under these indemnities would occur upon a breach of the representations, warranties or covenants made or given, or a third party claim. In addition, we have agreed in certain debt and derivative issuances, and subject to certain exceptions, to gross-up payments due to third parties in the event that withholding tax is imposed on such payments. In addition, certain of our funding arrangements may require us to pay lenders for increased costs due to certain changes in laws or regulations. Due to the difficulty in predicting events, which could cause a breach of the indemnification provisions or trigger a gross-up or other payment obligation, we are not able to estimate our maximum exposure to future payments that could result from claims made under such provisions. We have not made any material payments in the past as a result of these provisions, and as of December 31, 2017, we determined that it is not probable that we will be required to make any material payments in the future. As of December 31, 2017 and March 31, 2017, no amounts have been recorded under these indemnification provisions.

Various legal actions, governmental proceedings and other claims are pending or may be instituted or asserted in the future against us with respect to matters arising in the ordinary course of business. Certain of these actions are or purport to be class action suits, seeking sizeable damages and/or changes in our business operations, policies and practices. Certain of these actions are similar to suits that have been filed against other financial institutions and captive finance companies. We perform periodic reviews of pending claims and actions to determine the probability of adverse verdicts and resulting amounts of liability. We establish accruals for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. When we are able, we also determine estimates of reasonably possible loss or range of loss, whether in excess of any related accrued liability or where there is no accrued liability. Given the inherent uncertainty associated with legal matters, the actual costs of resolving legal claims and associated costs of defense may be substantially higher or lower than the amounts for which accruals have been established. Based on available information and established accruals, we do not believe it is reasonably possible that the results of these proceedings, either individually or in the aggregate, will have a material adverse effect on our consolidated financial condition or results of operations.

We have received a request for documents and information from the New York State Department of Financial Services relating to our lending practices (including fair lending), and a request for documents and information pursuant to a civil investigative demand from the Commonwealth of Massachusetts Office of the Attorney General relating to our financing of guaranteed auto protection insurance products on retail contracts. We will continue to cooperate with these requests, but are unable to predict their outcome given their preliminary status.

We recorded a benefit for income taxes of $2.8 billion and $2.7 billion for the three and nine months ended December 31, 2017, respectively, compared to a benefit for income taxes of $29 million and a provision for income taxes of $212 million for the same periods in fiscal 2017. The change in the provision for income taxes for the three and nine months ended December 31, 2017 compared to the same periods in fiscal 2017 is primarily due to a one-time $2.9 billion income tax benefit attributable to the revaluation of our net deferred tax liabilities resulting from the reduction of the federal statutory income tax rate by the Tax Cuts and Jobs Act of 2017 (“TCJA”) from 35% to 21%. Our statutory federal income tax rate for fiscal 2018 will be a blended rate of 31.55% compared to 35% for fiscal 2017.

Our assessment of the impact of the TCJA is substantially complete, and is reflected in our financial statements as of December 31, 2017 and for the three and nine months then ended. During the third quarter, we recorded an insignificant amount of tax expense related to the mandatory deemed repatriation of foreign earnings provision in the TCJA, for which the amount is provisional as we are continuing our analysis of the earnings and profits of TCPR. The issuance of future administrative guidance may further clarify the interpretation of the new law and require adjustments to the provisional amount we recorded. Any adjustment required to this provisional amount is not expected to be material.

~~As of December 31, 2017, we remain under IRS examination for fiscal 2017 and fiscal 2018. The IRS examination for fiscal 2016 was concluded in the first quarter of fiscal 2018.~~

We periodically review our uncertain tax positions. Our assessment is based on many factors including any ongoing IRS audits. For the quarter ended December 31, 2017, our assessment did not result in a material change in unrecognized tax benefits.

Our deferred tax assets were $1.8 billion and $1.0 billion at December 31, 2017 and March 31, 2017, respectively, and were primarily due to the deferred deduction of allowance for credit and residual value losses and federal tax loss carryforward which have no expiration. Realization with respect to the federal tax loss carryforward is dependent on generating sufficient income prior to expiration of the loss carryforward. Although realization is not assured, management believes it is more likely than not that the deferred tax assets will be realized. The amount of the deferred tax assets considered realizable could be reduced if management’s estimates change.

The total deferred tax liability, net of these deferred tax assets, was $5.4 billion and $7.9 billion at December 31, 2017 and March 31, 2017, respectively. The decrease in the total deferred tax liability, net of deferred tax assets, is attributable to the revaluation of our net deferred tax liabilities resulting from the reduction of the federal statutory income tax rate by the TCJA from 35% to 21%.

~~As of December 31, 2017,~~2020, there were no material changes to our related party agreements or relationships as described in our fiscal ~~2017~~2020 Form 10-K. The tables below ~~summarize~~show the financial statement line items and amounts included in our Consolidated Statements of Income and in our Consolidated Balance Sheets under various related party agreements or relationships:

	Three Months Ended				Nine Months Ended					Three months ended						Nine months ended
	December 31,				December 31,					December 31,						December 31,
	2017		2016		2017			2016		2020			2019			2020			2019
Total financing revenues:
Manufacturers’ subvention and other revenues	$	415	$	349	$	1,165		$	1,019
Net financing revenues:
Manufacturer's subvention and other revenues										$	503		$	526		$	1,504		$	1,546
Depreciation on operating leases										$	(33	)	$	(16	)	$	(82	)	$	(39	)

Interest expense:
Credit support fees incurred	$	23	$	22	$	70		$	68
Interest and other expenses	$	-	$	-	$	1		$	1
Credit support fees, interest and other expenses										$	26		$	24		$	93		$	72

Insurance earned premiums and contract revenues:
Insurance premiums and contract revenues	$	46	$	36	$	135		$	105	$	43		$	46		$	130		$	136

Investment and other income, net:
Interest and other income	$	3	$	1	$	10		$	6	$	3		$	7		$	16		$	19

Expenses:
Operating and administrative	$	19	$	18	$	61		$	52
Insurance losses and loss adjustment expenses¹	$	1	$	-	$	(3	)	$	1
Operating and administrative expenses										$	20		$	29		$	63		$	65

	December 31,			March 31,			December 31,			March 31,
	2017			2017			2020			2020
Assets:
Cash and cash equivalents
Commercial paper	$	65		$	-		$	30		$	276

Investments in marketable securities
Commercial paper	$	112		$	-		$	200		$	601

Finance receivables, net
Accounts receivable	$	164		$	138		$	156		$	112
Deferred retail subvention income	$	(1,171	)	$	(967	)	$	(1,196	)	$	(1,065	)

Investments in operating leases, net
Investments in operating leases, net	$	6		$	4		$	(221	)	$	(100	)
Deferred lease subvention income	$	(1,547	)	$	(1,174	)	$	(1,603	)	$	(1,941	)

Other assets
Notes receivable	$	579		$	823		$	969		$	1,175
Other receivables, net	$	41		$	202		$	84		$	97

Liabilities:
Other liabilities
Unearned affiliate insurance premiums and contract revenues	$	330		$	332		$	349		$	344
Other payables, net	$	52		$	74		$	168		$	220
Notes payable	$	20		$	13		$	15		$	3,032

TMCC receives subvention payments from ~~TMS~~TMNA which results in a gross monthly subvention receivable. As of December 31, ~~2017~~2020 and March 31, ~~2017,~~2020, the subvention receivable from ~~TMS~~TMNA was ~~$248~~$167 million and ~~$165~~$113 million, respectively. ~~The subvention receivable is recorded in Other receivables, net in Other assets as of December 31, 2017 and March 31, 2017.~~ We have a master netting agreement with ~~TMS and~~ TMNA which allows us to net settle payments for shared services and subvention transactions. Under this agreement, as of December 31, 2020 and March 31, 2020, respectively, we had a net amount payable to TMNA which is recorded in Other payables, net in Other liabilities.

	December 31, 2020
								Counterparty
								netting &			Fair
	Level 1		Level 2			Level 3		collateral			value
Investments in marketable securities:
Available-for-sale debt securities:
U.S. government and agency obligations	$	228	$	2		$	0	$	0		$	230
Municipal debt securities		0		10			0		0			10
Commercial paper		0		200			0		0			200
Corporate debt securities		0		177			0		0			177
Mortgage-backed securities:
U.S. government agency		0		37			0		0			37
Non-agency residential		0		0			1		0			1
Non-agency commercial		0		0			47		0			47
Asset-backed securities		0		0			55		0			55
Available-for-sale debt securities total		228		426			103		0			757
Equity investments:
Fixed income mutual funds:
Fixed income mutual funds measured at net asset value												794
Total return bond funds		2,306		0			0		0			2,306
Equity mutual funds		739		0			0		0			739
Equity investments total		3,045		0			0		0			3,839
Investments in marketable securities total		3,273		426			103		0			4,596
Derivative assets:
Interest rate swaps		0		1,285			0		0			1,285
Foreign currency swaps		0		745			0		0			745
Counterparty netting and collateral		0		0			0		(1,970	)		(1,970	)
Derivative assets total		0		2,030			0		(1,970	)		60
Assets at fair value		3,273		2,456			103		(1,970	)		4,656
Derivative liabilities:
Interest rate swaps		0		(1,361	)		0		0			(1,361	)
Foreign currency swaps		0		(109	)		0		0			(109	)
Counterparty netting and collateral		0		0			0		1,446			1,446
Liabilities at fair value		0		(1,470	)		0		1,446			(24	)
Net assets at fair value	$	3,273	$	986		$	103	$	(524	)	$	4,632

	March 31, 2020
								Counterparty
								netting &			Fair
	Level 1		Level 2			Level 3		collateral			value
Investments in marketable securities:
Available-for-sale debt securities:
U.S. government and agency obligations	$	174	$	2		$	0	$	0		$	176
Municipal debt securities		0		11			0		0			11
Certificates of deposit		0		249			0		0			249
Commercial paper		0		601			0		0			601
Corporate debt securities		0		197			0		0			197
Mortgage-backed securities:
U.S. government agency		0		49			0		0			49
Non-agency residential		0		0			1		0			1
Non-agency commercial		0		0			45		0			45
Asset-backed securities		0		0			72		0			72
Available-for-sale debt securities total		174		1,109			118		0			1,401
Equity investments:
Fixed income mutual funds:
Fixed income mutual funds measured at net asset value												746
Total return bond funds		1,673		0			0		0			1,673
Equity investments total		1,673		0			0		0			2,419
Investments in marketable securities total		1,847		1,109			118		0			3,820
Derivative assets:
Interest rate swaps		0		1,410			0		0			1,410
Foreign currency swaps		0		27			0		0			27
Counterparty netting and collateral		0		0			0		(1,386	)		(1,386	)
Derivative assets total		0		1,437			0		(1,386	)		51
Assets at fair value		1,847		2,546			118		(1,386	)		3,871
Derivative liabilities:
Interest rate swaps		0		(1,826	)		0		0			(1,826	)
Foreign currency swaps		0		(1,290	)		0		0			(1,290	)
Counterparty netting and collateral		0		0			0		3,071			3,071
Liabilities at fair value		0		(3,116	)		0		3,071			(45	)
Net assets at fair value	$	1,847	$	(570	)	$	118	$	1,685		$	3,826

The following tables summarize the rollforward of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs:

	Three months ended December 31, 2020
	Available-for-sale debt securities
						Total
	Mortgage-		Asset-			available-
	backed		backed			for-sale debt
	securities		securities			securities
Fair value, October 1, 2020	$	47	$	58		$	105
Total gains (losses)
Included in other comprehensive income		1		0			1
Purchases, issuances, sales, and settlements
Purchases		0		0			0
Issuances		0		0			0
Sales		0		0			0
Settlements		0		(3	)		(3	)
Transfers into Level 3		0		0			0
Transfers out of Level 3		0		0			0
Fair value, December 31, 2020	$	48	$	55		$	103
The amount of total unrealized gains (losses) included in other comprehensive income attributable to assets held at the reporting date	$	1	$	1		$	2

	Nine months ended December 31, 2020
	Available-for-sale debt securities
						Total
	Mortgage-		Asset-			available-
	backed		backed			for-sale debt
	securities		securities			securities
Fair value, April 1, 2020	$	46	$	72		$	118
Total gains (losses)
Included in other comprehensive income		2		7			9
Purchases, issuances, sales, and settlements
Purchases		0		2			2
Issuances		0		0			0
Sales		0		(10	)		(10	)
Settlements		0		(16	)		(16	)
Transfers into Level 3		0		0			0
Transfers out of Level 3		0		0			0
Fair value, December 31, 2020	$	48	$	55		$	103
The amount of total unrealized gains (losses) included in other comprehensive income attributable to assets held at the reporting date	$	2	$	7		$	9

Excluded from the nine months ended December 31, 2019 table above is an interest rate swap. This instrument had a fair value of $1 million as of March 31, 2019, gains included in net income of $18 million and settlements of $6 million. It was transferred out of Level 3 but still held by the Company as of December 31, 2019.

Nonrecurring fair value measurements include Level 3 net finance receivables that are not measured at fair value on a recurring basis but are subject to fair value adjustments utilizing the fair value of the underlying collateral when there is evidence of impairment. We did not have any significant nonrecurring fair value items as of December 31, 2020 and March 31, 2020.

The Level 3 financial assets and liabilities recorded at fair value which are subject to recurring and nonrecurring fair value measurement, and the corresponding change in the fair value measurements of these assets and liabilities, were not significant to our Consolidated Balance Sheets or Consolidated Statements of Income as of and for the three and nine months ended December 31, 2020 and as of and for the year ended March 31, 2020.

The following tables provide information about assets and liabilities not carried at fair value on a recurring basis on our Consolidated Balance Sheets:

	December 31, 2020
	Carrying								Total Fair
	value		Level 1		Level 2		Level 3		value
Financial assets
Finance receivables
Retail loan	$	63,859	$	0	$	0	$	67,499	$	67,499
Wholesale		7,420		0		0		7,444		7,444
Real estate		5,131		0		0		5,218		5,218
Working capital		2,427		0		0		2,356		2,356

Financial liabilities
Unsecured notes and loans payable	$	87,252	$	0	$	88,752	$	555	$	89,307
Secured notes and loans payable		21,720		0		0		22,054		22,054

	March 31, 2020
	Carrying								Total Fair
	value		Level 1		Level 2		Level 3		value
Financial assets
Finance receivables, net
Retail loan	$	56,360	$	0	$	0	$	57,303	$	57,303
Wholesale		9,672		0		0		9,637		9,637
Real estate		4,544		0		0		4,140		4,140
Working capital		3,308		0		0		2,811		2,811

Financial liabilities
Unsecured notes and loans payable	$	83,172	$	0	$	82,429	$	560	$	82,989
Secured notes and loans payable		14,568		0		0		14,608		14,608

In conjunction with the adoption of ASU 2016-13, we have changed the presentation of accrued interest related to finance receivables in the Consolidated Balance Sheet from Finance receivables, net to Other assets; however, TMCC measures the fair value of each class of finance receivables using scheduled principal and interest payments. Therefore, accrued interest has been included in the carrying value of each class of finance receivables in the tables above, along with the finance receivables, deferred costs, deferred income, and the allowance for credit losses. Finance receivables in the table above excludes related party transactions, for which the fair value approximates the carrying value, of $156 million and $109 million at December 31, 2020 and March 31, 2020, respectively. Fair values of related party finance receivables, net are classified as Level 3 of the fair value hierarchy.

For Cash and cash equivalents and Restricted cash and cash equivalents on our Consolidated Balance Sheets, the fair value approximates the carrying value and these instruments are classified as Level 1 of the fair value hierarchy.

Financial information for our reportable operating segments is summarized as follows:

Three Months Ended December 31, 2017

Finance

Insurance

Intercompany

operations

operations

eliminations

Total

Total financing revenues

$
2,706

$
-

$
-

$
2,706

Depreciation on operating leases

1,778

-

-

1,778

Interest expense

431

-

(3
)

428

Net financing revenues

497

-

3

500

Insurance earned premiums and contract revenues

-

220

-

220

Investment and other income, net

37

29

(3
)

63

Realized gains, net on investments in
marketable securities

-

3

-

3

Net financing and other revenues

534

252

-

786

Expenses:

Provision for credit losses

108

-

-

108

Operating and administrative expenses

239

84

-

323

Insurance losses and loss adjustment expenses

-

100

-

100

Total expenses

347

184

-

531

Income before income taxes

187

68

-

255

Benefit for income taxes

(2,780
)

(41
)

-

(2,821
)

Net income

$
2,967

$
109

$
-

$
3,076

	Nine Months Ended December 31, 2017											Three months ended December 31, 2020
	Finance			Insurance		Intercompany						Finance		Insurance		Intercompany
	operations			operations		eliminations			Total			operations		operations		eliminations			Total

Total financing revenues	$	7,951		$	-	$	-		$	7,951		$	2,974	$	0	$	0		$	2,974
Depreciation on operating leases		5,178			-		-			5,178			1,450		0		0			1,450
Interest expense		1,337			-		(9	)		1,328			491		0		0			491
Net financing revenues		1,436			-		9			1,445			1,033		0		0			1,033

Insurance earned premiums and contract revenues		-			657		-			657			0		241		0			241
Investment and other income, net		105			69		(9	)		165			21		158		0			179
Realized gains, net on investments in marketable securities		-			45		-			45
Net financing and other revenues		1,541			771		-			2,312			1,054		399		0			1,453

Expenses:
Provision for credit losses		320			-		-			320			118		0		0			118
Operating and administrative expenses		731			242		-			973			268		86		0			354
Insurance losses and loss adjustment expenses		-			316		-			316			0		98		0			98
Total expenses		1,051			558		-			1,609			386		184		0			570

Income before income taxes		490			213		-			703			668		215		0			883
(Benefit) provision for income taxes		(2,668	)		13		-			(2,655	)
Provision for income taxes													163		52		0			215

Net income	$	3,158		$	200	$	-		$	3,358		$	505	$	163	$	0		$	668

Total assets at December 31, 2017	$	117,147		$	4,703	$	(1,116	)	$	120,734

												Nine months ended December 31, 2020
												Finance		Insurance		Intercompany
												operations		operations		eliminations			Total

Total financing revenues												$	8,821	$	0	$	0		$	8,821
Depreciation on operating leases													4,484		0		0			4,484
Interest expense													1,534		0		0			1,534
Net financing revenues													2,803		0		0			2,803

Insurance earned premiums and contract revenues													0		714		0			714
Investment and other income, net													76		369		0			445
Net financing and other revenues													2,879		1,083		0			3,962

Expenses:
Provision for credit losses													366		0		0			366
Operating and administrative expenses													818		270		0			1,088
Insurance losses and loss adjustment expenses													0		265		0			265
Total expenses													1,184		535		0			1,719

Income before income taxes													1,695		548		0			2,243
Provision for income taxes													414		132		0			546

Net income												$	1,281	$	416	$	0		$	1,697

Total assets at December 31, 2020												$	128,442	$	6,176	$	(127	)	$	134,491

	Three Months Ended December 31, 2016										Three months ended December 31, 2019
	Finance			Insurance		Intercompany					Finance		Insurance		Intercompany
	operations			operations		eliminations		Total			operations		operations		eliminations			Total

Total financing revenues	$	2,537		$	-	$	-	$	2,537		$	3,044	$	0	$	0		$	3,044
Depreciation on operating leases		1,722			-		-		1,722			1,712		0		0			1,712
Interest expense		701			-		-		701			759		0		(4	)		755
Net financing revenues		114			-		-		114			573		0		4			577

Insurance earned premiums and contract revenues		-			202		-		202			0		231		0			231
Investment and other income, net		20			32		-		52			42		19		(4	)		57
Realized gains, net on investments in marketable securities		155			2		-		157
Net financing and other revenues		289			236		-		525			615		250		0			865

Expenses:
Provision for credit losses		183			-		-		183			128		0		0			128
Operating and administrative expenses		250			75		-		325			318		88		0			406
Insurance losses and loss adjustment expenses		-			92		-		92			0		116		0			116
Total expenses		433			167		-		600			446		204		0			650

(Loss) income before income taxes		(144	)		69		-		(75	)
(Benefit) provision for income taxes		(55	)		26		-		(29	)
Income before income taxes												169		46		0			215
Provision for income taxes												23		11		0			34

Net (loss) income	$	(89	)	$	43	$	-	$	(46	)
Net income											$	146	$	35	$	0		$	181


											Nine months ended December 31, 2019
											Finance		Insurance		Intercompany
											operations		operations		eliminations			Total

Total financing revenues											$	9,025	$	0	$	0		$	9,025
Depreciation on operating leases												4,920		0		0			4,920
Interest expense												2,081		0		(16	)		2,065
Net financing revenues												2,024		0		16			2,040

Insurance earned premiums and contract revenues												0		692		0			692
Investment and other income, net												117		171		(16	)		272
Net financing and other revenues												2,141		863		0			3,004

Expenses:
Provision for credit losses												264		0		0			264
Operating and administrative expenses												832		269		0			1,101
Insurance losses and loss adjustment expenses												0		344		0			344
Total expenses												1,096		613		0			1,709

Income before income taxes												1,045		250		0			1,295
Provision for income taxes												235		61		0			296

Net income											$	810	$	189	$	0		$	999

Total assets at December 31, 2019											$	118,228	$	5,491	$	(1,112	)	$	122,607

Nine Months Ended December 31, 2016

Finance

Insurance

Intercompany

operations

operations

eliminations

Total

Total financing revenues

$
7,491

$
-

$
-

$
7,491

Depreciation on operating leases

4,994

-

-

4,994

Interest expense

1,305

-

-

1,305

Net financing revenues

1,192

-

-

1,192

Insurance earned premiums and contract revenues

-

594

-

594

Investment and other income, net

68

65

-

133

Realized gains (losses), net on investments in
marketable securities

241

(1
)

-

240

Net financing and other revenues

1,501

658

-

2,159

Expenses:

Provision for credit losses

396

-

-

396

Operating and administrative expenses

702

219

-

921

Insurance losses and loss adjustment expenses

-

272

-

272

Total expenses

1,098

491

-

1,589

Income before income taxes

403

167

-

570

Provision for income taxes

150

62

-

212

Net income

$
253

$
105

$
-

$
358

Total assets at December 31, 2016

$
114,292

$
4,421

$
(1,072
)

$
117,641

For the three and nine months ended December 31, 2020, approximately 83 percent of Insurance earned premiums and contract revenues in the Insurance operations segment were accounted for under the guidance for revenue from contracts with customers. For the three and nine months ended December 31, 2019, approximately 85 percent and 84 percent, respectively, of Insurance earned premiums and contract revenues in the Insurance operations segment were accounted for under the guidance for revenue from contracts with customers.

The Insurance operations segment defers contractually determined incentives paid to dealers as contract costs for selling vehicle and payment protection products. These costs are recorded in Other assets on our Consolidated Balance Sheets and are amortized to Operating and administrative expenses on the Consolidated Statements of Income using a methodology consistent with the recognition of revenue. The amount of capitalized dealer incentives and the related amortization was not significant to our consolidated financial statements as of and for the three and nine months ended December 31, 2020 and 2019.

We had $2.4 billion and $2.2 billion of unearned insurance premiums and contract revenues from contracts with customers included in Other liabilities on our Consolidated Balance Sheets as of March 31, 2020 and 2019, respectively. We recognized $169 million and $537 million of these balances in Insurance earned premiums and contract revenues in our Consolidated Statements of Income during the three and nine months ended December 31, 2020, respectively, compared to $216 million and $519 million recognized during the same periods in fiscal 2020. At December 31, 2020, we had unearned insurance premiums and contract revenues of $2.4 billion included in Other liabilities on our Consolidated Balance Sheets, and with respect to this balance we expect to recognize revenue of $192 million during fiscal 2021, and $2.2 billion thereafter. At December 31, 2019, we had unearned insurance premiums and contract revenues of $2.3 billion associated with outstanding contracts.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OFOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements contained in this Form 10-Q ~~or incorporated by reference herein~~ are “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and currently available information. However, since these statements are based on factors that involve risks and uncertainties, our performance and results may differ materially from those described or implied by such forward-looking statements. Words such as “believe,” “anticipate,” “expect,” “estimate,” “project,” “should,” “intend,” “will,” “may” or words or phrases of similar meaning are intended to identify forward-looking statements. We caution that the forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause actual results to differ materially from those in the forward-looking statements, including, without limitation, the risk factors set forth in “Item 1A. Risk Factors” of our Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended March 31, ~~2017~~2020 (“fiscal ~~2017”~~2020”), including the following:

~~Changes in business strategy, including expansion of product lines, credit risk appetite, and business acquisitions;~~

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.

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 ~~financing~~finance operations using the following metrics: financing volume, market share, financing margins, operating and administrative expense, residual value and credit loss metrics.

In our insurance operations, we generate revenue primarily through marketing, underwriting, and providing claims administration for products that cover certain risks of dealers and their customers. We measure the performance of our insurance operations using the following metrics: issued agreement volume, average number of agreements 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 ~~Lexus~~Mazda sales volume, new vehicle ~~incentives,~~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 ~~Lexus~~Mazda vehicles, the financial health of the dealers we finance, and competitive ~~pressures.~~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 insurance operations, and our gross margins on consumer ~~contract~~ and dealer financing volume. Changes in the volume of vehicle sales, ~~utilization~~sales of our insurance ~~programs,~~and vehicle and payment protection products, or the level of ~~coverage purchased by affiliates~~insurance losses could materially and adversely impact our insurance 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.

During the first nine months of the fiscal year ending March 31, ~~2018~~2021 (“fiscal ~~2018”~~2021”), the United States (“U.S.”) economy ~~experienced stability as consumer confidence increased, the housing market remained strong and unemployment rates remained low. However, consumer debt levels continue~~continued to be ~~elevated,~~significantly impacted by the global outbreak of coronavirus (“COVID-19”) and the extraordinary governmental measures intended to slow its spread, including quarantines, government-mandated actions, stay-at-home orders and other restrictions. The outbreak and curtailments, which ~~could result~~began at the end of the previous fiscal year, continued to severely curtail economic activities and resulted in an increase in our delinquencies and credit losses in the future. In addition, the Tax Cuts and Jobs Act of 2017 (‘TCJA”) was enacted on December 22, 2017, which reduced our federal statutory income tax rate and favorablya global economic contraction that negatively impacted our business, and the business of our affiliate, TMNA, and our ultimate parent, TMC, in a number of ways, and adversely impacted our first nine months of fiscal 2021 results of operations.

The ~~TCJA could have~~historic high levels of unemployment and reduction in household income during this period of economic contraction has affected some of our customers’ ability to make their scheduled payments. To provide support to our customers and dealers adversely affected by the pandemic, we took a ~~positive impact on the U.S. economy going forward.~~

~~Industry-wide vehicle sales in the U.S. decreased 2 percent despite elevated sales incentives~~number of actions during the first nine months of fiscal ~~2018~~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 December 31, 2020:

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 the increase in expected credit losses driven by economic conditions caused by the COVID-19 pandemic and the restrictions designed to slow the spread of COVID-19, 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.

Our business is dependent upon the sale of Toyota, Lexus, and Mazda vehicles. As of 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 nine months of fiscal 2021, as compared to the same period in fiscal ~~2017. Vehicle~~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, by ~~TMS increased 1 percent~~partnering with our affiliates.

In addition, from March 23, 2020 to May 8, 2020, TMNA suspended production at all of its automobile and components plants in North America at various times 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, delays affecting the supply chain or logistics network have impacted and could continue to negatively impact dealer inventory levels, vehicle sales, the sale of our financing and insurance products, dealer profitability and creditworthiness, and our future results of operations.

Average used vehicle values experienced significant fluctuations in the first nine months of fiscal ~~2018~~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. During the third quarter of fiscal 2021, average used vehicle values decreased slightly compared to the ~~same period~~second quarter of fiscal 2021. Overall, the increase in ~~fiscal 2017 primarily due to increased consumer demand for Toyota vehicles. Our financing volume decreased 5 percent and our overall market share decreased 2 percentage points for~~average used vehicle values during the first nine months of fiscal ~~2018~~2021, as compared to the ~~same period in~~prior fiscal ~~2017,~~year was primarily due to ~~competition from other financial institutions. Our financing volume and market share were also adversely impacted by increased competition for non-subvened lease contracts.~~

~~Used vehicle values for Toyota and Lexus vehicles have declined over~~ the ~~last year due to an increase in the supply~~lack of ~~used~~availability of new vehicles as a result of ~~an increased industry-wide focus on leasing in recent years. Further declines~~the temporary suspended production of automobiles and components. Declines in used vehicle values resulting from increases in the supply of new and used vehicles and increases in new vehicle ~~incentive programs and a larger lease portfolio resulting in higher future maturities~~sales incentives could ~~continue to~~ unfavorably impact return rates, residual values, depreciation expense and credit losses in the future.

~~We continue to maintain broad global access to both domestic and international markets. Conditions in the global capital markets were generally stable during the first nine months of fiscal 2018.~~ During the first nine months of fiscal ~~2018,~~2021, capital markets experienced periods of significant volatility as a result of the COVID-19 pandemic. However, during the second and third quarters of fiscal 2021, funding conditions were generally stable and credit spreads tightened in response to measures taken to support the economy and corporate credit markets by the Federal Reserve and global central banks. While our ~~interest expense increased compared~~ability to access the ~~same period in fiscal 2017 due to higher weighted average interest rates as well as an increase~~capital markets remains intact, the ongoing economic uncertainty caused by the pandemic could cause further disruptions in the ~~amount~~capital markets and increase our funding costs during the remainder of ~~outstanding debt.~~the fiscal year. Future changes in interest rates in the U.S. and foreign markets could result in ~~further~~ 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.

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

	Three Months Ended					Nine Months Ended				Three months ended				Nine months ended
	December 31,					December 31,				December 31,				December 31,
(Dollars in millions)	2017		2016			2017		2016		2020		2019		2020		2019
Net income (loss):
Net income:
Finance operations¹	$	2,967	$	(89	)	$	3,158	$	253	$	505	$	146	$	1,281	$	810
Insurance operations¹		109		43			200		105		163		35		416		189
Total net income (loss)	$	3,076	$	(46	)	$	3,358	$	358
Total net income										$	668	$	181	$	1,697	$	999

Our consolidated net income was ~~$3,358~~$1,697 million and ~~$3,076~~$668 million for the first nine months and third quarter of fiscal ~~2018,~~2021, respectively, compared to ~~net income of $358~~$999 million and ~~a net loss of $46~~$181 million for the same periods in fiscal ~~2017.~~2020. The increase in net income for the first nine months of fiscal ~~2018~~2021, compared to the same period in fiscal ~~2017~~2020, was primarily due to a ~~$2,867~~$531 million decrease in interest expense, a $436 million decrease in depreciation on operating leases, a $173 million increase in ~~the benefit~~investment and other income, net, and a $79 million decrease in insurance losses and loss adjustment expenses, partially offset by a $250 million increase in provision for income taxes, attributable to the enactment of the TCJA, which reduced our federal statutory tax rate. Refer to “Management’s Discussion and Analysis – Results of Operations - Provision for Income Taxes” and Note 13 – Income Taxes of the Notes to the Consolidated Financial Statements for further details. In addition, our net income for the first nine months of fiscal 2018 compared to the same period in fiscal 2017 was also favorably impacted by a ~~$460~~$204 million ~~increase~~decrease in total financing revenues, ~~partially offset by a $195 million decrease in realized gains, net on investments in marketable securities,~~ and a ~~$184~~$102 million increase in ~~depreciation on operating leases.~~

provision for credit losses. The increase in net income for the third quarter of fiscal ~~2018~~2021, compared to the same period in fiscal ~~2017~~2020, was primarily due to a $2,792 million increase in the benefit for income taxes attributable to the enactment of the TCJA which reduced our federal statutory tax rate. Refer to “Management’s Discussion and Analysis - Results of Operations - Provision for Income Taxes” and Note 13 – Income Taxes of the Notes to the Consolidated Financial Statements for further details. In addition, our net income for the third quarter of fiscal 2018 compared to the same period in fiscal 2017 was also favorably impacted by a $273$264 million decrease in interest expense, ~~and~~ a ~~$169~~$262 million decrease in depreciation on operating leases, a $122 million increase in ~~total financing revenues,~~investment and other income, net, and a $52 million decrease in operating and administrative expense, partially offset by a ~~$154~~$181 million increase in provision for income taxes and a $70 million decrease in ~~realized gains, net on investments in marketable securities.~~ total financing revenues.

Our overall capital position increased ~~$3.4~~$1.5 billion, bringing total shareholder’s equity to ~~$12.9~~$16.0 billion at December 31, ~~2017~~2020 as compared to ~~$9.5~~$14.5 billion at March 31, ~~2017.~~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 ~~$0.3 billion~~ to ~~$98.5~~$109.0 billion at December 31, ~~2017~~2020 from ~~$98.2~~$97.7 billion at March 31, ~~2017.~~2020. Our debt-to-equity ratio ~~decreased~~increased to ~~7.7~~6.8 at December 31, ~~2017~~2020 from ~~10.3~~6.7 at March 31, ~~2017. Our overall capital position and our debt-to-equity ratios were favorably impacted by the previously mentioned TCJA enactment.~~2020.

	Three Months Ended										Nine Months Ended								Three months ended							Nine months ended
	December 31,						Percentage				December 31,					Percentage			December 31,				Percentage			December 31,				Percentage
(Dollars in millions)	2017			2016			Change				2017			2016		Change			2020		2019		Change			2020		2019		Change
Financing revenues:
Operating lease	$	2,068		$	1,946			6	%		$	6,065		$	5,762		5	%	$	2,122	$	2,212		(4	)%	$	6,365	$	6,593		(3	)%
Retail		498			468			6	%			1,462			1,383		6	%		749		661		13	%		2,144		1,888		14	%
Dealer		140			123			14	%	��		424			346		23	%		103		171		(40	)%		312		544		(43	)%
Total financing revenues		2,706			2,537			7	%			7,951			7,491		6	%		2,974		3,044		(2	)%		8,821		9,025		(2	)%
Depreciation on operating leases		1,778			1,722			3	%			5,178			4,994		4	%
Interest expense¹		431			701			(39	)%			1,337			1,305		2	%
Depreciation on operating leases¹																				1,450		1,712		(15	)%		4,484		4,920		(9	)%
Interest expense																				491		759		(35	)%		1,534		2,081		(26	)%
Net financing revenues		497			114			336	%			1,436			1,192		20	%		1,033		573		80	%		2,803		2,024		38	%

Investment and other income, net		37			20			85	%			105			68		54	%		21		42		(50	)%		76		117		(35	)%
Realized gains, net on investments in marketable securities		-			155			(100	)%			-			241		(100	)%
Net financing and other revenues		534			289			85	%			1,541			1,501		3	%		1,054		615		71	%		2,879		2,141		34	%

Expenses:
Provision for credit losses		108			183			(41	)%			320			396		(19	)%
Provision for credit losses ¹																				118		128		(8	)%		366		264		39	%
Operating and administrative expenses		239			250			(4	)%			731			702		4	%		268		318		(16	)%		818		832		(2	)%
Total expenses		347			433			(20	)%			1,051			1,098		(4	)%		386		446		(13	)%		1,184		1,096		8	%

Income before income taxes		187			(144	)		230	%			490			403		22	%		668		169		295	%		1,695		1,045		62	%
(Benefit) Provision for income taxes		(2,780	)		(55	)		(4955	)%			(2,668	)		150		(1879	)%
Provision for income taxes																				163		23		609	%		414		235		76	%

Net income from finance operations	$	2,967		$	(89	)		3434	%		$	3,158		$	253		1148	%	$	505	$	146		246	%	$	1,281	$	810		58	%

Our finance operations reported net income of ~~$3,158~~$1,281 million and ~~$2,967~~$505 million for the first nine months and third quarter of fiscal ~~2018,~~2021, respectively, compared to ~~net income of $253~~$810 million and ~~a net loss of $89~~$146 million for the same periods in fiscal ~~2017. Our~~2020. The increase in net income from finance operations for the first nine months of fiscal ~~2018 increased~~2021, compared to the same period in fiscal ~~2017,~~2020 was primarily due to a ~~$2,818~~$547 million ~~increase~~decrease in ~~the benefit for income taxes attributable to the enactment of the TCJA which reduced our federal statutory tax rate. Refer to “Management’s Discussion~~interest expense and Analysis – Results of Operations - Provision for Income Taxes” and Note 13 – Income Taxes of the Notes to the Consolidated Financial Statements for further details. In addition, our net income from finance operations for the first nine months of fiscal 2018 compared to the same perioda $436 million decrease in ~~fiscal 2017 was also favorably impacted~~depreciation on operating leases, partially offset by a ~~$460~~$204 million ~~increase~~decrease in total financing revenues, ~~partially offset by~~ a ~~$241 million decrease in realized gains, net on investments in marketable securities, and a $184~~$179 million increase in ~~depreciation on operating leases.~~

~~Our~~provision for income taxes, and a $102 million increase in provision for credit losses. The increase in net income from finance operations for the third quarter of fiscal ~~2018 increased~~2021, compared to the same period in fiscal ~~2017,~~2020 was primarily due to a $2,725 million increase in the benefit for income taxes attributable to the enactment of the TCJA which reduced our federal statutory tax rate. Refer to “Management’s Discussion and Analysis – Results of Operations - Provision for Income Taxes” and Note 13 – Income Taxes of the Notes to the Consolidated Financial Statements for further details. In addition, our net income from finance operations for the third quarter of fiscal 2018 compared to the same period in fiscal 2017 was also favorably impacted by a $270$268 million decrease in interest expense, a $262 million decrease in depreciation on operating leases, and a ~~$169~~$50 million ~~increase~~decrease in ~~total financing revenues,~~operating and administrative expenses, partially offset by a ~~$155~~$140 million increase in provision for income taxes and a $70 million decrease in ~~realized gains, net on investments in marketable securities.~~total financing revenues.

Total financing revenues ~~increased 6 percent and 7~~decreased 2 percent during the first nine months and third quarter of fiscal ~~2018 as compared to the same periods in fiscal 2017 due to the following:~~

~~Our~~ total portfolio yield, which includes operating lease, ~~revenues net of depreciation, as well as~~ retail and dealer financing revenues, increased to ~~3.4~~5.1 percent and ~~3.5~~5.3 percent for the first nine months and third quarter of fiscal ~~2018,~~2021, respectively, compared to ~~3.2~~4.8 percent and ~~3.1~~4.6 percent for the same periods in fiscal ~~2017.~~2020.

We reported depreciation on operating leases of ~~$5,178~~$4,484 million and ~~$1,778~~$1,450 million during the first nine months and third quarter of fiscal ~~2018,~~2021, respectively, compared to ~~$4,994~~$4,920 million and ~~$1,722~~$1,712 million infor the same periods in fiscal ~~2017. The increase in depreciation~~2020. Depreciation expense on operating leases decreased during the first nine months and third quarter of fiscal ~~2018~~2021, as compared to the same periods in fiscal ~~2017 was primarily attributable~~2020, due to lower average operating units outstanding and lower residual value losses. The lower residual value losses are a result of an increase in average used vehicle values and lower expectations of residual value losses. The economic conditions caused by the COVID-19 pandemic resulted in higher off-lease vehicle purchases by dealers due to increased used vehicle values and decreased new vehicle inventory as there was a temporary suspension of automobile manufacturing and component plants that resulted in an increase in the sale of used vehicles due to their availability.

As discussed in Note 1 – Interim Financial Data, 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 ~~units outstanding.~~early terminations in Depreciation on operating leases.

Three Months Ended

Nine Months Ended

December 31,

December 31,

(Dollars in millions)

2017

2016

2017

2016

Interest expense on debt

$
490

$
397

$
1,441

$
1,133

Interest (income) expense on derivatives

(13
)

2

(47
)

(5
)
Interest expense on debt and derivatives

477

399

1,394

1,128

Ineffectiveness related to hedge accounting derivatives

-

-

-

-

Loss (gain) on non-hedge accounting debt denominated in
  foreign currencies

123

(907
)

1,146

(969
)
(Gain) loss on non-hedge accounting foreign currency swaps

(108
)

1,127

(1,141
)

1,159

(Gain) loss on U.S. dollar non-hedge accounting interest
  rate swaps

(64
)

82

(71
)

(13
)
Total interest expense

$
428

$
701

$
1,328

$
1,305

	Three months ended						Nine months ended
	December 31,						December 31,
(Dollars in millions)	2020			2019			2020			2019
Interest expense on debt	$	460		$	620		$	1,531		$	1,914
Interest expense on derivatives		103			51			334			100
Interest expense on debt and derivatives		563			671			1,865			2,014

Losses (gains) on debt denominated in foreign currencies		655			452			1,703			(8	)
Gains on foreign currency swaps		(658	)		(385	)		(1,754	)		(19	)
(Gains) losses on U.S. dollar interest rate swaps		(69	)		17			(280	)		78
Total interest expense	$	491		$	755		$	1,534		$	2,065

During the first nine months and third quarter of fiscal ~~2018,~~2021, total interest expense ~~increased~~decreased to ~~$1,328~~$1,534 million and $491 million, respectively, from ~~$1,305~~$2,065 million inand $755 million, for the same ~~period~~periods in fiscal ~~2017.~~2020. The ~~increase~~decrease in total interest expense for the first nine months of fiscal ~~2018~~2021 compared to the same period in fiscal ~~2017~~2020 is ~~primarily~~ attributable to ~~an increase~~gains on U.S. dollar interest rate swaps, a decrease in interest expense on debt ~~partially offset by lower~~and derivatives combined, and gains on foreign currency swaps, net of losses on ~~non-hedge accounting~~ debt denominated in foreign currencies net of non-hedge accounting foreign currency swaps and higher gains on U.S. dollar non-hedge accounting interest rate swaps. During the third quarter of fiscal 2018, total interest expense decreased to $428 million from $701 million in the same period in fiscal 2017.currencies. The decrease in total interest expense for the third quarter of fiscal ~~2018~~2021, compared to the same period in fiscal ~~2017~~2020 is ~~primarily~~ attributable to ~~lower~~a decrease in interest expense on debt and derivatives combined, gains on U.S. dollar interest rate swaps, and gains on foreign currency swaps net of losses on ~~non-hedge accounting~~ debt denominated in foreign ~~currencies net of non-hedge accounting foreign currency swaps and gains on U.S. dollar non-hedge accounting interest rate swaps, partially offset by an increase in interest expense on debt.~~ currencies.

Interest expense on debt and derivatives primarily represents contractual net interest settlements and changes in accruals on secured and unsecured notes and loans payable ~~commercial paper~~ and derivatives, and includes amortization of discounts, premiums, and debt issuance ~~costs, and basis adjustments. Interest expense on debt and derivatives for~~costs. During the first nine months and third quarter of fiscal ~~2018 increased to $1,394 million and $477 million, respectively, from $1,128 million and $399 million, respectively, in the same periods in fiscal 2017. The increases in~~2021, interest expense on debt and derivatives ~~are~~decreased to $1,865 million and $563 million, respectively, from $2,014 million and $671 million for the same periods in fiscal 2020. The decrease in interest expense on debt is primarily due to ~~higher~~a decrease in weighted average interest rates, ~~as well as~~partially offset by an increase in ~~the amount of outstanding debt.~~portfolio size. The increase in interest expense on derivatives is primarily due to a decrease in interest income from pay-fixed swaps partially offset by a decrease in interest expense on pay-float swaps.

~~Gain~~Gains or ~~loss~~losses on ~~non-hedge accounting~~ debt denominated in foreign currencies ~~represents~~represent the impact of translation adjustments. We use ~~non-hedge accounting~~ foreign currency swaps to economically hedge the debt denominated in foreign currencies. During the first nine months and third quarter of fiscal ~~2018,~~2021, we recorded net ~~losses~~gains of $5$51 million and ~~$15~~$3 million, respectively, ~~as losses on our non-hedge accounting debt denominated in foreign currencies were largely offset by gains on our non-hedge accounting foreign currency swaps~~primarily as a result of ~~offsetting~~decreases in foreign currency swap rates across various currencies in which our debt is denominated. During the first nine months of fiscal 2020, we recorded total gains of $27 million, primarily as a result of decreases in foreign currency swap rates across the various currencies in which our debt is denominated. During the ~~first nine months and~~ third quarter of fiscal ~~2017, the~~2020, we recorded net losses of ~~$190~~$67 million, ~~and $220 million, respectively, on our debt denominated in foreign currencies, net~~primarily as a result of ~~foreign currency swaps resulted primarily from~~ increases in ~~most~~ foreign currency swap rates across the various currencies in which our debt is denominated.

~~Gain~~Gains or ~~loss~~losses on U.S. dollar ~~non-hedge accounting~~ interest rate swaps ~~represents~~represent the change in the valuation of interest rate swaps. During the first nine months and third quarter of fiscal ~~2018,~~2021, we recorded gains of ~~$71~~$280 million and ~~$64~~$69 million, respectively, as the impact from net interest income outweighed the losses attributed to the downward shift of U.S. dollar swap rates. During the first nine months of fiscal 2020, we recorded losses of $78 million, as losses on our higher-notional, shorter-term pay-fixed swaps exceeded gains on our longer-term pay-float swaps, primarily as a result of decreases in U.S. dollar swap rates. During the third quarter of fiscal 2020, we recorded losses of $17 million, as losses on our longer-term pay-float swaps exceeded gains on our shorter-term pay-fixed swaps, primarily as a result of increases in U.S. dollar swap rates, across all tenors, particularly in the shorter tenors, with the gains on our higher notional, shorter-term pay-fixed swaps exceeding the losses on our longer-term pay-float swaps. During the first nine months of fiscal 2017, we recorded gains of $13 million as a result of increases in U.S. dollar swap rates across all tenors, with the gains on our higher notional, shorter-term pay-fixed swaps exceeding the losses on our longer-term pay-float swaps. During the third quarter of fiscal 2017, we recorded losses of $82 million primarily as a result of increases in U.S. dollar swap rates across all tenors, particularly in the longer ~~tenors, with the losses on our longer-term pay-float swaps exceeding the gains on our shorter-term pay-fixed swaps.~~tenors.

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

~~During~~We recorded investment and other income, net of $76 million and $21 million for the first nine months and third quarter of fiscal ~~2018, our finance operations reported no realized gains,~~2021, respectively, compared to $117 million and $42 million for the same periods in fiscal 2020. The decrease in investment and other income, net ~~on investments in marketable securities. During~~for the first nine months and third quarter of fiscal ~~2017, our finance operations reported realized gains, net on investments in marketable securities of $241 million and $155 million, respectively. The realized gains, net on marketable securities~~2021, compared to the same periods in fiscal ~~2017 were~~2020, was primarily due to ~~the sale of our equity mutual fund~~a decrease in interest income attributable to ~~take advantage of favorable market conditions.~~a decrease in interest rates.

We recorded a provision for credit losses of ~~$320~~$366 million and ~~$396~~$118 million for the first nine months and third quarter of fiscal ~~2018~~2021, respectively, compared to $264 million and $128 million for the same periods in fiscal ~~2017, respectively.~~2020. The ~~decrease~~increase in the provision for credit losses for the first nine months of fiscal ~~2018 as~~2021, compared to the same period in fiscal ~~2017~~2020, was primarily due to the increase in the expected credit losses for our retail loan portfolio driven by ~~favorable~~a decline 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. The growth of our retail portfolio and our adoption of ASU 2016-13 in fiscal 2021, which replaced the incurred loss impairment model with one that reflects expected credit ~~loss experience, partially offset by deterioration~~losses over the expected life of the finance receivables has also contributed to the increase in the ~~financial performance of certain dealers. We recorded a~~ provision for credit ~~losses of $108 million and $183 million for the third quarter of fiscal 2018 and fiscal 2017, respectively.~~losses. The ~~decrease in the~~ provision for credit losses for the third quarter of fiscal ~~2018 as~~2021, compared to the same period in fiscal ~~2017 was attributable~~2020, decreased due to ~~favorable~~the lower provision for credit ~~loss experience~~losses in our dealer portfolio as ~~well as~~a result of improved dealer financial performance, partially offset by an ~~increased focus on early~~increase in the provision for credit losses in our retail portfolio and ~~late stage collection activities.~~our adoption of ASU 2016-13 in fiscal 2021.

We recorded operating and administrative expenses of ~~$731~~$818 million and $239 million during the first nine months and third quarter of fiscal 2018, respectively, compared to $702 million and $250 million for the same periods in fiscal 2017. The increase in operating and administrative expenses for the first nine months of fiscal 2018 compared to the same period in fiscal 2017, was primarily due to increases in general operating expenses, information technology expenditures, and expenses related to the relocation of our headquarters operations to Plano, Texas. The decrease in operating and administrative expenses for the third quarter of fiscal 2018 compared to the same period in fiscal 2017, was primarily due to a decrease in information technology expenditures. We continue to incur expenses associated with the relocation of our headquarters operations to Plano, Texas including deferred compensation expense, employee relocation and other relocation related expenses. We expect to incur additional expenses over the next few years relating to our relocation.

Three Months Ended

Nine Months Ended

December 31,

Percentage

December 31,

Percentage

2017

2016

Change

2017

2016

Change

Agreements (units in thousands)

Issued

593

581

2
%

1,879

1,810

4
%
Average in force

8,391

7,484

12
%

8,178

7,241

13
%

(Dollars in millions)

Insurance earned premiums and contract
  revenues

$
220

$
202

9
%

$
657

$
594

11
%
Investment and other income, net

29

32

(9
)%

69

65

6
%
Realized gains (losses), net on
  investments in marketable securities

3

2

50
%

45

(1
)

4600
%
Revenues from insurance operations

252

236

7
%

771

658

17
%

Expenses:

Insurance losses and loss adjustment
  expenses

100

92

9
%

316

272

16
%
Operating and administrative
  expenses

84

75

12
%

242

219

11
%
Total expenses

184

167

10
%

558

491

14
%

Income before income taxes

68

69

(1
)%

213

167

28
%
(Benefit) Provision for income taxes

(41
)

26

(258
)%

13

62

(79
)%

Net income from insurance operations

$
109

$
43

153
%

$
200

$
105

90
%

~~Our insurance operations reported net income of $200 million and $109~~$268 million for the first nine months and third quarter of fiscal ~~2018,~~2021, respectively, compared to ~~$105~~$832 million and ~~$43~~$318 million for the same periods in fiscal ~~2017.~~2020. The decrease in operating and administrative expenses for the first nine months and third quarter of fiscal 2021, compared to the same periods in fiscal 2020, was due to a decrease in marketing, technology, and general operating expenses.

	Three months ended							Nine months ended
	December 31,				Percentage			December 31,				Percentage
	2020		2019		Change			2020		2019		Change
Agreements (units in thousands)
Issued		662		651		2	%		1,872		1,999		(6	)%
Average in force		9,913		9,591		3	%		9,787		9,444		4	%

(Dollars in millions)
Insurance earned premiums and contract revenues	$	241	$	231		4	%	$	714	$	692		3	%
Investment and other income, net		158		19		732	%		369		171		116	%
Revenues from insurance operations		399		250		60	%		1,083		863		25	%

Expenses:
Insurance losses and loss adjustment expenses		98		116		(16	)%		265		344		(23	)%
Operating and administrative expenses		86		88		(2	)%		270		269	-%
Total expenses		184		204		(10	)%		535		613		(13	)%

Income before income taxes		215		46		367	%		548		250		119	%
Provision for income taxes		52		11		373	%		132		61		116	%

Net income from insurance operations	$	163	$	35		366	%	$	416	$	189		120	%

Our insurance operations reported net income of $416 million and $163 million for the first nine months and third quarter of fiscal 2021, respectively, compared to $189 million and $35 million for the same periods in fiscal 2020. The increase in net income from insurance operations for the first nine months of fiscal ~~2018~~2021, compared to the same period in fiscal 2020, was primarily due to a ~~$63~~$198 million increase in ~~insurance earned premiums~~investment and ~~contract revenues,~~other income, net, and a ~~$49~~$79 million decrease in provision for income taxes attributable to the enactment of the TCJA which reduced our federal statutory tax rate. Refer to “Management’s Discussion and Analysis – Results of Operations - Provision for Income Taxes” and Note 13 – Income Taxes of the Notes to the Consolidated Financial Statements for further details. In addition, our net income from insurance operations was also favorably impacted by a $46 million increase in realized gains, net on investments in marketable securities, partially offset by a $44 million increase in insurance losses and loss adjustment expenses, ~~and~~partially offset by a ~~$23~~$71 million increase in ~~operating and administrative expenses.~~

~~Our~~provision for income taxes. The increase in net income from insurance operations for the third quarter of fiscal ~~2018 increased~~2021, compared to same period in fiscal 2020, was primarily due to a $139 million increase in investment and other income, net and a $18 million decrease in insurance losses and loss adjustment expenses, partially offset by a $41 million increase in provision for income taxes. Agreements issued decreased 6 percent in the first nine months of fiscal 2021, compared to the same period in fiscal ~~2017,~~2020, primarily due to ~~a $67 million decrease~~the economic difficulties caused by the COVID-19 pandemic during the first quarter of fiscal 2021, which resulted in the provision for income taxes attributable to the enactment of the TCJA which reduced our federal statutory tax rate. Refer to “Management’s Discussion and Analysis – Results of Operations - Provision for Income Taxes” and Note 13 – Income Taxes of the Notes to the Consolidated Financial Statements for further details. In addition, our net income from insurance operations forlower sales volume. Agreements issued increased 2 percent in the third quarter of fiscal ~~2018~~2021, compared to the same period in fiscal ~~2017 was also favorably impacted by a $18 million increase~~2020, primarily due to the incremental agreements issued from the launch of our private label insurance products to Mazda. The average number of agreements in ~~insurance earned premiums and contract revenues, offset by a $9 million increase in operating and administrative expenses, and a $8 million increase in insurance losses and loss adjustment expenses.~~

~~Agreements issued~~force increased 4 percent and 23 percent ~~during~~for the first nine months and third quarter of fiscal ~~2018,~~2021, respectively, compared to the same periods in fiscal 2017. The average number of agreements in force increased 13 percent and 12 percent, respectively, during the first nine months and third quarter of fiscal 2018 compared to the same periods in fiscal 2017. The increases in the agreements issued in both periods were primarily2020, due to ~~increased sales of guaranteed auto protection agreements, partially offset by a decrease~~insurance portfolio growth from prior years, most notably in sales of certified pre-owned vehicle warranties and prepaid maintenance contracts. The increases in the average in force agreements in both periods were primarily due to increases in prepaid maintenance contracts, guaranteed auto protection agreements, and tire and wheel protection agreements, ~~as sales volume outpaced agreement expirations.~~and guaranteed auto protection agreements.

Our insurance operations reported insurance earned premiums and contract revenues of ~~$657~~$714 million and ~~$220~~$241 million for the first nine months and third quarter of fiscal ~~2018,~~2021, respectively, compared to ~~$594~~$692 million and ~~$202~~$231 million for the same periods in fiscal ~~2017, respectively.~~2020. Insurance earned premiums and contract revenues represent revenues from in force agreements and are affected by ~~sales volume~~issuances as well as the level, age, and mix of in force agreements. Insurance earned premiums and contract revenues are recognized over the term of the agreements in relation to the timing and level of anticipated ~~claims and administrative expenses.~~claims. The increase in insurance earned premiums and contract revenues infor the first nine months and third quarter of fiscal ~~2018, respectively,~~2021, compared to the same periods in fiscal ~~2017~~2020, was primarily due to an increase in ~~the~~our average in force ~~agreements.~~ agreements resulting from insurance portfolio growth from prior years.

Our insurance operations reported ~~realized gains,~~investment and other income, net ~~on investments in marketable securities~~ of ~~$45~~$369 million and $3$158 million for the first nine months and third quarter of fiscal ~~2018,~~2021, respectively, compared to ~~realized losses, net on investments in marketable securities of $1~~$171 million and ~~realized gains, net on investments in marketable securities of $2~~$19 million for the same periods in fiscal ~~2017, respectively. The increase in~~2020. Investment and other income, net, consists primarily of dividend and interest income, realized gains ~~net~~and losses on investments in marketable securities, changes in fair value from equity investments, and credit loss expense on available-for-sale debt securities, if any. The increase in investment and other income, net for the first nine months of fiscal ~~2018~~2021, compared to the same period in fiscal ~~2017~~2020, was primarily due to an increase in gains from the ~~sale~~changes in fair value on our equity investments, an increase in dividend income, and an increase in gains from sales of investments in marketable securities, partially offset by a ~~portion of our fixed~~decrease in interest income ~~mutual funds portfolio to take advantage of favorable market conditions, which occurred~~from intercompany loans and investments in marketable securities. The increase in investment and other income, net for the ~~first~~third quarter of fiscal ~~2018.~~2021, compared to the same period in fiscal 2020, was primarily due to gains from the changes in fair value on our equity investments and an increase in dividend income, partially offset by a decrease in interest income from intercompany loans and investments in marketable securities.

Our insurance operations reported insurance losses and loss adjustment expenses of ~~$316~~$265 million and ~~$100~~$98 million for the first nine months and third quarter of fiscal ~~2018,~~2021, respectively, compared to ~~$272~~$344 million and ~~$92~~$116 million for the same periods in fiscal ~~2017.~~2020. Insurance losses and loss adjustment expenses incurred are a function of the amount of covered risks, the frequency and severity of claims associated with in force agreements and the level of risk retained by our insurance operations. Insurance losses and loss adjustment expenses include amounts paid and accrued for reported losses, estimates of losses incurred but not reported, and any related claim adjustment expenses. The ~~increase~~ decrease in insurance losses and loss adjustment expenses in for the first nine months and third quarter of fiscal ~~2018~~2021, compared to the same periods in fiscal ~~2017~~2020, was primarily due to ~~an increase~~a decrease in losses in our prepaid maintenance agreements, guaranteed auto protection agreements and ~~tire and wheel protection losses.~~vehicle services agreements. The ~~increases~~decrease in ~~both~~ our prepaid maintenance ~~and tire and wheel protection~~ losses for the first nine months and third quarter of fiscal ~~2018~~2021, compared to the same periods in fiscal ~~2017 were~~2020, was primarily due to a higher number of average in force agreements, as well as an increase in the severity of claims. The increase in our guaranteed auto protection losses for the first nine months of fiscal 2018 compared to the same period in fiscal 2017 was the result of increases in average in force agreements as well as an increasedecrease in both frequency and severity of claims. The decrease in our guaranteed auto protection agreements losses and vehicle services agreement losses for the first nine months and third quarter of fiscal 2021, compared to the same periods in fiscal 2020, was primarily due to a decrease in frequency of claims. Our insurance losses and loss adjustment expenses have also been impacted by lower claims as a result of changes in consumer driving patterns caused by the COVID-19 pandemic, including restrictions and other changes in behavior.

Our insurance operations reported operating and administrative expenses of ~~$242~~$270 million and ~~$84~~$86 million for the first nine months and third quarter of fiscal ~~2018,~~2021, respectively, compared to ~~$219~~$269 million and ~~$75~~$88 million for the same periods in fiscal ~~2017. The increase~~ ~~in operating and administrative expenses in the first nine months and third quarter of fiscal 2018 compared to the same periods in fiscal 2017~~ was attributable to higher product and general operating expenses driven by the continued growth of our insurance business, as well as an increase in insurance dealer back-end program expenses. Insurance dealer back-end program expenses are incentives or expense reduction programs we provide to dealers based on certain performance criteria. We continue to incur expenses associated with the relocation of our headquarters operations to Plano, Texas including deferred compensation expense, employee relocation and other relocation related expenses. We expect to incur additional expenses over the next few years relating to our relocation.2020.

Our overall ~~benefit~~provision for income taxes was ~~$2.7 billion~~$546 million and ~~$2.8 billion~~$215 million for the first nine months and third quarter of fiscal ~~2018,~~2021, respectively, compared to ~~income~~$296 million and $34 million for the same periods in fiscal 2020. Our effective tax ~~expense of $212 million~~rate was 24 percent for the first nine months ~~of fiscal 2017~~ and ~~a benefit for income taxes of $29 million for the~~ third quarter of fiscal ~~2017.~~2021, respectively, compared to 23 percent and 16 percent for the same periods in fiscal 2020. The ~~change~~increase in the provision for income taxes for the first nine months and third quarter of fiscal ~~2018 is~~2021, compared to the same periods in fiscal 2020, was primarily due to ~~a one-time $2.9 billion~~the increase in income before income taxes. The higher effective tax ~~benefit~~rate for the first nine months and third quarter of fiscal 2021, compared to the same periods in fiscal 2020, was primarily attributable to the ~~revaluation of our net deferred~~ tax ~~liabilities resulting~~benefit from the ~~reduction~~federal tax credit recognized in the third quarter of ~~the~~fiscal 2020. The federal ~~statutory income~~ tax ~~rate~~credit for fuel cell vehicles was extended by the ~~TCJA from 35%~~Taxpayer Certainty and Disaster Tax Relief Act of 2019 (H.R.1865) in December 2019 and applied retroactively to ~~21%. Our statutory federal income tax rate for fiscal 2018 will be a blended rate of 31.55% compared to 35% for fiscal 2017. We expect the TCJA will have a favorable impact in the future~~fuel cell vehicles purchased on our provision for income taxes as a result of the lower federal statutory income tax rate. Refer to Note 13 – Income Taxes of the Notes to the Consolidated Financial Statements for further details.or after January 1, 2018.

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

	Three Months Ended									Nine Months Ended										Three months ended									Nine months ended
	December 31,						Percentage			December 31,						Percentage				December 31,						Percentage			December 31,						Percentage
(units in thousands):	2017			2016			Change			2017			2016			Change				2020			2019			Change			2020			2019			Change
TMS new sales volume¹		462			487			(5	)%		1,471			1,455			1	%

Vehicle financing volume²
Vehicle financing volume:¹
New retail contracts		165			164			1	%		484			475			2	%			198			156			27	%		570			506			13	%
Used retail contracts		58			70			(17	)%		190			216			(12	)%			114			83			37	%		354			253			40	%
Lease contracts		120			126			(5	)%		390			432			(10	)%			142			113			26	%		355			375			(5	)%
Total		343			360			(5	)%		1,064			1,123			(5	)%			454			352			29	%		1,279			1,134			13	%

TMS subvened vehicle financing volume (units included in the above table):
TMNA subvened vehicle financing volume:²																			TMNA subvened vehicle financing volume:²
New retail contracts		113			103			10	%		294			298			(1	)%			68			52			31	%		234			169			38	%
Used retail contracts		5			19			(74	)%		42			62			(32	)%			8			12			(33	)%		50			34			47	%
Lease contracts		112			112			-	%		361			372			(3	)%			107			101			6	%		257			341			(25	)%
Total		230			234			(2	)%		697			732			(5	)%			183			165			11	%		541			544			(1	)%

TMS subvened vehicle financing volume as a percent of vehicle financing volume:
New retail contracts		68.5	%		62.8	%					60.7	%		62.7	%
Used retail contracts		8.6	%		27.1	%					22.1	%		28.7	%
Lease contracts		93.3	%		88.9	%					92.6	%		86.1	%
Overall subvened contracts		67.1	%		65.0	%					65.5	%		65.2	%
Market share of TMNA sales:³																					59.1	%		57.7	%					61.5	%		62.8	%

Market share:³
Retail contracts		35.5	%		33.5	%					32.8	%		32.5	%
Lease contracts		26.0	%		25.6	%					26.4	%		29.0	%
Total		61.5	%		59.1	%					59.2	%		61.5	%

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

Our financing volume increased 13 percent and 29 percent for the first nine months and third quarter of fiscal 2021, respectively, compared to the same periods in fiscal 2020, primarily due to the incremental new retail vehicle financing volume we gained from the launch of our private label financial services to Mazda on April 1, 2020 and an increase in used retail contracts. The increase in used retail contract volume was driven by the availability of used vehicles following the temporary suspension in production and decrease in dealer new vehicle inventory levels, as well as incremental used retail contract volume from the launch of private label services. These increases in financing volume for the first nine months were partially offset by decreases in lease contracts, particularly in the first quarter of fiscal 2021, due to the sharp decline in economic conditions caused by the COVID-19 pandemic and the restrictions designed to slow the spread of COVID-19, which resulted in an unprecedented increase in unemployment claims and a significant decline in consumer spending, and the lower availability of new lease vehicles due to the temporary suspension of production. However, lease contracts increased for the third quarter of fiscal 2021, compared to the same period in fiscal 2020, primarily due to an increased level of ~~TMS sponsored subvention.~~incentive and subvention programs.

~~Vehicle~~Industry-wide new vehicle sales in the U.S. experienced a significant decline in the first nine months of fiscal 2021 as dealers temporarily closed showrooms and adjusted their operations, and consumers adjusted their behavior in response to restrictions designed to slow the spread of COVID-19, an unprecedented level of unemployment claims and a significant decline in consumer spending. To mitigate the impact caused by ~~TMS increased~~the decline in economic conditions, we have partnered with TMNA and Mazda, respectively, to offer competitive incentive and subvention programs, including 0% financing and/or first payment deferred 90 days on select models.

Our market share of TMNA sales decreased by approximately 1 ~~percent~~percentage point for the first nine months of fiscal ~~2018~~2021, compared to the same period in fiscal ~~2017 primarily~~2020, due to lower levels of subvention on lease contracts and increased ~~consumer demand for Toyota vehicles. Our financing volume decreased 5 percent and~~competition from financial institutions. However, our ~~overall~~ market share ~~decreased 2~~of TMNA sales increased by approximately 1 percentage ~~points~~point for ~~the first nine months~~third quarter of fiscal ~~2018~~2021, compared to the same period in fiscal ~~2017, primarily~~2020, due to ~~competition from other financial institutions. Our financing volume and market share were further impacted by increased competition for non-subvened lease contracts.~~

~~Vehicle sales by TMS and our financing volume decreased 5 percent for the third quarter~~higher levels of fiscal 2018 compared to the same period in fiscal 2017 primarily due to a decline in overall vehicle demand that resulted in a decline in our financing volume. Despite the decline in financing volume, our overall market share increased 2 percentage points for the third quarter of fiscal 2018 compared to the same period in fiscal 2017 primarily due to an increase in subvention on new retail and lease vehicle contracts.

	December 31,		March 31,					December 31,		March 31,		Percentage
(Dollars in millions)	2017		2017		Change			2020		2020		Change
Net Earning Assets
Finance receivables, net
Retail finance receivables, net	$	51,949	$	50,686		2	%
Dealer financing, net¹		16,959		17,776		(5	)%
Total finance receivables, net		68,908		68,462		1	%
Retail finance receivables, net ²								$	63,698	$	56,364		13	%
Dealer financing, net ^{1, 2}									15,102		17,632		(14	)%
Total finance receivables, net ²									78,800		73,996		6	%
Investments in operating leases, net		38,947		38,152		2	%		36,294		36,387		-	%
Net earning assets	$	107,855	$	106,614		1	%	$	115,094	$	110,383		4	%


Dealer Financing
(Number of dealers serviced)
Toyota and Lexus dealers¹		988		993		(1	)%
Dealers outside of the Toyota/Lexus dealer network		365		371		(2	)%
Toyota, Lexus, and Mazda dealers¹									992		953		4	%
Dealers outside of the Toyota/Lexus/Mazda dealer network									401		371		8	%
Total number of dealers receiving wholesale financing		1,353		1,364		(1	)%		1,393		1,324		5	%

Dealer inventory outstanding (units in thousands)		316		340		(7	)%		226		294		(23	)%

Our new retail contract volume increased 213 percent and 127 percent ~~during~~for the first nine months and third quarter of fiscal ~~2018,~~2021, respectively, as compared to the same periods in fiscal ~~2017. The increase to new retail contract volume during the first nine months of fiscal 2018 as compared~~2020, due to the ~~same period in fiscal 2017, was primarily due to an increase in demand~~incremental new vehicle financing volume we gained from the launch of private label financial services and the increased level of incentive and subvention programs. Our used retail contracts increased by 40 percent and 37 percent for ~~Toyota vehicles. Our market share remained consistent and increased 2 percentage points during~~ the first nine months and third quarter of fiscal 2021, respectively, as compared to the same periods in fiscal ~~2017. The increases~~2020, due to ~~new~~an increased level of incentive and subvention programs in the first nine months of fiscal 2021, availability of used vehicles, as well as incremental used retail contract volume from the launch of private label financial services. The temporary suspension of automobile manufacturing and ~~market share during~~component plants has caused a temporary decrease in dealer new vehicle inventory levels and resulted in an increase in the ~~third quarter~~sale of ~~fiscal 2018 as compared~~used vehicles due to ~~the same period in fiscal 2017, were driven by a higher focus on retail subvention.~~ their availability.

Our retail finance receivables, net increased 213 percent at December 31, ~~2017~~2020 as compared to March 31, ~~2017~~2020 due to ~~increased demand for Toyota vehicles during~~an increase in the ~~first nine months~~volume financed, including the incremental volume from the launch of ~~fiscal 2018.~~ private label financial services, as well as an increase in the amount financed.

Our lease contract volume decreased ~~10 percent and~~ 5 percent during the first nine months and third quarter of fiscal 2018, respectively, as compared to the same periods in fiscal 2017. Our lease market share decreased 3 percentage points during the first nine months of fiscal 2018, while our lease market share for the third quarter of fiscal 2018 remained consistent as compared to the same periods in fiscal 2017. The decrease in both lease contract volume and market share for the first nine months of fiscal ~~2018 as~~2021, compared to the same period in fiscal ~~2017, was attributable to competition from other financial institutions and~~2020, as a result of the sharp decline in economic conditions caused by the ~~volume~~COVID-19 pandemic, lower levels of ~~subvened contracts. Our~~subvention, the decrease in dealer new vehicle inventory levels from the temporary suspension of production, and consumer preference for retail contracts, partially offset by incremental lease contract volume infrom the launch of private label financial services. For the third quarter of fiscal ~~2018 decreased~~2021, lease contract volume increased 26 percent, compared to the same period in fiscal ~~2017 as a result~~2020, primarily due to an increased level of ~~lower TMS new sales volume. In addition, our~~incentive and subvention programs and incremental lease contract volume ~~and market share was further impacted by increased competition for non-subvened contracts. Despite~~from the ~~decreases in lease financing volume and market share, higher leasing in recent years has resulted in our~~launch of private label financial services. Our investments in operating leases, net, ~~increasing 2 percent~~remained relatively unchanged at December 31, ~~2017,~~2020, as compared to March 31, ~~2017.~~2020.

Dealer financing, net decreased 14 percent at December 31, ~~2017, decreased 5 percent~~ ~~from~~2020 as compared to March 31, ~~2017~~2020 primarily due ~~primarily~~ to a decrease in dealer inventory ~~outstanding.~~and related financing due to the temporary decline in new vehicle inventory levels caused by the temporary suspension of automobile manufacturing as a result of the COVID-19 pandemic.

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

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

As discussed in Note 1 – Interim Financial Data, 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 terminations in Depreciation on operating leases. The information for the comparative period continues to be reported within the provision for credit losses.

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

	Three Months Ended							Nine Months Ended							Three months ended							Nine months ended
	December 31,				Percentage			December 31,				Percentage			December 31,				Percentage			December 31,				Percentage
	2017		2016		Change			2017		2016		Change			2020		2019		Change			2020		2019		Change
Depreciation on operating leases (dollars in millions)	$	1,778	$	1,722		3	%	$	5,178	$	4,994		4	%	$	1,450	$	1,712		(15	)%	$	4,484	$	4,920		(9	)%
Average operating lease units outstanding (in thousands)		1,480		1,427		4	%		1,465		1,414		4	%		1,326		1,395		(5	)%		1,337		1,410		(5	)%

Depreciation expense on operating leases ~~increased 4~~decreased 9 percent and 315 percent during ~~the~~ first nine months and third quarter of fiscal ~~2018,~~2021, respectively, as compared to the same periods in fiscal ~~2017,~~2020, due to lower average operating units outstanding and lower residual value losses. The lower residual value losses are a result of an increase in average used vehicle values and lower expectations of residual value losses. The economic conditions caused by the ~~average operating lease units outstanding. As~~COVID-19 pandemic resulted in higher off-lease vehicle purchases by dealers due to increased used vehicle values and decreased new vehicle inventory as there was a ~~result~~temporary suspension of ~~the increased focus on leasing in recent years, by both us~~automobile manufacturing and ~~the automotive finance industry, we expect~~component plants that ~~maturities will remain at a high level in the future, which will result~~resulted in an increase in the ~~supply~~sale of used vehicles ~~and could unfavorably~~due to their availability.

To provide support to our customers, we offered lease payment deferrals up to 120 days to customers impacted by the COVID-19 pandemic. The lease payment deferrals we granted to our customers resulted in incremental depreciation on operating leases, as the additional months for the deferral period have resulted in a decrease in the expected end-of-market values of our investments in operating leases; however, the impact used vehicle values. Higher average operating lease units outstanding and the resulting increase in future maturities, a higher supply of used vehicles, as well as deterioration in actual and expected used vehicle values for Toyota and Lexus vehicles could unfavorably impact return rates, residual values, and depreciation expense.is not significant.

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

The following table provides information related to our ~~credit loss~~origination experience:

December 31,

March 31,

December 31,

2017

2017

2016

Net charge-offs as a percentage of average gross
   earning assets¹

Finance receivables

0.42
%

0.52
%

0.51
%
Operating leases

0.30
%

0.39
%

0.39
%
Total

0.38
%

0.47
%

0.46
%

Default frequency as a percentage of outstanding
   contracts

1.46
%

1.53
%

1.49
%
Average loss severity per unit²

$
7,402

$
7,787

$
7,808

Aggregate balances for accounts 60 or more days
   past due as a percentage of gross earning assets³

Finance receivables⁴

0.46
%

0.28
%

0.42
%
Operating leases⁴

0.38
%

0.25
%

0.31
%
Total

0.43
%

0.27
%

0.38
%

	December 31,		March 31,		December 31,
	2020		2020		2019
Average consumer portfolio origination FICO score		744		754		755
Average retail loan origination term (months) ¹		68		69		67

¹ Retail loan origination greater than or equal to 78 months was 7% as of December 31, 2020, 7% as of March 31, 2020, and 6% as of December 31, 2019.

While we have included the average origination FICO score to illustrate origination trends, we also use a proprietary credit scoring system to evaluate an applicant’s risk profile. Refer to Part I. Item 1. Business “Finance Operations” in our fiscal 2020 Form 10-K for further discussion of the proprietary manner in which we evaluate risk.

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

Management considers historical credit loss information when assessing the allowance for credit losses. Historical credit losses are primarily ~~reflects~~driven by two factors: default frequency and loss severity. Net charge-offs as a percentage of average gross ~~earning assets~~finance receivables decreased ~~from 0.46~~to 0.32 percent at December 31, ~~2016 to 0.38~~2020 from 0.42 percent at December 31, ~~2017 due to favorable credit loss experience as well as a recent focus on early~~2019, and ~~late stage collection activities. Default~~default frequency as a percentage of outstanding finance receivable contracts decreased to ~~1.46~~0.86 percent for the first nine months of fiscal ~~2018~~2021, compared to ~~1.49~~1.08 percent in the same period in fiscal ~~2017.~~2020, primarily due to the payment extension programs offered to our customers impacted by COVID-19. Our average loss severity on finance receivables for the first nine months of fiscal ~~2018 decreased~~2021 increased to ~~$7,402~~$10,138 from ~~$7,808~~$9,466 in the first nine months of fiscal ~~2017. The decreases in net charge-offs, default frequency and~~2020 primarily due to higher average ~~loss severity~~amounts financed as a result of types of vehicles financed.

Our aggregate balances for accounts 60 or more days past due on finance receivables decreased to 0.38 percent at December 31, 2020, compared to ~~March 31, 2017 are attributable to a recent focus on early and late stage collection activities. Our delinquencies increased to 0.43~~0.49 percent at December 31, ~~2017 compared to 0.27~~2019, and 0.41 percent at March 31, ~~2017~~2020, as a result of the retail payment extension and ~~0.38~~lease deferral programs offered to our customers and dealers impacted by COVID-19. Our aggregate balances for accounts 60 or more days past due on operating leases decreased to 0.30 percent at December 31, ~~2016. The increase in our delinquencies from~~2020, compared to 0.32 percent at December 31, 2019, and 0.34 percent at March 31, ~~2017 to December 31, 2017 is~~2020, primarily due to ~~seasonality and the impact of~~ a ~~recent~~ focus on late stage collection ~~activities. Despite declines~~activities as government restrictions on repossession activities in most states have been lifted. If the negative economic conditions caused by the COVID-19 pandemic continue, delinquencies and charge-offs could increase.

Upon adoption of ASU 2016-13 on April 1, 2020, the allowance for credit losses is measured by a new impairment model that reflects lifetime expected losses, which replaced the incurred loss impairment method.

The allowance for credit losses for our ~~net charge-offs,~~retail consumer portfolio is measured on a collective basis when loans have similar risk characteristics such as loan-to-value ratio, book payment-to-income ratio, FICO score at origination, collateral type, term count, and other relevant factors. We use statistical models to estimate lifetime expected credit losses of our retail loan portfolio segment by applying probability of default and loss given default to the exposure at default on a loan level basis. Probability of default models are developed from internal risk scoring models which consider variables such as delinquency status, historical default frequency, and ~~average~~other credit quality indicators. Other credit quality indicators include loan-to-value ratio, book payment-to-income ratio, FICO score at origination, collateral type (new or used, Lexus, Toyota, or Mazda), and term count. Loss given default models forecast the extent of losses given that a default has occurred and consider variables such as collateral, trends in recoveries, historical loss severity, and other contract structure variables. Exposure at default represents the expected outstanding principal balance, including the effects of expected prepayment when applicable. The lifetime expected credit losses incorporate the probability-weighted forward-looking macroeconomic forecasts for baseline, favorable, and adverse scenarios. The loan lifetime is regarded by management as the ~~first nine months~~reasonable and supportable period. We use macroeconomic forecasts from a third party and update such forecasts quarterly. On an ongoing basis, we review our models, including macroeconomic factors, the selection of ~~fiscal 2018~~macroeconomic scenarios and their weighting to ensure they reflect the risk of the portfolio.

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

If management does not believe the models reflect lifetime expected credit losses, a qualitative adjustment is made to reflect management judgment regarding observable changes in ~~fiscal 2017, we have experienced increasing~~recent or expected economic trends and conditions, portfolio composition, and other relevant factors.

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

Our allowance for credit losses increased from $523 million at December 31, 2019 to $1,199 million at December 31, 2020, reflecting an increase to the allowance for credit losses of $292 million related to the adoption of ASU 2016-13, and an increase of $384 million primarily due to the increase in ~~delinquencies, default frequency,~~expected credit losses for our retail loan portfolio driven by a decline in economic conditions caused by the COVID-19 pandemic and ~~average~~the restrictions designed to slow the spread of COVID-19, including stay-at-home orders, increased unemployment, and decreased consumer spending. In addition to the initial adoption impact, ASU 2016-13 has led to an increase in the provision for credit losses with the growth of our retail loan portfolio as this standard replaces the incurred loss ~~severity~~ impairment model with a model that reflects expected credit losses over the ~~last few years~~. ~~Changes~~expected life of the finance receivables and certain off-balance sheet lending commitments.

Future changes in the economy that impact the consumer such as increasing interest rates and a rise in the unemployment rate as well as higher debt balances, coupled with deterioration in actual and expected used vehicle values, could result in increases to our ~~credit losses.~~

~~We maintain an~~ allowance for credit ~~losses to cover probable and estimable losses as of~~losses. In addition, a decline in the ~~balance sheet date resulting from the non-performance~~effectiveness of our ~~customers and dealers under their contractual obligations. The determination of the allowance involves significant assumptions, complex analyses, and management judgment.~~

The allowance for credit losses for our consumer portfolio is established through a process that estimates probable losses incurred as of the balance sheet date based upon consistently applied statistical analyses of portfolio data. This process utilizes delinquency migration analysis, in which historical delinquency and credit loss experience is applied to the current aging of the portfolio, and incorporates current and expected trends and other relevant factors, including used vehicle market conditions, economic conditions, unemployment rates, purchase quality mix, and operational factors. This process, along with management judgment, is used to establish the allowance to cover probable and estimable losses incurred as of the balance sheet date. Movement in any of these factors would cause changes in estimated probable losses.

The allowance for credit losses for our dealer portfolio is established by aggregating dealer financing receivables into loan-risk pools, which are determined based on the risk characteristics of the loan (e.g. secured by vehicles, real estate or dealership assets). We analyze the loan-risk pools using internally developed risk ratings for each dealer. In addition, we have established procedures that focus on managing high risk loans in our dealer portfolio. Our field operations management and special assets group are consulted each quarter to determine if any specific dealer loan is considered impaired. If impaired loans are identified, specific reserves are established, as appropriate, and the loan is removed from the loan-risk pool for separate monitoring.

~~The following table provides information related to our allowance for credit losses:~~

Our allowance for credit losses increased $68 million from $566 million at December 31, 2016 to $634 million at December 31, 2017 as a result of portfolio growth and deterioration in the financial performance of certain dealers. Our allowance for credit losses increased $12 million from $622 million at March 31, 2017 to $634 million at December 31, 2017 primarily due to a deterioration in the financial performance of certain dealers. Changes in the economy that impact the consumer such as increasing interest rates, a rise in the unemployment rate and higher debt balances, coupled with deterioration in actual and expected used vehicle values,collection practices could ~~result in increases to~~also increase our allowance for credit losses.

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

~~The following table summarizes the components of our outstanding funding sources at carrying value:~~

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

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

WeDuring the first nine months of fiscal 2021, capital markets experienced periods of significant volatility as a result of the COVID-19 pandemic. However, during the second and third quarters of fiscal 2021, funding conditions were generally stable and credit spreads tightened in response to measures taken to support the economy and corporate credit markets by the Federal Reserve and global central banks. We maintain broad access to a variety of domestic and global markets and may choose to realign our funding activities depending upon market conditions, relative costs, and other factors. We believe that our funding sources, combined with operating and investing activities, provide sufficient liquidity to meet future funding requirements and business growth. ~~Our funding volume is primarily based on the expected net change in earning assets and debt maturities.~~

For liquidity purposes, we hold cash in excess of our immediate funding needs. These excess funds are invested in short-term, highly liquid and investment grade money market instruments as well as certain available-for-sale debt securities, which provide liquidity for our short-term funding needs and flexibility in the use of our other funding sources. We maintained excess funds ranging from ~~$6.8~~$10.8 billion to ~~$9.5~~$16.2 billion with an average balance of ~~$8.3~~$13.0 billion during the quarter ended December 31, ~~2017.~~

2020. The amount of excess funds we hold may fluctuate, depending on market conditions and other factors. We ~~may lend~~also have access to ~~or borrow from affiliates on terms based upon a number~~liquidity under the $5.0 billion credit facility with Toyota Motor Sales U.S.A., Inc. (“TMS”), which as of ~~business factors such as funds availability, cash flow timing, relative cost~~December 31, 2020 had no outstanding amount and is further described in Note 7 – Debt and Credit Facilities of ~~funds,~~the Notes to the Consolidated Financial Statements. We believe we have sufficient capacity to meet our short-term funding requirements and ~~market access capabilities.~~manage our liquidity.

Credit support is provided to us by our indirect parent Toyota Financial Services Corporation (“TFSC”), and, in turn to TFSC by TMC. Taken together, these credit support agreements provide an additional source of liquidity to us, although we do not rely upon such credit support in our liquidity planning and capital and risk management. The credit support agreements are not a guarantee by TMC or TFSC of any securities or obligations of TFSC or TMCC, respectively. The fees paid pursuant to these agreements are disclosed in Note 1411 – Related Party Transactions of the Notes to Consolidated Financial Statements.

TMC’s obligations under its credit support agreement with TFSC rank pari passu with TMC’s senior unsecured debt obligations. Refer to Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations “Liquidity and Capital Resources” in our fiscal 2020 Form 10-K for ~~the fiscal year ended March 31, 2017 for~~ further discussion.

We routinely monitor global financial conditions and our financial exposure to our global counterparties, particularly in those countries experiencing significant economic, fiscal or political strain and the corresponding likelihood of default. We do not currently have exposure to sovereign counterparties in countries experiencing significant economic, fiscal or political strain or any other sovereign counterparties. Refer to the “Liquidity and Capital Resources - ~~Liquidity~~Credit Facilities and Letters of Credit” section and ~~“Part~~Part I, Item 1A. Risk Factors ~~- The~~– “The failure or commercial soundness of our counterparties and other financial institutions may have an effect on our liquidity, results of operations or financial condition” in our fiscal 2020 Form 10-K for ~~the fiscal year ended March 31, 2017 for~~ further discussion.

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

	December 31, 2020							March 31, 2020
(Dollars in millions)	Face value		Carrying value		Weighted average contractual interest rates			Face value		Carrying value		Weighted average contractual interest rates
Unsecured notes and loans payable
Commercial paper	$	19,002	$	18,991		0.36	%	$	27,040	$	26,968		1.85	%
U.S. medium term note ("MTN") program		41,559		41,415		1.83	%		33,658		33,527		2.44	%
Euro medium term note ("EMTN") program		18,004		17,914		1.63	%		17,074		16,974		1.69	%
Other debt		8,939		8,932		1.33	%		5,705		5,703		2.06	%
Total Unsecured notes and loans payable		87,504		87,252		1.42	%		83,477		83,172		2.07	%
Secured notes and loans payable		21,759		21,720		1.59	%		14,597		14,568		2.13	%
Total debt	$	109,263	$	108,972		1.45	%	$	98,074	$	97,740		2.08	%

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

Short-term funding needs are met through the issuance of commercial paper in the U.S. Commercial paper outstanding under our commercial paper programs ranged from approximately ~~$25.3~~$19.0 billion to ~~$28.3~~$22.2 billion during the quarter ended December 31, ~~2017,~~2020, with an average outstanding balance of ~~$27.0~~$20.6 billion. Our commercial paper programs are supported by the liquidity facilities discussed under the heading ~~“Liquidity~~“Credit Facilities and Letters of Credit.” We believe we have ~~ample~~sufficient capacity to meet our short-term funding requirements and manage our liquidity.

~~The following table summarizes the components of our unsecured notes and loans payable:~~

We maintain a shelf registration statement with the ~~SEC~~Securities and Exchange Commission (“SEC”) to provide for the issuance of debt securities in the U.S. capital markets to retail and institutional investors. We qualify as a well-known seasoned issuer under SEC rules, which allows us to issue under our registration statement an unlimited amount of debt securities during the three year period ending January ~~2021.~~2024. Debt securities issued under the U.S. shelf registration statement are issued pursuant to the terms of an indenture which requires TMCC to comply with certain covenants, including negative pledge and cross-default provisions. We are currently in compliance with these covenants.

Our EMTN program, shared with our affiliates Toyota Motor Finance (Netherlands) B.V., Toyota Credit Canada Inc. and Toyota Finance Australia Limited (TMCC and such affiliates, the “EMTN Issuers”), provides for the issuance of debt securities in the international capital markets. In September ~~2017,~~2020, the EMTN Issuers renewed the EMTN program for a one year period. The maximum aggregate principal amount authorized under the EMTN Program to be outstanding at any time is €50.0 billion or the equivalent in other currencies, of which ~~€24.6~~€16.4 billion was available for issuance at December 31, ~~2017.~~2020. The authorized amount is shared among all EMTN Issuers. The authorized aggregate principal amount under the EMTN program may be increased from time to time. Debt securities issued under the EMTN program are issued pursuant to the terms of an agency agreement. Certain debt securities issued under the EMTN program are subject to negative pledge provisions. ~~Debt securities issued under our EMTN program prior to October 2007 are also subject to cross-default provisions.~~ We are currently in compliance with these covenants.

We may issue other debt securities through the global capital markets or enter into other unsecured financing arrangements, including those in which we agree to use the proceeds solely to acquire retail or lease contracts financing new Toyota and Lexus vehicles of specified “green” models. The terms of these “green” bond transactions are consistent with the terms of other similar transactions except that the proceeds we receive are included in Restricted cash and cash equivalents in our Consolidated Balance Sheets, when applicable.

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

We may ~~issue other debt securities through the global capital markets or enter into other unsecured financing arrangements, including those~~borrow from affiliates on terms based upon a number of business factors such as funds availability, cash flow timing, relative cost of funds, and market access capabilities. Amounts borrowed from affiliates are recorded in ~~which we agree to use the proceeds solely to acquire retail~~Other liabilities on our Consolidated Balance Sheets and ~~lease contracts financing new Toyota and Lexus vehicles of certain specified “green” models.~~are therefore excluded from Debt amounts.

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

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

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

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

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

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

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

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

We maintain shelf registration statements with the Securities and Exchange Commission (“SEC”) to provide for the issuance of securities backed by Securitized Assets in the U.S. capital markets. We regularly sponsor public securitization trusts that issue securities backed by retail finance receivables, including registered securities that we retain. Funding obtained from our public term securitization transactions is repaid as the underlying Securitized Assets amortize. None of these securities have defaulted, experienced any events of default or failed to pay principal in full at maturity. As of December 31, 2017 and March 31, 2017, we did not have any outstanding lease securitization transactions registered with the SEC.

We periodically enter into ~~public~~ term securitization transactions whereby we agree to use the proceeds solely to acquire retail and lease contracts financing new Toyota and Lexus vehicles of certain specified “green” models. The terms of ~~the~~these “green” securitization ~~transaction~~transactions are consistent with the terms of our other similar transactions except that the proceeds we receive are included in Restricted cash and cash equivalents in our Consolidated Balance Sheets, when applicable.

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

We ~~also~~maintain a shelf registration statement with the SEC to provide for the issuance of securities backed by Securitized Assets in the U.S. capital markets during the three year period ending December 2021. We regularly ~~execute private~~sponsor public securitization trusts that issue securities backed by retail finance receivables, including registered securities that we retain. None of these securities have defaulted, experienced any events of default or failed to pay principal in full at maturity. As of December 31, 2020 and March 31, 2020, we did not have any outstanding lease securitization transactions ~~of Securitized Assets~~registered with ~~bank-sponsored multi-seller asset-backed conduits. Funding obtained from our private securitization transactions is repaid as~~ the ~~underlying Securitized Assets amortize.~~ SEC.

For additional liquidity purposes, we maintain ~~syndicated~~ credit facilities ~~with certain banks.~~as described below:

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

In November ~~2017,~~2020, TMCC, Toyota Credit de Puerto Rico Corp. (“TCPR”) and other Toyota affiliates ~~entered~~re-entered into a $5.0 billion 364 day syndicated bank credit facility, expiring in fiscal 2022. In November 2019, TMCC, TCPR and other Toyota affiliates entered into a $5.0 billion three year syndicated bank credit facility and a $5.0 billion five year syndicated bank credit facility, expiring in fiscal ~~2019, 2021,~~2023 and ~~2023,~~2025, respectively.

The ability to make draws is subject to covenants and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on certain consolidations, mergers and sales of assets. These agreements may be used for general corporate purposes and none were drawn upon as of December 31, ~~2017~~2020 and March 31, ~~2017.~~2020. We are currently in compliance with the covenants and conditions of the credit agreements described above.

TMCC has entered into additional unsecured credit facilities with various banks. As of December 31, ~~2017,~~2020, TMCC had committed bank credit facilities totaling ~~$5.5~~$4.4 billion of which ~~$200~~$350 million, ~~$2.3~~$1.9 billion, ~~$525~~$1.8 billion, and $300 million ~~and $2.5 billion~~ mature in fiscal ~~2018, 2019, 2020,~~2021, 2022, 2023, and ~~2021,~~2024, respectively.

These credit agreements contain covenants and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on certain consolidations, mergers and sales of assets. These credit facilities were not drawn upon as of December 31, ~~2017~~2020 and March 31, ~~2017.~~2020. We are currently in compliance with the covenants and conditions of the credit agreements described above.

TMCC is party to a $5.0 billion three year revolving credit facility with TMS expiring in fiscal 2022. This credit facility was drawn upon in fiscal 2020 for a principal amount of $3.0 billion with an interest rate of 1.86%, and on July 30, 2020, we voluntarily repaid the draw and accrued interest in full. The amount was recorded in Other liabilities on our Consolidated Balance Sheet and funds were used for general corporate purposes.

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

The cost and availability of unsecured financing is influenced by credit ratings, which are intended to be an indicator of the creditworthiness of a particular company, security, or obligation. Lower ratings generally result in higher borrowing costs as well as reduced access to capital markets. Credit ratings are not recommendations to buy, sell, or hold securities, and are subject to revision or withdrawal at any time by the assigning credit rating organization. Each credit rating organization may have different criteria for evaluating risk, and therefore ratings should be evaluated independently for each organization. Our credit ratings depend in part on the existence of the credit support agreements of TFSC and TMC. Refer to “Part I, Item 1A. Risk Factors - Our borrowing costs and access to the unsecured debt capital markets depend significantly on the credit ratings of TMCC and its parent companies and our credit support arrangements” in our fiscal ~~2017~~2020 Form 10-K.

Our liabilities consist mainly of fixed and ~~floating~~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, interest rate caps~~ and foreign currency swaps to economically hedge the interest rate and foreign currency risks that result from the different characteristics of our assets and liabilities. Our use of derivative transactions is intended to reduce long-term fluctuations in the fair value of assets and liabilities caused by market movements. All of our derivative activities are authorized and monitored by our management and our Asset-Liability Committee which provides a framework for financial controls and governance to manage market risk.

All derivative instruments are recorded on the balance sheet at fair value, taking into consideration the effects of legally enforceable master netting agreements that allow us to net settle ~~positive~~asset and ~~negative~~liability positions and offset cash collateral held with the same counterparty on a net basis. Changes in the fair value of derivatives are recorded in Interest expense in our Consolidated Statements of Income. The derivative instruments are included as a component of Other assets or Other liabilities in our Consolidated Balance Sheet.

The accounting guidance permits the net presentation on our Consolidated Balance Sheets of derivative receivables and derivative payables with the same counterparty and the related cash collateral when a legally enforceable master netting agreement exists. When we meet this condition, we elect to present such balances on a net basis.

Our International Swaps and Derivatives Association (“ISDA”) Master Agreements are our master netting agreements which permit multiple transactions to be cancelled and settled with a single net balance paid to either party. The master netting agreements also contain reciprocal collateral agreements which require the transfer of cash collateral to the party in a net asset position across all transactions. Our collateral agreements with substantially all our counterparties include a zero threshold, full collateralization arrangement. Although we have daily valuation and collateral exchange arrangements with all of our counterparties, due to the time required to move collateral, there may be a delay of up to one day between the exchange of collateral and the valuation of our derivatives. We would not be required to post additional collateral to the counterparties with whom we were in a net liability position at December 31, 2020, if our credit ratings were to decline, since we fully collateralize without regard to credit ratings with these counterparties. In addition, as our collateral agreements include legal right of offset provisions, collateral amounts are netted against derivative assets or derivative liabilities.

We categorize derivatives as those designated for hedge accounting (“hedge accounting derivatives”) and those that are not designated for hedge accounting (“non-hedge accounting derivatives”). At the inception of a derivative contract, we may elect to designate a derivative as a hedge accounting derivative.

We may also, from time-to-time, issue debt which can be characterized as hybrid financial instruments. These obligations often contain an embedded derivative which may require bifurcation. Changes in the fair value of the bifurcated embedded derivative are reported in Interest expense in our Consolidated Statements of Income. As of December 31, ~~2017 and March 31, 2017,~~2020, we had no ~~outstanding embedded derivatives that are required to be bifurcated.~~ hedge accounting derivatives.

Refer to Note ~~1 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements in our Form 10-K for the fiscal year ended March 31, 2017, and Note 7~~6 – Derivatives, Hedging Activities and Interest Expense of the Notes to Consolidated Financial ~~Statements in this Form 10-Q for additional information.~~Statements.

The following table summarizes our derivative assets and liabilities, which are included in Other assets and Other liabilities in our Consolidated Balance Sheets:

	December 31,			March 31,			December 31,			March 31,
(Dollars in millions)	2017			2017			2020			2020
Gross derivatives assets, net of credit valuation adjustment	$	940		$	599		$	2,030		$	1,437
Less: Counterparty netting and collateral		(862	)		(548	)
Less: Counterparty netting								(794	)		(966	)
Less: Collateral held								(1,176	)		(420	)
Derivative assets, net	$	78		$	51		$	60		$	51

Gross derivative liabilities, net of credit valuation adjustment	$	575		$	1,453		$	1,470		$	3,116
Less: Counterparty netting and collateral		(575	)		(1,407	)
Less: Counterparty netting								(794	)		(966	)
Less: Collateral posted								(652	)		(2,105	)
Derivative liabilities, net	$	-		$	46		$	24		$	45

Collateral represents cash received or deposited under reciprocal arrangements that we have entered into with our derivative counterparties. As of December 31, ~~2017,~~2020, we ~~held collateral of $465 million, which offset derivative assets, and we posted collateral of $178 million, which offset derivative liabilities. We also~~ held excess collateral of $4$12 million ~~that~~which we did not use to offset derivative assets, and we posted excess collateral of ~~$42~~$1 million ~~that~~which we did not use to offset derivative liabilities. As of March 31, ~~2017,~~2020, we ~~held collateral of $154 million, that offset derivative assets, and we posted collateral of $1,013 million that offset derivative liabilities. We also~~ held excess collateral of $5$10 million ~~that~~which we did not use to offset derivative assets, and we posted excess collateral of $5$1 million ~~that~~which we did not use to offset derivative liabilities.

~~Derivative Counterparty Credit Risk~~In July 2017, the U.K. Financial Conduct Authority, which regulates the London Inter-bank Offered Rate (“LIBOR”), announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after calendar year 2021. We have exposures to LIBOR-based financial instruments, including through our dealer financing activities, derivative contracts, secured and unsecured debt, and investment securities. 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, to assess, monitor and mitigate risks associated with the expected discontinuation of LIBOR, to achieve operational readiness and engage impacted borrowers and counterparties in connection with the transition to ARRs. Our efforts under this initiative include monitoring developments and the usage of ARRs, monitoring the regulatory and financial reporting guidance, as well as reviewing and updating current legal contracts, internal systems and processes to accommodate the use of ARRs. For example, we continue to evaluate the use of SOFR, among other alternatives and actions, as a potential alternative reference rate to LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed purchase transactions. While we have successfully attracted market support for certain of our SOFR debt issuances, at this time it is not possible to predict whether SOFR will be the primary, or sole, LIBOR replacement index.

We ~~manage derivative counterparty credit risk by maintaining policies for entering into derivative contracts, exercising our rights under our derivative contracts, requiring~~are also actively assessing how the ~~posting~~discontinuation of ~~collateral~~LIBOR could impact accounting and ~~actively monitoring our exposure~~financial reporting. For example, we plan to ~~counterparties.~~adopt ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting, on April 1, 2021 as further discussed in Note 1 to the Consolidated Financial Statements.

~~All~~Refer to Part I, Item 1A. Risk Factors – “Our results of ~~our derivative counterparties to which we had credit exposure at December 31, 2017 were assigned investment grade ratings by a credit rating organization. Our counterparty credit risk could~~operations, financial condition and cash flows may be adversely affected by ~~deterioration of the global economy~~changes in interest rates, foreign currency exchange rates and ~~financial distress in the banking industry.~~

Our International Swaps and Derivatives Association (“ISDA”) Master Agreements contain reciprocal collateral arrangements which help mitigate our exposure to the credit risk associated with our counterparties. As of December 31, 2017, we have daily valuation and collateral exchange arrangements with all of our counterparties. Our collateral agreements with substantially all our counterparties include a zero threshold, full collateralization requirement, which has significantly reduced counterparty credit risk exposure. Under our ISDA Master Agreements, cash is the only permissible form of collateral. Neither we nor our counterparties are required to hold collateral in a segregated account. Our collateral agreements include legal right of offset provisions, pursuant to which collateral amounts are netted against derivative assets or derivative liabilities, the net amount of which is included in Other assets or Other liabilities in our Consolidated Balance Sheets.

~~In addition, many of our ISDA Master Agreements contain reciprocal ratings triggers providing either party with an option to terminate the agreement and related transactions at~~ market ~~value in the event of a ratings downgrade below a specified threshold. Refer to “Part I. Item 1A. Risk Factors”~~prices” in our fiscal ~~2017~~2020 Form 10-K for further discussion.

~~A summary of our net counterparty credit exposure by credit rating (net of collateral held) is presented below:~~

We exclude from the table above credit valuation adjustments of $2 million as of December 31, 2017 and March 31, 2017 related to non-performance risk of our counterparties. All derivative credit valuation adjustments are recorded in Interest expense in our Consolidated Statements of Income.

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

As a result of the April 1, 2020 adoption of ASU 2016-13, Credit Losses – Measurement of Credit Losses on Financial Instruments, the incurred loss impairment method was replaced with a new impairment model that reflects lifetime expected losses. As such, we are updating the Critical Accounting Estimate disclosed in our fiscal 2020 Form 10-K as follows:

We maintain an allowance for credit losses to cover lifetime expected credit losses as of the balance sheet date on our earning assets resulting from the failure of customers or dealers to make required payments. For evaluation purposes, exposures to credit losses are segmented into the two primary categories of “consumer” and “dealer”. Our consumer portfolio consists, for accounting purposes, of our retail loan portfolio segment which are characterized by smaller contract balances than our dealer portfolio. Our dealer portfolio consists, for accounting purposes, of our dealer products portfolio segment. The overall allowance is evaluated at least quarterly, considering a variety of assumptions and factors to determine whether reserves are considered adequate to cover lifetime expected credit losses as of the balance sheet date. For further discussion of the accounting treatment of our allowance for credit losses, refer to Note 5 – Allowance for Credit Losses of the Notes to Consolidated Financial Statements.

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

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

The assumptions used in evaluating our exposure to credit losses involve estimates and significant judgment. The majority of our credit losses are related to our consumer portfolio. Holding other estimates constant, a 10 percent increase or decrease in the assumptions used to derive probability of default and loss given default would have resulted in a change in the allowance for credit losses of $105 million as December 31, 2020.

TMCC has guaranteed the payments of principal and interest with respect to the bond obligations that were issued by Putnam County, West Virginia and Gibson County, Indiana to finance the construction of pollution control facilities at manufacturing plants of certain TMCC affiliates. Refer to Note 129 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for further discussion.

A description of our lending commitments is included under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Off-Balance Sheet Arrangements” and Note 1512 - Related Party Transactions of the Notes to Consolidated Financial Statements in our fiscal ~~2017~~2020 Form 10-K, as well as ~~above~~ in Note 129 - Commitments and Contingencies of the Notes to Consolidated Financial Statements.

Refer to Note 129 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for a description of agreements containing indemnification provisions.

ITEM 3. QUANTITATIVE AND ~~QUALITATI~~VEQUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (the principal executive ~~officer and principal financial~~ officer) and Chief ~~Accounting~~Financial Officer (the principal ~~accounting~~financial officer), of the effectiveness of our “disclosure controls and procedures” as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on this evaluation, the Chief Executive Officer (“CEO”) and Chief ~~Accounting~~Financial Officer (“~~CAO”~~CFO”) concluded that the disclosure controls and procedures were effective as of December 31, ~~2017,~~2020, to ensure that information required to be disclosed in reports filed under the Exchange Act was recorded, processed, summarized and reported within the time periods specified by the SEC’s rules, regulations, and forms and that such information is accumulated and communicated to our CEO and ~~CAO,~~CFO, as appropriate, to allow timely decisions regarding required disclosures.

There have been no changes in our internal control over financial reporting that occurred during the three months ended December 31, ~~2017,~~2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~Various~~For a discussion of legal ~~actions, governmental~~ proceedings, and other claims are pending or may be instituted or asserted in the future against us with respect to matters arising in the ordinary course of business. Certain of these actions are or purport to be class action suits, seeking sizeable damages and/or changes in our business operations, policies and practices. Certain of these actions are similar to suits that have been filed against other financial institutions and captive finance companies. We perform periodic reviews of pending claims and actions to determine the probability of adverse verdicts and resulting amounts of liability. We establish accruals for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. When we are able, we also determine estimates of reasonably possible loss or range of loss, whether in excess of any related accrued liability or where there is no accrued liability. Refer tosee “Part I. Financial Information – Item 1. Financial Statements - Note 129 – Commitments and Contingencies of the Notes to Consolidated Financial ~~Statements. Given the inherent uncertainty associated with legal matters, the actual costs of resolving legal claims~~Statements – Litigation and associated costs of defense may be substantially higher or lower than the amounts for which accruals have been established. Based on available information and established accruals, we do not believe it is reasonably possible that the results of these proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition or results of operations.Governmental Proceedings.”

There are no material changes from the risk factors set forth under “Item 1A. Risk Factors” in our fiscal ~~2017~~2020 Form 10-K.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

California		95-3775816
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6565 Headquarters Drive Plano, Texas		75024
(Address of principal executive offices)		(Zip Code)

Large accelerated filer		☐		Accelerated filer	☐
Non-accelerated filer		☒		Smaller reporting company	☐

~~Non-accelerated filer~~	☒Emerging growth company		~~Smaller reporting company~~	☐

~~Emerging growth company~~	☐

INDEX
PART I	3
Item 1. Financial Statements	3
Consolidated Statements of Income	3
Consolidated Statements of Comprehensive Income	3
Consolidated Balance Sheets	4
Consolidated Statements of Shareholder’s Equity	5
Consolidated Statements of Cash Flows	6
Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	4544
Item 3. Quantitative and Qualitative Disclosures About Market Risk	7176
Item 4. Controls and Procedures	7176
PART II	7277
Item 1. Legal Proceedings	7277
Item 1A. Risk Factors	7277
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	7277
Item 3. Defaults Upon Senior Securities	7277
Item 4. Mine Safety Disclosures	7277
Item 5. Other Information	7277
Item 6. Exhibits	7278
~~Exhibit Index~~Signatures	73
~~Signatures~~	7579

	Retail loan
	March 31, 2020
Aging of finance receivables:
Current	$	56,064
30-59 days past due		717
60-89 days past due		203
90 days or greater past due		104
Total	$	57,088

	March 31, 2020
	30 - 59 Days past due		60 - 89 Days past due		90 Days or greater past due		Total Past due		Current		Total Finance receivables		90 Days or greater past due and accruing
Retail loan	$	717	$	203	$	104	$	1,024	$	56,064	$	57,088	$	66
Wholesale		0		0		0		0		9,826		9,826		0
Real estate		0		0		1		1		4,627		4,628		0
Working capital		0		0		0		0		3,419		3,419		0
Total	$	717	$	203	$	105	$	1,025	$	73,936	$	74,961	$	66

	Three Months Ended December 31, 2017
															Total net
												Derivative			assets
	Available-for-sale securities											instruments, net			(liabilities)

									Total
	Corporate		Mortgage-			Asset-			available-			Interest
	debt		backed			backed			for-sale			rate
	securities		securities			securities			securities			swaps
Fair value, October 1, 2017	$	8	$	40		$	36		$	84		$	(12	)	$	72
Total gains (losses)
Included in earnings		-		-			-			-			6			6
Included in other comprehensive income		-		-			(1	)		(1	)		-			(1	)
Purchases, issuances, sales, and settlements
Purchases		-		-			10			10			-			10
Issuances		-		-			-			-			-			-
Sales		-		-			-			-			-			-
Settlements		-		(4	)		(7	)		(11	)		4			(7	)
Transfers in to Level 3		-		-			-			-			-			-
Transfers out of Level 3		-		-			-			-			-			-
Fair value, December 31, 2017	$	8	$	36		$	38		$	82		$	(2	)	$	80
The amount of total gains (losses) included in earnings attributable to assets held at the reporting date												$	6		$	6

	Nine Months Ended December 31, 2016
																							Total net
																							assets
	Available-for-sale securities													Derivative instruments, net									(liabilities)

	U.S.										Total									Total
	government		Corporate		Mortgage-			Asset-			available-			Interest			Foreign			derivative
	and agency		debt		backed			backed			for-sale			rate			currency			assets
	obligations		securities		securities			securities			securities			swaps			swaps			(liabilities)
Fair value, April 1, 2016	$	2	$	7	$	45		$	37		$	91		$	39		$	(14	)	$	25		$	116
Total gains (losses)
Included in earnings		-		-		-			-			-			(27	)		(49	)		(76	)		(76	)
Included in other comprehensive income		-		1		-			1			2			-			-			-			2
Purchases, issuances, sales, and settlements
Purchases		-		-		-			3			3			-			-			-			3
Issuances		-		-		-			-			-			-			-			-			-
Sales		-		-		-			-			-			-			-			-			-
Settlements		-		-		(9	)		(11	)		(20	)		(23	)		(6	)		(29	)		(49	)
Transfers in to Level 3		-		-		-			-			-			-			-			-			-
Transfers out of Level 3		-		-		-			-			-			-			-			-			-
Fair value, December 31, 2016	$	2	$	8	$	36		$	30		$	76		$	(11	)	$	(69	)	$	(80	)	$	(4	)
The amount of total gains (losses) included in earnings attributable to assets held at the reporting date														$	(27	)	$	(49	)	$	(76	)	$	(76	)

	Impaired								Individually Evaluated
	Finance Receivables				Unpaid Principal Balance				Allowance
	December 31,		March 31,		December 31,		March 31,		December 31,		March 31,
	2017		2017		2017		2017		2017		2017

Impaired account balances individually evaluated for impairment with an allowance:
Wholesale	$	111	$	93	$	111	$	93	$	16	$	12
Real estate		80		94		80		94		3		12
Working capital		37		31		37		31		33		9
Total	$	228	$	218	$	228	$	218	$	52	$	33

Impaired account balances individually evaluated for impairment without an allowance:
Wholesale	$	74	$	134	$	74	$	134
Real estate		134		105		134		105
Working capital		22		-		22		-
Total	$	230	$	239	$	230	$	239

Impaired account balances aggregated and evaluated for impairment:
Retail loan	$	222	$	220	$	220	$	217

Total impaired account balances:
Retail loan	$	222	$	220	$	220	$	217
Wholesale		185		227		185		227
Real estate		214		199		214		199
Working capital		59		31		59		31
Total	$	680	$	677	$	678	$	674

	Average Impaired Finance Receivables								Interest Income Recognized
	Three Months Ended December 31,				Nine Months Ended December 31,				Three Months Ended December 31,				Nine Months Ended December 31,
	2017		2016		2017		2016		2017		2016		2017		2016

Impaired account balances individually evaluated for impairment with an allowance:
Wholesale	$	93	$	78	$	101	$	73	$	1	$	-	$	2	$	1
Real estate		84		89		89		97		-		1		2		2
Working capital		41		33		39		34		-		-		1		1
Total	$	218	$	200	$	229	$	204	$	1	$	1	$	5	$	4

Impaired account balances individually evaluated for impairment without an allowance:
Wholesale	$	86	$	125	$	110	$	158	$	1	$	1	$	3	$	3
Real estate		116		112		108		107		2		1		4		4
Working capital		11		-		6		1		1		-		1		-
Total	$	213	$	237	$	224	$	266	$	4	$	2	$	8	$	7

Impaired account balances aggregated and evaluated for impairment:
Retail loan	$	221	$	221	$	222	$	223	$	3	$	4	$	11	$	12

Total impaired account balances:
Retail loan	$	221	$	221	$	222	$	223	$	3	$	4	$	11	$	12
Wholesale		179		203		211		231		2		1		5		4
Real estate		200		201		197		204		2		2		6		6
Working capital		52		33		45		35		1		-		2		1
Total	$	652	$	658	$	675	$	693	$	8	$	7	$	24	$	23

	Three months ended December 31, 2019 ¹
Allowance for Credit Losses for Finance Receivables:	Retail Loan			Dealer Products		Total
Beginning balance, October 1, 2019	$	317		$	188	$	505
Charge-offs		(117	)		0		(117	)
Recoveries		12			0		12
Provision for credit losses		116			7		123
Ending balance, December 31, 2019	$	328		$	195	$	523


	Nine months ended December 31, 2019 ¹
Allowance for Credit Losses for Finance Receivables:	Retail loan			Dealer products		Total
Beginning balance, April 1, 2019	$	304		$	195	$	499
Charge-offs		(269	)		0		(269	)
Recoveries		39			0		39
Provision for credit losses		254			0		254
Ending balance, December 31, 2019	$	328		$	195	$	523

	December 31, 2017
	Hedge accounting				Non-hedge
	derivatives				accounting derivatives				Total
			Fair				Fair				Fair
	Notional		value		Notional		value		Notional		value
Other assets:
Interest rate swaps	$	-	$	-	$	73,683	$	563	$	73,683	$	563
Interest rate floors		-		-		847		1		847		1
Foreign currency swaps		271		19		7,373		357		7,644		376
Total	$	271	$	19	$	81,903	$	921	$	82,174	$	940

Counterparty netting and collateral held												(862	)
Carrying value of derivative contracts – Other assets											$	78

Other liabilities:
Interest rate swaps	$	-	$	-	$	37,809	$	290	$	37,809	$	290
Foreign currency swaps		93		3		5,773		282		5,866		285
Total	$	93	$	3	$	43,582	$	572	$	43,675	$	575

Counterparty netting and collateral posted												(575	)
Carrying value of derivative contracts – Other liabilities											$	-

					Weighted average
					contractual interest rates
	December 31,		March 31,		December 31,			March 31,
	2017		2017		2017			2017
Commercial paper	$	28,041	$	26,632		1.44	%		1.11	%
Unsecured notes and loans payable		56,742		57,282		2.03	%		1.91	%
Secured notes and loans payable		13,714		14,319		1.70	%		1.32	%
Total debt	$	98,497	$	98,233		1.82	%		1.60	%

	December 31,
Years ending March 31,	2020
2021	$	6
2022		26
2023		18
2024		16
2025		13
Thereafter		68
Total	$	147
Present value discount		(17	)
Total operating lease liability	$	130

	December 31,
	2020
ROU assets	$	123
Weighted average remaining lease term (in years)	8.68
Weighted average discount rate	2.77%

Supplemental cash flow information
Cash paid for amounts included in the measurement of lease liabilities - operating cash flows	$	16
Supplemental non-cash information
ROU assets obtained in exchange for operating lease obligations	$	23

	Future minimum
Years ending March 31,	lease payments
2018	$	6
2019		24
2020		20
2021		16
2022		18
Thereafter		83
Total	$	167

	December 31, 2020
	Retail			Lease
Current or paid-in-full		90.9	%		94.4	%
30-59 Days past due		4.6	%		2.6	%
60 or more days past due		2.2	%		1.1	%
Charged-off		2.3	%		1.9	%
Total		100.0	%		100.0	%

(Dollars in millions)	Commercial paper¹			MTNs			EMTNs			Other			Total Unsecured notes and loans payable
Balance at March 31, 2020	$	27,040		$	33,658		$	17,074		$	5,705		$	83,477
Issuances		-			17,351			1,091			5,281			23,723
Maturities and terminations		(8,038	)		(9,450	)		(1,966	)		(2,110	)		(21,564	)
Non-cash changes in foreign currency rates		-			-			1,805			63			1,868
Balance at December 31, 2020	$	19,002		$	41,559		$	18,004		$	8,939		$	87,504

(Dollars in millions)	U.S. medium term notes ("MTNs") and domestic bonds				Euro MTNs ("EMTNs")				Other				Total unsecured notes and loans payable⁵
Balance at March 31, 2017¹	$	35,533			$	14,686			$	7,202			$	57,421
Issuances		6,293		²		2,423		³		1,575		⁴		10,291
Maturities and terminations		(6,421	)			(3,362	)			(2,497	)			(12,280	)
Non-cash changes in foreign currency rates		-				1,530				7				1,537
Balance at December 31, 2017¹	$	35,405			$	15,277			$	6,287			$	56,969

(Dollars in millions)	Secured notes and loans payable
Balance at March 31, 2020	$	14,597
Issuances		15,613
Maturities and terminations		(8,451	)
Balance at December 31, 2020	$	21,759

Exhibit Number	Description	Method of Filing

3.1	Restated Articles of Incorporation filed with the California Secretary of State on April 1, 2010	(1)

3.2	Bylaws as amended through December 8, 2000	(2)

10.1	364-day syndicated credit facility pursuant to a 364 Day Credit Agreement, dated as of November 13, 2017 (the “364 Day Credit Agreement”), among Toyota Motor Credit Corporation (“TMCC”), Toyota Motor Finance (NETHERLANDS) B.V. (“TMFNL”), Toyota Financial Services (UK) PLC (“TFS(UK)”), Toyota Leasing GMBH (“TLG”), Toyota Credit De Puerto Rico Corp. (“TCPR”), Toyota Credit Canada Inc. (“TCCI”), Toyota Kreditbank GMBH (“TKG”), and Toyota Finance Australia Limited (“TFA”), as Borrowers, the lenders party thereto, and BNP Paribas, as Administrative Agent, Swing Line Agent and Swing Line Lender, BNP Paribas Securities Corp. (“BNPP Securities”), Citigroup Global Markets Inc. (“CGMI”), JPMorgan Chase Bank, N.A. (“JPMorgan”), Merrill Lynch, Pierce, Fenner & Smith Incorporated ( “MLPFS”) and The Bank of Tokyo-Mitsubishi UFJ, LTD., a member of MUFG, a global financial group (“MUFG”), as Joint Lead Arrangers and Joint Book Managers, Citibank, N.A (“Citibank”), JPMorgan and Bank of America, N.A. (“Bank of America”), as Swing Line Lenders, and Citibank, Bank of America, JPMorgan and MUFG, as Syndication Agents.	(3)

10.2	Three Year syndicated credit facility pursuant to a Three Year Credit Agreement, dated as of November 13, 2017 (the “Three Year Credit Agreement”), among TMCC, TMFNL, TFS(UK), TLG, TCPR, TCCI, TKG and TFA, as Borrowers, the lenders party thereto, and BNP Paribas, as Administrative Agent, Swing Line Agent and Swing Line Lender, BNPP Securities, CGMI, JPMorgan, MLPFS, and MUFG, as Joint Lead Arrangers and Joint Book Managers, Citibank, JPMorgan and Bank of America, as Swing Line Lenders, and Citibank, Bank of America, JPMorgan and MUFG, as Syndication Agents.	(4)

10.3	Five Year syndicated credit facility pursuant to a Five Year Credit Agreement, dated as of November 13, 2017 (the “Five Year Credit Agreement”, and collectively with the 364 Day Credit Agreement and the Three Year Credit Agreement, the “Credit Agreements”), among TMCC, TMFNL, TFS(UK), TLG, TCPR, TCCI, TKG and TFA, as Borrowers, the lenders party thereto, and BNP Paribas, as Administrative Agent, Swing Line Agent and Swing Line Lender, BNPP Securities, CGMI, JPMorgan, MLPFS, and MUFG, as Joint Lead Arrangers and Joint Book Managers, Citibank, JPMorgan and Bank of America, as Swing Line Lenders, and Citibank, Bank of America, JPMorgan and MUFG, as Syndication Agents.	(5)


~~Exhibit Number~~	~~Description~~	~~Method of Filing~~
~~12.1~~	~~Calculation of ratio of earnings to fixed charges~~	~~Filed Herewith~~

~~31.1~~	~~Certification of Chief Executive Officer~~	~~Filed Herewith~~

~~31.2~~	~~Certification of Chief Accounting Officer~~	~~Filed Herewith~~

~~32.1~~	~~Certification pursuant to 18 U.S.C. Section 1350~~	~~Furnished Herewith~~

~~32.2~~	~~Certification pursuant to 18 U.S.C. Section 1350~~	~~Furnished Herewith~~

~~101.INS~~	~~XBRL instance document~~	~~Filed Herewith~~

~~101.CAL~~	~~XBRL taxonomy extension calculation linkbase document~~	~~Filed Herewith~~

~~101.DEF~~	~~XBRL taxonomy extension definition linkbase document~~	~~Filed Herewith~~

~~101.LAB~~	~~XBRL taxonomy extension labels linkbase document~~	~~Filed Herewith~~

~~101.PRE~~	~~XBRL taxonomy extension presentation linkbase document~~	~~Filed Herewith~~

~~101.SCH~~	~~XBRL taxonomy extension schema document~~	~~Filed Herewith~~

	TOYOTA MOTOR CREDIT CORPORATION
	(Registrant)

Date: February ~~13, 2018~~10, 2021	By	/s/ ~~Michael Groff~~Mark S. Templin
		~~Michael Groff~~Mark S. Templin
		President and Chief Executive Officer
		(Principal Executive ~~Officer and Principal Financial~~ Officer)

Date: February ~~13, 2018~~10, 2021	By	/s/ ~~Ron Chu~~Scott Cooke
		~~Ron Chu~~Scott Cooke
		Group Vice President and Chief ~~Accounting~~Financial Officer (Principal Financial Officer)