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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31 2016, 2023

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number 1-9961

TOYOTA MOTOR CREDIT CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (310) 468-1310(469) 486-9300

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

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

(Title (Title of class)None

None

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

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o☐Nox☒

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. Yesx☒ No o☐

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). Yesx☒ No o☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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

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

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

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

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

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

As of April 30, 2016,2023, the number of outstanding shares of capital stock, no par value per share, of the registrant was 91,500, all of which shares were held by Toyota Financial Services AmericasInternational Corporation.

Documents incorporated by reference: None

Reduced Disclosure Format

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

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TOYOTA MOTOR CREDIT CORPORATION

FORM 10-K

For the fiscal year ended March 31, 20162023

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PARTPART I

ITEM 1. BUSINESS

GENERAL

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

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

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

We primarilyIn fiscal 2021, we announced the restructuring of our customer service operations to better serve our customers by relocating and streamlining the customer service operation and investing in new technology. The restructuring is substantially complete, and our field operations now include three regional experience centers (each, an "Experience Center" and together the "Experience Centers") located in Chandler, Arizona (serving the West region), Plano, Texas (serving the Central region) and Alpharetta, Georgia (serving the East region). Each respective Experience Center maintains dealer service functions and customer service functions.

The dealer service functions in the regional Experience Centers acquire retail contracts,and lease contracts, and insurance contracts from dealers, through 29and market our voluntary protection products to dealers. The dealer saleslending function is centralized at the Central region Experience Center and services offices (“DSSOs”) and service the contracts through three regional customer service centers (“CSCs”) located throughout the U.S.  The DSSOs primarily supportsupports the dealers by providing services such as acquiring retailwholesale financing and lease contracts, financing inventories, and financing other dealer financing activities and requirements such as business acquisitions, facilities refurbishment, real estate purchases, and working capital requirements.

The DSSOs also provide support for our insurance products soldcustomer service functions in the U.S. The CSCsregional experience centers support customer account servicing functions such as collections, lease terminations, and administration of both retail and lease contract customer accounts. The Central region CSCRegion Experience Center also supports insurancevoluntary protection operations by providing agreementcontract and claims administrative services.

On October 1, 2015,In fiscal 2022, TMCC announced, in furtherance of its private label financial services initiative for third party automotive and mobility companies, that we sold certainentered into a nonbinding letter of intent with Great American Outdoors Group LLC, the parent company of Bass Pro Shops, Cabela’s and the White River Marine Group (“Bass Pro Shops”) to provide private label financial services for Bass Pro Shop’s boats, all-terrain vehicle products, and other mobility products. The Company began to provide inventory financing for Bass Pro Shops, its affiliates, and authorized independent dealers in fiscal 2023, with additional private label services, including consumer financing and voluntary protection products and services to be added over time. We are leveraging our existing processes and personnel to originate and service the new assets, and liabilities relatedwe expect to our industrial equipment retail, lease and dealer portfolios.  Refermake certain technology investments to Note 1 – Summarysupport the Bass Pro Shops program.

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Table of Significant Accounting Policies of the Notes to Consolidated Financial Statements for further discussion.  In addition, TMC has announced that vehicles currently manufactured under the Scion brand will transition to the Toyota brand in August 2016.
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Public FilingsAvailable Information

Our filings with the Securities and Exchange Commission (“SEC”) may be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our filings may also be found by accessing the SEC website (http:(https://www.sec.gov)www.sec.gov).  The SEC website contains reports, registration statements, and other information regarding issuers that file electronically with the SEC. A link to the SEC website and certain of our SEC filings is containedare available free of charge on our website located at: www.toyotafinancial.com under “Investor Relations, SEC Filings”.  We will make available, without charge, electronic or paper copies of our filings upon written request to:

Toyota Motor Credit Corporation

19001 South Western Avenue

Torrance, CA 90501

Attention: Corporate Communications

Investors and others should note that we announce material financial information using the investor relations section of our corporate website (http://www.toyotafinancial.com).website. We use our website, press releases, as well as social media to communicate with our investors, customers and the general public about our company, our services and other issues. While not all of the information that we post on our website or on social media is of a material nature, some information could be material. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the investor relations section of our website and the Toyota Motor Credit Corporationour Twitter feed (http://www.twitter.com/toyotafinancial).  Any changes to the social media channels we use for this purpose will be posted on the investor relations section of our corporate website.feed. We are not incorporating any of the information set forth on our website or on social media channels into this filing on Form 10-K.

Seasonality

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

Geographic Distribution

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As of March 31, 2016, approximately 22 percent of retail and lease contracts were concentrated in California, 11 percent in Texas, 8 percent in New York and 5 percent in New Jersey.  As of March 31, 2016, approximately 26 percent of insurance policies and contracts were concentrated in California, 7 percent in New York and 5 percent in New Jersey.  Any material adverse changes to the economies or applicable laws in these states could have an adverse effect on our financial condition and results of operations.

FINANCE OPERATIONS

We acquire retail and lease contracts from, and provide financing and certain other financial products and services to authorized Toyota and Lexus dealers and, to a lesser extent, other domestic and import franchise dealers and their customers in the U.S. and Puerto Rico.  The table below summarizes our financing revenues, net of depreciation by primary product.

Retail and Lease Financing

Pricing

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

Underwriting

We acquire new and used retail and lease contracts primarily from Toyota and Lexus dealers.  Dealers transmit customer credit applications electronically through our online system for contract acquisition. The customer may submit a credit application directly to our website, in which case, the credit application is sent to the dealer of the customer’s choice or to a dealer thatand is near the customer’s residence.  In addition, through our website, customers are able to request a pre-qualification letterconsidered by us for presentation to the dealer specifying the maximum amount that may be financed.preapproval. Upon receipt of the credit application, our loan origination system automatically requests a credit bureau report from one of the major credit bureaus. We use a proprietary credit scoring system to evaluate an applicant’s risk profile. Factors used by the credit scoring system (based on the applicant’s credit history) include the terms of the contract term, ability to pay, debt ratios, amount financed relative to the value of the vehicle to be financed, and credit bureau attributes such as number of trade lines, utilization ratio and number of credit inquiries.

Credit applications are subject to systematic evaluation. Our loan origination system evaluates each credit application to determine if it qualifies for automatic approval or decline without manual intervention (“auto-decisioning”) which approves only the applicant’s credit eligibility.  The origination system distinguishes this type of applicant byusing specific requirements, including internal credit score and then approves theother application without manual intervention.  The origination system is programmed to review application information for purchase policy and legal compliance.characteristics. Typically, the highest quality credit applications are approved automatically.  automatically, and the lowest quality credit applications are automatically declined.

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

Completion of the financing process is dependent upon whether the transaction is a retail or lease contract. For a retail contract, we acquire the retail contract from the dealer and obtain a security interest in the vehicle. We perfect our security interests in the financed retail vehicles through the applicable state department of motor vehicles (or equivalent) with certificate of title filings or with Uniform Commercial Code (“UCC”) filings, as appropriate. For a lease contract, except as described below under “Servicing”, we acquire the lease contract and concurrently assume ownership of the leased vehicle. We view our lease arrangements, including our operating leases,have the right to pursue collection actions against a delinquent customer, as financing transactionswell as we do not re-lease therepossess a vehicle upon default or lease termination.if a customer fails to meet contractual obligations.

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

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In partnership with Subvention and Incentive Programs

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

Servicing

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

We use an online collection and auto dialer system that prioritizes collection efforts and signals our collections personnel to make telephone contact with delinquent customers. We also use a behavioral-based collection strategy to minimize risk of loss and employ various collection methods.  When contracts are acquired, we perfect our security interests in the financed retail vehicles through state department of motor vehicles (or equivalent) certificate of title filings or through Uniform Commercial Code (“UCC”) filings, as appropriate.  We have the right to repossess a vehicle if a customer fails to meet contractual obligations and the right to pursue collection actions against a delinquent customer.

We use an online collection and auto dialer system that prioritizes collection efforts, generates past due notices, and signals our collections personnel to make telephone contact with delinquent customers.  Collection efforts aremethods based on behavioral scoring models (which analyze borrowers’ past payment performance, vehicle valuation and credit bureau scores to predict future payment behavior). We generally determine whether to commence repossession efforts after an account is 60approximately 80 days past due. Repossessed vehicles are held in inventoryfor sale to comply with statutory requirements and then sold at private auctions unless public auctions are required by applicablestate law. Any unpaid amounts remaining after salethe repossessed vehicle is sold or after taking the full balance charge-off are pursued by us to the extent practical and legally permissible. Any surplus amounts remaining after salerecovery fees, disposition costs, and other expenses have been paid, and after any reserve charge-backs, and/or dealer guarantees and optional product refunds have been credited to the customer’s account, are refunded to the customers. Collections of post-sale deficiencies and refundsfull-balance charge-offs are managed by third-party vendors and the Experience Centers. We charge-off uncollectible portions of surpluses are administered at a centralized facility.  We charge off the amount we do not expect to collectaccounts when payments due are no longer expectedan account is deemed to be receiveduncollectible or when the account isbalance becomes 120 days contractually delinquent, whichever occurs first. However, the Experience Centers will continue to collect or pursue recovery of the vehicle up to 190 days after the account is past due.

We may, in accordance with our customary servicing procedures, offer rebates or waive any prepayment charge, late payment charge, or any other fees that may be collected in the ordinary course of servicing the retail and lease contracts.consumer portfolio. In addition, we may defer a customer’s obligation to make a payment by extending the contract term. Refer to Item 1A. Risk Factors, “Industry and Business Risk”-“We face various risks related to health epidemics and other outbreaks, which have had and may continue to have material adverse effects on our business, financial condition, results of operations and cash flows”.

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

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

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

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Toyota Lease Trust, a Delaware business trust (the “Titling Trust”), acts as lessor and holds title to certain leased vehicles in specified states.the U.S. This arrangement was established to facilitate lease securitizations. We serviceTMCC services lease contracts acquired by the Titling Trust from Toyota, Lexus, and Lexus dealers in the same manner as lease contracts owned directly by us.  We hold an undivided trustprivate label dealers. TMCC holds a beneficial interest in certain lease contracts owned by the Titling Trust, and these lease contracts are included in Investments in operating leases, net on our lease assets.

Consolidated Balance Sheets. Refer to Note 5 – Investments in Operating Leases, NetRemarketing

At the end and Note 8 – Variable Interest Entities of the lease term, theNotes to Consolidated Financial Statements for further information.

Remarketing

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

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

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

Dealer Financing

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

Wholesale Financing

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

TMCCAdditionally, TMNA and TMS are parties to an agreement pursuant to which TMS will arrange for the repurchase of new Toyota, Lexus and Scion vehicles at the aggregate cost financedother manufacturers may be obligated by TMCC in the event of a dealer defaultapplicable law, or under wholesale financing.  TMCC is also party to similar agreements with other domesticus, to repurchase or to reassign new vehicle inventory we financed that meets certain mileage and import manufacturers.  In addition, wemodel year parameters, curtailing our risk. We also provide other types of wholesale financing to certain Toyota and Lexus dealers and other third parties, at the request of TMSTMNA or private Toyota distributors, and TMSTMNA or the applicable private distributor guarantees the payments by such borrowers.

Other Dealer Financing

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

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

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

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

Competition

INSURANCE OPERATIONS

TMCC markets its insurance productsWe operate in a highly competitive environment and compete with other financial institutions including national and regional commercial banks, credit unions, savings and loan associations, online banks, finance companies, and alternative financing sources. To a lesser extent, we compete with other automobile manufacturers’ affiliated finance companies that actively seek to purchase retail contracts through TMIS. The principal activities of TMIS include marketing, underwriting,Toyota, Lexus, and claims administrationprivate label dealers. We also compete with national and regional commercial banks and other automobile manufacturers’ affiliated finance companies for products that cover certain risksdealer financing. No single competitor is dominant in the industry. We compete primarily through service quality, our relationship with TMNA and third-party automotive and mobility companies to whom we provide financial services, and financing rates. We seek to provide exceptional customer service and competitive financing programs to our dealers and to their customers. Our affiliation with TMNA and relationships with third-party automotive and mobility companies to whom we provide financial services offers an advantage in providing financing or leasing of Toyota, Lexus, Scion and other domestic and import franchise dealers and their customers in the U.S.  TMIS also provides other coverage and related administrative services to certainprivate label vehicles.

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Table of our affiliates in the U.S.Contents

Gross revenues from insurance operations on a consolidated basis comprised 7 percent of total gross revenues for fiscal 2016, 8 percent for fiscal 2015 and 8 percent for fiscal 2014.VOLUNTARY PROTECTION OPERATIONS

Products and Services

TMIS offers variousvoluntary protection products and services on Toyota, Lexus, Scion and other domestic and import vehicles suchthat are primarily sold by dealers as vehicle service agreements, guaranteed autopart of the dealer’s sale of a vehicle. The majority of the voluntary protection agreements, prepaid maintenanceproducts offered by TMIS are not regulated as insurance products. However, certain states require the Company’s contracts excess wear and use agreements, and tire and wheel protection agreements.be backed by policies issued by a regulated insurance company. To satisfy the aforementioned requirement, TMIS utilizes its insurance company subsidiaries to underwrite certain risks. Vehicle service agreementscontracts offer vehicle owners and lessees mechanical breakdown protection for new and used vehicles secondary to the manufacturer’s new vehicle warranty. Guaranteed auto protection insurance and debt cancellation agreementscontracts provide coverage for a lease or retail contract deficiency balance in the event of a total loss or theft of the covered vehicle. Prepaid maintenance contracts provide maintenance services at manufacturer recommended intervals. Excess wear and use agreementscontracts are available on leases of Toyota, Lexus and Scion vehicles and protect against excess wear and use charges that may be assessed at lease termination. Tire and wheel protection agreementscontracts provide coverage in the event that a covered vehicle’s tires or wheels become damaged as a result of a road hazard or structural failure due to a defect in material or workmanship, to the extent not covered by the manufacturer or the tire distributor warranties.

Prior Certain tire and wheel protection contracts also cover expenses related either to March 1, 2014, Toyota, Lexus, and other domestic and importreplacing or reprogramming a vehicle dealers who elected to participatekey or vehicle key remote in the inventory insurance program obtainedevent of loss or damage. Key replacement protection contracts provide stand-alone coverage for inventory financed by TMCC through TMIS.  Beginning March 1, 2014, Toyota, Lexus, and other domestic and import dealers who electexpenses related either to participatereplacing or reprogramming a vehicle key or vehicle key remote in the inventoryevent of loss or damage. Used vehicle limited warranty contracts are included with the purchase of a used vehicle and provide for the repair or replacement of certain covered components that have mechanically failed on the covered used vehicle.

TMIS provides TMNA contractual indemnity insurance program obtain coverage for eligible vehicle inventory through a third party who cedes 100 percent of the business to TMIS.  TMIS continues to purchase third party reinsurance covering the excess of certain dollar maximums per occurrence and in the aggregate, the amount of which remains unchanged.  Through reinsurance, TMIS limits its exposure to losses by obtaining the right to reimbursement from the assuming company for the reinsured portion of losses.

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

Competition for the voluntary protection products is primarily from national and regional independent service contract providers. We compete primarily through service quality, our relationship with TMNA and third-party automotive and mobility companies to whom we provide financial services and product benefits. Our affiliation with TMNA provides property deductible reimbursement insurance to TMS and affiliates covering losses incurred under their primary policy.an advantage in selling our voluntary protection products.

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RELATIONSHIPS WITH AFFILIATES

Our businessTMCC is substantially dependent uponparty to agreements with TMNA and certain TMNA subsidiaries. For ease of reference herein, we refer solely to the saleparent entity, TMNA. As a result, all references to the agreements or activities of Toyota, LexusTMNA herein that are carried out by a TMNA subsidiary are deemed to also make reference to and Scion vehicles and our ability to offer competitive financing and insurance products ininclude the U.S.  TMS is the primary distributor of Toyota, Lexus and Scion vehicles in the U.S.  Automobiles and light-duty trucks sold by TMS totaled 2.5 million units for fiscal 2016 compared to 2.4 million units for fiscal 2015 and 2.2 million units for fiscal 2014.  Toyota, Lexus and Scion vehicles accounted for approximately 14 percent of all automobile and light-duty truck unit sales volume in the U.S. during fiscal 2016, compared to 15 percent during fiscal 2015 and 14 percent during fiscal 2014.applicable TMNA subsidiary.

TMSTMNA sponsors subvention, cash and contractual residual value support incentive programs on certain new and used Toyota and Lexus and Scion vehicles that result in reduced scheduled payments for qualified retail and lease customers.vehicles. The level of subventionincentive program activity varies based on TMSTMNA marketing strategies, economic conditions, vehicle inventory levels, and volume of vehicle sales.

TMCCTMNA may be obligated by applicable law, or under agreements with us, to repurchase or to reassign new vehicle inventory we financed that meets certain mileage and TMS are parties to a shared services agreement which covers certain technological and administrative services, such as information systems support, facilities, insurance coverage, and corporate services provided between the companies.  In addition, TMCC and TMS are parties to an agreement pursuant to which TMS will arrange for the repurchase of new Toyota, Lexus and Scion vehicles at the aggregate cost financed by TMCC in the event of a dealer default under wholesale financing.  In addition, wemodel year parameters. We also provide other types of financing to certain Toyota and Lexus dealers and other third parties at the request of TMSTMNA or private Toyota distributors, and TMSTMNA or the applicable private distributor guarantees the payments by such borrowers.

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

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

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

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

TMCC receives support from and TFSA are partiesprovides support to an expense reimbursement agreement.  Under the terms of the agreement, TMCC reimbursed certain expenses incurred by TFSA, the parent of TMCCTFSC and TFSB, with respect to costs related to TFSB’s credit card rewards program.  TFSB sold its credit card portfolio in October 2015 and no credit card rewards program costs have been incurred after such date.

Prior to January 1, 2015, our employees were generally eligible to participateother affiliates in the Toyota Motor Sales, U.S.A., Inc. Pension Plan sponsored by TMS.  Effective January 1, 2015, TMS-sponsored benefit pension plans were closed to employees first employed or reemployed on or after such date.  Employees meeting certain eligibility requirements may participate in the Toyota Motor Sales Savings Plan sponsored by TMSform of promissory notes and various health, lifeloan and other post-retirement benefits sponsored bycredit facility agreements, including a revolving credit facility with TMS as discussed further in Note 12 – Pension and Other Benefit Plans of the Notes to Consolidated Financial Statements.which may be used for general corporate purposes.

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

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

See Refer to Note 1512 – Related Party Transactions of the Notes to Consolidated Financial Statements for further information.

COMPETITION

We operate in a highly competitive environment and compete with other financial institutions including national and regional commercial banks, credit unions, savings and loan associations, and finance companies.  To a lesser extent, we compete with other automobile manufacturers’ affiliated finance companies that actively seek to purchase retail contracts through Toyota and Lexus dealers. We compete with national and regional commercial banks and other automobile manufacturers’ affiliated finance companies for dealer financing.  No single competitor is dominant in the industry.  We compete primarily through service quality, our relationship with TMS, and financing rates.  We seek to provide exceptional customer service and competitive financing programs to our dealers and to their customers.  Our affiliation with TMS offers an advantage in providing financing or leasing10

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Competition for the principal products and services provided through our insurance operations is primarily from national and regional independent service contract providers.  We compete primarily through service quality, our relationship with TMS and product benefits.  Our affiliation with TMS provides an advantage in selling our insurance products and services.

REGULATORY ENVIRONMENT

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

Federal Consumer Finance Regulation

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

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

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

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

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which was enacted in 2010, and its implementing regulations have had, and will likely continue to have, broad implications for the consumer financial services industry. The Consumer Financial Protection Bureau (“CFPB”), which was created by the Dodd-Frank Act, has broad regulatory,rulemaking, supervisory and enforcement authority over entities offering consumer financial services or products, including non-bank companies, such as TMCC (“Covered Entities”).

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

The CFPB’s supervisory authority permits it to examine Covered Entities for compliance with consumer financial protection laws and has authority to order remediation of violations in a number of ways, including imposing civil monetary penalties and requiring Covered Entities to provide customer restitution and to improve their compliance management systems. On August 31, 2015, we became subject to the CFPB’s supervisory authority when the CFPB’s final rule over “larger participants” in the auto finance industry took effect.  Such supervisory authority allows the CFPB to conduct comprehensive and rigorouslaws. These examinations to assess compliance with consumer financial protection laws, which could result in enforcement actions, regulatory fines and mandated changes to our business, products, policies and procedures.

In February 2016, the CFPB published a list of nine policy priorities it intends to focus its resources on over the next two years.  These priorities include, among others, initiation of the rulemaking process regarding debt collection practices that would apply to third-party collectors and first-party collectors, such as ourselves, and continued examination and investigation of, and potential rulemaking regarding, consumer credit reporting practices.  The timing and impact of these anticipated rules on our business remain uncertain.

In addition, the CFPB has increased scrutiny of the sale of certain ancillary or add-on products, including products similar to those we finance or sell through TMIS.  The CFPB has questioned such products’ value and how such products are marketed and sold.

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

CFPB supervision and enforcement actions, if any, may result in monetary penalties, increase our compliance costs, require changes in our business practices, affect our competitiveness, impair our profitability, harm our reputation or otherwise adversely affect our business.

The CFPB has focused on the area of auto finance, particularly with respect to indirect financing arrangements, dealer compensation and fair lending compliance.  In March 2013, the CFPB issued a bulletin stating that indirect auto lenders may be liable for violations under the Equal Credit Opportunity Act based on dealer-specific and portfolio-wide disparities on a prohibited basis.  According to the bulletin, these disparities result from allowing dealers to mark up the interest rate offered by the indirect auto lenders to the contract rate offered to consumers by the dealers.  In addition, the bulletin outlined steps that indirect auto lenders should take in order to comply with fair lending laws regarding dealer markup and compensation policies.

On February 2, 2016 (the “Effective Date”), we reached a settlement with the CFPB and the U.S. Department of Justice (collectively, the “Agencies”) related to the Agencies’ previously disclosed investigation of, and allegations regarding, our discretionary dealer compensation practices. We entered into a consent order with each of the Agencies to reflect this settlement. Pursuant to the consent orders, we agreed to implement a new dealer compensation policy within 180 days of the Effective Date, which includes, among other things, decreased limits on dealer participation caps of 125 basis points (1.25 percent) for contracts with terms of 60 months or less and 100 basis points (1.00 percent) for contracts with longer terms. In connection with the implementation of such policy, we agreed to maintain general compliance management systems reasonably designed to assure compliance with all relevant federal consumer financial laws.  Additionally, we agreed to pay an amount in consumer restitution that is not material to our financial condition or results of operations, and which is within the amount we had previously recorded as a loss contingency.  Compliance costs and the changes to our business practices required by the consent orders may adversely affect our future results of operations and financial condition, including our financing volume, market share, financing margins, and net earning assets.  liquidity.

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State Consumer Finance Regulation

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

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

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

Recently, stateState regulators are taking a more stringent approach to supervising and regulating providers of financial products and services subject to their jurisdiction. In addition, we are subject to governmental and regulatory examinations, information-gathering requests and investigations from time to time. We expect to continue to face greater supervisory scrutiny and enhanced supervisory requirements infor the foreseeable future.  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 (“GAP”) insurance products on retail contracts.  We are cooperating with these requests, but are unable to predict their outcome given their preliminary status.

Other Federal and International Regulation

The Dodd-Frank Act also established the Financial Stability Oversight Council (the “FSOC”), which may designate non-bank financial companies that pose systemic risk to the U.S. financial system (“SIFIs”) to be supervised by the Federal Reserve.  The Federal Reserve is required to establish and apply enhanced prudential standards to SIFIs, including capital, liquidity, counterparty exposure, resolution plan and overall risk management standards.  The FSOC uses a multi-stage review process to evaluate non-bank financial companies for potential designation and supervision by the Federal Reserve.  If we were designated for supervision after this multi-stage review process and any available appeal processes, we could experience increased compliance costs, the need to change our business practices, impairments to our profitability and competitiveness and other adverse effects on our business.

In addition to the FSOC process, certain parallel regulatory efforts are underway on an international level.  The Financial Stability Board (“FSB”) – an international standard-setting authority – has proposed a methodology for assessing and designating non-bank non-insurer global-SIFIs (“G-SIFIs”).  It is not yet clear when this framework will be finalized, what form a final framework may take, what policy measures will be recommended to apply to G-SIFIs, and whether TMCC or any of its affiliates would be designated and subject to additional regulatory requirements due to any potential G-SIFI designation.

In addition, certain financial companies with $50 billion or more in assets, which could include us, and FSOC-designated SIFIs are potentially subject to assessments under the new Orderly Liquidation Authority (“OLA”), which was created by the Dodd-Frank Act to provide the Federal Deposit Insurance Corporation (“FDIC”) with authority to resolve large, complex financial companies outside of the normal bankruptcy process.  Should a resolution under OLA occur and the proceeds from liquidation are not able to fully cover the costs of resolution, the FDIC is required to impose assessments in accordance with factors specified in the Dodd-Frank Act.  Therefore, the amount of any assessment that might result cannot currently be determined.  Further, we could be placed into resolution under OLA if the U.S. Treasury Secretary (in consultation with the President of the United States) were to determine that we were in default or danger of default and that our resolution under other applicable law (e.g., U.S. bankruptcy law) would have serious adverse effects on the financial stability of the United States.  Resolution under OLA could result in changes in our structure, organization, and funding, and the repudiation of certain of our contracts by the FDIC, as receiver under OLA.

Under the Volcker Rule, which was enacted as part of the Dodd-Frank Act, companies affiliated with U.S. insured depository institutions are generally prohibited from engaging in “proprietary trading” and certain transactions with certain privately offered funds. Companies subject to the Volcker Rule were required to bring all of their activities and investments into conformance by July 21, 2015, subject to certain extensions. The activities prohibited by the Volcker Rule are not core activities for us. Accordingly, we do not believeHowever, the federal financial regulatory agencies charged with implementing the Volcker Rule could further amend the rule or change their approach to administering, enforcing or interpreting the rule, which could negatively affect us and its implementing regulations are likelypotentially require us to have a material effect onlimit or change our businessactivities or operations.

The Dodd-Frank Act also establishedamended the U.S. Commodity Exchange Act (“CEA”) to establish a newcomprehensive framework for the regulation of certain over-the-counter (OTC)(“OTC”) derivatives referred to as swaps and security-based swaps. TheUnder the Dodd-Frank Act, requires the Commodity Futures Trading Commission (“CFTC”) is required to adopt certain rules and regulations governing swaps and the SEC to adopt certain rules and regulations governing security-based swaps. While theThe CFTC has completed the majorityalmost all of its regulations in this area, most of which are in effect, the SEC has not yet adopted a number of its security-based swap regulations.effect.

The OTC derivatives provisions of the Dodd-Frank Act impose clearing, trading and margin requirements on certain contracts.  At present, we qualify for exceptions from these requirements for the swaps that we enter into to hedge our commercial risks.  However, if we were to fail to qualify for such exceptions, we could become subject to some or all of these requirements, which would increase our cost of entering into and maintaining such hedging positions.  Moreover, the application of the clearing, trading and margin requirements, and other related regulations, to our dealer counterparties may change the cost and availability of the OTC derivatives that we use for hedging.  Certain other requirements, such as reporting and recordkeeping, also apply to such instruments, but are not expected to have a material impact on us.

The full impact of the OTC derivatives provisions of the Dodd-Frank Act and related regulatory requirements upon our business will not be known until the regulations are fully implemented and the market for derivatives contracts has adjusted. The Dodd-Frank Act and regulations could significantly increase the cost of OTC derivative contracts, materially alter the terms of OTC derivative contracts, reduce the availability of OTC derivatives to protect against risks we encounter, or reduce our ability to monetize or restructure our existing OTC derivative contracts. If we reduce our use of OTC derivatives as a result of the Dodd-Frank Act and resulting regulations, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures.

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

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

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

EMPLOYEE RELATIONS

HUMAN CAPITAL

Employees

At April 30, 2016,March 31, 2023, we had 3,140 full-timeapproximately 3,800 employees. We consider our employee relations to be satisfactory. We are not subject to any collective bargaining agreements with our employees. Depending on business needs, and as appropriate, we have implemented hybrid work models, which permit a mix of onsite and remote work arrangements for certain roles.

Culture

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

Diversity and Inclusion

We believe in equality, respect, and the inclusive treatment of all people, and we promote a workplace where all team members can play an active role. We believe that fostering a company culture that values and promotes diversity and inclusion helps us to achieve higher levels of productivity, enhances our competitiveness and ability to innovate, spurs creativity among our team members, and deepens our ability to understand and serve our customers.

We sponsor Business Partnering Groups, which are employee-driven networks based on common identities, affinities, experiences, and allyship, that allow team members to connect with each other, grow professionally, support our business goals, and help build the inclusive culture that represents the future of our company. We also offer trainings and workshops to educate team members and foster an inclusive and supportive environment.

Our Executive Diversity and Inclusion Committee endeavors to guide, endorse and support our diversity and inclusion strategic efforts. Toyota’s external Diversity Advisory Board works in partnership with our leadership to reinforce diversity and inclusion strategies and offer insight and perspective that helps Toyota cultivate a diversity and inclusion mindset across the enterprise.

Health and Safety

We recognize the health, safety, and well-being of our team members is a top priority. Actively cultivating a culture, environment, and team member experience that embraces, empowers, and respects all people - including their health, wellbeing, and safety - drives innovation and relevancy. We offer a variety of support and benefits to our team members beyond traditional healthcare, including adoption and fertility benefits, parental leave, mental and financial health services, wellness programs, and support to enable people with disabilities to fully utilize their talents.

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ITEM 1A. RISKRISK FACTORS

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

INDUSTRY AND BUSINESS RISK

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

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

Economic slowdown and recession in the United States may lead to diminished consumer and business confidence, inflation, lower household incomes, increases in unemployment rates, andhigher consumer debt levels as well as higher consumer and commercial bankruptcy filings, allany of which could adversely affect vehicle sales and discretionary consumer spending. These conditions may decrease the demand for our financing products, as well as increase our delinquencies and credit losses. In addition, because our credit exposures are generally collateralized by vehicles, the severity of losses can be particularly affected by declines in used vehicle values. Dealers mayare also be affected by economic slowdown and recession, which in turn may increaseincreases the risk of default of certain dealers within our dealer portfolio.

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

Challenging market conditions may result in less liquidity, greater volatility, widening of credit spreads and lack of price transparency in credit markets. Changes in investment markets, including changes in interest rates, exchange rates and returns from equity, property, and other investments, will affect (directly or indirectly) our financial performance.

During a continued and sustained period of market disruption and volatility:

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Any of these developments could have an adverse effect on our results of operations and financial condition. Geopolitical conditions and other market events may also impact our operating results. Anyresults of operations. Restrictive exchange or import controls or other disruptive trade policies, disruption of operations as a result of systemic political or military actionseconomic instability (including any uncertainty over the U.S. government debt ceiling), adverse changes to tax laws and regulations, social unrest, outbreak of war or expansion of hostilities (including the current conflict in Ukraine), health epidemics and other outbreaks, climate-related risk, and acts of terrorism, could lead to among other things, declines in market liquidity and activity levels, volatile market conditions, a contraction of available credit, inflation, fluctuations in interest rates, weaker economic growth, and reduced business confidence on an international level, each of which could have a material adverse effect on our results of operations and financial condition.

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

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

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

We primarily provide a variety of finance and insurancevoluntary protection products to authorized Toyota, Lexus, and Scionprivate label dealers and their customers in the United States.U.S. Accordingly, our business is substantially dependent upon the sale of Toyota, Lexus, and Scionprivate label vehicles in the United States.U.S. Changes in the volume of sales may result from governmental action or changes in governmental regulation or trade policies, changes in consumer demand, new vehicle incentive programs, recalls, the actual or perceived quality, safety or reliability of Toyota, Lexus, and Scionprivate label vehicles, economic conditions, inflation, increased competition, increases in the price of vehicles due to increased raw material costs, changes in pricing ofimport fees or tariffs on raw materials or imported units duevehicles, changes to or withdrawals from trade agreements, currency fluctuations, or other reasons,fluctuations in interest rates, decreased or delayed vehicle production due to extreme weather conditions, natural disasters, supply chain interruptions, including shortages of parts, components or raw materials, or other events. For example, our affiliate, TMNA, and our ultimate parent, TMC, have continued to experience a decrease in new inventory resulting from production constraints due to supply shortages affecting the automotive industry and continued steady demand in the U.S. for new vehicles. Any negative impact on the volume of TMSToyota, Lexus, and private label vehicle sales could in turnthe U.S. could have a material adverse effect on our business, results of operations, and financial position.condition.

Additionally, while TMS is the primary distributor of Toyota and Lexus vehicles in the U.S. While TMNA conducts extensive market research before launching new or refreshed vehicles and introducing new services, many factors both within and outside TMS’sTMNA’s control affect the success of new or existing products and services in the marketplace. Offering vehicles and services that customers want and value can mitigate the risks of increasing price competition and declining demand, but products and services that are perceived to be less desirable (whether in terms of product mix, price, quality, styling, safety, overall value, fuel efficiency, or other attributes) and the level of availability of products and services that are desirable can negatively exacerbate these risks. With increased consumer interconnectedness through the internet, social media, and other media, mere allegations relating to quality, safety, fuel efficiency, corporate social responsibility (including related to climate change or other environmental issues), or other key attributes can negatively impact TMS’sTMNA’s reputation or market acceptance of its products or services, even where such allegations prove to be inaccurate or unfounded. Any negative impact to TMNA’s reputation or market acceptance of its products or services could have an adverse impact on vehicle sales, which could have an adverse effect on our business, results of operations and financial condition.

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

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

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

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

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

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

Our borrowing costs and accessIf we are unable to the unsecured debt capital markets depend significantly on the credit ratings of TMCC and its parent companies and our credit support arrangements.

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

Credit rating agencies which rate the credit of TMC and its affiliates, including TMCC, may qualify or alter ratings at any time.  Global economic conditions and other geopolitical factors may directly or indirectly affect such ratings.  Any downgradecompetition increases in the sovereign credit ratings of the United States or Japan may directly or indirectly have a negative effect on the ratings of TMC and TMCC.  Downgrades or placement on review for possible downgrades could resultbusinesses in an increase inwhich we operate, our borrowing costs as well as reduced access to the global unsecured debt capital markets.  In addition, depending on the level of the downgrade, we may be required to post an increased amount of cash collateral under certain of our derivative agreements.  These factors would have a negative impact on our competitive position, operating results, liquidity and financial condition.

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

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

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

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

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

Refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates” for further discussion of the estimates involved in determining the allowance for credit losses and Note 1 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements for further discussion of the methodology used in determining the allowance for credit losses.

We use estimates and assumptions in determining the fair value of certain assets. If our estimates or assumptions prove to be incorrect, our financial condition and results of operations could be materiallynegatively affected.

We operate in a highly competitive environment. We compete with other financial institutions including national and adversely affected.

We use various estimatesregional commercial banks, credit unions, savings and assumptions in determining the fair value of many of our assets, including certain marketable securitiesloan associations, finance companies, and derivatives, which, in some cases, do not have an established market value or are not publicly traded. Our assumptions and estimates may be inaccurate for many reasons.  For example, assumptions and estimates often involve matters that are inherently difficult to predict and are beyond our control (for example, macro-economic conditions and their impact on our dealers).a lesser extent, other automobile manufacturers’ affiliated finance companies. In addition, they often involve complex interactions between a number of dependent and independent variables, factors, and other assumptions. As a result, our actual experience may differ materially from these estimates and assumptions. A material difference between our estimates and assumptions and our actual experience may adversely affect our financial condition and results of operations.

Fluctuationsonline financing options provide consumers with alternative financing sources. Increases in valuation of investment securities or significant fluctuations in investment market prices could negatively affect our revenues and results of operations.

Investment market prices, in general, are subject to fluctuation. Consequently, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value and could negatively affect our revenues. Additionally, negative fluctuations in the value of available-for-sale investment securities could result in unrealized losses recorded in Other comprehensive income or in other-than-temporary impairment within our results of operations. Fluctuation in the market price of a security may result from perceived changes in the underlying economic characteristics of the investment, the relative price of alternative investments, national and international events, or general market conditions.

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

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

The FASB has recently proposed new financial accounting standards, and has many active projects underway which include potential for significant changes in the accounting for financial instruments, including the allowance for credit losses, among others. It is possible that any changes, if enacted, could adversely affect our financial condition and results of operations.

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

We are exposed to risk of loss on the disposition of leased vehicles if sales proceeds realized upon the sale of returned lease assets are not sufficient to cover the residual value that was estimated at lease inception and if the number of returned lease assets is higher than anticipated.  To the extent the estimated end-of-term market value of a leased vehicle is lower than the residual value established at lease inception, the residual value of the leased vehicle is adjusted downward so that the carrying value at lease-end will approximate the estimated end-of-term market value.  Among other factors, local, regional and national economic conditions, new vehicle pricing, new vehicle incentive programs, new vehicle sales, the actual or perceived quality, safety or reliability of vehicles, future plans for new Toyota, Lexus and Scion product introductions, competitive actions and behavior, product attributes of popular vehicles, the mix of used vehicle supply, the level of current used vehicle values and inventory levels, and fuel prices heavily influence used vehicle prices and thus the actual residual value of off-lease vehicles.  Differences between the actual residual values realized on leased vehicles and our estimates of such values at lease inception could have a negative impact on our operating results and financial condition, due to the impact of higher-than-anticipated losses recorded as Depreciation on operating leases in our Consolidated Statement of Income.  The return of a higher number of leased assets could also impact the amount of depreciation expense recorded in our Consolidated Statement of Income.

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

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

Credit risk is the risk of loss arising from the failure of a customer or dealer to meet the terms of any retail or lease contract with us or otherwise fail to perform as agreed.  The level of credit risk in our consumer portfolio is influenced primarily by two factors: the total number of contracts that experience default (“default frequency”) and the amount of loss per occurrence (“loss severity”), which in turn are influenced by various economic factors, the used vehicle market, purchase quality mix, contract term length, and operational changes as discussed below.

The level of credit risk in our dealer portfolio is influenced primarily by the financial strength of dealers within our portfolio, dealer concentration, collateral quality, and other economic factors.  The financial strength of dealers within our portfolio is influenced by general macroeconomic conditions, the overall demand for new and used vehicles, and the financial condition of automotive manufacturers, among other factors.  An increase in credit risk would increase our provision for credit losses, which would have a negative impact on our operating results and financial condition.

Economic slowdown and recession in the United States, natural disasters and other factors increase the risk that a customer or dealer may not meet the terms of a retail or lease contract with us or may otherwise fail to perform as agreed.  A weak economic environment evidenced by, among other things, unemployment, underemployment, and consumer bankruptcy filings, may affect some of our customers’ ability to make their scheduled payments. There can be no assurance that our monitoring of credit risk and our efforts to mitigate credit risk are or will be sufficient to prevent an adverse effect on our operating results and financial condition.

Our operating results, financial condition and cash flow may be adversely affected by changes in interest rates, foreign currency exchange rates and market prices.

Market risk is the risk that changes in market interest rates and foreign currency exchange rates cause volatility in our operating results, financial condition and cash flow.  An increase in market interest ratespressures could have an adverse effectimpact on our business,contract volume, market share, Net financing revenues, Voluntary protection contract revenues and insurance earned premiums. Further, the financial condition and operating results by increasing our cost of capital and the rates we charge to our customers and dealers, thereby affecting our competitive position.  We use various derivative instruments to manage our market risk.  However, changes in interest rates, foreign currency exchange rates and market prices cannot always be predicted or hedged.  Changes in interest rates or foreign currency exchange rates could affect the valueviability of our derivatives,competitors and peers may have an adverse impact on the financial services industry in which we operate, resulting in a decrease in the demand for our products and services. This could result in volatility in our operating results and financial condition.  Market risk also includeshave an adverse impact on the risk that the valuevolume of our investment portfolio could decline.business and our results of operations.

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

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

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

On April 28, 2014, we issued a press release announcing that, as part of TMC’s planned consolidation of its three separate North American headquarters for manufacturing, sales and marketing to a single new headquarters facility in Plano, Texas, our corporate headquarters would move from Torrance, California, to Plano, Texas, beginning in 2017. We do not expect that the relocation

In addition, many parts of our headquarters will changebusiness, including software, technology, marketing and finance, are dependent on key personnel. Competition for such employees is intense, which may increase our corporate or leadership structure.  However, we note that there are uncertainties relatedoperating and administrative expenses and lead to the relocation. We can give no assurance that the relocation will be completed as planned or within the expected timing.  In addition, the pending relocation may involve significant costother changes including flexible work arrangements and other considerations. Our future success depends on our ability to usretain existing, and the expected benefits of the move may not be fully realized dueattract, hire and integrate new key personnel and other necessary employees. Any failure to associated disruption to operations and to personnel.  

A failure or interruption of the information systems on which we rely, or a security breach or a cyber-attackdo so could adversely affect our business, operating results of operations and financial condition.

We rely on internalOur private label financial services for third-party automotive and third party information and technological systemsmobility companies may expose us to manageadditional risks that could adversely affect our business, results of operations and are exposedfinancial condition.

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

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

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

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

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

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

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

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FINANCIAL MARKET AND ECONOMIC RISKS

Our borrowing costs and access to the unsecured debt capital markets depend significantly on the credit ratings of TMCC and its parent companies and our credit support arrangements.

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

Credit rating agencies which rate the credit of TMC and its affiliates, including TMCC, may qualify or alter ratings at any time. Global economic conditions, including the ongoing impact of COVID-19 and other failuresgeopolitical factors may directly or indirectly affect such ratings. Any downgrade in the sovereign credit ratings of these systems.  Any failurethe U.S. or interruptionJapan may directly or indirectly have a negative effect on the ratings of TMC and TMCC. Downgrades or placement on review for possible downgrades could result in an increase in our information systems orborrowing costs as well as reduced access to the third party information systemsglobal unsecured debt capital markets. These factors would have a negative impact on which we rely as a resultour competitive position, results of inadequate or failed processes or systems, human errors, employee misconduct, catastrophic events, external or internal security breaches, acts of vandalism, computer viruses, malware, misplaced or lost data, or other events could disruptoperations, liquidity and financial condition.

A disruption in our normal operating proceduresfunding sources and access to the capital markets would have an adverse effect on our business, operatingliquidity.

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

We collectRefer to Item 7. Management’s Discussion and store certain personalAnalysis of Financial Condition and Results of Operations, “Liquidity and Capital Resources”for further discussion of liquidity risk.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Market risk is the risk that changes in interest rates and foreign currency exchange rates cause volatility in our results of operations, financial condition and cash flows. We use various derivative instruments to manage our market risk. However, changes in interest rates, foreign currency exchange rates and market prices cannot always be predicted or hedged. Changes in interest rates or foreign currency exchange rates (due to inflationary pressure or other factors) could affect our interest expense and the value of our derivatives, which could result in volatility in our results of operations, financial condition, and cash flows.

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

We are exposed to LIBOR-based financial instruments, including through certain of our dealer financing activities, derivative contracts, secured and unsecured debt, and investment securities. The transition away from the use of LIBOR to alternative rates and other potential interest rate benchmark reforms is continuing. These reforms have caused and may in the future cause such rates to perform differently than in the past, or to disappear entirely, or have other consequences which cannot be predicted.

The publication of non-U.S. dollar LIBOR rates on a representative basis, as well as the publication of the lesser used 1-week and 2-month U.S. dollar LIBOR tenors, ceased as of the end of December 2021. The most commonly used U.S. dollar LIBOR tenors are expected to continue to be published until June 30, 2023.

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

The composition and characteristics of SOFR are not the same as those of LIBOR. As a result, there can be no assurance that SOFR or any ARR will perform in the same way as LIBOR would have at any time, including, without limitation, as a result of changes in interest and yield rates in the market, market volatility or global or regional economic, financial, political, regulatory, judicial or other events. With limited operating history, it remains unknown whether SOFR will continue to evolve and what the effects of its implementation may be on the markets for financial instruments. Although the LIBOR Act and its implementing regulations include safe harbors if the Federal Reserve Board’s SOFR-based replacement rates are used, these safe harbors are untested, and we could still be exposed to risks associated with disputes and litigation with counterparties and other market participants in connection with implementing replacement rates for LIBOR.

To facilitate an orderly transition from LIBOR to ARRs, we established an initiative led by senior management, with Board and committee oversight. As a result of this initiative, we have committed to using SOFR linked rates in connection with various borrowing arrangements and Prime in connection with various lending arrangements. Nevertheless, we may continue to be subject to risk on certain outstanding instruments which rely on LIBOR. Those risks arise in connection with transitioning such instruments to a new reference rate, the taking of discretionary actions (for example, under fallback provisions) or the negotiation of fallback provisions and final amendments to existing LIBOR based agreements. If a contract or instrument is not transitioned to a new reference rate and LIBOR ceases to exist, we may experience increased interest rate risk. In addition, we may be dependent on third parties to upgrade their systems, software, and other critical functions to assist in our orderly transition from LIBOR. A failure to properly transition away from LIBOR could expose us to a risk of loss of personally identifiable information of customers, employeesvarious financial, operational, and third parties or other proprietary or competitively sensitive information, business interruptions, regulatory scrutiny, actions and penalties, litigation, reputational harm, and a loss of confidence, all of which could potentially have an adverse impact on future business with current and potential customers.

We rely on encryption and other information security technologies licensed from third parties to provide security controls necessary to help in securing online transmission of confidential information pertaining to customers and employees.  Advances in information system capabilities, new discoveries in the field of cryptography or other events or developments may result in a compromise or breach of the technology that we use to protect sensitive data.  A party who is able to circumvent our security measures by methods such as hacking, fraud, trickery or other forms of deception could misappropriate proprietary information or cause interruption in our operations.  We may be required to expend capital and other resources to protect against such security breaches or cyber-attacks or to remediate problems caused by such breaches or attacks.  Our security measures are designed to protect against security breaches and cyber-attacks, but our failure to prevent such security breaches and cyber-attacks could subject us to liability, decrease our profitability and damage our reputation.

We could be subjected to cyber-attacks that could result in slow performance and unavailability of our information systems for some customers.  Information security risks, have increased recently because of new technologies, the use of the internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions, and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists, and others.  We may not be able to anticipate or implement effective preventative measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources.  The occurrence of any of these events could have a material adverse effect on our business.

In addition, we periodically upgrade or replace our existing transaction systems, which could have a significant impact on our abilityfinancial condition and results of operations.

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Refer to conduct our core business operations“LIBOR Transition” within Item 7. Management’s Discussion and increase our riskAnalysis of loss resulting from disruptionsFinancial Condition and Results of normal operating processes and procedures that may occur during the implementation of new systems. Operations for additional information.

The failure or commercial soundness of our counterparties and other financial institutions may have an effect on our liquidity, operating results of operations or financial condition.

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

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

We operate in a highly competitive environment.  We compete with other financial institutions including national and regional commercial banks, credit unions, savings and loan associations, finance companies, and to a lesser extent, other automobile manufacturers’ affiliated finance companies.  Increases in competitive pressures could have an adverse impact on our contract volume, market share, revenues, and margins.  Further, the financial condition and viability of our competitors and peers may have an impact on the financial services industry in which we operate, resulting in changes in the demand for our products and services.  This could have an adverse impact on the volume of our business and our operating results.

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

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

We are exposed to risk transfer credit risk which could negatively impact our insurance voluntary protectionoperations.

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

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REGULATORY, LEGAL AND OTHER RISKS

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

We rely on our own information systems and third-party information systems to manage our operations, which creates meaningful operational risk for us. Any failure or interruption of our information systems or the third-party information systems on which we rely as a result of inadequate or failed processes or systems, human errors, employee misconduct, catastrophic events, security breaches, acts of vandalism, computer viruses, malware, ransomware, misplaced or lost data, or other events could disrupt our normal operating procedures, damage our reputation and have an adverse effect on our business, results of operations and financial condition. These operational risks may be increased as a result of remote or hybrid work arrangements.

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

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

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

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

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

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

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

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

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

Consumer Finance Regulation

As a provider of finance insurance and other payment and vehiclevoluntary protection products, we operate in a highly regulated environment. We are subject to state licensing requirements at theand state, level and federal laws and regulations. In addition, we are subject to laws, regulation, examinationgovernmental and investigationregulatory examinations, information-gathering requests, and investigations from time to time at the state and federal levels. We hold lending, leasing, insurance and debt collector licenses where required in the various states in which we do business. We are obligated to comply with periodic reporting requirements and to submit to regular examinations as a condition of maintenance of our licenses and the offering of our products and services. We must comply with laws that regulate our business, including in the areas of marketing, analytics, origination, collection and servicing.

Compliance with applicable law is costly and can affect operating results.our results of operations. Compliance requires forms, processes, procedures, controls and the infrastructure to support these requirements. Compliance may create operational constraints and place limits on pricing, as the laws and regulations in the financial services industry are designed primarily for the protection of consumers. Changes in regulationlaws and regulations could restrict our ability to operate our business as currently operated, could impose substantial additional costs or require us to implement new processes, which could adversely affect our business, prospects, financial performance or financial condition. The failure to comply with applicable laws and regulations could result in significant statutory civil and criminal fines, penalties, monetary damages, attorneys’attorney or legal fees and costs, restrictions on our ability to operate our business, possible revocation of licenses and damage to our reputation, brand and valued customer relationships. Any such costs, restrictions, revocations or damage could adversely affect our business, prospects, operating results of operations or financial condition.

AtOur principal consumer finance regulator at the federal level the Dodd-Frank Act has broad implications for the financial services industry and requires the development, adoption and implementation of many regulations.  Among other things, the Dodd-Frank Act createdis the CFPB, which has broad regulatory, supervisory and enforcement authority over providers of consumer financial products and services.  Two of the primary purposes of the CFPB are to ensure that consumers receive clear and accurate disclosures regarding financial products and to protect consumers from discrimination and unfair, deceptive or abusive acts or practices.  On August 31, 2015, we became subject to theus. The CFPB’ssupervisory authority when the CFPB’s final rule over “larger participants” in the auto finance industry took effect. Such supervisory authority allows the CFPB,it, among other things, to conduct comprehensive and rigorous examinations to assess our compliance with consumer financial protection laws, which could result in enforcement actions, regulatory fines and mandated changes to our business products, policies and procedures.procedures.

In February 2016,The CFPB’s rulemaking authority includes the CFPB published a list of nine policy priorities it intendsauthority to focus its resources on over the next two years.  These priorities include,promulgate rules regarding, among others, initiation of the rulemaking process regardingother practices, debt collection practices that would apply to third-party collectors and first-party collectors, such as ourselves, and continued examination and investigation of, and potential rulemakingrules regarding consumer credit reporting practices. The timing and impact of these anticipated rules on our business remain uncertain.

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

The CFPB also has enforcement authority under which it is authorized to conduct investigations (which may include a joint investigation with other agencies and regulators) and initiate enforcement actions for violations of federal consumer financial protection laws.  The CFPB and FTC have become more active in investigatingmay investigate the products, services and operations of credit providers, including banks and other finance companies engaged in auto finance activities. BothAs a result of such investigations, the CFPB and FTC have announced various enforcement actions against lenders in the past few years involving significant penalties, consent orders, cease and desist orders and similar remedies that, if applicable to auto finance providers andus or the products, services and operations we offer, may require us to cease or alter certain business practices, which could have a material adverse effect on our results of operations, financial condition, liquidity and results of operations.  We expect the CFPB’s investigation of,liquidity. Supervision and initiation of enforcement actions against, credit providers, whether on its own initiative or jointly with otherinvestigations by these agencies and regulators, will continue for the foreseeable future.  CFPB supervision and enforcement actions, if any, may result in monetary penalties, increase our compliance costs, require changes in our business practices, affect our competitiveness, impair our profitability, harm our reputation or otherwise adversely affect our business.

On February 2, 2016, we entered into consent orders with the CFPB and the U.S. Department of Justice relatedRefer to their previously disclosed investigation of, and allegations regarding, our discretionary dealer compensation practices. See Item 1. “Business – RegulatoryBusiness, “Regulatory Environment” for a descriptionfurther discussion of the terms of the consent orders, including, among other things, the changes we agreed to make to our dealer compensation practices. Compliance costsCFPB’s authority and the changes to our business practices required by the consent orders may adversely affect our future results of operations and financial condition, including our financing volume, market share, financing margins, and net earning assets.activities.

At the state level, state regulators are taking a more stringent approach to supervising and regulating financial products and services subject to their jurisdiction. For example, certain states have proposed rate cap bills that would put limits on the maximum rate of finance charges. We expect to continue to face greater supervisory scrutiny and enhanced supervisory requirements for the foreseeable future.  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 GAP insurance products on retail contracts.  We are cooperating with these requests, but are unable to predict their outcome given their preliminary status.

Other Federal Regulation

The Dodd-Frank Act also established the FSOC, which is mandated with designating SIFIs.  An international standard-setting body, the FSB, also has proposed – but has not yet finalized – a methodology for assessing and designating non-bank non-insurer G-SIFIs.  If TMCC or one of its affiliates were designated as a SIFI or, once the FSB finalizes its process, a G-SIFI, we could experience increased compliance costs, the need to change our business practices, impairments to our profitability and competitiveness and other adverse effects on our business.

Under the Volcker Rule which was enacted as part of the Dodd-Frank Act, companies affiliated with U.S. insured depository institutions are generally prohibited from engaging in “proprietary trading” and certain transactions with certain privately offered funds. Companies subject to the Volcker Rule were required to bring all of their activities and investments into conformance by July 21, 2015, subject to certain extensions. The activities prohibited by the Volcker Rule are not core activities for us. Accordingly, we do not believe the Volcker Rule and its implementing regulations are likely to have a material effect on our business or operations.  In the future, however,However, the federal financial regulatory agencies charged with implementing the Volcker Rule could further amend the rule or change their approach to administering, enforcing or interpreting the rule, which could negatively affect us and potentially require us to limit or change our activities or operations.

The Dodd-Frank Act also established aEnvironmental Related Regulation

Concern over climate change or other environmental matters may result in new framework for the regulation of certain OTC derivatives referred to as swapsor increased legal and security-based swaps.  The Dodd-Frank Act requires the CFTC to adopt certain rules and regulations governing swaps and the SEC to adopt certain rules and regulations governing security-based swaps.  While the CFTC has completed the majority of its regulations in this area, most of which are in effect, the SEC has not yet adopted a number of its security-based swap regulations.

The OTC derivatives provisions of the Dodd-Frank Act impose clearing, trading and margin requirements on certain contracts.  At present, we qualify for exceptions from these requirements for the swaps that we enter into to hedge our commercial risks.  However, if we were to fail to qualify for such exceptions, we could become subject to some or all of these requirements, which would increase our cost of entering into and maintaining such hedging positions.  Moreover, the application of the clearing, trading and marginregulatory requirements and new financial incentives regarding electrified vehicles intended to mitigate factors contributing to, or intended to address the potential impacts of, climate change or other environmental concerns. In August 2022, the Inflation Reduction Act (the "Act") was signed into law. The Act modifies climate and clean energy corporate tax provisions, including, among other things, amendments to the federal tax credit for plug-in vehicles available under current tax law. Such regulations (including laws related regulations,to greenhouse gas emitting products or services) and government incentives may require us to alter our proposed business plans, lead to increased compliance costs and changes to our dealer counterparties may change the costoperations and availability of the OTC derivatives that we use for hedging.  

The full impact of the OTC derivatives provisions of the Dodd-Frank Act and related regulatory requirements uponcould have an adverse effect on our business, will not be known until the regulations are fully implemented and the market for derivatives contracts has adjusted. The Dodd-Frank Act and regulations could significantly increase the cost of OTC derivative contracts, materially alter the terms of OTC derivative contracts, reduce the availability of OTC derivatives to protect against risks we encounter, or reduce our ability to monetize or restructure our existing OTC derivative contracts. If we reduce our use of OTC derivatives as a result of the Dodd-Frank Act and resulting regulations, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures.financial condition.

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

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

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

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

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ITEM 1B. UNRESOLVEDUNRESOLVED STAFF COMMENTS

There are no unresolved SEC staff comments to report.

ITEM 2. PROPERTIES

Our finance and insurance headquarters operations are currently located in Torrance, California,Plano, Texas, and our facilities are leased from TMS.TMNA.

On April 28, 2014, we issued a press release announcing that our corporate headquarters will move from Torrance, California, to Plano, Texas, beginning in 2017 as part of TMC’s planned consolidation of its three separate North American headquarters for manufacturing, sales and marketing to a single new headquarters facility. We are currently leasing temporary offices in Plano, Texas in advance of the completion of construction of our new corporate headquarters.

FieldAdditional operations for both finance and insurancevoluntary protection products are located in three CSCs, three regional management offices, and 29 DSSOs in cities throughout the U.S.  Two of the DSSOs share premises with the regional CSCs.  All three of the regional management offices share premises with DSSO offices.Experience Centers. The Central region CSCExperience Center is locatedco-located with our headquarters in Cedar Rapids, Iowa, and is leased from TMS.Plano, Texas. The Western region CSCRegion Experience Center is located in Chandler, Arizona. The Eastern region CSCExperience Center is located in Owings Mills, Maryland.Alpharetta, Georgia. Our dealer lending function is centralized at the Central region Experience Center. We also have a sales and operations office in Puerto Rico. All premises are occupied under lease.

We believe that our properties are suitable to meet the current requirements of our business. Refer to Item 1. Business, “General” for further discussion of the field operations restructuring.

ITEM 3. LEGAL PROCEEDINGS

VariousFor 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. See see Note 149 – Commitments and Contingencies of the Notes to Consolidated Financial Statements. Given the inherent uncertainty associated with legal matters, the actual costs of resolving legal claimsStatements - 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 consolidated financial condition or results of operations.Governmental Proceedings.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

PART II

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

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

In fiscal 2015 and 2014, TMCC declared and paid cash dividends to TFSA of $435 million and $665 million, respectively.  No dividends were declared and paid in fiscal 2016.

ITEM 6. SELECTED FINANCIAL DATA[RESERVED]

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Our Board

Table of Directors declared and paid cash dividends of $435 million, $665 million, $1,487 million, and $741 million to TFSA during fiscal 2015, 2014, 2013, and 2012, respectively.  No dividends were declared or paid during fiscal 2016.Contents

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Information

Certain statements contained in this Form 10-K 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 such as the following that may cause actual results to differ materially from those stated:

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

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OVERVIEW

OVERVIEW

Key Performance Indicators and Factors Affecting Our Business

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

In our insurancevoluntary protection 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 insurancevoluntary protection operations using the following metrics: issued agreementcontract volume, average number of agreementscontracts 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 Scion sales volume,private label new vehicle incentives,production volume, vehicle inventory levels, vehicle sales and incentive programs, consumer behavior, employment levels, our ability to respond to changes in interest rates with respect to both contract pricing and funding, the actual or perceived quality, safety or reliability of Toyota, Lexus, and Scionprivate label vehicles, the financial health of the dealers we finance, and competitive pressure. Our financial results may also be affected by the regulatory environment in which we operate, including as a result of new legislation or changes in regulation and any compliance costs andor changes we may be required to make to our business practices required by the consent orders we entered into in February 2016 with respect to our discretionary dealer compensation 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 insurancevoluntary protection operations, and our gross marginsNet financing revenues on consumer contract and dealer financing volume. Changes in the volume of vehicle sales, utilizationsales of our insurance programs,voluntary protection products, or the level of coverage purchased by affiliatesvoluntary protection expenses and insurance losses could materially and adversely impact our insurancevoluntary protection operations. Additionally, our funding programs and related costs are influenced by changes in the global capital markets, prevailing interest rates, and our credit ratings and those of our parent companies, which may affect our ability to obtain cost effective funding to support earning asset growth.

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

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

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

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

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Fiscal 20162023 Operating Environment

During the fiscal 2016, slowyear ending March 31, 2023 (“fiscal 2023”), the U.S. economy was impacted by uncertainties related to inflationary pressures, higher interest rates, banking industry disruptions, the ongoing effects of the global coronavirus and related variants (“COVID-19”) pandemic, and the conflict in Ukraine. The economic growthconditions, including consumer price increases and higher interest rates, have negatively impacted some consumers ability to make scheduled payments which has resulted in an increase in consumer delinquencies and charge-offs. The ongoing challenging economic conditions caused by the COVID-19 pandemic and geopolitical conflicts, including production constraints due to supply shortages affecting the automotive industry, such as the ongoing shortage of semiconductor chips, and additional delays affecting the supply chain and logistics networks, have continued to limit the inventory levels of new vehicles. The new vehicle inventory constraints have resulted in decreases in industry-wide vehicle sales incentives in the U.S. continued, as employmentin fiscal 2023, compared to fiscal 2022.

While average used vehicle values in fiscal 2023 remained elevated compared to pre-pandemic levels, primarily due to the new vehicle inventory constraints, there has been a decline in values in the current fiscal year. Future declines in used vehicle values resulting from increases in the supply of new and used vehicles and increases in new vehicle sales incentives could unfavorably impact return rates, improved, consumer spending increased,residual values, depreciation expense and the housing market remained strong.  While the overall U.S. economy has continued to show positive trends duringcredit losses.

During fiscal 2016, consumer debt levels also continued to rise as consumers experienced greater access to credit.

Conditions in2023, the global capital markets experienced periods of heightened volatility duringin response to the second half of fiscal 2016 due to continued concerns regarding global economic growth as well asongoing conflict in Ukraine, increases in the inflation rate, uncertainty regarding the future path of U.S. monetary policy. Additionally, oil prices fluctuatedpolicy, and instability in the global banking sector. U.S. benchmark interest rates and credit spreads both increased during the second half of fiscal 2016.  We2023. While we continue to maintain broad global access to both domestic and international markets.markets, these events could lead to further disruptions in the capital markets and increases in our funding costs. Future changes in interest rates in the U.S. and foreign markets could result in volatility in our interest expense, which could affect our results of operations.

Industry-wide vehicle sales in the United States increased, and sales incentives throughout the auto industry remained elevated during fiscal 2016 as compared to fiscal 2015.  Vehicle sales by TMS increased 2 percent in fiscal 2016 compared to fiscal 2015.  The increase in TMS sales was attributable to the continued increase in consumer demand for new vehicles. In addition, lease volume increased and retail volume decreased in fiscal 2016 due primarily to a higher focus by TMS on lease subvention.  Our overall market share remained relatively consistent for fiscal 2016 compared to fiscal 2015.30

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Used vehicle values remained strong during fiscal 2016 but deteriorated slightly compared to fiscal 2015.  However, it remains uncertain whether the used vehicle market will continue to be as strong as it has been in the past few years.  In the latter part of fiscal 2016, used vehicle inventory levels increased which could unfavorably impact used vehicle values in future periods.  Declines in used vehicle values and a higher proportion of lease volume as compared to retail volume could affect return rates, depreciation expense and credit losses.

RESULTS OF OPERATIONS