UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 20172022

or

For transition period from __________ to __________

Commission File No. 001-11677

PACCAR FINANCIAL CORP.

(Exact name of Registrant as specified in its charter)

Registrant’s telephone number, including area code is (425) 468-7100

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

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

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

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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.  ☒

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

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

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

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

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

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

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2017:2022:    None

The number of shares outstanding of the registrant’s classes of common stock as of January 31, 2018:2023:

Common Stock, $100 par value—145,000 shares

THE REGISTRANT IS A WHOLLY OWNED SUBSIDIARY OF PACCAR INC AND MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS (I) (1) (a) AND (b) OF FORM 10-K AND IS, THEREFORE, FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.

INDEX

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PACCAR Financial Corp.

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PART I

GENERAL

PACCAR Financial Corp.

PACCAR Financial Corp. (the “Company”), a Washington corporation, was incorporated in 1961 as a wholly owned subsidiary of PACCAR Inc (“PACCAR”) to finance the sale of PACCAR products.

The Company principally provides financing and leasing of PACCAR manufactured trucks and other transportation equipment sold through the Kenworth and Peterbilt independent dealer networks in the United States. The Company also finances dealer inventories of new and used transportation equipment. PACCAR Leasing Company, a division of the Company operating as “PacLease”, franchises Kenworth and Peterbilt dealerships to engage in full-service and finance leasing. In selected markets, PacLease directly engages in full-service leasing with its customers through Company-owned stores and through Kenworth and Peterbilt dealerships.

PACCAR

PACCAR is a multinational company operating in three principal industry segments: (1) the Truck segment includes the design, manufacture and distribution of high-quality, light-, medium- and heavy-duty commercial trucks; (2) the Parts segment includes the distribution of aftermarket parts for trucks and related commercial vehicles; and (3) the Financial Services segment includes finance and leasing products and services provided to customers and dealers. Heavy-duty trucks have a gross vehicle weight (GVW) of over 33,000 lbs (Class 8) in North America and over 16 metric tonnes in Europe.Europe and South America. Medium-duty trucks have a GVW ranging from 19,500 to 33,000 lbs (Class 6 to 7) in North America, and in Europe, light- and medium-duty trucks range between 6 toand 16 metric tonnes. PACCAR’s finance and leasing activities are principally related to PACCAR products and associated equipment. PACCAR’s Other business includes the manufacturing and marketing of industrial winches.

PACCAR’s trucks are marketed under the Kenworth, Peterbilt and DAF nameplates. These trucks, which are built in three plants in the United States, three in Europe and one each in Australia, Brasil, Canada and Mexico, are used worldwide for over-the-road and off-highway hauling of commercial and consumer goods. PACCAR also designs and manufactures diesel engines, primarily for use in PACCAR’s trucks, at its facilities in Columbus, Mississippi; Eindhoven, the Netherlands; and Ponta Grossa, Brasil. PACCAR competes in the North American Class 8 market, primarily with Kenworth and Peterbilt conventional models. These trucks are assembled at facilities in Chillicothe, Ohio; Denton, Texas; Renton, Washington; Ste. Therese, CanadaWashington and Mexicali, Mexico. PACCAR also competes in the North American Class 6 to 7 markets primarily with Kenworth and Peterbilt conventional models. These trucks are assembled at facilities in Ste. Therese, CanadaCanada; Denton, Texas and Mexicali, Mexico. PACCAR competes in the European light/medium market with DAF cab-over-engine (COE) trucks assembled in the United Kingdom (U.K.) by Leyland, one of PACCAR’s wholly owned subsidiaries, and participates in the European heavy market with DAF COE trucks assembled in the Netherlands and the United Kingdom.U.K.  PACCAR competes in the Brazilian heavy truck market with DAF COE models assembled at Ponta Grossa in the state of Paraná, Brasil.  PACCAR competes in the Australian lightmedium and heavy truck markets with Kenworth conventional and COE models and certain DAF COE models assembled at its facility at Bayswater in the state of Victoria, Australia, and DAF COE models primarily assembled in the United Kingdom.U.K. Commercial truck manufacturing comprises the largest segment of PACCAR’s business and accounted for 76%75% of total 20172022 net sales and revenues.  

Substantially all trucks are sold to independent dealers. The Kenworth and Peterbilt nameplates are marketed and distributed by separate divisions in the U.S. and a foreign subsidiary in Canada. The Kenworth nameplate is also marketed and distributed by foreign subsidiaries in Mexico and Australia. The DAF nameplate is marketed and distributed worldwide by a foreign subsidiary headquartered in the Netherlands and is also marketed and distributed by foreign subsidiaries in Brasil and Australia. The decision to operate as a subsidiary or as a division is incidental to PACCAR’s Truck segment operations and reflects legal, tax and regulatory requirements in the various countries where PACCAR operates.

There are four principal competitors in the U.S. and Canada commercial truck market. PACCAR’s share of the U.S. and Canadian Class 8 market was a record 30.7%29.8% of retail sales in 2017,2022, and PACCAR’s medium-duty market share was 17.1% of registrations in 2017.10.9%. In Europe, there are six principal competitors in the commercial truck market, including parent companies to twothe four competitors of PACCAR in the U.S. In 2017,2022, DAF had a 15.3%17.3% share of the European heavy-duty market and a 10.5%9.7% share of the light/medium duty market. These markets

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PACCAR Financial Corp.

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are highly competitive in price, quality and service. PACCAR is not dependent on any single customer for its sales. There are no significant seasonal variations in sales.

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PACCAR Financial Corp.

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Aftermarket truck parts are sold and delivered to PACCAR’s independent dealers through PACCAR’s 18 strategically located parts distribution centers (PDCs) in the U.S., Canada, Europe, Australia, Mexico and Central and South America. Parts are primarily purchased from various suppliers and also manufactured by PACCAR. Aftermarket parts inventory levels are determined largely by anticipated customer demand and the need for timely delivery. The Parts segment accounted for 17%20% of total 20172022 net sales and revenues.

In addition to the Company, which provides financing, leasing and full-service truck leasing in the United States, PACCAR offers similar financing programs for PACCAR products in Canada, Mexico, Australia, Europe and South America through other wholly owned finance subsidiaries. PACCAR also conducts full-service leasing operations through wholly owned subsidiaries in Canada, Mexico, Germany and Australia.

PACCAR’s common stock is traded on the NASDAQ Global SelectStock Market under the symbol PCAR. PACCAR and the Company are subject to the informational requirements of the Securities Exchange Act of 1934 and, in accordance therewith, file reports and other information with the Securities and Exchange Commission (the “Commission”). All reports, proxy statements and other information filed by PACCAR and the Company with the Commission may be inspected and copied at the public reference facility maintained by the Commission at 100 F Street, N.E., Washington, D.C. 20549 or through the Commission’s internet site at www.sec.gov.

BUSINESS OF THE COMPANY

The Company operates primarily in the industry segment of finance and leasing services provided to customers and dealers in the United States for new Kenworth and Peterbilt trucks, used trucks, truck trailers and allied equipment. The Company’s PacLease division franchises Kenworth and Peterbilt dealerships to engage in full-service and finance leasing. In selected markets, PacLease directly engages in full-service leasing with its customers through Company-owned stores and on a limited basis through Kenworth and Peterbilt dealerships.

The Company conducts business with most Kenworth and Peterbilt dealers in the United States. The volume of the Company’s business is significantly affected by PACCAR’s sales of trucks to its dealers and competition from other financing sources.

The Company is primarily responsible for managing the sales of used trucks in the United States. The Company sells used trucks returned from matured operating leases in the ordinary course of business and trucks acquired from repossessions. The Company also obtains used trucks from Kenworth and Peterbilt in trades related to new truck sales. Certain gains and losses from the sale of used trucks are shared with Kenworth and Peterbilt. The Company records revenue on the sale of used trucks received in trade.

As of December 31, 2017,2022, the Company employed 437349 full-time employees, none of whom are represented by a collective bargaining agent.

Human Capital Management

The Company is committed to a strong, diverse and inclusive culture and the company’s excellent financial results reflect its human centered philosophy. The Company’s employees have access to robust benefit packages, comprehensive training programs, tuition assistance and a work environment that promotes safety and diversity.

The Company’s benefit packages support employee physical, emotional and financial well-being. Employee satisfaction and engagement are measured through periodic surveys. Employee training and development programs are extensive and comprehensive, including professional and technical skills training, compliance training, leadership development and management training. The Company has diversity councils that set goals to enhance business success through diverse and inclusive workplaces.

Safety is a key priority at the Company’s facilities. The Company’s managers continuously address safety enhancements; provide regular and ongoing safety training; and use displays located in facilities to provide all employees with safety-related information.

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Environmental and Sustainability Leadership

The Company’s environmental management system and policy are aligned with PACCAR’s overall commitment to the environment as an integral part of the continuous improvement process. Refer to Part I, Item 1 in PACCAR’s 2022 Annual Report on Form 10-K for further discussion on PACCAR’s environmental and sustainability leadership.

THE COMPANY’S PRODUCTS

The Company offers the following products to retail customers:

Retail Contracts and Loans

The Company purchases retail installment contracts from dealers and receives assignments of the contracts and a first lien security interest in the vehicles financed (“Retail Contracts”). Certain Retail Contracts with third party leasing companies may also include an assignment to the Company of the related lease and rental payments due. Retail Contracts purchased by the Company have fixed or floating interest rates.

The Company also makes loans to the end users of the vehicles financed that are secured by a first lien security interest in the vehicles. These loans have fixed or floating interest rates.

Direct Financing Leases

The Company offers direct financing lease contracts where it is treated as the owner of the equipment for tax purposes and generally retains the tax depreciation (“Direct Financing Leases”). The lessee is responsible for the payment of property and sales taxes, licenses, maintenance and other operating costs.

The lessee is obligated to maintain the equipment and to insure the equipment against physical damage and liability losses.

Most of the Company’s Direct Financing Leases contain a Terminal Rental Adjustment Clause, which requires the lessee to guarantee to the Company a stated residual value upon disposition of the equipment at the end of the direct financing lease term.

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Operating Leases

The Company offers operating lease contracts (“Operating Leases”) where the Company owns the equipment. The lessee is responsible for the payment of property and sales taxes, licenses, maintenance and other operating costs. The lessee is obligated to maintain the equipment and to insure the equipment against physical damage and liability losses.

At the end of the operating lease term, the lessee has the option to return the equipment to the Company or purchase the equipment at its fair market value.

The Company offers the following products to Kenworth and Peterbilt dealers and PacLease franchisees:

Master Notes

Master note contracts (“Master Notes”) are offered to select dealers for new and used trucks. RetailFor some Master Notes, retail installment contracts originated by the dealer for new or used trucks which meet the Company’s requirements as to form, terms and creditworthiness for Retail Contracts are pledged to the Company as collateral for direct, full recourse loans by the Company to the dealer. For other Master Notes, specified trucks in the dealer’s lease and rental inventory, together with the associated lease and rental contracts between the dealer and its customers, are pledged as collateral. The dealer may pay the loans early or make additional draws up to a specified balancespercentage of the value of the contracts and/or vehicles pledged to the Company. Master Notes have fixed or floating interest rates.

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PACCAR Financial Corp.

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Wholesale Contracts

The Company provides wholesale financing for new and used truck inventories for dealers (“Wholesale Contracts”). Wholesale Contracts are secured by the inventories financed. The amount of credit extended by the Company for each truck is generally limited to the invoice price of new equipment and to the wholesale value of used equipment. Wholesale Contracts have floating interest rates.

Dealer Loans

The Company makes secured loans to selected Kenworth and Peterbilt dealers (“Dealer Loans”). The purpose of these loans includes the financing of real estate, fixed assets, working capital and dealership acquisitions. Dealer Loans have fixed or floating interest rates.

Full-Service Leasing

The Company also conducts full-service leasing operations under the PacLease trade name. Selected dealers are franchised to provide full-service leasing, which includes the equipment, maintenance, parts, taxes and licenses in one combined contract with the customer. The Company provides the franchisees with equipment financing and managerial support. The Company also operates full-service lease outlets in selected markets.

Insurance

The Company offers insurance coverage through an unrelated regulated insurance carrier for a fee on new trucks and used trucks inventory to dealers that have Wholesale Contracts with the Company.

CUSTOMER CONCENTRATION, PAST DUE ACCOUNTS AND LOSS EXPERIENCE

Customer Concentration

The Company’s customers are principally concentrated in the transportation industry in the United States. The Company’s portfolio assets are diversified over a large number of customers and dealers with no single customer or dealer balance representing over 10% of the total portfolio assets as of December 31, 20172022 and 2016.

The Company has contractual arrangements with one2021. There is no single customer Swift Transportation Corporation, that accounted for 10.4%, 12.1% and 13.8%or dealer representing over 10% of total interestInterest and other revenues for the years ended December 31, 2017, 20162022, 2021 and 2015, respectively.2020.

Past Due Receivables and Allowance for Credit Losses

An account is considered past due by the Company if any portion of an installment is due and unpaid for more than 30 days. In periods of adverse economic conditions, past due levels, repossessions and credit losses generally increase.

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The provision for losses on finance and other receivables is charged to income as necessary to reflect management’s estimate of incurredexpected credit losses, net of recoveries, inherent in the portfolio. Receivables are charged off against the allowance for credit losses when, in the judgment of management, they are considered uncollectible (generally upon repossession of the collateral).

For further discussion of the allowance for credit losses, see “Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

COMPETITION AND ECONOMIC FACTORS

The commercial truck and trailer finance and leasing business is highly competitive among banks, commercial finance companies, captive finance companies and leasing companies. Some of these institutions have substantially greater financial resources than the Company and may borrow funds at lower rates.

The dealers are the primary source of contracts acquired by the Company. Dealers are not required to obtain financing from the Company and they have a variety of other sources that may be used for wholesale and customer financing of trucks. Retail purchasers also have a variety of sources available to finance truck purchases.

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PACCAR Financial Corp.

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The ability of the Company to compete in its market is principally based on the rates, terms and conditions that the Company offers dealers and retail purchasers, as well as the specialized services it provides. Rates, terms and conditions are based on the Company’s desire to provide flexible financing and services to satisfy dealer and customer needs, the ability of the Company to borrow funds at competitive rates and the Company’s need to earn an adequate return on its invested capital. The Company’s business is also affected by changes in market interest rates and used truck values, which in turn are related to general economic conditions, demand for credit, inflation and governmental policies. Seasonality is not a significant factor in the Company’s business.

The volume of receivables available to be acquired by the Company from dealers is largely dependent upon the number of Kenworth and Peterbilt trucks sold in the United States. Sales of medium- and heavy-duty trucks depend on the capital equipment requirements of the transportation industry, which are influenced by growth and cyclical variations in the economy. Medium- and heavy-duty truck sales are also sensitive to economic factors such as fuel costs, interest rates, insurance premiums, federal excise and highway use taxes, taxation on the acquisition and use of capital goods, as well as government regulations.

REGULATION AND SIMILAR MATTERS

In certain states, the Company is subject to retail installment sales or installment loan statutes and related regulations, the terms of which vary from state to state. These laws may require the Company to be licensed as a sales finance company and may regulate disclosure of finance charges and other terms of retail installment contracts. The Company is subject to substantive state franchise regulations and federal and state uniform franchise disclosure laws in connection with the offering of PacLease full-service truck leasing and rental franchises to Kenworth and Peterbilt truck dealers. The Company owns and operates several truck leasing and rental business locations, which are subject to applicable state licensing laws. The Company is also subject to certain provisions of federal law relating to non-discrimination in the granting of credit.

SOURCES OF FUNDS

The Company’s primary sources of funds are medium-term note borrowings and commercial paper proceeds in the public capital markets, collections on loans and leases, retained earnings and to a lesser extent borrowings from PACCAR, bank loans and capital contributions. The Company’s investment in additional receivables is dependent upon its ability to raise funds at competitive rates in the public and private debt markets. The receivables and leases that are financed are either fixed rate or floating rate with terms that generally range from 36 to 60 months.

To reduce the risk of changes in interest rates that could affect interest margins, the Company obtains funding with interest rate characteristics similar to the corresponding assets. Fixed rate assets are primarily funded with fixed and floating rate medium-term notes and commercial paper. Floating rate assets are funded primarily with commercial paper with maturities of three months or less and floating rate medium-term notes. Interest-rate swaps may be combined with commercial paper or medium-term notes to achieve the Company’s matched funding objectives.

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PACCAR Financial Corp.

(Millions of Dollars)

As of December 31, 2017,2022, the total notional amount of interest-rate swap contracts outstanding was $838.7.$604.0. These swap contracts are accounted for as cash flow or fair value hedges.

The notional amounts are used to measure the volume of these contracts and do not represent exposure to credit loss. The permitted types of interest-rate swap contracts, counterparties’ transaction limits and related approval authorizations have been established by the Company’s senior management and Board of Directors. The interest-rate contracts outstanding are regularly reported to, and reviewed by, the Company’s senior management.

The Company periodically registers debt securities under the Securities Act of 1933 for offering to the public. In November 2015,2021, the Company filed a shelf registration statement to issue medium-term notes. In January 2023, the Company issued $300.0 of medium-term notes under this registration. The shelf registration statement expires in November 20182024 and does not limit the principal amount of debt securities that may be issued during the period. The Company intends to renew the registration prior to its expiration. The total principal amount of medium-term notes outstanding for the Company as of December 31, 20172022 was $4,450.0.$5,850.0. See “Note G – Borrowings” in the Notes to the Financial Statements for further information on the Company’s medium-term notes.

The Company participated with PACCAR and certain other PACCAR affiliates in syndicated creditcommitted bank facilities of $3,000.0 at December 31, 2017.2022. Of this amount, $1,000.0 expires in June 2018,2023, $1,000.0 expires in June 20212025 and $1,000.0 expires in June 2022. 2027.

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PACCAR and the Company intend to replace these credit facilities on or before expiration with facilities of similar amounts and duration.

Of the $3,000.0 credit facilities, $1,953.0$2,268.0 is available for use by the Company and/or PACCAR and other non-U.S. PACCAR Financial Europe.financial subsidiaries. The remaining $1,047.0$732.0 is allocated to PACCAR and other non-U.S. PACCAR financial subsidiaries. These credit facilities are used to provide backup liquidity for the Company’s commercial paper and maturing medium-term notes. The Company is liable only for its own borrowings under these credit facilities. There were no borrowings under these credit facilities in 2017.2022.

RELATIONSHIP WITH PACCAR AND AFFILIATES

General

The operations of the Company are dependent on its relationship with PACCAR. Sales of PACCAR products are the Company’s principal source of its financing business. The Company receives administrative support from and pays dividends to its parent company and periodically borrows funds from or lends money to PACCAR and/or its affiliates. The Company’s principal office is located in the corporate headquarters building of PACCAR (owned by PACCAR).

The Company also leases office space from one facility owned by PACCAR and five facilities leased by PACCAR. Since the directors of the Company are all executives of PACCAR and PACCAR is the sole owner of the Company’s outstanding voting common stock, PACCAR can determine the course of the Company’s business.

Periodically, the Company makes loans to, borrows from and has intercompany transactions with PACCAR. The Company had $777.5$1,261.0 and $756.5$1,151.0 outstanding in loans due from PACCAR as of December 31, 20172022 and 2016,2021, respectively. In addition, the Company periodically loans funds to certain foreign finance and leasing affiliates of PACCAR. The Company had $295.0$627.0 and $413.0$275.0 outstanding in loans due from foreign finance affiliates of PACCAR as of December 31, 20172022 and 2016,2021, respectively. These affiliates have Support Agreements with PACCAR, similar to the Company’s Support Agreement with PACCAR described below. The foreign affiliates operate in the United Kingdom,U.K., the Netherlands, Mexico, Canada, Australia and Australia.Brasil. Loans to these foreign affiliates during 20172022 and 20162021 were denominated in United States dollars. The foreign affiliates primarily provide financing and leasing of PACCAR manufactured trucks and related equipment sold through the DAF, Kenworth and Peterbilt independent dealer networks in Europe, Mexico, Canada, Australia and Australia.Brasil. The Company will not make loans to the foreign affiliates in excess of the equivalent of $500.0$750.0 United States dollars, unless the amount in excess of such limit is guaranteed by PACCAR. The Company periodically reviews the funding alternatives for these affiliates, and these limits may be revised in the future.

PACCAR charges the Company for certain administrative services it provides. These costs were charged to the Company based upon the Company’s use of the services and PACCAR’s cost. See “Note D – Transactions with PACCAR and Affiliates” in the Notes to the Financial Statements.

Support Agreement

The Company and PACCAR are parties to a Support Agreement that obligates PACCAR to provide, when required, financial assistance to the Company to ensure that the Company maintains a ratio of earnings to fixed charges (as defined in the Support

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Agreement) of at least 1.25 to 1 for any fiscal year. The required ratio for the years ended December 31, 2017, 20162022, 2021 and 20152020 was met without assistance. The Support Agreement also requires PACCAR to own, directly or indirectly, all outstanding voting stock of the Company. See “Note D – Transactions with PACCAR and Affiliates” in the Notes to the Financial Statements.

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The Company and PACCAR may amend or terminate any or all of the provisions of the Support Agreement upon 30 days notice, with copies of the notice being sent to all nationally recognized statistical rating organizations (“NRSROs”) which have issued ratings with respect to debt of the Company (“Rated Debt”). Such amendment or termination will be effective only if (i) two NRSROs confirm in writing that their ratings with respect to any Rated Debt would remain the same after such amendment or termination, or (ii) the notice of amendment or termination provides that the Support Agreement will continue in effect with respect to Rated Debt outstanding on the effective date of such amendment or termination unless such debt has been paid or defeased pursuant to the indenture or other agreement applicable to such debt, or (iii) the holders of at least two-thirds of the aggregate principal amount of all outstanding Rated Debt with an original maturity in excess of 270 days consent in writing to such amendment or termination, provided that the holders of Rated Debt having an original maturity of 270 days or less shall continue to have the benefits of the Support Agreement until the maturity of such debt.

The Support Agreement expressly states that PACCAR’s commitments to the Company thereunder do not constitute a PACCAR guarantee of payment of any indebtedness or liability of the Company to others and do not create rights against PACCAR in favor of persons other than the Company. There are no guarantees, direct or indirect, by PACCAR of payment of any indebtedness of the Company.

OTHER DISCLOSURES

The Company’s filings on Forms 10-K, 10-Q and 8-K and any amendments to those reports can be obtained through a link on the Company’s website, www.paccarfinancial.com, or PACCAR’s website, www.paccar.com, free of charge as soon as reasonably practicable after the report is electronically filed with, or furnished to, the Commission. The information on the websites is not incorporated by reference into this report.

The Company is exposed to certain risks and uncertainties that could have a material adverse impact to the Company’s financial condition and operating results, including:

Business and Industry Risks

Sales of PACCAR Products

The Company’s business is substantially dependent upon the sale of PACCAR products and its ability to offer competitive financing in the United States. Changes in the volume of sales of PACCAR products due to a variety of reasons could impact the level of business of the Company. Refer to the “Relationship with PACCAR and Affiliates” section in “Item 1. – Business” and “Note D – Transactions with PACCAR and Affiliates” in the Notes to the Financial Statements for further discussion regarding the Company’s relationship with PACCAR.

Production Costs, Capacity and Inflation

PACCAR’s products are exposed to variability in material and commodity costs. Commodity or component price increases, cost pressures due to inflation, significant shortages of component products and labor availability may adversely impact PACCAR’s production capacity, resulting in lower truck financing volume for the Company. Many of PACCAR’s suppliers also supply automotive manufacturers, and factors that adversely affect the automotive industry can also have adverse effects on these suppliers, PACCAR and the Company. Supplier delivery performance can be adversely affected if increased demand for these suppliers’ products exceeds their production capacity. PACCAR has been affected by an industry-wide undersupply of component parts and anticipates the shortages may continue to affect deliveries into 2023.

Unexpected events, including natural disasters, extreme weather events, or pandemics, may increase PACCAR’s cost of doing business or disrupt PACCAR’s or its suppliers’ operations. The likelihood or severity of these unexpected events may increase due to the effects of climate change.

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Transition Risks Related to Climate Change

PACCAR has ongoing product development programs intended to address changing customer demand in the context of climate change and achieve its targeted reductions in emissions. These involve the continuing development of compliant clean diesel powertrains and the design, manufacture, and sale of alternative powertrain commercial vehicles (e.g., battery-electric, hybrid, hydrogen fuel cell, and hydrogen combustion). The pace of transition from diesel combustion to alternative powertrain commercial vehicles is highly uncertain and will be influenced by various factors. Refer to Part I, Item 1A in PACCAR’s 2022 Annual Report on Form 10-K for further discussion.

PACCAR believes its current strategies, programs and resources are sufficient to address changes in customer demand in the context of climate change and to meet its emissions reduction targets. If PACCAR is not successful in addressing the risks noted above, there may be a material adverse impact on its business, operations and financial condition of PACCAR or the Company.

Liquidity Risks, Credit Ratings and Costs of Funds

Disruptions or volatility in U.S. financial markets could limit the Company’s sources of liquidity, or the liquidity of customers and dealers. A lowering of the Company’s credit ratings could increase the cost of borrowing and adversely affect access to capital markets. The Company obtains funds for its operations from commercial paper and medium-term note debt. If the markets for commercial paper and medium-term notes do not provide the necessary liquidity in the future, the Company may experience increased costs or may have to limit its financing of retail and wholesale assets.

Competitive Risk

The Company competes with banks, other commercial finance companies and financial services firms which may have lower costs of borrowing, higher leverage or market share goals that result in a willingness to offer lower interest rates, which may lead to decreased margins, lower market share or both.both for the Company.

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Credit Risk

The Company is exposed to the risk of loss arising from the failure of a customer, dealer or counterparty to meet the terms of the loans, leases and derivative contracts with the Company. Although most of the financial assets of the Company are secured by underlying equipment collateral, in the event a customer cannot meet its obligations to the Company, there is a risk that the value of the underlying collateral will not be sufficient to recover the amounts owed to the Company, resulting in credit losses.

Interest-Rate Risk

The Company is subject to interest-rate risks, because increases in interest rates could reduce demand for its products, increase borrowing costs and potentially reduce interest margins. The Company uses derivative contracts to match the interest rate characteristics of its debt to the interest rate characteristics of its finance receivables in order to mitigate the risk of changing interest rates.

Substantially all of the Company’s finance contracts which used to reference LIBOR (London Inter-Bank Offered Rate), including dealer wholesale financing contracts, retail loan and lease contracts, medium term notes, hedging instruments and line of credit arrangements, have been transitioned to alternative benchmark rates.

Changes to other benchmark interest rates will have an uncertain impact on finance receivables and other financial obligations, the Company’s future cost of funds and/or access to capital markets. The Company will attempt to minimize the impact of differences between the current and replacement benchmark rates through pricing adjustments on the financing provided by the Company, but it is not certain the Company will be able to do so. The Company does not expect the cessation of LIBOR or the anticipated changes to other benchmark rates will have a material impact on the results of operations.

Residual Value Risk

Residual value risk is the risk that the estimated residual value of leased assets, established at lease origination for the Company’s operating leases and certain direct financingfinance leases, will not be recoverable when the leased asset is returned to the Company. When the market value of these leased assets at contract maturity or at early termination is less than its contractual residual value, the Company will be exposed to a greater risk of loss on the sales of the returned equipment. Refer to the Critical Accounting Policy on “Equipment on Operating“Operating Leases” in “Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion regarding the Company’s exposure to residual value risk.

10

PACCAR Financial Corp.

(Millions of Dollars)

Information Technology

The Company relies on information technology systems and networks, some of which are managed by third parties, to process, transmit and store electronic information, and to manage or support a variety of its business processes and activities. Some of PACCAR’s products include telematics which provide over-the-air software updates, advanced fleet management tools and real-time data analytics on driver and vehicle performance. These computer systems and networks may be subject to disruptions during the process of upgrading or replacing software, databases or components; power outages; hardware failures; computer viruses; or outside parties attempting to disrupt the Company’s business or gain unauthorized access to the Company’s electronic data. The Company maintains and continues to invest in protections to guard against such events. Examples of these protections include conducting third-party penetration tests, implementing software detection and prevention tools, event monitoring, and disaster recoverability. Additionally, the Company maintains a cybersecurity insurance policy. Despite these safeguards, there remains a risk of system disruptions, unauthorized access and data loss.

The Company has not experienced any notable security incidents that would have a material impact on the results of operations and financial condition of the Company. Certain dealers and suppliers have experienced cyberattacks and those have not caused any material impact to PACCAR or the Company. If the Company’s computer systems were to be damaged, disrupted or breached, it could impact data availability and integrity, result in a theft of the Company’s intellectual property or lead to unauthorized disclosure of confidential information of the Company’s customers, suppliers and employees. Security breaches could also result in a violation of U.S. and international privacy and other laws and subject the Company to various litigations and governmental proceedings. These events could have an adverse impact on the Company’s results of operations and financial condition, damage its reputation, disrupt operations and negatively impact competitiveness in the marketplace.

Political, Regulatory and Economic Risks

Conflict in Ukraine

In accordance with international sanctions, in February 2022 PACCAR suspended truck and parts sales to Russia and Belarus. The conflict may affect energy supplies in Europe. If the availability of energy in Europe is severely constrained, truck delivery volumes could be impacted. PACCAR continues to monitor the situation closely. The conflict has not had a significant impact on the results of operations or cash flows of PACCAR or the Company. The potential future impact on PACCAR and the Company’s business will depend on further developments, including the severity and duration of the conflict and its effect on global economic conditions.

COVID-19 Pandemic

The effects of the COVID-19 pandemic decreased over the course of 2022 but still caused disruptions to the global supply chain, in particular the undersupply of component parts and semiconductor chips. A recurrence of a severe COVID-19 strain could cause industry capacity constraints on suppliers and localized outbreaks of COVID-19 may necessitate PACCAR facility slowdowns or shutdowns. These and other unforeseen pandemic related factors could impact the Company’s business and results of operations.

Emissions Requirements and Reduction Targets

PACCAR’s operations and products are subject to extensive statutory and regulatory requirements governing greenhouse gas and non-greenhouse gas emissions. These include standards imposed by the U.S. Environmental Protection Agency (EPA), the European Union, U.S. state regulatory agencies (such as the California Air Resources Board), regulatory agencies in other international markets where the Company operates, and non-binding international accords related to climate change. The primary laws and regulations are the EPA’s Greenhouse Gas Emissions Standards and Fuel Efficiency Standards for Medium and Heavy-Duty Engines and Vehicles, the Regulation of the European Parliament and of the Council on the Monitoring and Reporting of CO2 Emissions from Fuel Consumption of New Heavy-Duty Vehicles, and the Heavy-Duty Omnibus Regulation of the California Air Resources Board. PACCAR established its science-based greenhouse gas emission reduction targets to meet the goals of the Paris Agreement. PACCAR continually monitors developments in emissions and climate change-related laws and regulations in the markets in which PACCAR conducts business.

PACCAR’s product planning through 2030 is aligned with these statutory and regulatory requirements and uses a climate change scenario analysis to limit global warming to below 2°C. Even without legislation to reduce greenhouse gas emissions, PACCAR expects to continue to significantly invest in technologies to improve fuel efficiency for its customers, which would also reduce greenhouse gas emissions.

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PACCAR Financial Corp.

(Millions of Dollars)

PACCAR expects that climate change-related laws, regulations and international accords will continue to evolve. The Company cannot reasonably predict whether future laws, regulations and international accords could materially increase its environmental compliance costs, alter its product development strategy, or impact its business, financial condition or results of operations of PACCAR or the Company.

Litigation and Regulatory Actions

On July 19, 2016, the European Commission (EC) concluded its investigation of all major European truck manufacturers and reached a settlement with DAF Trucks N.V., its subsidiary DAF Trucks Deutschland GmbH (collectively, “DAF”) and PACCAR Inc as their parent. Following the settlement, certain EC-related claims and lawsuits have been filed in various jurisdictions primarily in Europe against all major European truck manufacturers including PACCAR Inc and DAF. These claims and lawsuits include a number of collective proceedings, including a class action in the U.K., alleging EC-related claims and seeking monetary damages. In certain jurisdictions, the limitations period has not yet expired and additional claimants may bring EC-related claims and lawsuits against PACCAR Inc or its subsidiaries.

The legal proceedings are continuing to move through the court systems in the various jurisdictions with some larger cases awaiting judgment in 2023 and others scheduled for trial in upcoming years. On February 7, 2023, the Competition Appeal Tribunal in the U.K. issued a judgment awarding the claimants monetary damages. The amount of the judgment is not material to PACCAR Inc’s business, financial condition or results of operations. PACCAR Inc is evaluating its options, including an appeal. While PACCAR Inc believes it has meritorious defenses to all EC-related claims and lawsuits, the final disposition of all such claims and lawsuits will likely take a significant period of time to resolve and the final outcomes are highly uncertain. Considering the complexity of the claims and the different stages of the proceedings in a variety of jurisdictions, including the recent judgment in the U.K., PACCAR Inc cannot at this time reasonably estimate a range of loss that may result. Adverse final decisions involving significant numbers of DAF truck sales could have a material impact on PACCAR Inc’s results of operations and cash flows.

Accounting Estimates

In the preparation of the Company’s financial statements, in accordance with U.S. generally accepted accounting principles, management uses estimates and makes judgments and assumptions that affect asset and liability values and the amounts reported as income and expense during the periods presented. Certain of these estimates, judgments and assumptions, such as residual values on operating leases, the allowance for credit losses and the provision for income taxes, are particularly sensitive. If actual results are different from estimates used by management, they may have a material impact on the financial statements.

Information Technology

The Company relies on information technology systems, including the internet and other computer systems, which may be subject to disruptions during the process of upgrading or replacing software, databases or components; power outages; hardware failures; computer viruses; or outside parties attempting to disrupt the Company’s business or gain unauthorized access to the Company’s electronic data. The Company maintains protections to guard against such events. If the Company’s computer systems were to be damaged, disrupted or breached, it could result in a negative impact on the Company’s operating results and could also cause reputational damage, business disruption or the disclosure of confidential data.ITEM 1B.UNRESOLVED STAFF COMMENTS

Litigation and Regulatory Actions

On July 19, 2016, the European Commission (EC) concluded its investigation of all major European truck manufacturers and reached a settlement with DAF Trucks N.V., its subsidiary DAF Trucks Deutschland GmbH (collectively, “DAF”) and PACCAR Inc as their parent. Following the settlement, claims and lawsuits have been filed against PACCAR Inc, DAF and other truck manufacturers.  Others may bring EC-related claims and lawsuits against PACCAR Inc or its subsidiaries. While PACCAR Inc believes it has meritorious defenses, such claims and lawsuits will likely take a significant period of time to resolve. An adverse outcome of such proceedings could have a material impact on PACCAR Inc’s results of operations.Not applicable.

Not applicable.

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PACCAR Financial Corp.

(Millions of Dollars)

The Company’s principal office is located in the corporate headquarters building of PACCAR (owned by PACCAR) at 777 106^th 106th Avenue N.E., Bellevue, Washington 98004. The Company owns threetwo full-service leasing facilities in Texas and leases one in Texas and one in Illinois.Texas. The Company owns used truck sales facilities in South Carolina, Illinois, Texas and Utah, and leases one facility in California.

Other offices and leasing facilities of the Company are located in leased premises including one facility owned by PACCAR and four facilities leased by PACCAR. The Company considers all its properties to be suitable for their intended purpose. Annual lease rentals for these premises in the aggregate are not material in relation to expenses as a whole.

The Company is a party to various routine legal proceedings incidental to its business involving the collection of accounts and other matters. The Company does not consider such matters to be material with respectRefer to the business or financial condition ofCompany’s risk factors (Part I, Item 1A) and Note K – “Commitments and Contingencies” in the Company as a whole.Notes to Financial Statements (Part II, Item 8) for discussion on litigation matters, which is incorporated by reference herein.

Not applicable.

12

PACCAR Financial Corp.

(Millions of Dollars)

PART II

All outstanding common stock is owned by PACCAR; therefore, there is no trading market in the Company’s common stock.

No dividends were declared in 2017. Dividends in the amount of $100.0 and nil were declared and paid to PACCAR in 2016 and 2015, respectively.

13

10

PACCAR Financial Corp.

(Millions of Dollars)

The following table summarizes selected financial data for the Company.

Balance Sheet Data

Income Statement Data

11

PACCAR Financial Corp.

(Millions of Dollars)

Results of Operations

2017 ComparedThe Company’s results of operations for the years ended December 31, 2022 and 2021 are presented below. For information on the year ended December 31, 2020 refer to 2016:Part II, Item 7 in the 2021 Annual Report on Form 10-K.

New Business Volume

New business volume increased to $3,088.6 in 2022 from $3,043.5 in 2021, primarily due to higher retail sales of PACCAR trucks and a higher amount financed per truck, partially offset by lower finance market share in 2022. The decrease in retail loans and direct financingfinance leases new business volume and increase in 2017 decreased 1% from 2016 due to a lower share of retail sales financed in 2017. Equipmentequipment on operating leases new business volume decreased 19% in 2017 from 2016, attributable toreflected lower retail financing and higher fleet business in 2017.2022.  Dealer master notes new business volume increased to $205.0 in 2017 increased 31%2022 from 2016$165.4 in 2021 due to increased finance volume from dealers.

Market share on financing of new PACCAR trucks was 21.2%21.3% in 20172022 compared to 23.3%23.2% in 2016 due to less operating lease fleet business.2021.

The Company has programs to assign new lease and loan contracts to third parties to generate new business and to limit the risk of portfolio concentration with certain large customers and to generate new business.customers. These transactions are accounted for as sales of the related retail loans, direct financingfinance leases, or equipment on operating leases, and are excluded from new business volume. The Company sold retail loans and direct financingfinance leases with a book value of $25.0$59.5 and $16.2$49.9 in 20172022 and 2016,2021, and received cash proceeds of $25.6$63.2 and $16.5$53.2 in 20172022 and 2016,2021, respectively. TheIn 2022, the Company sold equipment under operating leases with a book value of $6.9 and $4.8 in 2017 and 2016,$.3 and received cash proceeds of $7.1 and $5.0$.3. The Company had no sales of equipment under operating leases in 2017 and 2016, respectively.2021. The Company retains servicing responsibilities for these retail loans and leases, and fees received for servicing are deferred and recognized over the contract term.

14

PACCAR Financial Corp.

(Millions of Dollars)

Revenues

The Company’s revenues decreased to $642.9 in 2022 from $716.0 in 2021, primarily driven by lower unit volumes of used truck sales, partially offset by higher used truck market prices.

Income Before Income Taxes

The Company’s income before income taxes was $91.3$259.9 in 20172022 compared to $139.2$196.3 in 2016.2021. The decreaseincrease in income before income taxes in 20172022 was primarily the result of lowerhigher operating lease margin of $27.3 and lower$61.4, higher finance margin of $20.0.$3.7 and lower provision for losses of $2.5, partially offset by higher selling, general and administrative expenses (SG&A) of $3.4.

Included in Other assets on the Company’s Balance Sheets are used trucks held for sale, net of impairments, of $139.8$63.3 at December 31, 20172022 and $205.5$44.4 at December 31, 2016.2021. These trucks are primarily units returned from matured operating leases in the ordinary

12

PACCAR Financial Corp.

(Millions of Dollars)

course of business, and also includesinclude trucks acquired from repossessions or through acquisitions of used trucks in trades related to new truck sales.

In 2017, theThe Company recognized lossesgains of $61.8 on used trucks, excluding repossessions, in 2022 compared to gains of $47.4$7.3 in 2017 and $18.4 in 2016, including2021, (which included losses on multiple unit transactions of $26.7$11.7 in 2017 and $3.1 in 2016.2021). Used truck lossesgains related to repossessions, which are recognized as credit losses,recoveries were $4.9$.2 and $1.0 in 2017 compared to $2.4 in 2016.2022 and 2021, respectively.

Revenue and Expenses

The major factors for the changes in interest and fee income, interest and other borrowing costs and finance margin in 20172022 compared to 20162021 are summarized below:

15

PACCAR Financial Corp.

(Millions of retail portfolio collections exceeding new business volume.Dollars)

The major factors for the changes in operating lease and rental revenues, depreciation and other rental expenses and operating lease margin in 20172022 compared to 20162021 are summarized below:

13

PACCAR Financial Corp.

(Millions of Dollars)

Used truck sales and other revenues and cost of used truck sales and other expenses are summarized below for 20172022 compared to 2016:

2021:

Results from used trucks and other decreased by $.6 in 2022, reflecting lower unit volume of used truck sales.

SG&A

The Company’s SG&A increased by $2.5to $60.7 in 2017,2022 from $57.3 in 2021, primarily due to improved results fromhigher personnel and related expenses. As a percentage of average earning assets, the saleCompany’s SG&A was .8% in 2022 compared to .7% in 2021.

16

PACCAR Financial Corp.

(Millions of used trucks received on trade.Dollars)

Allowance for Credit Losses

The following table summarizes information on the Company’s allowance for credit losses on receivables and asset portfolio and presents related ratios:

The provision (benefit) for losses on receivables was $12.0$(4.7) in 20172022 compared to $12.3$(2.2) in 2016,2021, reflecting improved portfolio performance in 2022.

Charge-offs, net of recoveries, was a net recovery of $.7 in 2022 compared to a net charge-off of $.3 in 2021, reflecting continued goodstrong portfolio performance.performance.

Retail loan and lease receivables past due over 30 days was .42%.12% at December 31, 2017 2022 compared to .30%.04% at December 31, 2016 primarily due to two2021, reflecting one fleet customerscustomer becoming past due at December 31, 2017.in 2022. The Company continues to focus on maintaining low past due balances.

The estimation methods and factors considered for determining the allowance during the periods included in this filing have been consistently applied. See “Critical Accounting Policies”, “Note A – Significant Accounting Policies” and “Note B – Finance and Other Receivables” for additional discussion regarding the Allowance for Credit Losses.

Modifications

The Company modifies loans and finance leases in the normal course of its operations. The Company may modify loans and finance leases for commercial reasons or for credit reasons. Modifications for commercial reasons are changes to contract terms for customers that are not considered to be in financial difficulty. Insignificant delays are modifications extending terms up to three months for customers experiencing some short-term financial stress, but not considered to be in financial difficulty. Modifications for credit reasons are changes to contract terms for customers considered to be in financial difficulty. The Company’s modifications typically result in granting more time to pay the contractual amounts owed and charging a fee and interest for the term of the modification. When considering whether to modify customer accounts for credit reasons, the Company evaluates the creditworthiness of the customers and modifies those accounts that the Company considers likely to perform under the modified terms. When the Company

14

PACCAR Financial Corp.

(Millions of Dollars)

modifies loans and finance leases for credit reasons and grants a concession, the modifications are classified as troubled debt restructurings (TDR).

The post-modification balances of accounts modified during 2017 and 2016 are summarized below:

Total modification activity decreased in 2017 compared to 2016. The decrease in modifications for commercial reasons reflects lower volumes of refinancing. The decrease in modifications for insignificant delay reflects fewer fleet customers requesting payment relief for up to three months. Credit - TDR modifications decreased to $11.3 in 2017 from $17.8 in 2016 mainly due to the contract modifications of two fleet customers in 2016.

When the Company modifies a 30+ days past due account, the customer is then generally considered current under the revised contractual terms. The Company modified $.3 of accounts during the fourth quarter of 2017 and $.7 of accounts during the fourth quarter of 2016 that were 30+ days past due and became current at the time of modification. Had these accounts not been modified and had they continued to not make payments, the pro forma percentage of retail loan and lease accounts 30+ days past due would have been as follows:

Modification of accounts in prior quarters that were more than 30 days past due at the time of modification are included in past dues if they were not performing under the modified terms at December 31, 2017 and 2016. The effect of the allowance for credit losses from such modifications was not significant at December 31, 2017 and 2016.

Portfolio

The Company’s portfolio is concentrated with customers in the heavy- and medium-duty truck transportation industry. The portfolio is comprised of retail loans and leases, dealer wholesale financing and dealer master notes as follows:

Retail loans and retail leases decreased to $2,908.3 and $1,401.0 at December 31, 2017 from $2,948.6 and $1,495.7 at December 31, 2016, reflecting collections exceeding new business volume.

Dealer wholesale financing balances increased to $913.8 at December 31, 2017 from $760.3 at December 31, 2016 due to higher dealer new truck inventory.

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PACCAR Financial Corp.

(Millions of Dollars)

Dealer master notes were $18.3 at December 31, 2017 compared to $23.8 at December 31, 2016. The dealer may pay the loans early or make additional draws up to specified balances of the contracts pledged to the Company. As of December 31, 2017, the underlying pledged contracts were $95.1 of which the dealers have $39.3 as potential additional borrowing capacity.

Income Taxes

The Company’s effective income tax rate was a benefit of (328.5)% for 2017 compared to a provision of 36.1% for 2016. The primary difference in tax rates was due to the change in U.S. tax law in 2017 as further explained below.

On December 22, 2017, the U.S. enacted new federal income tax legislation, the Tax Cuts and Jobs Act (“the Tax Act”). The Tax Act lowered the U.S. statutory income tax rate from 35.0% to 21.0%. The Company recorded a provisional amount of $338.5 of deferred tax benefits, due to the re-measurement of net deferred tax liabilities at the new lower statutory tax rate.  The provisional amount may change in 2018, as new information becomes available and the Tax Act continues to be interpreted.

The Company’s estimated effective tax rate for 2018 is estimated at 24.0% to 25.0%, reflecting the reduced federal tax rate of 21.0% and other provisions of the Tax Act.

The Company is included in the consolidated federal income tax return of PACCAR. Federal income taxes for the Company are determined on a separate return basis. State income taxes, where the Company files combined tax returns with PACCAR, are determined on a blended statutory rate, which is substantially the same as the rate computed on a separate return basis.

During 2017, the Company’s deferred income tax benefit was $208.0 compared to $30.2 deferred income tax provision during 2016. The Company’s net deferred tax liability decreased to $597.9 at December 31, 2017 from $804.9 at December 31, 2016 primarily due to the reduction in the Federal tax rate. Deferred taxes are impacted by new business volume and the accelerated depreciation deduction rate under U.S. tax law. The difference in the timing of depreciation for financial statement and income tax purposes does not impact operating results and is not expected to have a significant impact on liquidity in 2018.

2016 Compared to 2015:

16

PACCAR Financial Corp.

(Millions of Dollars)

New Business Volume

New business volume from retail loans and direct financing leases in 2016 decreased 16% from 2015 due to lower retail sales of PACCAR trucks in 2016. Equipment on operating leases new business volume increased 20% in 2016 from 2015, attributable to higher fleet business in 2016. Dealer master notes new business volume in 2016 decreased 29% from 2015 due to lower retail truck sales resulting in decreased finance volume from dealers.

Market share on new PACCAR trucks was 23.3% in 2016 compared to 22.4% in 2015 due to increased fleet business.

The Company has programs to assign new lease and loan contracts to third parties to limit the risk of portfolio concentration with certain large customers and to generate new business. These transactions are accounted for as sales of the related retail loans, direct financing leases, or equipment on operating leases, and are excluded from new business volume. The Company sold retail loans and direct financing leases with a book value of $16.2 and $6.2 in 2016 and 2015, and received cash proceeds of $16.5 and $6.3 in 2016 and 2015, respectively. The Company sold equipment under operating leases with a book value of $4.8 and $11.3 in 2016 and 2015, and received cash proceeds of $5.0 and $11.6 in 2016 and 2015, respectively. The Company retains servicing responsibilities for these retail loans and leases, and fees received for servicing are deferred and recognized over the contract term.

Income Before Income Taxes

The Company’s income before income taxes was $139.2 in 2016 compared to $182.2 in 2015. The decrease in income before income taxes in 2016 was the result of lower operating lease margin of $18.5, lower finance margin of $12.6, higher provision for losses of $4.9, lower results from used trucks and other of $4.7, and higher selling, general and administrative expenses of $2.3.

Revenue and Expenses

The major factors for the changes in interest and fee income, interest and other borrowing costs and finance margin in 2016 compared to 2015 are summarized below:

17

PACCAR Financial Corp.

(Millions of Dollars)

The major factors for the changes in operating lease and rental revenues, depreciation and other rental expenses and operating lease margin in 2016 compared to 2015 are summarized below:

Used truck sales and other revenues and cost of used truck sales and other expenses are summarized below for 2016 compared to 2015:

Results from used trucks and other decreased by $4.7, primarily due to impairments and loss on sales of used trucks resulting from lower used truck market prices ($1.5), and higher insurance expense ($1.3).

Allowance for Credit Losses