TOYOTA MOTOR CREDIT CORP – 10-K – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Information

Certain statements contained in this Form 10-K are "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of
1995. These statements are based on current expectations and currently available
information. However, since these statements are based on factors that involve
risks and uncertainties, our performance and results may differ materially from
those described or implied by such forward-looking statements. Words such as
"believe," "anticipate," "expect," "estimate," "project," "should," "intend,"
"will," "may" or words or phrases of similar meaning are intended to identify
forward-looking statements. We caution that the forward-looking statements
involve known and unknown risks, uncertainties and other important factors such
as the following that may cause actual results to differ materially from those
stated:

• Risks related to health epidemics and other outbreaks;

• Changes in general business, economic, and geopolitical conditions,

          including trade policy, as well as in consumer demand and the
          competitive environment in the automotive markets in the United States;


     •    A decline in TMNA or any private label sales volume and the level of

TMNA or any private label sponsored subvention, cash, and contractual

          residual value support incentive programs;


     •    Extreme weather conditions, natural disasters, changes in fuel prices,
          manufacturing disruptions and production suspensions of Toyota, Lexus,
          and private label vehicles and related parts supply;


     •    Increased competition from other financial institutions seeking to
          increase their share of financing Toyota, Lexus, and private label
          vehicles;


  • Changes in consumer behavior;

• Recalls announced by TMNA or private label companies and the perceived

          quality of Toyota, Lexus, and any private label vehicles;


  • Availability and cost of financing;

• Failure or interruption in our operations, including our communications

          and information systems, or as a result of our failure to retain
          existing or to attract new key personnel;

• Increased cost, credit and operating risk exposure, or our failure to

realize the anticipated benefits from our private label financial

services to third-party automotive and mobility companies, including

Mazda and Bass Pro Shops;

• Changes in our credit ratings and those of our ultimate parent, TMC and

          changes in our credit support arrangements;


     •    Changes in our financial position and liquidity, or changes or

disruptions in our funding sources or access to the global capital

markets;

• Revisions to the estimates and assumptions for our allowance for credit

losses;

• Flaws in the design, implementation and use of quantitative models and

revisions to the estimates and assumptions that are used to determine

the value of certain assets;

• Fluctuations in the value or market prices of our investment securities;

     •    Changes in prices of used vehicles and their effect on residual values
          of our off-lease vehicles and return rates;


     •    Failure of our customers or dealers to meet the terms of any contract
          with us, or otherwise perform as agreed;


  • Fluctuations in interest rates and foreign currency exchange rates;

• Failure or changes in commercial soundness of our counterparties and

other financial institutions;

• Insufficient establishment of reserves, or the failure of a reinsurer to

          meet its obligations, in our voluntary protection operations;



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  • Changes to existing, or adoption of new, accounting standards;


  • A security breach or a cyber-attack;

• Failure to maintain compliant enterprise data practices, including the

          collection, use, sharing, and security of personally identifiable and
          financial information of our customers and employees;

• Compliance with current laws and regulations or becoming subject to more

stringent laws, regulatory requirements and regulatory scrutiny;

• Changes in the economies and applicable laws in the states where we have

concentration risk; and

• Other risks and uncertainties set forth in Part I, Item 1A. Risk Factors.

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


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OVERVIEW

Key Performance Indicators and Factors Affecting Our Business

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

In our voluntary protection operations, we generate revenue primarily through
marketing, underwriting, and providing claims administration for products that
cover certain risks of customers. We measure the performance of our voluntary
protection operations using the following metrics: issued contract volume,
average number of contracts in force, loss metrics and investment income.

Our financial results are affected by a variety of economic and industry factors
including, but not limited to, new and used vehicle markets, Toyota, Lexus, and
private label new vehicle production volume, vehicle inventory levels, vehicle
sales and incentive programs, consumer behavior, employment levels, our ability
to respond to changes in interest rates with respect to both contract pricing
and funding, the actual or perceived quality, safety or reliability of Toyota,
Lexus, and private label vehicles, the financial health of the dealers we
finance, and competitive pressure. Our financial results may also be affected by
the regulatory environment in which we operate, including as a result of new
legislation or changes in regulation and any compliance costs or changes we may
be required to make to our business practices. All of these factors can
influence consumer contract and dealer financing volume, the number of consumer
contracts and dealers that default and the loss per occurrence, our inability to
realize originally estimated contractual residual values on leased vehicles, the
volume and performance of our voluntary protection operations, and our Net
financing revenues on consumer and dealer financing volume. Changes in the
volume of vehicle sales, sales of our voluntary protection products, or the
level of voluntary protection expenses and insurance losses could materially and
adversely impact our voluntary protection operations. Additionally, our funding
programs and related costs are influenced by changes in the global capital
markets, prevailing interest rates, and our credit ratings and those of our
parent companies, which may affect our ability to obtain cost effective funding
to support earning asset growth.

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

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

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 2022 Operating Environment

During the fiscal year ending March 31, 2022 ("fiscal 2022"), the U.S. economy
continued to be impacted by the global pandemic of COVID-19 and related variants
and the extraordinary governmental measures intended to slow its spread. In
conjunction with increases in vaccination rates and the easing of restrictive
measures throughout fiscal 2022, there has been improvement in unemployment
levels and consumer confidence from fiscal 2021 pandemic lows, but neither
measure has returned to its pre-pandemic level. There remains uncertainty around
the duration and the severity of the COVID-19 pandemic, the timing and strength
of the economy's recovery, and the impacts of government support and lender
relief programs ending. In addition, during fiscal 2022, inflation has increased
significantly from pandemic lows in fiscal 2021 and has remained at elevated
levels. The impact of the COVID-19 pandemic on our future operations is
difficult to predict, but the curtailment of economic activities as a result of
further outbreak of COVID-19, extended or additional government restrictions
intended to slow the spread of the virus, ending of government support programs,
delayed consumer response to the lifting of restrictive measures, or permanent
behavior changes in consumer spending could have further negative impact on
consumer economics, dealerships, and auction sites, which could have a material
adverse impact on our business, financial condition, and future results of
operations. In addition, changes in the economy that adversely impact the
consumer, such as inflation, higher interest rates, elevated debt levels and an
increase in unemployment from the current levels could adversely impact our
results of operations.

Economic conditions caused by the COVID-19 pandemic, including production halts
and supply shortages affecting the automotive industry and additional delays
affecting the supply chain and logistics networks, have resulted in a decrease
in dealer new vehicle inventory levels. This includes the global shortage of
semiconductor chips and other parts and raw materials the automotive industry
continues to face. The duration and severity of the supply chain disruptions and
shortages, including but not limited to the semiconductor chips, are difficult
to predict, but should these persist or become more severe, the negative impact
to the manufacturers' vehicle production and dealer new vehicle inventory levels
could adversely impact our results of operations.

Average used vehicle values further increased in fiscal 2022 compared to fiscal
2021 and remain elevated compared to historical levels, primarily due to the
lack of availability of new vehicles. Future declines in used vehicle values
resulting from increases in the supply of new and used vehicles and increases in
new vehicle sales incentives could unfavorably impact return rates, residual
values, depreciation expense and credit losses in the future.

Conditions in the global capital markets were generally stable during the first
nine months of fiscal 2022; however, during the fourth quarter of fiscal 2022,
credit spreads widened and markets experienced periods of volatility in response
to the conflict in Ukraine, increases in the inflation rate, and uncertainty
regarding the path of U.S. monetary policy. While we continue to maintain broad
global access to both domestic and international markets, these events could
lead to cause further disruptions in the global capital markets and increases to
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.


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RESULTS OF OPERATIONS



                                        Years ended March 31,
(Dollars in millions)                 2022        2021       2020
Net income:
Finance operations 1                $  2,416     $ 1,606     $ 684

Voluntary protection operations 1 119 411 229
Total net income

                    $  2,535     $ 2,017     $ 913

1 Refer to Note 14 - Segment Information of the Notes to Consolidated Financial

Statement for the total asset balances of our finance operations and voluntary

protection operations.

Fiscal 2022 Compared to Fiscal 2021

Our consolidated net income was $2,535 million in fiscal 2022, compared to
$2,017 million in fiscal 2021. The increase in net income for fiscal 2022
compared to fiscal 2021 was primarily due to a $901 million decrease in interest
expense, a $190 million decrease in provision for credit losses, a $121 million
increase in total financing revenues, a $86 million decrease in depreciation on
operating leases, partially offset by a $436 million decrease in investment and
other income, net, a $210 million increase in operating and administrative
expense, and a $157 million increase in provision for income taxes.

Our overall capital position increased $2.5 billion, bringing total
shareholder's equity to $18.1 billion at March 31, 2022, as compared to $15.6
billion at March 31, 2021. Our debt decreased to $109.2 billion at March 31,
2022 from $109.7 billion at March 31, 2021. Our debt-to-equity ratio decreased
to 6.0 at March 31, 2022 from 7.0 at March 31, 2021.

Fiscal 2021 Compared to Fiscal 2020

Our consolidated net income was $2,017 million in fiscal 2021, compared to $913
million in fiscal 2020. The increase in net income for fiscal 2021 compared to
fiscal 2020 was primarily due to an $888 million decrease in depreciation on
operating leases, a $532 million decrease in interest expense, a $164 million
decrease in provision for credit losses, an $88 million increase in investment
and other income, net, an $86 million decrease in voluntary protection contract
expenses and insurance losses, and a $74 million decrease in operating and
administrative expense, partially offset by a $521 million increase in provision
for income taxes, and a $230 million decrease in total financing revenues.

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


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Finance Operations

The following table summarizes key results of our Finance Operations:

                                   Years ended March 31,                       Percentage change
(Dollars in millions)       2022          2021           2020          2022 to 2021          2021 to 2020
Financing revenues:
Operating lease           $   8,337     $   8,481     $     8,775                 (2 )%                 (3 )%
Retail                        3,254         2,905           2,558                 12 %                  14 %
Dealer                          329           413             696                (20 )%                (41 )%
Total financing
revenues                     11,920        11,799          12,029                  1 %                  (2 )%
Depreciation on
operating leases 1            5,846         5,932           6,820                 (1 )%                (13 )%
Interest expense              1,401         2,302           2,854                (39 )%                (19 )%
Net financing revenues        4,673         3,565           2,355                 31 %                  51 %

Investment and other
income, net                      45            93             155                (52 )%                (40 )%
Net financing and other
revenues                      4,718         3,658           2,510                 29 %                  46 %

Expenses:
Provision for credit
losses 1                        236           426             590                (45 )%                (28 )%
Operating and
administrative                1,311         1,124           1,197                 17 %                  (6 )%
Total expenses                1,547         1,550           1,787                  - %                 (13 )%

Income before income
taxes                         3,171         2,108             723                 50 %                 192 %
Provision for income
taxes                           755           502              39                 50 %                1187 %

Net income from finance
operations                $   2,416     $   1,606     $       684                 50 %                 135 %

1 In conjunction with the adoption of ASU 2016-13 in fiscal 2021, we updated our

depreciation policy for operating leases and changed our presentation for

reporting early termination expenses related to our investments in operating

leases. We now present the effects of operating lease early terminations in

Depreciation on operating leases. The information for the comparative period

continues to be reported within the Provision for credit losses.

Our finance operations reported net income of $2,416 million and $1,606 million
during fiscal 2022 and 2021, respectively. The increase in net income from
finance operations for fiscal 2022 compared to fiscal 2021 was due to a $901
million decrease in interest expense, a $190 million decrease in provision for
credit losses, a $121 million increase in total financing revenues, and an $86
million decrease in depreciation on operating leases, partially offset by a $253
million increase in provision for income taxes, a $187 million increase in
operating and administrative expenses, and a $48 million decrease in investment
and other income, net.

Financing Revenues

Total financing revenues increased 1 percent during fiscal 2022 compared to
fiscal 2021 due to the following:

     •    Operating lease revenues decreased 2 percent in fiscal 2022 as compared
          to fiscal 2021, due to lower average outstanding earning asset balances
          partially offset by higher portfolio yields.


     •    Retail financing revenues increased 12 percent in fiscal 2022 as

compared to fiscal 2021, due to higher average outstanding earning asset

          balances partially offset by lower portfolio yields.


     •    Dealer financing revenues decreased 20 percent in fiscal 2022 as
          compared to fiscal 2021, due to lower average outstanding earning asset
          balances from lower average inventory levels partially offset by higher
          portfolio yields.


As a result of the above, our total portfolio yield, which includes operating
lease, retail and dealer financing revenues, decreased to 5.0 percent for fiscal
2022, compared to 5.1 percent for fiscal 2021.


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Depreciation on Operating Leases

We recorded depreciation on operating leases of $5,846 million during fiscal
2022 compared to $5,932 million during fiscal 2021. The decrease is primarily
due to lower average operating lease units outstanding, partially offset by
residual value losses. The economic conditions caused by the COVID-19 pandemic
and the current conflict in Ukraine, including production halts and supply
shortages affecting the automotive industry and additional delays affecting the
supply chain and logistics networks, have resulted in a decrease in the
availability of new vehicles. The lower levels of new vehicle inventory and
higher off-lease vehicle purchases by dealers have led to historically high
levels of average used vehicle values. Declines in used vehicle values resulting
from increases in the supply of new vehicles and increases in new vehicle sales
incentives could unfavorably impact return rates, residual values, and
depreciation expense in the future.

Interest Expense

Our liabilities consist mainly of fixed and variable rate debt, denominated in
U.S. dollars and various other currencies, which we issue in the global capital
markets, while our assets consist primarily of U.S. dollar denominated, fixed
rate receivables. We enter into interest rate swaps and foreign currency swaps
to economically hedge the interest rate and foreign currency risks that result
from the different characteristics of our assets and liabilities. The following
table summarizes the components of interest expense:

                                                          Years ended March 31,
(Dollars in millions)                               2022           2021           2020
Interest expense on debt                         $    1,498     $    1,954     $    2,488
Interest expense on derivatives                         107            420  

180

Interest expense on debt and derivatives              1,605          2,374  

2,668

(Gains) losses on debt denominated in foreign
currencies                                             (438 )        1,402           (703 )
Losses (gains) on foreign currency swaps                818         (1,351 )          650
(Gains) losses on U.S. dollar interest rate
swaps                                                  (584 )         (123 )          219
Total interest expense                           $    1,401     $    2,302     $    2,834



During fiscal 2022, total interest expense decreased to $1,401 million from
$2,302 million in fiscal 2021. The decrease is attributable to a decrease in
interest expense on debt and derivatives combined and higher gains on U.S.
dollar interest rate swaps, partially offset by losses on foreign currency swaps
net of gains from debt denominated in foreign currencies.

Interest expense on debt and derivatives primarily represents contractual net
interest settlements and changes in accruals on secured and unsecured notes and
loans payable and derivatives, and includes amortization of discounts, premiums,
and debt issuance costs. During fiscal 2022, interest expense on debt and
derivatives decreased to $1,605 million from $2,374 million in fiscal 2021. The
decrease in interest expense on debt is primarily due to decrease in weighted
average interest rates. The decrease in interest expense on derivatives is
primarily due to decrease in interest expense on pay fixed swaps.

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

Gains or losses on U.S. dollar interest rate swaps represent the change in the
valuation of interest rate swaps. During fiscal 2022 and fiscal 2021, we
recorded gains of $584 million and $123 million, respectively, primarily due to
increases in U.S. dollar swap rates and net interest income on our pay-fixed
swaps exceeding losses on our pay-float swaps.

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



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Investment and Other Income, Net

We recorded investment and other income, net of $45 million for fiscal 2022,
compared to $93 million for fiscal 2021. The decrease in investment and other
income, net for fiscal 2022 compared to fiscal 2021 was primarily due to lower
average balances in our cash equivalents and investment in marketable securities
portfolio.

Provision for Credit Losses

We recorded a provision for credit losses of $236 million for fiscal 2022,
compared to $426 million for fiscal 2021. In fiscal 2022, in conjunction with
continued improved dealer financial performance and lower charge-offs, the lower
volatility in the macroeconomic conditions resulted in a lower provision for
credit losses for our retail loan portfolio. In contrast, in fiscal 2021, we
increased the expected credit losses for our retail loan portfolio due to a
decline in economic conditions caused by the COVID-19 pandemic and the
restrictions designed to slow the spread of COVID-19, which resulted in
stay-at-home orders, increased unemployment, and decreased consumer spending.

Operating and Administrative Expenses

We recorded operating and administrative expenses of $1,311 million during
fiscal 2022 compared to $1,124 million during fiscal 2021. The increase in
operating and administrative expenses for fiscal 2022, compared to fiscal 2021,
was primarily due to increases in employee expenses and general operating
expenses.

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Voluntary Protection Operations

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


                                        Years ended March 31,                     Percentage change
                                  2022          2021          2020        2022 to 2021         2021 to 2020
Contracts (units in
thousands)
Issued                              3,020         2,604         2,593                16 %                 -%
Average in force                    9,989         9,525         9,301                 5 %                  2 %

(Dollars in millions)
Voluntary protection contract
revenues
 and insurance earned
premiums                        $   1,015     $     956     $     933                 6 %                  2 %
Investment and other (loss)
income, net                           (71 )         317           187              (122 )%                70 %
Revenues from voluntary
protection operations                 944         1,273         1,120               (26 )%                14 %

Expenses:
Voluntary protection contract
expenses
 and insurance losses                 405           369           455                10 %                (19 )%
Operating and administrative          386           363           364                 6 %                 -%
Total expenses                        791           732           819                 8 %                (11 )%

Income before income taxes            153           541           301               (72 )%                80 %
Provision for income taxes             34           130            72               (74 )%                81 %

Net income from voluntary
protection operations           $     119     $     411     $     229               (71 )%                79 %




Our voluntary protection operations reported net income of $119 million for
fiscal 2022 compared to $411 million for fiscal 2021. The decrease in net income
from voluntary protection operations for fiscal 2022 compared to fiscal 2021 was
primarily due to a $388 million decrease in investment and other (loss) income,
net, and a $36 million increase in voluntary protection contract expenses and
insurance losses, partially offset by a $96 million decrease in provision for
income taxes and a $59 million increase in voluntary protection contract
revenues and insurance earned premiums.

Contracts issued increased 16 percent primarily due to prepaid maintenance,
vehicle service, and tire and wheel protection contracts during fiscal 2022
compared to fiscal 2021. The higher contract issuances for fiscal 2022, compared
to fiscal 2021, was mainly due to the continued growth of our private label
services and our issuances were negatively impacted in fiscal year 2021 by the
decline in economic conditions caused by the COVID-19 pandemic and the
restrictions designed to slow the spread of COVID-19. The average number of
contracts in force increased 5 percent during fiscal 2022 compared to fiscal
2021, due to net growth in the voluntary protection portfolio in recent years,
most notably in prepaid maintenance, guaranteed auto protection and vehicle
service contracts.

Revenue from Voluntary Protection Operations

Our voluntary protection operations reported voluntary protection contract
revenues and insurance earned premiums of $1,015 million for fiscal 2022
compared to $956 million for fiscal 2021. Voluntary protection contract revenues
and insurance earned premiums represent revenues from in force contracts and are
affected by issuances as well as the level, age, and mix of in force
contracts. Voluntary protection contract revenues and insurance earned premiums
are recognized over the term of the contracts in relation to the timing and
level of anticipated claims. The increase in voluntary protection contract
revenues and insurance earned premiums in fiscal 2022 compared to fiscal 2021
was primarily due to an increase in our average in force contracts resulting
from net growth in the voluntary protection portfolio in recent years.


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Investment and Other (Loss) Income, Net

Our voluntary protection operations reported investment and other loss, net of
$71 million for fiscal 2022 compared to investment and other income, net of $317
million for fiscal 2021. Investment and other (loss) income, net, consists
primarily of dividend and interest income, realized gains and losses on
investments in marketable securities, changes in fair value from equity and
available-for-sale debt securities for which the fair value option was elected,
and credit loss expense on available-for-sale debt securities, if any. The
decrease in investment and other income, net in fiscal 2022, compared to fiscal
2021, was primarily due to losses from the changes in fair value on our equity
investments and available-for-sale debt securities for which the fair value
option was elected as a result of market volatility, and a decrease in dividend
income. Should market volatility persist or become more severe, it could
continue to negatively impact our results of operations.

Voluntary Protection Contract Expenses and Insurance Losses

Our voluntary protection operations reported voluntary protection contract
expenses and insurance losses of $405 million for fiscal 2022 compared to $369
million for fiscal 2021. Voluntary protection contract expenses and insurance
losses incurred are a function of the amount of covered risks, the frequency and
severity of claims associated with in force contracts and the level of risk
retained by our voluntary protection operations. Voluntary protection contract
expenses and insurance losses include amounts paid and accrued for reported
losses, estimates of losses incurred but not reported, and any related claim
adjustment expenses. The increase in voluntary protection contract expenses and
insurance losses in fiscal 2022 compared to fiscal 2021 was primarily due to an
increase in frequency of claims in our prepaid maintenance, tire and wheel
protection and vehicle service contracts. These higher losses were partially
offset by a decrease in losses on our guaranteed auto protection contracts in
fiscal 2022, compared to fiscal 2021, which was driven by a decrease in
frequency of claims.  Our voluntary protection contract expenses and insurance
losses in fiscal 2021 were impacted by lower claims as a result of changes in
consumer driving patterns caused by the COVID-19 pandemic, including
restrictions and other changes in behavior.

Operating and Administrative Expenses

Our voluntary protection operations reported operating and administrative
expenses of $386 million for fiscal 2022 compared to $363 million for fiscal
2021. The increase in operating and administrative expenses in fiscal 2022 as
compared to fiscal 2021 was attributable to higher product expenses driven by
the continued growth of our voluntary protection product business as well as
higher dealer back-end expenses. Dealer back-end program expenses are incentives
or expense reduction programs we offer to dealers based on certain performance
criteria.


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Provision for Income Taxes

We recorded a provision for income taxes of $789 million for fiscal 2022,
compared to $632 million for fiscal 2021. Our effective tax rate for both fiscal
2022 and fiscal 2021 was 24 percent. The increase in the provision for income
taxes for fiscal 2022, compared to fiscal 2021, was primarily due to an increase
in income before income taxes.



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FINANCIAL CONDITION

Vehicle Financing Volume and Net Earning Assets

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


                                         Years ended March 31,                        Percentage change
(units in thousands):              2022           2021           2020         2022 to 2021          2021 to 2020
Vehicle financing volume 1:
New retail contracts                   697            748            630                 (7 )%                 19 %
Used retail contracts                  466            482            337                 (3 )%                 43 %
Lease contracts                        423            498            470                (15 )%                  6 %
Total                                1,586          1,728          1,437                 (8 )%                 20 %

TMNA subvened vehicle financing volume 2:
New retail contracts                   253            300            201                (16 )%                 49 %
Used retail contracts                   32             61             48                (48 )%                 27 %
Lease contracts                        247            364            426                (32 )%                (15 )%
Total                                  532            725            675                (27 )%                  7 %

Market share of TMNA sales 3:         54.9 %         61.8 %         63.4 %

1 Total financing volume was comprised of approximately 65 percent Toyota, 15

percent Lexus, 13 percent Mazda, and 7 percent non-Toyota/Lexus/Mazda for

fiscal 2022. Total financing volume was comprised of approximately 66 percent

Toyota, 15 percent Lexus, 13 percent Mazda, and 6 percent non-Toyota/Lexus for

fiscal 2021. Total financing volume was comprised of approximately 79 percent

Toyota, 17 percent Lexus and 4 percent non-Toyota/Lexus for fiscal 2020.

2 TMNA subvened volume units are included in the total vehicle financing. Units

exclude third-party subvened units.

3 Represents the percentage of total domestic TMNA sales of new Toyota and Lexus

vehicles financed by us, excluding sales under dealer rental car and commercial

fleet programs, sales of a private Toyota distributor and private label

  vehicles financed.


Vehicle Financing Volume

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

Our financing volume decreased 8 percent in fiscal 2022, compared to fiscal
2021, primarily due to lower new vehicles inventory levels. The economic
conditions caused by the COVID-19 pandemic and the current conflict in Ukraine,
including production halts and supply shortages affecting the automotive
industry and additional delays affecting the supply chain and logistics
networks, have resulted in a decrease in the availability of new vehicles. This
has led to lower levels of incentives and subvention on new and used retail
contracts and lease contracts, which has resulted in increased competition from
other financial institutions.

Our market share of TMNA sales decreased approximately 7 percentage points for
fiscal 2022, compared to the same period in fiscal 2021, due to lower levels of
incentives and subvention on new and used retail and lease contracts and
increased competition from other financial institutions.


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The composition of our net earning assets is summarized below:

                                             Years ended March 31,                      Percentage change
(Dollars in millions)                  2022          2021          2020         2022 to 2021          2021 to 2020
Net Earning Assets
Finance receivables, net
Retail finance receivables, net 2    $  72,185     $  65,653     $  56,364                 10 %                  16 %
Dealer financing, net 1, 2              10,247        13,539        17,632                (24 )%                (23 )%

Total finance receivables, net 2 82,432 79,192 73,996

                 4 %                   7 %
Investments in operating leases,
net                                     35,455        37,091        36,387                 (4 )%                  2 %
Net earning assets                   $ 117,887     $ 116,283     $ 110,383                  1 %                   5 %

Average original contract term in
months
Lease contracts 3                           37            37            36
Retail contracts 4                          69            68            69


Dealer Financing
(Number of dealers serviced)
Toyota, Lexus, and private label
dealers1                                   966         1,002           953                 (4 )%                  5 %
Dealers outside of the
Toyota/Lexus/private label dealer
network                                    399           395           371                  1 %                   6 %
Total number of dealers receiving
wholesale financing                      1,365         1,397         1,324                 (2 )%                  6 %

Dealer inventory outstanding
(units in thousands)                        64           185           294                (65 )%                (37 )%

1 Includes wholesale and other credit arrangements in which we participate as

part of a syndicate of lenders.

2 In conjunction with the adoption of ASU 2016-13 in fiscal 2021, we changed the

presentation of accrued interest on the Consolidated Balance Sheets from

Finance receivables, net to Other assets. The information for the comparative

period continues to be reported within Finance receivables, net.

3 Lease contract terms range from 24 months to 60 months.

4 Retail contract terms range from 24 months to 85 months.

Retail Contract Volume and Earning Assets

Our new retail contract volume decreased 7 percent during fiscal 2022, compared
to fiscal 2021, primarily due to a decrease in the availability of new vehicles
and lower levels of incentives and subvention on new contracts. Economic
conditions caused by the COVID-19 pandemic and the current conflict in Ukraine,
including production halts and supply shortages affecting the automotive
industry and additional delays affecting the supply chain and logistics
networks, have resulted in a decrease in the availability of new vehicles.

Our used retail contracts decreased 3 percent during fiscal 2022, compared to
the same period in fiscal 2021, primarily due to increased competition in the
used vehicle marketplace caused by the reduction in new vehicle inventory
levels.

Our retail finance receivables, net increased 10 percent at March 31, 2022 as
compared to March 31, 2021 due to higher retail contracts outstanding and higher
average amount financed.

Lease Contract Volume and Earning Assets

Our lease contract volume decreased 15 percent during fiscal 2022, compared to
fiscal 2021, primarily due to the decrease in the availability of new vehicles
and lower levels of incentive and subvention programs. Our investments in
operating leases, net, decreased 4 percent at March 31, 2022 as compared to
March 31, 2021, due to lower average operating lease units outstanding,
partially offset by higher vehicle values.

Dealer Financing and Earning Assets

Dealer financing, net decreased 24 percent at March 31, 2022, as compared to
March 31, 2021, primarily due to a decrease in dealer inventory and related
financing. Economic conditions caused by the COVID-19 pandemic and the current
conflict in Ukraine, including production halts and supply shortages affecting
the automotive industry and additional delays affecting the supply chain and
logistics networks, have resulted in a decrease in dealer new vehicle inventory
levels.


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Residual Value Risk

We are exposed to risk on the disposition of leased vehicles that are not
purchased by lessees, dealers, or third parties at contractual residual value to
the extent that sales proceeds realized upon the sale of returned lease vehicles
are not sufficient to cover the contractual residual value that was estimated at
lease inception.

Factors Affecting Exposure to Residual Value Risk

Residual value represents an estimate of the end-of-term market value of a
leased vehicle. The primary factors affecting our exposure to residual value
risk are the levels at which residual values are established at lease inception,
current economic conditions and outlook, projected end-of-term market values,
and the resulting impact on depreciation expense and lease return rates. Higher
average operating lease units outstanding and the resulting increase in future
maturities, a higher supply of used vehicles, as well as further deterioration
in actual and expected used vehicle values for Toyota, Lexus, and private label
vehicles could unfavorably impact return rates, residual values, and
depreciation expense. The evaluation of these factors involves significant
assumptions, complex analyses, and management judgment. Refer to "Critical
Accounting Estimates" for further discussion of the estimates involved in the
determination of accumulated depreciation on investments in operating leases.

Residual Values at Lease Inception

Residual values of lease vehicles are estimated at lease inception by examining
external industry data, the anticipated Toyota, Lexus, and private label product
pipeline and our own experience. Factors considered in this evaluation include,
macroeconomic forecasts, historical portfolio trends, new vehicle pricing, new
vehicle incentive programs, new vehicle sales, product attributes of popular
vehicles, the mix and level of used vehicle supply, current and projected used
vehicle values, the actual or perceived quality, safety or reliability of
Toyota, Lexus, and private label vehicles, and fuel prices. We use various
channels to sell vehicles returned at lease-end. Refer to Part 1, Item 1.
Business, "Finance Operations - Retail and Lease Financing - Remarketing" for
additional information on remarketing.

End-of-term Market Values

On a quarterly basis, we review the estimated end-of-term market values of
leased vehicles to assess the appropriateness of our carrying values. To the
extent the estimated end-of-term market value of a leased vehicle is lower than
the residual value established at lease inception, the residual value of the
leased vehicle is adjusted downward so that the carrying value at lease end will
approximate the estimated end-of-term market value. Factors affecting the
estimated end-of-term market value are similar to those considered in the
evaluation of residual values at lease inception discussed above. These factors
are evaluated in the context of their historical trends to anticipate potential
changes in the relationship among these factors in the future. For investments
in operating leases, adjustments are made on a straight-line basis over the
remaining terms of the lease contracts and are included in Depreciation on
operating leases in our Consolidated Statements of Income as a change in
accounting estimate.

Lease Return Rate

The lease return rate represents the number of leased vehicles returned to us
for sale as a percentage of lease contracts that were originally scheduled to
mature in the same period less certain qualified early terminations. When the
market value of a leased vehicle at contract maturity is less than its
contractual residual value (i.e., the price at which the lease customer or
dealer may purchase the leased vehicle), there is a higher probability that the
vehicle will be returned to us. In addition, a higher market supply of certain
models of used vehicles generally results in a lower market value for those
vehicles, resulting in a higher probability that the vehicle will be returned to
us. A higher rate of vehicle returns exposes us to greater residual value risk
which impacts depreciation expense at lease termination.

Impairment of Operating Leases

We evaluate our investment in operating leases portfolio for potential
impairment when we determine a triggering event has occurred. When a triggering
event has occurred, we perform a test of recoverability by comparing the
expected undiscounted future cash flows (including expected residual values)
over the remaining lease terms to the carrying value of the asset group. If the
test of recoverability identifies a possible impairment, the asset group's fair
value is measured in accordance with the fair value measurement framework. An
impairment charge is recognized for the amount by which the carrying value of
the asset group exceeds its estimated fair value and would be recorded in our
Consolidated Statements of Income. As of March 31, 2022, 2021, and 2020 and
during the years then ended, there was no impairment in our investment in
operating leases portfolio.


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Disposition of Off-Lease Vehicles

The following table summarizes scheduled maturities on our operating lease
portfolio and off-lease vehicles sold at lease termination:

                                              Years ended March 31,         

Percentage Change

                                                                                  2022 to           2021 to
(Units in thousands)                    2022            2021          2020         2021              2020
Scheduled maturities                        504             511          562            (1 )%             (9 )%

Vehicles sold through:
Dealer Direct program
Grounding dealer                             34             110          119           (69 )%             (8 )%
Dealer Direct online program                  3              31           60           (90 )%            (48 )%
Physical auction                              7              74          137           (91 )%            (46 )%
Total vehicles sold at lease
termination 1                                44             215          316           (80 )%            (32 )%

1 Excludes leased vehicles purchased by lessees or dealers at contractual

residual value prior to an authorized dealer securing the vehicle.

Scheduled maturities decreased 1 percent in fiscal 2022 compared to fiscal 2021,
primarily due to lower operating lease units outstanding. Total vehicles sold at
lease termination decreased 80 percent in fiscal 2022, compared to fiscal 2021,
due to lower units being processed through the dealer direct program and
physical auction. Higher average used vehicle values as well as lower new
vehicle inventory during fiscal 2022 resulted in an increase of off-lease
vehicles purchased by lessees and dealers at contractual residual value prior to
an authorized dealer securing the vehicle. Refer to Part 1, Item 1. Business,
"Finance Operations - Retail and Lease Financing - Remarketing" for additional
information on disposal of lease vehicles.

Depreciation on Operating Leases

Depreciation expense is recorded on a straight-line basis over the lease term
and is based upon the depreciable basis of the leased vehicle. The depreciable
basis is originally established as the difference between a leased vehicle's
original acquisition cost and its residual value established at lease inception.
Changes to residual values have an effect on depreciation expense. 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. Refer to "Critical
Accounting Estimates" for a further discussion of the assumptions involved in
the determination of residual values.

In conjunction with the adoption of ASU 2016-13 in fiscal 2021, we updated our
depreciation policy for operating leases and changed our presentation for
reporting early termination expenses related to our investments in operating
leases. We now present the effects of operating lease early terminations in
Depreciation on operating leases. The information for the comparative period
continues to be reported within the provision for credit losses.

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

                                    Years ended March 31,                         Percentage Change
                              2022           2021          2020          2022 to 2021           2021 to 2020
Depreciation on
operating leases
  (dollars in millions)    $    5,846     $    5,932     $   6,820                  (1 )%                 (13 )%
Average operating lease
units
  outstanding
  (in thousands)                1,314          1,336         1,400                  (2 )%                  (5 )%




We recorded depreciation expense on operating leases of $5,846 million for
fiscal 2022, compared to $5,932 million for fiscal 2021. The decrease is
primarily due to lower average operating lease units outstanding, partially
offset by residual value losses. The economic conditions caused by the COVID-19
pandemic and the current conflict in Ukraine, including production halts and
supply shortages affecting the automotive industry and additional delays
affecting the supply chain and logistics networks, have resulted in a decrease
in the availability of new vehicles. The lower levels of new vehicle inventory
and higher off-lease vehicle purchases by dealers have led to historically high
levels of average used vehicle values. Declines in used vehicle values resulting
from increases in the supply of new vehicles and increases in new vehicle sales
incentives could unfavorably impact return rates, residual values, and
depreciation expense in the future.


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Credit Risk

We are exposed to credit risk on our retail loans and dealer portfolios. Credit
risk on our finance receivables is the risk of loss arising from the failure of
consumers or dealers to make contractual payments. The level of credit risk on
our retail loan portfolio is influenced by two factors: default frequency and
loss severity, which in turn are influenced by various factors such as economic
conditions, the used vehicle market, purchase quality mix, and operational
changes.

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

Factors Affecting Retail Loan Portfolio Credit Risk

Economic Factors

General economic conditions such as changes in unemployment rates, housing
values, bankruptcy rates, consumer debt levels, fuel prices, consumer credit
performance, interest rates, inflation, household disposable income, US
Government stimulus and relief programs, and unforeseen events such as natural
disasters, severe weather, health epidemics or geopolitical conflicts, among
other factors, can influence both default frequency and loss severity.

Used Vehicle Market

Changes in used vehicle values directly affect the proceeds from sales of
repossessed vehicles, and accordingly, the level of loss severity we
experience. The supply of, and demand for, used vehicles, interest rates,
inflation, new vehicle inventory, the level of manufacturer incentive programs
on new vehicles, the manufacturer's actual or perceived reputation for quality,
safety, or reliability, and general economic outlook are some of the factors
affecting the used vehicle market.

Purchase Quality Mix

A change in the mix of contracts acquired at various risk levels may change the
amount of credit risk we assume. An increase in the number of contracts acquired
with lower credit quality (as measured by scores that establish a consumer's
creditworthiness based on present financial condition, experience, and credit
history) can increase the amount of credit risk. Conversely, an increase in the
number of contracts with higher credit quality can lower credit risk. An
increase in the mix of contracts with lower credit quality can also increase
operational risk unless appropriate controls and procedures are established. We
strive to price contracts to achieve an appropriate risk adjusted return on our
investment.

The average original contract term of retail loan contracts influences credit
losses. Longer term contracts generally experience a higher rate of default and
thus affect default frequency. In addition, the carrying values of vehicles
under longer term contracts decline at a slower rate, resulting in a longer
period during which we may be subject to used vehicle market volatility, which
may in turn lead to increased loss severity.

The types and models of the vehicles in our retail loan portfolio has an effect
on loss severity. Vehicle product mix can be influenced by factors such as
customer preferences, fuel efficiency and fuel prices. These factors impact the
demand for and values of used vehicles and consequently, loss severity.

Operational Changes

Operational changes and ongoing implementation of new information and
transaction systems and improved methods of consumer evaluation are designed to
have a positive effect on the credit risk profile of our retail loan
portfolio. Customer service improvements in the management of delinquencies and
credit losses increase operational efficiency and effectiveness. We remain
focused on our service operations and credit loss mitigation methods. We are
exposed to operational risk related to potential changes in the regulatory
landscape which may limit our ability to conduct pre and post charge-off
collections activity.

In an effort to mitigate credit losses, we regularly evaluate our purchasing
practices. We limit our risk exposure by limiting approvals of lower credit
quality contracts and requiring certain loan-to-value ratios.

We continue to refine our credit risk management and analysis to ensure that the
appropriate level of collection resources are aligned with portfolio risk, and
we adjust capacity accordingly. We continue to focus on early and late stage
delinquencies to increase the likelihood of resolution. We have also increased
efficiency in our collections through the use of technology.


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Factors Affecting Dealer Portfolio Credit Risk

The financial strength of dealers to which we extend credit directly affects our
credit risk. Lending to dealers with lower credit quality, or a negative change
in the credit quality of existing dealers, increases the risk of credit loss we
assume. Extending a substantial amount of financing or commitments to a specific
dealer or group of dealers creates a concentration of credit risk, particularly
when the financing may not be secured by fully realizable collateral
assets. Collateral quality influences credit risk in that lower quality
collateral increases the risk that in the event of default and subsequent
liquidation of collateral, the value of the collateral may be less than the
amount owed to us.

We assign risk classifications to each of our dealers and dealer groups based on
their financial condition, the strength of the collateral, and other
quantitative and qualitative factors including input from our field
personnel. Our monitoring processes of the dealers and dealer groups are based
on these risk classifications. We periodically update the risk classifications
based on changes in financial condition. As part of our monitoring processes, we
require dealers to submit periodic financial statements. We also perform
periodic physical audits of vehicle inventory as well as monitor the timeliness
of dealer inventory financing payoffs in accordance with the agreed-upon terms
in order to identify possible risks. We continue to enhance our risk management
processes to mitigate dealer portfolio risk and to focus on higher risk dealers
through enhanced risk governance, inventory audits, and credit watch
processes. Where appropriate, we increase the frequency of our audits and
examine more closely the financial condition of the dealer or dealer group. We
continue to be diligent in underwriting dealers and have conducted targeted
personnel training to address dealer credit risk.

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

We also provide financing for some dealerships which sell products not
distributed by TMNA or any of its affiliates. A significant adverse change in a
non-Toyota/Lexus manufacturer such as restructuring or bankruptcy may increase
the risk associated with the dealers we have financed that sell these products.


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Origination, Credit Loss, and Delinquency Experience

Our credit loss experience may be affected by a number of factors including the
economic environment, our purchasing, servicing, and collections practices, used
vehicle market conditions and subvention. Changes in the economy that impact the
consumer such as increasing interest rates, and a rise in the unemployment rate
as well as higher debt balances, coupled with deterioration in actual and
expected used vehicle values, could increase our credit losses. In addition, a
decline in the effectiveness of our collection practices could also increase our
credit losses. We continuously evaluate and refine our purchasing practices and
collection efforts to minimize risk. In addition, subvention contributes to our
overall portfolio quality, as subvened contracts typically have higher credit
scores than non-subvened contracts. For information regarding the potential
impact of current market conditions, refer to Part I. Item 1A. Risk Factors.

The following table provides information related to our origination experience:


                                                        Years Ended March 31,
                                                     2022          2021      2020

Average consumer portfolio origination FICO score 742 744

754

Average retail loan origination term (months) 1          69           68    

69

1 Retail loan origination greater than or equal to 78 months was 10%, 8%, 7% as

of March 31, 2022, 2021, and 2020, respectively.

While we have included the average origination FICO score to illustrate
origination trends, we also use a proprietary credit scoring system to evaluate
an applicant's risk profile. Refer to Part I. Item 1. Business "Finance
Operations" for further discussion of the proprietary manner in which we
evaluate risk.

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

                                                     Years ended March 31,
                                            2022              2021          

2020

Net charge-offs as a percentage of
average
  finance receivables 4, 5                      0.22 %            0.29 %    

0.44 %

Default frequency as a percentage of
outstanding
  finance receivables contracts 5               0.72 %            0.90 %    

1.09 %

Average finance receivables loss
severity per unit 1, 5                  $      9,012      $     10,035      

$ 9,555

Aggregate balances for accounts 60 or
more days
  past due as a percentage of earning
assets 2, 3, 4
Finance receivables                             0.43 %            0.27 %            0.41 %
Operating leases                                0.26 %            0.20 %            0.34 %

1 Average loss per unit upon disposition of repossessed vehicles or charge-off

prior to repossession.

2 Substantially all retail receivables do not involve recourse to the dealer in

the event of customer default.

3 Includes accounts in bankruptcy and excludes accounts for which vehicles have

been repossessed.

4 In conjunction with the adoption of ASU 2016-13 in fiscal 2021, we changed the

presentation of accrued interest from Finance receivables, net to Other

assets. Accordingly, accrued interest is excluded from average finance

receivables with effect from April 1, 2020. The information for the comparative

period continues to be reported for that period.

5 In conjunction with the adoption of ASU 2016-13 in fiscal 2021, we updated our

depreciation policy for operating leases and changed our presentation for

reporting early termination expenses related to operating leases. Accordingly,

with effect from April 1, 2020, early termination expenses related to operating

leases are excluded from the net charge-off ratio, default frequency ratio and

  average loss per unit.



                                       46

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Management considers historical credit loss information when assessing the
allowance for credit losses. Historical credit losses are primarily driven by
two factors: default frequency and loss severity. Net charge-offs as a
percentage of average finance receivables decreased to 0.22 percent at March 31,
2022 from 0.29 percent at March 31, 2021 and default frequency as a percentage
of outstanding finance receivables contracts decreased to 0.72 percent for
fiscal 2022 compared to 0.90 percent for fiscal 2021. Our average finance
receivables loss severity per unit for fiscal 2022 decreased to $9,012 from
$10,035 in fiscal 2021. The changes in our net charge-offs, default frequency,
and loss severity per unit were primarily due to historically high levels of
average used vehicle values, which reduced net charge-offs, default frequency,
and loss per unit.

Our aggregate balances for accounts 60 or more days past due on finance
receivables increased to 0.43 percent at March 31, 2022, compared to 0.27
percent at March 31, 2021. Our aggregate balances for accounts 60 or more days
past due on operating leases increased to 0.26 percent at March 31, 2022,
compared to 0.20 percent at March 31, 2021. The finance receivables delinquency
rate in fiscal 2021 was positively impacted by the retail payment extension
programs offered to our customers and dealers impacted by COVID-19, as well as
influenced by government stimulus and other external programs in fiscal 2021,
which are no longer available. In addition, for a portion of fiscal 2021, as a
result of a decline in economic conditions caused by the COVID-19 pandemic,
there were government restrictions on repossession activities in certain states
for which we have a high percentage of lease contracts which had a negative
impact on our operating lease payments delinquency. If the negative economic
conditions caused by the COVID-19 pandemic and the conflict in Ukraine continue,
delinquencies and charge-offs could increase.





                                       47

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Allowance for Credit Losses

We maintain an allowance for credit losses which is measured by an impairment
model that reflects lifetime expected losses.

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

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

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

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

                                                           Years ended March 31,
(Dollars in millions)                                   2022        2021        2020

Allowance for credit losses at beginning of period $ 1,215 $ 727

   $  499
Adoption of ASU 2016-13 1                                    -         292          -
Charge-offs                                               (237 )      (287 )     (370 )
Recoveries                                                  58          57         50
Provision for credit losses                                236         426        548

Allowance for credit losses at end of period 2 $ 1,272 $ 1,215

$ 727

1 Cumulative pre-tax adjustments recorded to retained earnings as of April 1,

2020.

2 Ending balance as of March 31, 2022 and 2021 includes allowance for credit

losses related to off-balance-sheet commitments of $26 million and $37 million,

  respectively, which is included in Other liabilities on the Consolidated
  Balance Sheets.




                                       48

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                                                     Years ended March 31,
                                                   2022        2021       2020

Allowance for credit losses as a percentage of

   finance receivables 1, 2                          1.49 %     1.47 %     

0.97 %

1 Ending balance as of March 31, 2022 and 2021 excludes allowance for credit

losses related to off-balance-sheet commitments of $26 million and $37 million,

respectively, which is included in Other liabilities on the Consolidated

Balance Sheets.

2 In conjunction with the adoption of ASU 2016-13 in fiscal 2021, we changed the

presentation of accrued interest from Finance receivables, net to Other

assets. Accordingly, accrued interest is excluded from average finance

receivables with effect from April 1, 2020. The information for the comparative

period continues to be reported for that period.

Our allowance for credit losses increased from $1,215 million at March 31, 2021
to $1,272 million at March 31, 2022 and the allowance for credit losses as a
percentage of finance receivables increased to 1.49 percent in fiscal 2022 from
1.47 percent in fiscal 2021. The increase of $57 million in the allowance for
credit losses was primarily due to the increase in size of our retail loan
portfolio and an increase in delinquencies, as well as the economic conditions
caused by the conflict in Ukraine, partially offset by continued improved dealer
financial performance in fiscal 2022.

Future changes in the economy that impact the consumer and consumer confidence
such as increasing interest rates and a rise in the unemployment rate as well as
higher debt balances, coupled with deterioration in actual and expected used
vehicle values, could result in further increases to our allowance for credit
losses. In addition, a decline in the effectiveness of our collection practices
could also increase our allowance for credit losses.




                                       49
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LIQUIDITY AND CAPITAL RESOURCES

Cash Requirements, Obligations, and Arrangements

Our primary material cash requirements include the acquisition of finance
receivables and investment in operating leases from dealers, providing various
financing to dealers, payments related to debt, interest and interest rate
swaps, operating expenses, voluntary protection contract expenses, income taxes,
and dividend payments. In conjunction with our cash requirements, we have
certain obligations to make future payments under contracts and
commitments. Aggregate contractual obligations and commitments in existence at
March 31, 2022, are summarized as follows:

(Dollars in millions)                                     Payments due by 

period

Contractual

obligations               2023         2024         2025         2026        2027        Thereafter        Total
Debt 1                  $ 51,171     $ 20,889     $ 13,466     $  9,642     $ 7,279     $      7,002     $ 109,449
Estimated interest
payments for
  debt 2                   1,175          777          532          365         258              452         3,559
Premises occupied
under lease                   19           16           14           13          12               45           119
Purchase obligations
3                             27           16            -            -           -                -            43
Total                   $ 52,392     $ 21,698     $ 14,012     $ 10,020     $ 7,549     $      7,499     $ 113,170

1 Debt reflects the remaining principal obligation. Foreign currency denominated

debt principal is based on exchange rates as of March 31, 2022. Debt excludes

unamortized premium/discount and debt issuance costs of $297 million.

2 Interest payments for debt payable in foreign currencies or based on variable

interest rates are estimated using the applicable current rates as of March 31,

2022.

3 Purchase obligations represent fixed or minimum payment obligations under

supplier contracts. The amounts included herein represent the minimum

contractual obligations in certain situations; however, actual amounts incurred

may be substantially higher depending on the particular circumstance, including

in the case of information technology contracts, the amount of usage once we

have implemented it. Contracts that do not specify fixed payments or provide

for a minimum payment are not included. The contracts noted herein contain

voluntary provisions under which the contract may be terminated for a specified

fee depending upon the contract.

The contractual obligations and commitments in the above table do not include
our contractual obligations on derivative instruments because future cash
obligations under these contracts are inherently uncertain. We recognize all
derivative instruments on our consolidated balance sheet at fair value. The
amounts recognized as fair value do not represent the amounts that will be
ultimately paid or received upon settlement under these contracts. Refer to Note
6 - Derivatives, Hedging Activities and Interest Expense of the Notes to the
Consolidated Financial Statements for additional discussion and disclosure.

In addition, the contractual obligations and commitments in the above table do
not include term loans and revolving lines of credit we extend to dealers and
dealer groups and other off-balance sheet guarantees and commitments, as the
amount, if any, and timing of future payments is uncertain.

We provide fixed and variable rate credit facilities to dealers and various
multi-franchise organizations referred to as dealer groups. These credit
facilities are typically used 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 the individual or corporate guarantees of the
affiliated dealers, dealer groups, or dealer principals. Refer to Note 9 -
Commitments and Contingencies of the Notes to Consolidated Financial Statements
for additional discussion and disclosure on credit facility commitments with
dealers.

We have also extended credit facilities to affiliates as described in Note 12 -
Related Party Transactions of the Notes to Consolidated Financial Statements.

TMCC has guaranteed the payments of principal and interest with respect to the
bond obligations that were issued by Putnam County, West Virginia and Gibson
County, Indiana to finance the construction of pollution control facilities at
manufacturing plants of certain TMCC affiliates. TMCC would be required to
perform under the guarantees in the event of non-payment on the bonds and other
related obligations. TMCC is entitled to reimbursement by the applicable
affiliates for any amounts paid. TMCC receives a nominal annual fee for
guaranteeing such payments. Other than this fee, there are no corresponding
expenses or cash flows arising from our guarantees. The nature, business
purpose, and amounts of these guarantees are described in Note 9 - Commitments
and Contingencies of the Notes to Consolidated Financial Statements.


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In the ordinary course of business, we enter into agreements containing
indemnification provisions standard in the industry related to several types of
transactions. Refer to Note 9 - Commitments and Contingencies of the Notes to
Consolidated Financial Statements for a description of agreements containing
indemnification provisions. We have not made any material payments in the past
as a result of these provisions, and as of March 31, 2022, we determined that it
is not probable that we will be required to make any material payments in the
future. As of March 31, 2022 and 2021, no amounts have been recorded under these
indemnification provisions.

Liquidity

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

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

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

We maintain broad access to a variety of domestic and global markets and may
choose to realign our funding activities depending upon market conditions,
relative costs, and other factors. We believe that our funding sources, combined
with operating and investing activities, provide sufficient liquidity to meet
future funding requirements and business growth. For liquidity purposes, we hold
cash in excess of our immediate funding needs. These excess funds are invested
in short-term, highly liquid and investment grade money market instruments as
well as certain available-for-sale debt securities, which provide liquidity for
our short-term funding needs and flexibility in the use of our other funding
sources. We maintained excess funds ranging from $6.6 billion to $11.7 billion
with an average balance of $9.1 billion during fiscal 2022. The amount of excess
funds we hold may fluctuate, depending on market conditions and other
factors. We also have access to liquidity under the $5.0 billion credit facility
with TMS, which as of March 31, 2022 had no outstanding amount and is further
described in Note 7 - Debt and Credit Facilities of the Notes to the
Consolidated Financial Statements. We believe we have sufficient capacity to
meet our short-term funding requirements and manage our liquidity.

Credit support is provided to us by our indirect parent TFSC, and, in turn, to
TFSC by TMC. Taken together, these credit support agreements provide an
additional source of liquidity to us, although we do not rely upon such credit
support in our liquidity planning and capital and risk management. The credit
support agreements are not a guarantee by TMC or TFSC of any securities or
obligations of TFSC or TMCC, respectively. The fees paid pursuant to these
agreements are disclosed in Note 12 - Related Party Transactions of the Notes to
Consolidated Financial Statements.

TMC's obligations under its credit support agreement with TFSC rank pari passu
with TMC's senior unsecured debt obligations. Refer to Part I, Item 1A. Risk
Factors - "Our borrowing costs and access to the unsecured debt capital markets
depend significantly on the credit ratings of TMCC and its parent companies and
our credit support arrangements" for further discussion.

We routinely monitor global financial conditions and our financial exposure to
our global counterparties, particularly in those countries experiencing
significant economic, fiscal or political strain, and the corresponding
likelihood of default. As of March 31, 2022, our exposure to foreign sovereign
and non-sovereign counterparties was not significant. Refer to the "Liquidity
and Capital Resources - Credit Facilities and Letters of Credit" section and
Part I, Item 1A. Risk Factors - "The failure or commercial soundness of our
counterparties and other financial institutions may have an effect on our
liquidity, results of operations or financial condition" for further discussion.


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Funding

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

                                           March 31, 2022                                       March 31, 2021
                                                          Weighted average                                     Weighted average
                                            Carrying        contractual                          Carrying        contractual

(Dollars in millions) Face value value interest rates

    Face value        value         interest rates
Unsecured notes and
loans payable
Commercial paper          $     16,896     $   16,876                 0.43 %   $     17,027     $   17,021                 0.20 %

U.S. medium term note

 ("MTN") program                46,387         46,235                 1.55 %         44,294         44,149                 1.64 %

Euro medium term note

 ("EMTN") program               13,891         13,813                 1.54 %         16,262         16,173                 1.57 %
Other debt                       5,368          5,364                 1.28 %          8,176          8,170                 1.33 %
Total Unsecured notes
and loans
 payable                        82,542         82,288                 1.30 %         85,759         85,513                 1.31 %
Secured notes and loans
payable                         26,907         26,864                 1.01 %         24,256         24,212                 1.29 %
Total debt                $    109,449     $  109,152                 1.23 %   $    110,015     $  109,725                 1.31 %

Unsecured notes and loans payable

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

                                                                                                   Total
                                                                                                 Unsecured
                                                                                                 notes and
                                        Commercial                                                 loans
(Dollars in millions)                     paper 1          MTNs         EMTNs        Other        payable
Balance at March 31, 2021              $      17,027     $  44,294     $ 16,262     $  8,176     $   85,759
Issuances                                          -        17,205        2,141        2,006         21,352
Maturities and terminations                     (131 )     (15,112 )     (4,150 )     (4,810 )      (24,203 )
Non-cash changes in foreign currency
rates                                              -             -         (362 )         (4 )         (366 )
Balance at March 31, 2022              $      16,896     $  46,387     $ 13,891     $  5,368     $   82,542
Issuances during the one month ended
 April 30, 2022                        $       4,518     $     250     $      -     $    124     $    4,892

1 Changes in Commercial paper are shown net due to its short duration.

Commercial paper

Short-term funding needs are met through the issuance of commercial paper in the
U.S. Commercial paper outstanding under our commercial paper programs ranged
from approximately $16.7 billion to $18.5 billion during fiscal 2022, with an
average outstanding balance of $17.2 billion. Our commercial paper programs are
supported by the credit facilities discussed under the heading "Credit
Facilities and Letters of Credit." We believe we have sufficient capacity to
meet our short-term funding requirements and manage our liquidity.

MTN program

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


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EMTN program

Our EMTN program, shared with our affiliates Toyota Motor Finance (Netherlands)
B.V., Toyota Credit Canada Inc. and Toyota Finance Australia Limited (TMCC and
such affiliates, the "EMTN Issuers"), provides for the issuance of debt
securities in the international capital markets. In September 2021, the EMTN
Issuers renewed the EMTN program for a one-year period. The maximum aggregate
principal amount authorized under the EMTN Program to be outstanding at any time
is €60.0 billion or the equivalent in other currencies, of which €28.1 billion
was available for issuance at April 30, 2022. The authorized amount is shared
among all EMTN Issuers. The authorized aggregate principal amount under the EMTN
program may be increased from time to time. Debt securities issued under the
EMTN program are issued pursuant to the terms of an agency agreement. Certain
debt securities issued under the EMTN program are subject to negative pledge
provisions. We are currently in compliance with these covenants.

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

Other debt

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

We may borrow from affiliates on terms based upon a number of business factors
such as funds availability, cash flow timing, relative cost of funds, and market
access capabilities. Amounts borrowed from affiliates are recorded in Other
liabilities on our Consolidated Balance Sheets and are therefore excluded from
Debt amounts.

Secured notes and loans payable

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

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

                                                       Secured
                                                      notes and
                                                        loans
(Dollars in millions)                                  payable
Balance at March 31, 2021                             $   24,256
Issuances                                                 16,726
Maturities and terminations                              (14,075 )
Balance at March 31, 2022                             $   26,907

Issuances during the one month ended April 30, 2022 $ 3,489

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


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

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

Our securitizations are structured to provide credit enhancement to reduce the
risk of loss to security holders and other interest holders in the asset-backed
securities. Credit enhancement may include some or all of the following:
     •    Overcollateralization: The principal of the Securitized Assets that
          exceeds the principal amount of the related secured debt.

• Excess spread: The expected interest collections on the Securitized

Assets that exceed the expected fees and expenses of the special purpose

          entity, including the interest payable on the debt, net of swap
          settlements, if any.

• Cash reserve funds: A portion of the proceeds from the issuance of

asset-backed securities may be held by the securitization trust in a

segregated reserve fund and may be used to pay principal and interest to

          security holders and other interest holders if collections on the
          underlying receivables are insufficient.


     •    Yield supplement arrangements: Additional overcollateralization may be
          provided to supplement the future contractual interest payments from
          securitized receivables with relatively low contractual interest rates.

• Subordinated notes: The subordination of principal and interest payments

          on subordinated notes may provide additional credit enhancement to
          holders of senior notes.


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

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

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

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


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Public Securitization

We maintain a shelf registration statement with the SEC to provide for the
issuance of securities backed by Securitized Assets in the U.S. capital markets
during the three-year period ending December 2024. We regularly sponsor public
securitization trusts that issue securities backed by retail finance
receivables, including registered securities that we retain. None of these
securities have defaulted, experienced any events of default or failed to pay
principal in full at maturity. As of March 31, 2022 and 2021, we did not have
any outstanding lease securitization transactions registered with the SEC.

Credit Facilities and Letters of Credit

For additional liquidity purposes, we maintain credit facilities, which may be
used for general corporate purposes, as described below:

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

TMCC, Toyota Credit de Puerto Rico Corp. ("TCPR"), a wholly-owned subsidiary,
and other Toyota affiliates are party to a $5.0 billion 364-day syndicated bank
credit facility, a $5.0 billion three-year syndicated bank credit facility, and
a $5.0 billion five-year syndicated bank credit facility, expiring in fiscal
2023, 2025, and 2027, respectively.

The ability to make draws is subject to covenants and conditions customary in
transactions of this nature, including negative pledge provisions, cross-default
provisions and limitations on certain consolidations, mergers and sales of
assets. These agreements were not drawn upon and had no outstanding balances as
of March 31, 2022 and 2021. We are currently in compliance with the covenants
and conditions of the credit agreements described above.

Committed Revolving Asset-backed Facility

We are party to a 364-day revolving securitization facility with certain
bank-sponsored asset-backed conduits and other financial institutions expiring
in fiscal 2023. Under the terms and subject to the conditions of this facility,
the committed lenders under the facility have committed to make advances up to a
facility limit of $7.0 billion backed by eligible retail finance receivables
transferred by us to a special-purpose entity acting as borrower. We utilized
$3.2 billion of this facility as of March 31, 2022 and 2021, respectively.

Other Unsecured Credit Agreements

TMCC is party to additional unsecured credit facilities with various banks. As
of March 31, 2022, TMCC had committed bank credit facilities totaling $4.6
billion of which $2.3 billion, $300 million, and $2.0 billion mature in fiscal
2023, 2024, and 2025 respectively.

These credit agreements contain covenants and conditions customary in
transactions of this nature, including negative pledge provisions, cross-default
provisions and limitations on certain consolidations, mergers and sales of
assets. These credit facilities were not drawn upon and had no outstanding
balances as of March 31, 2022 and 2021. We are currently in compliance with the
covenants and conditions of the credit agreements described above.

TMCC is party to a $5.0 billion three-year revolving credit facility with TMS
expiring in fiscal 2025. This credit facility was not drawn upon and had no
outstanding balance as of March 31, 2022 and 2021.

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


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Credit Ratings

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

Credit Support Agreements

Under the terms of a credit support agreement between TMC and TFSC, TMC has
agreed to:

• maintain 100 percent ownership of TFSC;

     •    cause TFSC and its subsidiaries to have a tangible net worth (the
          aggregate amount of issued capital, capital surplus and retained
          earnings less any intangible assets) of at least JPY 10 million,
          equivalent to $82 thousand at March 31, 2022; and

• make sufficient funds available to TFSC so that TFSC will be able to (i)

service the obligations arising out of its own bonds, debentures, notes

and other investment securities and commercial paper and (ii) honor its

obligations incurred as a result of guarantees or credit support

agreements that it has extended (collectively, "Securities").

The agreement is not a guarantee by TMC of any securities or obligations of
TFSC. TMC's obligations under the credit support agreement rank pari passu with
TMC's senior unsecured debt obligations. Either party may terminate the
agreement upon 30 days written notice to the other party. However, such
termination cannot take effect unless and until (1) all Securities issued on or
prior to the date of the termination notice have been repaid or (2) each rating
agency that has issued a rating in respect of TFSC or any Securities upon the
request of TMC or TFSC has confirmed to TFSC that the debt ratings of all such
Securities will be unaffected by such termination. In addition, with certain
exceptions, the agreement may be modified only by the written agreement of TMC
and TFSC, and no modification or amendment can have any adverse effect upon any
holder of any Securities outstanding at the time of such modification or
amendment. The agreement is governed by, and construed in accordance with, the
laws of Japan.

Under the terms of a similar credit support agreement between TFSC and TMCC,
TFSC has agreed to:

• maintain 100 percent ownership of TMCC;

     •    cause TMCC and its subsidiaries to have a tangible net worth (the
          aggregate amount of issued capital, capital surplus and retained
          earnings less any intangible assets) of at least $100,000; and


     •    make sufficient funds available to TMCC so that TMCC will be able to
          service the obligations arising out of its own bonds, debentures, notes

and other investment securities and commercial paper (collectively,

"TMCC Securities").

The agreement is not a guarantee by TFSC of any TMCC Securities. The agreement
contains termination and modification provisions that are similar to those in
the agreement between TMC and TFSC as described above. The agreement is governed
by, and construed in accordance with, the laws of Japan. TMCC Securities do not
include the securities issued by securitization trusts in connection with TMCC's
securitization programs or any indebtedness under TMCC's credit facilities or
term loan agreements.

Holders of TMCC Securities have the right to claim directly against TFSC and TMC
to perform their respective obligations under the credit support agreements by
making a written claim together with a declaration to the effect that the holder
will have recourse to the rights given under the credit support agreements. If
TFSC and/or TMC receive such a claim from any holder of TMCC Securities, TFSC
and/or TMC shall indemnify, without any further action or formality, the holder
against any loss or damage resulting from the failure of TFSC and/or TMC to
perform any of their respective obligations under the credit support
agreements. The holder of TMCC Securities who made the claim may then enforce
the indemnity directly against TFSC and/or TMC.

In addition, TMCC and TFSC are parties to a credit support fee agreement which
requires TMCC to pay to TFSC a fee which is based upon the weighted average
outstanding amount of TMCC Securities entitled to credit support.

                                       56
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TCPR is the beneficiary of a credit support agreement with TFSC containing the
same provisions as the credit support agreement between TFSC and TMCC but
pertaining to TCPR bonds, debentures, notes and other investment securities and
commercial paper (collectively, "TCPR Securities"). Holders of TCPR Securities
have the right to claim directly against TFSC and TMC to perform their
respective obligations as described above. This agreement is not a guarantee by
TFSC of any securities or other obligations of TCPR. TCPR has agreed to pay TFSC
a fee which is based upon the weighted average outstanding amount of TCPR
Securities entitled to credit support.

Derivative Instruments

Our liabilities consist mainly of fixed and variable rate debt, denominated in
U.S dollars and various other currencies, which we issue in the global capital
markets, while our assets consist primarily of U.S. dollar denominated, fixed
rate receivables. We enter into interest rate swaps and foreign currency swaps
to economically hedge the interest rate and foreign currency risks that result
from the different characteristics of our assets and liabilities. Our use of
derivative transactions is intended to reduce long-term fluctuations in the fair
value of assets and liabilities caused by market movements. All of our
derivatives are categorized as not designated for hedge accounting, and all of
our derivative activities are authorized and monitored by our management and our
Asset-Liability Committee ("ALCO") which provides a framework for financial
controls and governance to manage market risk.

Refer to Note 6 - Derivatives, Hedging Activities and Interest Expense of the
Notes to Consolidated Financial Statements for further discussion and disclosure
on derivative instruments.




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LIBOR TRANSITION

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. While the most commonly used U.S.
dollar LIBOR tenors are expected to continue to be published until June 30,
2023, U.S. banking agencies issued guidance that financial institutions should
cease using U.S. dollar LIBOR as a reference rate in new contracts after
December 31, 2021. We are exposed to LIBOR-based financial instruments,
including through our dealer financing activities, derivative contracts, secured
and unsecured debt, and investment securities. To facilitate an orderly
transition from LIBOR to alternative reference rates ("ARRs"), we have
established an initiative led by senior management, with Board and committee
oversight, to assess, monitor and mitigate risks associated with the expected
discontinuation of LIBOR, to achieve operational readiness and engage impacted
borrowers and counterparties in connection with the transition to ARRs. Our
efforts under this initiative include monitoring developments and the usage of
ARRs, monitoring the regulatory and financial reporting guidance, as well as
reviewing and updating current legal contracts, internal systems and processes
to accommodate the use of ARRs. For example, we have committed to using Secured
Overnight Financing Rate ("SOFR") linked rates in connection with various
borrowing arrangements and Prime in connection with various lending
arrangements, and we continue to evaluate other alternatives as potential ARRs
to LIBOR. SOFR is a measure of the cost of borrowing cash overnight,
collateralized by U.S. Treasury securities, and is based on directly observable
U.S. Treasury-backed repurchase transactions.

We are also continuously assessing how the expected discontinuation of LIBOR
will impact accounting and financial reporting. For example, on April 1, 2021,
we adopted ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of
Reference Rate Reform on Financial Reporting, as further discussed in Note 1 -
Basis of Presentation and Significant Accounting Policies of the Notes to
Consolidated Financial Statements.

Refer to Part I, Item 1A. Risk Factors - "The transition away from the London
Interbank Offered Rate ("LIBOR") and the adoption of alternative reference rates
could adversely impact our business and results of operations" for further
discussion.


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NEW ACCOUNTING GUIDANCE

Refer to Note 1 - Basis of Presentation and Significant Accounting Policies of
the Notes to Consolidated Financial Statements.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP) requires
management to make certain estimates which affect reported financial results.
The evaluation of the factors used in determining each of our critical
accounting estimates involves significant assumptions, complex analyses, and
management judgment. Changes in the evaluation of these factors may have a
significant impact on the consolidated financial statements.  Additionally, due
to inherent uncertainties in making estimates, actual results could differ from
those estimates, and those differences could be material. The accounting
estimates we consider to be critical are the following:

  • Accumulated depreciation on investment in operating leases; and


  • Allowance for credit losses

Accumulated Depreciation on Investment in Operating Leases

Accumulated depreciation on investment in operating leases reduces the value of
the leased vehicles from their original value at acquisition to their expected
market value at the end of the lease term. Refer to Note 5 - Investments in
Operating Leases, Net of the Notes to Consolidated Financial Statements for
further discussion and disclosure of our investment in operating leases,
including accumulated depreciation.

Nature of Estimates and Assumptions Required

The accumulated depreciation on investment in operating leases is based on
assumptions of end-of-term market value of the leased vehicles and the number of
vehicles that will be returned at maturity. At the inception of a lease, the
residual values are estimated by examining external industry data, the
anticipated Toyota and Lexus product pipeline and our own experience. Factors
considered in this evaluation include, but are not limited to, local, regional
and national economic forecasts, new vehicle pricing, new vehicle incentive
programs, new vehicle sales, competitor actions and behavior, product attributes
of popular vehicles, the mix and level of used vehicle supply, current and
projected used vehicle values, the actual or perceived quality, safety or
reliability of Toyota and Lexus vehicles, buying and leasing behavior trends,
and fuel prices. We review the estimated end-of-term market values of leased
vehicles to assess the appropriateness of their carrying values on a quarterly
basis. To the extent the estimated end-of-term market value of a leased vehicle
is lower than the contractual 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. Factors affecting the estimated end-of-term market value are similar to
those considered in the evaluation of the contractual residual values at lease
inception. These factors are evaluated in the context of their historical trends
to anticipate potential changes in the relationship among those factors in the
future.

The vehicle lease return rate represents the number of end-of-term leased
vehicles returned to us for sale as a percentage of lease contracts that were
originally scheduled to mature in the same period less certain qualified early
terminations. When the market value of a leased vehicle at maturity is less than
its contractual residual value (i.e., the price at which the lease customer may
purchase the leased vehicle), there is a higher probability that the vehicle
will be returned. In addition, a higher market supply of certain models of used
vehicles generally results in a lower relative level of demand for those
vehicles, resulting in a higher probability that the vehicle will be returned.

Sensitivity Analysis

At March 31, 2022, holding other estimates constant, if end-of-term market
values for returned units were to decrease by one percent from our present
estimates, the effect would be to increase depreciation expense by approximately
$92 million. If the forecasted end-of-term market value of a leased vehicle is
less than the contractual residual value, additional depreciation expense is
recorded.

At March 31, 2022, holding other estimates constant, if the return rate for our
existing lease portfolio were to increase by one percentage point from our
present estimates, the effect would be to increase depreciation expense by
approximately $15 million. Adjustments are made on a straight-line basis over
the remaining terms of the leases and are included in Investment in operating
leases, net on our Consolidated Balance Sheets and in Depreciation on operating
leases in our Consolidated Statements of Income.


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Allowance for Credit Losses

We maintain an allowance for credit losses to cover lifetime expected credit
losses as of the balance sheet date on our earning assets resulting from the
failure of customers or dealers to make required payments. For evaluation
purposes, exposures to credit losses are segmented into the two primary
categories of "retail loan" and "dealer". Our retail loan portfolio consists,
for accounting purposes, of our retail loan portfolio segment which is
characterized by smaller contract balances than our dealer portfolio. Our dealer
portfolio consists, for accounting purposes, of our dealer products portfolio
segment. The overall allowance is evaluated at least quarterly, considering a
variety of assumptions and factors to determine whether allowances are
considered adequate to cover lifetime expected credit losses as of the balance
sheet date. Refer to Note 4 - Allowance for Credit Losses of the Notes to
Consolidated Financial Statements for further discussion and disclosure of our
allowance for credit losses.

Retail Loan Portfolio

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

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

Dealer Portfolio

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

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

Sensitivity Analysis

The assumptions used in evaluating our exposure to credit losses involve
estimates and significant judgment. The majority of our credit losses are
related to our retail loan portfolio. Holding other estimates constant, a 10
percent increase or decrease in the assumptions used to derive probability of
default and loss given default would have resulted in a change in the allowance
for credit losses of $120 million as of March 31, 2022.


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