PACCAR FINANCIAL CORP 10-K

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2023

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

For transition period from __________ to __________

Commission File No. 001-11677

PACCAR FINANCIAL CORP.

(Exact name of Registrant as specified in its charter)


Washington		91-6029712
(State of incorporation)		(I.R.S. Employer Identification No.)

777 106th Avenue N.E., Bellevue, Washington		98004
(Address of principal executive offices)		(Zip Code)

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

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

    Title of each class

    Trading Symbol(s)

    Name of each exchange on which registered

    Series P Medium-Term Notes
$300.0 Million Due May 11, 2026
 
PCAR26

The NASDAQ Stock Market

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

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

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

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

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


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

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

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

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

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

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

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2023: None

The number of shares outstanding of the registrant’s classes of common stock as of January 31, 2024:

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

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

INDEX


PART I

Item 1.	Business	3
Item 1A.	Risk Factors	9
Item 1B.	Unresolved Staff Comments	11
Item 1C.	Cybersecurity	11
Item 2.	Properties	12
Item 3.	Legal Proceedings	12
Item 4.	Mine Safety Disclosures	12

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13
Item 6.	[Reserved]	13
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	23
Item 8.	Financial Statements and Supplementary Data	23
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	44
Item 9A.	Controls and Procedures	44
Item 9B.	Other Information	44
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspection	44

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	45
Item 11.	Executive Compensation	45
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	45
Item 13.	Certain Relationships and Related Transactions, and Director Independence	45
Item 14.	Principal Accountant Fees and Services	45

PART IV

Item 15.	Exhibits and Financial Statement Schedules	45

PACCAR Financial Corp.

(Millions of Dollars)

PART I

ITEM 1. BUSINESS

GENERAL

PACCAR Financial Corp.

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

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

PACCAR

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

PACCAR’s trucks are marketed under the Kenworth, Peterbilt and DAF nameplates. These trucks, which are built in three plants in the United States, three in Europe and one each in Australia, Brasil, Canada and Mexico, are used worldwide for over-the-road and off-highway hauling of commercial and consumer goods. PACCAR also designs and manufactures diesel engines, primarily for use in PACCAR’s trucks, at its facilities in Columbus, Mississippi; Eindhoven, the Netherlands; and Ponta Grossa, Brasil. PACCAR competes in the North American Class 8 market, primarily with Kenworth and Peterbilt conventional models. These trucks are assembled at facilities in Chillicothe, Ohio; Denton, Texas; Renton, Washington and Mexicali, Mexico. PACCAR also competes in the North American Class 6 to 7 markets primarily with Kenworth and Peterbilt conventional models. These trucks are assembled at facilities in Ste. Therese, Canada; Denton, Texas and Mexicali, Mexico. PACCAR competes in the European light/medium market with DAF cab-over-engine (COE) trucks assembled in the United Kingdom (U.K.) by Leyland, one of PACCAR’s wholly owned subsidiaries, and participates in the European heavy market with DAF COE trucks assembled in the Netherlands and the U.K. PACCAR competes in the Brazilian heavy truck market with DAF COE models assembled at Ponta Grossa in the state of Paraná, Brasil. PACCAR competes in the Australian medium and heavy truck markets with Kenworth conventional and COE models and certain DAF COE models assembled at its facility at Bayswater in the state of Victoria, Australia, and DAF COE models primarily assembled in the U.K. Commercial truck manufacturing comprises the largest segment of PACCAR’s business and accounted for 77% of total 2023 net sales and revenues.

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

There are four principal competitors in the U.S. and Canada commercial truck market. PACCAR’s share of the U.S. and Canadian Class 8 market was 29.5% of retail sales in 2023, and PACCAR’s medium-duty market share was 14.5%. In Europe, there are six principal competitors in the commercial truck market, including parent companies to the four competitors of PACCAR in the U.S. In 2023, DAF had a 15.6% share of the European heavy-duty market and a 9.1% share of the light/medium duty market. These markets are highly competitive in price, quality and service. PACCAR is not dependent on any single customer for its sales. There are no significant seasonal variations in sales.

PACCAR Financial Corp.

(Millions of Dollars)

Aftermarket truck parts are sold and delivered to PACCAR’s independent dealers through PACCAR’s 18 strategically located parts distribution centers (PDCs) in the U.S., Canada, Europe, Australia, Mexico and Central and South America. Parts are primarily purchased from various suppliers and also manufactured by PACCAR. Aftermarket parts inventory levels are determined largely by anticipated customer demand and the need for timely delivery. The Parts segment accounted for 18% of total 2023 net sales and revenues.

In addition to the Company, which provides financing, leasing and full-service truck leasing in the United States, PACCAR offers similar financing programs for PACCAR products in Canada, Mexico, Australia, Europe and South America through other wholly owned finance subsidiaries. PACCAR also conducts full-service leasing operations through wholly owned subsidiaries in Canada, Mexico, Germany and Australia. The Financial Services segment accounted for 5% of total 2023 net sales and revenues.

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

BUSINESS OF THE COMPANY

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

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

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

As of December 31, 2023, the Company employed 354 full-time employees, none of whom are represented by a collective bargaining agent.

Human Capital Management

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

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

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

Environmental and Sustainability Leadership

The Company’s environmental management system and policy are aligned with PACCAR’s overall commitment to the environment as an integral part of the continuous improvement process. Refer to Part I, Item 1 in PACCAR’s 2023 Annual Report on Form 10-K for further discussion on PACCAR’s environmental and sustainability leadership.

PACCAR Financial Corp.

(Millions of Dollars)

THE COMPANY’S PRODUCTS

The Company offers the following products to retail customers:

Retail Contracts and Loans

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

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

Financing Leases

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

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

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

Operating Leases

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

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

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

Master Notes

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

Wholesale Contracts

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

Dealer Loans

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

PACCAR Financial Corp.

(Millions of Dollars)

Full-Service Leasing

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

Insurance

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

CUSTOMER CONCENTRATION, PAST DUE ACCOUNTS AND LOSS EXPERIENCE

Customer Concentration

The Company’s customers are principally concentrated in the transportation industry in the United States. The Company’s portfolio assets are diversified over a large number of customers and dealers with no single customer or dealer balance representing over 10% of the total portfolio assets as of December 31, 2023 and 2022. There is no single customer or dealer representing over 10% of Interest and other revenues for the years ended December 31, 2023, 2022 and 2021.

Past Due Receivables and Allowance for Credit Losses

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

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

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

COMPETITION AND ECONOMIC FACTORS

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

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

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

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

PACCAR Financial Corp.

(Millions of Dollars)

REGULATION AND SIMILAR MATTERS

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

SOURCES OF FUNDS

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

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

As of December 31, 2023, the total notional amount of interest-rate swap contracts outstanding was $314.6. These swap contracts are accounted for as cash flow or fair value hedges.

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

The Company periodically registers debt securities under the Securities Act of 1933 for offering to the public. In November 2021, the Company filed a shelf registration statement to issue medium-term notes. In January 2024, the Company issued $600.0 of medium-term notes under this registration. The shelf registration statement expires in November 2024 and does not limit the principal amount of debt securities that may be issued during the period. The total principal amount of medium-term notes outstanding for the Company as of December 31, 2023 was $6,100.0. See “Note G – Borrowings” in the Notes to the Financial Statements for further information on the Company’s medium-term notes.

The Company participated with PACCAR and certain other PACCAR affiliates in committed bank facilities of $3,000.0 at December 31, 2023. Of this amount, $1,000.0 expires in June 2024, $1,000.0 expires in June 2026 and $1,000.0 expires in June 2028. PACCAR and the Company intend to replace these credit facilities on or before expiration with facilities of similar amounts and duration.

Of the $3,000.0 credit facilities, $2,268.0 is available for use by the Company and/or PACCAR and other non-U.S. PACCAR financial subsidiaries. The remaining $732.0 is allocated to PACCAR and other non-U.S. PACCAR financial subsidiaries. These credit facilities are used to provide backup liquidity for the Company’s commercial paper and maturing medium-term notes. The Company is liable only for its own borrowings under these credit facilities. There were no borrowings under these credit facilities in 2023.

RELATIONSHIP WITH PACCAR AND AFFILIATES

General

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

PACCAR Financial Corp.

(Millions of Dollars)

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

Periodically, the Company makes loans to, borrows from and has intercompany transactions with PACCAR. The Company had $1,016.0 and $1,261.0 outstanding in loans due from PACCAR as of December 31, 2023 and 2022, respectively. In addition, the Company periodically loans funds to certain foreign finance and leasing affiliates of PACCAR. The Company had $716.0 and $627.0 outstanding in loans due from foreign finance affiliates of PACCAR as of December 31, 2023 and 2022, respectively. These affiliates have Support Agreements with PACCAR, similar to the Company’s Support Agreement with PACCAR described below. The foreign affiliates operate in the U.K., the Netherlands, Mexico, Canada, Australia and Brasil. Loans to these foreign affiliates during 2023 and 2022 were denominated in United States dollars. The foreign affiliates primarily provide financing and leasing of PACCAR manufactured trucks and related equipment sold through the DAF, Kenworth and Peterbilt independent dealer networks in Europe, Mexico, Canada, Australia and Brasil. The Company will not make loans to the foreign affiliates in excess of the equivalent of $750.0 United States dollars, unless the amount in excess of such limit is guaranteed by PACCAR. The Company periodically reviews the funding alternatives for these affiliates, and these limits may be revised in the future.

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

Support Agreement

The Company and PACCAR are parties to a Support Agreement that obligates PACCAR to provide, when required, financial assistance to the Company to ensure that the Company maintains a ratio of earnings to fixed charges (as defined in the Support Agreement) of at least 1.25 to 1 for any fiscal year. The required ratio for the years ended December 31, 2023, 2022 and 2021 was met without assistance. The Support Agreement also requires PACCAR to own, directly or indirectly, all outstanding voting stock of the Company. See “Note D – Transactions with PACCAR and Affiliates” in the Notes to the Financial Statements.

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

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

OTHER DISCLOSURES

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

PACCAR Financial Corp.

(Millions of Dollars)

ITEM 1A. RISK FACTORS

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

Business and Industry Risks

Sales of PACCAR Products

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

Production Costs, Capacity and Inflation

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

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

Transition Risks Related to Climate Change

PACCAR has ongoing product development programs intended to address changing customer demand in the context of climate change and achieve its targeted reductions in emissions. These involve the continuing development of compliant clean diesel powertrains and the design, manufacture, and sale of alternative powertrain commercial vehicles (e.g., battery-electric, hybrid, hydrogen fuel cell, and hydrogen combustion). The pace of transition from diesel combustion to alternative powertrain commercial vehicles is highly uncertain and will be influenced by various factors. Refer to Part I, Item 1A in PACCAR’s 2023 Annual Report on Form 10-K for further discussion.

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

Liquidity Risks, Credit Ratings and Costs of Funds

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

Competitive Risk

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

PACCAR Financial Corp.

(Millions of Dollars)

Credit Risk

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

Interest-Rate Risk

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

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

Residual Value Risk

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

Information Technology and Cybersecurity

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

If the Company’s computer systems were to be damaged, disrupted or breached, it could impact data availability and integrity, result in a theft of the Company’s intellectual property or lead to unauthorized disclosure of confidential information of the Company’s customers, suppliers and employees. Security breaches could also result in a violation of U.S. and international privacy and other laws and subject the Company to various litigations and governmental proceedings. These events could have an adverse impact on the Company’s results of operations and financial condition, damage its reputation, disrupt operations and negatively impact competitiveness in the marketplace.

Political, Regulatory and Economic Risks

Emissions Requirements and Reduction Targets

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

PACCAR Financial Corp.

(Millions of Dollars)

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

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

PACCAR, Cummins, Daimler Trucks and EVE Energy are partnering to produce state of the art commercial vehicle batteries in a 21-gigawatt hour (GWh) factory in Marshall County, Mississippi, subject to regulatory approval. Production is expected to begin in 2027.

Litigation and Regulatory Actions

On July 19, 2016, the European Commission (EC) concluded its investigation of all major European truck manufacturers and reached a settlement with DAF Trucks N.V., its subsidiary DAF Trucks Deutschland GmbH (collectively, “DAF”) and PACCAR Inc as their parent. Following the settlement, certain EC-related claims and lawsuits have been filed in various jurisdictions primarily in Europe against all major European truck manufacturers including PACCAR Inc and DAF. These claims and lawsuits include a number of collective proceedings, including a class action in the U.K. and Israel, alleging EC-related claims and seeking monetary damages. In certain jurisdictions, additional claimants may bring EC-related claims and lawsuits against PACCAR Inc or its subsidiaries.

The legal proceedings are moving through the court systems. In 2023, several European courts issued judgments; some have been favorable while others have been unfavorable and are being appealed. PACCAR Inc believes it has meritorious defenses to the legal claims. In early 2023, PACCAR Inc began settling with selected claimants. Based on these settlements and judgments, PACCAR Inc recorded in the first quarter 2023, a non-recurring pre-tax charge of $600.0 million ($446.4 million after-tax) for the estimable total cost. The estimate may be adjusted as the legal process continues, which could have a material impact on PACCAR Inc’s financial results.

Accounting Estimates

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

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 1C. CYBERSECURITY

PACCAR maintains a comprehensive cybersecurity management and governance program, which includes the Company. The Company's information security management system is based upon the National Institute of Standards and Technology Cybersecurity Framework (NIST CSF). The Company engages internal and third-party auditors and other professional parties when necessary, as part of its cybersecurity management program. The Company conducts penetration and compromise assessment tests, implements detection and prevention tools, monitors cyber events and has active disaster recovery plans. For third-party IT services, the Company conducts an architectural, privacy and security analysis of their solution. If any gaps are identified, the third-party remediates or mitigates the risk to an acceptable level. The Company simulates potential cyber-attacks and performs incident responses to test preparedness. These exercises are used to train and update the Company’s Incident Response plan, including any gaps identified. The Company conducts yearly information security training for employees and conducts ongoing phishing tests.

PACCAR’s Security Risk Council, which includes the Company's Management and PACCAR's Chief Information Security Officer, meets regularly to cover risks, plans and updates to the security program. It briefs the PACCAR Board of Directors and/or the Audit Committee of the Board of Directors on technology and information security matters. Management and the PACCAR Board of

PACCAR Financial Corp.

(Millions of Dollars)

Directors also receive periodic updates on the status of cybersecurity investments to guard against such events. In the event of a security breach, the PACCAR’s Security Risk Council evaluates its significance and briefs the PACCAR Board on the event.

The Company has not experienced any notable security incidents that would have a material impact on the results of operations and financial condition of the Company. Certain PACCAR dealers and suppliers have reported they have experienced cyberattacks and those have not caused any material impact to PACCAR or the Company.

ITEM 2. PROPERTIES

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

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

ITEM 3. LEGAL PROCEEDINGS

Refer to the Company’s risk factors (Part I, Item 1A) and Note K – “Commitments and Contingencies” in the Notes to Financial Statements (Part II, Item 8) for discussion on litigation matters, which is incorporated by reference herein.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PACCAR Financial Corp.

(Millions of Dollars)

PART II

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

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

ITEM 6. [Reserved]

PACCAR Financial Corp.

(Millions of Dollars)

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

Results of Operations

The Company’s results of operations for the years ended December 31, 2023 and 2022 are presented below. For information on the year ended December 31, 2021 refer to Part II, Item 7 in the 2022 Annual Report on Form 10-K.


	Year ended December 31
		2023		2022	% Change
New business volume by product:
Retail loans and finance leases	$	2,925.8	$	2,570.7		14
Equipment on operating leases		87.0		312.9		(72	)
Dealer master notes		269.6		205.0		32
	$	3,282.4	$	3,088.6		6
New loan and lease unit volume:
Retail loans and finance leases		20,200		18,100		12
Equipment on operating leases		800		3,100		(74	)
		21,000		21,200		(1	)
Average earning assets by product:
Retail loans and finance leases	$	6,266.3	$	5,752.9		9
Dealer wholesale financing		1,528.0		943.1		62
Dealer master notes		399.3		379.3		5
Average finance receivables		8,193.6		7,075.3		16
Equipment on operating leases		802.5		1,007.6		(20	)
	$	8,996.1	$	8,082.9		11
Revenue by product:
Retail loans and finance leases	$	384.3	$	282.0		36
Equipment on operating leases		235.4		306.1		(23	)
Dealer wholesale financing		75.5		25.2		200
Dealer master notes		18.1		11.3		60
Used truck sales, other revenues and fees		20.8		18.3		14
		734.1		642.9		14
Income before income taxes	$	181.7	$	259.9		(30	)

New Business Volume

New business volume increased to $3,282.4 in 2023 from $3,088.6 in 2022, primarily due to higher retail sales of PACCAR trucks and a higher amount financed per truck, partially offset by lower finance market share in 2023. The increase in retail loans and finance leases new business volume and decrease in equipment on operating leases new business volume reflected higher retail financing and lower fleet business in 2023. Dealer master notes new business volume increased to $269.6 in 2023 from $205.0 in 2022 due to increased finance volume from dealers.

Finance market share of new PACCAR truck sales was 18.9% in 2023 compared to 21.3% in 2022, reflecting increased interest rate competition, partially offset by higher demand for full-service lease and rental products.

The Company has programs to assign new lease and loan contracts to third parties to generate new business and to limit the risk of portfolio concentration with certain large customers. These transactions are accounted for as sales of the related retail loans, finance leases, or equipment on operating leases, and are excluded from new business volume. The Company sold retail loans and finance leases with a book value of $52.7 and $59.5 in 2023 and 2022, respectively, and received cash proceeds of $55.8 and $63.2 in 2023 and 2022, respectively. The Company retains servicing responsibilities for these retail loans and leases, and fees received for servicing are deferred and recognized over the contract term.

Revenues

The Company’s revenues increased to $734.1 in 2023 from $642.9 in 2022, primarily driven by higher portfolio yields and higher average wholesale and retail loan and finance leases portfolio balances, partially offset by a lower average operating lease portfolio.

PACCAR Financial Corp.

(Millions of Dollars)

Income Before Income Taxes

The Company’s income before income taxes was $181.7 in 2023 compared to $259.9 in 2022. The decrease in income before income taxes in 2023 was primarily the result of lower operating lease margin of $80.2, reflecting lower results from returned lease assets, and a higher provision for losses of $12.8, partially offset by higher finance margin of $22.5.

Included in Other assets on the Company’s Balance Sheets are used trucks held for sale, net of impairments, of $145.5 at December 31, 2023 and $63.3 at December 31, 2022. These trucks are primarily units returned from matured operating leases in the ordinary course of business, and also include trucks acquired from repossessions or through acquisitions of used trucks in trades related to new truck sales.

The Company recognized gains on used trucks, excluding repossessions, of $1.9 in 2023 compared to gains of $61.8 in 2022, including losses on multiple unit transactions of $8.3 in 2023 compared to $.1 in 2022. Used truck losses (gains) related to repossessions, which are recognized as credit losses (recoveries), were $1.0 in 2023 compared to ($.2) in 2022.

Revenue and Expenses

The major factors for the changes in interest and fee income, interest and other borrowing costs and finance margin in 2023 compared to 2022 are summarized below:


			Interest and
	Interest and		Other Borrowing		Finance
	Fee Income		Costs		Margin
2022	$	318.5	$	138.8	$	179.7
Increase (decrease)
Average finance receivables		57.2				57.2
Average receivables from PACCAR and affiliates		6.7				6.7
Average debt balances				35.9		(35.9	)
Yields		95.5				95.5
Borrowing rates				101.0		(101.0	)
Total increase		159.4		136.9		22.5
2023	$	477.9	$	275.7	$	202.2

•

Average finance receivables increased $1,118.3 in 2023 primarily due to higher dealer wholesale financing and a larger retail loan and finance lease portfolio, which increased interest and fee income by $57.2.

•

Average receivables from PACCAR and affiliates increased $205.3 in 2023 as a result of new loans to affiliated companies exceeding collections, which increased interest and fee income by $6.7.

•

Average debt balances increased $1,048.5 in 2023, reflecting higher funding requirements for the portfolio and affiliated companies, increasing interest and other borrowing costs by $35.9. The average debt balances reflect funding for the average earning asset portfolio, including retail loans, finance leases, wholesale financing and equipment on operating leases.

•

Yields increased $95.5 due to higher yields on receivables from customers and PACCAR and affiliates. Yields on customer finance receivables were 5.1% in 2023, compared to 4.1% in 2022. Yields on receivables from PACCAR and affiliates were 3.2% in 2023, compared to 1.9% in 2022.

•

Average borrowing rates in 2023 were 3.4% compared to 2.0% in 2022 due to higher debt market interest rates, resulting in an increase of $101.0 in interest and other borrowing costs.

PACCAR Financial Corp.

(Millions of Dollars)

The major factors for the changes in operating lease and rental revenues, depreciation and other rental expenses and operating lease margin in 2023 compared to 2022 are summarized below:


	Operating Lease			Depreciation
	and Rental			and Other			Operating
	Revenues			Rental Expenses			Lease Margin
2022	$	306.1		$	179.6		$	126.5
(Decrease) increase
Operating lease impairments					14.3			(14.3	)
Results on returned lease assets					57.1			(57.1	)
Average operating lease assets		(94.2	)		(76.8	)		(17.4	)
Revenue and cost per asset		23.5			14.9			8.6
Total (decrease) increase		(70.7	)		9.5			(80.2	)
2023	$	235.4		$	189.1		$	46.3

•

Operating lease impairments increased in 2023 due to lower used truck market prices.

•

Results on returned lease assets increased depreciation and other rental expenses by $57.1, primarily due to lower gains on sales of returned lease units in 2023 compared to 2022.

•

Average operating lease assets decreased in 2023 due to the volume of expiring leases exceeding new business volume for leased vehicles.

•

Revenue and cost per asset increased by $23.5 primarily due to higher lease rates, reflecting higher average truck value financed and higher market rates. Cost per asset increased by $14.9 primarily due to higher depreciation.

Used truck sales and other revenues and cost of used truck sales and other expenses are summarized below for 2023 compared to 2022:


	Year ended December 31
		2023		2022
Used truck sales	$	9.4	$	7.4
Insurance, franchise and other revenues		11.4		10.9
Used truck sales and other revenues		20.8		18.3

Cost of used truck sales		10.4		6.3
Insurance, franchise and other expenses		4.6		2.3
Cost of used truck sales and other expenses		15.0		8.6

Results from used trucks and other	$	5.8	$	9.7

Results from used trucks and other decreased by $3.9 in 2023, primarily due to lower results from the sale of used trucks received on trade driven by lower used truck market prices.

SG&A

The Company’s SG&A increased to $64.5 in 2023 from $60.7 in 2022, primarily due to higher personnel and related expenses. As a percentage of average earning assets, the Company’s SG&A was .7% in 2023 compared to .8% in 2022.

PACCAR Financial Corp.

(Millions of Dollars)

Allowance for Credit Losses

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


	Year ended December 31
		2023			2022
Balance at beginning of period	$	61.7		$	65.7
Provision (benefit) for losses		8.1			(4.7	)
Charge-offs		(9.8	)		(1.7	)
Recoveries		1.0			2.4
Balance at end of period	$	61.0		$	61.7

Ratios:
Charge-offs, net of recoveries ($8.8 in 2023) to average total portfolio ($8,193.6 in 2023)		.11	%		(.01	)%

Allowance for credit losses ($61.0 in 2023) to year-end total portfolio ($9,266.4 in 2023)		.66	%		.81	%

Year-end retail loan and lease receivables past due over 30 days ($59.5 in 2023) to year-end retail loan and lease receivables ($6,738.5 in 2023)		.88	%		.12	%

The provision (benefit) for losses on receivables was $8.1 in 2023 compared to $(4.7) in 2022, primarily due to higher charge-offs, portfolio growth and higher past due balances in 2023.

Charge-offs, net of recoveries, were $8.8 in 2023 compared to a net recovery of $.7 in 2022, due to higher credit losses and lower recoveries in 2023.

Retail loan and lease receivables past due over 30 days were .88% at December 31, 2023 compared to .12% at December 31, 2022. The increase from December 31, 2022 was primarily due to three fleet customers becoming past due in 2023. The Company continues to focus on maintaining low past due balances.

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

Modifications

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

PACCAR Financial Corp.

(Millions of Dollars)

The post-modification balances of accounts modified during 2023 and 2022 are summarized below:


	Year ended December 31
	2023					2022
	Amortized Cost Basis		% of Total Portfolio*			Amortized Cost Basis		% of Total Portfolio*

Commercial	$	163.9		1.8	%	$	182.9		2.4	%
Insignificant Delay		196.3		2.1	%		48.7		.7	%
Credit		3.1					.9
	$	363.3		3.9	%	$	232.5		3.1	%

* Amortized cost basis immediately after modification as a percentage of the year-end portfolio balance.

Modification activity increased to $363.3 in 2023 from $232.5 in 2022. The decrease in Commercial modifications reflects lower volumes of refinancing. The increase in Insignificant Delay modifications reflects an increase in customers requesting payment relief for up to three months and is mainly driven by one large fleet customer receiving an extension in the fourth quarter of 2023. There was $3.1 of Credit modifications in 2023 compared to $.9 in 2022.

When the Company modifies a 30+ days past due account, the customer is then generally considered current under the revised contractual terms. The Company modified $2.7 accounts during the fourth quarter of 2023 and $.2 accounts during the fourth quarter of 2022 that were 30+ days past due and became current at the time of modification. Had these accounts not been modified and had they continued to not make payments, the pro forma percentage of retail loan and lease accounts 30+ days past due would have been as follows:

Modification of accounts in prior quarters that were 30+ days past due at the time of modification are included in past dues if they were not performing under the modified terms at December 31, 2023 and 2022. The effect on the allowance for credit losses from such modifications was not significant at December 31, 2023 and 2022.

Portfolio

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


	December 31				December 31
	2023				2022
Retail loans	$	5,028.2	54	%	$	4,627.0	61	%
Retail leases		1,710.4	18	%		1,433.5	19	%
Dealer wholesale financing		1,953.3	21	%		1,093.2	14	%
Dealer master notes		509.2	6	%		377.0	5	%
Operating lease receivables and other		65.3	1	%		49.4	1	%
Total portfolio	$	9,266.4	100	%	$	7,580.1	100	%

Retail loans increased to $5,028.2 at December 31, 2023 from $4,627.0 at December 31, 2022, reflecting new business volume exceeding collections.

Retail leases increased to $1,710.4 at December 31, 2023 from $1,433.5 at December 31, 2022, reflecting new business volume exceeding collections.

Dealer wholesale financing balances increased to $1,953.3 at December 31, 2023 from $1,093.2 at December 31, 2022, due to higher dealer new truck inventory and higher average amount financed.

Dealer master notes increased to $509.2 at December 31, 2023 from $377.0 at December 31, 2022. Dealers may pay the loans early or make additional draws up to specified balances of the contracts and/or vehicles pledged to the Company. As of December 31, 2023,

PACCAR Financial Corp.

(Millions of Dollars)

the underlying pledged contracts and/or vehicles were $581.1, of which the dealers have $65.9 as potential additional borrowing capacity.

Income Taxes

The Company’s effective income tax rate was 23.2% for 2023 compared to 24.3% for 2022, reflecting changes in the state tax expense during 2023 as compared to 2022.

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

During 2023, the Company’s deferred income tax provision was $11.2 compared to $15.6 during 2022. The Company’s net deferred tax liability increased to $476.3 at December 31, 2023 from $467.5 at December 31, 2022, primarily due to higher benefits from accelerated depreciation. Deferred taxes are impacted by new business volume and the accelerated depreciation deduction rate under U.S. federal and state tax law. The difference in the timing of depreciation for financial statement and income tax purposes does not impact operating results and is not expected to have a significant impact on liquidity in 2024.

Company Outlook

Average earning assets in 2024 are expected to be similar to 2023. Current high levels of freight tonnage, freight rates and fleet utilization are contributing to customers’ profitability and cash flow. If current freight transportation conditions decline due to weaker economic conditions, then past due accounts, truck repossessions and credit losses would likely increase from the current low levels and new business volume would likely decline. See the Forward-Looking Statements section of Management’s Discussion and Analysis for factors that may affect this outlook.

Funding and Liquidity

The Company’s debt ratings at December 31, 2023 are as follows:


	Standard
	and Poor's	Moody's
Commercial paper	A-1	P-1
Senior unsecured debt	A+	A1

A decrease in these credit ratings could negatively impact the Company’s ability to access capital markets at competitive interest rates and the Company’s ability to maintain liquidity and financial stability.

The Company issues commercial paper and medium-term notes to fund its financing and leasing operations. The total principal amounts of commercial paper and medium-term notes outstanding for the Company as of December 31, 2023 were $2,851.9 and $6,100.0, respectively.

PACCAR Financial Corp.

(Millions of Dollars)

The Company believes its current investment grade credit ratings of A+/A1, committed bank facilities, collections on existing loans and leases and its ability to borrow from PACCAR, if necessary, will continue to provide it with sufficient resources and access to capital markets at competitive interest rates to maintain its liquidity and financial stability. In the event of a decrease in the Company’s credit ratings or a disruption in the financial markets, the Company may not be able to refinance its maturing debt in the financial markets. In such circumstances, the Company would be exposed to liquidity risk to the degree that the timing of debt maturities differs from the timing of receivable collections from customers. The Company believes its various sources of liquidity, including committed bank facilities, would continue to provide it with sufficient funding resources to service its maturing debt obligations.

The following summarizes the Company’s contractual cash commitments at December 31, 2023:


	Maturity
	Within
	1 Year		1-3 Years		3-5 Years		Total
Borrowings*	$	4,651.9	$	3,400.0	$	900.0	$	8,951.9
Interest on debt**		175.6		210.3		38.6		424.5
Operating leases		.3		.5		.2		1.0
Total	$	4,827.8	$	3,610.8	$	938.8	$	9,377.4

* Commercial paper included in borrowings is at par value.

** Interest on floating rate debt is based on the applicable market rates at December 31, 2023.

As described in “Note G – Borrowings” in the Notes to the Financial Statements, borrowings consist of medium-term notes and commercial paper. The Company has operating leases for office space.

In addition, the Company had loan and lease commitments of $396.6 expiring within one year. These commitments represent commitments to fund new retail loan and lease contracts.

Critical Accounting Policies

The Company’s significant accounting policies are disclosed in “Note A – Significant Accounting Policies” in the Notes to the Financial Statements. In the preparation of the Company’s financial statements, in accordance with U.S. generally accepted accounting principles, management uses estimates and makes judgments and assumptions that affect asset and liability values and the amounts reported as income and expense during the periods presented. The following are accounting policies which, in the opinion of management, are particularly sensitive and which, if actual results are different from estimates used by management, may have a material impact on the financial statements.

Operating Leases

Trucks sold pursuant to agreements accounted for as operating leases are disclosed in “Note C – Equipment on Operating Leases” in the Notes to the Financial Statements. In determining its estimate of the residual value of such vehicles, the Company considers the length of the lease term, the truck model, the expected usage of the truck and anticipated market demand. Operating lease terms generally range from three to five years. The resulting residual values on operating leases generally range between 30% and 60% of original equipment cost. If the sales price of the trucks at the end of the term of the agreement differs from the Company’s estimated residual value, a gain or loss will result.

Future market conditions, changes in government regulations and other factors outside the Company’s control could impact the ultimate sales price of trucks returned under these contracts. Residual values are reviewed regularly and adjusted if market conditions warrant. A decrease in the estimated equipment residual values would increase annual depreciation expense over the remaining lease term.

During 2023, market values on equipment returning upon operating lease maturity were generally higher than the residual values on the equipment, resulting in a decrease in depreciation expense of $15.2.

At December 31, 2023, the aggregate residual value of equipment on operating leases was $315.6. If a 10% decrease in used truck values persisted over the remaining maturities of the Company's operating leases, it would reduce residual value estimates and result in the Company recording additional depreciation expense of approximately $21.4 in 2024, $6.3 in 2025, $2.9 in 2026, $.9 in 2027 and $.1 in 2028 and thereafter.

PACCAR Financial Corp.

(Millions of Dollars)

Allowance for Credit Losses

The allowance for credit losses related to the Company’s loans and finance leases is disclosed in “Note B – Finance and Other Receivables” in the Notes to the Financial Statements. The Company has developed a systematic methodology for determining the allowance for credit losses for its two portfolio segments, retail and wholesale. The retail segment consists of retail loans and sales-type finance leases, net of unearned interest. The wholesale segment consists of truck inventory financing loans to dealers that are collateralized by trucks and other collateral. The wholesale segment generally has less risk than the retail segment. Wholesale receivables generally are shorter in duration than retail receivables, and the Company requires periodic reporting of the wholesale dealer’s financial condition, conducts periodic audits of the trucks being financed and in many cases, obtains guarantees or other security such as dealership assets. In determining the allowance for credit losses, retail loans and finance leases are evaluated together since they relate to a similar customer base, their contractual terms require regular payment of principal and interest, generally over 36 to 60 months, and they are secured by the same type of collateral. The allowance for credit losses consists of both specific and general reserves.

The Company individually evaluates certain finance receivables for expected credit losses. Finance receivables that are evaluated individually consist of all wholesale accounts and certain large retail accounts with past due balances or otherwise determined to be at a higher risk of loss. In general, finance receivables that are 90 days past due are placed on non-accrual status. Finance receivables on non-accrual status which have been performing for 90 consecutive days are placed on accrual status if it is deemed probable that the Company will collect all principal and interest payments.

Individually evaluated receivables on non-accrual status are generally considered collateral dependent. Large balance retail and all wholesale receivables on non-accrual status are individually evaluated to determine the appropriate reserve for losses. The determination of reserves for large balance receivables on non-accrual status considers the fair value of the associated collateral. When the underlying collateral fair value exceeds the Company’s amortized cost basis, no reserve is recorded. Small balance receivables on non-accrual status with similar risk characteristics are evaluated as a separate pool to determine the appropriate reserve for losses using the historical loss information discussed below.

The Company evaluates finance receivables that are not individually evaluated and share similar risk characteristics on a collective basis and determines the general allowance for credit losses for both retail and wholesale receivables based on historical loss information, using past due account data, current market conditions, and expected changes in future macroeconomic conditions that affect collectability. Historical credit loss information provides relevant information of expected credit losses. The historical data used includes assumptions regarding the likelihood of collecting current and past due accounts, repossession rates, and the recovery rate on the underlying collateral based on used truck values and other pledged collateral or recourse.

The Company has developed a range of loss estimates of its portfolio based on historical experience, taking into account loss frequency and severity in both strong and weak truck market conditions. A projection is made of the range of estimated credit losses inherent in the portfolio from which an amount is determined based on current market conditions and other factors impacting the creditworthiness of the Company’s borrowers and their ability to repay. Adjustments to historical loss information are made for changes in forecasted economic conditions that are specific to the industry and market in which the Company conducts business. The Company utilizes economic forecasts from third party sources and determines expected losses based on historical experience under similar market conditions. After determining the appropriate level of the allowance for credit losses, a provision for losses on finance receivables is charged to income as necessary to reflect management’s estimate of expected credit losses, net of recoveries, inherent in the portfolio.

The adequacy of the allowance is evaluated quarterly based on the most recent past due account information and current and future market conditions. As accounts become past due, the likelihood that they will not be fully collected increases. The Company’s experience indicates the probability of not fully collecting past due accounts ranges between 30% and 70%. Over the past two years, the Company’s year-end 30+ days past due accounts of loan and lease receivables were .88% in 2023 and .12% in 2022.

Historically, a 100 basis point increase in the 30+ days past due percentage has resulted in an increase in credit losses of 1 to 23 basis points of receivables. As of December 31, 2023, 30+ days past dues were .88%. If past dues were 100 basis points higher or 1.88% as of December 31, 2023, the Company’s estimate of credit losses would likely have increased by a range of $1 to $15 depending on the extent of the past dues, the estimated value of the collateral as compared to amounts owed and general economic factors.

PACCAR Financial Corp.

(Millions of Dollars)

Forward-Looking Statements

This Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements relating to future results of operations or financial position and any other statement that does not relate to any historical or current fact. Such statements are based on currently available operating, financial and other information and are subject to risks and uncertainties that may affect actual results. Risks and uncertainties include, but are not limited to: national and local economic, political and industry conditions; changes in the levels of new business volume due to unit fluctuations in new PACCAR truck sales or reduced market share; changes in competitive factors; changes affecting the profitability of truck owners and operators; price changes impacting equipment costs and residual values; changes in interest rates and other operating costs; insufficient liquidity in the capital markets and availability of other funding sources; cybersecurity risks to the Company’s information technology systems; pandemics; climate-related risks; global conflicts; litigation involving the Company or affiliated entities; and legislation and governmental regulation.

PACCAR Financial Corp.

(Millions of Dollars)

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk and Derivative Financial Instruments

In the normal course of business, the Company issues various financial instruments that expose the Company to market risk associated with market interest rates. Policies and procedures have been established by the Company to manage these market risks through the use of various derivative financial instruments. The Company does not engage in derivatives trading, market-making or other speculative activities.

The following is a sensitivity analysis for the Company’s assets and liabilities that have interest-rate risk. The Company measures its interest-rate risk by estimating the amount by which the fair value of interest rate sensitive assets and liabilities, including derivative financial instruments, would change assuming an immediate 100 basis point increase across the yield curve as shown in the following table:

Fair Value (Losses) Gains


	Year ended December 31
		2023		2022
Assets
Fixed rate loans	$	(99.8	)	$	(84.9	)
Due from PACCAR		(20.2	)		(18.7	)
Due from foreign finance affiliates		(9.3	)		(12.4	)
Interest rate swaps related to debt		3.9			6.9

Liabilities
Fixed rate debt		110.5			94.9
Interest rate swaps related to debt		3.9			1.1
Total	$	(11.0	)	$	(13.1	)

The Company’s debt as of December 31, 2023 and 2022 consisted of commercial paper and floating and fixed rate medium-term notes.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements of the Company and related schedules described under “Item 15. – Exhibits and Financial Statement Schedules” are included following this page.

Report of Independent Registered Public Accounting Firm

Board of Directors

PACCAR Inc and PACCAR Financial Corp.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of PACCAR Financial Corp. (a wholly owned subsidiary of PACCAR Inc) (the Company) as of December 31, 2023 and 2022, the related statements of income, comprehensive income, stockholder’s equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.


	Used trucks held for sale

Description of the Matter	Included in Other assets on the Company’s Balance Sheet are used trucks held for sale of $145.5 million as of December 31, 2023. As discussed in Note J to the financial statements, the carrying amount of used trucks held for sale is written down as necessary to reflect the fair value less costs to sell. The Company determines the fair value of used trucks from a pricing matrix, which is based on the market approach. The significant observable inputs into the valuation model are recent sales prices of comparable units sold individually, which is the lowest unit of account, and the condition of the vehicles. Auditing management’s estimate of the impairments for used trucks held for sale was complex and required judgment in evaluating management’s assumptions used in determining the fair value of units held for sale.
How We Addressed the Matter in Our Audit	We evaluated and tested the design and operating effectiveness of internal controls over the used trucks held for sale process, including management’s assessment of the assumptions and data underlying the fair value of units held for sale. The fair value of units held for sale is determined by the Company’s used truck pricing matrix, which is based on historical sales data. Our audit procedures included, among others, evaluating whether the historical sales data was representative of current market prices and recent trends in sales for similar units, by comparing the data to units sold at or subsequent to year end. We tested the completeness and accuracy of the sales data used in the used truck pricing matrix by comparing it to source systems. We also compared management’s internal pricing matrix to sales data from third-party sources.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1961.

Seattle, Washington

February 21, 2024

PACCAR Financial Corp.


STATEMENTS OF INCOME
	Year ended December 31
(Millions of Dollars)		2023		2022			2021
Interest and fee income	$	477.9	$	318.5		$	300.5
Operating lease and rental revenues		235.4		306.1			333.8
Used truck sales and other revenues		20.8		18.3			81.7
TOTAL INTEREST AND OTHER REVENUES		734.1		642.9			716.0

Interest and other borrowing costs		275.7		138.8			124.5
Depreciation and other rental expenses		189.1		179.6			268.7
Cost of used truck sales and other expenses		15.0		8.6			71.4
Selling, general and administrative expenses		64.5		60.7			57.3
Provision for losses on receivables		8.1		(4.7	)		(2.2	)
TOTAL EXPENSES		552.4		383.0			519.7

INCOME BEFORE INCOME TAXES		181.7		259.9			196.3

Income taxes		42.2		63.1			48.2
NET INCOME	$	139.5	$	196.8		$	148.1

Earnings per share and dividends per share are not reported because the Company is a wholly owned subsidiary of PACCAR.


STATEMENTS OF COMPREHENSIVE INCOME
	Year ended December 31
(Millions of Dollars)		2023			2022			2021
Net income	$	139.5		$	196.8		$	148.1
Other comprehensive income (loss)
Unrealized (losses) gains on derivative contracts
(Losses) gains arising during the period		(5.2	)		(.9	)		18.7
Tax effect		1.3			.2			(4.6	)
Reclassification adjustment		(4.6	)		27.9			12.4
Tax effect		1.1			(6.9	)		(3.1	)
Net other comprehensive (loss) income		(7.4	)		20.3			23.4
TOTAL COMPREHENSIVE INCOME	$	132.1		$	217.1		$	171.5

See Notes to Financial Statements.

PACCAR Financial Corp.


BALANCE SHEETS
	December 31		December 31
(Millions of Dollars)		2023		2022
ASSETS

Cash	$	175.1	$	48.8
Finance and other receivables, net of allowance for losses (2023 - $61.0 and 2022 - $61.7)		9,205.4		7,518.4
Due from PACCAR and affiliates		1,750.7		1,905.3
Equipment on operating leases, net of accumulated depreciation (2023 - $412.5 and 2022 - $625.9)		528.0		854.0
Other assets		337.8		223.9
TOTAL ASSETS	$	11,997.0	$	10,550.4

LIABILITIES

Accounts payable, accrued expenses and other	$	603.1	$	528.3
Due to PACCAR and affiliates		58.6		21.8
Commercial paper		2,842.4		1,657.7
Medium-term notes		6,071.7		5,814.5
Deferred taxes and other liabilities		490.0		486.0
TOTAL LIABILITIES		10,065.8		8,508.3

STOCKHOLDER'S EQUITY

Preferred stock, par value $100 per share, 6% noncumulative and nonvoting, 450,000 shares authorized, 310,000 shares issued and outstanding		31.0		31.0
Common Stock, par value $100 per share, 200,000 shares authorized, 145,000 shares issued and outstanding		14.5		14.5
Additional paid-in capital		171.6		164.6
Retained earnings		1,703.1		1,813.6
Accumulated other comprehensive income		11.0		18.4
TOTAL STOCKHOLDER'S EQUITY		1,931.2		2,042.1
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	11,997.0	$	10,550.4

See Notes to Financial Statements.

PACCAR Financial Corp.


STATEMENTS OF CASH FLOWS
	Year ended December 31
(Millions of Dollars)		2023			2022			2021
OPERATING ACTIVITIES

Net income	$	139.5		$	196.8		$	148.1
Items included in net income not affecting cash:
Depreciation and amortization		181.9			167.9			252.2
Provision for losses on receivables		8.1			(4.7	)		(2.2	)
Deferred taxes		11.2			15.6			(201.9	)
Administrative fees for services from PACCAR		7.0			8.6			8.1
Change in tax-related balances with PACCAR		6.3			24.4			(39.2	)
Increase in payables and other		40.2			144.0			120.2

NET CASH PROVIDED BY OPERATING ACTIVITIES		394.2			552.6			285.3

INVESTING ACTIVITIES

Finance and other receivables originated		(3,319.7	)		(2,807.1	)		(2,857.8	)
Collections on finance and other receivables		2,470.7			2,366.4			2,599.5
Net (increase) decrease in wholesale receivables		(860.1	)		(355.6	)		283.5
Loans to PACCAR and affiliates		(415.0	)		(694.9	)		(381.0	)
Collections on loans from PACCAR and affiliates		555.0			350.9			726.0
Net decrease (increase) in other receivables to PACCAR and affiliates		16.0			(118.0	)		50.1
Acquisitions of equipment for operating leases		(62.4	)		(228.0	)		(188.6	)
Proceeds from disposals of equipment		176.1			213.5			300.1
Other, net		(11.4	)		(69.5	)		(18.6	)

NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES		(1,450.8	)		(1,342.3	)		513.2

FINANCING ACTIVITIES

Net increase (decrease) in short-term commercial paper		1,191.1			574.2			(219.4	)
Proceeds from medium-term notes and other commercial paper		1,991.8			2,092.2			1,295.0
Payments of medium-term notes and other commercial paper		(1,750.0	)		(1,750.0	)		(1,800.0	)
Dividends paid		(250.0	)		(100.0	)		(100.0	)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		1,182.9			816.4			(824.4	)
NET INCREASE (DECREASE) IN CASH		126.3			26.7			(25.9	)
CASH AT BEGINNING OF YEAR		48.8			22.1			48.0
CASH AT END OF YEAR	$	175.1		$	48.8		$	22.1

See Notes to Financial Statements.

PACCAR Financial Corp.


STATEMENTS OF STOCKHOLDER’S EQUITY
	Year ended December 31
(Millions of Dollars)		2023			2022			2021
PREFERRED STOCK, $100 par value

Balance at beginning of year	$	31.0		$	31.0		$	31.0
Balance at end of year		31.0			31.0			31.0

COMMON STOCK, $100 par value

Balance at beginning of year		14.5			14.5			14.5
Balance at end of year		14.5			14.5			14.5

ADDITIONAL PAID-IN CAPITAL

Balance at beginning of year		164.6			156.0			147.9
Investments from PACCAR		7.0			8.6			8.1
Balance at end of year		171.6			164.6			156.0

RETAINED EARNINGS

Balance at beginning of year		1,813.6			1,716.8			1,668.7
Net income		139.5			196.8			148.1
Dividends paid		(250.0	)		(100.0	)		(100.0	)
Balance at end of year		1,703.1			1,813.6			1,716.8

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated unrealized net gain (loss) on derivative contracts:
Balance at beginning of year		18.4			(1.9	)		(25.3	)
Net unrealized (loss) gain		(7.4	)		20.3			23.4
Balance at end of year		11.0			18.4			(1.9	)
TOTAL STOCKHOLDER’S EQUITY	$	1,931.2		$	2,042.1		$	1,916.4

See Notes to Financial Statements.

PACCAR Financial Corp.


Notes to Financial Statements	(Millions of Dollars)

NOTE A – SIGNIFICANT ACCOUNTING POLICIES

Description of Operations and Basis of Presentation:

PACCAR Financial Corp. (the “Company”) is a wholly owned subsidiary of PACCAR Inc (“PACCAR”). The Company primarily provides financing of PACCAR manufactured trucks and related equipment sold by authorized dealers. The Company also finances dealer inventories of transportation equipment and franchises Kenworth and Peterbilt dealerships to engage in full-service and finance leasing. The operations of the Company are fundamentally affected by its relationship with PACCAR.

Due to the nature of the Company’s business, customers are concentrated in the transportation industry throughout the United States. Generally, all receivables are collateralized by the equipment being financed. The risk of credit losses related to this concentration has been considered in establishing the allowance for credit losses.

Use of Estimates:

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Finance and Other Receivables:

Loans – Loans represent fixed or floating rate loans to customers or dealers collateralized by the vehicles purchased and are recorded at amortized cost.

Finance leases – Finance leases are sales-type finance leases, which lease equipment to retail customers and dealers. These leases are reported as the sum of minimum lease payments receivable and estimated residual value of the property subject to the contracts, reduced by unearned interest.

Dealer wholesale financing – Dealer wholesale financing is floating-rate wholesale loans to Kenworth and Peterbilt dealers for new and used trucks and are recorded at amortized cost. The loans are collateralized by the trucks being financed.

Operating lease receivables and other – Operating lease receivables and other include monthly rentals due on operating leases, unamortized loan and lease origination costs, interest on loans and other amounts due within one year in the normal course of business.

Allowance for Credit Losses:

The Company continuously monitors the payment performance of its finance receivables. For large retail finance customers and dealers with wholesale financing, the Company regularly reviews their financial statements and makes site visits and phone contact as appropriate. If the Company becomes aware of circumstances that could cause those customers or dealers to face financial difficulty, whether or not they are past due, the customers are placed on a watch list.

When considering whether to modify customer accounts for credit reasons, the Company evaluates the creditworthiness of the customers and modifies those accounts that the Company considers likely to perform under the modified terms. The Company does not typically grant credit modifications for customers that do not meet minimum underwriting standards since the Company normally repossesses the financed equipment in these circumstances.

PACCAR Financial Corp.


Notes to Financial Statements	(Millions of Dollars)

On average, commercial and other modifications extended contractual terms by approximately three months in 2023 and 2022 and did not have a significant effect on the weighted average term or interest rate of the total portfolio at December 31, 2023 or 2022.

The Company has developed a systematic methodology for determining the allowance for credit losses for its two portfolio segments, retail and wholesale. The retail segment consists of retail loans and sales-type finance leases, net of unearned interest. The wholesale segment consists of truck inventory financing loans to dealers that are collateralized by trucks and other collateral. The wholesale segment generally has less risk than the retail segment. Wholesale receivables generally are shorter in duration than retail receivables, and the Company requires periodic reporting of the wholesale dealer’s financial condition, conducts periodic audits of the trucks being financed and, in many cases, obtains guarantees or other security such as dealership assets. In determining the allowance for credit losses, retail loans and finance leases are evaluated together since they relate to a similar customer base, their contractual terms require regular payment of principal and interest, generally over 36 to 60 months, and they are secured by the same type of collateral. The allowance for credit losses consists of both specific and general reserves.

The Company evaluates finance receivables that are not individually evaluated and share similar risk characteristics on a collective basis and determines the general allowance for credit losses for both retail and wholesale receivables based on historical loss information, using past due account data, current market conditions, and expected changes in future macroeconomic conditions that affect collectability. Historical credit loss data provides relevant information of expected credit losses. The historical data used includes assumptions regarding the likelihood of collecting current and past due accounts, repossession rates, and the recovery rate on the underlying collateral based on used truck values and other pledged collateral or recourse.

In determining the fair value of the collateral, the Company uses a pricing matrix and categorizes the fair value as Level 2 in the hierarchy of fair value measurement. The pricing matrix is reviewed quarterly and updated as appropriate. The pricing matrix considers the make, model and year of the equipment as well as recent sales prices of comparable equipment sold individually, which is the lowest unit of account, through wholesale channels to the Company’s dealers (principal market). The fair value of the collateral also considers the overall condition of the equipment.

Accounts are charged off against the allowance for credit losses when, in the judgment of management, they are considered uncollectible, which generally occurs upon repossession of the collateral. Typically the timing between the repossession and charge-off is not significant. In cases where repossession is delayed (e.g., for legal proceedings), the Company records a partial charge-off. The charge-off is determined by comparing the fair value of the collateral, less cost to sell, to the amortized cost basis.

PACCAR Financial Corp.


Notes to Financial Statements	(Millions of Dollars)

Revenue Recognition:

Interest income from finance and other receivables is recognized using the interest method. Certain loan and lease origination costs are deferred and amortized to interest income over the expected life of the contracts, generally 36 to 60 months, using the straight-line method which approximates the interest method. For operating leases, rental revenue is recognized on a straight-line basis over the lease term.

Recognition of interest income and rental revenue is suspended (put on non-accrual status) when the receivable becomes more than 90 days past the contractual due date or earlier if some other event causes the Company to determine that collection is not probable. Accordingly, no finance receivables more than 90 days past due were accruing interest at December 31, 2023 or December 31, 2022. Recognition is resumed if the receivable becomes current by the payment of all amounts due under the terms of the existing contract and collection of remaining amounts is considered probable (if not contractually modified) or if the customer makes scheduled payments for three months and collection of remaining amounts is considered probable (if contractually modified). Payments received while the finance receivable is on non-accrual status are applied to interest and principal in accordance with the contractual terms.

The Company recognizes revenue on the sale of used trucks acquired from PACCAR truck division customers as part of new truck sales packages when the used trucks are invoiced and delivered to a customer.

Equipment on Operating Leases:

Equipment on operating leases is recorded at cost and is depreciated on the straight-line basis to its estimated residual value. Residual values are reviewed regularly and adjusted if market conditions warrant.

Derivative Financial Instruments:

As part of its risk management strategy, the Company enters into derivative contracts to hedge against interest-rate risk. Certain derivative instruments designated as either cash flow hedges or fair value hedges are subject to hedge accounting. Derivative instruments that are not subject to hedge accounting are held as derivatives not designated as hedged instruments. The Company’s policies prohibit the use of derivatives for speculation or trading. At the inception of each hedge relationship, the Company documents its risk management objectives, procedures and accounting treatment.

All of the Company’s interest-rate contracts are transacted under International Swaps and Derivatives Association (ISDA) master agreements. Each agreement permits the net settlement of amounts owed in the event of default and certain other termination events. For derivative financial instruments, the Company has elected not to offset derivative positions in the balance sheet with the same counterparty under the same agreements and is not required to post or receive collateral. Exposure limits and minimum credit ratings are used to minimize the risks of counterparty default. The Company’s maximum exposure to potential default of its derivative counterparties is limited to the asset position of its derivative portfolio. The asset position of the Company’s derivative portfolio was $1.2 at December 31, 2023.

The Company assesses hedges at inception and on an ongoing basis to determine if the designated derivatives are highly effective in offsetting changes in fair values or cash flows of the hedged items. Hedge accounting is discontinued prospectively when the Company determines that a derivative financial instrument has ceased to be a highly effective hedge. Cash flows from derivative instruments are included in operating activities in the Statements of Cash Flows.

Income Taxes:

The Company is included in the consolidated federal income tax return of PACCAR. Federal income taxes for the Company are determined on a separate return basis, and any related tax liability is paid by the Company to PACCAR and any related tax benefit is paid by PACCAR to the Company. State income taxes, where the Company files combined tax returns with PACCAR, are determined on a blended statutory rate, which is substantially the same as the rate computed on a separate return basis. As of December 31, 2023, the United States Internal Revenue Service has completed examinations of PACCAR’s tax returns for all years through 2016. PACCAR’s tax returns remain subject to examination in other jurisdictions for the years ranging from 2012 through 2023.

PACCAR Financial Corp.


Notes to Financial Statements	(Millions of Dollars)

Preferred Stock:

The Company’s Articles of Incorporation provide that the 6%, noncumulative, nonvoting preferred stock (100% owned by PACCAR) is redeemable only at the option of the Company’s Board of Directors.

New Accounting Pronouncements:

In December 2023, Financial Accounting Standards Board (FASB) issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this ASU require entities to disclose certain, specific categories within the rate reconciliation and enhance disclosures regarding income taxes paid and income tax expense. This ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments in this ASU should be applied on a prospective basis; however, retrospective application is permitted. The implementation of this ASU will result in additional disclosures and will not have an impact on the Company's financial statements.

The Company adopted the following standard on January 1, 2023, which had no material impact on the Company’s financial statements.


STANDARD	DESCRIPTION
2022-02	Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures

NOTE B – FINANCE AND OTHER RECEIVABLES

The Company’s finance and other receivables include the following:


	December 31			December 31
		2023			2022
Retail loans	$	5,028.2		$	4,627.0
Retail financing leases		1,710.4			1,433.5
Dealer wholesale financing		1,953.3			1,093.2
Dealer master notes		509.2			377.0
Operating lease receivables and other		65.3			49.4
		9,266.4			7,580.1
Less allowance for credit losses:
Loans and leases		(58.6	)		(59.7	)
Dealer wholesale financing		(1.0	)		(1.0	)
Operating lease receivables and other		(1.4	)		(1.0	)
	$	9,205.4		$	7,518.4

Annual minimum payments due on loans and finance leases and a reconciliation of the undiscounted cash flows to the amortized cost basis of finance leases are as follows:


	Loans		Finance Leases
2024	$	1,795.9	$	519.7
2025		1,318.6		446.1
2026		1,063.1		350.7
2027		798.3		291.0
2028		434.4		170.2
Thereafter		127.1		97.3
	$	5,537.4		1,875.0
Unguaranteed residual values				57.6
Unearned interest on finance leases				(222.2	)
Amortized cost basis of finance leases			$	1,710.4

Included in Finance and other receivables, net of allowance for credit losses, on the Balance Sheets is accrued interest receivable, net of allowance for credit losses, of $31.6 and $19.3 as of December 31, 2023 and 2022, respectively.

PACCAR Financial Corp.


Notes to Financial Statements	(Millions of Dollars)

Interest income recognized on finance leases was $77.8 and $59.3 for the years ended December 31, 2023 and 2022, respectively. Estimated residual values included with finance leases amounted to $57.6 in 2023 and $60.5 in 2022. Experience indicates substantially all of dealer wholesale financing will be repaid within one year. In addition, collection experience indicates that some loans, leases and other finance receivables will be paid prior to contract maturity, while other may be extended or modified.

For the following credit quality disclosures, finance receivables are classified into two portfolio segments, wholesale and retail. The retail portfolio is further segmented into dealer retail and customer retail. The dealer wholesale segment consists of truck inventory financing to PACCAR dealers. The dealer retail segment consists of loans and leases to participating dealers and franchises that use the proceeds to fund customers’ acquisition of commercial vehicles and related equipment. The customer retail segment consists of loans and leases directly to customers for the acquisition of commercial vehicles and related equipment. Customer retail receivables are further segregated between fleet and owner/operator classes. The fleet class consists of retail accounts of customers operating five or more trucks. All other customer retail accounts are considered owner/operator. These two classes have similar measurement attributes, risk characteristics and common methods to monitor and assess credit risk.

Allowance for Credit Losses

The allowance for credit losses is summarized as follows:


	2023
	Dealer					Customer
	Wholesale		Retail			Retail			Other*		Total
Balance at January 1	$	1.0	$	1.8		$	57.9		$	1.0	$	61.7
Provision for losses				(.1	)		8.0			.2		8.1
Charge-offs							(9.8	)				(9.8	)
Recoveries							.8			.2		1.0
Balance at December 31	$	1.0	$	1.7		$	56.9		$	1.4	$	61.0


	2022
	Dealer					Customer
	Wholesale		Retail			Retail			Other*			Total
Balance at January 1	$	1.0	$	6.5		$	57.1		$	1.1		$	65.7
Provision for losses				(4.7	)								(4.7	)
Charge-offs							(1.6	)		(.1	)		(1.7	)
Recoveries							2.4						2.4
Balance at December 31	$	1.0	$	1.8		$	57.9		$	1.0		$	61.7


	2021
	Dealer						Customer
	Wholesale			Retail			Retail			Other*			Total
Balance at January 1	$	1.3		$	7.5		$	57.7		$	1.7		$	68.2
Provision for losses		(.3	)		(1.0	)					(.9	)		(2.2	)
Charge-offs								(2.5	)					(2.5	)
Recoveries								1.9			.3			2.2
Balance at December 31	$	1.0		$	6.5		$	57.1		$	1.1		$	65.7

* Operating lease and other trade receivables.

Credit Quality

The Company’s customers are principally concentrated in the transportation industry in the United States. The Company’s portfolio assets are diversified over a large number of customers and dealers with no single customer or dealer balances representing over 10% of the total portfolio assets as of December 31, 2023 and 2022. The Company retains as collateral a security interest in the related equipment. There is no single customer or dealer representing over 10% of Interest and other revenues for the years ended December 31, 2023, 2022 and 2021.

At the inception of each contract, the Company considers the credit risk based on a variety of credit quality factors including prior payment experience, customer financial information, credit-rating agency ratings, loan-to-value ratios and other internal metrics. On

PACCAR Financial Corp.


Notes to Financial Statements	(Millions of Dollars)

an ongoing basis, the Company monitors credit quality based on past due status and collection experience as there is a meaningful correlation between the past due status of customers and the risk of loss.

The Company has three credit quality indicators: performing, watch and at-risk. Performing accounts pay in accordance with the contractual terms and are not considered high risk. Watch accounts include accounts 31 to 90 days past due and large accounts that are performing but are considered to be high-risk. Watch accounts are not collateral dependent. At-risk accounts are collateral dependent, including accounts over 90 days past due and other accounts on non-accrual status.

The tables below summarize the amortized cost basis of the Company’s finance receivables within each credit quality indicator by year of origination and portfolio class and current period gross charge-offs of the Company’s finance receivables by year of origination and portfolio class.


At December 31, 2023	Revolving Loans		2023		2022		2021		2020		2019		Prior		Total
Amortized Cost Basis:
Dealer:
Wholesale:
Performing	$	1,951.4													$	1,951.4
Watch		1.9														1.9
	$	1,953.3													$	1,953.3
Retail:
Performing	$	280.7	$	677.3	$	467.2	$	267.6	$	135.2	$	146.3	$	106.6	$	2,080.9
	$	280.7	$	677.3	$	467.2	$	267.6	$	135.2	$	146.3	$	106.6	$	2,080.9
Total Dealer	$	2,234.0	$	677.3	$	467.2	$	267.6	$	135.2	$	146.3	$	106.6	$	4,034.2

Customer Retail:
Fleet:
Performing			$	1,967.2	$	1,244.9	$	725.3	$	453.3	$	151.5	$	38.9	$	4,581.1
Watch				24.2		16.6		3.3		2.0		.5		.9		47.5
At-risk				2.4		4.0		4.5		2.0		.6		.1		13.6
			$	1,993.8	$	1,265.5	$	733.1	$	457.3	$	152.6	$	39.9	$	4,642.2
Owner/Operator:
Performing			$	151.8	$	140.5	$	130.5	$	66.3	$	24.5	$	4.0	$	517.6
Watch				.9		1.9		1.1		.5		.2				4.6
At-risk				.6		.8		.8		.2		.1				2.5
			$	153.3	$	143.2	$	132.4	$	67.0	$	24.8	$	4.0	$	524.7
Total Customer Retail			$	2,147.1	$	1,408.7	$	865.5	$	524.3	$	177.4	$	43.9	$	5,166.9
Total	$	2,234.0	$	2,824.4	$	1,875.9	$	1,133.1	$	659.5	$	323.7	$	150.5	$	9,201.1


At December 31, 2023	Revolving Loans	2023	2022	2021	2020	2019	Prior	Total
Gross Charge-Offs:

As of December 31

Pro forma percentage of retail loan and lease accounts 30+ days past due