Finance Receivables

Finance receivables, net at December 31 for the past five years were as follows (in thousands):



	2017			2016			2015			2014			2013
Wholesale
United States	$	939,621		$	961,150		$	965,379		$	903,380		$	800,491
Canada	77,336			65,440			58,481			48,941			44,721
Total wholesale	1,016,957			1,026,590			1,023,860			952,321			845,212
Retail
United States	5,901,002			5,769,410			5,803,071			5,398,006			5,051,245
Canada	239,598			212,801			188,400			209,918			213,799
Total retail	6,140,600			5,982,211			5,991,471			5,607,924			5,265,044
	7,157,557			7,008,801			7,015,331			6,560,245			6,110,256
Allowance for credit losses	(192,471		)	(173,343		)	(147,178		)	(127,364		)	(110,693		)
Total finance receivables, net	$	6,965,086		$	6,835,458		$	6,868,153		$	6,432,881		$	5,999,563

The Company offers wholesale financing to the Company’s independent dealers

Wholesale loans to dealers are generally secured by financed inventory or property and are originated in the U.S. and Canada. Wholesale finance receivables are related primarily to motorcycles and related parts and accessories sales.

The Company provides retail financial services to customers of the Company’s independent dealers in the U.S. and Canada. The origination of retail loans is a separate and distinct transaction between the Company and the retail customer, unrelated to the Company’s sale of product to its dealers. Retail finance receivables consist of secured promissory notes and secured installment contracts and are primarily related to sales of motorcycles to the dealers’ customers. The Company holds either titles or liens on titles to vehicles financed by promissory notes and installment sales contracts. As of December 31, 2017 and 2016, approximately 11% of gross outstanding retail finance receivables were originated in Texas; there were no other states that accounted for more than 10% of gross outstanding retail finance receivables.

Unused lines of credit extended to the Company's wholesale finance customers totaled $1.27 billion and $1.32 billion at December 31, 2017 and 2016, respectively. Approved but unfunded retail finance loans totaled $166.3 million and $177.9 million at December 31, 2017 and 2016, respectively.

Wholesale finance receivables are generally contractually due within one year. On December 31, 2017, contractual maturities of finance receivables were as follows (in thousands):



	United States		Canada		Total
2018	$	2,018,646	$	126,345	$	2,144,991
2019	1,160,372		51,764		1,212,136
2020	1,251,444		56,173		1,307,617
2021	1,250,821		60,957		1,311,778
2022	1,144,281		21,695		1,165,976
Thereafter	15,059		—		15,059
Total	$	6,840,623	$	316,934	$	7,157,557

The allowance for credit losses on finance receivables is comprised of individual components relating to wholesale and retail finance receivables. Changes in the allowance for credit losses on finance receivables by portfolio for the year ended December 31 were as follows (in thousands):



	2017
	Retail			Wholesale			Total
Balance, beginning of period	$	166,810		$	6,533		$	173,343
Provision for credit losses	132,760			(316		)	132,444
Charge-offs	(160,972		)	—			(160,972		)
Recoveries	47,656			—			47,656
Balance, end of period	$	186,254		$	6,217		$	192,471



	2016
	Retail			Wholesale			Total
Balance, beginning of period	$	139,320		$	7,858		$	147,178
Provision for credit losses	137,942			(1,325		)	136,617
Charge-offs	(148,566		)	—			(148,566		)
Recoveries	41,405			—			41,405
Other ^(a)	(3,291		)	—			(3,291		)
Balance, end of period	$	166,810		$	6,533		$	173,343



	2015
	Retail			Wholesale		Total
Balance, beginning of period	$	122,025		$	5,339	$	127,364
Provision for credit losses	98,826			2,519		101,345
Charge-offs	(123,911		)	—		(123,911		)
Recoveries	42,380			—		42,380
Balance, end of period	$	139,320		$	7,858	$	147,178


(a)	Related to the sale of finance receivables during the second quarter of 2016 with a principal balance of $301.8 million through an off-balance sheet asset-backed securitization transaction (see Note 10 for additional information).

There were no finance receivables individually evaluated for impairment on December 31, 2017 or 2016. The allowance for credit losses and finance receivables by portfolio, collectively evaluated for impairment, at December 31 was as follows (in thousands):



	2017
	Retail		Wholesale		Total
Allowance for credit losses, ending balance:
Individually evaluated for impairment	$	—	$	—	$	—
Collectively evaluated for impairment	186,254		6,217		192,471
Total allowance for credit losses	$	186,254	$	6,217	$	192,471
Finance receivables, ending balance:
Individually evaluated for impairment	$	—	$	—	$	—
Collectively evaluated for impairment	6,140,600		1,016,957		7,157,557
Total finance receivables	$	6,140,600	$	1,016,957	$	7,157,557
	2016
	Retail		Wholesale		Total
Allowance for credit losses, ending balance:
Individually evaluated for impairment	$	—	$	—	$	—
Collectively evaluated for impairment	166,810		6,533		173,343
Total allowance for credit losses	$	166,810	$	6,533	$	173,343
Finance receivables, ending balance:
Individually evaluated for impairment	$	—	$	—	$	—
Collectively evaluated for impairment	5,982,211		1,026,590		7,008,801
Total finance receivables	$	5,982,211	$	1,026,590	$	7,008,801

Finance receivables are considered impaired when management determines it is probable that the Company will be unable to collect all amounts due according to the loan agreement. As retail finance receivables are collectively and not individually reviewed for impairment, this portfolio does not have specifically impaired finance receivables. At December 31, 2017 and 2016, there were no wholesale finance receivables that were on non-accrual status or individually deemed to be impaired under ASC Topic 310, “Receivables.”

An analysis of the aging of past due finance receivables at December 31 was as follows (in thousands):



	2017
	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total Finance Receivables
Retail	$	5,913,473	$	139,629	$	47,539	$	39,959	$	227,127	$	6,140,600
Wholesale	1,016,000		595		245		117		957		1,016,957
Total	$	6,929,473	$	140,224	$	47,784	$	40,076	$	228,084	$	7,157,557



	2016
	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total Finance Receivables
Retail	$	5,760,818	$	131,302	$	49,642	$	40,449	$	221,393	$	5,982,211
Wholesale	1,024,995		1,000		319		276		1,595		1,026,590
Total	$	6,785,813	$	132,302	$	49,961	$	40,725	$	222,988	$	7,008,801

The recorded investment of retail and wholesale finance receivables, excluding non-accrual status finance receivables, that were contractually past due 90 days or more at December 31 for the past five years was as follows (in thousands):



	2017		2016		2015		2014		2013
United States	$	39,051	$	39,399	$	31,677	$	27,800	$	23,770
Canada	1,025		1,326		1,192		1,118		1,031
Total	$	40,076	$	40,725	$	32,869	$	28,918	$	24,801

A significant part of managing the Company's finance receivable portfolios includes the assessment of credit risk associated with each borrower. As the credit risk varies between the retail and wholesale portfolios, the Company utilizes different credit risk indicators for each portfolio.

The Company manages retail credit risk through its credit approval policy and ongoing collection efforts. The Company uses FICO scores, a standard credit rating measurement, to differentiate the expected default rates of retail credit applicants, enabling the Company to better evaluate credit applicants for approval and to tailor pricing according to this assessment. Retail loans with a FICO score of 640 or above at origination are considered prime, and loans with a FICO score below 640 are considered sub-prime. These credit quality indicators are determined at the time of loan origination and are not updated subsequent to the loan origination date.

The recorded investment of retail finance receivables, by credit quality indicator, at December 31 was as follows (in thousands):



	2017		2016
Prime	$	4,966,193	$	4,768,420
Sub-prime	1,174,407		1,213,791
Total	$	6,140,600	$	5,982,211

The Company's credit risk on the wholesale portfolio is different from that of the retail portfolio. Whereas the retail portfolio represents a relatively homogeneous pool of retail finance receivables that exhibit more consistent loss patterns, the wholesale portfolio exposures are less consistent. The Company utilizes an internal credit risk rating system to manage credit risk exposure consistently across wholesale borrowers and evaluates credit risk factors for each borrower. The Company uses the following internal credit quality indicators, based on an internal risk rating system, listed from highest level of risk to lowest level of risk, for the wholesale portfolio: Doubtful, Substandard, Special Mention, Medium Risk and Low Risk. Based upon management’s review, the dealers classified in the Doubtful category are the dealers with the greatest likelihood of being charged-off, while the dealers classified as Low Risk are least likely to be charged-off. The internal rating system considers factors such as the specific borrower's ability to repay and the estimated value of any collateral. Dealer risk rating classifications are reviewed and updated on a quarterly basis.

The recorded investment of wholesale finance receivables, by internal credit quality indicator, at December 31 was as follows (in thousands):



	2017		2016
Doubtful	$	688	$	1,333
Substandard	3,837		1,773
Special Mention	26,866		30,152
Medium Risk	9,917		14,620
Low Risk	975,649		978,712
Total	$	1,016,957	$	1,026,590