The Company provides retail financial services to customers of its 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 sales contracts and are primarily related to independent dealer sales of motorcycles to retail customers. The Company holds either titles or liens on titles to vehicles financed by promissory notes and installment sales contracts.

On January 1, 2020, the Company adopted ASU 2016-13, which requires an entity to recognize expected lifetime losses on finance receivables upon origination. The allowance for credit losses as of March 29, 2020 represents the Company’s estimate of lifetime losses for its finance receivables. Prior to the adoption of ASU 2016-13, the Company maintained an allowance for credit losses based on the Company’s estimate of probable losses inherent in the finance receivable portfolio as of the balance sheet date.

Under ASU 2016-13, the Company’s finance receivables are reported at amortized cost, net of the allowance for credit losses. Amortized cost includes the principal outstanding, accrued interest, and deferred loan fees and costs. Based on differences in the nature of the finance receivables and the underlying methodology for calculating the allowance for loan losses, the Company segments its finance receivables into the retail and wholesale portfolios. The Company further disaggregates each portfolio by credit quality indicators. As the credit risk varies between the retail and wholesale portfolios, the Company utilizes different credit quality indicators for each portfolio. Prior to the adoption of ASU 2016-13, the Company’s investment in finance receivables included the same components as the amortized cost under the new accounting guidance.

The retail portfolio primarily consists of a large number of small balance, homogeneous finance receivables. The Company performs a collective evaluation of the adequacy of the retail allowance for credit losses. For periods after January 1, 2020, the Company utilizes a vintage-based loss forecast methodology that includes decompositions for probability of default, exposure at default, attrition rate, and recovery balance rate. Reasonable and supportable economic forecasts for a two-year period are incorporated into the methodology to reflect the estimated impact of changes in future economic conditions, such as unemployment rates, household obligations or other relevant factors, over the expected life of the retail portfolio. For periods beyond the Company’s reasonable and supportable forecasts, the Company reverts to its average historical loss experience for a three-year period using a mean-reversion process. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, or term as well as other relevant factors. For periods prior to January 1, 2020, the Company performed a periodic and systematic collective evaluation of the adequacy of the retail allowance for credit losses. The Company utilized loss forecast models which considered a variety of factors including, but not limited to, historical loss trends, origination or vintage analysis, known and inherent risks in the portfolio, the value of the underlying collateral, recovery rates and current economic conditions.

The wholesale portfolio is primarily composed of large balance, non-homogeneous loans. The Company’s evaluation for the wholesale allowance for credit losses is first based on a loan-by-loan review to determine whether the loans share similar risk characteristics. The Company classifies loans that do not share risk characteristics as Non-Performing and evaluates these loans individually. A specific allowance for credit losses is established for these finance receivables when foreclosure is probable. The specific allowance is determined based on amortized cost of the related finance receivable and the estimated fair value of the collateral, less selling costs and the cash that the Company expects to receive. Finance receivables in the wholesale portfolio not individually assessed are aggregated, based on similar risk characteristics, according to the Company’s internal risk rating system and measured collectively. For periods after January 1, 2020, the related allowance for credit losses is based on factors such as the specific borrower’s financial performance and ability to repay, the Company’s past loan loss experience, reasonable and supportable economic forecasts, and the value of the underlying collateral and expected recoveries. For periods prior to January 1, 2020, the related allowance for credit losses was based on factors such as the specific borrower’s financial performance and ability to repay, the Company’s past loan loss experience, current economic conditions, and the value of the underlying collateral.

Changes in the Company’s economic outlook impacted the retail and wholesale estimates for expected credit losses at March 29, 2020. As part of the January 1, 2020 ASU 2016-13 adoption, the Company expected to be operating in a negative economic environment during the year, and the Company had also incorporated the potential for a recession in 2020 into its economic forecast. However, at the end of the first quarter of 2020, the Company's economic forecast significantly deteriorated and included current recessionary conditions extending into 2021, with a considerable drop in U.S. Gross Domestic Product (GDP) and a substantial increase in unemployment in the second quarter of 2020.

The historical experience incorporated into the portfolio-specific models does not fully reflect the Company's comprehensive expectations regarding the future. As such, the Company incorporated qualitative factors to produce reasonable and supportable allowance balances. These factors include motorcycle recovery value considerations, seasonality adjustments and specific problem loan trends.

Due to the use of projections and assumptions in estimating the losses, the amount of losses actually incurred by the Company in either portfolio could differ from the amounts estimated. Further, the Company’s allowance for credit losses incorporates management’s expectations surrounding the economic forecasts and known conditions, including the


	Three months ended March 29, 2020
	Retail		Wholesale		Total
Balance, beginning of period	$	188,501	$	10,080	$	198,581
Cumulative effect of change in accounting^(a)	95,558		5,046		100,604
Provision for credit losses	70,417		9,002		79,419
Charge-offs	(55,215)		—		(55,215)
Recoveries	12,107		—		12,107
Balance, end of period	$	311,368	$	24,128	$	335,496
	Three months ended March 31, 2019
	Retail		Wholesale		Total
Balance, beginning of period	$	182,098	$	7,787	$	189,885
Provision for credit losses	32,832		1,659		34,491
Charge-offs	(44,721)		—		(44,721)
Recoveries	11,217		—		11,217
Balance, end of period	$	181,426	$	9,446	$	190,872

The Company manages retail credit risk through its credit approval process 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. For the Company’s U.S. and Canadian retail finance receivable portfolios, the Company determines the credit quality indicator for each loan at origination and does not update the credit quality indicator subsequent to the loan origination date.

As loan performance by credit quality indicator differs between the U.S. and Canadian retail loans, the Company’s credit quality indicators vary for the two portfolios. For the U.S. retail receivable portfolio, loans with a FICO score of 740 or above at origination are generally considered super prime, loans with a FICO score between 640 and 740 are generally categorized as prime, and those loans with FICO score below 640 are generally considered sub-prime. For the Canadian retail finance receivable portfolio, loans with a FICO score of 700 or above at origination are generally considered super prime, loans with a FICO score between 620 and 700 are generally categorized as prime, and those loans with FICO score below 620 are generally considered sub-prime.


	2020		2019		2018		2017		2016		2015 & Prior		Total
U.S. Retail:
Super prime	$	204,937	$	825,176	$	539,296	$	275,621	$	140,284	$	62,924	$	2,048,238
Prime	265,365		1,065,132		717,234		441,284		262,421		155,338		2,906,774
Sub-prime	108,068		394,291		239,571		155,391		108,531		98,124		1,103,976
	578,370		2,284,599		1,496,101		872,296		511,236		316,386		$	6,058,988
Canadian Retail:
Super prime	$	12,819	$	61,889	$	39,516	$	22,186	$	10,565	$	4,989	$	151,964
Prime	3,968		16,479		12,389		8,441		4,549		3,929		49,755
Sub-prime	768		2,827		1,919		1,348		921		757		8,540
	17,555		81,195		53,824		31,975		16,035		9,675		210,259
	$	595,925	$	2,365,794	$	1,549,925	$	904,271	$	527,271	$	326,061	$	6,269,247

Prior to the adoption of ASU 2016-13, retail loans with a FICO score of 640 or above at origination were generally considered prime, and loans with a FICO score below 640 were generally considered sub-prime. These credit quality indicators were determined at the time of loan origination and were not updated subsequent to the loan origination date. The recorded investment in retail finance receivables, by credit quality indicator, was as follows (in thousands):

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 individually 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 the Company’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 Company classifies dealers identified as those in which foreclosure is probable as Non-Performing. 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.


	2020		2019		2018		2017		2016		2015 & Prior		Total
Non-Performing	$	—	$	2,376	$	1,774	$	107	$	25	$	43	$	4,325
Doubtful	478		4,169		529		51		—		726		5,953
Substandard	5,375		6,374		391		131		—		—		12,271
Special Mention	5,239		8,001		977		6		—		1,268		15,491
Medium Risk	8,307		10,996		1,091		23		—		826		21,243
Low Risk	658,137		574,401		47,101		10,997		6,323		2,414		1,299,373
	$	677,536	$	606,317	$	51,863	$	11,315	$	6,348	$	5,277	$	1,358,656

Dealer risk rating categories prior to the adoption of ASU 2016-13 were consistent with the current risk rating categories with the exception of the Non-Performing category for dealers identified as those in which foreclosure is probable, which was established in connection with the January 1, 2020 adoption of the new accounting guidance. The recorded investment in wholesale finance receivables, by internal credit quality indicator, was as follows (in thousands):

Retail finance receivables are contractually delinquent if the minimum payment is not received by the specified due date. Retail finance receivables are generally charged-off when the receivable is 120 days or more delinquent, the related asset is repossessed, or the receivable is otherwise deemed uncollectible. The Company reverses accrued interest related to charged-off accounts against interest income when the account is charged-off. The Company reversed $6.4 million of accrued interest against interest income during the three months ended March 29, 2020. All retail finance receivables accrue interest until either collected or charged-off. Due to the timely write-off of accrued interest, the Company made the election provided under ASU 2016-13 to exclude accrued interest from its allowance for credit losses. Accordingly, as of March 29, 2020,

Wholesale finance receivables are delinquent if the minimum payment is not received by the contractual due date. Wholesale finance receivables are written down once the Company determines that the specific borrower does not have the ability to repay the loan in full. Interest continues to accrue on past due finance receivables until the date the Company determines that foreclosure is probable, and the finance receivable is placed on non-accrual status. The Company will resume accruing interest on these accounts when payments are current according to the terms of the loans and future payments are reasonably assured. While on non-accrual status, all cash received is applied to principal or interest as appropriate. Once an account is charged-off, the Company will reverse the associated accrued interest against interest income. As the Company follows a non-accrual policy for interest, the allowance for credit losses excludes accrued interest for the wholesale portfolio. There were no charged-off accounts during the three months ended March 29, 2020. As such, the Company did not reverse any accrued interest in that period. At March 29, 2020, December 31, 2019 and March 31, 2019, $3.1 million, $2.6 million, and $0.8 million, respectively of wholesale finance receivables were 90 days or more past due and accruing interest.


	March 29, 2020
	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total Finance Receivables
Retail finance receivables	$	6,091,319	$	101,412	$	37,816	$	38,700	$	177,928	$	6,269,247
Wholesale finance receivables	1,352,084		2,051		1,437		3,084		6,572		1,358,656
	$	7,443,403	$	103,463	$	39,253	$	41,784	$	184,500	$	7,627,903

	December 31, 2019
	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total Finance Receivables
Retail finance receivables	$	6,171,930	$	142,479	$	53,995	$	48,024	$	244,498	$	6,416,428
Wholesale finance receivables	1,152,416		1,145		384		2,574		4,103		1,156,519
	$	7,324,346	$	143,624	$	54,379	$	50,598	$	248,601	$	7,572,947

	March 31, 2019
	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total Finance Receivables
Retail finance receivables	$	6,088,894	$	119,150	$	43,028	$	38,964	$	201,142	$	6,290,036
Wholesale finance receivables	1,337,429		862		355		782		1,999		1,339,428
	$	7,426,323	$	120,012	$	43,383	$	39,746	$	203,141	$	7,629,464

Prior to the Company's January 1, 2020 adoption of ASU 2016-13, finance receivables were considered impaired when management determined it was probable that the Company would not be able to collect all amounts due according to the terms of the loan agreement. Portions of the allowance for credit losses were established to cover estimated losses on finance receivables specifically identified for impairment. The unspecified portion of the allowance for credit losses covered estimated losses on finance receivables which were collectively reviewed for impairment.


	December 31, 2019
	Retail		Wholesale		Total
Allowance for credit losses, ending balance:
Individually evaluated for impairment	$	—	$	2,100	$	2,100
Collectively evaluated for impairment	188,501		7,980		196,481
	$	188,501	$	10,080	$	198,581
Finance receivables, ending balance:
Individually evaluated for impairment	$	—	$	4,601	$	4,601
Collectively evaluated for impairment	6,416,428		1,151,918		7,568,346
	$	6,416,428	$	1,156,519	$	7,572,947

	March 31, 2019
	Retail		Wholesale		Total
Allowance for credit losses, ending balance:
Individually evaluated for impairment	$	—	$	—	$	—
Collectively evaluated for impairment	181,426		9,446		190,872
	$	181,426	$	9,446	$	190,872
Finance receivables, ending balance:
Individually evaluated for impairment	$	—	$	—	$	—
Collectively evaluated for impairment	6,290,036		1,339,428		7,629,464
	$	6,290,036	$	1,339,428	$	7,629,464

Generally, it is the Company’s policy not to change the terms and conditions of finance receivables. However, to minimize the economic loss, the Company may modify certain finance receivables in troubled debt restructurings. Total restructured finance receivables are not significant as of March 29, 2020, December 31, 2019 and March 31, 2019. Additionally, in certain situations, the Company may offer short-term adjustments to customer payment due dates without affecting the associated interest rate or loan term.