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.

The Company offers wholesale financing to its independent dealers in the U.S. and Canada. Wholesale finance receivables are related primarily to the Company's sale of motorcycles and related parts and accessories to dealers. Wholesale loans to dealers are generally secured by financed inventory or property.

Finance receivables, net were as follows (in thousands):


	June 27, 2021		December 31, 2020		June 28, 2020
Retail finance receivables	$	6,663,518	$	6,344,195	$	6,520,919
Wholesale finance receivables	584,247		489,749		870,087
	7,247,765		6,833,944		7,391,006
Allowance for credit losses	(358,811)		(390,936)		(411,015)
	$	6,888,954	$	6,443,008	$	6,979,991

On January 1, 2020, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires an entity to recognize expected lifetime losses on finance receivables upon origination. 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.

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. 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 two-year reasonable and supportable period. For periods beyond the Company’s reasonable and supportable forecasts, the Company reverts to its average historical loss experience using a mean-reversion process over a three-year period. 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.

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 individually evaluates loans that do not share risk characteristics. Loans identified as those for which foreclosure is probable are classified as Non-Performing, and a specific allowance for credit losses is established when appropriate. The specific allowance is determined based on the 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. 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.

The Company considers various economic forecast scenarios as part of estimating the allowance for expected credit losses and applies a probability-weighting to those economic forecast scenarios. Changes in the Company’s outlook on economic conditions impacted the retail and wholesale estimates for expected credit losses at June 27, 2021. During the second quarter of 2021, the U.S. economy and the Company’s outlook on economic conditions improved from the first quarter of 2021; however, the pace of economic recovery remains uncertain as demonstrated by unemployment levels that remain higher than those experienced prior to the COVID-19 pandemic and continuing COVID-19 pandemic-related challenges across the U.S., among other factors. As such, at the end of the second quarter of 2021, the Company’s outlook on economic conditions included economic improvement with an emphasis on a slower path to economic recovery in its economic scenario weighting.

Additionally, 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 establish an appropriate allowance balance. These factors include motorcycle recovery value considerations, delinquency adjustments, specific problem loan trends, and others, as appropriate.

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 known conditions at the balance sheet date and the Company's management’s expectations surrounding the economic forecasts. The Company’s expectations surrounding its economic forecasts may change in future periods as additional information becomes available.

Changes in the allowance for credit losses on finance receivables by portfolio were as follows (in thousands):


	Three months ended June 27, 2021						Six months ended June 27, 2021
	Retail		Wholesale		Total		Retail		Wholesale		Total
Balance, beginning of period	$	327,060	$	19,173	$	346,233	$	371,738	$	19,198	$	390,936
Provision for credit losses	19,053		(2,852)		16,201		(3,396)		(2,877)		(6,273)
Charge-offs	(17,107)		—		(17,107)		(51,696)		—		(51,696)
Recoveries	13,484		—		13,484		25,844		—		25,844
Balance, end of period	$	342,490	$	16,321	$	358,811	$	342,490	$	16,321	$	358,811
	Three months ended June 28, 2020						Six months ended June 28, 2020
	Retail		Wholesale		Total		Retail		Wholesale		Total
Balance, beginning of period	$	311,368	$	24,128	$	335,496	$	188,501	$	10,080	$	198,581
Cumulative effect of change in accounting(a)	—		—		—		95,558		5,046		100,604
Provision for credit losses	94,050		(2,871)		91,179		164,467		6,131		170,598
Charge-offs	(29,859)		—		(29,859)		(85,074)		—		(85,074)
Recoveries	14,199		—		14,199		26,306		—		26,306
Balance, end of period	$	389,758	$	21,257	$	411,015	$	389,758	$	21,257	$	411,015

(a)On January 1, 2020, the Company adopted ASU 2016-13 and increased the allowance for loan loss through Retained earnings, net of income taxes, to establish an allowance that represents expected lifetime credit losses on the finance receivable portfolios at date of adoption.

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 receivables, 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 U.S. retail finance receivables, those 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 loans with FICO score below 640 are generally considered sub-prime. For Canadian retail finance receivables, those 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 loans with FICO score below 620 are generally considered sub-prime.

The amortized cost of the Company's U.S. and Canadian retail finance receivables by vintage and credit quality indicator was as follows (in thousands):


	June 27, 2021
	2021		2020		2019		2018		2017		2016 & Prior		Total
U.S. Retail:
Super prime	$	632,627	$	634,661	$	429,884	$	250,679	$	106,124	$	53,347	$	2,107,322
Prime	876,007		911,265		619,597		380,662		208,176		140,807		3,136,514
Sub-prime	313,302		352,221		233,934		137,060		83,886		81,538		1,201,941
	1,821,936		1,898,147		1,283,415		768,401		398,186		275,692		6,445,777
Canadian Retail:
Super prime	38,562		42,967		37,461		20,709		8,625		3,374		151,698
Prime	12,468		15,872		11,990		8,254		5,007		3,182		56,773
Sub-prime	1,856		2,727		1,998		1,263		819		607		9,270
	52,886		61,566		51,449		30,226		14,451		7,163		217,741
	$	1,874,822	$	1,959,713	$	1,334,864	$	798,627	$	412,637	$	282,855	$	6,663,518


	December 31, 2020
	2020		2019		2018		2017		2016		2015 & Prior		Total
U.S. Retail:
Super prime	$	822,631	$	575,977	$	355,529	$	165,436	$	71,360	$	29,181	$	2,020,114
Prime	1,133,637		794,058		508,713		293,358		156,688		77,046		2,963,500
Sub-prime	435,875		295,403		177,598		111,163		72,556		52,060		1,144,655
	2,392,143		1,665,438		1,041,840		569,957		300,604		158,287		6,128,269
Canadian Retail:
Super prime	53,465		48,692		28,581		13,818		5,018		2,011		151,585
Prime	18,568		14,257		10,269		6,727		3,198		2,025		55,044
Sub-prime	3,172		2,498		1,560		1,095		607		365		9,297
	75,205		65,447		40,410		21,640		8,823		4,401		215,926
	$	2,467,348	$	1,730,885	$	1,082,250	$	591,597	$	309,427	$	162,688	$	6,344,195


	June 28, 2020
	2020		2019		2018		2017		2016		2015 & Prior		Total
U.S. Retail:
Super prime	$	486,327	$	737,419	$	474,280	$	234,239	$	114,496	$	54,661	$	2,101,422
Prime	670,363		973,046		644,846		388,039		223,960		131,367		3,031,621
Sub-prime	271,843		360,812		217,720		138,998		95,630		79,754		1,164,757
	1,428,533		2,071,277		1,336,846		761,276		434,086		265,782		6,297,800
Canadian Retail:
Super prime	34,715		57,818		35,786		19,265		8,508		3,687		159,779
Prime	11,548		15,741		11,598		7,932		4,093		3,187		54,099
Sub-prime	1,970		2,720		1,881		1,289		782		599		9,241
	48,233		76,279		49,265		28,486		13,383		7,473		223,119
	$	1,476,766	$	2,147,556	$	1,386,111	$	789,762	$	447,469	$	273,255	$	6,520,919

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. Additionally, 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.

The amortized cost of wholesale financial receivables, by vintage and credit quality indicator, was as follows (in thousands):


	June 27, 2021
	2021		2020		2019		2018		2017		2016 & Prior		Total
Non-Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Doubtful	—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—
Special Mention	—		—		—		—		—		—		—
Medium Risk	—		—		—		—		—		—		—
Low Risk	500,490		38,408		26,449		11,888		4,581		2,431		584,247
	$	500,490	$	38,408	$	26,449	$	11,888	$	4,581	$	2,431	$	584,247


	December 31, 2020
	2020		2019		2018		2017		2016		2015 & Prior		Total
Non-Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Doubtful	—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—
Special Mention	658		365		31		—		—		—		1,054
Medium Risk	1,925		242		—		—		—		—		2,167
Low Risk	388,568		71,441		13,412		7,887		2,297		2,923		486,528
	$	391,151	$	72,048	$	13,443	$	7,887	$	2,297	$	2,923	$	489,749


	June 28, 2020
	2020		2019		2018		2017		2016		2015 & Prior		Total
Non-Performing	$	—	$	2,376	$	1,774	$	107	$	25	$	43	$	4,325
Doubtful	579		1,009		188		—		—		—		1,776
Substandard	944		966		53		—		—		—		1,963
Special Mention	5,345		5,281		564		—		—		1,805		12,995
Medium Risk	6,690		3,587		301		63		—		—		10,641
Low Risk	517,708		273,408		29,301		8,965		6,006		2,999		838,387
	$	531,266	$	286,627	$	32,181	$	9,135	$	6,031	$	4,847	$	870,087

Retail finance receivables are contractually delinquent if the minimum payment is not received by the specified due date. Retail finance receivables at amortized cost, excluding accrued interest, 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 $3.3 million and $5.0 million of accrued interest against interest income during the three months ended June 27, 2021 and June 28, 2020, respectively, and $8.5 million and $11.4 million during the six months ended June 27, 2021 and June 28, 2020, respectively. 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 Accounting Standards Codification (ASC) Topic 326, Financial Instruments - Credit Losses (ASC Topic 326) to exclude accrued interest from its allowance for credit losses. Accordingly, as of June 27, 2021, December 31, 2020 and June 28, 2020, all retail finance receivables were accounted for as interest-earning receivables.

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 and six months ended June 27, 2021 and June 28, 2020. As such, the Company did not reverse any accrued interest in those periods. There were no dealers on non-accrual status at June 27, 2021 and December 31, 2020. At June 28, 2020, $4.3 million of wholesale finance receivables outstanding were on non-accrual status, and of this, $3.0 million were over 90 days or more past due.

Additional information related to the wholesale finance receivables on non-accrual status was as follows (in thousands):


	Amortized Cost January 1, 2020		Amortized Cost June 28, 2020		Interest Income Recognized in the six months ended June 28, 2020
No related allowance recorded	$	—	$	—	$	—
Related allowance recorded	4,994		4,325		—
	$	4,994	$	4,325	$	—

The aging analysis of finance receivables was as follows (in thousands):


	June 27, 2021
	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total
Retail finance receivables	$	6,531,560	$	87,853	$	27,300	$	16,805	$	131,958	$	6,663,518
Wholesale finance receivables	584,154		39		—		54		93		584,247
	$	7,115,714	$	87,892	$	27,300	$	16,859	$	132,051	$	7,247,765

	December 31, 2020
	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total
Retail finance receivables	$	6,164,369	$	106,818	$	39,933	$	33,075	$	179,826	$	6,344,195
Wholesale finance receivables	489,556		166		23		4		193		489,749
	$	6,653,925	$	106,984	$	39,956	$	33,079	$	180,019	$	6,833,944

	June 28, 2020
	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total
Retail finance receivables	$	6,425,078	$	63,190	$	16,631	$	16,020	$	95,841	$	6,520,919
Wholesale finance receivables	864,911		1,261		413		3,502		5,176		870,087
	$	7,289,989	$	64,451	$	17,044	$	19,522	$	101,017	$	7,391,006