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):


	September 26, 2021		December 31, 2020		September 27, 2020
Retail finance receivables	$	6,727,956	$	6,344,195	$	6,585,298
Wholesale finance receivables	491,136		489,749		666,896
	7,219,092		6,833,944		7,252,194
Allowance for credit losses	(355,834)		(390,936)		(408,702)
	$	6,863,258	$	6,443,008	$	6,843,492

On January 1, 2020, the Company adopted ASU No. 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 September 26, 2021. During the third quarter of 2021, the U.S. economy and the Company’s outlook on economic conditions improved from the second 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, muted consumer confidence and continuing COVID-19 pandemic-related challenges across the U.S., among other factors. As such, at the end of the third quarter of 2021, the Company’s outlook on economic conditions included continued slow economic improvement 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 September 26, 2021						Nine months ended September 26, 2021
	Retail		Wholesale		Total		Retail		Wholesale		Total
Balance, beginning of period	$	342,490	$	16,321	$	358,811	$	371,738	$	19,198	$	390,936
Provision for credit losses	13,861		(2,653)		11,208		10,465		(5,530)		4,935
Charge-offs	(24,670)		—		(24,670)		(76,366)		—		(76,366)
Recoveries	10,335		150		10,485		36,179		150		36,329
Balance, end of period	$	342,016	$	13,818	$	355,834	$	342,016	$	13,818	$	355,834
	Three months ended September 27, 2020						Nine months ended September 27, 2020
	Retail		Wholesale		Total		Retail		Wholesale		Total
Balance, beginning of period	$	389,758	$	21,257	$	411,015	$	188,501	$	10,080	$	198,581
Cumulative effect of change in accounting(a)	—		—		—		95,558		5,046		100,604
Provision for credit losses	8,024		(189)		7,835		172,491		5,942		178,433
Charge-offs	(20,378)		(2,442)		(22,820)		(105,452)		(2,442)		(107,894)
Recoveries	12,672		—		12,672		38,978		—		38,978
Balance, end of period	$	390,076	$	18,626	$	408,702	$	390,076	$	18,626	$	408,702

(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):


	September 26, 2021
	2021		2020		2019		2018		2017		2016 & Prior		Total
U.S. Retail:
Super prime	$	896,163	$	551,078	$	367,490	$	206,333	$	83,674	$	38,494	$	2,143,232
Prime	1,228,335		805,349		538,440		323,554		171,308		107,715		3,174,701
Sub-prime	428,238		312,163		207,139		119,730		72,026		64,890		1,204,186
	2,552,736		1,668,590		1,113,069		649,617		327,008		211,099		6,522,119
Canadian Retail:
Super prime	50,110		36,596		31,173		16,701		6,265		2,239		143,084
Prime	16,166		13,904		10,336		7,026		4,228		2,350		54,010
Sub-prime	2,345		2,436		1,694		1,090		704		474		8,743
	68,621		52,936		43,203		24,817		11,197		5,063		205,837
	$	2,621,357	$	1,721,526	$	1,156,272	$	674,434	$	338,205	$	216,162	$	6,727,956


	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


	September 27, 2020
	2020		2019		2018		2017		2016		2015 & Prior		Total
U.S. Retail:
Super prime	$	730,539	$	649,174	$	408,201	$	196,050	$	90,179	$	39,749	$	2,113,892
Prime	993,429		877,714		570,851		336,134		187,067		101,403		3,066,598
Sub-prime	387,766		326,537		196,001		124,312		82,975		64,537		1,182,128
	2,111,734		1,853,425		1,175,053		656,496		360,221		205,689		6,362,618
Canadian Retail:
Super prime	48,974		51,939		31,351		16,013		6,526		2,723		157,526
Prime	17,053		14,681		10,630		7,285		3,555		2,489		55,693
Sub-prime	2,790		2,630		1,706		1,171		685		479		9,461
	68,817		69,250		43,687		24,469		10,766		5,691		222,680
	$	2,180,551	$	1,922,675	$	1,218,740	$	680,965	$	370,987	$	211,380	$	6,585,298

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):


	September 26, 2021
	2021		2020		2019		2018		2017		2016 & Prior		Total
Non-Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Doubtful	—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—
Special Mention	—		—		—		—		—		—		—
Medium Risk	—		—		—		—		—		—		—
Low Risk	432,088		19,082		22,821		11,218		4,222		1,705		491,136
	$	432,088	$	19,082	$	22,821	$	11,218	$	4,222	$	1,705	$	491,136


	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


	September 27, 2020
	2020		2019		2018		2017		2016		2015 & Prior		Total
Non-Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Doubtful	—		—		14		—		—		—		14
Substandard	277		238		—		—		—		—		515
Special Mention	2,316		1,213		160		—		—		1,139		4,828
Medium Risk	1,283		448		33		—		—		—		1,764
Low Risk	505,328		118,466		18,602		8,551		5,525		3,303		659,775
	$	509,204	$	120,365	$	18,809	$	8,551	$	5,525	$	4,442	$	666,896

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 $3.1 million of accrued interest against interest income during the three months ended September 26, 2021 and September 27, 2020, and $11.6 million and $14.5 million during the nine months ended September 26, 2021 and September 27, 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 September 26, 2021, December 31, 2020 and September 27, 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 nine months ended September 26, 2021. As such, the Company did not reverse any accrued interest in those periods. The Company reversed $0.4 million of accrued interest related to the charge-off of Non-Performing dealer loans during the three and nine months ended September 27, 2020. There were no dealers on non-accrual status at September 26, 2021, December 31, 2020, and September 27, 2020.

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


	September 26, 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	$	6,561,412	$	101,157	$	35,273	$	30,114	$	166,544	$	6,727,956
Wholesale finance receivables	490,974		46		92		24		162		491,136
	$	7,052,386	$	101,203	$	35,365	$	30,138	$	166,706	$	7,219,092

	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

	September 27, 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	$	6,434,642	$	96,243	$	31,467	$	22,946	$	150,656	$	6,585,298
Wholesale finance receivables	666,335		244		3		314		561		666,896
	$	7,100,977	$	96,487	$	31,470	$	23,260	$	151,217	$	7,252,194