The Company provides retail financial services to customers of its 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 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. As of December 31, 2021 and 2020, 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.


	2021		2020		2019		2018		2017
Retail finance receivables:
United States	$	6,303,293	$	6,128,269	$	6,180,236	$	6,103,378	$	5,901,002
Canada	190,226		215,926		236,192		224,823		239,598
	6,493,519		6,344,195		6,416,428		6,328,201		6,140,600
Wholesale finance receivables:
United States	400,160		459,495		1,067,880		1,007,956		939,621
Canada	17,621		30,254		88,639		75,659		77,336
	417,781		489,749		1,156,519		1,083,615		1,016,957
	6,911,300		6,833,944		7,572,947		7,411,816		7,157,557
Allowance for credit losses	(339,379)		(390,936)		(198,581)		(189,885)		(192,471)


	$	6,571,921	$	6,443,008	$	7,374,366	$	7,221,931	$	6,965,086

Wholesale finance receivables are generally contractually due within one year. As of December 31, 2021, contractual maturities of total finance receivables were as follows (in thousands):


	United States		Canada		Total
2022	$	1,468,277	$	58,001	$	1,526,278
2023	1,200,378		42,949		1,243,327
2024	1,347,423		46,712		1,394,135
2025	1,439,253		50,844		1,490,097
2026	1,075,717		9,341		1,085,058
Thereafter	172,405		—		172,405
	$	6,703,453	$	207,847	$	6,911,300

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. The allowance for credit losses as of December 31, 2021 and 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 its finance receivables 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 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. 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 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. 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.

The Company considers various third-party 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 December 31, 2021. During 2021, the U.S. economy and the Company’s outlook on economic conditions improved from 2020; however, the pace of economic recovery remained uncertain as demonstrated by unemployment levels above those experienced prior to the COVID-19 pandemic, muted consumer confidence, rising inflation, global supply chain disruptions, and continuing COVID-19 pandemic-related challenges across the U.S., among other factors. As such, at the end of 2021, the Company’s outlook on economic conditions included 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 management’s expectations surrounding the economic forecasts. The Company will continue to monitor future economic trends and conditions. Expectations surrounding the Company's economic forecasts may change in future periods as additional information becomes available.


	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	175,225		6,645		181,870
Charge-offs	(137,371)		(2,573)		(139,944)
Recoveries	49,825		—		49,825

Balance, end of period	$	371,738	$	19,198	$	390,936

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):


	December 31, 2021
	2021		2020		2019		2018		2017		2016 & Prior		Total
U.S. Retail:
Super prime	$	1,010,636	$	484,479	$	316,390	$	171,763	$	65,753	$	27,424	$	2,076,445
Prime	1,391,385		712,858		470,177		277,206		142,288		82,169		3,076,083
Sub-prime	476,688		273,787		182,002		105,330		61,923		51,035		1,150,765
	2,878,709		1,471,124		968,569		554,299		269,964		160,628		6,303,293
Canadian Retail:
Super prime	51,779		32,724		27,073		13,984		4,619		1,614		131,793
Prime	16,882		12,675		9,244		6,230		3,628		1,779		50,438
Sub-prime	2,356		2,134		1,571		947		606		381		7,995
	71,017		47,533		37,888		21,161		8,853		3,774		190,226
	$	2,949,726	$	1,518,657	$	1,006,457	$	575,460	$	278,817	$	164,402	$	6,493,519


	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

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 finance receivables, by vintage and credit quality indicator, was as follows (in thousands):


	December 31, 2021
	2021		2020		2019		2018		2017		2016 & Prior		Total
Non-Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Doubtful	—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—
Special Mention	—		—		—		—		—		—		—
Medium Risk	—		—		—		—		—		—		—
Low Risk	380,211		11,379		11,047		10,565		3,662		917		417,781
	$	380,211	$	11,379	$	11,047	$	10,565	$	3,662	$	917	$	417,781


	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

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. All retail finance receivables accrue interest until either collected or charged-off. The Company reverses accrued interest related to charged-off accounts against interest income when the account is charged-off. The Company reversed $16.8 million and $19.1 million of accrued interest against interest income during the years ended December 31, 2021 and 2020, respectively. Due to the timely write-off of accrued interest, the Company made the election provided under ASC Topic 326, Financial Instruments - Credit Losses to exclude accrued interest from its allowance for credit losses. Accordingly, as of December 31, 2021 and 2020, all retail finance receivables were accounted for as interest-earning receivables, of which $34.8 million and $33.1 million, respectively, were 90 days or more past due.

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 2021. As such, the Company did not reverse any accrued interest. The Company reversed $0.4 million of accrued interest related to the charge-off of Non-Performing dealer loans during the year ended December 31, 2020. There were no dealers on non-accrual status at December 31, 2021 or December 31, 2020.


	2021
	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	$	6,298,485	$	115,942	$	44,326	$	34,766	$	195,034	$	6,493,519
Wholesale finance receivables	417,720		9		1		51		61		417,781
	$	6,716,205	$	115,951	$	44,327	$	34,817	$	195,095	$	6,911,300


	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	$	6,164,369	$	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

Generally, it is the Company’s policy not to change the terms and conditions of finance receivables. However, to minimize economic loss, the Company may modify certain finance receivables in troubled debt restructurings. Total finance receivables in troubled debt restructurings were not significant as of December 31, 2021 and December 31, 2020. 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. Starting in the second quarter of 2020, the Company granted an increased amount of short-term payment due date extensions on eligible retail loans to help retail customers get through financial difficulties associated with the COVID-19 pandemic. During the first half of 2021, the volume of extensions declined from the levels experienced during 2020 as a result of the COVID-19 pandemic, but extensions did not return to pre-COVID-19 pandemic levels until the end of the second quarter of 2021. The Company discontinued extensions specific to the COVID-19 pandemic at the beginning of the third quarter of 2021; however, it continues to grant standard payment extensions to customers in accordance with its policies.