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.

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

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


	September 30, 2023		December 31, 2022		September 25, 2022
Retail finance receivables	$	6,998,397	$	6,748,201	$	6,945,649
Wholesale finance receivables	1,049,541		748,948		756,895
	8,047,938		7,497,149		7,702,544
Allowance for credit losses	(392,714)		(358,711)		(360,096)
	$	7,655,224	$	7,138,438	$	7,342,448

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. The Company's allowance for credit losses reflects expected lifetime credit losses on its finance receivables. Based on differences in the nature of the finance receivables and the underlying methodology for calculating the allowance for credit 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 credit loss experience, reasonable and supportable economic forecasts, and the value of the underlying collateral and expected recoveries.

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. Each quarter, the Company’s outlook on economic conditions impacts the Company's retail and wholesale estimates for expected credit losses. During the third quarter of 2023, macro-economic conditions did not significantly change from the second quarter of 2023. Concerns surrounding elevated inflation levels, muted consumer confidence, challenging global conditions, and recession risk persisted.

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 for credit losses balance. These factors include motorcycle recovery value considerations, delinquency adjustments, specific problem loan trends, and changes in other portfolio-specific loan characteristics.

Due to the use of projections and assumptions in estimating the losses, the amount of losses 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 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.

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


	Three months ended September 30, 2023						Nine months ended September 30, 2023
	Retail		Wholesale		Total		Retail		Wholesale		Total
Balance, beginning of period	$	366,919	$	14,861	$	381,780	$	345,275	$	13,436	$	358,711
Provision for credit losses	60,832		22		60,854		169,049		1,447		170,496
Charge-offs	(63,738)		—		(63,738)		(182,183)		—		(182,183)
Recoveries	13,818		—		13,818		45,690		—		45,690
Balance, end of period	$	377,831	$	14,883	$	392,714	$	377,831	$	14,883	$	392,714
	Three months ended September 25, 2022						Nine months ended September 25, 2022
	Retail		Wholesale		Total		Retail		Wholesale		Total
Balance, beginning of period	$	342,691	$	9,446	$	352,137	$	326,320	$	13,059	$	339,379
Provision for credit losses	34,697		1,920		36,617		96,265		(1,693)		94,572
Charge-offs	(40,283)		—		(40,283)		(114,145)		—		(114,145)
Recoveries	11,625		—		11,625		40,290		—		40,290
Balance, end of period	$	348,730	$	11,366	$	360,096	$	348,730	$	11,366	$	360,096

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 30, 2023
	2023		2022		2021		2020		2019		2018 & Prior		Total
U.S. Retail:
Super prime	$	916,306	$	806,658	$	424,425	$	175,218	$	87,737	$	37,875	$	2,448,219
Prime	1,033,222		1,086,081		645,931		293,977		163,603		102,427		3,325,241
Sub-prime	296,583		307,280		211,626		114,298		72,587		55,700		1,058,074
	2,246,111		2,200,019		1,281,982		583,493		323,927		196,002		6,831,534
Canadian Retail:
Super prime	43,643		34,700		19,796		10,707		5,929		2,245		117,020
Prime	13,007		12,307		7,968		4,890		3,135		2,362		43,669
Sub-prime	1,839		1,671		852		871		575		366		6,174
	58,489		48,678		28,616		16,468		9,639		4,973		166,863
	$	2,304,600	$	2,248,697	$	1,310,598	$	599,961	$	333,566	$	200,975	$	6,998,397
Current YTD period gross charge-offs:
US Retail	$	5,141	$	71,540	$	54,843	$	23,023	$	13,622	$	11,663	$	179,832
Canadian Retail	75		703		634		337		220		382		2,351
	$	5,216	$	72,243	$	55,477	$	23,360	$	13,842	$	12,045	$	182,183


	December 31, 2022
	2022		2021		2020		2019		2018		2017 & Prior		Total
U.S. Retail:
Super prime	$	1,118,198	$	612,890	$	276,492	$	159,550	$	69,652	$	26,701	$	2,263,483
Prime	1,433,141		887,817		425,401		260,458		135,454		79,611		3,221,882
Sub-prime	420,660		298,153		164,946		108,372		57,993		46,827		1,096,951
	2,971,999		1,798,860		866,839		528,380		263,099		153,139		6,582,316
Canadian Retail:
Super prime	49,033		30,090		17,553		12,215		4,975		1,527		115,393
Prime	16,094		10,705		7,283		5,098		3,068		1,787		44,035
Sub-prime	2,223		1,402		1,173		869		475		315		6,457
	67,350		42,197		26,009		18,182		8,518		3,629		165,885
	$	3,039,349	$	1,841,057	$	892,848	$	546,562	$	271,617	$	156,768	$	6,748,201


	September 25, 2022
	2022		2021		2020		2019		2018		2017 & Prior		Total
U.S. Retail:
Super prime	$	1,002,057	$	684,597	$	312,641	$	187,399	$	87,508	$	36,424	$	2,310,626
Prime	1,281,483		982,085		476,677		297,481		160,552		102,887		3,301,165
Sub-prime	389,674		334,611		185,874		122,231		67,147		58,364		1,157,901
	2,673,214		2,001,293		975,192		607,111		315,207		197,675		6,769,692
Canadian Retail:
Super prime	46,930		33,149		19,727		14,500		6,365		2,085		122,756
Prime	15,043		11,537		8,149		5,738		3,562		2,345		46,374
Sub-prime	1,984		1,552		1,321		991		582		397		6,827
	63,957		46,238		29,197		21,229		10,509		4,827		175,957
	$	2,737,171	$	2,047,531	$	1,004,389	$	628,340	$	325,716	$	202,502	$	6,945,649

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 by the Company on a quarterly basis.

The amortized cost of the Company's wholesale finance receivables, by vintage and credit quality indicator, was as follows (in thousands):


	September 30, 2023
	2023		2022		2021		2020		2019		2018 & Prior		Total
Non-Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Doubtful	—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—
Special Mention	603		30		—		—		—		—		633
Medium Risk	2,754		16		—		25		—		—		2,795
Low Risk	934,104		95,436		5,928		5,354		4,601		690		1,046,113
	$	937,461	$	95,482	$	5,928	$	5,379	$	4,601	$	690	$	1,049,541


	December 31, 2022
	2022		2021		2020		2019		2018		2017 & Prior		Total
Non-Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Doubtful	—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—
Special Mention	—		—		—		—		—		—		—
Medium Risk	—		—		—		—		—		—		—
Low Risk	714,238		11,478		6,646		8,457		7,938		191		748,948
	$	714,238	$	11,478	$	6,646	$	8,457	$	7,938	$	191	$	748,948


	September 25, 2022
	2022		2021		2020		2019		2018		2017 & Prior		Total
Non-Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Doubtful	—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—
Special Mention	—		—		—		—		—		—		—
Medium Risk	—		—		—		—		—		—		—
Low Risk	714,122		22,850		7,169		3,749		8,607		398		756,895
	$	714,122	$	22,850	$	7,169	$	3,749	$	8,607	$	398	$	756,895

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 Financial Services interest income when the account is charged-off. The Company reversed $6.2 million and $3.9 million of accrued interest against Financial Services interest income during the three months ended September 30, 2023 and September 25, 2022, respectively, and $19.6 million and $13.0 million during the nine months ended September 30, 2023 and September 25, 2022, 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 to exclude accrued interest from its allowance for credit losses. Accordingly, as of September 30, 2023, December 31, 2022, and September 25, 2022, 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 30, 2023 or September 25, 2022. As such, the Company did not reverse any wholesale accrued interest in those periods. There were no dealers on non-accrual status at September 30, 2023, December 31, 2022, or September 25, 2022.

The aging analysis of the Company's finance receivables was as follows (in thousands):


	September 30, 2023
	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total
Retail finance receivables	$	6,738,510	$	151,192	$	55,454	$	53,241	$	259,887	$	6,998,397
Wholesale finance receivables	1,049,338		19		22		162		203		1,049,541
	$	7,787,848	$	151,211	$	55,476	$	53,403	$	260,090	$	8,047,938

	December 31, 2022
	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total
Retail finance receivables	$	6,473,462	$	152,343	$	60,446	$	61,950	$	274,739	$	6,748,201
Wholesale finance receivables	748,682		222		44		—		266		748,948
	$	7,222,144	$	152,565	$	60,490	$	61,950	$	275,005	$	7,497,149

	September 25, 2022
	Current		31-60 Days Past Due		61-90 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Total
Retail finance receivables	$	6,714,095	$	136,957	$	49,260	$	45,337	$	231,554	$	6,945,649
Wholesale finance receivables	756,609		271		15		—		286		756,895
	$	7,470,704	$	137,228	$	49,275	$	45,337	$	231,840	$	7,702,544