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Finance Receivables
 6 Months Ended
Jun. 30, 2024
Receivables [Abstract]  
Finance Receivables Finance Receivables
Finance receivables include both retail and wholesale finance receivables, including amounts held by consolidated VIEs. Finance receivables are recorded in the financial statements at amortized cost net of an allowance for credit losses.
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):
June 30,
2024		December 31,
2023		June 30,
2023
Retail finance receivables$6,993,930 $6,818,699 $6,955,514 
Wholesale finance receivables1,418,151 1,061,532 936,132 
8,412,081 7,880,231 7,891,646 
Allowance for credit losses(393,517)(381,966)(381,780)
$8,018,564 $7,498,265 $7,509,866 
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. At the end of the second quarter of 2024, the Company's probability weighting of its economic forecast scenarios was weighted towards more pessimistic scenarios given continued challenging macro-economic conditions including a persistently high interest rate environment, ongoing elevated inflation levels and muted consumer confidence.
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. During the first half of 2024, the Company experienced increased retail credit losses driven by several factors connected to the macro-economic environment and related customer and industry dynamics, including the impact of higher motorcycle payments and general inflationary pressures on customers. Additionally, the Company experienced downward pressure on recovery values at auction during the first half of 2024.
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 June 30, 2024Six months ended June 30, 2024
 RetailWholesaleTotalRetailWholesaleTotal
Balance, beginning of period$365,411 $14,950 $380,361 $367,037 $14,929 $381,966 
Provision for credit losses55,289 741 56,030 116,278 762 117,040 
Charge-offs(60,712)— (60,712)(142,080)— (142,080)
Recoveries17,838 — 17,838 36,591 — 36,591 
Balance, end of period$377,826 $15,691 $393,517 $377,826 $15,691 $393,517 
 Three months ended June 30, 2023Six months ended June 30, 2023
 RetailWholesaleTotalRetailWholesaleTotal
Balance, beginning of period$343,600 $14,831 $358,431 $345,275 $13,436 $358,711 
Provision for credit losses57,248 30 57,278 108,217 1,425 109,642 
Charge-offs(50,437)— (50,437)(118,445)— (118,445)
Recoveries16,508 — 16,508 31,872 — 31,872 
Balance, end of period$366,919 $14,861 $381,780 $366,919 $14,861 $381,780 
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 along with period gross charge-offs of the Company's U.S. and Canadian retail finance receivables by vintage and credit quality indicator was as follows (in thousands):
June 30, 2024
202420232022202120202019 & PriorTotal
U.S. Retail:
Super prime$684,675 $858,653 $575,749 $282,472 $103,657 $53,898 $2,559,104 
Prime682,513 988,918 810,245 462,594 194,018 136,465 3,274,753 
Sub-prime207,576 275,532 222,858 150,961 78,021 72,736 1,007,684 
1,574,764 2,123,103 1,608,852 896,027 375,696 263,099 6,841,541 
Canadian Retail:
Super prime25,927 38,107 23,842 12,492 5,744 2,558 108,670 
Prime6,535 11,106 8,880 5,513 3,232 2,680 37,946 
Sub-prime1,282 1,593 1,213 537 643 505 5,773 
33,744 50,806 33,935 18,542 9,619 5,743 152,389 
$1,608,508 $2,173,909 $1,642,787 $914,569 $385,315 $268,842 $6,993,930 
Gross charge-offs for the six months ended June 30, 2024:
U.S. Retail
$615 $42,843 $48,949 $26,374 $11,088 $9,932 $139,801 
Canadian Retail— 740 704 398 187 250 2,279 
$615 $43,583 $49,653 $26,772 $11,275 $10,182 $142,080 
December 31, 2023
202320222021202020192018 & PriorTotal
U.S. Retail:
Super prime$1,066,321 $729,339 $376,474 $151,004 $70,627 $27,013 $2,420,778 
Prime1,173,463 993,417 584,305 259,995 139,011 78,880 3,229,071 
Sub-prime333,099 275,964 189,688 101,437 63,393 44,568 1,008,149 
2,572,883 1,998,720 1,150,467 512,436 273,031 150,461 6,657,998 
Canadian Retail:
Super prime48,705 31,733 17,744 9,241 4,521 1,524 113,468 
Prime13,764 11,434 7,336 4,390 2,728 1,838 41,490 
Sub-prime1,846 1,546 739 817 525 270 5,743 
64,315 44,713 25,819 14,448 7,774 3,632 160,701 
$2,637,198 $2,043,433 $1,176,286 $526,884 $280,805 $154,093 $6,818,699 
Gross charge-offs for the year ended December 31, 2023:
U.S. Retail
$20,047 $102,387 $74,212 $30,896 $18,088 $14,655 $260,285 
Canadian Retail527 1,004 866 472 278 483 3,630 
$20,574 $103,391 $75,078 $31,368 $18,366 $15,138 $263,915 
June 30, 2023
202320222021202020192018 & PriorTotal
U.S. Retail:
Super prime$653,241 $900,693 $483,064 $204,865 $108,690 $52,889 $2,403,442 
Prime744,143 1,197,541 719,455 334,005 192,671 132,899 3,320,714 
Sub-prime203,996 341,127 236,686 128,806 83,042 69,723 1,063,380 
1,601,380 2,439,361 1,439,205 667,676 384,403 255,511 6,787,536 
Canadian Retail:
Super prime29,516 39,496 23,265 13,012 7,952 3,296 116,537 
Prime9,836 13,856 8,895 5,755 3,733 3,063 45,138 
Sub-prime1,287 1,868 1,021 994 666 467 6,303 
40,639 55,220 33,181 19,761 12,351 6,826 167,978 
$1,642,019 $2,494,581 $1,472,386 $687,437 $396,754 $262,337 $6,955,514 
Gross charge-offs for the six months ended June 30, 2023:
U.S. Retail
$738 $44,340 $37,534 $16,365 $9,518 $8,354 $116,849 
Canadian Retail— 492 421 205 128 350 1,596 
$738 $44,832 $37,955 $16,570 $9,646 $8,704 $118,445 
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):
June 30, 2024
202420232022202120202019 & PriorTotal
Non-Performing$2,738 $2,672 $145 $— $— $5 $5,560 
Doubtful5,105 4,661 144 — — 9 9,919 
Substandard11,038 4,943 98 — — — 16,079 
Special Mention2,934 986 96 — — 211 4,227 
Medium Risk— — — — — — — 
Low Risk1,088,176 236,891 41,749 3,877 3,716 7,957 1,382,366 
$1,109,991 $250,153 $42,232 $3,877 $3,716 $8,182 $1,418,151 
December 31, 2023
202320222021202020192018 & PriorTotal
Non-Performing$— $— $— $— $— $— $— 
Doubtful— — — — — — — 
Substandard10,934 258 — — 5 — 11,197 
Special Mention641 30 — — — — 671 
Medium Risk2,905 — — — — — 2,905 
Low Risk961,519 66,757 5,107 4,962 7,786 628 1,046,759 
$975,999 $67,045 $5,107 $4,962 $7,791 $628 $1,061,532 
June 30, 2023
202320222021202020192018 & PriorTotal
Non-Performing$— $— $— $— $— $— $— 
Doubtful— — — — — — — 
Substandard— — — — — — — 
Special Mention— — — — — — — 
Medium Risk— — — — — — — 
Low Risk746,491 165,620 7,060 5,779 8,665 2,517 936,132 
$746,491 $165,620 $7,060 $5,779 $8,665 $2,517 $936,132 
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 $7.6 million and $6.2 million of accrued interest against Financial Services interest income during the three months ended June 30, 2024 and June 30, 2023, respectively, and $17.1 million and $13.4 million during the six months ended June 30, 2024 and June 30,2023, 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 June 30, 2024, December 31, 2023, and June 30, 2023, 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 30, 2024 or June 30, 2023. As such, the Company did not reverse any wholesale accrued interest in those periods. During the three month period ended June 30, 2024, $5.6 million of wholesale finance receivables related to two dealers were classified as non-accrual. There were no dealers on non-accrual status at December 31, 2023 or June 30, 2023.
The aging analysis of the Company's finance receivables was as follows (in thousands):
 June 30, 2024
Current31-60 Days
Past Due		61-90 Days
Past Due		Greater than
90 Days
Past Due		Total
Past Due		Total
Retail finance receivables$6,753,883 $148,590 $49,790 $41,667 $240,047 $6,993,930 
Wholesale finance receivables1,417,053 715 219 164 1,098 1,418,151 
$8,170,936 $149,305 $50,009 $41,831 $241,145 $8,412,081 
 December 31, 2023
Current31-60 Days
Past Due		61-90 Days
Past Due		Greater than
90 Days
Past Due		Total
Past Due		Total
Retail finance receivables$6,516,342 $168,027 $67,033 $67,297 $302,357 $6,818,699 
Wholesale finance receivables1,060,561 763 25 183 971 1,061,532 
$7,576,903 $168,790 $67,058 $67,480 $303,328 $7,880,231 
 June 30, 2023
Current31-60 Days
Past Due		61-90 Days
Past Due		Greater than
90 Days
Past Due		Total
Past Due		Total
Retail finance receivables$6,730,985 $134,418 $47,207 $42,904 $224,529 $6,955,514 
Wholesale finance receivables934,562 1,543 26 1 1,570 936,132 
$7,665,547 $135,961 $47,233 $42,905 $226,099 $7,891,646 
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 as troubled loan modifications. Total finance receivables subject to troubled loan modifications were not significant as of June 30, 2024, December 31, 2023, and June 30, 2023. In accordance with its policies, in certain situations, the Company may offer short-term adjustments to customer payment due dates without affecting the associated interest rate or loan term.