Commercial Loans Receivables

3 Months Ended

Jun. 27, 2020

Commercial Loans Receivable

The Company's commercial loans receivable balance consists of two classes: (i) direct financing arrangements for the home product needs of the Company's independent distributors, communities and developers; and (ii) amounts loaned by the Company under participation financing programs.

Under the terms of the direct programs, the Company provides funds for financed home purchases by independent distributors, communities and developers. The notes are secured by the homes as collateral and, in some instances, other security. Other terms of direct arrangements vary, depending on the needs of the borrower and the opportunity for the Company.

Under the terms of the participation programs, the Company provides loans to independent floor plan lenders, representing a significant portion of the funds that such financiers then lend to distributors to finance their inventory purchases. The participation commercial loans receivables are unsecured general obligations of the independent floor plan lenders.

Commercial loans receivable, net consisted of the following, by class of financing notes receivable (in thousands):


	June 27, 2020		March 28, 2020
Direct loans receivable	$	44,915	$	47,058
Participation loans receivable	166		144
Allowance for loan losses	(828)		(393)
Deferred financing fees, net	(244)		(244)
	$	44,009	$	46,565

The commercial loans receivable balance had the following characteristics:


	June 27, 2020		March 28, 2020
Weighted average contractual interest rate	5.3	%	5.7	%
Weighted average months to maturity	11		10

The risk of loss is spread over numerous borrowers. Borrower activity is monitored on a regular basis and contractual arrangements are in place to provide adequate loss mitigation in the event of a default. The Company has historically been able to sell repossessed homes, thereby mitigating loss exposure. If a default occurs and collateral is lost, the Company is exposed to loss of the full value of the home loan. The Company evaluates the potential for loss from its commercial loan programs based on the borrower's risk rating, overall financial stability, historical experience and estimates of other economic factors. The Company has included considerations related to the COVID-19 pandemic when assessing its risk of loan loss and setting reserve amounts for its commercial finance portfolio as of June 27, 2020.

The following table represents changes in the estimated allowance for loan losses, including related additions and deductions to the allowance for loan losses (in thousands):


	Three Months Ended
	June 27, 2020		June 29, 2019
Balance at beginning of period	$	393	$	180
Impact of adoption of ASU 2016-13	435		—
Change in estimated loan losses, net	—		11
Loans charged off, net of recoveries	—		—
Balance at end of period	$	828	$	191

The following table disaggregates the Company's commercial loans receivable by credit quality indicator and fiscal year of origination (in thousands):


	June 27, 2020
	2021		2020		2019		2018		2017		Total		March 28, 2020
Risk profile based on payment activity:
Performing	$	13,074	$	18,359	$	9,370	$	2,534	$	1,619	$	44,956	$	47,016
Watch list	—		—		125		—		—		125		186
Nonperforming	—		—		—		—		—		—		—
	$	13,074	$	18,359	$	9,495	$	2,534	$	1,619	$	45,081	$	47,202

Loans are subject to regular review and are given management's attention whenever a problem situation appears to be developing. Loans with indicators of potential performance problems are placed on watch list status and are subject to additional monitoring and scrutiny. Nonperforming status includes loans accounted for on a non-accrual basis and accruing loans with principal payments 90 days or more past due. The Company's policy is to place loans on non-accrual status when interest is past due and remains unpaid 90 days or more or when there is a clear indication that the borrower is unable or unwilling to make payments as they become due. The Company will resume accrual of interest once these factors have been remedied. At June 27, 2020, there were no commercial loans 90 days or more past due that were still accruing interest. Payments received on non-accrual loans are recorded on a cash basis, first to interest and then to principal. At June 27, 2020, the Company was not aware of any potential problem loans that would have a material effect on the commercial loans receivable balance. Charge-offs occur when it becomes probable that outstanding amounts will not be recovered.

As of June 27, 2020 and March 28, 2020, 10.0% and 11.0%, respectively, of the Company's outstanding commercial loans receivable principal balance was concentrated in California. Other than California, no state had concentrations in excess of 10% of the principal balance of the consumer loans receivable as of June 27, 2020 or March 28, 2020.

The Company had concentrations with one independent third-party and its affiliates that equaled 19.8% and 21.0% of the net commercial loans receivables principal balance outstanding, all of which was secured, as of June 27, 2020 and March 28, 2020 respectively. The risks created by these concentrations have been considered in the determination of the adequacy of the allowance for loan loss.