Commercial Loans Receivable and Allowance for Loan Losses

The Company's commercial loans receivable balance consists of two classes: (i) direct financing arrangements for the home product needs of our independent retailers, 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 independent retailers, communities and developers' financed home purchases. Notes are secured by the homes as collateral and, in some instances, other security depending on the circumstances. The 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 retailers to finance their inventory purchases. The participation commercial loan 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 30, 2018			March 31, 2018
Direct loans receivable	$	30,414		$	16,368
Participation loans receivable	332			275
Allowance for loan losses	(113		)	(42		)
	$	30,633		$	16,601

The commercial loans receivable balance had the following characteristics:



	June 30, 2018		March 31, 2018
Weighted average contractual interest rate	5.5	%	4.6	%
Weighted average months to maturity	5		6

The Company evaluates the potential for loss from its participation loan programs based on each independent lender's overall financial stability, as well as historical experience, and has determined that an allowance for loan losses was not needed at June 30, 2018 or March 31, 2018.

With respect to direct programs with communities and developers, 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. For direct programs with independent retailers, the risk of loss is spread over numerous borrowers. Borrower activity is monitored in conjunction with third-party service providers, where applicable, to estimate the potential for loss on the related notes receivable, considering potential exposures, including repossession costs, remarketing expenses, impairment of value and the risk of collateral loss. The Company has historically been able to resell repossessed unused homes, thereby mitigating loss experience. If a default occurs and collateral is lost, the Company is exposed to loss of the full value of the home loan. If the Company determines that it is probable that a borrower will default, a specific reserve is determined and recorded within the estimated allowance for loan losses. The Company recorded an allowance for loan losses of $113,000 and $222,000 at June 30, 2018 and July 1, 2017, respectively.

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



	Three Months Ended
	June 30, 2018		July 1, 2017
Balance at beginning of period	$	42	$	210
Provision for inventory finance credit losses	71		12
Loans charged off, net of recoveries	—		—
Balance at end of period	$	113	$	222

The following table disaggregates commercial loans receivable and the estimated allowance for loan losses for each class of financing receivable by evaluation methodology (in thousands):



	Direct Commercial Loans						Participation Commercial Loans
	June 30, 2018			March 31, 2018			June 30, 2018		March 31, 2018
Inventory finance notes receivable:
Collectively evaluated for impairment	$	11,349		$	4,193		$	—	$	—
Individually evaluated for impairment	19,065			12,175			332		275
	$	30,414		$	16,368		$	332	$	275
Allowance for loan losses:
Collectively evaluated for impairment	$	(113	)	$	(42	)	$	—	$	—
Individually evaluated for impairment	—			—			—		—
	$	(113	)	$	(42	)	$	—	$	—

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 past due 90 days or more. The Company's policy is to place loans on nonaccrual status when interest is past due and remains unpaid 90 days or more or when there is a clear indication that the borrower has the inability or unwillingness to meet payments as they become due. The Company will resume accrual of interest once these factors have been remedied. At June 30, 2018, there are no commercial loans that are 90 days or more past due that are still accruing interest. Payments received on nonaccrual loans are recorded on a cash basis, first to interest and then to principal. At June 30, 2018, the Company was not aware of any potential problem loans that would have a material effect on the commercial receivables balance. Charge-offs occur when it becomes probable that outstanding amounts will not be recovered.

The following table disaggregates the Company's inventory finance receivables by class and credit quality indicator (in thousands):



	Direct Commercial Loans				Participation Commercial Loans
	June 30, 2018		March 31, 2018		June 30, 2018		March 31, 2018
Risk profile based on payment activity:
Performing	$	30,414	$	16,368	$	332	$	275
Watch list	—		—		—		—
Nonperforming	—		—		—		—
	$	30,414	$	16,368	$	332	$	275

The Company has concentrations of commercial loans receivable related to factory-built homes in excess of 10% located in the following states, measured as a percentage of commercial loans receivables principal balance outstanding:



	June 30, 2018		March 31, 2018
Arizona	16.0	%	16.7	%
California	13.4	%	14.4	%
Oregon	11.1	%	14.7	%
Texas	10.6	%	9.0	%

The risks created by these concentrations have been considered in the determination of the adequacy of the allowance for loan losses. The Company did not have concentrations in excess of 10% of the principal balance of the commercial loans receivables in any other states as of June 30, 2018 or March 31, 2018.

As of June 30, 2018 and March 31, 2018, the Company had concentrations with one independent third-party that equaled 22.3% and 37.4% of the principal balance outstanding, respectively, all of which was secured.