Commercial Loans Receivables and Allowance for Loan Loss

9 Months Ended

Dec. 28, 2019

Receivables [Abstract]

Commercial Loans Receivables and Allowance for Loan Loss

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 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 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):

	December 28, 2019			March 30, 2019
Direct loans receivable	$	44,619		$	42,899
Participation loans receivable	148			495
Allowance for loan losses	(162		)	(180		)
Deferred financing fees, net	(248		)	(208		)
	$	44,357		$	43,006

The commercial loans receivable balance had the following characteristics:

	December 28, 2019		March 30, 2019
Weighted average contractual interest rate	6.1	%	5.7	%
Weighted average months to maturity	10		7

The Company evaluates the potential for loss from its participation loan programs based on the independent lender's overall financial stability, as well as historical experience, and has determined that an applicable allowance for loan losses was not needed at December 28, 2019 or March 30, 2019.

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 distributors, 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 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. If the Company determines that it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement, a specific reserve is determined and recorded within the estimated allowance for loan losses. The Company recorded an allowance for loan losses of $162,000 and $160,000 at December 28, 2019 and December 29, 2018, 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					Nine Months Ended
	December 28, 2019			December 29, 2018		December 28, 2019			December 29, 2018
Balance at beginning of period	$	163		$	135	$	180		$	42
Change in estimated loan losses, net	(1		)	25		(18		)	118
Loans charged off, net of recoveries	—			—		—			—
Balance at end of period	$	162		$	160	$	162		$	160

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
	December 28, 2019			March 30, 2019			December 28, 2019		March 30, 2019
Commercial loans receivable:
Collectively evaluated for impairment	$	16,186		$	18,018		$	—	$	—
Individually evaluated for impairment	28,433			24,881			148		495
	$	44,619		$	42,899		$	148	$	495
Allowance for loan losses:
Collectively evaluated for impairment	$	(162	)	$	(180	)	$	—	$	—
Individually evaluated for impairment	—			—			—		—
	$	(162	)	$	(180	)	$	—	$	—

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 December 28, 2019, 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 December 28, 2019, 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.

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

	Direct Commercial Loans				Participation Commercial Loans
	December 28, 2019		March 30, 2019		December 28, 2019		March 30, 2019
Risk profile based on payment activity:
Performing	$	44,619	$	42,899	$	148	$	495
Watch list	—		—		—		—
Nonperforming	—		—		—		—
	$	44,619	$	42,899	$	148	$	495

The Company had concentrations of commercial loans receivables related to factory-built homes in excess of 10% of the commercial loans receivables principal balance located in the following states:

	December 28, 2019		March 30, 2019
California	20.4	%	21.1	%
Arizona	17.5	%	16.3	%

Additionally, at March 30, 2019, 10.4% of the commercial loans receivables principal balance was concentrated in Oregon. The risks created by these concentrations have been considered in the determination of the adequacy of the allowance for loan losses.

As of December 28, 2019 and March 30, 2019, the Company had concentrations with one independent third-party and its affiliates that equaled 19.8% and 22.0% of the commercial loans receivable principal balance outstanding, respectively, all of which was secured.