Commercial Loans Receivables

6 Months Ended

Sep. 26, 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):


	September 26, 2020		March 28, 2020
Direct loans receivable	$	42,336	$	47,058
Participation loans receivable	175		144
Allowance for loan losses	(789)		(393)
Deferred financing fees, net	(244)		(244)
	41,478		46,565
Less current portion of commercial loans receivable (including from affiliates), net	(14,961)		(15,423)
	$	26,517	$	31,142

The commercial loans receivable balance had the following characteristics:


	September 26, 2020		March 28, 2020
Weighted average contractual interest rate	6.1	%	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 September 26, 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				Six Months Ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Balance at beginning of period	$	828	$	191	$	393	$	180
Impact of adoption of ASU 2016-13	—		—		435		—
Change in estimated loan losses, net	(39)		(28)		(39)		(17)
Loans charged off, net of recoveries	—		—		—		—
Balance at end of period	$	789	$	163	$	789	$	163

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


	September 26, 2020
	2021		2020		2019		2018		2017		Total		March 28, 2020
Risk profile based on payment activity:
Performing	$	18,860	$	14,076	$	5,699	$	2,238	$	1,570	$	42,443	$	47,016
Watch list	—		—		68		—		—		68		186
Nonperforming	—		—		—		—		—		—		—
	$	18,860	$	14,076	$	5,767	$	2,238	$	1,570	$	42,511	$	47,202

At September 26, 2020, there were no commercial loans 90 days or more past due that were still accruing interest and the Company was not aware of any potential problem loans that would have a material effect on the commercial loans receivable balance.

As of September 26, 2020, 10.5% of the Company's outstanding commercial loans receivable principal balance was concentrated in Arizona and 10.0% was concentrated in California. As of March 28, 2020, 11.0% of the Company's outstanding commercial loans receivable principal balance was concentrated in California. No other state had concentrations in excess of 10% of the principal balance of the consumer loans receivable as of September 26, 2020 or March 28, 2020.

The Company had concentrations with one independent third-party and its affiliates that equaled 17.9% and 21.0% of the net commercial loans receivables principal balance outstanding, all of which was secured, as of September 26, 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.