Loan Pooling as a Basis of Calculation of the Allowance for Loan Losses for Waco Production Credit Association

This study was conducted to determine a pooling method of calculating Waco Production Credit Association's (PCA) allowance for loan losses which would incorporate the factors of weather, yield, gross receipts, and production costs that occur within Waco PCA's loan portfolio. The December 31, 1990, loan files of Waco PCA were chosen as the sample population of a primary data generating Lotus spreadsheet model. The purpose of the model was to determine a future loan loss reserve based on adverse conditions and incorporate the variables of weather, yield, gross receipts and production costs that occur within the Waco PCA loan portfolio. A separate model was developed for each crop designated and livestock designated loans. Prior to sampling, the loans were stratified into nine groups referred to as loan pools. More weight was given to the larger loans in the sampling process. Analysis of the sampled loans by way of the Lotus model indicated that each loan pool had future loan loss exposure to Waco PCA. Under current regulation and accounting practice these future estimated losses need to be reserved. The allowance for loan loss amount determined by this study differed from the allowance for loan loss amount determined by the current loan pooling method used by Waco PCA. Currently Waco PCA uses the loan pooling method of determining future loan losses but has not supported the percentage loss estimated in each loan pool. Also, Waco PCA has not incorporated the variables of weather, yield, gross receipts or production costs into the loan loss reserve analysis. The findings of this study indicated that Waco PCA should incorporate the Lotus spreadsheet model and the model design into its loan loss reserve calculation. Use of the model and model design would result in a more accurate determination of the Waco PCA future loan loss exposure and thus result in a loan loss reserve account which meets regulatory and accounting requirements.

Name thesis:degree_name

Master of Business Administration

Level thesis:degree_level

Masters

Discipline thesis:degree_discipline

Business

Grantor

Southwest Texas State University

Year dc:date.issued

1991

Author dc:creator

• Gallagher, Richard L.

Advisor dc:contributor.advisor

• Savage, V. Howard

Committee members dc:contributor.committeemember

• Garnett, Robert H.
• Abrahamson, Royce L.

• loan loss reserves
• agricultural credit corporations
• Waco Production Credit Association
• Lotus 1-2-3

Language dc:language.iso

en

Handle dc:identifier.uri

https://hdl.handle.net/10877/19134

OAI identifier oai:identifier

oai:digital.library.txst.edu:10877/19134