PREFERRED LENDER PROGRAM\
CREDIT MANAGEMENT SYSTEM SUMMARY

The following is an example of a Credit Management System (CMS) summary.
It was developed by the U.S. Department of Agriculture's Farm Service
Agency (FSA) to assist lenders that wish to prepare and submit a request
for Preferred Lender Program (PLP) status for the FSA Guaranteed Farm
Loan Program. The application for PLP status is to be prepared according
to section 762.106 of 7 CFR part 762 and paragraph 52 of FSA Handbook
2‑FLP, \"Guaranteed Loan Making and Servicing.\"

This document is based on a review of numerous lender policies and is
intended solely as an example CMS summary. This example may serve as a
starting point for a lender developing a CMS summary; language can be
drawn from it for use in areas where a lender does not have a policy.
Each area must be amended based on the institution's commercial lending
policy, organizational structure, and loan management practices.

**PREFERRED LENDER PROGRAM**

**CREDIT MANAGEMENT SYSTEM SUMMARY**

**ATTACHMENT TO FORM FSA-1980-38, "LENDER'S AGREEMENT"**

**Bank Name**

**Anywhere, USA**

This document contains the credit management system (CMS) requirements
agreed to by Bank Name (Lender) located in Anywhere, USA, and the Farm
Service Agency (FSA) for the Lender's participation in the FSA
Guaranteed Loan Program. Requirements for loan administration,
servicing, and reporting activities not specifically addressed in this
attachment are governed by the attached Form FSA 2201, "Lender's
Agreement," and 7 CFR 762.

**I. GENERAL OPERATIONS**

**A. Normal Trade Area.**

The normal trade area for the Lender is Eastern Colorado and portions of
Western Nebraska and Kansas. Colorado counties include Yuma, Cheyenne,
Lincoln, Washington, Morgan, Kit Carson, and Kiowa. Nebraska counties
include Sioux, Banner, and Kimball. Kansas counties include Wallace,
Greeley, Hamilton, Wichita, and Kearney.  PLP status covers the Lender's
normal trade area.

Loans would be considered outside the normal trade area if loan
servicing were limited. For example, integrated broiler or pork
contractors where the production check is sent to the Lender could be
considered. Livestock and chattel loans that are not cross‑pledged with
real estate are not desirable outside the trade area due to extensive
servicing demands. The Lender will contact the appropriate FSA State
Office for guidance when submitting requests for guarantee outside of
the normal trade area.

**B. Internal Credit Review System.**

The Lender's Quality Control Group operates its internal review program.
This group provides an independent, objective, and active means for
monitoring adherence to Lender policies and procedures. The group also
evaluates the accuracy of the credit and performance classifications and
identifies credit administration weaknesses. The Quality Control Group
reviews a significant number of loan and servicing actions each year.
Reviews are based upon a sampling of those areas that present the
greatest risk to the Lender and include a monthly review of credit
administration on all loans greater than \$300,000. A minimum of 50
percent of outstanding guaranteed loans are reviewed annually.

The Quality Control Group provides the Lender's Board of Directors and
senior management a monthly report, which addresses important review
results including deficiencies in credit quality and credit
administration and adherence to policies and procedures. The group also
discusses the results of each loan review with the responsible loan
officers to resolve any deficiencies in their portfolio. Loan officers
report monthly to the Loan Officer's Committee on the status of
corrective actions to address identified deficiencies.

**C. Use of Agents, Consultants, and Packagers.**

The Lender has not previously used agents or packagers and does not plan
to use this type of assistance in the future. Loan requests are
originated and packaged by the Lender. Unsolicited loan proposals
presented by private consultants may be considered; however, the
application will be prepared, analyzed, and presented by a bank loan
officer.

**D. Processing and Servicing FSA Loans**

Joseph Franklin, Senior Vice President of Agriculture Lending, oversees
the guaranteed loan program. Mr. Franklin has 20 years experience in
agricultural lending and 12 years experience in processing FSA
guaranteed loans. See attached resumes for qualifications of the
Lender's other loan officers.

The Agriculture Lending Department has two loan officers with primary
responsibility for originating and servicing FSA guaranteed loans. These
loan officers are responsible for ensuring that all FSA requirements are
met. The Quality Control Group monitors compliance with FSA requirements
and notifies the loan officers and senior management of any
deficiencies.

Before submitting an application, the Lender performs a site inspection
to assess the suitability of the farm and completes environmental due
diligence, as appropriate.

When requesting a guarantee, the Lender will submit the following
information to FSA:

1.  A complete "Preferred Lender Application for Guarantee" (FSA 2212);

2.  A complete loan narrative discussing the "5 C's of Credit" and a
    description of the location of all farmed land (a sample loan
    narrative was submitted with the request for PLP status);

3.  If Interest Assistance is requested, a completed Part G of
    "Application for Guarantee" (FSA 2211), projected cash flow, and
    current balance sheet; and

4\. When the applicant is an entity, the names, social security numbers,
and percent ownership for each entity member (entity information will be
addressed in the loan narrative).

**II. LOAN ANALYSIS/UNDERWRITING**

The Lender uses the XYZ computer loan analysis system. This system is
required for all borrowers with more than \$100,000 credit with the
Lender and for any credit not meeting all credit standards.

The analysis for an application where a guarantee is requested will be
substantially similar to the analysis performed for a similar
non-guaranteed loan application. All credit factors will be considered
and the strengths and weaknesses of each addressed in the loan
narrative. Exceptions to ratios described herein may be approved if
there are offsetting strengths in other credit factors. However, the
Lender will not approve a loan if there is a weakness in both cash flow
and collateral.

Loans are expected to meet all of the Lender's established standard
credit factors. Loans not meeting these standards may be considered on a
case‑by‑case basis.  If a credit standard is not met, the application
must exhibit offsetting strengths in other standards and may require an
FSA guarantee.  Deviations from standards will be fully justified and
approved by the Loan Officer Committee.  If a guarantee is requested,
the loan narrative submitted to FSA will include a description of the
exception and offsetting strengths as well as a justification for the
decision.

Small Loans (under \$100,000) will be underwritten using the same credit
criteria as larger loans. However, only a current balance sheet, most
recent tax return and/or income statement, and annual budget will be
analyzed. Three years historical information is not required.

**A. Management Ability/Credit History Analysis.**

**Required credit references.** A credit report from Experian or another
credit reporting bureau is included and maintained in the credit file
for all new borrower applications and loans that have any significant
weaknesses. A credit report is required for any loan considered for an
FSA guarantee. Businesses that a new customer works with, such as
veterinarians and feed and fertilizer dealers, will be contacted for
references concerning the manner in which the applicant farms and
handles his financial business. Loans to young and beginning farmers
must meet the same underwriting standards as other applicants and will
be considered for an FSA guarantee.

-   Credit reports are analyzed through a credit scoring model.
    Individuals are rated Excellent, Good, Fair, or Poor.

-   Fair or Poor credit ratings are required to have offsetting
    strengths in other credit factors.

**B.** **Capacity Analysis.**

For loans exceeding \$50,000, at least three years of farm income,
expenses, and production data are analyzed with adjustments pertaining
to any changes in the operation. For new customers, and loans exceeding
\$500,000, five years of history will be analyzed. For loans of \$50,000
or less, an analysis of one year's information is required. However, it
is recommended that at least two years of financial information be
analyzed.

Non-farm income is confirmed with employment verification or other
sources if it is essential to cash flow. Tax returns are used if the
non-farm income is from a source other than the applicant's employer.
Other income, such as mineral production, is verified through proof of
contract.

**Financial Performance Measures.** Repayment Capacity: Term
Debt/Capital Lease Coverage Ratio below 1.25:1.00 is considered weak and
must have offsetting strengths in other credit factors. In no case will
a loan be approved with less than a 1.00:1.00 cash flow.

**Sensitivity Analysis.** Cash flow should reflect break even after a 10
percent reduction in revenue, 10 percent increase in expenses, or 5
percent increase in variable interest rates. Sensitivity analysis is
required on all loans over \$100,000. Credits not meeting the
sensitivity criteria should have offsetting strengths.

**Commodity Prices.** Values for collateral and budgeting are
established by Agricultural Credit Administrator and published
semi-annually. Prices other than these must be justified.

**C. Capital Analysis.**

**Supporting schedules.** The financial statement on the loan request
must be no more than 30 days old for new customers. For existing
customers, a balance sheet up to 90 days old is acceptable. The
financials must be supported by tax returns, sales receipts, credit
reports or any other available data. Significant debts not reflected on
the credit report will be verified by phone or mail.

**Financial Performance Measures.**

-   Solvency: Debt/Worth of 1:00:1:00. Higher ratios must have
    offsetting strengths, which will be discussed in the financial
    analysis portion of the presentation.

-   Liquidity:

    -   Current Ratio of 1.00:1.00. Lower ratios may be acceptable if
        there are offsetting strengths, which will be discussed in the
        financial analysis portion of the presentation.

    -   Working Capital should be at least 15% of projected operating
        expenses for crop enterprises.

**Entity consolidation process.** When the applicant is an entity, the
balance sheet of each liable party and the entity itself will be
obtained. In addition, consolidation of financial information is
required when a corporation or formal partnership entity applies to a
loan. When income is derived from several sources, consolidation of the
entities is required. All assets, debts, and income are combined.

**D. Collateral Analysis.**

The following table identifies the Lender's standard Loan to Value
rates. Loans exceeding these rates will be offset by strengths in other
credit factors.

  -----------------------------------------------------------------------
  Collateral              Loan to Value Rates
  ----------------------- -----------------------------------------------
  Crops                   70% estimated crop value before harvest.

                          75% estimated crop value after harvest.

                          80% of forward contracted crops.

                          When available, the Lender will also secure
                          crop loans with machinery and equipment, or
                          other farm assets, in addition to the crops.

  Beef Cattle             70-80%

  Dairy                   75% for milking herd, replacement heifers, and
                          feed.

  Sheep                   70 - 80%

  Swine                   60 - 70%

  Agricultural Real       
  Estate                  

  Range Land (unimproved) 50%

  Improved Dry Pasture    60%

  Cropland                75%

  Farmsteads (including   80% - where home accounts for at least 50% of
  home)                   the total value of the parcel w/improvements.

  Farmsteads (without     75%
  home)                   

  Machinery               

  Used Equipment          75%

  New Equipment           75%
  -----------------------------------------------------------------------

**E. Conditions.**

Loan conditions address loan purpose, loan amount, loan structure,
pricing, scope of financing or requirements unique to a loan. As such,
conditions are added as loan risk increases. The conditions of approval
are based on the credit factor analysis used to identify applicant
creditworthiness and risk. Examples include additional monitoring,
collateral, insurance, etc., to reduce the risk exposure of any
particular loan. A loan agreement will be completed, if necessary, on a
case-by-case basis.

**Disbursement of loan proceeds.** Each loan with multiple draws
requires a line of credit agreement perfected as part of the loan. The
agreement specifies terms for draws from the line and no funds are
dispersed without compliance. Each file has an advance ledger in place
to document the date, amount, and use of proceeds.

**III. LOAN SERVICING/ADMINISTRATION SYSTEM**

**A. General Servicing.**

**Borrower monitoring and supervision.** Borrowers will be monitored for
financial performance to determine the level of risk to the Lender. The
condition of agricultural loans will be reviewed on an annual basis.

Annual borrower review documentation will include the following:

-   Updated appraisals of livestock and equipment. (Semi‑annual
    inspections for stocker or feeder livestock operations financed by
    revolving line.)

-   Current balance sheet for borrower, entity members, and any personal
    guarantors.

-   Analysis of current assets, crop condition, livestock conditions,
    prices, and the likelihood of payment of operating credit and term
    debt obligations due in the current cycle.

-   Income and expense statement, such as IRS Form 1040, Schedule C or
    F, Farm Equity Manager report, customer's computerized records or
    similar form.

-   Comparison of projected to actual financial results and trends.

-   Cash flow projection.

-   Review of capital purchase and consumer credit needs projected for
    next year.

-   Assessment of farm and farmstead condition.

-   Annual county records search.

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-   Assignment of a credit score based on risk analysis.

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-   Annual report on the account score for all borrowers with aggregate
    debt over \$300,000 will be presented to the Board of Directors by
    the responsible loan officer.

Exceptions:

-   Borrowers with term loans secured by real estate, which have
    performed as agreed for more than five consecutive years, are
    required to submit only a balance sheet each year. An inspection
    will be performed when the balance sheet indicates financial
    deterioration.

-   Borrowers who do not borrow money for operating needs and maintain
    sufficient cash deposit accounts with the Lender to pay 12 months of
    installments on their term debts are only required to submit a
    financial statement every three years.

-   Line of credit only borrowers are not scored.

**Monitoring security.** Acquisition and lien priority of planned
capital purchase or ownership of basic security will be verified.
Methods for verification include physical inspection visit by loan
officer, bill of sale, vehicle title, deed, lien search or another
method as appropriate. Cattle will be marked for identification.

Proceeds from the sale of security will be applied to the debt according
to lien priority. Where multiple loans are secured by a blanket lien on
chattel security, crop and livestock income will be applied to the
annual operating debt incurred to produce that item before being used to
pay term debt installments.

The source of proceeds, including bushels, weights, and size will be
verified with receipts in those cases where the borrower's records are
not accurate. Income from sales in one cycle that is not received until
the following cycle (e.g., overlap income, retains, dividends) will be
applied to any outstanding debt associated with the production of that
commodity.

Term debt collateral sales proceeds will not be used to make scheduled
term debt installments.

**Advances on lines of credit.** Advance requests may be made by
telephone, electronic mail or other method. The request and its use will
be acknowledged in writing on an Advance Record by the borrower during
his/her next physical office visit, or by copy of a check written on the
account where disbursements are deposited. Each year, the ability to
meet all financial obligations will be documented with an annual cash
flow projection before the operation is financed for another year.

Loan ledgers are updated daily for advances and payments. Ledgers do not
track the use of funds or source of proceeds; therefore, advances will
be entered into an automated spreadsheet and itemized based on projected
expense categories weekly. This spreadsheet is checked monthly by loan
officers for deviations from projected expense category and total needs.
Livestock operation lines of credit are also tracked using livestock
inventory control records and inspection reports.

**Emergency advances.** A moderate advance in excess of the loan amount
may be made when an aberration causes expenses to exceed the original
budgeted amount, and the advance is necessary to avoid significant
damage to or loss of the loan security. The reason for the advance and
the financial benefit to be derived from it will be documented in the
loan file.

**Partial releases.** Security may be released without FSA concurrence
(1) when the security item is being sold for market value and the
proceeds will be applied to the loan in accordance with lien priorities;
(2) when the security item will be used as a trade-in or source of down
payment funds for a like-item that will be taken as security; or (3)
when the security item has no present or prospective value.

**Cull and replacement policy.** Breeding livestock sales proceeds will
be treated as normal income when herd size and value is maintained at a
level at or above that which existed at loan inception as verified by
periodic inspection.

All other releases without compensation will meet FSA regulatory
requirements and require loan committee approval. Details of the
transaction will be documented in the credit file.

**Releases of borrowers.** Obligated parties, including entity members,
personal guarantors, cosigners, or joint operators, are not released
from liability except when the debt has been paid or refinanced, or on a
case-by-case basis, with executive loan committee concurrence and FSA
written approval.

**B. Delinquencies.**

**Distressed loans.** If the annual analysis or any information provided
by the borrower indicates that the borrower will have difficulty meeting
their obligations, servicing options to improve the customer's situation
will be explored before actual default occurs.

**Reminder notices.** For annual payment borrowers, reminder notices are
mailed 30 days prior to the installment due date. Reminder notices are
not mailed for monthly or quarterly payment borrowers.

**Default notices.**

10 days past due: Delinquency notices are mailed and responsible loan
officers are notified by the loan administration staff.

30 days past due:

-   Written borrower default notification and request for payment is
    mailed.

-   Loan officer contacts the borrower by telephone and a meeting is
    scheduled within 15 days. The borrower is requested to provide a
    balance sheet and a summary of their liquidity position. A
    short-term extension in the meeting date may be granted to allow the
    borrower time to assemble the required information.

-   A summary of attempts to schedule a meeting, reasons delays are
    granted, agreements reached, and actions taken will be documented in
    the customer file.

-   The loan officer presents a report on the prospective servicing plan
    to the executive loan committee.

-   The loan officer notifies the secondary market holder, if
    applicable, of the Lender's intentions to repurchase or requests
    that the holder agree to a rescheduling.

45 days past due:  Form FSA 2248 is submitted to FSA outlining results
of meeting or attempts to schedule a meeting and planned collection
activities.

60 days past due:  If no meeting has been held, or if meeting results
are inconclusive, a second default notification is mailed. The Lender,
where required by state law, must participate in mediation prior to
foreclosure.

90 days past due:  A plan for cure of the default will be in place
unless an extension is granted. The reason for the extension (including
pending mediation) will be documented in the customer file and initialed
by the loan officer's first line supervisor.

120 days past due:  Restructuring agreements will be consummated or
extension justification will be documented.

Every 30 days: 

-   Loan officer reports to the executive loan committee.

-   Borrower is contacted if plan has not been completed.

-   Notation is made in file as to status of default.

**Restructuring delinquent loans.**  If a defaulted borrower is unable
to pay the account as agreed, he/she may request and present a plan for
restructuring based on probable financial performance. Debt
restructuring will be approved in lieu of liquidation when financially
prudent and feasible. Options that the Lender will consider include:

-   90-day extension agreement

-   Deferral

-   Uneven payments

-   Rescheduling

-   Capitalization of accrued interest.

**Debt Writedown.** Writedowns of guaranteed loans will require written
approval of FSA.

**C. Other Servicing Actions.**

**Non‑monetary default.** Upon occurrence of unauthorized use of loan
funds, insurance lapse, security depletion, death, abandonment,
conversion, etc., notice of default is mailed and the borrower is
provided 30 days to take corrective action.

D.  **Terminations, Liquidations, and Final Loss Claims.**

Supporting documentation will be developed, meeting FSA regulatory
requirements for any loss claim. This will include a plan of
liquidation, including costs of liquidation and expected time frames.
The liquidation plan will be kept in the borrower's case file.

**Voluntary Liquidation.** The borrower will be provided 30 days from
acceleration to liquidate or agree in writing to a plan for voluntary
liquidation of all loan collateral. Voluntary plans will include
contingencies for failure to meet plan milestones. A release of the
borrower from continued liability may be agreed to as part of a
voluntary plan if written agreement is obtained from the FSA State
Office.

**Protective advances.** Multiple protective advances may be made to
protect the collateral. FSA approval is required when the total of all
advances exceed \$10,000 and again when the total of all advances exceed
\$20,000, \$30,000, \$40,000, etc.

**Acquisition of real estate security.** The responsible loan officer or
workout officer will review the collateral for possible environmental
liability. If environmental problems are found, the executive loan
committee will make a decision on the acceptance of a deed in lieu of
foreclosure or assessment of protective bids to be made at foreclosure.
For FSA guaranteed loans, FSA will be consulted regarding the method of
sale or establishing foreclosure bids on any properties whose value has
been substantially reduced by the presence of hazardous waste.