Paul A. DeBriyn

Photo: Kris Kathmann

Crop Star

CEO DeBriyn helped 600-employee, Mankato-based cooperative AgStar Financial Services rise from ashes to become national leader in agriculture.

The years 1987-88 weren’t particularly rosy for Newt Gingrich look-alike Paul A. DeBriyn, then chief executive officer at the rural cooperative that would become AgStar Financial Services. Nationally in those years, many rural financial institutions like his—and many family farms—were becoming unhinged as a barn door kicked in by petulant cows.

A painful reorganization and retrenchment under 32-year-old CEO DeBriyn was a given. The only question was how.

The then Rochester-based co-op had 169 team members in 22 field offices. In summer 1987, DeBriyn (pronounced DeBrian) interviewed every team member one-on-one up to 30 minutes to learn his or her personal ideas on what had to change. The company held bushel baskets of non-performing loans and undervalued acquired property. Revenues weren’t even close to covering costs. Something had to give.

After the interviews, DeBriyn and other managers developed a downsizing strategy to reduce costs and preserve the co-op for future generations. In part, the plan involved DeBriyn and three managers meeting with team members individually to tell each their employment status. The management team could have sent out impersonal memos or pink slips, but chose a more “respectful” way, said DeBriyn. Within 18 months, the number of team members fell from 169 to 52, and offices from 22 to four. The co-op developed a fresh business model that literally would bring its offices right onto family farms.

DeBriyn said in a Connect Business Magazine interview, “I vowed then on to never put ourselves into a position where we would have to go through an experience like that again.”

And he kept that vow.

Today, now under 56-year-old DeBriyn, Mankato-based, 600-employee AgStar Financial Services manages $8 billion in loan and lease assets involving 25,000 client/stockholders. Its historic and primary boundaries have been 69 Minnesota and Wisconsin counties, but its secondary territory has grown to include substantial swaths of the United States.

DeBriyn helped execute one of southern Minnesota’s greatest business turnarounds—one that continues paying dividends in our region and beyond.

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Fill us in on your upbringing.
I grew up in Thief River Falls. My mom was most influential and taught me leadership, and my dad taught me honesty, integrity, and hard work. Both of them always believed in their kids—and they believed in me. They cared about making sure I went to school, tried hard, and gave it my best shot. They told me, “If you can tell us you did the best you could,” they would be proud of me. I was raised on a part-time farm of about 90 acres, with 80 acres of it where we hunted deer and raised hay and 11 acres where we lived and raised cattle.

I originally thought about being a veterinarian. After two years of attending the University of Minnesota—and although I have hunted and fished my entire life and don’t have a problem cleaning ducks, geese, pheasants, and gutting a deer—I found my desire for working with animals with blood and broken bones wasn’t something I was cut out to do. I went into ag business administration instead and graduated in 1977, during a golden era in agriculture.

After graduation, I went to work for the St. Paul Bank for Cooperatives (now CoBank), part of the Farm Credit System, which is what AgStar Financial Services is part of. They provided financing to cooperatives. I became a senior officer and worked there about 10 years. The last three years I was there, they consolidated the senior management of the Federal Land Bank of St. Paul, which provided real estate loans to farmers; the Federal Intermediate-Credit Bank, which provided funds to PCAs that provided operating loans and term loans; and the St. Paul Bank for Cooperatives. Those banks were all consolidated into one in St. Paul and I was a vice president. I became a vice president when I was 27 and CEO at age 31 at what is now AgStar.

You had a mentor?
Al Lambrecht was from Essig, near New Ulm. He now lives in Colorado, and probably had as much impact on my formative years as anyone as a vice president at St. Paul Bank for Cooperatives, where I started.

What were his qualities?
He was smart, personable, and had a sixth sense on change, but probably his biggest strength was his ability to listen. I worked especially hard coming out of college, which my dad had taught me to do. The harder I worked at my job in St. Paul, the more opportunity and responsibility Al gave. He had a direct impact on my being promoted and on my career moving forward. I have always had a great deal of respect for him and what he did for me.

What do you think Al liked about you besides your hard work?
A number of us came in at the same time, so it wasn’t just me. In fact, a couple of others that came in then work here with me now. The head of our Client Solutions Team, he and I have worked together 33 years. Our chief financial officer at AgStar was hired into the system in 1979.

As for what Al liked: I tried differentiating myself from other people and felt I was always better off being different. So I’d volunteer for many of the odd projects that came up that others didn’t want. And I did those projects cheerfully. I was trying to learn and move forward. I thought the more diversified I became, the better I would look in terms of having a resume with more experience. I believe the more experiences you have, the greater the chances are you will find more opportunities. In my case, it has been proven true. I have been a mentor for students at the University of Minnesota and when they asked what they should do to succeed, I advise them to network and make sure they differentiate themselves from others.

Usually, a large organization like yours takes on the personality and values of its leader. What at AgStar reflects you?
I started in the Farm Credit System nearly 35 years ago, working right out of college. From 1982-86, the organization I was part of went through many re-organizations. It seemed to me that executive management was giving lip service to engaging and being involved with the employees. I learned a lot about how to treat people and build relationships. I think that is one key characteristic that has transferred over to AgStar and become an integral part of our philosophy and brand’s character: treating employees and clients the way we want to be treated ourselves. Honesty, integrity, and compassion is really what our business model is based on.

Another experience that shaped my outlook on managing a large organization happened shortly after I started in 1987 as CEO for Farm Credit Services of Southeast Minnesota (based in Rochester), a predecessor of today’s AgStar. We had 169 employees and 22 offices in 13 counties. And we were broke. All the Farm Credit associations, including Mankato, Worthington, and St. Cloud, were doing poorly financially due to the ag recession. I had to make changes. We had many non-performing loans because of delinquent payments and acres of acquired property we had taken in. Our expenses were way too high compared to our revenue stream. Many hardworking people in agriculture were hurting. It was time to start counseling clients and sometimes disappointing them in the name of doing the right thing. Helping our clients succeed was the only way to ensure our growth. It didn’t happen overnight. The organization adopted a caring, client-centric philosophy I would like to think mirrors my own thought process. The good news is we learned from those tough experiences—as an industry and organization—and can use our history to insure it never happens again.

In other words, in terms of price per acre, the ag bubble had burst.
What happened in the ‘80s with agricultural land was similar to what has happened in the housing industry the last three years. It’s virtually identical. Land values in southern Minnesota hit $3,000 an acre. Lenders were lending on collateral instead of cash flow. In some cases, you had land being financed at 100 percent of value. Then the ag economy tanked and land values dropped from $3,000 an acre to $1,000 or less.

At that time, our industry and the press didn’t get along very well. But I made it a point to always be respectful of people in the media, always be on time for interviews, and do my best to provide understanding about what was going on.

It was a difficult time and it hit everyone in agriculture very hard, including us. I knew we were going to have to go through significant downsizing. In the summer of 1987, I interviewed all 160 employees one-on-one, spending up to 30 minutes with each. I wanted to get their individual thoughts on what they believed we were going to have to do. All of them knew we had to go through layoffs. They knew we weren’t making money.

That fall, we developed a downsizing plan. I wanted to make sure we met with each employee one-on-one because I didn’t want team members to learn of their employment status after reading a memo. I wanted to make sure a person from management sat across the table from each employee, one-on-one, to explain their status.

That’s unheard of in today’s corporate world.
Very much so.

What was the driving force for doing it?
It was a reflection of my own values in terms of what my parents had taught and an experience I had in St. Paul where I saw the way terminations were handled there and how people’s lives had been turned upside down. There had to be a better way to treat people. I just felt respecting employees was important. So four of us in management broke down into two groups. Over four days, we met with all 169 people one-on-one and told them if they were in or out in terms of having a job. We probably had as many people cry in front of us because they felt sorry for us than for their own situation. We went from 169 people down to 52 in 18 months, and from 22 offices to four. We created a new model in 1988 that involved on-farm (rather than office-based) service to clients. I vowed from then on to never put ourselves into a position where we would have to go through an experience like that again.

It seems like the situation now with land prices is different than in the ‘80s. Farmers are putting more down in cash.
Yes, a lot more cash. They are putting down 50 percent and sometimes more.

So would people renting land be most vulnerable to a burst bubble?
It depends on what kind of rent they have and how long they have locked it in for.

I want to say “if,” but am tempted to ask: What happens “when” the bubble bursts again?
There will be a correction, but what I don’t know is how far prices will rise before dropping. I was driving to my Mankato office from Apple Valley today and listening to Bloomberg Radio. They had a person on who had made over 100 trips to China. He said over the next five to ten years the most successful sector of the American economy would likely be agribusiness, primarily because of the improvement in the diets of people in China, India, and other developing countries. He compared animals we eat to being middlemen. People in underdeveloped countries raise grain and eat it for their diet. In developing countries, they take the grain, feed it to animals, and eat the animals. But because of the middlemen—the animal—it takes three times more grain to produce the nutritional value needed. His view was that the next five to ten years in American agriculture would be tremendous. History has taught us cycles occur. We are in a cycle right now. We just don’t know how close we are to the top.

Other factors could cause demand swings in agriculture prices, such as electric cars. Southern Minnesota has a number of ethanol plants that are dependent on cars running on gasoline/ethanol. Yet electric cars, in essence, run on natural gas or coal, because that runs the power plants.
This could happen. I think ethanol is close to its peak. We produce about 13.5 billion gallons out of corn and that should plateau at 15 billion. There aren’t new ethanol plants being built. The companies owning them are paying down their debt and have relatively short payout loans. Every year forward, they are in an increasingly better financial position to weather any demand shifts. The last three years, they have done well. Will electric cars take over some day? I suppose it’s possible. More likely, they may end up being just a portion of the national fleet. Markets go through ebbs and flows. We will have demand and supply not match up at times, but at least the foreseeable future looks positive.

The world is plagued with uncertainty. How do world issues, such as the Arab Spring, affect farmers here?
If anything over the last three years, we have learned we are in a global economy. As for the Arab Spring, maybe some democracies will kick in, the economies will improve, people will want more food, and if they improve their diets that will create demand for our agriculture and affect our price. The world is becoming more open and social networking is making that happen, even in China. As social networking occurs, and people see the lifestyles and opportunities in other parts of the world, diets will improve and demand for food will occur. And we raise the highest quality, safest, and most affordable food in the world.

Most people not affiliated with agriculture have no clue how your organization was founded.
Teddy Roosevelt was part of a commission in the late 1890s that issue a report saying that in order for the U.S. to develop—and most nations develop through agriculture—what was needed was credit to develop U.S. agriculture. As a result, in 1916 Congress created the Farm Credit System. We were the original government-sponsored entity, which later included Fannie Mae, Freddy Mac, and Farmer Mac—the Federal Home Loan Banks. But we were the original one and were put here to provide affordable and dependable credit and financial services to rural America. The System provides for ag real estate, farm operating loans, rural home loans, and financing for co-ops. In addition, we have developed a number of financial services.

Congress created us with government money that was paid back in the 1950s. Today, we are privately owned and operate as a cooperative. AgStar Financial Services has over 14,000 stockholders. AgStar Financial Services is one of 90 like co-ops and one of the largest institutions in the national Farm Credit System, which covers every U.S. county. We all operate privately, and the people who do business with us own us.

Just like Fannie Mae and Freddy Mac, we raise money by selling debt into the marketplace to investors. We have the Federal Farm Credit Funding Corporation in New Jersey raising up to $200 billion a year that we (the entire system) use to fund loans. We are known as a safe investment because we are a Government Sponsored Entity, so there is an implied guarantee that in the event we would get into trouble the government would help us. We have made money the last three years when many financial institutions have not. The cost of our debt has remained quite low.

How much does the federal government influence what you do?
An independent arm of the U.S. Government called the Farm Credit Administration (FCA) regulates us. Just like commercial banks are under the jurisdiction of the House Financial Services Committee and Senate Banking Committee, the Farm Credit System is under the jurisdiction of the House and Senate Agriculture Committees. From a policy standpoint, the government except through the Farm Credit Act doesn’t influence us.

Given the system is so big and in every county in the nation, how much does its policies affect local bank policies?
Generally, I would say most financial institutions, whether part of the Farm Credit System or a commercial bank, operate with similar underwriting. We are different in that we may put an emphasis or focus on certain lines of business. That’s done and decided upon by the local board and management of each institution and they are accountable to stockholders. As a result, we develop our strategic plan and direction and types of products and services offered under Farm Credit Act regulations and FCA regulations. We don’t really influence what others do.

Basically, all Farm Credit institutions offer loans to agriculture. We offer as full of a line of products and services as any Farm Credit in the nation, including crop insurance, consulting services, credit life services, appraisal services, and secondary market home mortgages. We are the only part (of 90 companies) of the Farm Credit System selling directly to Freddie Mac. We specialize in swine, grain, ethanol, and dairy.

Like banks, do you have to have deposits to match you loans?
No. A bank has a variety of funding sources such as deposits. From New Jersey, we sell debt instruments, investors invest in that security and get paid interest, and we get funds to fund local loans.

How big is AgStar?
We carry on our balance sheet about $5.6 billion. We manage about $8 billion in loans and leases outstanding to 25,000 clients. Every county in the United States is charter to a Farm Credit. Our AgStar charter has us serving 69 counties in Minnesota and Northwest Wisconsin. We have more than a 40 percent market share and are the largest ag lender in Minnesota.

However, because industries and markets have changed, parts of our business operate outside that area. For example, due to our specialization in the swine industry, we have producers in Iowa, Nebraska, Ohio, and North Carolina that want to work with us.
We also offer lending services to commercial and community banks. Banks may originate an ag real estate loan and we buy the loan participation and provide them the funds.

We have 600 team members of which 150 are based at our Mankato headquarters. In your reading area, we also have an office in Blue Earth. We have ten total offices in Minnesota and Wisconsin.

How did AgStar perform last year?
Our 2011 net income was $75 million. We take 55 percent of total earnings and allocate back to our owner/members in patronage. We target a 7- to 10-year timeframe to pay it. So they don’t get that money right away. In essence, the people doing business with us capitalize us while we are doing business.

Some community leaders in parts of southern Minnesota have been struggling for years to create an identity for their city or the region—in part to boost tourism and economic development. Here in our nine-county area, in part, we have more soybeans crushed in Mankato than in any other city in the United States. We have Christensen Farms in Sleepy Eye, the nation’s largest privately held pork producer. We have Rosen’s Diversified in Fairmont, one of the nation’s largest beef producers. And we have Ridley in Mankato, one of the nation’s largest feed producers. In your opinion, why haven’t some community leaders in our region better embraced agriculture and made it into more of a city or regional selling point for tourism and economic development?
Part of the challenge is it’s hard to get communities to think as a region. A lot of times, they look at just their communities. Here at AgStar (through our Rural Capital Network) we worked with other leaders in rural development on a regional competitiveness study that covered southern Minnesota from the South Dakota border to Rochester. Agriculture is one of our region’s strengths, along with manufacturing and healthcare. If you take a look at the future in terms of utilizing crops for medical purposes, we are ideally located. It’s difficult for communities to band together with other communities because they often look at each other as competitors for jobs. We need to think regionally and we have been involved trying to lead some of those efforts.

I am going to say a person’s name and I want you to comment on that person. First: Bob Christensen of Christensen Farms in Sleepy Eye.
I’ve known Bob about 20 years and practically everyone knows his story. He started with only a few hundred sows and now they are one of the nation’s largest swine producers. He has done a wonderful job helping create jobs and economic activity for the region. I like Bob. He is focused. I had a chance to introduce him as the Minnesota Agri-Growth Council Distinguished Service award winner a few years ago. I explained to the group when introducing him that Bob was a person who has one eye on the future and the other eye on today. That’s how he runs his business and his results have shown it.

Tom Rosen of Rosen’s Diversified in Fairmont?
Great, fun-loving guy. I serve on the Minnesota Agri-Growth Council board with him. He’s a lot of fun to hang out with and is truly a significant business leader in southern Minnesota and beyond. You know where Tom stands. He’s a terrific guy with a big heart and we enjoy working with him. Rosen’s Diversified is a very diverse company and I’m sure many people aren’t aware of all they do. Tom has built a very successful company and a great management team.

Do you know Steve VanRoekel of Ridley in Mankato?
I have had lunch with him within the last six months and know him the least of the three. He is a very nice, dedicated man, who I know is very involved with the United Way in Mankato.

What do you like best about your job?
The people, which includes team members, clients, and industry leaders.

In what way?
I love our team because we win with our team. I have a philosophy: happy team members lead to happy clients and happy stockholders. Our team made 50,000 farm visits last year with clients. We do our business on the farm. About 80 percent of our expenses are invested in the salary, benefits, and travel of our team members. The only difference between our crop insurance and someone else’s crop insurance—because it’s all government regulated—is how we provide service. Our money isn’t any greener than anyone else’s, so we have to add value, which comes through trained people who understand industries and can provide information to help make clients more successful.

Is there one particular client or industry success story you can talk about?
There are so many great stories. Southern Minnesota especially should be proud of itself for what it has done in the swine industry. In the early 1990s, we had a number of smaller swine clients and they began looking at various business models. We worked and collaborated with them, and they worked with each other, and as a result we have some of the world’s finest swine operations. Some have grown into very large businesses. Their contract finish barns have given many young people the opportunity to stay in agriculture. In some cases, this has made it possible for the transfer of the family farm from one generation to the next.

What sort of company culture have you tried to create?
I’ve tried to create one where people respect and help each other. It all begins with a big focus on our clients. We are here to serve them. I try hard to create an air of transparency regarding information. I email out team updates to all our team and board members once or twice a month on things happening inside and out of AgStar. I write the updates personally. So thank God for grammar and spell check.

I try bringing a more personal touch to management. For example, I have four daughters. Every time I write a story about one of my daughters—about their entering college or other experiences—I have people emailing back and mentioning their experiences with their children. I try to be transparent and personable, and focus on serving market clients to the fullest extent, which, if done well, can create growth opportunities and opportunities for our team members.

What is the one thing a team member will do that is guaranteed to get you upset?
When they don’t take time to thoroughly communicate for understanding with a client. There is a difference between communication and communication for understanding. If a client has an issue, we need to be respectful to provide thorough communication with understanding.

I could see one very difficult issue in your business could be lending out money and having the client come up short in being able to pay.
We don’t want to foreclose on anyone. We have a special team within AgStar whose purpose is to help people with these challenges. If we see a farm family having issues, perhaps they aren’t making money or they have medical issues or they went through a divorce. We will visit the farm with a team of two people. We put those clients in an area of AgStar that can help them. There are many different options even before they actually miss a payment. If we see trends of decline, we want to get in front of it as much as we can.

Now it might mean we need to restructure the debt so they pay it out over a longer period or maybe they can provide additional security. Maybe we get an FSA guarantee or work with the State of Minnesota. But we want to help people before they get to a point of desperation—and we are successful at it. In the ‘80s, our industry tried hard to follow the original contract. But here was one problem with our doing it that way: we ended up with so many people being delinquent and so much acquired property, we almost went broke ourselves. We just barely hung on.

If Congress were smart, they would employ some of the tools our industry did in the ‘80s to get out of this housing industry challenge. We need to move the agenda of this country forward. Gridlock isn’t working. Right now, I’m reading a biography about George Washington. What our founders did when they created this government was incredible. We need to employ these lessons today.

You mean how Americans worked together under the most trying of circumstances to accomplish something great and how today we seem so fractured?
We need to understand everyone is going to have to give something and every day we don’t fix the fundamental issues of our budget and economy—it may not impact you and me, but it will future generations. We have the greatest democracy ever created and aren’t taking advantage of moving ourselves forward to a different level, which we could do.

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Wide Footprint

AgStar Financial Services has its hands in many rural pots, including farm equipment leases; farm consulting services (includes succession, business, retirement, and estate planning, tax management, human resources development, and mergers and acquisitions); appraisal and cash management services; operating, equipment, real estate, starter, and home mortgage loans; farm financing tools; and farm and life insurance.

Getting to know you: Paul A. DeBriyn

Born: March 24, 1955.
Family: wife, Lori; four daughters.
Organization involvement: Past chair and current board member of Minnesota Agri-Growth Council; member, Farm Credit System Presidents Planning Committee; former board member, Farmer Mac; member, Charles H. Dyson Applied Economics and Management School (Cornell University) advisory council.

THE ESSENTIALS

AgStar Financial Services
Employees: 600 (150 in Mankato)
Address: 1921 Premier Drive, Mankato, MN 56001
Phone: 507-387-4174
Web: agstar.com