Ag Lender Executes Turnaround Jay Penick Turned Troubled Northwest Farm Credit Services Into A Winner

Spend a few minutes with Jay Penick and before long he’s drawing circles on a board on the wall.

Circles to illustrate business cycles. Circles that plot the wild path of the lending institution he oversees, Northwest Farm Credit Services. Circles to map his own career.

By any measure, Penick and NFC a giant Spokane-based cooperative with 400 employees in five states - are at their zenith.

This week, the 48-year-old president will announce an estimated $59 million profit for 1995 and a $27 million refund to the 19,000 farmers, loggers and rural homeowners who control NFC.

The lottery-sized refund is the second in as many years and cements Penick’s reputation as one of the highest regarded executives in the nation’s Farm Credit system.

“Jay is a darn good teacher, which makes him a great CEO,” said Roger Shaffer, senior consultant at the Farm Credit Council, a Denver trade group that has closely followed the turnaround of the Spokane association. “He’s got tremendous vision for the future and, of course, there are his circles.”

Raised on an Ohio cattle ranch, Penick has an appetite for management books and a fascination with the Internet. He’s a mediocre 17-handicap golfer, but enthusiastically tees off at 6 a.m. nearly every Saturday in hopes of beating a foursome of Farm Credit managers. But come afternoon, Penick is back at his Valley home tending his 35 rose bushes.

Penick oversees one of 232 unusual lending associations that Congress chartered nationwide during World War I to ensure that farmers could get operating and real estate loans.

NFC, with 400 employees, is governed by farmers who buy stock and elect a board of directors. But the association does not take deposits to fund its lending activity. Rather, it borrows money from AgAmerica Farm Credit Bank in Spokane, a wholesale bank that sells bonds on Wall Street.

The arrangement has helped NFC become the largest lender of farm loans in Washington, Idaho, Montana, Oregon and Alaska, with 45 offices throughout the Northwest.

But there was a time when its future was in doubt. That’s when Penick was called to Spokane.

“We were trying to find a man who believed in us,” said John Nelson, a Reardan farmer and member of the search team who hired Penick in 1989. “We wanted a man who was committed to stay long enough to not just turn around the organization, but actually be here through a full cycle of business growth. We wanted someone who could change the culture of the organization. He was the man.”

Arriving from a Louisville Farm Credit association, Penick inherited a failed association that federal authorities were preparing to liquidate. Nearly 500 jobs and $500 million in assets were at risk, including millions in stock purchased by trusting farmers who were dependent on the so-called “lender of last resort.”

The restructuring of NFC was unpleasant, but necessary, Nelson says: “The bureaucracy was so thick that anybody could get away with anything.”

Penick peeled away bureaucratic layers by consolidating two major Farm Credit cooperatives into a single entity. In the process, about 100 people lost their jobs and thousands of farmers quit the system or were forced out because they had bad credit.

Farmers in southeastern Idaho mutinied to join another Farm Credit district. And Montana freeman vowed to lynch Farm Credit officers who called in loans or tried to seize property.

“Even though there was some animosity from customers, most wanted Farm Credit to be successful,” says Penick, who averages two days a week in the field meeting customers. “They wanted Farm Credit to get its act together.”

In the early years, Penick was overshadowed by Doyle Cook, the affable president of the Farm Credit Bank of Spokane, which later merged with the Omaha Farm Credit Bank to form AgAmerica. But Cook says the turnaround never would have happened without Penick in the trenches.

“I’m the kind of person who gets excited about the challenge,” said Cook, who later was appointed by President Clinton to the board of the Farm Credit Administration in Washington, D.C. “But Jay is the kind of fellow who fixes it.”

Penick, the consummate manager, and Cook, with a knack for politics, were a perfect team. Cook persuaded regulators to post a $90 million loan, buying time for NFC to revive, while Penick reorganized the company and attacked a portfolio of $405 million in bad loans.

Falling interest rates assisted NFC’s efforts as profit spreads between the cost of money and interest income ballooned. At the same time, the cattle, apple and potato markets rebounded, strengthening NFC’s loan portfolio.

Penick credits the rebound to 400 hearty employees who plunged in with him to help rescue NFC.

“If we had to replace the staff, I don’t think we would have been successful,” he says. “But we had the employees who were hungry to succeed.”

Under Penick’s watch, bad loans have been cut 78 percent and assets have tripled to $1.5 billion. NFC’s share of all agricultural operating loans in the Pacific Northwest has grown from 7 percent to 13 percent, Penick says, while the share of long-term real estate loans has inched up from 33 percent to 35 percent.

The association currently operates with a 15 percent capital-to-asset ratio, a gauge of solvency and lending philosophy. The ratio reflects NFC’s conservative financial position, which is mandated by the board of directors to weather future downturns in agriculture. One of the few commercial lenders with a ratio that high is Washington Mutual, which, coincidentally, is where Penick keeps his checking account.

For his efforts, Penick earns $140,000 a year, considered low for a bank president overseeing $1.54 billion in assets. By comparison, Sterling Financial Corp. chairman Harold Gilkey collects $228,000 in annual salary, company reports show, though Gilkey’s company also handles bank deposits and has 500 employees.

Penick last fall cut some staff, opened an office in American Falls, Idaho, and made other changes to prepare the association for the future. He says he made the move two years earlier than previously planned to position the company for changes in the federal farm bill, which may do away with subsidies, and to combat growing competition from commercial lenders for loans to farmers.

“If you don’t evolve at a constant pace, somebody else will,” Penick says. “You don’t do that by staying comfortable.”

Penick says he has no plans to follow Cook’s lead to take another job or seek a political post. He says he’s content to care for his roses and lead NFC to its next point of growth.

Inking an oval on a board in his office, Penick spots NFC at 11 a.m. on the dial and heading up.

“The key to successful business is stretching the circle,” he says. “The question is: how long can you make it last?”

, DataTimes ILLUSTRATION: Color Photo; Graphic: Northwest Farm Credit’s comeback