Sonny Bringol, the new chairman of Farmers Bank in Parsons, Tennessee, is a former chemical engineer who got his start in residential lending originating mortgages out of his house in 2003. Two decades later, Bringol is convinced home loans will provide the 115-year-old Farmers with the new source of revenue it needs to maintain its independence.
Bringol, CEO of Pittsburgh-based Victorian Finance, a nonbank mortgage lender, led a group of investors that acquired an undisclosed stake in Farmers this month. Bringol declined to disclose the size of the investment, but it was substantial enough for Farmers to name him executive chairman.
He's wasted no time setting a new strategic direction for the $46.9 billion-asset bank.
Nonbank providers "won the mortgage market from a standpoint of customer service, being creative," Bringol said. "It was just a more customer-service-centered, accommodative approach to finding solutions for people who want to buy a house."
Bringol wants Farmers to combine that high-touch philosophy with its access to low-cost funding and the ability to keep loans on its books to generate a new and sorely needed source of revenue. Bringol envisions Farmers, which had $6.4 million of one-to-four family loans on its books on March 31, establishing a more active residential lending division that offers a full suite of mortgage products.
"This is what they really need to get the profit in place to stabilize them," Bringol said. "They're a typical community bank that is just gradually [fading] away."
Though Farmers has managed to generate income in recent years, its profit margins have been paper-thin. Earnings for the quarter ending March 31 totaled $29,000. The bank earned $100,000 in 2021 and $248,000 in 2020.
But Bringol's timing seems open to question, given the toll rising rates have taken on the mortgage sector. Home-buying activity has slowed to a crawl, with the Mortgage Bankers Association projecting that overall mortgage volume, which topped $4 trillion in 2021, will fall 40% in 2022 to $2.4 trillion. Mortgage volume is expected to dip below $2.3 trillion in 2023.
That downward momentum has prompted scores of lenders, including several major players, to downsize home loan operations or leave the sector altogether. Banco Santander announced plans to
For Bringol, housing bear markets are an inevitable facet of the mortgage business, something to be planned for rather than an existential crisis. Indeed, quitting comes with its own set of costs, he said.
"You can't be in and out of this business," Bringol said. "You have to design yourself to withstand the variability. It's too expensive to get out and it's too expensive to get back in."
At this point in time, survival is enough, Bringol said.
"If you can break even right now, you're successful," he said. "But you have to be around when [the next upswing] comes around. Those who exited the business in 2018 made nothing in 2020 and 2021."
Combined origination volume for those two years exceeded $8 trillion, according to the MBA.
Market conditions are tough, but the downturn will be as deep as the 2008 correction spurred by the financial crisis, according to Shmuel Shayowitz, president and chief lending officer at Approved Funding in River Edge, New Jersey.
"If anything, we anticipate that the housing market will probably fare very well in six to 18 months, as the Fed has to start lowering rates again and expand its balance sheet," Shayowitz said. "I think there'll be tremendous opportunities for those who can weather the storm. … The lumps are what earn you the stripes."
Shayowitz said he saw nothing unusual about Bringol's pursuit of bank ties, adding that he has considered a similar move for Approved.
"We've definitely explored developing relationships with banks and affiliating with them," Shayowitz said. "There are certainly advantages if there is good synergy between the mortgage company and everything else the bank is doing."
Bringol did not rule out an eventual combination between Victorian and Farmers, but he said the focus now would be on growing the bank and putting it on more solid financial footing.
The mortgage expansion will unfold in stages. Victorian lends in 30 states currently. Bringol wants Farmers to target the corridor between Memphis and Nashville. The first step, however, will be to deepen its presence in its home county, Decatur, where it holds a 10% market share — the smallest among the four banks that do business there, according to the Federal Deposit Insurance Corp.
"Really it's a multiyear strategy," Bringol said. "We'll stay close to Decatur County in the first year. In the second year we'll move out further."
Kyle Townsend, whose family has controlled Farmers since it opened its doors in 1907, said the bank was considered a mid-sized Tennessee institution when he joined it in 1989. "Now, we're among the smallest," Townsend said.
As the bank's president, Townsend has worked with his sister Valerie, its senior vice president, to weigh strategic alternatives.
"My sister and I knew we needed to grow, or we would have to sell out or do something, eventually," he said. "We have been looking for opportunities, but we were not all that excited about selling out to a larger bank and seeing some of our employees lose their jobs."
The Townsends view their new partnership with Bringol and his investor group as a "win-win" since it allows them to continue in their present roles and provides the capital necessary to expand the bank's footprint and add a range of products and services that "we just don't have the expertise to offer" alone, Kyle Townsend said.
Bringol, who founded Victorian Finance in 2003 after a 10-year career as a chemical engineer, said the investment in Farmers is the culmination of a years-long search for a bank partner. He came close to striking a deal with a bank in West Virginia. After that deal fell through, a consultant promised to inform him about similar opportunities, which led to an introduction to the Townsends.
Bringol, who said he was raised in a Louisiana town so small his high school graduating class had just six members, added that he has no concern about the rural nature of Farmers footprint. Decatur County's population was just under 11,400 in 2021, according to the Census Bureau.
"At Victorian Finance, we've always done very well in rural communities," Bringol said. "We love taking care of those environments."
