After nearly three years and $3.5 million of expenses, a northern Virginia community bank appears poised to reap substantial bottom-line benefits from an online lending unit that caters to doctors, dentists and veterinarians.
Primis Financial's Panacea division — which sprang from an alliance between the bank and two doctors-turned-entrepreneurs — generated $750,000 in pretax, pre-provision net income during the fourth quarter, up from $225,000 three months earlier. Now, with Panacea's buildout essentially complete and loan originations projected to reach as high as $200 million, the McLean-based Primis is projecting significant profit growth throughout 2023.
The results highlight the potential benefits of prudent partnerships between fintechs and small banks. It's also a lesson about the importance of diversified business lines, one expert said.
Primis' strategy is to set itself apart from community bank competitors with more traditional business models, according to Janney Montgomery Scott Research Director Chris Marinac. Initiatives like Panacea, Primis' new mortgage unit and life insurance premium finance offer a pathway to improving the mix of loans within the company's portfolio.
"Every community bank like Primis has plenty of commercial real estate," Marinac said. "Over time, you want to be focused on trying to diversify a little bit out of CRE, not just being a one-trick pony."
The division's rapid growth is not bad for an entity whose inspiration came in no small part from the car troubles of division co-founder Dr. Michael Jerkins.
Today, Jerkins, who graduated from the University of Tennessee College of Medicine, is an internal medicine specialist practicing in Cincinnati. Five years ago, he was a cash-strapped resident with a wife, young daughter and a $55,000 annual salary that barely covered basic expenses.
"Any little slight expense was stressful, and it always ended up where we had something," Jerkins recalled.
The car repair was no slight expense. The bill ran into the thousands of dollars. Determined to avoid adding to an already steep credit card balance, Jerkins looked around for a lower-cost personal loan. He applied to several banks only to be told he needed a co-signer — when he wasn't rejected outright.
The episode sparked a realization: Lenders were treating Jerkins like any other overextended consumer. Crucially, they were overlooking his earning potential as a doctor.
"All these banks had roughly the same credit box," Jerkins said. "Because I had high debt-to-income, because maybe I had a limited credit history, they treated me the same as they would any other profession. I saw that [a doctor's] lifetime value, employability, all that stuff should be treated differently."
Jerkins' money woes as a resident, moreover, were hardly unique. "I heard the same story repeated over and over again by my colleagues," Jerkins said. "It's just a very common thing."
As insights go, this one proved powerful. In July 2020, it led Jerkins and partner Dr. Ned Palmer, a staff physician at Boston Children's Hospital, to create Panacea, a lender focused on physicians, dentists and veterinarians, including those just starting their careers. Primis expects Panacea to originate between $150 million and $200 million of loans in 2023, on top of the $230 million booked in 2022.
A founding partnership
Jerkins, Palmer and a third partner, investment banker Tyler Stafford, sought to link their Panacea concept with a bank right from the start, not only for funding but also for access to a wider product set, including deposits. Jerkins added that Dennis Zember, the $3.6 billion-asset Primis' president and CEO, was quick to appreciate Panacea's potential. Zember, said Jerkins, "understood what we were trying to do and provided the support to do it.
Primis launched Panacea as a division of the bank with Stafford as CEO, Jerkins as president and Palmer as chief operating officer. Panacea made its first loan — a personal loan to an emergency medicine practitioner in Nashville — in November 2020.
To be sure, banks have always sought out doctors, dentists and other health professionals as highly attractive customers. Indeed, one of the reasons Jerkins found his plight as a resident so frustrating was that "everybody knew once I was done with residency and training, the exact same banks [that demurred from offering a personal loan] would be begging me for my business."
In recent years, a number of lenders have elevated the traditional pursuit of doctors, dentists and veterinarians, into significant, distinct lines of business. In March 2021, a few months after Primis unveiled Panacea, Cleveland-based KeyCorp
Since its start, Panacea has expanded its offerings to include making practice loans and refinancing student debt. The core product — not surprisingly — was a personal loan aimed at young practitioners in school and residency. Panacea named the product PRN, after a medical acronym meaning "as the situation demands." PRN loans accounted for about a quarter of Panacea's total $248 million loan portfolio on Dec. 31.
According to Jerkins, Panacea's PRN loans meet a pressing need for up-and-coming medical, dental and veterinary professionals. They also serve as a calling card for Panacea, opening the door, in many cases, to a wider, more profitable relationship as PRN borrowers advance in their careers.
"In a typical month, we're onboarding several hundred PRN customers," Jerkins said. As time passes, "we're able to capture their deposit relationships. Through Primis, we've actually been able to offer mortgages, as well. … That's a huge demand from our community that we're able to capture."
Jerkins acknowledges the PRN loan isn't a typical bank product. It is aimed at a group of borrowers "who are just a little bit early in their peak earnings." As such, the loans are structured "a little differently," requiring nominal or even zero payments the first few years, Jerkins explained. For most bankers, the concept of advancing money while delaying repayment "didn't seem compelling, for whatever reason."
Zember acknowledged bankers prefer to do business with established health care professionals with thriving practices and plenty of personal assets. Ultimately, Primis saw Panacea as a way to gain a critical head start accessing a lucrative but highly competitive market niche.
"For the bank, we said, 'We can stand some of this,'" Zember said. …"I think we can sell this concept that these doctors are going to be good customers on day one and wonderful, very loyal customers five, 10 years from now."
Poised for a breakthrough
Primis is expecting 2023 to be a breakthrough year for the bank in general and Panacea in particular. In addition to up to $200 million in Panacea loan originations, Primis is counting on significant gains in deposits, building on the 69% quarter-over-quarter growth in Panacea-related deposits it reported for the three months ending Dec. 31.
Primis is also initiating what it calls a "gain-on-sale" strategy, calling for selling about half of Panacea's 2023 loan production to generate noninterest income.
While all that represents substantial progress since November 2020, when Panacea booked its inaugural loan, it came at a price, Zember said. Primis has invested about $3.5 million building out Panacea, an amount that weighed on the bottom line the past two years. Primis reported $126 million of total revenue in 2022, up 19% over 2021. Net income, however, declined 43% to $17.8 million as full-year noninterest expense increased more than $20 million.
Primis has other initiatives underway, including a new mortgage subsidiary and a growing life insurance premium finance division, so the uptick in operating costs can't be attributed entirely to Panacea, but few projects are more important to Primis' future, according to Zember.
"Cumulatively, to start this thing up from scratch and get 3,500 customers from around the country to do business here, we probably invested $3.5 million," Zember said."Once we realized it was this big an opportunity we decided to invest a little harder. …I feel comfortable about that because I know what Panacea is worth. I've invested $3.5 million but we've built something that is worth many multiples of that."
Panacea is "making some good headway," Janney Montgomery Scott's Marinac said, adding he believes the unit will be among the most consistent contributors to Prismis' earnings in 2023.
"Panacea is doing really well and probably can show stepped-up results each quarter," Marinac said.
Diversifying its balance sheet would put Primis in the good graces of its regulators and create an opportunity to materially boost earnings, Marinac added.
"These things take a long time to fully develop," Marinac said. "I wouldn't want to suggest the company should claim victory — you're only as good as your last day when you're building out a bank — [but] I do think the momentum they have is solid.
Jerkins, an internal medicine specialist, still practices part-time, as does Palmer. "It's very important for us on multiple levels to be involved with patient care," Jerkins said. "It's important for us to have a finger on the pulse of what it's like for doctors, being more in touch with their day to day, so we can better serve them."
Panacea is considering adding pharmacists to its client mix to continue growing. Jerkins termed the profession "an obvious target," though he added there are no plans to expand Panacea's business model just yet.
"We just want to be good at what we're good at before we start expanding to other populations," Jerkins said. "Luckily, the addressable market [for doctors, dentists and veterinarians] is just enormous. We haven't really scratched the surface yet."
