Fifth Third Bancorp leaned on its recent acquisitions of two fintech lenders to provide a boost to loan growth during the third quarter.
The Cincinnati-based bank reported record origination levels from Dividend Finance, which specializes in renewable energy loans, and Provide, which lends money to health care professionals. The two units served as bright spots for Fifth Third, which reported a 7.2% drop in net income from the third quarter of 2021.
Dividend, which Fifth Third
Fifth Third executives say there's more where that came from, forecasting $1 billion in solar loan originations every quarter for the next year.
Market dynamics, including rising energy prices and federal renewable energy tax credit extensions in the recently enacted Inflation Reduction Act, are creating an "economic tradeoff that's very favorable for the consumer" and providing "tailwinds" to drive Dividend's growth, Fifth Third CEO Tim Spence said during an interview following the bank's quarterly earnings call.
In the near term, higher energy prices are forcing consumers to consider ways to lower their electricity bills, Spence said.
And while new home purchases are down, Fifth Third's home equity lending for renovations and improvements grew slightly during the third quarter. It was the first increase in "as many quarters as I can remember," Spence said.
"There's an opportunity for us to look at the ways in which Dividend could use home-equity product structures," he said. He also spoke about the possibility of attaching Dividend "to the mortgage origination process" when real estate markets rebound in order to "give people the opportunity to install solar" as part of a home-purchase transaction.
Fifth Third's total loan portfolio grew 11% from the third quarter of last year, with consumer lending up 7% and commercial loans increasing 13%.
Dividend and Provide accounted for less than 1% of Fifth Third's loan portfolio during the third quarter but are expected to "position us to drive strong outcomes" heading into next year, Fifth Third Chief Financial Officer James Leonard told analysts Thursday.
While Dividend gave Fifth Third's consumer lending a boost, Provide is showing promise in the bank's commercial portfolio by "growing relationships, not just loans," Spence said.
Fifth Third, which has $206.7 billion of assets, first invested in Provide in 2018 before
Provide added $200 million in loans during the third quarter and is generating "excellent relationship economics," Spence said. Around 70% of new Provide customers are turning to Fifth Third for deposit accounts and payment products, according to the bank.
Fifth Third reported third-quarter net interest income of $1.5 billion, up 26% from the same period last year, driven by the Federal Reserve's interest rate hikes, commercial loan growth and securities purchases. The bank's net interest margin of 3.22% was up 63 basis points.
Market expansion in the Southeast U.S., including 16 new branches slated to open during the fourth quarter, contributed to $1.2 billion in noninterest expenses, which were flat from the year-ago period.
Declining fee revenue in Fifth Third's private equity, leasing and mortgage banking businesses contributed to a 20% decline in noninterest income during the same period.
Fifth Third's earnings per share of 91 cents finished below the 97-cent average of estimates from analysts surveyed by FactSet Research Systems.
