Fintech acquisitions boost Fifth Third’s lending growth

Fifth Third Bancorp relied on its recent acquisitions of two fintech lenders to boost loan growth in 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 healthcare providers. 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, as fifth third acquired in January, is a consumer sales company that provides home improvement loans to install solar panels and battery storage. Between July and September, the loan balance grew by around 750 million dollars.

Christopher Dilts/Bloomberg

Fifth Third executives say there’s more where that came from, projecting $1 billion in solar loans each quarter for the next year.

Market dynamics, including rising energy prices and federal expansions of renewable energy tax credits in the recently passed Inflation Reduction Act, are creating an “economic trade-off that is very favorable to the consumer” and providing “tailwinds” to drive Dividend’s growth, Fifth Third CEO Tim Spence said during a interview after the bank’s quarterly results call.

In the short 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 mortgage loans 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.

“It’s an opportunity for us to look at the ways in which Dividend can use equity product structures,” he said. He also talked about the possibility of tying dividends “to the mortgage origination process” as real estate markets pick up 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 last year, with consumer loans up 7% and commercial loans up 13%.

Dividend and Provide made up less than 1% of Fifth Third’s loan portfolio in the third quarter, but is expected to “position us to drive strong results” heading into next year, Fifth Third Chief Risk Officer James Leonard told analysts Thursday.

While Dividend gave Fifth Third’s consumer loans a boost, Provide shows promise in the bank’s commercial portfolio by “growing relationships, not just loans,” Spence said.

Fifth Third, which has $206.7 billion in assets, first invested in Provide in 2018 before acquire fintech last year. It provides loans to healthcare professionals who want to open or expand their own practice.

Provide an additional $200 million in loans during the third quarter and generate “excellent relationship economics,” Spence said. About 70% of new Provide customers turn to Fifth Third for deposit accounts and payment products, according to the bank.

During the third quarter, Fifth Third reported net interest income of $1.5 billion, up 26% from the same period last year, driven by Federal Reserve 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 US, including 16 new branches planned to open during the fourth quarter, contributed to $1.2 billion in non-interest expenses, which were flat from the same period last year.

Declining fee income in Fifth Third’s private equity, leasing and mortgage businesses contributed to a 20% decline in non-interest income during the same period.

Fifth Third’s earnings per share of $0.91 fell short of the $0.97 average estimate of analysts surveyed by FactSet Research Systems.