Tim Spence takes the helm July 5 at Fifth Third Bancorp Inc., succeeding Greg Carmichael, who’s retiring as CEO and becomes executive chairman. Spence joined the Cincinnati, Ohio-based Fifth Third in 2015 as chief strategy officer and became president in 2020. Spence prepares to take over as CEO of the West Michigan market leader amid economic uncertainty, as inflation runs at a 40-year high and rising interest rates. Fifth Third has more than 1,100 offices in 11 states with $211 billion in assets. Spence spoke to MiBiz during a recent visit to Grand Rapids.
What’s job one for you as you prepare to become CEO on July 5?
Job one is don’t break it. Don’t break all of these things that are working so well.
I have been around the company many years now. I joined the bank formally seven years ago and had the privilege of working with the bank for many years prior to that at my prior employer. Having been responsible for the bank’s strategy for the last seven years, you should expect a lot of continuity. We’re big believers in the importance of investing in our local communities, we’re big believers in the power of technology to change the value proposition that we can deliver to customers, and we’re big believers in the importance of being able to bank people broadly and at every critical point in their financial journey, whether that’s a business or an individual.
Fifth Third has led the West Michigan market for many years in deposit market share, although the lead narrowed considerably following last year’s merger between TCF and Huntington banks. What does Fifth Third need to do to retain its market-leading position in West Michigan?
We have the benefit of a long history in these markets, and the byproduct of that is we have an excellent talent base and really loyal customers. That’s the best starting point that you can ask for.
The short answer is to continue to focus on investing in the markets to drive growth. Some of that is the investments we make in our people and in marketing dollars and otherwise to drive our business growth. Last year was the best year in the last 10 in terms of adding new quality relationships in the middle market and the commercial banking business in West Michigan. We also grew our households, our consumer base, that was north of two (times) the rate of population growth in the area overall. So we were able to gain fairly significant market share last year in a mature industry. I think we have the right playbook here in terms of the products and services, in terms of the quality of people. We recognize that as the number one bank in the market we have a special responsibility as it relates to supporting the community.
Like many banks, Fifth Third has reduced its branch network over the years as more people bank digitally. Do you see a need to make any further changes?
On the west side of the state, we have 86 financial centers. That makes us one of the two or three largest in terms of the total the branch network that we have in the area. We’re always looking at ways in which we can ensure we can best serve customers. Sometimes that means leaning out the branch network and investing in digital capabilities because it provides more convenience, sometimes it means adding de novo branches and we have done that in Michigan in the last few years, and sometimes that means renovating existing branches to our new next generation branch format, which is really much more focused on having advisory conversations and enabling bankers to interact with customers on the sorts of bigger issues that they now come into the branch for in the advent of being able to do simpler things on their phone.
How do you see this market today?
We will continue to advance in this market, both as it relates to physical distribution and financial access and as it relates to the talent base. Grand Rapids is one of the three or four best economies in all of the Midwest in terms of economic growth and the vitality of the population growth and the strength of the community. When you run a business like ours, you always want to invest in the markets that have great tailwinds and this is one of that has really excellent tailwinds.
What does Fifth Third see the U.S. economy doing over the next year?
The big scenario here for us is that the Fed is able to engineer a soft-ish landing in terms of the outlook. The risks of a recession are definitely higher today than they were six months ago, just given the ongoing challenges that the supply-chain dynamics have created for folks, given the ongoing tightness in the labor market, and the fact that for a whole variety of reasons inflation has remained much higher than most expected 12 to 18 months ago.
I believe that we’ve forgotten a little bit, outside of the financial crisis, that generally when these events work their way through the economy, they don’t work their way through evenly. So the markets that have diversity of industries, that are underpinned by solid demographics in terms of population growth and a good, skilled labor force are going to be able to navigate the jet wash comparatively better than markets that don’t have those things going for them.
I think the Fed is committed to doing what it needs to do to curb inflation because inflation, for all of the reasons we know, is the single most damaging thing to the average household in the U.S. and very difficult for businesses to deal with and plan around. It’s hard to put any sort of a plane down at high speed without a little bit of turbulence. We just think that many of the underlying dynamics in the economy are in much better shape today than they were when we hit the financial crisis, as an example, and provide some support as the Fed makes that transition.
How do you see your business borrowers responding to rising interest rates?
Whenever rates rise, appropriately so, I think business owners become more thoughtful about the tradeoffs about how you use debt responsibly to grow the business. We are hearing a lot from clients that the focus on borrowing is really on building inventory so that they can meet their order books and on capital equipment that will allow them to deal with some of the labor shortages that they’ve facing. Those are both things that have mainly solid economic tradeoffs.
If there’s any area that has probably slowed down a little bit as a result of rising rates, it’s people are putting pencil to paper a little harder when looking at any opportunities and otherwise, just because the environment makes those sorts of a transactions a little more difficult.
What’s your best advice today for business owners?
We had a client tell us not long ago that one of the big transitions in their daily life is that they were focusing much more heavily on the balance sheet than just the income statement. That would equivalently be my advice. Businesses across industry sectors have the opportunity to really focus in on how they run their businesses, how they create resiliency in their supply chains, the ways in which they can leverage technology to boost productivity and to deal with tighter labor markets, and the businesses that make the difficult decisions and do the things to create more resiliency in their supply chains and their distribution models are going to be the ones that perform the best. These are good opportunities to focus on effectiveness over pure growth.