Lee Palm Executive Vice President, CapStar Commercial Finance

Lee Palm, executive vice president of CapStar Commercial Finance, enjoys extending credit — and not just the financial kind. When asked to describe his beginning in what has become a thriving career in the equipment finance industry, he credits the leaders who had faith in his talents and mentored him along the way. Likewise, when invited to comment on his many achievements in the field, he credits the team members that he has worked with over the years. In discussing his goals for the new division, he first gives credit to the disciplined yet visionary culture at CapStar Bank.

Despite his penchant for sharing acclaim, the leadership at CapStar Bank recognized Palm’s notable accomplishments, including serving as president of GMAC Commercial Finance, and tapped him to create CapStar Commercial Finance. A relative banking newcomer, Nashville-based CapStar Bank received its charter and opened for business in July 2008. Now in a position to diversify, the bank established its commercial finance unit in May 2011.

“The banking industry is a changing landscape, and what CapStar’s leadership wanted to do was think about options other than the traditional market approach for a bank. They wanted to diversify and still maintain a good solid risk profile along with diversity of portfolio investments,” he says.

Palm explains that CapStar Bank’s launch during the recession has led to its strength, success and ability to expand. The bank submitted its notice of intent to file a charter to the Tennessee Department of Financial Institutions in July 2007. “The newer banks, especially ones that came on the same time CapStar came on, had an advantage. When CapStar was started, they came into the market when it was already showing signs of recession. As a result, they were able to set up credit policies and establish disciplines to take advantage of those market conditions and have the liquidity to do just a fantastic launch — a very conservative growth-based launch,” he notes.

The bank’s disciplined approach provides a solid foundation for a commercial finance group. Other advantages in CapStar’s favor include the lack of community banks in the equipment lending space and timing. According to Palm, the industry cycle is right for emerging commercial finance units to make their mark.

“You have to think of the definition of community bank and how it’s defined and who defines it. Let’s assume that they are smaller organizations. If you look at community banks from an equipment finance standpoint, I have never found that community banks had a great footprint in building an equipment finance business like we’re talking about at CapStar. So I don’t think it’s a driving product for them. If you look at the market today, we’ve lost a tremendous amount of industry flags — GMAC, Orix, Merrill-Lynch, Heller, Transamerica and others. All these names that were the stalwarts of the industry have left the space or have morphed and changed,” he explains.

“So what that leaves us with is a complete cycle where you have all of these companies that grow from small companies to large companies over time, then go away for whatever reason. And now we have all these small or younger, emerging finance companies looking to take market share. And one of the reasons that we pursued this is because not only is the bank an extraordinarily well-led bank with a strong board of directors, it is also primed in its lifecycle that a group like us having started and successfully grown a number of businesses in the past can add something to their particular position in their corporate lifecycle,” Palm adds.

A Shared Philosophy
When initially meeting with CapStar’s leadership, they spent a number of months talking in definite terms about core values including credit, credit discipline, underwriting and deal structures. Over those months, they realized their philosophies dovetailed.

Palm explains, “You build safety via credit discipline, enhance the client base and drive for sustained profitability. We share the same approach. The antithesis is putting out as much loan volume and book as many assets as you can, and you don’t stick to your core competency in terms of credit… What is different about CapStar’s culture is that it wants to be here for the long term. This isn’t a bank that is trying to design itself to be purchased by a larger bank in three years. The board and leadership of this organization want to be here for the long term. This is different from what I understand that banks did in the past. This bank wants to stay in this Tennessee community. That’s just different.”

Team Building
It’s not easy to get Palm, a man who uses the pronoun “we” much more than “I,” to elaborate on his personal career journey. He notes that he “started out carrying a bag” in sales, and credits others for opportunities that came his way, saying, “I had leadership who believed in me and gave me management opportunity. It happened two distinct times in my career and each time I improved my position, my success. It was because of those two people that I had a trajectory to become the president of a very large organization and have the opportunity to come to CapStar.”

Beyond that, it’s all about the team: “We have done over eight de novo startups of finance companies. And there aren’t a lot of people who have started from scratch and built successful organizations.”

Part of that team is Brian Shapiro, senior vice president of CapStar Commercial Finance. Shapiro hired Palm at Heller in the mid-1990s, then they eventually went their separate ways. Palm went to Transamerica and then to GMAC in 2000. Once at GMAC, Palm brought Shapiro on board to start the commercial asset finance group.

“We’re seasoned guys, and we’ve spent a lot of years in this industry. And I personally have had the good fortune to have people believe in a shared vision in the past. At GMAC, we started a tremendous organization that grew and eventually sold to Prudential Capital, and it is still out there today despite what’s happened in the economy. That’s a testament to the people and their collective vision in sustaining that company. What we want to do is something similar here,” he says.

Palm considers the success of his GMAC team members his biggest accomplishment. He notes that they are “in some way, shape or form for the most part still together” and those individuals have been prospering throughout the recession.

With Shapiro on board and the full support of the bank’s leadership, Palm is focusing on developing the division’s course of action and building his CapStar team: “The team is small now, by design. Obviously what we want to do is establish the appropriate groundwork for an efficient and predictable process. So, we are establishing process and policy for the business and we’re starting now to begin to hire for credit, syndication and marketing. And I am personally very pleased to be able to add to the employment figures going forward, especially in our industry that was particularly hard hit since 2007. We’ve lost a lot of people over time and we’re going to hopefully get some of those people back,” Palm says.

Setting Goals
CapStar Commercial Finance will focus on a diverse mix of small- to middle-market corporate customers. It will also offer a unique turnkey financing product that will bundle land building and equipment financing into one transaction, according to Palm. He says they will build the organization using a direct origination model primarily and that their initiative is to help grow the bank and its customer base, providing opportunity for the bank to have increased market penetration. CapStar Commercial Finance’s footprint will focus on the eight states that surround Tennessee.

In discussing his short-term goals for the division, Palm says they will first familiarize themselves with the bank’s culture and what types of transactions fit the appetites of the people they are working with. Palm then pauses to credit CapStar leadership for their rigorous yet entrepreneurial vision: “By the way, the culture at CapStar is entirely unique from anything I’ve seen and I’ve been in this business a long time. Keep in mind these people started this bank. It’s not like an age-old bank. They all came together with a common vision and an entrepreneurial team, and that’s how they designed the culture. They have very rigorous, disciplined decision making, but they have a culture of empowerment, and your opinion really counts… The CEO [Claire W. Tucker] is extraordinary and well placed in the community. I have witnessed some very good leaders in my career, and I’ve had people who have really believed in me that I learned a lot from, and she is really extraordinary. It’s an amazing culture.”

His long-term goals include developing the underpinnings of the organization, in order to effectively serve and grow the business and deploy capital profitably and with good risk guidance. He continues, “We are going to grow in Tennessee and surrounding states and create customers long term. I have had a lot of focus in the past on branding. The industry has historical numbers for repeat business. At GMAC, ours was almost double that in our peer group in terms of repeat business. You do that by creating the brand. Long-term goals are to grow the organization, grow profitable assets and be accretive to the banks earnings.”

Industry Outlook
When discussing the industry outlook for the remainder of 2011 and into 2012, Palm sees a number of interesting dynamics playing out, such as the thinning out of competition and loss of many branded names from the space and low loan volume demand in the past 18 to 24 months. Palm notes that because small- to mid-market businesses are protecting their cash and not adding new equipment, much of corporate America’s equipment is aging and will need replacement. Therefore, he anticipates pent-up demand when the economy improves and great opportunity for small, new companies like CapStar.

“As I look at the balance of 2011, I think it’s going to be a conservative year. There is still some uncertainty as it pertains to the economy and U.S. debt, and as a result the businesses that we focus on are going to be very cautious in terms of buying new equipment. Sure there is going to be some, but there’s not going to be that robust acquisition of new equipment, so it’s going to be a conservative year. But, in my opinion, things will improve in 2012 and beyond, particularly after the 2012 election. I think depending on how that turns out, you are going to find we are going to grow at a more robust rate than 2% per year GDP.”

Staying in the Game
After a storied career that includes starting several financing ventures, Palm still beams with excitement over his work. When asked what keeps him in the game after all of these years, he answers, without hesitation: “That’s too easy! I’m an entrepreneur, and I love to start businesses! You create them from scratch, you build them into something sustainable where you employ and build people, and that’s what charges me up. Today there are all of these new names emerging and this pent-up demand for lending — you couldn’t have picked a better time to start a company than right now. That’s what I do.”