5 questions for SVB wine division founder Rob McMillan

The rapid run on deposits at Silicon Valley Bank that prompted regulators to seize the bank on March 9 shocked the global financial world and left hundreds of North Coast businesses that have been customers its Napa-based wine division fretting what would come.

That worry also fell upon Executive Vice President Rob McMillan, who started the division nearly three decades ago. He talked with the Business Journal on March 14 and wrote on his blog about ideas for what would come next for the 35-employee group with four offices: Napa, St. Helena, Santa Rosa and Portland, Oregon. Some of the options pursued were selling off the division and its loan portfolio — $1.16 billion as of the end of last year.

The answer came March 27, when the FDIC announced a deal with Raleigh, North Carolina-based First Citizens Bank to acquire Silicon Valley Bank’s assets of $110 billion, remaining deposits of $56 billion and loans of $72 billion. Before the deal, parent company First Citizens BancShares Inc. (Nasdaq: FCNCA) was a top 20 U.S. financial institution with more than $219 billion in assets.

SVB customers became customers of First Citizens, which was founded as Bank of Smithfield in 1898 as an agricultural bank and now has over 550 branches in 23 states, including Southern California. Now known as SVB, a division of First Citizens Bank, the wine group continues on with the same staff in the same offices.

“We've just moved off the executive group that we had prior (at Silicon Valley Bank), and now we report to the executive group in Raleigh,” McMillan told the Business Journal on Monday April 3.

In the following interview, edited for length and clarity, McMillan talks about why First Citizens’ history meshes with that of SVB’s wine division, the future of his widely cited wine industry reports and what new services are coming.

How is First Citizens’ experience in agribusiness informing its approach to SVB’s wine division and other North Coast agriculture such as hemp, cannabis, etc.?

One of the things that they said to us is, “We don't know wine. We don't know technology. We know what we know, and we do things that we do. But you guys are the experts.”

So they really don't want to change up what's happening with Silicon Valley Bank. They recognize that there was consistent success, actually, with all of our businesses. (The failure of Silicon Valley Bank) was a treasury function that kind of got us sideways.

They just don't want to mess with what works. That's refreshing. That tells me that we have continuity of thought.

But beyond that, one of the things that gives me a little bit of comfort is knowing that they like family farming. As matter of fact, they’re a 125-year-old institution with their starting businesses in farming.

As it relates to hemp, my expectation is we as a division won't go down that path. If the bank itself decides they want to do something like that, then that might go down a different path.

First Citizens’ origins with family farms is an extremely important point. Because when, when there's a large or multinational company coming in to the North Coast, one of the questions is whether they understand a small boutique wine operation.

Imagine what I went through when I started the (wine) practice in 1994. I came into the Napa Valley and said, “We're from Silicon Valley.” I can tell you story after story of people saying, “Well, I understand Silicon Valley in Silicon Valley, but Silicon Valley in the Napa Valley doesn't make sense.” Over time, because of consistency of focus, people don't think that way.

Five years or so after we started, I was talking with one of my clients at the restaurant that used to be called The Spot (in St. Helena; now Press) about something was happening in the tech side of the bank. And he said, “Wait, you guys have a tech division?” That's when I knew we'd arrived.

You had (written on your blog) in the interim period about what may happen with your closely followed annual State of the Wine Industry report and the updates you do on more focused areas throughout the year. What is happening with that?

The company in Raleigh does a lot of thought-leadership pieces for the other business verticals that they're in. So, we'll just continue as we always have.

We should have had the state of the direct consumer survey released (in late March). But in this transition, it's a little difficult to figure out the process component. And I'm not saying we're not going to do that, but it's a little more difficult.

Then on top of that, we're going to start releasing a quarterly report on financial benchmarks. We've never done that before. We're the only place where you're gonna be able to find premium winery financial benchmarks in the United States that go back into the 2000s or before. That's (coming) in the next six weeks.

I've heard there is interest in having more aspects of the wine business being included in the report, such as greater participation of larger wine producers, in addition to the very focused coverage of the small, very premium producers.

When we release the videocast (on the reports), we get some people saying, “I wish that you focus more on Oregon. I wish that you would focus more on the large wineries. I wish that you would focus more on the small winery.” It all depends on your point of view.

We work with a diverse set of wine industry customers that pretty much reflect probably 99.9% (of U.S. wine producers). … So the volume of customers that are available out there are all small, and that's what our portfolio looks like that. We always try to talk about the industry as a whole. More recently, we've had to bifurcate it, because of the extreme differences between (wineries having) success and less success.

Anything else that you're looking at augmenting or changing under the new ownership?

We have a partner now in our owner who understands farming, who is not giant — they're big, but not giant — and they are taking the practical approaches don't change what is working.

But on top of that, they have products that we don't have right now. For instance, they own CIT, which is a big leasing company. So that gives us an opportunity to consider doing other types of business. Leasing, it could be equipment, barrels, anything.

And there's several other different products that they have, as a commercial bank, that our technology bank didn't have.

We plan on leveraging that there's an extended footprint. The early discussion we're having is we could we look at other parts of the United States in which to expand. That's not to say we're doing any of that for sure.

Jeff Quackenbush covers wine, construction and real estate. Before coming to the Business Journal in 1999, he wrote for Bay City News Service in San Francisco. Reach him at jquackenbush@busjrnl.com or 707-521-4256.

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