Why Shares of SVB Financial Group Are Plunging Today

What happened

SVB Financial Group (SIVB.Q) tanked in early trading Friday after it reported its third-quarter earnings results. Shares of the company, the parent of Silicon Valley Bank, were down by 18.8% as of 10:48 a.m. ET.

So what

SVB reported earnings per common share of $7.21 on total revenue of nearly $1.56 billion, both numbers that missed analysts' consensus estimates.

The bank caters heavily to start-ups and tech industry participants such as venture capital and private equity firms, and its business has struggled as tech valuations have plummeted and financial activity in the space has declined. SVB stock is down close to 64% this year.

"Market volatility and increasing economic uncertainty have reduced liquidity flows to private companies, as rising rates, lack of clarity on private valuations, and the risk of recession are keeping investors on the sidelines," CEO Greg Becker said in a letter to investors.

The bank's average non-interest-bearing deposits fell by almost $14.7 billion in the quarter to about $106 billion, while its average total deposits declined by around $6.7 billion to $185.4 billion. Investment banking revenue was also down about 40% from the prior quarter.

Furthermore, the bank lowered its outlook for full-year net interest income -- i.e., the profits it makes on loans and securities after funding those assets. Net interest income in 2022 is now expected to grow year over year by a percentage in the low-40s range; previously, the bank had guided for a growth percentage in the mid-40s. Management also chose not to provide a preliminary outlook for 2023 due to a "lack of visibility."

Now what

It was obviously a tough quarter for the bank, and in the near term, its business could continue to be challenged due to the struggles facing the broader start-up and tech ecosystem.

That said, I still think SVB has built an extremely strong niche banking business that will thrive again once current headwinds ease -- which I think they eventually will. I still think this will be a good stock to own long term.