The stock price of SVB Financial Group (SIVB.Q), better known as Silicon Valley Bank, is down about 66% so far in 2022. The bank has been a huge disappointment in what is normally a fairly pedestrian financial services industry, and this year's drop has nearly erased three years' worth of above-average returns. For comparison, the Vanguard Financials ETF (NYSEMKT: VFH) is down just 17.5% this year.  

Silicon Valley Bank's customer base is undergoing some trying times right now as interest rates aggressively rise. But the primary reason for the precipitous fall has to do with management's poor financial guidance. 

The one thing the market hates most

The bear market of 2022 has been hastened by the Federal Reserve's record pace of interest rate hikes. Higher rates lower the present value of stocks and other risk assets.

But there's one thing the market hates the most: uncertainty. And SVB's management has served up plenty this year.

Stocks, as ownership in a business, are valued based on the ability to predict the potential to generate profits. For the old and stodgy banking industry, this is a fairly predictable process. The occasional recession can throw a wrench into the gears, and maybe that's what's shaping up for 2023. Time will tell.

But by and large, banks are sleepy businesses that churn out fairly steady profits by earning various fees and lending depositors' cash back out at a higher interest rate than what they're paying. Simple.

Here's a look at the net income generated by three of the top banks in the U.S.: JPMorgan Chase (JPM 0.74%), Bank of America (BAC -0.07%), and Wells Fargo (WFC 0.20%) over the past decade.

JPM Net Income (TTM) Chart

Data by YCharts. TTM = trailing 12 months.

The results don't look too terribly different for Silicon Valley Bank, save for a massive spate of growth over the last decade. SVB had a solid run generating rising net income, punctuated by the start of the pandemic, and now another decline in 2022 from the current interest rate environment.

SIVB Net Income (TTM) Chart

Data by YCharts.

So why is Silicon Valley Bank stock being crushed while other bank stocks hold up relatively well? Its financial guidance has become increasingly unpredictable. Management has substantially revised its outlook for 2022 every single quarter this year, introducing a great deal of uncertainty among Wall Street analysts.

Let's use the company's outlook for net interest income as an example. During the fourth-quarter 2021 earnings report, management increased its preliminary outlook from mid-30% growth (compared to full-year 2021) to high-30% growth. Then as interest rates started to rise thanks to the Fed, SVB raised that outlook again in the first quarter of 2022 to a low 50% growth rate. But then the Fed started talking tough on aggressive rate hikes. In the second quarter, growth expectations for net interest income were lowered to mid-40%. And in the third quarter, the bank lowered the outlook again to low-40% growth.

SVB also forecast that its net interest margin (NIM, basically the profit it earns on interest-bearing assets after subtracting interest paid to depositors) might be peaking. While NIM for the full-year period is expected to be 2.15% to 2.25%, fourth-quarter NIM is expected to fall to 1.95% to 2.05%. If that holds, SVB could see pressure on its interest income growth in 2023.  

With such unpredictability about what exactly profits will be, investors have been mighty unhappy with SVB's up-and-down guidance adjustments. Shares have been punished as a result.

Let's play devil's advocate

It's been a whirlwind year, but SVB and other banks have their hands full trying to navigate the Fed's policy. A big problem for SVB, though, is its typical depositor is anything but run-of-the-mill. It caters to what it calls the "innovation economy," start-up companies in tech and healthcare and their investors.

Rising interest rates bring down company valuations, especially for young start-ups that haven't turned a profit yet. This in turn makes it harder to fund deals. With pressure from rising rates, the world of venture capital and private equity has been turned upside down this year. 

The IPO market has all but dried up this year. SVB tends to earn some payouts from equity grants it gets from many of its start-up customers.  

Nevertheless, as ugly a year as it's been, the long-term opportunity for Silicon Valley Bank is still intact. The company reported a record number of new clients in the third quarter of 2022, and dry powder (cash available to invest from private equity and venture capital firms) is still steadily on the rise.

This is a bank stock I have occasionally nibbled on over the last couple of years. Now that no one wants it (shares trade for a meager 8.8 times earnings per share), the upside could be significant once private investing markets stabilize. When that stabilization will occur is difficult to say at this point, but I'm comfortable buying a few more shares while we wait.