What happened
Shares of SVB Financial (SIVB.Q -50.00%), the parent company of Silicon Valley Bank, traded nearly 15% higher as of 10:55 a.m. ET today after the company reported its fourth-quarter earnings results last night.
So what
SVB reported diluted earnings per common share of $4.82 on total revenue of about $1.53 billion. Earnings missed analyst estimates for the quarter, while revenue beat.
SVB struggled greatly in 2022, largely because it caters to the start-up, venture capital (VC), and private equity ecosystem, which went through a bit of a reckoning last year. Problems continued in the quarter as non-interest-bearing (NIB) deposits, those on which the bank pays no interest, continued to fall.
Average NIB deposits dropped more than $19 billion in the quarter after falling $14.5 billion in the third quarter. This forced the bank to significantly increase higher-cost deposits and short-term borrowings, which have cut into SVB's margins.
Additionally, SVB nearly doubled its provision for credit losses in the quarter and continued to take losses on securities due to the selling of bonds and valuation declines in its managed funds and other strategic investments.
Much of SVB's client and deposit funds come from U.S. VC activity and early-stage companies and start-ups. But these funds have been on the decline due to depressed VC activity and client cash burn. In the fourth quarter, VC deployment continued to fall, but client cash burn slowed, showing some signs of stabilization.
Now what
I do still see near-term headwinds for SVB because start-up and tech valuations could continue to come down and the credit outlook presents risks, although management does have experience managing credit through difficult cycles.
But I still like SVB on a long-term basis because the bank has a strong moat in start-up and technology banking, which can be an incredibly profitable business and one that I still expect to have a bright future.
