Shares of SVB Financial Group (NASDAQ: SIVB)the parent company of Silicon Valley Bank, were down almost 16% at midday today after the bank reported disappointing results for the second quarter of the year.
SVB, which largely caters to the start-up, technology, venture capital (VC) and private equity communities, reported diluted earnings per common share of $5.60 for the quarter on total revenue of $1.53 billion. Earnings were woefully lower than analysts had expected for the quarter, missing estimates of $2.08.
The loss was caused by an increase in the provision for credit losses, which management attributed to deteriorating economic conditions. In addition, commission income of $362 million was down approximately 30% from the first quarter.
In prepared remarks, CEO Greg Becker said, “The [initial public offering] window remained closed, and unlike the first quarter, when public market declines primarily affected later-stage companies, companies at all investment stages faced challenges accessing liquidity, the total investment in venture capital down 24% quarter over quarter. »
Becker added, “Reduced fundraising from customers, coupled with increased consumption rates – as companies with already accelerated consumption rates took proactive steps to reduce future spending – exerted a pressure on second quarter balance sheet growth.”
Due to the difficulties encountered in the second quarter, management has revised down its outlook for the full year for average loan growth, average deposit growth and net interest income growth.
The drop in forecasts and the large shortfalls explain the massive sale. Management probably should have been a little more proactive or conservative about the macro environment in the first quarter of the year instead of continuing to raise its guidance.
But this is an unprecedented time for the sectors SVB caters to, so it probably wasn’t easy to predict.
The bank continues to have excellent business, has developed its model and has a track record of strong credit performance. It’s been through several crashes and recessions, and I still like the stock over the long haul.
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SVB Financial provides credit and banking services to The Motley Fool. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends SVB Financial Group. The Motley Fool has a disclosure policy.
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