More than $600 million was wiped off the value of Butterfield Bank as its share price tumbled on The New York Stock Exchange.

Investors were rattled by a sharp decline in deposits at the bank, and lower expectations of revenue from the banking custody business it has acquired from Deutsche Bank.

The bank’s shares stood at $51.15 when the US market closed on Tuesday, but within half-an-hour of the NYSE reopening yesterday they had plummeted more than 25 per cent to $35.84. Later on, the stock staged a partial recovery to end the day at $39.51.

What changed between Tuesday evening and yesterday morning was the release of Butterfield’s third quarter results.

The bank made a profit of $50.4 million for the three months to the end of September. That was about $10 million more than in same period last year. The profit equated to 90 cents per share, which missed analysts’ estimates by five cents.

Michael Collins, chief executive officer, noted the bank’s “strong results” from its core businesses. However, in a conference call held against the backdrop of the tumbling share price yesterday, questions were asked about the drop in average customer deposit balances to $9.4 billion, a fall of $300 million year-on-year and $700 million lower than during the second quarter.

“We have been pretty consistent about talking about the volatility of some of our trust and hedge fund clients, and this is exactly what this represented,” said Mr Collins.

“We have one client that represents over half of the decline. They have put the money to work somewhere else.”

He pointed out that the bank was not seeing rate sensitivity in its core base of retail, commercial and corporate clients, but there was volatility “at the top end”.

Michael Schrum, chief financial officer, explained that from time to time big deposits go on and off the balance sheet. He said when there is a distribution from a trust the client might “park it for a bit and then go off and start a new fund or buy a new property”.

He added: “We are at a low point with the dozen or so clients that represent that top bit. There are specific deposits that, given they are in a fund, are probably not going to come back. But from time to time we will get others that come back to the balance sheet.

“Those very important clients are still very important for the trust business; the relationships are still with us, they are just doing other things with their money, and it is not rate-related.”

Butterfield has also lowered its revenue expectations for the banking custody business in the Cayman Islands and Channel Islands that it acquired from Deutsche Bank this year.

Dan Frumkin, chief operating officer, said his previous projection for revenue of $30 million from the acquired business is likely to be closer to $17 million or $20 million. However, he said expenses are also likely to be lower than previously reckoned, around $12 million, which would be $2 million to $3 million lower than initially estimated.

He said the bank was therefore now looking at a total contribution between $8 million to $11 million “once it is bedded in towards the tail end of next year,” compared with the initial thought that the figure might be around $16 million.

“The balances are lower than we expected, we are disappointed by that,” he said. “The reality is it is still a very accretive transaction, and it opens up the Jersey market. We are excited about the opportunities we have in that market. We are still pleased with it, it’s just not quite what we thought it was.”

There was a jump in non-interest expenses to $82.2 million, which was up from $78.2 million in the previous quarter, and $8.5 million higher than a year ago. This increase was said to be primarily due to severance costs of $2.4 million associated with management restructuring.

Mr Collins said: “Over half of some of the expense increase was 23 redundancies, pretty senior redundancies in all three or four of our jurisdictions, pretty much spread evenly. It is something we will continue to do every year or two as we think about our cost base.”

Following the share price fall, Butterfield Bank has a market capitalisation of $2.18 billion. Butterfield’s share price remained unchanged at $50 on the Bermuda Stock Exchange.

Disclosure: the writer owns shares in Butterfield Bank