What's happening?

Shares of Bank of N.T. Butterfield & Son (NYSE:NTB) are plunging, down by roughly 28% as of 12:45 p.m. EDT after the company reported disappointing third-quarter earnings results, partially owed to a sharp decline in deposits.

The company indicated that its acquisition of Deutsche Bank's banking and custody business in the Cayman Islands and Channel Islands may not be as lucrative as it previously thought.

So what

Bank of N.T. Butterfield & Son is a bank and trust company that makes its money as a "full-service" institution, offering everything from simple bank accounts to trust, custody, and asset management services for high-net-worth individuals and institutions.

By almost every measure, the bank is extraordinarily profitable, losing little to bad loans and earning impressive spreads that powered a strong core return on average tangible common equity of nearly 25% this quarter.

Bank facade

Image source: Getty Images.

The problem, at least today, is that N.T. Butterfield & Son isn't living up to the growth story. The company reported today that deposits declined 6.7% quarter over quarter, and 4.8% year over year. On the conference call, management attributed roughly half of the decline to one large customer moving money around, but it doesn't expect those deposits to come back any time soon.

Meanwhile, the company's acquisition of a banking and trust business from Deutsche Bank doesn't appear to be as needle-moving as once hoped. The bank now expects that revenue generated from the acquired business will be in the range of $17 million to $20 million, down from its initial expectation of $30 million. At the mid-point, that amounts to an $11.5 million decrease in revenue projections, offset by a modest $2.5 million decrease in expected expenses related to the business it's acquiring. 

Now what

Bank of N.T. Butterfield & Son will trudge forward in migrating customers to its services and balance sheet. Given the complexity, it expects that the clients it acquired from Deutsche Bank will migrate in the fourth quarter and through the first quarter of 2019. In all, it expects to bring in about $1 billion of balances from the deal, which should be about "4% to 5% accretive" to its earnings. 

With a tempered outlook for growth, Wall Street isn't as willing to pay a steep multiple for the bank. After today's decline, the stock trades for about 2.6 times tangible book.

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