Butterfield Bank is on the road to recovery and hopes to end the year with a return to profitable growth, says chief executive officer Bradford Kopp.

Last week, the bank scraped a second-quarter profit of $200,000, with its revenues continuing to be hampered by historically low interest rates.

In an interview with The Royal Gazette, Mr. Kopp said the bank intended to continue trimming expenses wherever it could, but had no plans to axe jobs.

The bank had rid itself of all of the US mortgage-linked investments that had been written down by hundreds of millions of dollars over the past two years, Mr. Kopp added, while the deposit base had stabilised and the bank was now well capitalised.

However, the slowdown in the Island's economy has shown up in the bank's loan book. Mortgage delinquency has showed a marked rise in the first six months of the year, though still at a low level relative to the bank's $2.6 billion Bermuda loan book.

"The first thing is to derisk the balance sheet and get everything behind us," Mr. Kopp said. "In the first quarter we sold all the mortgage-backed securities (MBS) and in the second quarter we sold one of our remaining Structured Investment Vehicles (SIVs) for a gain of $5 million."

SIVs are complex financial instruments that plummeted in value during the credit crisis. Mr. Kopp revealed that the bank had three more SIVs in its investment portfolio with a carrying value of $128 million, but he hoped to reduce that exposure to below $100 million by the next quarter.

The bank suffered a net loss of $176 million in the first quarter, as it took a dose of pain to sell off the remaining mortgage-backed securities.

Mr. Kopp said Butterfield's earnings were impacted by the persisting low interest rates. "There has been some bad economic news in the US this week on the jobs front and interest rates on Treasury bills have been going down. So I think rates are going to be low for longer, which is not good for banking."

Michael Collins, senior executive vice-president, Bermuda, added: "Our loan to deposit ratio across the group is about 50 percent and we have cash and investments of about $5 billion. Because of our excess cash position, we are more susceptible than many banks to low interest rates. The first interest rate rises have probably been pushed back a year from when many people were expecting them.

"What we are focusing on now is stabilising the balance sheet and building back our stakeholder confidence."

Mr. Kopp said customers had broadly remained loyal to the bank during its period of difficulty. Initially, there were significant withdrawals by a number of hedge funds and captive insurers, but over the past 18 months deposits had stabilised to around the $3.3 billion.

Mr. Collins said that as the Bermuda economy continued to struggle, more people had fallen behind with their mortgage and loan repayments. Between the end of last year and June 30, residential mortgages and consumer loans 90 or days or more past due rose from $15.7 million to $65.6 million.

"There is a much higher rate of delinquency than we have experienced in the past, but this is still much better than many banks are experiencing in the US," Mr. Collins said. Most of the rise in delinquency took place in the first quarter and the rate had slowed in the second quarter, he added.

Butterfield made some alterations to its post-retirement health care plan for staff, which cut its liabilities by a total of $68 million. Mr. Kopp said this was in response to soaring health care costs and followed analysis of the plan by an independent actuary.

"Over time we have offered medical care to our people when they retire," the CEO said. "We are still offering this to eligible employees, but we have changed the cost sharing and some people may have to pay a little bit more. We are one of the last employers to offer post-retirement medical care."

Butterfield operates in Bermuda and eight other jurisdictions, including the Cayman Islands, the UK, Barbados and Guernsey. Mr. Kopp said the bank's trust, private banking and asset management areas were all positioned for growth, but that the bank's greatest focus was on community banking.

"We have dozens of employees with more than 25 years' service," Mr. Kopp said. "There is great stability in this company. We're very proud of our customer service and people like using our branches. We want to continue to offer our customer all channels, like the branches, telephone banking, ATMs and Internet, so they can choose how they prefer to do their banking.

"We're not standing still, we continue to invest tens of millions of dollars in new products and people, and we aim to have improvements to our Butterfield Direct Internet banking ready for next year. We've got to forget about the past and move forward."