Butterfield Bank eked out a $200,000 profit in the second quarter as the bank's revenues were squeezed by low interest rates.

After dividends paid out on preference shares were taken into account, the April through June period brought a net loss of $4.3 million available to common shareholders, or one cent per share.

Butterfield's provision for loan losses climbed to $138 million - an increase of $8 million during the quarter on two loans relating to hospitality properties on the Island - and the bank also saw an increase in mortgage delinquency rates.

That was the principal factor in the bank's Bermuda operations posting a $2.4 million loss for the quarter.

The bank also announced that it had made changes to medical benefits plan to qualifying retired staff, following consultation with an independent actuary, which cut the bank's liability relating to the plan by $27 million. Additionally, Butterfield amended terms of the post-retirement benefits plan for its current staff, cutting liability by a further $41 million. Butterfield paid out $1.8 million on benefits in the first six months of this year.

Even after the decreases, Butterfield has a $78.7 million obligation for post-retirement benefits as of June 30. Butterfield also revealed a net loss of $2.7 million on shares of a credit card company.

Brad Kopp, Butterfield's president and chief executive officer, said: "Butterfield continues to operate in difficult economies with continued historically low interest rates compressing margins and yielding lower investment returns. Against this backdrop, the Bank remains focused on expense management." Expenses were trimmed by $3.5 million compared to the same quarter last year.

The bank, which suffered hundreds of millions of dollars worth of losses tied to investments backed by US residential mortgages over the past two years, sold off the vast majority of those troublesome investments during the first quarter of this year. The realised losses incurred led the bank to a net loss of $176.3 million for the first three months. Mr. Kopp revealed that further "de-risking" of the balance sheet took place in the second quarter, as the bank sold off a Structured Investment Vehicle (SIV), realising a gain of $5 million and cutting its exposure to potential losses by $31.6 million. An SIV is a type of exotic financial instrument whose structure made it very vulnerable to the effects of the credit crisis.

Such actions further strengthen our balance sheet and help position us for future growth,Mr. Kopp said.

In March, a group of mainly foreign investors bought around $550 million of new equity in the bank, and in May local investors bought back $130 million of that equity in Bermuda's biggest ever rights offering.

The impact on the bank's shareholders' equity, which has risen 138.5 percent to $847.8 million, has been dramatic.

Michael Collins, senior executive vice-president, Bermuda, said: "Clearly the bank continues to be challenged with respect to revenue generation in the current economic climate, as are many international financial institutions. In that regard it is positive to note that non-interest income year-over-year has held firm, whilst net interest income before provisions for credit losses was seven percent, or $3.3 million, lower at $42.7 million in the quarter.

"Our deposits have remained stable, despite the economic difficulties in the markets in which we operate, which is encouraging, though we continue to see increases in loan and mortgage delinquency rates."

Mr. Kopp was upbeat about the future. "I would like to stress that our primary responsibility is to reward our shareholders', customers' and employees' loyalty by returning the Bank to profitability and rebuilding sustainable value in the Butterfield franchise.

"With a further de-risked balance sheet, a strong capital position, sound operating structure and a great team of dedicated employees, I am very confident in our ability to achieve that goal."

At 30 June 2010, Butterfield had a tier 1 capital ratio - a fundamental measure of a bank's financial strength - of 15.9 percent. Bermuda Monetary Authority stress tests require the bank to maintain that figure at a minimum six percent.

The bank's net book value per share increased to $1.17 per share, up from 99 cents per share at 31 March 2010.