Butterfield Bank announced a third-quarter net loss of $18.6 million last night, as results were impacted by problem loans to hospitality projects in Bermuda and The Bahamas.

The bank made provisions related to those loans of $14.2 million and also booked a previously announced loss of $7.4 million related to the sale of businesses in Hong Kong and Malta.

The bank also reported a small increase in loan delinquencies in Bermuda, for which it increased by $1.1 million its general provision levels for its consumer loan portfolio.

After the payment of preference share dividends, the net loss available to common shareholders totalled $23.1 million, or four cents per share.

The bank's net loss compared to net income of $7 million in the same quarter of last year and $200,000 in the second quarter.

Butterfield's chief executive officer Brad Kopp said the bank remained focused on reducing risk, returning to profitability and delivering sustainable growth for shareholders.

"That focus entails concentrating our financial and management resources in jurisdictions where we have a meaningful market presence and a depth of local market knowledge, Mr. Kopp said.

"Consistent with this strategy, the Bank sold its trust, wealth management and advisory businesses in Hong Kong and its trust operation in Malta in September with a resultant net loss of $7.4 million.

"Additionally, continued weakness over the summer months in the hospitality industry has led us to provide a further $14.2 million of specific allowances for related loan exposures.

"Although we are not happy to be taking additional provisions, we do believe that we are positioned to see the cycle through."

The provision against hospitality loans appears to be a nagging problem for the bank, as the hotels in question - which the bank has not named - struggle during the downturn.

Last year, credit provisions on two hospitality loans totalled $94.3 million. In the first nine months of this year, the bank has booked almost another $20 million against hotel loans, said Michael Collins, senior executive vice-president, Bermuda.

"Bermuda's economy continues to reflect the weakness of tourism and international business still feeling the effects of an unprecedented global recession," Mr. Collins said. "We are well positioned for an economic recovery as transaction activity has actually increased over the past year and deposit volumes are stable.

"However, demand in the hotel and retail sectors has fallen considerably, and we have to accept that tourism is gradually transitioning to a more sustainable business model in order to recover the inherent value in Bermuda's tourism product. In the first nine months of 2010, we have taken $19.7 million in credit provisions for our hotel loans and will continue to manage these exposures conservatively as we complete the de-risking of our balance sheet."

The bank's revenues tumbled 17.6 percent compared to the same quarter last year to $64.1 million, a decrease attributed mainly to the loan provision additions.

Low interest rates are hitting the earnings of all banks and Butterfield is no exception. Net interest income before provisions for credit losses fell one percent year on year to $46.2 million.

Chief financial officer Brad Rowse said: "Although the financial markets have stabilised in 2010, banks continue to face difficult conditions as the low interest rate environment continues, global economic stability remains uncertain, and regulators respond to the global financial crisis.

"Against this backdrop, Butterfield is reviewing all aspects of our business to ensure the right balance between current profitability and future growth. The bank is well positioned with a strong capital base and remains focused on the two pillars of our business, community banking and wealth management. "

At 30 September 2010, Butterfield had total assets of $9.4 billion - a decrease of two percent from the end of 2009. It remained well capitalised with a total capital ratio of 21.6 percent and tier one capital ratio of 15.7 percent.

Shareholders' equity was $842.7 million, up 137 percent during the first nine months of the year, mostly due to a $550 million investment by a group of mainly foreign investors, headed by the Carlyle Group and the Canadian International Bank of Commerce. The bank's net book value per share was $1.16 at September 30.