Butterfield Bank made a profit for the second consecutive quarter as it continues to bounce back from the turmoil of the past couple of years.The bank reported net income of $11.8 million for the second quarter compared to $200,000 during the same period in 2010.Net income for the first half of 2011 was $20.2 million versus a loss of $176.2 million last year as it invested in longer-term high-yield securities.But in an interview with The Royal Gazette, Brad Kopp, Butterfield’s president and CEO, said the bank was still a “couple of years” away from paying a dividend to its common shareholders again.The bank’s Bermuda operation also recorded a profit of $6.9 million for the quarter, up $9.5 million year-on-year, driven by the $3.2 million sale of its equity interest in Butterfield Fulcrum Group.“We are pleased that Butterfield has delivered a profit for a second consecutive quarter in what continues to be a challenging operating environment,” he said.“Against a backdrop of economic slowdown in key Butterfield markets and continued low interest rates, the bank’s profitability and year-on-year increases in net interest income are good indicators that we are doing the right things to maintain customer loyalty and effectively manage our balance sheet. We continue the difficult work of reducing our cost base.”Mr Kopp continued: “Our deposits are stable and our loan portfolio continues to perform well, considering the economic situation. At this time, we have seen no significant increases in delinquencies and the residential mortgage book is holding up.”Brad Rowse, chief financial officer at Butterfield Bank, said: “During the second quarter, we continued to realise the benefits of investing our excess liquidity in higher-yielding, low-risk securities including select US government agencies.“Combined with small adjustments to deposit rates during the quarter, addressing prevailing overseas rates and competitive factors locally, our investment strategy delivered an increase in our net interest margin. This drove an increase in net interest income before credit provisions of more than 23 percent over the same period last year.”During the quarter, Butterfield made significant progress in the implementation of its new core banking technology and peripheral systems in Cayman and Bermuda. In late April, Cayman operations were moved to the new operating platform without significant business interruption. The bank’s Bermuda operations remain on track for conversion later this year.Butterfield’s completion of the sale of its equity interest in fund administrator Butterfield Fulcrum triggered a dividend of 42 cents per share to the bank’s contingent value convertible preference (CVCP) shareholders, payable on August 16, 2011 to shareholders of record on July 26, 2011. However the bank added that it was management’s belief there would be no further dividends or distributions made on the CVCP shares and it was highly unlikely that there would be any change in the conversion price of the CVCP shares (one CVCP share to one common share).Holders of CVCP shares are eligible for downward adjustments of the conversion price based on the bank realising certain recoveries on a pool of specified non-performing loans. The possibility that such recoveries will occur is remote, said Butterfield.Meanwhile the board declared $4 million in dividends on the bank’s eight percent non-cumulative perpetual voting preference shares to be paid on September 15, 2011 to preference shareholders of record on September 1, 2011. No common dividend was declared.Shareholders’ equity increased during the first six months of fiscal 2011 by $32 million to $841 million.The ratio of total capital to risk weighted assets was 22.8 percent during the second quarter versus 21.6 percent at year-end 2010. The ratio of tangible common equity to tangible assets was 6.2 percent, reflecting the strength of the bank’s balance sheet.The bank’s total revenue before gains and losses and provisions of $85.6 million increased by 6.5 percent from $80.4 million in the second quarter of 2010, which reflected enhanced net interest income, up $10.1 million, partially offset by lower non-interest income, down $4.9 million year-on-year.Credit provisions decreased by $5 million from $7.6 million in the prior year, to $2.6 million in the current quarter, as a result of the bank’s mitigation of exposures to the hospitality industry last year.Operating expenses decreased by $1.9 million from $75.6 million in 2010 to $73.7 million in 2011, reflecting the impact of transitional costs in the second quarter of 2010, reduced headcount, down 176 year-on-year, and enhanced controls on corporate expenditures. Operating expenses in the second quarter of 2011 included $800,000 of one-time personnel costs for severance.Net interest income before provisions for credit losses increased by 23.7 percent from $42.7 million the previous year to $52.8 million this quarter. Improved allocation of investments in the bank’s portfolio to include select US government agencies, combined with disciplined deposit pricing drove the change in net interest margin.The bank’s non-interest income decreased by 12.9 percent, from $37.7 million during last year’s second quarter to $32.8 million this time round, primarily due to asset management fees declining by $700,000 due to reduced values of assets under management and reduced management fees, banking fees dropping 12.3 percent to $8.3 million compared to $9.4 million in the second quarter of 2010, lower foreign exchange revenues by $1.2 million year on year on reduced transaction volumes, lower trust revenues, down $300,000 year-on-year as a result of a one-time fee revenue in 2010 of $500,000, and custody revenues down 25.9 percent at $2.7 million from $3.6 million during last year’s second quarter.Total non-interest expenses decreased year-on-year by $1.9 million or 2.5 percent to $73.7 million as a result of a $1.4 million decrease in the costs of salaries and benefits, reflecting reduced headcount offset by an increase of $1.2 million in provision for incentives and professional, outside services and other expenses combined decreasing by $1.4 million as the bank curtailed consultancy expenditures and continued to focus on securing savings across all operational areas.Butterfield’s total assets were $9.5 billion at the end of last month, down $100 million from year-end 2010 as the bank maintained a highly liquid position with cash and cash equivalents, short and long-term investments representing 52.4 percent of total assets, down $85.8 million from $5.1 billion at year-end 2010 to $5 billion at June 30, 2011.The bank’s loan portfolio increased by $56.7 million to $4.1 billion at the end of June 2011, with allowance for credit losses by the end of the second quarter totalling $72.2 million, an increase of $5.5 million from year-end 2010.The loan portfolio represented 43 percent of total assets at the end of the second quarter, compared to 42 percent at year-end 2010, while loans as a percentage of customer deposits increased from approximately 49.6 percent at year-end 2010 to 50.4 percent at the end of the second quarter of 2011.Its investment portfolio, meanwhile, increased by $19.5 million to $2.6 billion as at 30 June 2011, reflecting the recovery of fair values on available for sale securitiesButterfield’s Bermuda operation posted a 10.6 percent or $4.7 million increase in revenue before gains and losses and credit provisions from $43.9 million for the 2010 second quarter to $48.6 million for this year’s second quarter, reflecting lower fee revenues resulting from a decline in assets under management more than offset by higher net interest income as margins increased by 49 basis points year-on-year.Credit provisions were $2.3 million during the second quarter compared to $4.4 million in 2010, primarily due to additional provisions taken during the prior year quarter relating to the hospitality industry loan portfolio and residential mortgages.