increase in loan loss provisions, were major factors in a seven percent profit drop, Bank of Butterfield reported yesterday.

The financial institution's consolidated net income for the financial year ended June 30 was $29 million compared to $31.3 million earlier.

The $29 million was split evenly over first half and final six months of the bank's fiscal year.

Grand Cayman, UK and Guernsey operations fared "very well'' while Hong Kong and Singapore reported losses, the bank said.

Overall, net income from the bank's overseas operations increased two percent to $7.4 million.

"It was especially pleasing the see a significant improvement in the UK operations following the substantial refocussing and downsizing last year,'' the bank said.

In 1995, the bank took a $1.1 million charge at its London operations.

The increase in loan loss provisions, a non-cash item charged to earnings when adding to the bank's allowance for possible bad debt, is partly reflected in the growth of the bank's loan portfolio over the past few years.

Loans outstanding at June 30 were $1.25 billion compared to $1.4 billion a year earlier, a decline of ten percent.

Bank of Butterfield also said that total assets declined five percent to $4.1 billion from $4.3 billion due in part to a five percent drop in deposits to $3.7 billion from $3.9 billion.

The latter was linked to a drop in Bermuda trust operations deposit activity but the majority of the decline reflects an inter-bank borrowing reduction associated with funding the bank's loan portfolio in the UK, the bank said.

The decrease was due to phasing out marginally profitable corporate lending relationships, particularly in the UK.

During the year, capital expenditure was $19.2 million of which $9.9 million was expended on extensive head office renovations.

Net interest income, which rose marginally to $64.4 million, was hampered by the increase in loan loss provisions.

Non-interest income rose 11 percent to $67.9 million.

Total income grew to $136.3 million from $129.3 million, an increase of five percent.

Expenses rose nine percent to $107.3 million from $98.1 million.

Net income of the Bermuda operations, international and domestic, decreased ten percent to $21.6 million due to lower than anticipated earnings from credit, trust and fund administration activities. All other areas like card services, the new capital markets advisory service, deposit taking, home mortgage and investment management fared well, especially the latter which rose 29 percent to $1.6 billion, the bank said.

Return on assets was .70 percent compared to .76 percent in 1995 while return on shareholders' equity was 10.7 percent compared to 12.6 percent.