HSBC Bank Bermuda Ltd booked net profits of $117 million last year — up more than a third on 2015.

A fall in loan impairment provisions and lower operating expenses after the sale of private banking operations last year contributed to the increase.

Mark Watkinson, HSBC Bermuda’s chief executive officer, pointed to “continuing modest improvement” in the economy and said the bank had seen a significant rise in demand for residential home loans.

In its earnings statement, the bank said it took a $21 million charge to lower the carrying value of buildings, since last year’s decision to “explore alternative options” for its offices near Albuoys Point. But this was largely offset by a $20 million gain recorded on the sale of the private bank unit.

And the bank paid a $280 million dividend to its owner, HSBC Holdings Ltd, the global banking group. Return on equity was 12 per cent, exceeding the 10 per cent target of the parent group.

Excluding the buildings charge, operating expenses were $145 million, down $31 million, or 18 per cent on last year. The decrease was mainly due to the sale of the private banking operations to Butterfield, completed last April, which reduced the number of employees in Bermuda and cut support costs.

Total loan impairment charges decreased to $19 million from $36 million in 2015. But non-performing loans, making up 14 per cent of the total loan portfolio, down from 17 per cent in 2015.

Phil Alvey, HSBC Bermuda’s chief financial officer, said NPLs included all loans that had been renegotiated — even though the majority of such borrowers were now making repayments on time.

Total loans and advances to customers were $2.29 billion at the end of 2016, a decrease of 7 per cent compared to a year earlier. The decrease is the product of the debt being paid off by borrowers outsizing new loans being taken out.

Mr Watkinson said new mortgages tended to be smaller than older ones, given the 30 per cent fall in real estate values from pre-recession highs and the 20 per cent minimum down-payment requirement these days.

“We saw double-digit growth in lending in the residential housing market last year,” Mr Watkinson said in an interview. “There is generally more confidence in the economy.

“But there is a split in the level of confidence between local and international. In the local community, people are feeling much better about life. That filters through into car sales, so the auto sector is feeling very good.

“On the international business side, it’s more difficult. There were a couple of significant surprises last year and it’s a very uncertain world and so the international business sector is feeling a bit uncertain.

“So in Bermuda we have to be very careful, because international business is a critical part of the economy and we need it to feel positive about Bermuda and the opportunities here.”

The recent approval of legislation to enable the building of a new airport terminal was something that would strengthen international business confidence, Mr Watkinson said. “Infrastructure is often overlooked,” he added.

On the impact of the change in political power in the US and potential corporate tax cuts eroding Bermuda’s tax advantage, Mr Watkinson said: “No one knows what’s going to happen with the US tax situation.

“But when I talk with customers about why they choose Bermuda, tax is a factor but it’s not that high on the list. In terms of insurance, it’s a real market. You can walk down the street and put together a half-billion-dollar insurance policy.

“The regulators do a great job and Solvency II equivalence was an outstanding success and great work by the Bermuda Monetary Authority.”

In the earnings statement, Mr Watkinson said it continued to be a challenging environment for banks.

“Our core businesses all delivered strong results and show robust prospects for the future,” he said. “The local economy is displaying greater resilience than in recent years and it appears we have worked through many of the problem loans in our portfolio.”

The sale of the private banking operations was the main factor in the 19 per cent fall in total assets to $9.76 billion.

Total capital adequacy ratio — a measure of financial stability — improved to 24 per cent at the end of 2016 from 22 per cent a year earlier.

HSBC said that the sale of its private banking operations allowed it to focus on core strengths in Bermuda. These are retail banking wealth management, including HSBC Asset Management and Premier banking, commercial banking and global banking and markets.

The net profit from these continuing operations was $93 million for the year with a cost efficiency ratio of 59 per cent, the bank said. Excluding impairment of buildings, net profit from continuing operations was $114 million with a cost efficiency ratio of 51 per cent.

“The core businesses all delivered results ahead of expectations in 2016,” the bank stated.

HSBC added: “The balance sheet remains conservative with strong capital and liquidity positions, even after making significant returns to our shareholders in 2016.

“The bank is well positioned to absorb the impact of future regulatory requirements under Basel III.”

Mr Watkinson said staff had also doubled volunteer hours on the bank’s time from 2015.

“Such efforts have now accumulated over 10,000 hours of community service since we launched the Staff Volunteer Community Action Day Programme in 2006,” Mr Watkinson said.

“We were also able to contribute $700,000 directly to various education, environment and community initiatives, partly supported by funds made available by the HSBC Group to mark its 150th anniversary.”

The volunteer effort included a programme in conjunction with the Salvation Army and the Eliza DoLittle Society to provide free cooked meals to the needy once a week at Cathedral Hall.

Staff from the bank have been divided into 43 teams, Mr Watkinson said, and two teams per week — one cooking and one serving — make meals for around 100 homeless and poor people.

“It energises our staff and they appreciate that they can go out and do something so worthwhile during bank hours,” Mr Watkinson said. “For the bank, it’s great for team-building and there’s a great return on investment — and it’s a great community investment as well.”