Butterfield Bank bounced back to make a $40.5 million profit in 2011, after posting losses in excess of $200 million for each of the previous two years.Chief executive officer Brad Kopp told The Royal Gazette last night that the four successive quarters of profit was a result that everyone at the bank should be proud of.“The message is that we’re really proud of what we’ve accomplished,” Mr Kopp said in an interview. “We’ve returned to profitability and stability, with a very strong capital base.“The economy’s been hard on all banks, including this one, but we see this as a step towards bringing Butterfield back to where it was before. We see the progression continuing towards rebuilding the bank and bringing it back towards earning at the levels we were in the past.”After deduction of dividends ($19.3 million) and the guarantee fee ($2 million) on preference shares, the net income available to common shareholders was $19.2 million, or three cents per share, in 2011.The bank’s results from 2008 to 2010 were battered by soured investments linked to US mortgages which foreced the bank to make hundreds of millions of dollars in writedowns.Driving last year’s profit was a hefty increase in returns on the bank’s investments, which resulted in net interest income rising by almost $35 million, or 19.4 percent, to $213.7 million.Chief financial officer Brad Rowse said the bank achieved this through a change in investment strategy, which allowed the bank to “more effectively match the duration of our deposits against investments for improved yield, without taking on excess risk”. This resulted in an improvement in the net interest margin of 47 basis points, from 2.03 percent in 2010 to 2.5 percent in 2011.The bank said it made further progress with its aim of cutting expenses. The bank reduced the number of employees in Bermuda by 68 to 664. Group-wide, including the operations in the Bahamas, Cayman, Barbados, Guernsey, Switzerland and the UK, the bank cut its headcount by 135 to 1,384. Salaries and employee benefits totalled $150.8 million, down $8.3 million from a year earlier.During the year some staff were made redundant, some left and were not replaced and others took an offer of early retirement. One-off staff costs resulting from the downsizing totalled $7.9 million.Butterfield’s loan book grew in 2011 by $204 million to $4.2 billion, thanks to a $200 million loan to the Bermuda Government and an increase of $121 million in Guernsey, mostly related to high-end London real estate deals.Non-accrual loans made up 2.8 percent of total gross loans, down from 3.9 percent a year earlier. The decrease was principally due to the transfer of $27 million from non-accrual loans to the new category in the bank’s books of “other real estate owned”, representing property used as collateral for loans that is now held directly by the bank.“We saw notable improvements in the overall performance of our lending business in 2011, even as we experienced increases in delinquencies on personal loans, credit cards and residential mortgages of a magnitude commensurate with general economic difficulties,” Mr Kopp said.Mr Rowse said the bank had seen delinquencies rise in December, but some of that could have been down to staff spending more time dealing with customers’ queries associated with the new online banking platform launched in November, and less time contacting borrowers.The bank watched closely for signs of borrowers struggling and was ready to work with customers to extend loans, for example, to help them get through these difficult times.“We do know anecdotally that we’re doing better than other banks in this area, because of our conservative lending standards and the fact that we never counted full rental income in our underwriting,” Mr Rowse added.He said that with interest rates at record lows, many borrowers were now paying down more principal.Asked about his view of the local economy, Mr Kopp said the slowdown in economic activity was evident in a smaller volume of transactions going through the bank.“We see weakness, but it’s not dropping off a cliff,” he said. “There’s a lack of growth. But we have 2,500 mortgages and we’re not seeing huge numbers of defaults.”The bank maintained a strong capital position with more than $1 billion in regulatory capital and a tier one capital ratio an important metric used by regulators to assess the capital strength of banks of 17.1 percent, above industry norms.Mr Kopp admitted there had been “teething problems” related to the bank’s overhaul of its systems to a new Oracle platform, managed by HP, and a new online banking platform. The new online system was introduced last Easter in Cayman, where customers were now happy with it, Mr Kopp said, and he was confident Bermuda clients would feel the same in the coming months. The system changes would yield operating efficiencies for the group, he added.The bank’s board of directors declared no dividend on common shares.