Capital G Bank Ltd made a profit of $3.2 million for the year ended December 31, 2011, down seven percent from last year.The bank said its loan book and net interest income increased as a result of its merger with First Bermuda Group (FBG).Net operating income before loan loss provisions climbed to $58.4 million, representing a 28 percent improvement from $45.8 million in 2010.Capital G Bank saw a sharp increase in impaired loans, as more borrowers struggled to meet repayments. Total impaired loans were $21 million at the end of 2011, representing 2.15 percent of the loan portfolio. This is up from $5.6 million, or 0.7 percent of gross loans a year earlier.The bank also said falling home prices had an impact. “Our 2011 results have been particularly impacted by a continuing decline in residential property prices, affecting our collateral valuations and management’s estimation of loan loss provisions, which we have increased by $5.2 million to $6.7 million in the current year,” the bank said.Chief executive officer Ian Truran said the company’s loan book had increased substantially to $968 million, up $171 million from $797 million in 2010. This was driven by the amalgamation with FBG and business.Similarly, customer deposits remained robust, increasing in excess of ten percent year-over-year to $1.21 million in 2011.Net interest income (NII) before loan loss provisions increased by $10.5 million, or 28 percent, to $47.9 million, with FBG contributing $7.2 million in 2011.The increase in net interest income helped to offset the increase in operating expenses, which grew to $48.5 million from $40.8 million.Chief financial officer David Carrick said the bank’s investment portfolio was very conservatively invested.“Over 98 percent of our investment portfolio is now in AAA or AA rated bonds and while we had some exposure to Northern European countries at December 31, 2011, subsequent to year-end we disposed of our European corporate investments with immaterial income statement impact,” Mr Carrick said.He added: “In addition, the bank’s capital ratios remain strong with a tier one ratio of 14.09 percent, well above the tier one regulatory minimum of eight percent, although down from last year’s 16.88 percent due to the growth in our balance sheet. Similarly, the Bank’s tangible equity ratio increased to 6.87 percent from 6.75 percent in the prior year.”Mr Truran said Capital G had invested in technology to secure future operational efficiencies and expand the bank’s services and product offerings.“It was particularly pleasing to note that the diversification of our businesses, including our increased focus on integrated wealth management and business banking, helped to raise the bank’s net fee and commission income from $6.2 million in 2010 to $8.5 million in 2011, an increase of $2.3 million, or 38 percent,” he said.“Overall we are very pleased with the Bank’s performance in 2011. The weak economy posed significant challenges, especially in respect of loan portfolio quality and appropriate provision levels.“First Bermuda Group operations have been successfully and smoothly integrated with those of the Bank and we now offer banking services at two locations in Hamilton under the Capital G brand.”