Hit by bad loans, Capital G Bank said its 2012 earnings fell 66 percent to $1.1 million from $3.2 million the previous year.The bank said in a statement released Friday night that absent the impact of increased loan loss provisions which were up $5.4 million year-over-year, Capital G generated net income of $6.5 million.President and chief executive officer Ian Truran said “2012 continued to be an extremely challenging economic environment” both in Bermuda and worldwide.“Despite these challenges,” he said, “the bank was able to grow operating revenues and reduce operating expenses while implementing a new core banking system.“Unfortunately, higher than anticipated credit losses offset the growth in revenue, as some borrowers continued to struggle with meeting their commitments and the value of some of our collateral, primarily residential real estate property in Bermuda, declined as well.”However, he said: “Our core business continues to perform well and, excluding securities gains and losses, operating revenues increased $2.2 million, or 3.8 percent, to $59.9 million from $57.7 million in 2011.”The Bank’s total revenues before loan loss provisions were $61.4 million compared to $58.4 million in 2011, an increase of 5.1 percent, while total operating expenses declined by $0.2 million, or 0.4 percent, to $48.3 million from $48.5 million in the prior year.CFO David Carrick noted, “With the financial crisis in Europe in 2012 the Bank prudently repositioned its investment portfolio, resulting in net realised gains of $1.6 million, compared to $0.7 million in 2011.“Over 63 percent of the bank’s portfolio is now conservatively invested in US Government Treasuries and Agency securities, with the balance primarily in sovereign and supranational securities whereby 99.2 percent of the total portfolio is rated AA and above.“Net interest income increased $1.5 million year-over-year and net fee and commission income, primarily investment management fees, continued to grow increasing to $9.0 million from $8.5 million in 2011.”The Bank’s total impaired loans were $43.8 million at the end of 2012, representing 4.44% of the total loan portfolio, compared to $21.0 million in 2011, which represented 2.15 percent of gross loans at that time.Mr. Carrick further noted, “In spite of increased impaired loans and related provisions the bank’s capital ratios remained strong, with our total capital ratio increasing from 14.76 percent, to 14.92 percent at the end of 2012. Similarly, our tangible equity ratio improved to 7.1 percent from 6.87 percent a year earlier.”Mr. Truran added, “The bank’s profitability continues to be impacted by the increased levels of loan loss provisions, however we are confident we are well positioned for future profitable growth. In mid-2012, we successfully moved the bank’s operations onto an entirely new technology platform designed to meet our customers’ needs both now and in the future, with a significantly enhanced internet banking experience. We grew both net interest and fee and commission income by 3.1 percent and 5.8 percent respectively while decreasing operating expenses year over year.”“We will continue to work very closely with our clients that are finding it difficult to meet their financial obligations, restructuring payments where it is possible in order to support the community through this prolonged challenging economic environment.”He said the bank looks forward to continued diversification in income streams from expansion of services offered through commercial banking, further growth in wealth management and entrance into the institutional banking segment.Mr Truran added: “Beyond the earnings results, we recognise the profound impact that this challenged economy has had on the entire community.“Our commitment to supporting our neighbours has never been more urgent. From fundraising activities to participating in a range of walks and events, our philanthropic commitment represents our belief that supporting the community means taking a full-spectrum approach that will not only help our neighbours today, but also help establish a secure foundation for tomorrow.”He concluded, “We can see the impact that supporting the full scope of the community — from early childhood programs to youth development — has on building the future leaders of Bermuda. For Capital G, our commitment to the community is not just a culture — it is our spirit...”n A complete review of the Capital G 2012 Financial Earnings is available online at www.capital-g.com.