Butterfield Bank returned to profit in the first quarter - and bosses are now confident they can keep earnings positive after three years blighted by huge losses.The bank reported reported net income for the first three months of the year of $8.4 million, compared to a net loss of $176.3 million in the same period in 2010, as it slashed expenses by 18 percent.More than half of the profit however was eaten up was $4.5 million in dividends and a guarantee fee for preference shares, leaving $3.9 million in net income available to common shareholders.The banks holds its annual meeting of shareholders today.The 2010 first-quarter results included a negative impact of $174.3 million from selling off troubled investments at a loss and writing down others.In a statement, the bank said operating expenses fell almost $16 million to $71.9 million, as headcount was reduced by 122 over the past 12 months to 1,477. But many of the reductions could be attributed to one-off expenses in the first quarter of 2010.In Bermuda, the biggest operation in the seven jurisdictions in which the group operates, headcount fell by 41 to 709 over the year, after 25 redundancies were announced last month.There was a notable 20 percent increase in net interest income, as adjustment of the fixed-income investment portfolio brought higher returns.Brad Kopp, Butterfield’s president and chief executive officer, said: ”We are pleased to report a first-quarter profit following a difficult transitional year. The fact that we are able to do so whilst operating in a challenging, low-interest rate economy, reflects the underlying strength of our franchise, as illustrated by the stability of deposit and loan balances, and increased focus on balance sheet management.”Credit provisions increased from $1 million in 2010 to $3.8 million in the current year. In its statement, the bank said the increase was “largely a reflection of the ongoing difficulties in the economies in which the bank operates, but remains well controlled at an annual rate of under 40 basis points (0.4 percent)”.Non-accrual loans, which reflect borrowers falling behind with repayments, totalled $146.9 million, down from $159.5 million at the end of 2010, equivalent to 3.6 percent of total loans, with specific provisions for such loans of $34.5 million.In an interview yesterday, chief financial officer Brad Rowse said this improvement was partly due to the selling off of a hospitality property in The Bahamas tied to a bad loan.“With the sale in 2010 of securities, Butterfield had a significant amount of excess liquidity which we began to invest in higher-yielding, low risk securities in the last quarter of the 2010,” Mr Rowse said.“We are beginning to see the benefit of that strategy and, despite the low-rate environment in which we are currently operating, our quarterly net interest income before provision for credit losses, at $51.4 million, was up over 20 percent year on year.”Non-interest income fell by $6.8 million to $33.7 million from $40.5 million a year ago. Excluding a one-off gain of $5.8 million through unclaimed dividends, non-interest income was down by 1.8 percent year on year.Assets under administration rose to $70.1 billion, up from $65.6 billion a year earlier, while assets under management remained flat at $6.1 billion.Bermuda was the most profitable jurisdiction for the bank, reporting net income of $3.1 million, just ahead of the Cayman Islands with $3 million. However, all head office and corporate costs are included in the Bermuda results.The bank’s cash and investments totalled $4.97 billion at March 31. The bank’s investments in US Government and federal securities tops $1 billion, generating an average yield of 2.73 percent, up from 2.52 percent in the previous quarter.The bank’s total loan book at March 31 was $4.03 billion, of which $2.38 billion is in Bermuda.Average customer deposits remained fairly flat at around $7.87 billion. In Bermuda deposits totalled $3.33 billion, down $72 million from the end of last year.The bank’s cap[capital position continued its improvement, with the tier 1 capital ratio used by regulators as a measure of financial strength, was up to 16.2 percent, compared to 15.7 percent in the fourth quarter of 2010.“We have the capital in place, the bad loans written down, the investment portfolio cleaned up - the final piece is profitability and now we are making money again,” Mr Kopp said.Mr Rowse said that dividends for common shareholders were still some time away, as the more than 50 percent of profits paid out in preference share dividends represented a very high payout ratio.Useful websites:www.butterfieldgroup.comwww.bsx.com