Butterfield Bank yesterday said its core earnings increased nearly 40 percent year-over-year through the first nine months of this year.Improved investment returns and cost reductions helped Butterfield to core earnings of $37.9 million through the end of September, representing a 38.5 percent increase, from the $27.3 million earned last year.Core earnings strip out one-off items, such as the sale of the bank’s wholly-owned Barbados subsidiary, which contributed $7.3 million to third-quarter net income of $18.8 million. Core earnings for the July through September period were $11.5 million, compared to $11.3 million in the same period last year.Weighing on third-quarter earnings were low interest rates and an increase in non-performing loans as more borrowers struggled to make repayments in the tough economic conditions.The bank trimmed operating expenses by $1.9 million compared to last year’s third quarter, partly through cutting its group-wide headcount among continuing operations by 77 over the past 12 months. Of those, 66 people left the payroll at the bank’s Bermuda operation, meaning the local workforce fell to 608 people, down nearly ten percent over the past year.The payroll cuts enabled savings of $0.8 million in the quarter compared to last year, with expenses also trimmed in professional and outside services ($1.7 million) and marketing ($0.7 million), offset by a $1.5 million increase in technology and communications expenses, driven by depreciation.As at September 30, the bank had gross non-accrual loans of $125.1 million representing 3.1 percent of total loans compared to $110.1 million, or 2.7 percent, of total loans at year-end 2011. After credit provisions of $32.9 million, net non-accrual loans of $92.1 million made up 2.3 percent of the loan book. The bank added $2.9 million to credit provisions in the third quarter.Butterfield chairman and chief executive officer Brendan McDonagh said in a statement: “The board and management team are focused on improving shareholder value as our key priority.“To that end, we have emphasised our focus on core earnings to drive sustainable value. We completed the sale of our subsidiary in Barbados to effect a shift of capital to initiatives and businesses that offer the potential for greater shareholder return. In addition, we continued to repurchase shares under the share buy-back programme announced in May, providing enhanced market liquidity to benefit shareholders.”Net interest income before credit losses fell 0.1 percent to $52 million, as low interest rates continued to hamper the bank’s efforts to extract returns from its $4.3 billion in cash and investments, a total that rose $336 million from the start of the year.Butterfield’s chief financial officer, Bradley Rowse, said: “During the third quarter of 2012, Butterfield, like all banks, operated in a continuing environment of low and decreasing interest rates and ongoing economic challenges in our markets.“Against that backdrop, by exercising disciplined deposit pricing and liquidity management, conservative investing and loan strategies, and our ongoing focus on managing expenses, Butterfield achieved a substantially improved return on equity.”The year-to-date cash return on common equity rose to 8.6 percent, compared to 4.4 percent in 2011.Total non-interest income was down $0.2 million to $32.2 million in the third quarter of 2012 compared to $32.4 million in the third quarter of 2011.The bank’s Bermuda operation made net income of $6 million in the third quarter of 2012, down $1.6 million from last year’s $7.6 million profit in the same period. Credit provisions were $1.6 million in Bermuda during the quarter, compared to $2 million in the third quarter of 2011, and were mainly attributable to the residential mortgage portfolio.The bank added that non-interest income rose by $2.1 million to $18 million in Bermuda, primarily due to the loan repayment fee received from the Bermuda Government for the repayment of $240 million loan. Government’s repayment also caused net interest income before loan loss provisions to decrease by $2.3 million year-on-year.Tier one capital — a measure used by regulators to gauge a bank’s financial strength and its ability to withstand economic downturns — remained strong at 18.3 percent.