Bank of N.T. Butterfield & Son Ltd.'s non-performing loans have gone down from nearly $100 million in 1998 to just under $10 million by June 2001, according to the bank's annual report.

This astonishing turn-around comes after last month Calum Johnston, the bank's chief executive officer, announced that the book of discontinued loans had been put at zero.

The bank had been burdened by discontinued and non-performing loans which had been cutting into the bank's profits.

But since Mr. Johnston came to the bank he has been working to wipe out the bad loans taken out mainly in the UK where a string of unprofitable or marginally profitable loans had been taken out in the early 1990s by the bank's London operations.

He said in the annual report: "The improvement in the quality of the loan book has contributed substantially to interest income and thus to net profit and we are determined to maintain the high quality now evident in the book."

Mr. Johnston took over at the helm of the bank at the end of 1997 after the bad loans had continued to spiral out of control.

In September 1996, the bank stated in its annual reports that non-performing loans totalled $50 million - a figure that was down by $9.2 million on the year before.

The bank had just deliberately phased out what it called "marginally profitable corporate lending relationships", particularly in the UK.

That year the bank decreased its loan book $141.7 million or 10.2 percent to $1.25 billion and lending was also decreased in Hong Kong.

In the same year the bank strengthened internal controls by audit restructuring and appointed a head of group compliance and a new head of financial risk management to co-ordinate the bank's risk profile.

The bank appointed John Tugwell as CEO and he decided to get out of parts of its UK business as a remedy to the bank's financial problems. He resigned for personal reasons after about six months.

When Mr. Johnston arrived, he set to cleaning up the books and described 1998, his first year in the bank, as a "rough, tough" year.

He decided further write-offs were needed for losses in closing its London branch and exiting other business in the US. He described the move to close the London office as "correct" but said it was "overly hasty".

The bank that year took a charge of $26.1 million on top of the $16.8 million charge it took in 1997.

When he arrived, the cost-to-income ratio was 78.7 percent; last year, it was 67.1 percent and this year it fell again to 62.2 percent

In 1998, Bank of Butterfield set aside $32.5 million for additional loan provisions. Two years later, the bank lost $14.54 million from discontinued operations and this year only $6 million was lost. The bank has no more outstanding loans from discontinued operations, according to Mr. Johnston and added that the Bank of Butterfield is not likely to incur similar losses next year.

Under Mr. Johnston, net income has gone from $8.1 million in 1997, to $2.5 million in 1998, to $36.4 million in 1999, $40.3 million in 2000 and $60.7 million in 2001.

Despite the positive figures, the CEO who turned the bank around will not be around much longer.

Mr. Johnston joined Butterfield with a five-year contract set to expire in 2002, and the bank began looking for a replacement earlier this year to ensure a smooth transition. If no replacement is found in time, it is believed Mr. Johnston will stay on longer, but if someone is found earlier, he could leave before his contract is up.