The Bank of N.T. Butterfield and Son Ltd. was punished for the sins of its past by suffering a downgrade to "A'' from "A plus'' by rating agency Fitch IBCA. However, despite the setback, Bank of N.T. Butterfield and Son Ltd.

President and Chief Executive Officer Calum Johnston yesterday remained upbeat about the progress of the company's reorganisation.

"Shareholders are pleased that we are facing up to the problems and getting rid of the baggage of the past,'' he said. "It will help us to concentrate.

It's get it out and get on with some of the good stuff.'' The bottom line shows he has much to be positive about as the bank recovers from the financial blows of closing its unprofitable Singapore office and exiting the UK loan market.

The bank reported a nine month profit of $28.9 million for nine months, a gain of about 32 percent over the nine months ended March 31, 1997.

Management stated the bank's nine month earnings showed consistent profitability gains, and demonstrated the bank's recovery in its earnings after five years of flat results.

However, Mr. Johnston warned shareholders the bank has had to increase its provisions for potential losses connected with exiting its former operations in the UK. The additional write-offs will mean "materially decreased'' profits from that achieved so far.

"We cannot mess around any more,'' he said. "The hit will be substantial but then it will all be over.'' He said the bank had underestimated its reserves need to exit the UK mortgage operation.

"When our year-end earnings are announced it will be clear that we have a long range perspective of our total business and a commitment to improved earnings and increased shareholder value, supported by substantial growth,'' he said. "It is disappointing to me that the success of our core businesses has continued to be overshadowed by earlier strategic miscues. However, the bank will be stronger longer-term as a result of the decisive actions we are now taking.'' After a strategic review of the bank initiated by Mr. Johnston's predecessor John Tugwell, the bank last year decided to withdraw from its lending and deposit-taking operations in London, and close its Singapore office to stem losses. The bank decided to keep its Butterfield Securities subsidiary in London. Three senior executives left the bank during the reorganisation.

The result was the bank declared net income of $10.4 million for the financial year ended June 30, 1997, a 60 percent drop from the previous year after taking a charge of $20.6 million against the discontinued operations for trading losses and for the cost of closing them.

In 1996 financial year the bank reported profits of $29 million.

Mr. Johnston, who is about six months into his tenure as the bank's top executive, noted that Moody's had not changed its rating of A3. Moody's rating is equivalent to Fitch's new rating of "A''.

Moody's based its rating on the bank's strong capital position, low-risk balance sheet and "fairly stable'' operating environment.

"The bank, like its larger Bermuda competitor, Bank of Bermuda Ltd., operates more like a trust company than a true wholesale/retail commercial bank,'' Moody's stated. "Loans constitute between 25 percent and 30 percent of the balance sheet (as compared with about 15 percent at Bank of Bermuda).'' Mr. Johnston discounted the significance Fitch's ratings drop saying Moody's was a far more important measure for the bank.

Fitch managing director Mark Gross said Butterfield's ranking was downgraded to reflect its problems overseas and the sluggish local economy. The bank had previously held an "A'' rating but had been upgraded in 1992 to a "plus'' to reflect the growth of its international business and the "cleaning up'' of its domestic loan book.

"The downgrading reflects the fact that internationally the bank's plan didn't pan out as well as it should,'' he said. "Still the bank is doing reasonably well and it should be better going forward.'' CALUM JOHNSTON -- The new president and CEO of the Bank of Butterfield, in office since late last year, continues to be upbeat about the progress of the company's re-organisation.