Bank of N.T. Butterfield & Son Ltd (NTB)

Management's Discussion and Analysis of Financial Condition and Results of Operations

This section presents management's perspective on our financial condition and results of operations. The following discussion and analysis is intended to highlight and supplement data and information presented elsewhere in this report, including the consolidated financial statements and related notes and should be read in conjunction with the accompanying tables and our financial statements included in this report. The consolidated financial statements and notes have been prepared in accordance with GAAP. Certain statements in this discussion and analysis may be deemed to include "forward-looking statements" and are based on management's current expectations and are subject to uncertainty and changes in circumstances. Forward-looking statements are not historical facts but instead represent only management's belief regarding future events, many of which by their nature are inherently uncertain and outside of management's control. Actual results may differ materially from those included in these statements due to a variety of factors, including worldwide and local economic conditions, success in business retention and obtaining new business and other factors. Factors that could cause these differences are discussed in the sections titled "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors." For management's considerations and determinations of each non-core item discussed, please see "Reconciliation of Non-GAAP Financial Measures".

Overview

We are a full service bank and wealth manager headquartered in Hamilton, Bermuda. We operate our business through our four reportable segments, three geographical and one other: Bermuda, Cayman, Channel Islands and the UK, and Other. We offer banking services, comprising of retail and corporate banking, and wealth management, which consists of trust, private banking, and asset management. In our Bermuda and Cayman segments, we offer retail banking and wealth management. In our Channel Islands and the UK segment, we offer retail and corporate banking and wealth management. The Other segment includes our operations in the jurisdictions of The Bahamas, Canada, Mauritius, Singapore and Switzerland. In these jurisdictions we either provide wealth management or operate service centers. These jurisdictions individually and collectively do not meet the quantitative threshold for segmented reporting and are therefore aggregated as a non-reportable operating segment.

The following table details our Net Revenue in total and by segment, as well as our total assets, total loans, total deposits, total AUA (which includes trust and custody AUA) and AUM for the years ended December 31, 2025, December 31, 2024 and December 31, 2023.

Market Environment

Our business is affected by international, regional and local economic conditions as well as, the perception of future economic prospects. The significant macro-economic factors that impact our business include the US and global economic landscapes, unemployment rates, the housing markets and interest rates. 2025 began with elevated uncertainty in financial markets as a new administration came into office in the US. Tariffs, fiscal deficits, elevated inflation, and the threat of reduced global trade briefly destabilized sovereign bond and equity markets across the globe. Since that time, as the US tariff threat has lessened, and the US Federal Reserve along with other global central banks, has further eased monetary policy, volatility has declined significantly. While the issues listed above remain threats to growth in 2026, markets appear better equipped to handle the uncertainty. In addition, slightly slower growth and some disinflationary pressures will likely give global central banks room to further ease financial conditions at the margin. Nevertheless, sovereign yield curves and longer-term risk premia are likely to remain elevated for some time.

Bermuda Segment

Bermuda’s economy grew 1.9% in 2024 and Real GDP was 10% higher than when compared to 2019 levels of GDP, indicating that Bermuda has recovered from the COVID-19 pandemic economic impacts and has experienced growth.

The international business sector, especially the life reinsurance and captive insurance markets, continue to grow, attracting new capital and companies, demonstrated by employment levels reaching new highs of 5,040 employed in the international business sector in 2024. This is an increase of 1,020 from 2019 levels and currently represents

50

15% of total employment in Bermuda. Bermuda remains the world’s largest captive domicile, one of the largest markets for reinsurance underwriting and the largest market for insurance-linked securities.

Retail activity continues to be challenged and consumer imports via online retailers remain at elevated levels. While the official inflation rates recorded in Bermuda have been modest, general cost of living challenges remain, driven by food costs, energy costs and housing costs, both in rental rates and building costs.

Airlift increased by just over 1.2% in 2025, however, several hurricane related impacts caused a reduction in air and cruise arrivals for the year, with air arrivals down 1.65% and cruise arrivals down 14.6%. There continues to be positive news on hotel developments, with two hotels, including the largest in Bermuda, currently undergoing redevelopment. Recent hotel operating performance has been strong, with revenue per available room night in 2025 of $413 compared to $379 in 2024, driven by stable occupancy trends (64.0% compared to 63.2% in 2024) and increasing average daily rates of $611 compared to $554 in 2024.

Construction activity has been bolstered with two new office developments in Hamilton and the redevelopment of two hospitality properties. There are an estimated 500+ Airbnb units now available on the island, still down slightly from pre-pandemic levels. In the real estate sector, rental rates continue to climb due to limited inventory against current demand. Housing sales have remained stable but still lag behind pre-pandemic levels, however, current real estate prices have seen some uplift.

Government finances continue to improve with a projected budget surplus for the 2025-2026 fiscal year, largely from increases in payroll tax receipts in the international business sector and customs duties and the implementation of the Corporate Income Tax in Bermuda. Expenses have also risen to assist resident Bermudians in need of financial support and capital expenditure directed at affordable housing is expected to continue. The Corporate Income Tax Act became effective on January 1, 2025 and there is an expectation of substantive revenue generation for the Bermuda Government - see Item 10.E. "Additional Information - Taxation". S&P recently reaffirmed their long term debt ratings at A+ and maintain a ‘stable’ outlook for the jurisdiction, with Morningstar DBRS upgrading Bermuda’s long term issuer rating to A with ‘stable’ outlook. Government debt to GDP ratio is currently 35%, and with support of the Corporate Income Tax receipts, this is expected to improve further over the next several years.

See also Item 3.D. "Risk Factors - Risks Relating to the Markets in Which We Operate - Adverse economic and market conditions in Bermuda, the Cayman Islands and the Channel Islands and the UK, have in the past resulted in and could in the future result in lower revenue, lower asset quality, increased provisions and lower earnings" and Item 3.D. “Risk Factors - Risks Relating to the Markets in Which We Operate - A decline in tourism in Bermuda and the Cayman Islands could adversely affect our business, financial condition or results of operations”.

Source: Government of Bermuda, Department of Statistics, Economist Intelligence Unit

Cayman Segment

The Cayman Islands continues to experience strong inbound tourism with arrivals in 2025 projected to be above 2024 arrivals, while construction projects related to tourism continue to add to the island’s high quality room stock and support growth. Cruise ship and cruise passenger arrivals remain structurally lower, reflecting a permanent post-COVID shift. Cayman Island’s GDP is projected to have grown by 2.5% in 2025 but expected to ease to 2.0% in both 2026 and 2027. Financial services and tourism are expected to remain the key drivers of growth along with ongoing development of condominiums, hotels, apartment complexes and residential homes, keeping the construction sector vibrant in the near term with several large scale developments scheduled to be completed in 2026. Interest rates have fallen during the second half of 2025 but, at current levels, appetite for new speculative development remains low.

The Cayman Islands has experienced a meaningful increase in its population in order to service the expanding economy. Given the Cayman Island’s dependence on the US for imports, it is expected that the recent increases in US import tariffs will have a pass through effect on local inflation, resulting in estimated year-end inflation of 1.9% in 2025. However, a high base effect means that inflation is expected to ease to 1.2% at year-end 2026 and 0.9% at year-end 2027. In addition to imported inflation, firm housing demand related to strong tourism and an increase in guest workers will keep upward pressure on consumer prices. Real estate transaction levels showed steady momentum in 2025 and activity remained balanced across both luxury and mid-market segments.

The Cayman Islands Government is forecasting a budgetary surplus for 2025 resulting from better than planned revenues from economic expansion. Surpluses in each of 2026 and 2027 were also planned in the Government’s approved two-year budget.

Source: Economist Intelligence Unit

Channel Islands and UK Segment

The macroeconomic backdrop across the economies in which we operate remains challenging, as both domestic and international factors continue to weigh on policymakers’ ability to navigate a clear path forward. The key themes across the UK and the Channel Islands are broadly consistent: below-trend growth, inflation that remains above target, and increasing pressure on government finances.

The UK economy and its monetary policy continue to set the tone for the Channel Islands, although global factors do have an overarching impact. As we entered 2025, expectations were for a heightened degree of uncertainty and inconsistency in US policymaking. While the US focus on deregulation and lower taxation was generally expected

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