Annual Shareholder Update – 2023

Letter to Shareholders

Dear Oakworth Shareholders,

Oakworth enjoyed exciting successes in 2023.  As I’ll describe later, 2023 was a milestone year for Oakworth in many ways, and I am really proud of our team and their execution of our business model.  However, this past year also reminds us that our company is not immune to challenges. We have experienced our first significant credit loss since our founding.  Even though credit losses are a normal part of a bank’s business, we are accustomed to pristine credit quality and take much pride in our track record.  We are disappointed that we have not yet been able to work through this credit.

Let’s address the credit first.  As outlined in the 3^rd Quarter Shareholder Update, we identified one credit relationship made up of two loans totaling approximately $15 million as distressed.  Accordingly, we moved the entire amount to “Non-Accrual” status in the 4^th Quarter.  Non-accrual is an accounting and banking term to indicate that we are no longer accruing interest into income on the outstanding borrowing.  Later in the quarter, we made the decision to “Charge Off” – or recognize a loss – on one of the two loans in the relationship.  The charged-off loan totaled approximately $10 million.  We have and will continue to aggressively pursue ultimate payoff of both credits using all means that are available to us. This action to “Charge Off” this one credit has a significant negative impact on 4^th Quarter and full year 2023 Net Income as outlined in our financial statements. While the financial impact to 2023 is significant, the strength and stability of Oakworth remains intact.  We remain well capitalized and prepared to continue investing in our business. We ended the year with zero reliance on wholesale borrowings and strong liquidity.  And, importantly, we have $0 in non-performing loans (past due > 90 days or non-accrual) other than the remaining $5 million discussed above that is related to this single relationship and is well secured.  Finally, excluding the impact of this charge-off, our profitable growth continues according to our plan.  We are very pleased with our underlying business and look forward to the future.  Before leaving this topic, I do want you to know that as with any challenge, we’ll use this experience as a learning opportunity.

Turning to exciting news that will positively impact our future, we’ve enjoyed an extremely successful entry in the Central Carolinas market via our Charlotte location.  The team assembled under the leadership of Tim Beck is second to none.  And, the market board representing and advising Oakworth in Charlotte and the surrounding communities is made up of individuals who are highly respected leaders in the community.  In short, Oakworth’s unique approach has been well received and is off to a strong start.  We also made meaningful investments in operational and other support areas to position Oakworth to serve clients in innovative ways and efficiently deliver our model. As we look toward 2024, our plans are to focus on maximizing the return on 2023’s investments.

Our balance sheet assets grew by 19% year-end 2023 compared to year-end 2022.  Loans increased 28% and deposits grew 21%.  In a year in which many institutions either saw a decline in deposits or relied on brokered deposits for funding, we are pleased to report a deposit portfolio made up of purely client deposits.  Additionally, with liquidity at the forefront of safety and soundness discussions, we closed the year with no wholesale bank borrowings and a strong liquidity position.  Similarly, we remain well-capitalized in accordance with regulatory guidelines.  Our investment professionals are managing over $2 billion of assets.  Reported net income in 2023 is $4.7 million which includes $7.4 million, net of tax, in provisioning related to the credit discussed above and $1.2 million directly related to our entry into the Central Carolinas market.  Revenue increased 16% on strong loan growth and increasing wealth fees.

We look forward to serving our clients, communities and shareholders in 2024.  We are well positioned to realize a return on our 2023 investments and continue our growth trajectory.  While we are disappointed in the impact of this credit loss on our 2023 results, we will continue to move forward with our plan and look forward to a bright future.  As always, thank you for your continued support!

Sincerely,
Scott Reed

Chairman and CEO

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