The twenty twenty Annual Meeting of the Shareholders of Horace Town Financial Services, Inc. Will please come to order. Welcome to the twenty twenty Annual Meeting of Shareholders. I'm Joe Wazzano, Chairman of the Board, and I will act as Chairman of the meeting. As is self evident to all in attendance today, due to the unusual circumstances we find ourselves in, today's meeting is being conducted virtually via a webcast and audio conference call.
I would like to call your attention to the important disclosures on Slide three relative to forward looking statements. I would also call your attention to the disclosure relative to non GAAP measures cited in today's presentation. And finally, on the next slide, I call your attention to the rules of conduct. Shareholders who are attending via webcast may submit questions during the meeting, and those questions will be addressed prior to adjournment. Shareholders also have the opportunity to pose questions before the meeting via e mail.
Thomas R. Quinn, Jr, President and CEO and Thomas R. Blugu, Chief Financial Officer, will discuss the impact of the novel coronavirus pandemic on our company shortly when they provide management's report. Robert Bob Carrotti, Secretary of the company, will act as Secretary of the meeting. I also welcome our directors present today, Bob D'Almedia, Cindy Joyner, Mark Keller, Tom Longnecker, Andrea Pugh, Mike Rice, Eric Siegel, Glenn Snow, Floyd Stoner, and, of course, Tom Quinn.
Other distinguished guests attending include corporate counsel Ken Rollins from the law firm of Pillar and Off. And most of all, I'd like to welcome you, our loyal shareholders. A special thanks for your understanding and flexibility as we conduct our first virtual shareholder meeting. The only persons entitled to vote at this meeting are shareholders of record as of the close of business on 03/12/2020, the voting record date. In accordance with Pennsylvania law, the company has prepared a complete alphabetical list of shareholders entitled to vote at the meeting with their addresses and number of shares held on the record date.
We have previously received an affidavit that the notice of annual meeting of shareholders and a form of proxy were mailed on or about 03/19/2020 to each shareholder of record as of the close of business on the voting record date. This affidavit will be attached as an exhibit to the minutes of this meeting. The board of directors has previously appointed Robert Rizzoli to act as judge at this meeting. The judge has taken an oath to fairly and impartially perform his duties, which oath will be filed as an exhibit to the minutes of the meeting. We have previously delivered to the judge the certified list of shareholders and all proxies which have been received.
Our record shows that there were outstanding on the record date and entitled to notice of and to vote at this annual meeting, 11,165,812 shares of common stock. Our records further show that more than a majority of such shares are present at this meeting in person or by proxy. The judge is making an exact count and will submit a formal report on the number of shares present or represented during the course of the meeting. Based on our preliminary count, a quorum is declared present subject to the confirmation of that fact by the judge in his report. We have made available electronically the rules of conduct for the meeting.
If you would like to discuss an issue not on the agenda, I encourage you to contact any officer or director of the bank after the meeting. We provided an opportunity for shareholders to submit questions in advance of the meeting. And if any shareholder attending via webcast wishes to ask a question, they can type it into the field question field on their screen and click submit. In order to save time at this meeting, we propose to arrange the proceedings so that the vote will not be taken until all items have been moved and seconded. Registered shareholders who are attending via webcast do have the opportunity to vote their shares during the meeting.
However, if you have already voted your proxy or proxy, you do not need to vote again unless you wish to make a change. The first item of business to be acted upon by shareholders at the meeting as stated in the notice of annual meeting of shareholders is the election of three directors. In accordance with the bylaws, Cindy j Joyner, Eric a Siegel, and myself, Joel Arzonga, have each been nominated by the board of directors to serve for a three year term and until their respective successors have been elected and qualified. I therefore declare the board's slate to be in nomination. No timely notice of any other nominations having been received, I declare the nominations to be closed.
The next item of business on the agenda is the approval of a nonbinding advisory vote regarding compensation paid to our named executive officers, commonly referred to as say on pay. The chair will entertain a motion to vote on the approval of the advisory vote proposal regarding executive compensation. Miss Joyner moves and mister Stoner seconds. The next item of business on the agenda is the ratification of the Audit Committee selection of Crow LLP as the company's independent registered public accounting firm for the fiscal year 2020. The chair will entertain a motion that Crow LLP be ratified as the company's independent registered public accounting firm for the 2020 fiscal year.
Mister Longenecker moves in his pew second. The vote will now be taken on proposals one, two, and three. Will anyone who wishes to vote electronically do so now? Remember, if you already voted your proxies, you do not need to vote again unless you wish to make a change. I will now pause for two minutes to provide an opportunity for anyone wishing to vote electronically.
I'm now at the credit. Poll is closed. Well, the judge is counting the votes. Tom Quinn, President and Chief Executive Officer of the company and Tom Brugger, Chief Financial Officer, will report to you about the affairs of the company. After their presentations, we will entertain questions from our shareholders.
Tom, would you please begin management's report? Thank you, Joel. And for the first time in a hundred and one year history, we are not meeting face to face. We continue to balance the safety of our employees, our shareholders, and the communities it's our responsibility to provide essential services. Due to the many significant and ongoing changes to our economy and social fabric, we cannot predict with any certainty how COVID nineteen will impact our results for the last three quarters of the year.
Tom will discuss potential impacts during his financial report. I'd like to introduce you to our management team. Tom Bruger, he's our executive vice president and chief financial officer who would who would speak later. Barbara Broats, human resources. Bob Carati, our chief risk officer.
Philip Fague, trust, wealth management, and mortgage. Bob Fignar, operations and technology and logistics. Jeff Gannon, our market president for our Southern Region. Chris Holt, our market president for Maryland region. Dave Hornberger, our market president for the Lancaster Region.
Zach Curry, our market president for the Harrisburg market Adam Metz, our chief lending officer Luke Bernstein, our chief retail officer and Matt Chotay is responsible for investor relations and strategic planning. At last year's annual meeting, I explained some of the areas we would focus on in 02/2019. We would expand and build out our commercial lending and fee income businesses to take advantage of the current and new markets. We complete the integration of Hamilton Bank, continue our branch refresh and optimization of our branch network. We enhanced our client experience.
We would optimize the Hamilton network, focus on operational efficiency, focus on enterprise risk management, including cybersecurity. We make investments in learning and development in Georgetown University throughout the organization, and we would reward our shareholders. Last year, we expanded our lending and fee income businesses with 72% growth in commercial relationship managers in 2019 to '31. Since July, our pipeline has increased over a 150,000,000. And we saw that in the fourth quarter with 20% annualized growth, followed that up with 15% annualized growth in the commercial side in the February 02/2020.
In between q two and q four, we are predicting slower growth rate as a result of the COVID nineteen pandemic. I am proud to say though that we continue to serve our customers as we process 1,500 payroll protection loan, totaling over $370,000,000, which is expected to result in 9,000,000 in fee income in the second and third quarter of this year. If you look at our success in commercial lending and fee income businesses since 2014, we have an 18.5% compounded annual growth rate. Our loan portfolio has more than doubled in the last five years, and we do have favorable demographics of our newest markets of Lancaster and Berks County, Baltimore, West Shore, and Maryland should should support our strong growth trajectory going forward absent the COVID nineteen impact. Just last year alone, you can see where we had 19% growth in our non interest income.
Focused on growth of non interest income throughout the company in 2019 as a result, we had strong upside potential in our mortgage, our trust, wealth management and cash management businesses. We completed the acquisition of Hamilton Bank. We closed the deal in the second quarter of twenty nineteen. We completed a successful systems conversion in the third quarter of twenty nineteen, and we are fortunate enough to hire Chris Holt, our market president, who joined us in 2019 and successfully recruited a strong team that has had significant impact ahead of our internal projections. We announced in the fourth quarter the closure of five underperforming branches in the Northpointe Operations Center sale in excess of 50,000 square feet.
Branches closed in the first quarter of twenty twenty and the operations center is scheduled perform in the February '20. We are also investing in existing branch network by selecting and upgrading our facilities to deliver an optimal client experience. These decisions are not made only, but as soon as we invest into more in Morristown, we have an obligation to continuously evaluate our delivery channels. Before the matter impacts have been propelled, We are already 24 branches on 132 that have drive through lanes and drive through only mode. Branches without drive through lanes are closed to regular lodging traffic.
By appointment only, a note of the value option and following all federal state and local guidelines for social distancing, face masks, etcetera. We will continuously evaluate our reach of franchise, particularly given the dramatic changes in client preferences over the past decade, which may have accelerated due to COVID nineteen. We continue to make numerous enhancements to ensure scalability and efficiency, including a rollout of our eSign throughout the entire branch network, quality control automation process for loan boarding, utilization of robotics automation to eliminate inefficient data key and entering efforts, Significant automation of Patriot offer officer, our BSA and our anti fraud software, and the automation of data updates. We continue to support a culture that that balances appropriate risk management with the business development efforts. Our our bank's advocacy act enhancements to include additional focus on client due diligence.
We've continued down the path of CECL readiness, although we have not yet determined when we will adopt. We've enhanced our CRA reporting and management of our CRA function. Crediting the state and administration works closely with the business lines to assign appropriate risk ratings for Mercyburg and Hamilton acquired portfolios. And we have established procedures and staffing to accommodate new formed large mortgage servicing unit with the acquisition of Hamilton. We have invested in technologies that operationalize threat intelligence and use artificial intelligence to detect and thwart threat actors.
We have invested in enhanced training and awareness programs for all employees. We've invested in the reduction and control over sensitive company and personal information. We've enhanced our incident response plan and described realistic actions and timelines. We have focused on the communication technologies inside the security to support a work from home environment. We continue to make investments in Morristown University in our web page, the introduction of Morristown Connections, a weekly e newsletter, and core learning.
We entered the Mercersburg and Hamilton conversions. 805 participant training sessions were held in February 02/2019, and the customer experience rollout across the entire company took place. That has resulted in a reward to our shareholders. Seven dividend increases since 2015. Most recent dividend increase was 13% declared in January of twenty twenty.
Our quarterly dividend increase is 143% since 2015. We accomplished all that while celebrating our hundredth year anniversary with our clients and our communities. We supported our communities with more than 2,285 new loans totaling $523,000,000. We expanded the Georgetown University to meet the learning and development needs of a growing organization. We completed the system conversion of First Community Bank of Mercyburg.
We completed the acquisition of Hamilton Bancorp, completed the systems conversion of Hamilton Bancorp, all while adding 185 new employees joined the Morristown family in 02/2019, dedicating more than ninety two hundred and fifty hours of community service for long. More than 650,000 was donated towards the organizations. We hired two new market presidents, Zach Curry and Chris Holt, as I mentioned earlier, along with Tom Brugger and Matt Shultis to our management team. We had the highest income in a hundred year history of $16,900,000. We added 16,258 core deposit accounts and grew core deposits by $311,000,000 While the stock has clearly been impacted by COVID-nineteen, in the year 2019, the stock return was 27.9%.
All banks have been impacted by COVID-nineteen and we continue to work on improving that. We increased our dividend 13.3%. Clearly, the COVID-nineteen pandemic introduces uncertainty into the ability to achieve similar results in 2020, but we are working day and night to make sure that happens. Tom Bueber will now review other other financial results and discuss further. Tom?
Thank you, Tom. Good morning, everyone. It's my pleasure to give the financial report for 02/2019. Before going into results, wanted to spend a few minutes going through, short term focus, with the COVID nineteen event. What what are some of the things we're gonna focus on to, manage through this crisis?
Number one is risk management. We're gonna have a more conservative risk appetite in the short term. We will work hard to, help our clients get through this this this difficult period with payment deferrals and show them the solution of the SBA PPP loan, which is basically a forgivable loan if they they continue to pay their employees. We will focus on identifying problem loans quickly, so we don't have a a large increase in our problem, assets in the future. And put a lot of emphasis on the higher risk concentrations, such as restaurants, construction, where there's increased risk with the shutdown.
We always maintain strong liquidity and monitor our investment portfolio risks. When rates drop, the net interest income of the bank comes under pressure, which is 70% of the revenue of the company. So we will work on margin management, focusing on repricing our funding lower and optimizing our balance sheet. On the next slide, we talk about, capturing fee income. When rates are low, we have pressure on our net interest income revenue, but there's more opportunity for fee income from clients who wanna refinance their mortgages or interest rate hedging solutions for commercial clients and our wealth management business.
We will focus on maintaining strong capital. Balance sheet growth will slow due to the crisis with less growth. And we will focus on maintaining our common dividend. Of course, when times are tough, we need to tighten our our belt a little bit, reduce controllable expenses, and defer capital investments. So moving on to the next slide.
I think it's helpful to look at the phases of growth for our company. And from a financial perspective, your tactics shift when you go from phase to phase. We've outlined that on this slide. Phase one was just completed, which was the scale up of the company, which was, become more geographically diverse, expanding into the, Harrisburg area, Lancaster, and then into Maryland, growing the revenue base, And also building the, platform, the infrastructure for the future. It costs money to run a bank and to build the platform is expensive.
So, you need to scale up your company to be able to do that. So that that phase was completed last year with couple acquisitions behind us, and there was significant recruiting of commercial lenders, as Tom Quinn mentioned earlier. So now we're in phase two. And phase two is now moving the company, scaling up those investments, and moving the company to pure profitability over time. And then once that's achieved, phase three is then to grow profitably through organic strategies and potentially acquisitions, while maintaining that that pure profitability.
And then phase four is ongoing. On the next slide, specifically, wanted to cover what strategies we're focused on, this year, and this is phase two. A little bit more detail on that. We will focus on growing the relationship bank. Obviously, when you have multiple products that you're offering to a relationship, it's more profitable.
And that's, if you look at the franchise and you had where where first down started, moved to the Harrisburg, Lancaster, Maryland. And we have a lot of products that we could distribute and improve our market share over time in those markets, will make the bank more profitable. Branch efficiency, one of the big costs of running a bank is the physical branch structure. So we have a continuous assessment process that resulted in the consolidation of five branch locations in the first quarter of twenty twenty. But we will continue to assess the branches over time.
In the growth markets, it's a scale up process. We have a long term plan to build branches to 75 to 80,000,000 in size, and that is ongoing. And we wanna look at optimizing the Maryland branch market. That market, there was an acquisition of the Hamilton Bank, and we are transitioning the strategies that were in place there to, the relationship strategies that Oorstown has historically executed. On the next slide, we've got about balance sheet mix optimization.
This is building the more profitable assets on our balance sheet, which are, commercial loans and cash management deposits, low cost deposits, and reduce on balance sheet the mortgages, the investments, the low margin business, the wholesale funding, and that optimization will improve our net interest income, which again is 70% of our revenue. We will focus on fee income enhancement. If you look at the fee, the product offerings, where we earn fees, they're all relationship products from refinancing mortgages, to our wealth management solutions, interest rate hedging solutions for commercial clients, interchange revenue, which comes from clients using debit cards, and other retail services. We have a lot of great products. And if we build our our market share over time, the bank will be more profitable.
And then it's in the numbers on the next slide. You see, results of the the scale up. I talked about phase one. You could see it in the numbers over the five year period. Over three years, the assets of the company grew 68%, loans 88%, and, deposits 63%.
That's resulted in, diluted earnings per share over three years growth of 99%. So that scale up is improving the income of the company and allowed, Orisdown to increase the dividend by 71% over the past three years. And the market cap of the company is up 36%. On the next slide, focusing on revenue specifically. At scan to the bottom in the orange box, you could see the core revenues and expenses we stripped out, merger charges and branch consolidation expenses in there.
And you can see over a three year period, the core revenues are up 70% and the core expenses are only up 42%. So that's a concept of positive operating leverage where your revenues grow faster than your expenses and translates into a 268% increase in pretax pre provision income. On a per share basis, at the bottom, you see the revenues have grown 31%, expenses 10%, and a 185% increase in pre provision income. On the next slide, looking at the asset growth, the loan portfolio, you see, grew 87% over three years and the deposit book by 63. I talked about mix earlier and you could scan through the the mix here.
And over time, we would like to grow the commercial loans in the C and I categories and reduce the on balance sheet residential mortgages. We'll originate those and sell those. And as we change the mix, the the returns are higher for the commercial business, and that will translate into higher income. On the deposit side, you can see the same thing. The mix at the bottom, where the low cost deposits are more profitable, we'd like to go to non interest bearing DDAs and, reduce the CDs.
The next slide is capital adequacy. Five years ago, the company had a lot of excess capital. That capital was deployed into the organic growth strategies and the acquisitions. And with that being done, the the capital ratios are still very solid, and that, capital being deployed generated the results I talked about earlier. The next slide is the performance ratios.
These these are the profitability metrics. And if you look at the the the core profitability of the balance sheet, it is improving every year. Again, as you scale up the investments from the past and add more revenues, the efficiency ratio is improving every year, the operating expense average assets. And then the pre tax pre provision income to average assets is a proxy for return on assets. And you could see continuous improvement over time and that those we would like to continue to see move in that direction.
So with that, that's the overview of 2019. It's 2020 is a little bit of a different year than we expected. We're changing our focus in the near term, but the long term focus is still the same. So with that, I'd to turn it back over to Tom Quinn. Thank you very much.
Thank you, Tom. And, as we continue to focus on the challenges of the pandemic, it certainly is going to change, the way we operate some pieces of our business. And it's it's unrealistic to think that there are fantastic business relationships that aren't suffering a little bit right now, and we'll continue to manage those. But as we focus on 02/2020, we wanna continue to reach out to our investor community and and improve our investor relations, not only in our activities and our capabilities. We wanna continue to expand our fee income sources.
We've got off to a nice start, obviously, under a tough situation with the SBA PPP program. And it's an example of being very nimble and taking advantage of a new opportunity. As I said earlier, we've we've completed over 1,500 applications and $372,000,000 in round one of the the PPP program, and we're on to round two right now and and continuing to have some success. Further automation of our operations and technology to support not only the work from home needs, but to provide additional efficiencies and scale. I think the pandemic and working from home has demonstrated some opportunities for us.
We even take a very strong system and improve upon it. We wanna improve our data availability and the usability of the front line. I think our our business leaders are very talented, some of the best in the region and across the state lines. And giving them the appropriate data upfront will make will make better decisions. We want a consistent and repeatable sales process across our business lines.
You know, we said we've come close to doubling the company in the last several years, and we wanna make sure that our sales processes fit a growing company. We are going to continue to expand on Georgetown University. We think that educating our employees is an essential part of growth and giving them opportunities. And then we wanna continue to focus on enterprise risk management, especially in the times that we're in right now. This has been a constant process for us now and will be as we move forward.
With that, I'll turn meeting back over to Joel. Joel? Thank you, both Tom Quinn and Tom Berger, for their insightful remarks. At this time, we will entertain questions relating to proposals one, two and three. If shareholders attending via webcast have not submitted their questions yet, please do so now.
Mark Baer, a member of the bank's management team, will identify the shareholder by name and read his or her question. Thank you, Mr. Chairman. Actually, two questions did come during the meeting itself, and I'll read them in order. The first one is from a shareholder, Brenda Kay Mayer, m a y e r.
And her question is, focused loans, what is projection to actually collect? And I believe what Ms. Miller is referring to is this question came across when Mr. Quinn was talking about our success in Q4 and Q1. I believe she's probably asking about the pandemic and
And it's fantastic question. Clearly, we are doing more loans primarily because we have more people. We have 17 new lenders out there in the market, and they are bringing to the company many of their strong relationships that they have had for years while being employed at a different location. But those relationships need to fit within the Horsetown underwriting process and procedures, and we've been pretty stringent in in those requirements. I will not say that that some of some businesses will not be impacted by the COVID nineteen experience, and we are working with many of those now.
But our intent is to continue to be somewhat conservative as we as we approach lending during these times and and prior to this. And we've we've been in a a strong economic cycle for a long time prior to this this COVID nineteen pandemic. And and so we managed, that process knowing we were going to have an event at some point, with a level of of conservatism, as we approached it. So, it's it's part of our process. We'll continue to work with the clients.
We we have, been very fortunate to to bring over some wonderful clients, over the last couple of years to the organization. Thank you. And miss Maher, again, we did a little bit of interpretation of your question. If that's not exactly what you're asking, I remind you that you can reach out to us afterwards at ir@orstown.com or send to give us a call, and we can talk further. And, one other question also from Brenda K.
Mayer. And she said, is the sale of the operations center really happening in the third quarter? Yeah. Well, obviously, we're you know, we take deposits and we we lend those deposits out and make loans. We're not in the real estate business.
And so we had some excess space down at our one of our operation centers down in Chambersburg. We had an opportunity to to sell that piece of property and lease back a sizable portion of it, which we which we agreed to. And it's my understanding that that that is going to close sometime between now and the third quarter. You know, as every transaction, you know, until they close, you kind of continue to march down that path of of using the Florida the way it it intended. So my best answer is that is the expectation.
We have a contract regarding it, and and we'll we'll continue to move down that path. Thank you. And there are no other questions at this time. I would just remind anybody listening that if you have questions after the meeting, you can reach out to us in the usual message that the Chairman laid out, irghorgetown dot com, or simply give us a call. Mr.
Chen? Thank you, mister Bear. There being no further questions, we will turn now to the judge of elections. He has completed his count and will now read the report. Bob?
Mister chairman, as duly appointed judge of election, I've examined the proxy submitted and thereby confirm that they are all represented at this meeting by valid and legal proxies at least 8,781,929 shares of common stock of Horace Town Financial Services Inc. This represents 78% of the total of the 11,165,802 voting shares issued and outstanding as of the record date. This includes proxies for a number of shareholders who are present at this meeting. There may also be present in person shareholders from whom proxies have not been received. Mister chairman, since the duly appointed judge of election, I hereby certify that I have counted the votes cast for the election of three directors to class a to serve a three year term, and the three nominees have received the highest number of votes cast.
I have counted the votes cast in connection with the approval of the compensation of the named executive officers, and a majority of the votes cast have been cast in favor of approval of the compensation of the named executive officers. And finally, I have counted the votes cast in connection with the ratification of Crow LLP as the company's independent registered public accounting firm for 02/2020, and a majority of the votes cast have been cast in favor of ratification. Thank you, mister chairman. The report of the judge confirms that a quorum is and has been in in attendance at this meeting for all purposes. It also shows that Cindy j Joyner, Eric j Siegel, and Joel R.
Zeinger have each been duly elected as directors of the company for three year terms. The report shows that more than a majority of the votes cast have been voted in favor of proposal two, approval of the nonbinding advisory vote regarding the compensation paid to our named executive officers. And the report also says shows that more than a majority of votes cast have been voted in favor of proposal three, the ratification of the audit committee's selection of Crow LLP as the company's independent registered public accounting firm for the 2020 fiscal year. The report of the judge is accepted and approved and will be attached to the minutes of the meeting. Thank you for attending our annual meeting virtually.
There being no further business, a motion to adjourn is in order. And I have a motion from mister Rice and a second from mister Keller. Those in favor, signify by saying aye. Aye. Those opposed say no.
The motion is carried, and the annual meeting is adjourned. Thank you for coming to this annual meeting, and we look forward to seeing you face to face next year.