Monarch Financial Reports Record 2nd Quarter And Declares Cash Dividend

CHESAPEAKE, Va., July 25, 2013 (GLOBE NEWSWIRE) -- Monarch Financial Holdings, Inc. (Nasdaq:MNRK), the bank holding company for Monarch Bank, reported their best second quarter profits in the Company's history. The Board of Directors also declared a cash dividend of $0.06 per share. Second quarter 2013 highlights are:
  • Net income available to common shareholders up 29%
  • Record quarterly net income of $3,066,638, up 10%
  • Diluted earnings per share of $0.29, up 7%
  • Net Interest Margin holding steady at 4.11%
  • Non-performing assets at 0.30% of total assets
  • $607 million in mortgage loans closed

"The second quarter of 2013 represents the 18 th record quarterly improvement in our profitability. The leading drivers of our performance were improved credit quality, non-interest income growth, consistent mortgage loan closings and net interest income growth. Even with startup expenses related to Monarch Bank Private Wealth, expansion into the Williamsburg and Peninsula mortgage and banking markets, and our new mortgage venture with Rose and Womble Realty, we managed to improve our profitability and financial performance from the same period one year ago." stated Brad E. Schwartz, Chief Executive Officer. "Our shareholders have been rewarded this year with an improved stock price, increased cash dividends, and higher earnings per share."

The Board of Directors on July 24, 2013 declared a regular quarterly cash dividend of $0.06 per share of common stock. The dividend is payable on August 30, 2013 to shareholders of record on August 9, 2013. The amount and declaration of future cash dividends are subject to Board of Director's approval in addition to regulatory restrictions.

For the first six months of 2013 net income was a record $6,524,767 compared to $5,293,093 for the same period in 2012, a 23% increase. The six month annualized return on average equity (ROE) was 14.61%, and the annualized return on average assets (ROA) was 1.23%. Year to date diluted earnings per share were $0.62 compared to $0.52 per share in the same quarter of 2012, a 19% improvement. 

Net income was $3,066,638 for the second quarter of 2013, up 10% from the same period in 2012, which was the Company's previous record second quarter with $2,776,987 in net income. The quarterly annualized return on average equity (ROE) was 13.42%, and the quarterly return on average assets (ROA) was 1.19%. Diluted earnings per share were $0.29, compared to $0.27 per share in the same quarter of 2012. 

Total assets at June 30, 2013 were $1.02 billion, up from $995 million one year prior. While total asset growth was nominal year over year, the shift in assets continued with loans held for investment growing $70.9 million, cash and funds sold growing $64.5 million, and short-term mortgage loans held for sale declining $115.4 million. A major company focus in 2013 has been to improve delivery and funding times for mortgage loans sold to our correspondents to improve our liquidity position, reduce potential interest rate risk, and ensure adequate funding to grow loans held for investment. 

Loans held for investment grew $70.9 million or 11% in the past year. Loans held for investment grew a net of $5 million during the second quarter of 2013 and have grown $36 million year to date. We booked and funded $63 million in new loans held for investment during the second quarter of 2013 and $117 million year to date. The majority of our second quarter new loan growth was offset by loan payments and payoffs. 

Deposits increased $45.3 million or 5.3% year over year and now total $898.6 million. The positive shift between deposit categories continued with our focus on generating commercial demand deposits through our cash management team. Demand deposits grew $51.2 million to $271.0 million, money market accounts grew $33.7 million to $341.0 million, and higher-cost certificates of deposits declined $42.2 million to $264.5 million. At the same time borrowings declined $35.1 million. The shift in certificates of deposit and borrowings is a direct reflection on our streamlined process for delivering closed mortgage loans held for sale to improve funding turnaround. Demand deposits now represent 30.2% of our total deposits. While the current rate environment does not appropriately reward banks for a demand deposit-focused funding strategy, this strategy should deliver long-term net interest margin protection when rates eventually rise. 

"We are pleased to report a great quarter and year for loan production and growth, with all of this accomplished to our higher credit standards. We continue to see credit standards in the marketplace loosen and pledge to lend as we have in the past to the top clients in our markets with properly structured and priced loans." stated Neal Crawford, President of Monarch Bank. "Our funding initiatives continue to improve our deposit mix and for the first time we have over 30% of our deposits in demand deposit accounts. We are very proud of our team in hitting this goal in the second quarter." 

Non-performing assets were 0.30%, which remains below that of our local, state, and national peer group. This was down from 0.34% in the first quarter of 2013 and 0.82% one year ago. Non-performing assets were $3.0 million, comprised of no loans 90 days or more past due and still accruing interest, $2.9 million in non-accrual loans and $0.1 million in other real estate owned. There was one property held at quarter-end in other real estate owned. The Company recorded net loan loss recoveries in the second quarter of $532 thousand, and year to date net loan loss recoveries totaled $410 thousand. The allowance for loan losses represents 1.62% of total loans held for investment and 385% of non-performing loans. 

Average equity to average assets was 8.88% during the second quarter of 2013, an increase from 8.34% one year prior. Total risk-based capital to risk weighted assets at Monarch Bank equaled 13.66%, significantly higher than the required level to meet the highest rating of "Well Capitalized" by federal banking regulators. Monarch was again awarded the highest 5-Star "Superior" rating by Bauer Financial, an independent third-party bank rating agency that rates banks on safety and soundness. 

Net interest income, our number one driver of profitability, increased 2.5% or $236,000 during the second quarter of 2013 compared to the same quarter in 2012. Our net interest margin was 4.11% which improved from 4.02% at year-end 2012 and was in line with the previous quarter of 4.12%. Competition for loans for top credit clients continues to impact new loan pricing.  Our focus on improving mortgage loan funding speeds also reduced our total earnings assets quarter over quarter. 

Non-interest income increased $0.8 million during the second quarter over the previous year, while non-interest expenses grew by $1.7 million, increasing net overhead expense by $0.9 million for the second quarter compared to the previous year. Every category of non-interest income increased for the quarter and year to date. Investment revenues related to Monarch Bank Private Wealth totaled $452 thousand for the year compared to $31 thousand the previous year, a significant increase. The net overhead growth is attributed to the strategic growth of all our lines of business in the Williamsburg and Peninsula markets which opened in September 2012, the startup of Monarch Bank Private Wealth which began business in the third quarter of 2012, as well as mortgage and bank staffing growth. Salary and benefits expense, facilities expense, marketing expense, and the cost of governmental compliance expenses were the primary drivers of our net overhead growth. 

Mortgage revenue continues to be the number one driver of non-interest income. $607 million in mortgage loans were closed during the second quarter of 2013, and home purchase mortgage loans represented 61% of total closed loans. We have closed $1.1 billion in mortgage loans during the first six months of 2013, which is in line with the same period in 2102. During the second quarter we also opened several mortgage banking offices of Advance Financial Group, our mortgage partnership with Rose and Womble Realty. 

"We are pleased to report another quarter of strong mortgage production with over 60% of our volume from purchase mortgage loans. We have always structured our company to focus on purchase money mortgages and while we enjoyed the refinance volume in the past we are well positioned to continue our profit contribution in the current environment." stated William T. Morrison, CEO of Monarch Mortgage. "Our expansion in the Peninsula and Williamsburg markets is just beginning, with our Newport News mortgage office opening just last week. We remain focused on building relationships with the realtor and builder community, as well as our past clients to drive production volume."

Monarch Financial Holdings, Inc. is the one-bank holding company for Monarch Bank. Monarch Bank is a community bank with eleven banking offices in Chesapeake, Virginia Beach, Norfolk, Suffolk, and Williamsburg Virginia. Monarch Bank also has a loan production office in Newport News, Virginia. OBX Bank, a division of Monarch Bank, operates offices in Kitty Hawk and Nags Head, North Carolina. Monarch Mortgage and our affiliated mortgage companies have over thirty offices with locations in Virginia, North Carolina, Maryland, and South Carolina. Our subsidiaries/ divisions include Monarch Bank, OBX Bank, Monarch Mortgage (secondary mortgage origination), OBX Bank Mortgage (secondary mortgage origination), Coastal Home Mortgage, LLC (secondary mortgage origination), Regional Home Mortgage, LLC (secondary mortgage origination), Monarch Home Funding, LLC (secondary mortgage origination), Advance Financial Group (secondary mortgage origination), Monarch Bank Private Wealth (investment, trust, planning and private banking), Monarch Investments (investment and insurance solutions), Real Estate Security Agency, LLC (title agency) and Monarch Capital, LLC (commercial mortgage brokerage). The shares of common stock of Monarch Financial Holdings, Inc. are publicly traded on the Nasdaq Capital Market under the symbol "MNRK".

This press release may contain "forward-looking statements," within the meaning of federal securities laws that involve significant risks and uncertainties. Statements herein are based on certain assumptions and analyses by the Company and are factors it believes are appropriate in the circumstances. Actual results could differ materially from those contained in or implied by such statements for a variety of reasons including, but not limited to: changes in interest rates; changes in accounting principles, policies, or guidelines; significant changes in the economic scenario: significant changes in regulatory requirements; and significant changes in securities markets. Consequently, all forward-looking statements made herein are qualified by these cautionary statements and the cautionary language in the Company's most recent Form 10-K and 10-Q reports and other documents filed with the Securities and Exchange Commission. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.
Consolidated Balance Sheets
Monarch Financial Holdings, Inc. and Subsidiaries
(In thousands)
Unaudited
           
  June 30,  March 31,  December 31, September 30, June 30,
  2013 2013 2012 2012 2012
ASSETS:          
Cash and due from banks  $ 19,050  $ 17,414  $ 27,364  $ 14,633  $ 16,263
Interest bearing bank balances  15,195  14,099  14,667  12,043  4,295
Federal funds sold  56,972  21,937  15,744  8,191  6,142
           
Investment securities, at fair value  16,573  16,493  14,634  10,328  10,820
           
Loans held for sale  166,586  242,457  419,075  382,095  282,014
           
Loans held for investment, net of unearned income  697,376  692,410  661,094  627,256  626,464
Less: allowance for loan losses  (11,320)  (10,788)  (10,910)  (10,890)  (10,724)
Net loans  686,056  681,622  650,184  616,366  615,740
           
Bank premises and equipment, net  28,101  27,507  25,448  23,449  23,210
Restricted equity securities, at cost  3,792  3,781  12,363  8,346  4,885
Bank owned life insurance  7,290  7,231  7,173  7,132  7,069
Goodwill  775  775  775  775  775
Intangible assets, net  194  238  283  327  372
Accrued interest receivable and other assets  20,815  21,421  27,868  26,727  23,649
           
Total assets  $ 1,021,399  $ 1,054,975  $ 1,215,578  $ 1,110,412  $ 995,234
           
LIABILITIES:          
Demand deposits---non-interest bearing  $ 218,880  $ 201,346  $ 190,120  $ 182,080  $ 178,520
Demand deposits---interest bearing  52,101  57,074  65,369  40,865  41,219
Money market deposits  341,042  332,305  335,899  313,985  307,392
Savings deposits  22,172  23,579  22,127  21,531  19,633
Time deposits  264,491  317,181  288,267  329,246  306,649
Total deposits  898,686  931,485  901,782  887,707  853,413
           
FHLB borrowings  1,225  1,250  194,299  105,027  31,324
Short Term borrowings  --  5,000  5,000  5,000  5,000
Federal funds purchased  --  --  --  --  --
Trust preferred subordinated debt  10,000  10,000  10,000  10,000  10,000
Accrued interest payable and other liabilities  16,733  14,894  15,550  17,151  14,260
Total liabilities  926,644  962,629  1,126,631  1,024,885  913,997
           
STOCKHOLDERS' EQUITY:          
Preferred Stock  --  --  2,406  3,945  3,945
Common stock  50,873  50,821  41,632  35,732  35,732
Capital in excess of par value  6,521  6,300  12,718  16,867  16,724
Retained earnings  36,233  33,790  30,786  27,586  24,512
Accumulated other comprehensive loss  (480)  (174)  (200)  (218)  (299)
Total Monarch Financial Holdings, Inc. stockholders' equity  93,147  90,737  87,342  83,912  80,614
Noncontrolling interest  1,608  1,609  1,605  1,615  623
Total equity  94,755  92,346  88,947  85,527  81,237
           
Total liabilities and stockholders' equity  $ 1,021,399  $ 1,054,975  $ 1,215,578  $ 1,110,412  $ 995,234
           
Preferred shares outstanding at period end  --   --   481,123  788,900  788,900
Common shares outstanding at period end (1)  10,408,544  10,398,073  8,557,939  7,251,491  7,251,491
           
Nonvested shares of common stock included in commons shares outstanding (1)  233,960  233,960  231,460  105,060  105,060
           
Book value per common share at period end (1) (2)  $ 8.95  $ 8.73  $ 8.80  $ 8.85  $ 8.40
Tangible book value per common share at period end (1) (3)  $ 8.86  $ 8.63  $ 8.68  $ 8.70  $ 8.24
Closing market price (1)  $ 10.83  $ 10.61  $ 8.22  $ 8.13  $ 8.21
           
Total risk based capital - Consolidated company 13.42% 13.06% 12.05% 12.49% 12.17%
Total risk based capital - Bank 13.66% 13.78% 12.73% 13.23% 12.79%
           
(1) All share information has been adjusted to reflect the 6 for 5 stock split granted December 7, 2012 and cash in lieu of fractional shares.
(2) Book value per common share is defined as stockholders' equity divided by as-converted common shares outstanding.
(3) Tangible book value per common share is defined as stockholders' equity less goodwill and other intangibles divided by as-converted commons shares outstanding.
 
Consolidated Statements of Income
Monarch Financial Holdings, Inc. and Subsidiaries
Unaudited
 
  Three Months Ended Six Months Ended
  June 30,  June 30, 
  2013 2012 2013 2012
INTEREST INCOME:        
Interest on federal funds sold  $ 25,312  $ 8,903  $ 30,470  $ 15,162
Interest on other bank accounts  9,952  4,898  18,094  8,446
Dividends on equity securities  69,225  64,974  143,660  102,474
Interest on investment securities  57,302  51,090  114,871  97,321
Interest and fees on loans  10,813,696  10,853,754  22,522,262  21,734,790
Total interest income  10,975,487  10,983,619  22,829,357  21,958,193
INTEREST EXPENSE:        
Interest on deposits  1,020,913  1,266,904  2,050,375  2,548,691
Interest on trust preferred subordinated debt  124,200  123,425  243,242  246,275
Interest on other borrowings  38,810  37,607  327,988  100,114
Total interest expense  1,183,923  1,427,936  2,621,605  2,895,080
NET INTEREST INCOME  9,791,564  9,555,683  20,207,752  19,063,113
PROVISION FOR LOAN LOSSES  --  1,484,400  --  3,415,079
         
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES  9,791,564  8,071,283  20,207,752  15,648,034
         
NON-INTEREST INCOME:        
Mortgage banking income  20,572,388  20,152,078  36,738,324  36,736,289
Service charges and fees  477,660  467,565  928,814  881,616
Title income  232,423  168,622  486,774  282,880
Investment and insurance income  245,524  16,676  452,460  31,312
Other income  146,276  118,992  248,917  387,844
Total non-interest income  21,674,271  20,923,933  38,855,289  38,319,941
NON-INTEREST EXPENSE:        
Salaries and employee benefits  8,502,755  7,093,920  16,707,830  13,724,438
Commissions and incentives  9,703,820  10,352,665  16,769,296  19,084,866
Occupancy and equipment  2,130,445  1,715,098  3,996,963  3,314,179
Loan expense  2,630,295  2,184,323  4,460,732  3,799,454
Marketing expense  744,646  593,526  1,257,604  1,003,817
Data processing  435,771  363,342  836,729  709,332
Other expenses  2,025,152  2,202,905  4,004,351  3,751,503
Total non-interest expense  26,172,884  24,505,779  48,033,505  45,387,589
         
INCOME BEFORE TAXES  5,292,951  4,489,437  11,029,536  8,580,386
Income tax provision  (1,797,773)  (1,556,294)  (3,791,326)  (2,977,835)
NET INCOME  3,495,178  2,933,143  7,238,210  5,602,551
         
Less: Net income attributable to noncontrolling interest  (428,540)  (156,156)  (713,443)  (309,458)
NET INCOME ATTRIBUTABLE TO MONARCH FINANCIAL HOLDINGS, INC  $ 3,066,638  $ 2,776,987  $ 6,524,767  $ 5,293,093
         
Preferred stock dividend and accretion of preferred stock discount  --   (390,000)  --   (780,000)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS  $ 3,066,638  $ 2,386,987  $ 6,524,767  $ 4,513,093
         
NET INCOME PER COMMON SHARE:         
         
 Basic  $ 0.29  $ 0.33  $ 0.66  $ 0.63
 Diluted  $ 0.29  $ 0.27  $ 0.62  $ 0.52
         
Weighted average basic shares outstanding  10,401,992  7,188,270  9,854,418  7,183,028
Weighted average diluted shares outstanding  10,463,851  10,225,182  10,451,897  10,214,481
         
Return on average assets 1.19% 1.18% 1.23% 1.14%
Return on average stockholders' equity 13.42% 14.14% 14.61% 13.63%
         
(1) All share information has been adjusted to reflect the 6 for 5 stock split granted December 7, 2012 and cash in lieu of fractional shares.
 
Financial Highlights
Monarch Financial Holdings, Inc. and Subsidiaries
 
 (Dollars in thousands, except per share data) For the Quarter Ended
  June 30, March 31, December 31, September 30,  June 30, 
  2013 2013 2012 2012 2012
EARNINGS          
Interest income  $ 10,976  $ 11,854  $ 12,690  $ 11,820  $ 10,983
Interest expense  (1,184)  (1,438)  (1,591)  (1,430)  (1,428)
Net interest income  9,792  10,416  11,099  10,390  9,555
Provision for loan losses  --   --   (517)  (899)  (1,484)
Noninterest income - mortgage banking income  20,572  16,166  23,826  25,652  20,152
Noninterest income - other  1,102  1,015  1,054  909  772
Noninterest expense  (26,173)  (21,861)  (29,058)  (29,810)  (24,506)
Pre-tax net income  5,293  5,736  6,404  6,242  4,489
Minority interest in net income   (428)  (285)  (298)  (368)  (156)
Income taxes   (1,798)  (1,993)  (2,338)  (2,111)  (1,556)
Net income   $ 3,067  $ 3,458  $ 3,768  $ 3,763  $ 2,777
           
PER COMMON SHARE           
Earnings per share - basic  $ 0.29  $ 0.37  $ 0.44  $ 0.47  $ 0.33
Earnings per share - diluted  0.29  0.33  0.37  0.37  0.27
Common stock - per share dividends  0.06  0.05  0.05  0.05  0.05
Average Basic Shares Outstanding 10,401,992 9,300,760 7,980,259 7,235,370 7,188,270
Average Diluted Shares Outstanding 10,483,420 10,451,897 10,315,360 10,255,285 10,205,401
           
ALLOWANCE FOR LOAN LOSSES          
Beginning balance  $ 10,788  $ 10,910  $ 10,890  $ 10,724  $ 10,400
Provision for loan losses  --   --   517  899  1,484
Charge-offs  (279)  (554)  (622)  (823)  (1,403)
Recoveries  811  432  125  90  243
Net charge-offs  532  (122)  (497)  (733)  (1,160)
Ending balance  $ 11,320  $ 10,788  $ 10,910  $ 10,890  $ 10,724
           
COMPOSITION OF RISK ASSETS          
Nonperforming loans:          
90 days past due  $ --  $ 351  $ 153  $ --  $ 461
Nonaccrual & Restructured debt 2,933 3,149 3,483 4,105 5,691
OREO 95 95 0 1,250 2,013
Nonperforming assets  3,028  3,595  3,636  5,355  8,165
           
ASSET QUALITY RATIOS          
Nonperforming assets to total assets 0.30% 0.34% 0.30% 0.48% 0.82%
Nonperforming loans to total loans 0.42 0.51 0.55 0.65 0.98
Allowance for loan losses to total loans held for investment 1.62 1.56 1.65 1.74 1.71
Allowance for loan losses to nonperforming loans 385.95 308.23 300.06 265.29 174.32
Annualized net charge-offs to average loans held for investment -0.31 0.07 0.31 0.48 0.76
           
FINANCIAL RATIOS          
Return on average assets  1.19%  1.27%  1.28%  1.43%  1.18%
Return on average stockholders' equity  13.42  15.86  17.51  18.24  14.14
Net interest margin (FTE)  4.11  4.12  4.02  4.27  4.36
Non-interest revenue/Total revenue  66.4  59.2  66.3  69.2  65.6
Efficiency - Consolidated  83.0  79.1  80.4  80.6  80.3
Efficiency - Bank only  58.2  53.1  54.5  52.6  57.0
Average equity to average assets  8.88  8.00  7.29  7.85  8.34
           
PERIOD END BALANCES (Amounts in thousands)          
Total loans held for sale  $ 66,586  $ 242,457  $ 419,075  $ 382,095  $ 282,014
Total loans held for investment  697,376  692,410  661,094  627,256  626,464
Interest-earning assets  960,481  994,946  1,141,180  1,051,145  935,908
Assets  1,021,399  1,054,975  1,215,578  1,110,412  995,234
Total deposits  898,686  931,485  901,782  887,707  853,413
Other borrowings  11,225  16,250  209,299  120,027  46,325
Stockholders' equity  93,147  90,737  87,342  83,912  80,614
           
AVERAGE BALANCES (Amounts in thousands)          
Total loans held for sale  $ 200,733  $ 316,189  $ 423,354  $ 327,378  $ 239,558
Total loans held for investment  680,037  665,542  637,774  616,728  613,334
Interest-earning assets  964,872  1,033,838  1,103,667  978,135  891,340
Assets  1,032,345  1,105,933  1,173,820  1,044,966  947,060
Total deposits  908,229  865,146  945,297  890,772  827,258
Other borrowings  11,250  123,291  114,140  46,320  20,367
Stockholders' equity  91,638  88,430  85,584  82,070  78,969
           
MORTGAGE PRODUCTION (Amounts in thousands)          
Dollar volume of mortgage loans closed  $ 607,189  $ 542,235  $ 762,131  $ 784,963  $ 605,926
Percentage of refinance based on dollar volume  39.2%  56.8%  61.4%  59.8%  47.5%
CONTACT: Brad E. Schwartz - (757) 389-5111, www.monarchbank.com

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