Monarch Financial Reports Quarterly Results And Raises Cash Dividend By 16%

CHESAPEAKE, Va., Oct. 17, 2013 (GLOBE NEWSWIRE) -- Monarch Financial Holdings, Inc. (Nasdaq:MNRK), the bank holding company for Monarch Bank, reported third quarter financial results and increased their quarterly cash dividend. The Board of Directors announced a 16.7% increase in the quarterly common stock cash dividend to $0.07 per common share, payable on November 29, 2013, to shareholders of record on November 12, 2013.

Third quarter 2013 highlights are:
  • Quarterly net income of $2,409,674 for a return on equity of 10.18%
  • Diluted earnings per share of $0.23
  • Net Interest Margin holding steady at 4.11%
  • Non-performing assets at 0.30% of total assets
  • $478 million in mortgage loans closed with 77% purchase

Year to date 2013 highlights are:
  • Net income of $8,934,441, for a return on equity of 13.07%
  • Diluted earnings per share of $0.85
  • $1.6 billion in mortgage loans closed with 60% purchase

"We knew this quarter was going to be a challenge, on a comparative basis, because of the record mortgage refinance volume we closed in the second half of 2012. We are proud to show improved profitability this quarter in our banking and investment operations which was somewhat offset by a decline in mortgage profitability. Our investment in the formation of Monarch Bank Private Wealth, the expansion into the Williamsburg and Peninsula mortgage and banking markets, and our new mortgage venture with Rose and Womble Realty also impacted our solid yet reduced earnings," stated Brad E. Schwartz, Chief Executive Officer. "We will continue on our strategic path of growing our franchise and diversifying our revenue even if it impacts short-term results. The fact we increased our cash dividend payout by over 16% indicates the confidence we have in our core earnings and performance."

For the first nine months of 2013 net income was $8,934,441 compared to $9,056,496 for the same period in 2012. While net income was in line with the previous year, net income available to common shareholders rose 13% for an increase of $1,044,679. The nine month annualized return on average equity (ROE) was 13.07%, and the annualized return on average assets (ROA) was 1.14%. Year to date diluted earnings per share were $0.85 compared to $0.89 per share in the same quarter of 2012. 

Net income was $2,409,674 for the third quarter of 2013, down 36% from the same period in 2012, which was the second best quarter in the Company's history. The quarterly annualized return on average equity (ROE) was 10.18%, and the quarterly return on average assets (ROA) was 0.94%. Diluted earnings per share were $0.23, compared to $0.37 per share in the same quarter of 2012. 

Total assets at September 30, 2013 were $1.01 billion. Over the past year loans held for investment grew 11% to $698 million while mortgage loans held for sale declined 68% to $120 million. Total deposits remained at the same level as one year ago yet their composition changed. Demand deposits have grown $47 million or 21% from a year ago, with demand deposits now representing 31% of total deposits. Money market accounts have grown $51 million or 16% from one year prior, while higher cost certificates of deposit decreased $101 million or 31%. At the same time borrowings declined $109 million or 99% from one year prior. While the current rate environment does not appropriately reward banks for a transaction-focused funding strategy, this strategy should deliver long-term net interest margin protection when rates eventually rise. 

"Building a high quality and profitable loan portfolio remains our primary focus, and we are proud of our 11% year over year loan growth," stated E. Neal Crawford Jr., President of Monarch Bank. "Our peninsula expansion and the integration of Monarch Bank Private Wealth into our client base are just beginning and we continue to attract new banking relationships in all our markets."

Non-performing assets were 0.30% as of September 30, 2013 compared to 0.48% one year prior, and non-performing loans to loans held for investment were 0.43% compared to 0.65% one year prior. Non-performing assets were $3.1 million, comprised of $82 thousand 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. The Company recorded net loan losses of $92 thousand in the third quarter, and year to date net loan loss recoveries totaled $318 thousand. The allowance for loan losses represents 1.61% of total loans held for investment and 379% of non-performing loans. 

Average equity to average assets rose to 9.27% during the third quarter of 2013, an increase from 7.85% one year prior. Total risk-based capital to risk weighted assets at Monarch Bank equaled 13.84%, 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, decreased 6% or $669,000 during the third quarter of 2013 compared to the same quarter in 2012. A decrease in the average balance of our mortgage loans held for sale of $191 million or 58% was partially offset by increases in the average balance of our loans held for investment portfolio of $76 million or 12% when comparing year over year results. Our quarterly net interest margin was 4.11% which was equal to the previous quarter.

Non-interest income decreased $9.9 million or 37% during the third quarter over the previous year, while non-interest expenses declined by $7.5 million, increasing net overhead expense by $2.4 million for the third quarter compared to the previous year. Investment revenues related to Monarch Bank Private Wealth totaled $717,427 for the year compared to $66,138 the previous year, a significant increase. The Company was recently recognized by Raymond James Financial Services as a top performing investment program, with over $150 million in assets under management accumulated since the formation of Monarch Bank Private Wealth in the third quarter of 2012.

Mortgage revenue remains the number one driver of non-interest income. $478 million in mortgage loans were closed during the third quarter of 2013 (77% purchase) compared to $785 million in the third quarter of 2012 (40% purchase). Monarch closed $1.6 billion in mortgage loans during the first nine months of 2013. The reduction in mortgage revenue was due to lower margins driven by competition, a lower volume of closings, and reduced balances and related earnings from our loans held for sale portfolio. The third quarter of 2012 was the best quarter for mortgage loan closings in our Company's history. Ongoing expense reductions are being made in our mortgage operations to better align our expense structure with current mortgage production levels.

"Our long-term focus on purchase mortgage lending will continue to help us grow market share, with 77% of our mortgages closed in the third quarter being purchase mortgage loans. We took advantage of the refinance market last year and remain committed to building relationships with the realtor and builder community, as well as our past clients to drive loan volume," stated William T. Morrison, CEO of Monarch Mortgage.

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-five 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
           
  September 30, 2013 June 30, 2013 March 31, 2013 December 31, 2012 September 30, 2012
ASSETS:          
 Cash and due from banks  $ 21,016  $ 19,050  $ 17,414  $ 27,364  $ 14,633
 Interest bearing bank balances  24,504  15,195  14,099  14,667  12,043
 Federal funds sold  83,454  56,972  21,937  15,744  8,191
           
 Investment securities, at fair value  16,973  16,573  16,493  14,634  10,328
           
 Loans held for sale  120,435  166,586  242,457  419,075  382,095
           
 Loans held for investment, net of unearned income  697,541  697,376  692,410  661,094  627,256
 Less: allowance for loan losses  (11,228)  (11,320)  (10,788)  (10,910)  (10,890)
 Net loans  686,313  686,056  681,622  650,184  616,366
           
 Bank premises and equipment, net  28,454  28,101  27,507  25,448  23,449
 Restricted equity securities, at cost  3,666  3,792  3,781  12,363  8,346
 Bank owned life insurance  7,351  7,290  7,231  7,173  7,132
 Goodwill  775  775  775  775  775
 Intangible assets, net  149  194  238  283  327
 Accrued interest receivable and other assets  18,857  20,815  21,421  27,868  26,727
           
 Total assets  $ 1,011,947  $ 1,021,399  $ 1,054,975  $ 1,215,578  $ 1,110,412
           
LIABILITIES:          
 Demand deposits---non-interest bearing  $ 222,021  $ 218,880  $ 201,346  $ 190,120  $ 182,080
 Demand deposits---interest bearing  48,302  52,101  57,074  65,369  40,865
 Money market deposits  364,488  341,042  332,305  335,899  313,985
 Savings deposits  22,665  22,172  23,579  22,127  21,531
 Time deposits  228,652  264,491  317,181  288,267  329,246
 Total deposits  886,128  898,686  931,485  901,782  887,707
           
 FHLB borrowings  1,200  1,225  1,250  194,299  105,027
 Short Term borrowings  --  --  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  17,855  16,733  14,894  15,550  17,151
 Total liabilities  915,183  926,644  962,629  1,126,631  1,024,885
           
STOCKHOLDERS' EQUITY:          
 Preferred Stock  --  --  --  2,406  3,945
 Common stock  51,230  50,873  50,821  41,632  35,732
 Capital in excess of par value  6,755  6,521  6,300  12,718  16,867
 Retained earnings  38,014  36,233  33,790  30,786  27,586
 Accumulated other comprehensive loss  (406)  (480)  (174)  (200)  (218)
 Total Monarch Financial Holdings, Inc. stockholders' equity  95,593  93,147  90,737  87,342  83,912
 Noncontrolling interest  1,171  1,608  1,609  1,605  1,615
 Total equity  96,764  94,755  92,346  88,947  85,527
           
 Total liabilities and stockholders' equity  $ 1,011,947  $ 1,021,399  $ 1,054,975  $ 1,215,578  $ 1,110,412
           
Preferred shares outstanding at period end  --   --   --   481,123  788,900
Common shares outstanding at period end (1)  10,480,023  10,408,544  10,398,073  8,557,939  7,251,491
Nonvested shares of common stock included in commons shares outstanding (1)  233,960  233,960  233,960  231,460  126,072
           
Book value per common share at period end (1) (2)  $ 9.12  $ 8.95  $ 8.73  $ 8.80  $ 8.85
Tangible book value per common share at period end (1) (3)  $ 9.03  $ 8.86  $ 8.63  $ 8.68  $ 8.70
Closing market price (1)  $ 11.72  $ 10.83  $ 10.61  $ 8.22  $ 8.13
           
Total risk based capital - Consolidated company 13.70% 13.42% 13.06% 12.05% 12.49%
Total risk based capital - Bank 13.84% 13.66% 13.78% 12.73% 13.23%
           
(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 September 30,  Nine Months Ended September 30, 
  2013 2012 2013 2012
INTEREST INCOME:        
 Interest on federal funds sold  $ 43,210  $ 3,973  $ 73,680  $ 19,135
 Interest on other bank accounts  11,307  4,713  29,401  13,159
 Dividends on equity securities  66,500  38,500  210,160  140,974
 Interest on investment securities  55,314  52,670  170,185  149,991
 Interest and fees on loans  10,665,512  11,719,849  33,187,774  33,454,639
 Total interest income  10,841,843  11,819,705  33,671,200  33,777,898
INTEREST EXPENSE:        
 Interest on deposits  979,858  1,207,004  3,030,233  3,755,695
 Interest on trust preferred subordinated debt  125,818  123,422  369,060  369,697
 Interest on other borrowings  15,355  99,723  343,343  199,837
 Total interest expense  1,121,031  1,430,149  3,742,636  4,325,229
NET INTEREST INCOME  9,720,812  10,389,556  29,928,564  29,452,669
PROVISION FOR LOAN LOSSES  --  898,598  --  4,313,677
         
NET INTEREST INCOME AFTER PROVISION        
 FOR LOAN LOSSES  9,720,812  9,490,958  29,928,564  25,138,992
         
NON-INTEREST INCOME:        
 Mortgage banking income  15,657,242  25,651,606  52,395,566  62,387,895
 Service charges and fees  510,739  458,572  1,439,553  1,340,188
 Title income  177,705  294,369  664,479  577,249
 Investment and insurance income  264,967  34,826  717,427  66,138
 Other income  64,420  121,756  313,337  509,600
 Total non-interest income  16,675,073  26,561,129  55,530,362  64,881,070
NON-INTEREST EXPENSE:        
 Salaries and employee benefits  8,632,847  7,944,646  25,340,677  21,669,084
 Commissions and incentives  6,326,920  14,501,486  23,096,216  33,586,352
 Occupancy and equipment  2,232,315  1,827,114  6,229,278  5,141,293
 Loan expense  1,904,786  2,226,109  6,365,518  6,025,563
 Marketing expense  807,938  632,996  2,065,542  1,636,813
 Data processing  400,125  360,284  1,236,854  1,069,616
 Other expenses  2,010,030  2,317,353  6,014,381  6,068,856
 Total non-interest expense  22,314,961  29,809,988  70,348,466  75,197,577
         
INCOME BEFORE TAXES  4,080,924  6,242,099  15,110,460  14,822,485
 Income tax provision  (1,415,697)  (2,111,207)  (5,207,023)  (5,089,042)
NET INCOME  2,665,227  4,130,892  9,903,437  9,733,443
         
 Less: Net income attributable to noncontrolling interest  (255,553)  (367,489)  (968,996)  (676,947)
NET INCOME ATTRIBUTABLE TO MONARCH        
 FINANCIAL HOLDINGS, INC  $ 2,409,674  $ 3,763,403  $ 8,934,441  $ 9,056,496
         
Preferred stock dividend and accretion of preferred        
 stock discount  --   (386,734)  --   (1,166,734)
NET INCOME AVAILABLE TO COMMON        
 STOCKHOLDERS  $ 2,409,674  $ 3,376,669  $ 8,934,441  $ 7,889,762
         
NET INCOME PER COMMON SHARE:         
         
 Basic  $ 0.23  $ 0.47  $ 0.89  $ 1.09
 Diluted  $ 0.23  $ 0.37  $ 0.85  $ 0.89
         
Weighted average basic shares outstanding  10,464,992  7,251,870  10,060,179  7,144,496
Weighted average diluted shares outstanding  10,519,472  10,255,285  10,479,841  10,388,676
         
Return on average assets 0.94% 1.43% 1.14% 1.25%
Return on average stockholders' equity 10.18% 18.24% 13.07% 15.23%
         
(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        
  September 30, 2013 June 30, 2013 March 31, 2013 December 31, 2012 September 30, 2012
EARNINGS          
Interest income  $ 10,842  $ 10,976  $ 11,854  $ 12,690  $ 11,820
Interest expense  (1,121)  (1,184)  (1,438)  (1,591)  (1,430)
Net interest income  9,721  9,792  10,416  11,099  10,390
Provision for loan losses  --   --   --   (517)  (899)
Noninterest income - mortgage banking income  15,510  20,572  16,166  23,826  25,652
Noninterest income - other  1,018  1,102  1,015  1,054  909
Noninterest expense  (22,315)  (26,173)  (21,861)  (29,058)  (29,810)
Pre-tax net income  3,934  5,293  5,736  6,404  6,242
Minority interest in net income   (108)  (428)  (285)  (298)  (368)
Income taxes   (1,416)  (1,798)  (1,993)  (2,338)  (2,111)
Net income   $ 2,410  $ 3,067  $ 3,458  $ 3,768  $ 3,763
           
PER COMMON SHARE         
Earnings per share - basic  $ 0.23  $ 0.29  $ 0.37  $ 0.44  $ 0.47
Earnings per share - diluted  0.23  0.29  0.33  0.37  0.37
Common stock - per share dividends  0.06  0.06  0.05  0.05  0.05
Average Basic Shares Outstanding 10,464,992 10,401,992 9,300,760 7,980,259 7,251,870
Average Diluted Shares Outstanding 10,519,472 10,483,420 10,451,897 10,315,360 10,255,285
           
ALLOWANCE FOR LOAN LOSSES        
Beginning balance  $ 11,320  $ 10,788  $ 10,910  $ 10,890  $ 10,724
Provision for loan losses  --   --   --   517  899
 Charge-offs  (137)  (279)  (554)  (622)  (823)
 Recoveries  45  811  432  125  90
Net charge-offs  (92)  532  (122)  (497)  (733)
Ending balance  $ 11,228  $ 11,320  $ 10,788  $ 10,910  $ 10,890
           
COMPOSITION OF RISK ASSETS        
Nonperforming loans:        
 90 days past due  $ 82  $ --  $ 351  $ 153  $ --
 Nonaccrual & Restructured debt 2,883 2,933 3,149 3,483 4,105
OREO 95 95 95 0 1,250
Nonperforming assets  3,060  3,028  3,595  3,636  5,355
           
ASSET QUALITY RATIOS        
Nonperforming assets to total assets 0.30% 0.30% 0.34% 0.30% 0.48%
Nonperforming loans to total loans 0.43 0.42 0.51 0.55 0.65
Allowance for loan losses to total loans held for investment 1.61 1.62 1.56 1.65 1.74
Allowance for loan losses to nonperforming loans 378.68 385.95 308.23 300.06 265.29
Annualized net charge-offs to average loans held for investment 0.05 -0.31 0.07 0.31 0.48
           
FINANCIAL RATIOS          
Return on average assets 0.94% 1.19% 1.27% 1.28% 1.43%
Return on average stockholders' equity  10.18  13.42  15.86  17.51  18.24
Net interest margin (FTE)  4.11  4.11  4.12  4.02  4.27
Non-interest revenue/Total revenue  60.4  66.4  59.2  66.3  69.2
Efficiency - Consolidated  84.8  83.0  79.1  80.4  80.6
Efficiency - Bank only  59.1  58.2  53.1  54.5  52.6
Average equity to average assets  9.27  8.88  8.00  7.29  7.85
           
PERIOD END BALANCES (Amounts in thousands)      
Total loans held for sale  $ 120,435  $ 166,586  $ 242,457  $ 419,075  $ 382,095
Total loans held for investment  697,541  697,376  692,410  661,094  627,256
Interest-earning assets  950,760  960,481  994,946  1,141,180  1,051,145
Assets  1,011,947  1,021,399  1,054,975  1,215,578  1,110,412
Total deposits  886,128  898,686  931,485  901,782  887,707
Other borrowings  11,200  11,225  16,250  209,299  120,027
Stockholders' equity  95,593  93,147  90,737  87,342  83,912
           
AVERAGE BALANCES (Amounts in thousands)      
Total loans held for sale  $ 136,660  $ 200,733  $ 316,189  $ 423,354  $ 327,378
Total loans held for investment  692,731  680,037  665,542  637,774  616,728
Interest-earning assets  946,575  964,872  1,033,838  1,103,667  978,135
Assets  1,013,932  1,032,345  1,105,933  1,173,820  1,044,966
Total deposits  882,553  908,229  865,146  945,297  890,772
Other borrowings  11,257  11,250  123,291  114,140  46,320
Stockholders' equity  93,958  91,638  88,430  85,584  82,070
           
MORTGAGE PRODUCTION (Amounts in thousands)      
Dollar volume of mortgage loans closed  $ 478,304  $ 607,189  $ 542,235  $ 762,131  $ 784,963
Percentage of refinance based on dollar volume  22.6%  39.2% 56.8% 61.4% 59.8%
CONTACT: Brad E. Schwartz - (757) 389-5111,         www.monarchbank.com

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