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Monarch Financial Reports Quarterly Results and Raises Cash Dividend by 16%

Monarch Financial Holdings, Inc. logo

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

Source:Monarch Financial Holdings, Inc.