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Monarch Financial Profits Rise 17% to a New Quarterly Record, Cash Dividend Declared

CHESAPEAKE, Va., April 21, 2016 (GLOBE NEWSWIRE) -- Monarch Financial Holdings, Inc. (Nasdaq:MNRK), the bank holding company for Monarch Bank, reported record quarterly profits and solid loan and deposit growth. The Board of Directors announced a quarterly common stock cash dividend of $0.09 per common share, payable on May 27, 2016, to shareholders of record on May 10, 2016. This quarterly payment represents a 10% increase over the dividend paid in the second quarter of 2015 after adjusting for the effect of the December 2015 11-for-10 stock split.

First quarter 2016 highlights are:

  • Record net income of $4,056,709, up 17.2%
  • Diluted earnings per share of $0.34, up 17.2%
  • Return on equity of 13.73%
  • Net interest margin at 4.27%
  • Net loans held for investment grew $21 million, an annualized 10.0% growth rate
  • Non-performing assets 0.16%
  • $458 million in mortgage loans closed, 70% purchase-money

“We are pleased to report the best quarterly profits in the history of Monarch, a fitting close as we prepare to merge with TowneBank in late June. Loan growth coupled with a strong net interest margin drove the improved profitability. Financial discipline across all business lines also drove our above peer financial performance,” stated Brad E. Schwartz, Chief Executive Officer. “From a shareholder perspective earnings per share were up 17% for the year, cash dividends declared in 2016 have grown by 16.5% compared to the previous year, and our net income available to common shareholders hit a new quarterly record. This was all accomplished as we focused on our upcoming June merger with TowneBank. We are extremely proud of what we have accomplished at Monarch over the past 17 years and are eager to continue our journey as members of the TowneBank family.”

Net income was $4,056,709 for the first quarter of 2016, up 17.2% from the same period one year ago. The quarterly annualized return on average equity (ROE) was 13.73%, and the quarterly return on average assets (ROA) was 1.42%. Quarterly diluted earnings per share increased to $0.34 compared to $0.29 for the same quarter in 2015, a 17.2% improvement.

Total assets at March 31, 2016 were $1.21 billion, with both loans and deposits showing strong year over year growth. Year over year total loans held for investment grew $63 million or 8.0% and on a linked-quarter basis grew $21 million for an annualized growth rate of 10%. Mortgage loans held for sale grew $29 million or 18.3% due to our growing pipeline and closings of mortgage loans at quarter-end. Deposits grew $26 million or 2.5% for the year, driven by growth in demand deposit accounts and time deposits. Demand deposit accounts grew $37 million or 11.3% for the year, with 34% of our total deposit mix in demand deposits.

“Loans held for investment continued to grow in the quarter despite the competitive lending environment and our pricing and interest rate risk discipline. Our focus for the remainder of the year is continued exceptional service to our clients and ensuring the transition to TowneBank is smooth and uneventful,” stated Neal Crawford, President of Monarch Bank. “The merger will allow us to lend a great deal more on a client by client basis which we hope will drive loan growth well into the future.”

Non-performing assets to total assets were 0.16% compared to 0.39% one year prior and 0.19% the previous quarter, all of which remain significantly below that of our local, state, and national peer group. Non-performing assets were $1.9 million compared to $4.6 million one year prior. Non-performing assets were comprised of $1.8 million in non-accrual loans, $104 thousand in loans more than 90 days past due, and no other real estate or repossessed assets. Net recoveries for the first quarter were $14 thousand. The allowance for loan losses represents 1.05% of loans held for investment and 457% of non-performing loans.

The Board of Directors announced a quarterly common stock cash dividend of $0.09 per common share, payable on May 27, 2016, to shareholders of record on May 10, 2016. Due to the 11-for-10 stock split in December 2015, the dividend represents a 10% increase in cash dividends over the previous quarterly dividend. Dividend payments on a per share basis increased 16.5% in 2016 when compared to the same period in 2015. We have increased our cash dividend payout every year since we began paying cash dividends in 2010.

Our merger agreement with TowneBank calls for every share of Monarch stock to be converted into 0.883 shares of TowneBank stock, pending shareholder and regulatory approvals. Based on TowneBank’s most recent quarterly dividend announcement, and assuming those dividends continue at the same level, Monarch shareholders would expect to see another increase of approximately 17.7% in their quarterly cash dividend payments in future quarters after the merger is consummated.

Capital remained strong. Average equity to average assets was 10.3%, and total risk-based capital to risk weighted assets at Monarch Bank equaled 13.6%, significantly higher than the level required to be rated “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 $857 thousand for the first quarter, or 8.1% driven by increased earning assets, an improved asset mix, and disciplined loan and deposit pricing. The net interest margin was 4.27% for the first quarter compared to 4.32% in the same quarter of 2015.

Non-interest income in the first quarter declined 8.7% or $1.9 million from the previous year driven by lower revenues from mortgage loans sold and related title insurance fees. Investment and insurance revenue increased 39%. Mortgage revenue continues to be the number one driver of non-interest income. We closed $458 million in mortgage loans (70% purchase) during the first quarter of 2016 compared to $487 million (53% purchase) in the same quarter one year prior. Total non-interest expense declined 6.6% or $1.8 million during the fourth quarter driven by reduced mortgage commissions and loan origination expense.

“The first quarter was one of our best starts to a year with higher than budgeted volume and a strong demand for home purchase loans. Loan originations have grown stronger each month with a spring pipeline that should result in continued mortgage profitability,” 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 ten banking offices in Chesapeake, Virginia Beach, Norfolk, and Williamsburg, Virginia. Monarch Bank also has loan production offices in Newport News and Richmond, 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), Fitzgerald Financial, LLC (secondary mortgage origination), Advance Mortgage, LLC (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.”

On December 17, 2015 we announced the sale of Monarch Financial Holdings, Inc. and Monarch Bank to TowneBank of Portsmouth, Virginia. Pending regulatory and shareholder approvals we anticipate the merger will occur in late June of 2016.

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
March 31, December 31, September 30, June 30, March 31,
2016 2015 2015 2015 2015
ASSETS:
Cash and due from banks $ 13,185 $ 13,946 $ 11,862 $ 15,319 $ 13,870
Interest bearing bank balances 59,694 58,638 75,658 84,225 73,237
Federal funds sold 13,919 1,296 14,188 2,377 63,311
Investment securities, at fair value 26,869 30,219 14,998 17,338 20,283
Mortgage loans held for sale 189,131 169,345 153,243 193,948 159,899
Loans held for investment, net of unearned income 850,054 829,269 790,704 792,962 787,003
Less: allowance for loan losses (8,901) (8,887) (8,733) (8,676) (8,644)
Net loans 841,153 820,382 781,971 784,286 778,359
Bank premises and equipment, net 28,355 28,972 29,513 30,117 30,050
Restricted equity securities, at cost 3,672 3,881 3,658 4,706 3,243
Bank owned life insurance 10,796 10,635 10,528 10,465 9,950
Goodwill 775 775 775 775 775
Accrued interest receivable and other assets 24,958 23,365 25,195 27,119 25,403
Total assets $ 1,212,507 $ 1,161,454 $ 1,121,589 $ 1,170,675 $ 1,178,380
LIABILITIES:
Demand deposits--non-interest bearing $ 296,512 $ 280,080 $ 276,706 $ 293,442 $ 270,446
Demand deposits--interest bearing 69,753 68,963 62,335 54,580 58,725
Money market deposits 363,939 364,893 365,615 379,716 417,329
Savings deposits 18,410 19,517 19,263 19,431 19,519
Time deposits 314,797 265,641 238,260 231,854 271,121
Total deposits 1,063,411 999,094 962,179 979,023 1,037,140
FHLB borrowings - 16,000 10,000 46,025 1,050
Trust preferred subordinated debt 10,000 10,000 10,000 10,000 10,000
Accrued interest payable and other liabilities 18,056 18,638 23,376 22,167 19,653
Total liabilities 1,091,467 1,043,732 1,005,555 1,057,215 1,067,843
STOCKHOLDERS' EQUITY:
Common stock 57,199 57,199 57,516 52,182 51,950
Capital in excess of par value 17,457 17,241 16,859 8,846 8,555
Retained earnings 46,337 43,350 41,612 52,412 49,957
Accumulated other comprehensive loss (54) (157) (38) (65) (14)
Total Monarch Financial Holdings, Inc. stockholders' equity 120,939 117,633 115,949 113,375 110,448
Noncontrolling interest 101 89 85 85 89
Total equity 121,040 117,722 116,034 113,460 110,537
Total liabilities and stockholders' equity $ 1,212,507 $ 1,161,454 $ 1,121,589 $ 1,170,675 $ 1,178,380
Common shares outstanding at period end (3) 11,877,309 11,880,909 11,884,060 11,855,761 11,810,641
Nonvested shares of common stock included in commons shares outstanding (3) 437,440 441,040 380,875 375,595 381,645
Book value per common share at period end (1)(4) $ 10.18 $ 9.89 $ 9.79 $ 9.56 $ 9.35
Tangible book value per common share at period end (2)(4) $ 10.12 $ 9.82 $ 9.72 $ 9.50 $ 9.29
Closing market price (4) $ 16.61 $ 17.99 $ 11.27 $ 11.41 $ 11.37
Total risk based capital - Consolidated company 13.85% 13.69% 14.04% 13.62% 13.57%
Total risk based capital - Bank 13.76% 13.60% 13.95% 13.52% 13.38%
(1) Book value per common share is defined as stockholders' equity divided by common shares outstanding.
(2) Tangible book value per common share is defined as stockholders' equity less goodwill and other intangibles divided by common shares outstanding
(3) Common shares have been adjusted to reflect the 11 for 10 stock split
(4) Per share values have been restated to reflect the 11 for 10 stock split

Consolidated Statements of Income
Monarch Financial Holdings, Inc. and Subsidiaries
Unaudited
Three Months Ended
March 31,
2016 2015
INTEREST INCOME:
Interest and fees on loans held for investment $ 10,689,745 $ 9,840,336
Interest on mortgage loans held for sale 1,411,908 1,307,037
Interest on investment securities 110,358 88,915
Interest on federal funds sold 3,632 8,253
Dividends on equity securities 45,229 39,000
Interest on other bank accounts 156,954 102,029
Total interest income 12,417,826 11,385,570
INTEREST EXPENSE:
Interest on deposits 854,044 668,060
Interest on trust preferred subordinated debt 55,689 46,415
Interest on other borrowings 2,386 22,606
Total interest expense 912,119 737,081
NET INTEREST INCOME 11,505,707 10,648,489
PROVISION FOR LOAN LOSSES - 250,000
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 11,505,707 10,398,489
NON-INTEREST INCOME:
Mortgage banking income 19,018,308 21,063,679
Service charges and fees 500,139 516,554
Title income 215,603 232,771
Investment and insurance income 478,576 344,126
Other income 116,808 109,033
Total non-interest income 20,329,434 22,266,163
NON-INTEREST EXPENSE:
Salaries and employee benefits 10,142,860 9,594,276
Commissions and incentives�� 7,730,892 9,445,138
Occupancy and equipment 2,273,481 2,288,508
Loan origination expense 1,793,662 2,458,663
Marketing expense 774,401 746,227
Data processing 613,954 629,750
Telephone 351,731 325,746
Other expenses 1,690,804 1,689,524
Total non-interest expense 25,371,785 27,177,832
INCOME BEFORE TAXES 6,463,356 5,486,820
Income tax provision (2,363,340) (1,993,340)
NET INCOME 4,100,016 3,493,480
Less: Net income attributable to noncontrolling interest (43,307) (32,273)
NET INCOME ATTRIBUTABLE TO MONARCH
FINANCIAL HOLDINGS, INC $ 4,056,709 $ 3,461,207
NET INCOME PER COMMON SHARE:
Basic (1) $ 0.34 $ 0.29
Diluted (1) $ 0.34 $ 0.29
Weighted average basic shares outstanding (1) 11,880,553 11,801,379
Weighted average diluted shares outstanding (1) 11,880,553 11,837,888
Return on average assets 1.42% 1.31%
Return on average stockholders' equity 13.73% 12.98%
(1) 2015 Per share values have been restated to reflect the 11 for 10 stock dividend

Financial Highlights
Monarch Financial Holdings, Inc. and Subsidiaries
(Dollars in thousands, except per share data) For the Quarter Ended
March 31, December 31, September 30, June 30, March 31,
2016 2015 2015 2015 2015
EARNINGS - COMMERCIAL AND OTHER BANKING SEGMENT
Interest income $ 12,107 $ 11,652 $ 11,497 $ 11,526 $ 10,999
Interest expense (912) (790) (810) (810) (737)
Net interest income 11,195 10,862 10,687 10,716 10,262
Recovery (provision) of/for loan losses - 500 - (250) (250)
Noninterest income - other 1,311 1,588 1,359 1,385 1,202
Noninterest expense (7,395) (8,425) (7,605) (8,174) (7,815)
Pre-tax net income 5,111 4,525 4,441 3,677 3,399
Noncontrolling interest in net income (12) (19) (13) (15) (16)
Income taxes (1,869) (1,539) (1,622) (1,327) (1,235)
Net income $ 3,230 $ 2,967 $ 2,806 $ 2,335 $ 2,148
EARNINGS - MORTGAGE BANKING OPERATIONS
Interest income $ 1,411 $ 1,415 $ 1,495 $ 1,746 $ 1,307
Interest expense (1,101) (1,017) (1,056) (1,248) (921)
Net interest income 310 398 439 498 386
Noninterest income - mortgage banking income 17,743 17,541 20,595 22,449 18,307
Forward rate commitments and unrealized hedge gain (loss) 665 (288) (834) 341 1,267
Noninterest expense (17,366) (17,101) (19,649) (21,529) (17,873)
Pre-tax net income 1,352 550 551 1,759 2,087
Noncontrolling interest in net income (31) (49) (28) (36) (16)
Income taxes (494) (266) (201) (634) (758)
Net income $ 827 $ 235 $ 322 $ 1,089 $ 1,313
INTERCOMPANY ELIMINATIONS
Interest income - Commercial and Other Banking Segment (1,101) (1,017) (1,056) (1,248) (921)
Interest expense - Mortgage Banking Operations 1,101 1,017 1,056 1,248 921
EARNINGS - CONSOLIDATED
Interest income $ 12,417 $ 12,050 $ 11,936 $ 12,024 $ 11,385
Interest expense (912) (790) (810) (810) (737)
Net interest income 11,505 11,260 11,126 11,214 10,648
Recovery (provision) of/for loan losses - 500 - (250) (250)
Noninterest income - mortgage banking income 19,018 17,095 19,380 22,241 21,064
Noninterest income - other 1,311 1,388 1,359 1,385 1,202
Noninterest expense (25,371) (25,168) (26,873) (29,154) (27,178)
Pre-tax net income 6,463 5,075 4,992 5,436 5,486
Noncontrolling interest in net income (43) (68) (41) (51) (32)
Income taxes (2,363) (1,805) (1,823) (1,961) (1,993)
Net income $ 4,057 $ 3,202 $ 3,128 $ 3,424 $ 3,461
PER COMMON SHARE (1)
Earnings per share - basic $ 0.34 $ 0.27 $ 0.26 $ 0.29 $ 0.29
Earnings per share - diluted 0.34 0.27 0.26 0.29 0.29
Common stock - per share dividends 0.09 0.09 0.08 0.08 0.07
Average Basic Shares Outstanding 11,880,553 11,856,180 11,864,347 11,836,175 11,801,379
Average Diluted Shares Outstanding 11,880,553 11,856,180 11,864,347 11,848,826 11,837,888
YIELDS
Loans held for investment 5.16 % 5.19 % 5.17 % 5.21 % 5.21 %
Mortgage loans held for sale, net at fair value 4.01 3.94 4.02 3.88 3.90
Other earning assets 1.33 1.53 1.04 1.38 1.31
Total earning assets 4.60 4.64 4.49 4.59 4.62
Interest bearing checking 0.12 0.12 0.12 0.13 0.13
Money market and regular savings 0.38 0.36 0.35 0.36 0.30
Time deposits 0.68 0.68 0.65 0.61 0.61
Borrowings 2.00 0.90 0.96 1.04 1.33
Total interest-bearing liabilities 0.50 0.46 0.46 0.44 0.43
Interest rate spread 4.10 4.18 4.03 4.15 4.19
Net interest margin 4.27 4.34 4.19 4.28 4.32
FINANCIAL RATIOS
Return on average assets 1.42 % 1.16 % 1.11 % 1.22 % 1.31 %
Return on average stockholders' equity 13.73 10.89 10.82 12.28 12.98
Non-interest revenue/Total revenue 62.1 60.5 63.5 66.3 66.2
Efficiency - Consolidated 80.6 84.6 84.3 83.7 82.6
Efficiency - Bank only 59.4 60.9 60.8 64.6 66.2
Average equity to average assets 10.34 10.61 10.22 9.92 10.10
(1) Per common share values have been restated to reflect the 11 for 10 stock dividend December 2015

Financial Highlights
Monarch Financial Holdings, Inc. and Subsidiaries
(Dollars in thousands, except per share data) For the Quarter Ended
March 31, December 31, September 30, June 30, March 31,
2016 2015 2015 2015 2015
ALLOWANCE FOR LOAN LOSSES
Beginning balance $ 8,887 $ 8,733 $ 8,676 $ 8,644 $ 8,949
(Recovery) provision of/for loan losses - (500) - 250 250
Charge-offs (23) (70) - (287) (598)
Recoveries 37 724 57 69 43
Net recoveries (charge-offs) 14 654 57 (218) (555)
Ending balance $ 8,901 $ 8,887 $ 8,733 $ 8,676 $ 8,644
COMPOSITION OF RISK ASSETS
Nonperforming loans:
90 days past due $ 104 $ 248 $ - $ - $ 175
Nonaccrual loans 1,844 1,990 1,841 2,266 4,325
OREO and reposessed assets 0 0 275 375 100
Nonperforming assets $ 1,948 $ 2,238 $ 2,116 $ 2,641 $ 4,600
ASSET QUALITY RATIOS
Nonperforming assets to total assets 0.16 % 0.19 % 0.19 % 0.23 % 0.39%
Nonperforming loans to total loans 0.23 0.27 0.23 0.29 0.57
Allowance for loan losses to total loans held for investment 1.05 1.07 1.10 1.09 1.10
Allowance for loan losses to nonperforming loans 456.93 397.10 474.36 382.88 192.09
Annualized net charge-offs to average loans held for investment (0.01) (0.33) (0.03) 0.11 0.29
PERIOD END BALANCES (Amounts in thousands)
Total mortgage loans held for sale $ 189,131 $ 169,345 $ 153,243 $ 193,948 $ 159,899
Total loans held for investment 850,054 829,269 790,704 792,962 787,003
Interest-earning assets 1,150,341 1,099,316 1,059,135 1,101,733 1,110,582
Assets 1,212,307 1,161,454 1,121,589 1,170,675 1,178,380
Total deposits 1,063,411 999,094 962,179 979,023 1,037,140
Other borrowings 10,000 26,000 20,000 56,025 11,050
Stockholders' equity 120,939 117,633 116,034 113,460 111,443
AVERAGE BALANCES (Amounts in thousands)
Total mortgage loans held for sale $ 141,478 $ 142,363 $ 147,670 $ 180,485 $ 136,084
Total loans held for investment 837,806 792,115 783,113 778,757 771,587
Interest-earning assets 1,090,944 1,040,577 1,060,069 1,062,119 1,009,389
Assets 1,149,440 1,099,252 1,122,895 1,126,749 1,070,581
Total deposits 1,003,306 939,400 955,979 969,144 925,984
Other borrowings 11,652 24,756 33,872 27,437 21,049
Stockholders' equity 118,858 116,634 114,714 111,824 108,174
MORTGAGE PRODUCTION (Amounts in thousands)
Dollar volume of mortgage loans closed $ 457,891 $ 468,606 $ 527,514 $ 605,401 $ 487,423
Percentage of refinance based on dollar volume 29.6 % 24.3 % 17.3 % 23.9 % 47.0 %


Contact: Brad E. Schwartz (757) 389-5111 www.monarchbank.com

Source:Monarch Financial Holdings, Inc.