Monarch Financial Reports Record 3rd Quarter Profitability and Continued Asset Growth

Oct 27, 2010, 09:00 ET from Monarch Bank

CHESAPEAKE, Va., Oct. 27 /PRNewswire-FirstCall/ -- Monarch Financial Holdings, Inc. (Nasdaq: MNRK), the bank holding company for Monarch Bank, reported the best third quarter profits in the company's history, along with strong mortgage growth and good asset quality.  Third quarter 2010 highlights are:

  • Record 3rd quarter net income of $1,511,726, up 31.1% from 2009
  • Net Interest margin expansion to 4.36%, up from 3.62% one year prior
  • Assets growth of $86 million, total assets reach $876 million
  • Deposit growth of $32 million
  • Non-performing assets at 1.23% of total assets
  • Closed $504 million in mortgage loans

Net income was $1,511,726 for the third quarter of 2010, up 31.1% from the same period in 2009, which was the company's previous record quarter with $1,152,782 in net income.  The quarterly annualized return on average equity (ROE) was 8.65%, and the annualized return on average assets (ROA) was 0.74%.  Quarterly diluted earnings per share were $0.19, compared to $0.17 per share in the third quarter of 2009.  For the first nine months of 2010 net income was a record $4,184,451 compared to $3,632,645 for the same period in 2009, a 15.2% increase.  The nine month annualized return on average equity (ROE) was 8.14%, and the annualized return on average assets (ROA) was 0.75%.  

"It is exciting to announce the seventh consecutive quarter for record profits at Monarch, especially with credit costs weighing so heavily on our true earnings potential.  The economy remained sluggish and we continued to aggressively charge off poorly performing loans while building our loan loss reserves this quarter, growing our reserves by $1.7 million.  Reduced funding costs coupled with a record quarter for Monarch Mortgage closings and profitability was critical to our success.  Asset quality remains extremely favorable compared to other local and regional banks.  It was again an excellent quarter for growth in earnings, net interest margin expansion, mortgage production, and deposit growth," stated Brad E. Schwartz, Chief Executive Officer.  

Total assets at September 30, 2010 grew to $876.2 million, up $85.8 million for the quarter and up $224.4 million or 34.4% from the same period in 2009.  Record low interest rates, growth in our mortgage production capacity and the volume of refinanced mortgage loans were the primary drivers of our asset growth during the past two quarters.  We anticipate total assets to decline in the fourth quarter as mortgage production typically slows at the end of the year.  Total mortgage loans held for sale increased $88.3 million since the second quarter of 2010, and are up $166.6 million since the third quarter of 2009.  Loans held for investment grew $39.0 million, up 7.5% from the same period in 2009.  Deposits increased $31.5 million since the second quarter of 2010, and have grown 25.0% or $134.9 million from the same period in 2009.  To support this strong asset growth our dedicated mortgage line of credit with the Federal Home Loan Bank of Atlanta grew to $111.3 million, while only $1.5 million was outstanding on the Bank's lines of credit with the FHLB and other banks.  

"Our Monarch and OBX Bank teams delivered another fine quarter for deposit and loan production.  While loans held for investment show limited net dollar growth over the previous quarter, loan demand and production remained strong and more than offset loan payments and pay downs.  We see great opportunity to handle the banking needs of the many business clients who are disenchanted with the larger bank's pullback in our markets," stated Neal Crawford, President of Monarch Bank.

The company continues to experience significantly better asset quality performance than its local, state, and national peer group.  Non-performing assets equaled 1.23% of total assets, up from 1.03% at the end of the second quarter but down from 1.34% one year prior.  Non-performing assets were $10.8 million, comprised of $1.0 million in loans 90 days or more past due and still accruing interest, $7.5 million in non-accrual loans and $2.3 million in other real estate owned.  The Company was aggressive in recognizing losses and disposing of non-performing assets during the quarter, with net charge-offs of $1.3 million and $3.0 million expensed to further build the allowance for loan losses.  The allowance for loan losses represents 1.83% of total loans held for investment, up from 1.55% in the second quarter of 2010.  

Average equity to average assets was 8.56% during the third quarter of 2010, compared to 10.18% one year prior.  Total risk-based capital to risk weighted assets equaled 12.55%, significantly higher than what is required to meet the highest rating of "Well Capitalized" by federal banking regulators.  In September 2010 Monarch was once again awarded the 5-Star "Superior" rating by Bauer Financial, an independent third-party bank ratings agency that rates banks on safety and soundness.  In December 2009 Monarch fully repaid $14.7 million in the U.S. Treasury's CPP/TARP program and issued $20 million in new convertible preferred stock.  

Net interest income increased 49.6% or $2.7 million during the third quarter of 2010 compared to the same quarter in 2009 due to earning asset growth and reduced funding costs.  The net interest margin improved to 4.36% compared to 3.62% in 2009, and was up from 4.14% in the second quarter of 2010.  

Non-interest income grew 94.6% from the same period in 2009, fueled by record quarterly mortgage production and margins.  Monarch Mortgage and their related mortgage companies closed $504 million in mortgage loans during the quarter, compared to $265 million during the same quarter of 2009.  Year to date the mortgage group originated over $1.7 billion in new loan applications and closed over $1.0 billion in mortgage loans.  Monarch Mortgage is focused on the retail A-paper mortgage market and does not participate in the sub-prime or wholesale mortgage markets.  Non-interest expense grew 76.9%, with the majority of the increase related to mortgage production-based variable expenses including mortgage commissions, salary and benefits, and mortgage loan expense.  

Monarch Financial Holdings, Inc. is the one-bank holding company for Monarch Bank.  Monarch Bank is a community bank with nine banking offices in Chesapeake, Virginia Beach, and Norfolk, Virginia.  OBX Bank, a division of Monarch Bank, operates offices in Kitty Hawk and Nags Head, North Carolina.  Services are also provided through over fifty ATMs located in the South Hampton Roads area and the Outer Banks of North Carolina, and "Monarch Online" consumer and business internet banking (monarchbank.com).  Monarch Mortgage and our affiliated mortgage companies have over twenty offices with locations in Virginia, North Carolina, Maryland, and South Carolina.  Our subsidiaries/ divisions include Monarch Bank, OBX Bank, Monarch 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), 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", and shares of our convertible preferred stock are publicly traded on the Nasdaq Capital Market under the symbol "MNRKP".  

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.

www.monarchbank.com

Consolidated Balance Sheets

Monarch Financial Holdings, Inc. and Subsidiaries

(In thousands)

Unaudited

September

2010

2009

ASSETS:

 Cash and due from banks

$   14,327

$   14,004

 Interest bearing bank balances

6,561

4,407

 Federal funds sold

3,730

7,749

 Investment securities:

    Securities available for sale

7,898

5,762

    Securities held to maturity

-

500

       Total investment securities

7,898

6,262

 Loans held for sale

237,803

71,232

 Loans held for investment, net of unearned income

561,355

522,333

 Less: allowance for loan losses

(10,246)

(9,550)

     Net loans

551,109

512,783

 Bank premises and equipment

18,865

8,253

 Restricted equity securities

8,704

7,017

 Bank owned life insurance

7,265

6,981

 Goodwill

775

775

 Intangible assets

685

863

 Accrued interest receivable and other assets

18,447

11,448

     Total assets

$ 876,169

$ 651,774

LIABILITIES:

  Demand deposits--non-interest bearing

$   95,831

$   84,389

  Demand deposits--interest bearing

29,932

19,171

  Money market deposits

231,370

139,115

  Savings deposits

21,753

27,684

  Time deposits

296,145

269,732

     Total deposits

675,031

540,091

  FHLB borrowings

111,320

33,082

  Trust preferred subordinated debt

10,000

10,000

  Accrued interest payable and other liabilities

9,288

5,452

     Total liabilities

805,639

588,625

STOCKHOLDERS' EQUITY:

  Preferred stock, $5 par value, 1,185,300 shares authorized;

     none issued

-

-

  Noncumulative perpetual preferred stock, series B, liquidation value of

     $20.0 million, $5 par value; 800,000

     shares authorized, issued and outstanding

4,000

-

  Cumulative perpetual preferred stock, series A, liquidation value of

     $14.7 million, no par value; 14,700

-

14,511

     shares authorized, issued and outstanding

  Common stock, $5 par, 20,000,000 shares authorized; issued -

     5,904,139 shares outstanding at September 30, 2010 and

     5,792,914 shares outstanding at September 30, 2009

29,521

28,965

  Capital in excess of par value

22,381

8,230

  Retained earnings

14,963

11,603

  Accumulated other comprehensive loss

(456)

(263)

     Total Monarch Financial Holdings, Inc. stockholders' equity

70,409

63,046

 Noncontrolling interest

121

103

     Total equity

70,530

63,149

     Total liabilities and stockholders' equity

$ 876,169

$ 651,774

Consolidated Statements of Income

Monarch Financial Holdings, Inc. and Subsidiaries

Unaudited

Three Months Ended

Nine Months Ended

September 30

September 30

2010

2009

2010

2009

INTEREST INCOME:

  Interest on federal funds sold

$        2,959

$        6,728

$      27,242

$        9,987

  Interest on other bank accounts

1,597

494

3,486

1,902

  Dividends on restricted securities

30,054

41,705

77,306

80,553

  Interest & dividends on investment securities

43,218

53,794

146,793

181,539

  Interest and fees on loans

10,347,387

7,960,150

28,235,236

23,772,474

         Total interest income

10,425,215

8,062,871

28,490,063

24,046,455

INTEREST EXPENSE:

  Interest on deposits

1,827,209

2,184,747

5,592,156

7,149,718

  Interest on trust preferred subordinated debt

124,200

56,158

369,900

205,216

  Interest on other borrowings

191,086

285,887

616,847

864,998

         Total interest expense

2,142,495

2,526,792

6,578,903

8,219,932

NET INTEREST INCOME

8,282,720

5,536,079

21,911,160

15,826,523

PROVISION FOR LOAN LOSSES

3,000,992

1,546,788

5,833,810

4,084,936

NET INTEREST INCOME AFTER PROVISION

  FOR LOAN LOSSES

5,281,728

3,989,291

16,077,350

11,741,587

NON-INTEREST INCOME:

  Service charges on deposit accounts

398,367

395,981

1,221,723

1,052,808

  Mortgage banking income

16,468,250

7,975,961

35,168,266

23,902,036

  Investment and insurance commissions

74,299

163,761

216,204

677,433

  Other income

111,826

227,653

411,525

894,015

         Total non-interest income

17,052,742

8,763,356

37,017,718

26,526,292

NON-INTEREST EXPENSE:

  Salaries and employee benefits

5,519,261

4,032,250

14,466,549

11,524,369

  Mortgage commissions

8,812,459

3,356,781

18,109,117

10,830,480

  Occupancy and equipment

1,406,739

982,943

3,688,503

2,793,119

  Loan Expense

1,606,203

1,033,829

4,082,853

2,540,723

  Data processing

219,226

186,930

637,295

600,581

  Other expenses

1,822,191

1,364,730

5,121,452

4,344,060

         Total non-interest expense

19,386,079

10,957,463

46,105,769

32,633,332

INCOME  BEFORE TAXES

2,948,391

1,795,184

6,989,299

5,634,547

  Income tax provision

(1,341,006)

(619,870)

(2,660,037)

(1,833,770)

NET INCOME

1,607,385

1,175,314

4,329,262

3,800,777

  Less: Net income attributable to noncontrolling interest

(95,659)

(22,532)

(144,811)

(168,132)

NET INCOME ATTRIBUTABLE TO MONARCH

  FINANCIAL HOLDINGS, INC.

$ 1,511,726

$ 1,152,782

$ 4,184,451

$ 3,632,645

Preferred stock dividend and accretion of preferred

  stock discount

(390,000)

(197,766)

(1,170,000)

(586,807)

NET INCOME AVAILABLE TO COMMON

  STOCKHOLDERS

$ 1,121,726

$    955,016

$ 3,014,451

$ 3,045,838

NET INCOME PER COMMON SHARE:  

 Basic

$          0.20

$          0.17

$          0.53

$          0.54

 Diluted

$          0.19

$          0.17

$          0.52

$          0.53

Financial Highlights

Monarch Financial Holdings, Inc. and Subsidiaries

(Dollars in thousands,

except per share data)

Three Months Ended September 30

Nine Months Ended September 30

2010

2009

Change

2010

2009

Change

EARNINGS

Interest income

$   10,425

$     8,063

29.3

%

$   28,490

$   24,046

18.5

%

Interest expense

2,142

2,527

(15.2)

6,579

8,220

(20.0)

Net interest income

8,283

5,536

49.6

21,911

15,826

38.4

Provision for loan losses

3,001

1,547

94.0

5,834

4,085

42.8

Noninterest income

17,052

8,763

94.6

37,018

26,526

39.6

Noninterest expense

19,386

10,957

76.9

46,106

32,633

41.3

Pre-tax net income

2,948

1,795

64.2

6,989

5,634

24.1

Minority interest in net income

96

23

317.4

145

168

(13.7)

Income taxes

1,341

619

116.6

2,660

1,833

45.1

Net income

1,511

1,153

31.0

4,184

3,633

15.2

PER COMMON SHARE

Earnings per share - basic

$       0.20

$       0.17

17.6

%

$       0.53

$       0.54

(1.9)

%

Earnings per share - diluted

0.19

0.17

11.8

0.52

0.53

(1.9)

Book value

8.54

8.35

2.3

Tangible book value

8.29

8.06

2.9

Closing market price (adjusted)

8.42

7.45

13.0

FINANCIAL RATIOS

Return on average assets

0.74

%

0.74

%

0.0

%

0.75

%

0.75

%

0.0

%

Return on average stockholders' equity

8.65

7.25

19.3

8.14

7.84

3.8

Net interest margin (FTE)

4.36

3.62

20.4

4.22

3.53

19.5

Non-interest revenue/Total revenue

62.1

52.1

19.2

56.5

52.5

7.6

Efficiency - Consolidated

76.3

76.3

0.0

78.0

76.8

1.6

Efficiency - Bank only

49.7

55.9

(11.1)

53.2

55.7

(4.5)

Average equity to average assets

8.56

10.18

(15.9)

9.17

9.62

(4.7)

Total risk based capital - Consolidated

12.55

13.94

(10.0)

Total risk based capital - Bank only

12.02

11.32

6.2

PERIOD END BALANCES

Total loans held for sale

$ 237,803

$   71,232

233.8

%

Total loans held for investment

561,355

522,333

7.5

Interest-earning assets

825,892

618,865

33.5

Assets

876,169

651,774

34.4

Total deposits

675,031

540,091

25.0

Other borrowings

121,320

43,082

181.6

Stockholders' equity

70,409

63,046

11.7

AVERAGE BALANCES

Total loans held for investment

$ 553,548

$ 519,461

6.6

%

$ 551,637

$ 512,639

7.6

%

Interest-earning assets

764,469

617,094

23.9

705,052

612,983

15.0

Assets

810,141

619,701

30.7

749,161

644,363

16.3

Total deposits

644,738

514,189

25.4

598,831

506,890

18.1

Other borrowings

85,254

59,711

42.8

70,647

66,246

6.6

Stockholders' equity

69,386

63,079

10.0

68,733

61,967

10.9

ALLOWANCE FOR LOAN LOSSES

Beginning balance

$     8,575

$     9,030

(5.0)

%

$     9,300

$     8,046

15.6

%

Provision for loan losses

3,001

1,547

94.0

5,834

4,085

42.8

Charge-offs

1,391

1,050

32.5

5,139

2,662

93.1

Recoveries

61

23

165.2

251

81

209.9

Ending balance

10,246

9,550

7.3

10,246

9,550

7.3

Net charge-off loans to average loans

0.24

0.20

21.5

0.89

0.50

76.0

ASSET QUALITY RATIOS

Nonperforming assets to total assets

1.23

%

1.34

%

(11.0)

bp

Allowance for loan losses to total loans

1.83

1.83

(0.3)

bp

Allowance for loan losses to nonperforming loans

120.30

124.22

(3.2)

%

COMPOSITION OF RISK ASSETS

Nonperforming loans:

   90 days past due

$     1,061

$        837

26.8

%

   Nonaccrual & Restructured debt

7,456

6,851

8.8

OREO

2,263

1,077

110.1

Nonperforming assets

10,780

8,765

23.0

%

bp - Change is measured as difference in basis points.

SOURCE Monarch Bank



RELATED LINKS

http://www.monarchbank.com