Monarch Financial Holdings, Inc. - FORM 8-K - EX-99.1

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8-K - FORM 8-K - Monarch Financial Holdings, Inc.	d572904d8k.htm

Exhibit 99.1

LOGO

MONARCH FINANCIAL REPORTS RECORD

2^ND QUARTER AND DECLARES CASH DIVIDEND

Chesapeake, VA – 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.”

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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.

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“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.


Contact:		Brad E. Schwartz – (757) 389-5111, www.monarchbank.com
Date:		July 25, 2013

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Consolidated Balance Sheets

Monarch Financial Holdings, Inc. and Subsidiaries

(In thousands)

Unaudited


	June 30, 2013			March 31, 2013			December 31, 2012			September 30, 2012			June 30, 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			126,072			106,050

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.

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Consolidated Statements of Income

Monarch Financial Holdings, Inc. and Subsidiaries

Unaudited


	Three Months Ended June 30,						Six Months Ended 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.

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Financial Highlights

Monarch Financial Holdings, Inc. and Subsidiaries


	For the Quarter Ended
(Dollars in thousands, except per share data)	June 30, 2013			March 31, 2013			December 31, 2012			September 30, 2012			June 30, 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	%

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Monarch Financial Holdings, Inc. - FORM 8-K - EX-99.1 - July 25, 2013

Attached files

Monarch Financial Holdings, Inc. Reports