MNRK Monarch Financial Holdings, Inc.

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