CHESAPEAKE, Va., Oct. 19 /PRNewswire-FirstCall/ -- Monarch Financial Holdings, Inc. (NASDAQ:MNRK), the financial holding company for Monarch Bank, today announced their quarterly financial results. "This has been an exciting year of growth for Monarch. During 2007 we undertook two major initiatives that we believe will create long-term shareholder value, even though they have impacted our current earnings. We launched OBX Bank in the Outer Banks of North Carolina in May and are building a great client base and reputation. Our biggest news for 2007 was the growth of Monarch Mortgage under the new leadership of Ted Yoder and Will Morrison. As a result we now have an outstanding company with an experienced and proven leadership team and are positioned to take advantage of the market as it improves. We are pleased to have ended the recent litigation related to our mortgage expansion, and are also glad to have the startup and legal costs behind us," stated William 'Tree' Rountree, President and Chief Executive Officer. "Our banking business continues to perform extremely well with loan growth remaining strong, and with the opening of two new banking offices in 2007. Loan quality remains exceptional, despite an overall slowing in the residential construction and development markets."

At September 30, 2007 total assets were $462.1 million, up $72.0 million or 18.5% from $390.1 million at September 30, 2006. Total loans increased at an even greater rate to $392.5 million, up $79.7 million or 25.5% year over year. Total deposits were $365.3 million, up $59.0 million or 19.3% over previous year levels. Demand deposits, our lowest cost funding source, grew 23.5% with total demand deposits now representing 21.8% of total deposits.

Asset quality remains excellent. During the third quarter of 2007 two small commercial client relationships were charged off, with some recovery expected in future periods from an SBA guarantee and asset sales. There were also two small loans with matured notes over 90 days past due on September 30, 2007, that were reported as non-performing loans. Both of these loans are now current and performing.

Monarch's residential and commercial construction clients are among the strongest and most experienced in the business. Their strength coupled with our strict underwriting and minimal spec housing limits should protect us in the current slowing housing market. We have one of the best builder portfolios in our marketplace thanks to the expertise of our real estate lending team. The Hampton Roads housing market remains one of the top-rated markets in the country due to the diverse mix of military, private and public employers.

Monarch Mortgage has grown to six offices with locations in Chesapeake, Norfolk and Virginia Beach as well as our newly opened offices in Rockville, Annapolis and College Park, Maryland. Our mortgage expansion occurred at a volatile time for the credit and mortgage markets, as qualifications for mortgage applicants tightened and jumbo and other mortgage products were not available. When combined with a slowing housing market, this made our ramp-up to profitability slower than anticipated. Our goal is to build a premier mortgage company that fully complements our banking segment and interest rate risk profile. Monarch Mortgage is focused on the retail A-paper mortgage market and does not participate in the sub-prime mortgage market. Monarch does not hold any sub-prime or Alt-A mortgage loans or related securities.

The Company's capital position remains strong with shareholders' equity growing to $35.3 million at September 30, 2007, which represented 7.6% of total assets. Monarch Bank remains "Well Capitalized", the highest rating of capital strength by regulatory standards. During the quarter Monarch repurchased 103,837 shares of its common stock in the open market at an average split-adjusted price of $12.73, and also announced a 6-for-5 stock split, which was effected as a 20% stock dividend on the record date of October 10, 2007.

Monarch reported net income of $313,461 for the third quarter of 2007 compared to $952,600 in 2006. The primary reason for the decline in earnings was related to the startup of mortgage operations and legal costs. Earnings were also impacted by strong loan growth, with a large provision for loan losses of $384,518 during the third quarter compared to $207,100 for the same period in 2006.

For the year net income was $2,027,044 compared to $2,609,902 for the same nine month period of 2006. The year-to-date annualized return on average assets (ROA) was 0.68%, and the annualized return on average equity (ROE) was 7.64%. Quarterly basic earnings per share were $0.07 and year-to-date basic earnings per share were $0.42, both down from the previous year.

Net interest income for the first nine months of 2007 grew 14.9% or $1.5 million compared to the same period in 2006 due to growth in balances. The net interest margin for the third quarter and the first nine months of 2007 was 4.17% and 4.34% respectively, a slight decline led primarily by increases in funding costs.

Non-interest income more than doubled increasing 160.0% from the same nine-month period in 2006, fueled by increased production in mortgage originations, investment and insurance revenues from Virginia Asset Group, Monarch's investment subsidiary, and income growth from bank deposit fees. Non-interest expense grew 85.2%, with the majority of the increase related to the expansion of Monarch Mortgage. Operating expenses were also greater due to opening a new retail banking office in Virginia Beach, the opening of our first OBX Bank office, and the hiring of additional bankers and other critical staffing positions. Legal expenses related to the recent litigation at Monarch Mortgage totaled $126,000.

Monarch Financial Holdings, Inc. is the one-bank holding company for Monarch Bank. Monarch Bank is a community bank with two offices in Chesapeake, four offices in Virginia Beach, and two offices in Norfolk, Virginia. OBX Bank, a division of Monarch Bank, operates one office in Kitty Hawk, North Carolina. Services are also provided through fifty ATMs located in the South Hampton Roads area and the Outer Banks of North Carolina, and "Monarch Online" consumer and business internet banking (www.monarchbank.com). Our subsidiaries/divisions include Monarch Bank, OBX Bank, Monarch Mortgage (secondary mortgage origination), Virginia Asset Group, LLC (investment and insurance solutions) and Monarch Capital, LLC (commercial mortgage brokerage). We offer investment services through our ownership in BI Investments, LLC (investments and asset management), and insurance services through our ownership in Bankers Insurance, LLC (full-service insurance agency). The shares 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
                                                     2007              2006
    ASSETS:
      Cash and due from banks                       $9,881            $8,018
      Interest bearing bank balances                 5,899             1,840
      Federal funds sold                               299               876

      Investment securities:
         Securities available for sale               8,395            13,651
         Securities held to maturity                12,086            33,568
            Total investment securities             20,481            47,219

      Mortgages held for sale                        9,341             3,043

      Loans                                        392,550           312,836
      Less allowance for loan losses                (3,732)           (3,157)
          Net loans                                388,818           309,679

      Bank premises and equipment                    9,549             6,077
      Restricted equity securities                   4,330             3,383
      Bank owned life insurance                      6,484             6,235
      Intangible Assets                              1,995                 -
      Accrued interest receivable and
       other assets                                  5,071             3,684

          Total assets                            $462,148          $390,054

    LIABILITIES:
       Demand deposits--non-interest
        bearing                                    $69,697           $56,160
       Demand deposits--interest bearing             9,968             8,349
       Money market deposits                       142,789           167,219
       Savings deposits                              5,629             6,978
       Time deposits                               137,175            67,524
          Total deposits                           365,258           306,230

       FHLB borrowings                              49,900            39,900
       Trust preferred subordinated debt            10,000            10,000
       Accrued interest payable and other
        liabilities                                  1,669             1,083
          Total liabilities                        426,827           357,213

    MINORITY INTERESTS IN SUBSIDIARIES                  58                 -

    SHAREHOLDERS' EQUITY:
       Preferred stock, $5 par value,
        2,000,000 shares authorized,
                none issued                              -                 -
       Common stock, $5 par, 20,000,000
        shares authorized, issued
          4,797947,289 shares outstanding at
           September 30, 2007 and
           4,788,658 shares outstanding
            at September 30, 2006                   23,990            23,943
       Capital in excess of par value                5,032             5,793
       Retained earnings                             6,289             3,245
       Accumulated other comprehensive
        loss                                           (48)             (140)
          Total shareholders' equity                35,263            32,841

          Total liabilities and
           shareholders' equity                   $462,148          $390,054



                        Consolidated Statements of Income
                Monarch Financial Holdings, Inc. and Subsidiaries
                                   Unaudited

                                    Three Months Ended     Nine Months Ended
                                       September 30           September 30
                                      2007       2006        2007        2006
    INTEREST INCOME:
       Interest on federal funds
        sold                        $6,873   $113,646     $18,522    $202,934
       Interest on other bank
        accounts                    22,992    168,935      57,283     303,085
       Dividends on restricted
        securities                  43,916     41,125     121,513      86,793
       Interest & dividends on
        investment securities:
              Taxable              135,815    212,516     444,404     572,596
       Interest and fees on
        loans                    7,804,504  6,257,226  21,811,033  16,964,484
              Total interest
               income            8,014,100  6,793,448  22,452,755  18,129,892
    INTEREST EXPENSE:
       Interest on deposits      3,351,765  2,751,774   9,067,897   7,184,722
       Interest on trust
        preferred subordinated
        debt                       173,963    178,432     525,668     178,432
       Interest on other
        borrowings                 397,875    152,320     950,887     406,056
              Total interest
               expense           3,923,603  3,082,526  10,544,452   7,769,210
    NET INTEREST INCOME          4,090,497  3,710,922  11,908,303  10,360,682
    PROVISION FOR LOAN LOSSES      384,518    207,100     643,518     482,244

    NET INTEREST INCOME AFTER
     PROVISION FOR LOAN LOSSES   3,705,979  3,503,822  11,264,785   9,878,438

    NON-INTEREST INCOME:
       Service charges on
        deposit accounts           288,825    247,756     835,129     668,601
       Mortgage banking income   1,567,605    512,329   2,626,483   1,686,552
       Investment and insurance
        commissions                257,155     12,539     772,325      48,173
       Other income                 91,916     75,773     258,997     199,171
              Total non-interest
               income            2,205,501    848,397   4,492,934   2,602,497
    NON-INTEREST EXPENSE:
       Salaries and employee
        benefits                 3,715,722  1,753,487   8,182,312   5,084,959
       Occupancy and equipment     564,742    384,825   1,447,986   1,098,912
       Data processing             158,329    154,682     465,155     411,947
       Other expenses              996,640    642,375   2,599,965   2,002,492
              Total non-interest
               expense           5,435,433  2,935,369  12,695,418   8,598,310

    INCOME BEFORE TAXES
      AND MINORITY INTERESTS       476,047  1,416,850   3,062,301   3,882,625

    MINORITY INTEREST IN
     SUBSIDIARY'S INCOME           (38,296)         -     (91,720)          -
    NET INCOME BEFORE TAXES        437,751  1,416,850   2,970,581   3,882,625

       Income tax provision        124,290    464,250     943,537   1,272,723
    NET INCOME                    $313,461   $952,600  $2,027,044  $2,609,902

    NET INCOME PER COMMON SHARE:
      Basic                          $0.07      $0.20       $0.42       $0.55
      Diluted                        $0.06      $0.18       $0.40       $0.52



                              Financial Highlights
                Monarch Financial Holdings, Inc. and Subsidiaries
                                                      (Unaudited)
         (Dollars in thousands,
              except per share data)        Three Months Ended September 30
                                             2007        2006      Change
    EARNINGS
     Interest income                          $8,014      $6,793      18.0 %
     Interest expense                          3,924       3,082      27.3
     Net interest income                       4,090       3,711      10.2
     Provision for loan losses                   385         207      86.0
     Noninterest income                        2,205         848     160.0
     Noninterest expense                       5,435       2,935      85.2
     Pre-tax net income                          475       1,417     (66.5)
     Minority interest in net income              38           0     100.0
     Income taxes                                124         464     (73.3)
     Net income                                  313         953     (67.2)

    PER COMMON SHARE
     Earnings per share - basic                $0.07       $0.20     (65.0)%
     Earnings per share - diluted               0.06        0.18     (66.7)
     Book value
     Closing market price (adjusted)

    FINANCIAL RATIOS
     Return on average assets                   0.29 %      1.04 %   (72.1)%
     Return on average shareholders'
      equity                                    3.47       11.73     (70.4)
     Average equity to average assets           8.37        8.86      (5.5)
     Net interest margin (FTE)                  4.17        4.32      (3.5)
     Non-interest revenue/Total revenue         21.6        11.1      94.6

    AVERAGE BALANCES
     Total loans                            $373,660    $300,094      24.5 %
     Interest-earning assets                 398,270     349,303      14.0
     Assets                                  426,976     364,619      17.1
     Total deposits                          350,142     308,019      13.7
     Other borrowings                         38,777      22,592      71.6
     Shareholders' equity                     35,756      32,248      10.9

    ALLOWANCE FOR LOAN LOSSES
     Beginning balance                        $3,494      $2,949      18.5 %
     Provision for loan losses                   385         207      86.0
     Charge-offs                                 148         -       100.0
     Recoveries                                    1           1       0.0
     Ending balance                            3,732       3,157      18.2


                                                   (Unaudited)
         (Dollars in thousands,
              except per share data)        Nine Months Ended September 30
                                             2007        2006      Change
    EARNINGS
     Interest income                         $22,452     $18,130      23.8 %
     Interest expense                         10,544       7,769      35.7
     Net interest income                      11,908      10,361      14.9
     Provision for loan losses                   644         482      33.6
     Noninterest income                        4,493       2,602      72.7
     Noninterest expense                      12,695       8,598      47.7
     Pre-tax net income                        3,062       3,883     (21.1)
     Minority interest in net income              92           0     100.0
     Income taxes                                943       1,273     (25.9)
     Net income                                2,027       2,610     (22.3)

    PER COMMON SHARE
     Earnings per share - basic                $0.42       $0.55     (23.6)%
     Earnings per share - diluted               0.40        0.52     (23.1)
     Book value                                 7.35        6.86       7.1
     Closing market price (adjusted)           13.08       15.42     (15.2)

    FINANCIAL RATIOS
     Return on average assets                   0.68 %      1.03 %   (34.0)%
     Return on average shareholders'
      equity                                    7.64       11.17     (31.6)
     Average equity to average assets           8.99        9.21      (2.4)
     Net interest margin (FTE)                  4.34        4.36      (0.5)
     Non-interest revenue/Total
      revenue                                   16.7        12.6      32.5

    PERIOD END BALANCES
     Investment securities                   $20,481     $47,219     (56.6)%
     Total loans                             392,550     312,836      25.5
     Interest-earning assets                 439,384     375,432      17.0
     Assets                                  462,148     390,054      18.5
     Total deposits                          365,258     306,230      19.3
     Other borrowings                         59,900      49,900      20.0
     Shareholders' equity                     35,263      32,841       7.4

    AVERAGE BALANCES
     Total loans                            $350,244    $285,774      22.6 %
     Interest-earning assets                 375,430     325,982      15.2
     Assets                                  396,372     339,332      16.8
     Total deposits                          325,623     290,466      12.1
     Other borrowings                         33,225      16,251     104.4
     Shareholders' equity                     35,549      31,248      13.8

    ALLOWANCE FOR LOAN LOSSES
     Beginning balance                        $3,235      $2,685      20.5 %
     Provision for loan losses                   644         482      33.6
     Charge-offs                                 148          13   1,038.5
     Recoveries                                    1           3     (66.7)
     Ending balance                            3,732       3,157      18.2

    ASSET QUALITY RATIOS
     Nonperforming loans to total loans         0.08 %      0.22 %   (63.6)%
     Allowance for loan losses to total
      loans                                     0.95        1.01      (5.8)
     Allowance for loan losses to
      nonperforming loans                   1,192.00      450.00     164.9
     Charge-off loans to average loans          0.04        0.00     828.9

    COMPOSITION OF RISK ASSETS
     Nonperforming loans:
     90 days past due                            313         702     (55.4)%
     Nonaccrual                                    0           0       0.0
     OREO                                          0           0       0.0
     Nonperforming assets                        313         702     (55.4)%

         bp - Change is measured as difference in basis points.

Source: Monarch Financial Holdings, Inc.