2 0 1 3Annual Report

Kenny Ramsey, President & CEO

Kenneth L. Ramsey, Chairman

Letter to our ShareholdersReflections on 2013 suggest that it was a year of transi-tion for Monticello Bankshares. These observations show changes in our economy affecting our financial condition and strategic direction. We were also surprised with the an-nouncement of Mack Butler’s intention to retire at the begin-ning of 2014. The careful planning and effort of our board and staff resulted in our bank being well positioned to take advantage of opportunities, increased profitability in 2013, and continuity of management.

During the year, we continued to feel ripples of the Great Recession which is most notable by the $39,266,000 reduction in our Total Deposits. As deposits fled into banks at the beginning of the recession it was anticipated that a good portion of those would migrate away. The bank also saw some benefit in this process by replacing those deposits with reliable low-cost funding from the Federal Home Loan Bank in the amount of $30,000,000. There was further re-duction in the cost of deposits by the change in deposit mix; an increase in Non-interest bearing deposits of $5,568,000 and a decrease in Interest-bearing deposits of $43,834,000.

There is also evidence of the recession through the $7,904,000 decrease in Net Loans. This was a combina-tion of low loan demand at the beginning of the year and the heightened credit underwriting standards dictated by the recession. We did experience an increase in loan demand at the end of the year that appears to have carried into 2014 and are optimistic that this will result in healthy loan growth.

The economy also impacted our Investment Portfolio which is represented by the decline in Accumulated Other Com-prehensive Income of $5,139,000. This was inevitable as the declining trend in loans forced additional dollars into the Investment Portfolio to maintain earnings. This is an unreal-ized loss that reflects the unlikely scenario of the entire port-folio being sold on that day. Our earnings on investments remain high and compensate for this risk. The affect of the AOCI reduced our Total Shareholders’ Equity bringing the

ending Book Value per Share to $13.23 which is down from the $13.81 in 2012. However, our bank remains well capi-talized.

Our Net Income for 2013 increased $561,000 over the prior year which resulted in an earnings per share of $1.16 which is up significantly from the $1.02 in 2012. The increase in Net Income was mostly due to the $1,885,000 reduction in the Provision for Loan Losses as a result of improvements in Asset Quality. Our Net Interest Income actually decreased $260,000 from 2012. This requires that we seek efficiencies within the operation and increase our sales efforts in 2014.

The economic improvements have given inspiration to es-tablish several new staffing positions with a focus on Lend-ing and Business Development. These positions have all been filled and are already showing results. We are excited to watch their endeavors.

Finally, I was humbled when the board allowed me to follow in Mack’s footsteps. He has had great impact on each of us. We will strive to live up to his example and work to meet the expectations of our board and shareholders. Your input as a shareholder is valuable to us, please do not hesitate to call or stop by our offices. We want to serve your banking needs and look forward to continuing our history of success in 2014.

Board of Directors and ShareholdersMonticello Bankshares, Inc.Monticello, Kentucky

The Audit Committee of the Board of Directors is composed of four members which are all independent directors. Those members are Bob Hayden - Chairman, Charles Fletcher, Dr. James K Phillips, Jr., and Rick Drake.

The committee held four meetings during 2013.

The Audit Committee oversees the company’s financial reporting process on behalf of the Board of Directors. In fulfilling its responsibility, the committee recommended selection of the company’s independent public accountants, Mountjoy Chilton Medley, LLP, 1000 Bluegrass Corporate Center, 333 West Vine Street, Lexington, Kentucky 40507.

The Audit Committee discussed with the internal auditor and the independent public accountants the overall scope and spe-cific plans for their respective audits. The committee also discussed the company’s consolidated financial statements and the adequacy of the company’s internal controls.

The committee met regularly with the company’s internal auditor and independent public accountants, to discuss the results of their audit, their evaluations of the company’s internal controls, and the overall quality of the company’s financial reporting.

The meetings also were designed to facilitate any private communication with the committee that the internal auditor or independent public accountants desired.

Bob Hayden, ChairmanAudit Committee

$16,745,0003,000

$16,748,000

$152,763,00030,000

3,105,000$155,898,000

$332,810,00013,756,0001,038,000

26,690,000

$546,940,000

$74,847,000386,042,000

$460,889,000

$30,000,0003,758,000

$33,758,000

$1,650,000

$496,297,000

$ 154,000

19,144,0003,269,000

29,379,000(1,303,000)

$ 50,643,000

$546,940,000

ASSETS

Cash and due from Banks Federal funds sold Total Cash and Cash Equivalents Securities - Available for Sale Securities - Held to MaturityRestricted Investments Total Securities

Net LoansBank premises and equipmentGoodwill, NetOther assets

Total Assets

Non-interest bearing deposits Interest-bearing deposits Total Deposits

Federal Home Loan Bank BorrowingsLine of Credit Total Other Borrowed Funds

Other Liabilities

Total Liabilities

Preferred stock: $5 Par Value, 50,000 sharesAuthorized: (2013) 30,717 (2012) 30,927 shares Issued & Outstanding

Common stock: $5 Par Value, 8,000,000 shares Shares Authorized & Issued: (2013) 3,962,018 (2012) 3,961,108 respectively Shares Outstanding: (2013) 3,828,813 (2012) 3,828,126 respectively

SurplusRetained earningsAccumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Total Liabilities and Shareholders’ Equity

LIABILITIES AND SHAREHOLDERS’ EQUITY

Consolidated for the Year Ended December 31, 2013

STOCKHOLDERS’ EQUITY

$27,973,0001,000

$27,974,000

$145,897,00060,000

3,105,000$149,062,000

$340,714,00014,172,0001,066,000

25,029,000

$558,017,000

$69,279,000429,876,000

$499,155,000

$ 04,558,000

$4,558,000

$1,431,000

$505,144,000

$ 155,000

19,141,0003,267,000

26,474,0003,836,000

$ 52,873,000

$558,017,000

2013 2012FINAN

CIALS

2013$19,179,000

3,987,000

184,000

$23,350,000

$3,818,000

207,000

$4,025,000

$19,325,000

$2,628,000

$2,943,000

269,000

512,000

1,229,000

$4,953,000

$9,087,000

2,143,000

4,853,000

$16,083,000

$5,567,000

$1,118,000

$4,449,000

Interest Income on Loans

Interest Income on Securities

Interest Income on Federal Funds Sold & Other Interest Income

Total Interest Income

Interest Expense on Deposits

Interest Expense on Other Borrowed Funds

Total Interest Expense

Net Interest Income

Provision for Loan Losses

Service Charges on Deposit Accounts

Gain (Loss) on Sale of Securities

Secondary Market Mortgage Fees

Other Income

Total Non-Interest Income

Salaries & Employee Benefit Expense

Occupancy Expense

Other Non-Interest Expense

Total Non-Interest Expense

Net Income Before Income Taxes

Income Tax Expense

Net Income

$21,198,000

4,072,000

228,000

$25,498,000

$5,710,000

203,000

$5,913,000

$19,585,000

$4,513,000

$2,964,000

857,000

620,000

977,000

$5,418,000

$8,544,000

2,174,000

4,882,000

$15,600,000

$4,890,000

$1,002,000

$3,888,000

Consolidated for the Year Ended December 31, 2013

2012

FINANCIALS

Monticello Bankshares’ principal operating sub-sidiary is The Monticello Banking Company, a Kentucky commercial bank chartered in 1895 with its corporate office located in Monticello. The bank has operated under the same name and at the same location since its inception 118 years ago.

The Monticello Banking Company operates twelve full service community banking centers surround-ing Lake Cumberland and in the Barren River region. Product offerings include traditional banking services, such as commercial and consumer deposit and loan products, trust and investment services, as well as a variety of electronic banking services including Internet banking, eStatements, bill payment, and cash management at www.mbcbank.com.

Management and the Boards believe strongly in the values of traditional community banking, that the Monticello Banking Company is defined not by size or location, rather by the reputation it has earned for serving and being of service, by taking an active role for the betterment of the community, and by building relationships and re-taining these relationships with customers that keep them coming back. We remain dedicated to our vision of focusing on our customer as our primary reason for being.

Corp

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Boards of Directors Monticello Bankshares, Inc. & Monticello Banking Company

Charles FletcherDirector - MBC

Pharmacist

Lyle DenneyDirector - MBC

Retired - Manufacturing

Sam BrownDirector - MBC

Physical TherapistMonticello Physical Therapy

Owner

Mike BlevinsDirector - MBC

Investments

Van PhillipsDirector - MBI

Attorney - Phillips & Phillips

Dr. James K. Phillips, Jr.Director - MBI & MBC

Family Physician

Bob HaydenDirector - MBI & MBC

Retired - EVPMonticello Banking Company

Rick DrakeDirector - MBI & MBC

Retired - Drake FranchisedDealership

Marilyn DrakeDirector - MBI & MBC

Pharmacist

Roger DaltonDirector - MBI

Retired - Chairman National City Bank of Kentucky

D. Mack ButlerDirector - MBI & MBC

Retired President/CEOMonticello Bankshares, Inc.

Kenneth RamseyChairman - MBI & MBC

Ramsey Insurance Agency

Kenny RamseyPresident & CEO

MBI & MBC

50 N. Main Street, PO Box 421, Monticello, KY 42633 • (606) 348-8411

MONTICELLOSenior Executive OfficerHicks, Jean

Credit AnalysisGoley, Jonathan Weaver, Rodney

Deposit OperationsBertram, Sue Carlton, JudyCoffey, Mildred Decker, TabathaDobbs, TabithaGuffey, LeverneLozano, AngelaMcGinnis, Sylvia

Human ResourceDolen, Becky Jones, JamieLester, Barbara

Information TechnologyAsberry, Kyle Coffey, GarrettDennis, JackieLowhorn, AmieLyons, KennyParsons, RandyRader, Kelley

AccountingAdkins, Brittany Crabtree, CrystalFrost, Sandra Watson, Frances

AuditHarmon, DawnWells, Natoshia

Business DevelopmentElam, Perry

CollectionsMcClendon,RickNelson, TommyParmley, Heather

ComplianceCorder, PattieGoley, Misty

LOCA

TIONS

President/Chief Executive OfficerMonticello Bankshares, Inc.Ramsey, Kenny

Loan Servicing (cont’d)

McGinnis, AmandaMorrow, BrianParmley, ChristyReagan, JamieWillis, Charity

Maintenance & CourierGehring, Austin Harmon, DavidNorfleet, Eddie

New AccountsAdams, Renee

ReceptionistLair, Mary

TellersAyearst, SusanGregory, Kista Keith, Patty

Information SecurityPiercy, MelissaRamsey, Becky

Item ProcessingBunch, Renee Nelson, DebbiePhipps, Elissa

Marketing & EventsEdwards, Natalie Gehring, BarbaraTroxell, Sandra

LoansBertram, ElaineDalton, TimDobbs, JaymaDolen, HelenHurd, Billy

Loan ServicingBurnette, Nicole Decker, Norma Dunnington, BrandonGardner, Sherry King, Lena

TRADEWAY BRANCH

Branch ManagerWeston, Angela

New AccountsFoister, Linda

LoansRoberts, Mary Lois

Tellers Ellis, Jakeilla

Gehring, AshleyHicks, WhitneyHumble, Peggy

Hurd, AmyStinson, TiffanyChaplin, Sasha

LOCATIONS

Walmart Supercenter, Cumberland Crossing Shopping Center, Monticello, KY 42633

Tradeway Shopping Center, Monticello, KY 42633

95 N. Main Street, Monticello, KY 42633

DOWNTOWNBRANCHNew AccountsSimpson, NadineLoansRose, KevinFoster, WendyTellers Bell, AmyBell, JanetBarrier, BrendaCarrender, Casey Foster, BridgettMartin, BeulahMassengale, Stephanie Staples, Drake Staples, Shanyn Woods, Landry

WALMART BRANCHBranch ManagerSmith, ShaneNew AccountsDuke, MistyTellersCorder, DeLesia Bertram, Elizabeth Keith, HaleyStearns, Johnna

CASEY COUNTYSr. Executive OfficerBeeler, StaceyNew AccountsLawhorn, JoanLoans Leigh, AnneTellersCochran, MelissaGrider, RobynHansford, GregoryJeffries, KelcieWeddle, BrittanyWethington, TeresaWright, Nanette

Albany Advisory Board Rick Drake - Chairman, Jeff Choate, Paula Little, Steve Tallent Tuddy Stockton, Gene Dunnington

Bowling Green Advisory Board Dr. J. K. Phillips - Chairman, Adam Burden, Dr. Kirk Fee Laura Spencer, Buster Stewart, Greg Stivers, Ben Thornton, Gayla Warner

Casey County Advisory Board Lyle Denney - Chairman, Bryan Woodrum, Barry Davis Leanne Davis, Ronnie Davis, Jerry Hoskins, Richard Owens, Garland Sharp

310 N. Cross St.Albany, KY

611 N. Wallace Wilkinson Blvd.Liberty, KY

1050 Wilkinson Trace, Bowling Green, KY

1840 Cave Mill Rd.Bowling Green, KY

ALBANYSr. Executive Officer

Johnson, WillardExecutive Asst.

Brown, DebbieReceptionistMeans, Rebecca

New AccountsBoles, Leslie

Smith, RebeccaLoans

Smith, AllenTellers

Craig, FlossieJones, KendraOwens, AshleySmith, Barbara

Stockton, KimberlyEvents Coordinator

Branham, Alice AppraisalsSummers, Joe

BOWLING GREENCAVE MILL

Branch ManagerPierce, Janet

New AccountsEngler, Ashley

LoansNeal, Brandon

TellersGiorgio, SherryScott, Nermina

Tompkins, Tammy

BOWLING GREENHARTLANDRegional Exec. OfficerLoague, Lanny TellersDelk, ShelbyHaynes, DavidLoansHendrix, TammyYowell, Lynette

MBC ConsultingHall, Bill

LOCA

TIONS

7

Somerset Advisory Board Sam Brown - Chairman, Mack Butler, Danny Ford, Matt Ford Mark Haney, Bruce Orwin, Dr. Keith Sinclair, Terri Tuttle

Russell County Advisory Board Michael Blevins - Chairman, Rick Mann, David Smith Fred Tarter, Steve Bledsoe

Glasgow Advisory Board Van Phillips - Chairman, Sheila Dishman, Bobby Hurt T. Richard Alexander

1414 Happy Valley Rd.Glasgow, KY

SOMERSET MAINRegional Exec. OfficerBrinson, ReginaExecutive Asst.Green, JudyReceptionistParkey, LisaNew AccountsGover, BeverlyLoans Compton, SheilaDungan, DebbieGibson, RalphReynolds, ValerieTellersHarden, MazettaHarper, JeffMcClendon, MeganPrice, Glenda Russell, KristaSmith, Pat

Trust DepartmentManagerBroyles, ScottTrust DepartmentBeshears, AmandaGodsey, Vicky

LOCATIONS

475 E. Hwy. 80Somerset, KY

3653 S. Hwy. 27Somerset, KY

GLASGOWSr. Executive OfficerWitty, LeighNew AccountsMeadows, ErinLoansRedford, TonyaTellersAdwell, Lisa D. Cannon, KimCarter, TiffanyLutzen, Elizabeth

SOMERSET SOUTHBranch Manager

Hudson, WallyLoans

King, KellyNew Accounts

Price, MatthewTellers

Luke, StephanieHale, Sheila

McQueen, DonnaRoy, Lisa

Wiley, Samantha

RUSSELL COUNTYRegional Exec. Officer

Tucker, Anita Executive Asst.

Money, NancyNew Accounts

Smith, AngelaLoans

Hoover, BelindaMatney, Christin

Meece, TonyaTellers

Melson, NancyRoy, Lisa L.

Smith, GingerTucker, Sharon

2554 S. Hwy. 127Russell Spring, KY

Resolution in Memoriam of Raymond Delk

ResolutionAdopted by the Board of Directors of Monticello Banking Company

Honoring D. Mack Butler

WHEREAS, Mack Butler retired as the President & CEO of Monticello Bankshares, Inc. and Monticello Banking Company on January 3, 2014; and

WHEREAS, he served this Company with great distinction since December 1997; and

WHEREAS, his genuine concern for the well-being of the Company, Employees and Members of the Board reflected his abiding respect for his colleagues; and

WHEREAS, his rare combination of banking and managerial skills made him an unique asset to the Company; and

WHEREAS, Mack’s congenial easy-going manner always made others feel welcome and comfortable; and

WHEREAS, that this Board extends to Mack Butler and his family good health and best wishes for the future.

NOW, THEREFORE, BE IT RESOLVED, that this Board of Directors expresses its sincere appreciation to Mack Butler for his contribution to the growth and performance of the Company during his tenure.

FURTHERMORE RESOLVED, that the Board of Directors looks forward to serving with him as a Director of the Monticello Banking Company and Monticello Bankshares, Inc. Boards.

Adopted this 13th day of February 2014.

WHEREAS, the Board of Directors of Monticello Banking Company of Albany, Kentucky, expresses its deepest respect and sympathy on the death of advisory board member, Raymond Delk on March 24, 2013; and

WHEREAS, Mr. Delk was an advisory board member for Monticello Banking Company for 11 years and was a vital part of the community. His sound business judgment and leadership made a significant and lasting contribution to the growth, stability and success of the bank; and

WHEREAS, Mr. Delk retired after 43 years of service with the U.S. Army Corps of Engineers; He believed in supporting the community and its people. Raymond served his community in various capacities including 26 years as director of Bank of Clinton County; and

WHEREAS, his death will leave an immeasurable loss as we remember his devotion, loyalty and friendship to family, friends, business associates and his community.

NOW, THEREFORE, BE IT RESOLVED, the Board of Directors and the Advisory Board of Monticello Banking Company hereby proclaim this resolution as a tribute to the life led by Raymond Delk and that it be entered as a permanent record in this bank’s board minutes and a copy forwarded to the Kentucky Banker Magazine for publishing.

This resolution unanimously adopted this 6th day of May, 2013 by the Board of Directors of the Monticello Banking Company of Albany.

Resolution in Memoriam of Raymond Delk

Alice Branham Vice President

Events/Activities Coordinator40 Years

Frances WatsonSr. Vice President

Controller37 Years

Sandra TroxellAsst. Vice President

Events/Activities Coordinator37 Years

Jean HicksSr. Executive Officer

36 Years

Helen DolenVice President

Commercial Banker36 Years

Janet BellVice President

Head Teller35 Years

Barbara GehringSr. Vice PresidentMarketing Director

34 Years

Becky DolenSr. Vice President

Human Resources Mgr.33 Years

Debbie NelsonAsst. Vice PresidentItem Processing Mgr.

33 Years

Renee’ AdamsVice President

Personal Banker32 Years

Sue BertramVice President

Deposit Operations Rep.32 Years

Barbara LesterVice President

Human Resources Asst. Mgr. 31 Years

Elissa PhippsItem Processing Operator

31 Years

Mildred CoffeyDeposit Operations

Representative30 Years

25 Plus years of service

Mary Lois RobertsVice President

Sr. Consumer Lender25 Years

Patty Keith Asst. Vice President

Head Teller44 Years

Dividend CalendarDividends, as declared by the Board of

Directors, are customarily paid to

shareholders of record as follows:

March 1 – payable March 10

June 1 – payable June 10

September 1 – payable September 10

December 1 – payable December 10

Financial InformationFor a copy of our audit report, please

contact Frances Watson, Sr. Vice President

at (606) 348-8411 or 1-800-909-3420

or email at fwatson@mbcbank.com.

Independent AuditorsMountjoy Chilton Medley, LLP

Certified Public Accountants

333 West Vine Street

Suite 1000

Lexington, KY 40507

shareholder information

Shareholder Inquiries, Stock Transfer or Dividend Payments If you have inquiries or questions regarding

your Monticello Bankshares shareholder

account, please call Helen Dolen at

(606) 348-8411 or 1-800-909-3420 or write

Monticello Bankshares, Inc.

P.O. Box 421 • Monticello, KY 42633

InternetFor information on financial results, products

and services please visit our website:

Monticello Banking Company

www.mbcbank.com

Corporate Headquarters Monticello Bankshares, Inc.

50 N. Main St., P.O. Box 421

Monticello, Kentucky 42633

(606) 348-8411 or 1-800-909-3420

Annual MeetingThe annual meeting of shareholders will

be held on Thursday, April 10th, 2014 at the

Historic Wayne Theater, 30 N. Main Street,

Monticello, Kentucky at 3:30 p.m. EDT

36