To
Our Shareholders, Customers & Friends…
Monticello
Bankshares continues to grow and prosper.
The year of 2006 was another record-breaking
year.
Assets
grew $54 million over the previous year representing
a 14% increase. The company ended the year with $433 million
in Total Assets. Net
Income ended the year at $4.1 million, or $1.09 per share.
The
bank’s net interest margin represented the largest
improvement that contributed to the increase in net income
for the year. However, pressure on net interest margin
continues to be of concern, not only for Monticello Banking
Company, but also for the entire banking industry. The
Federal Reserve raised short-term interest rates sixteen
times in .25% increments beginning in 2004 until they
stopped their rate increases in 2006. The resulting inverted
yield curve has prompted a higher than desired cost of
funding, while longer-term investments are less attractive.
Diversification
of the bank’s loan portfolio has resulted in significant
performance improvements. Diversification has been achieved
in terms of both geography and composition. The loan portfolio
is well balanced with commercial loans representing 23%
of the total, commercial real estate loans 27%, residential
real estate 32%, and all other consumer loans at 18%.
The bank has also achieved geographic diversification
of the loan portfolio with its credits spread across our
six markets and beyond.
We
have continued our focus on credit quality, underwriting
guidelines, loan approvals, as well as portfolio diversification.
Positive results are evident. Foreclosed real estate and
other repossessed assets decreased from $2,193,000 to
$997,000. Provision expense for loan losses decreased
$135,000 while the overall allowance for loan losses increased
$218,000. The bank’s reserve for future potential
loan losses has grown to $3,868,000 and is evaluated quarterly
based upon historical
loan losses, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower’s
ability to repay, estimated value of collateral,
and prevailing economic conditions.
Non-interest
income, which includes service charges on deposit accounts,
trust department fees, and mortgage banking income, increased
by 14%. While income from our mortgage banking business
was down in 2006, the bank’s Trust Department experienced
an exceptional year. Trust Assets under management have
steadily increased to a level in excess of $50 million.
Additionally, Monticello Banking Company’s Trust
Department serves as a trustee and paying
agent for over $170 million in various bond issues across
the Commonwealth of Kentucky.
MBC
Consulting, LLC, a subsidiary of Monticello Banking Company,
supplements our Trust Department’s investment capabilities.
MBC Consulting has over $8 million in assets under management
and offers our customers a true alternative to the traditional
financial services industry. Three senior officers of
the bank now hold the requisite NASD licenses and are
fully capable to professionally assist both individuals
and corporate fiduciaries with their retirement plans
and sound investment strategies.
Monticello
Banking Company, the sole subsidiary of Monticello Bankshares
Inc., has carefully expanded its banking offices in south
central Kentucky with two major projects during the year.
The first project extended the bank into Casey County,
the bank’s sixth market. Our new banking facility,
a strong local board, and a great staff have already resulted
in successful banking operations with over $25 million
in deposits.
The
bank’s second major project initiated during 2006
was the construction of a new banking facility in Somerset
to replace leased office space. Somerset’s South
Office has experienced good growth and its location
strategically serves a significant number of existing
bank customers from both the Monticello and Somerset
markets. The new branch is scheduled for completion in
June 2007.
All
one hundred-fifty five employees understand the importance
of providing excellent service for the bank’s customers.
All of our employees participate in a Bankwide Incentive
Program (Stakeholders), which teaches all employees to
think and act like a shareholder. Local board members
in each of the bank’s markets play an instrumental
role in keeping the bank’s management and employees
focused on our customers and communities we serve. Additionally,
senior executive officers are responsible for each market
and are held accountable for a high level of customer
service, growth of new business relationships, community
involvement, and profitable operations.
Quality
customer service through relationship banking is the driver
of our success. Our long-term goals are based upon maintaining
a community-based banking organization and maximizing
long-term franchise value and shareholder return. Monticello
Bankshares has a highly dedicated team of bankers who
are fully committed to both our company and our customers.
We
have taken the opportunity to recognize sixteen employees
in this report who have achieved twenty-five years or
more of service with the company. Five of these individuals
have thirty or more years and one, Ellen Turner, celebrates
her fortieth year with Monticello Banking Company. We
must continue
to attract, retain, and reward top quality bankers as
we work to achieve our long-term goals.
On
behalf of Monticello Bankshares’ Board of Directors,
Management, and Employees, we thank you for your support
and confidence.
Sincerely,
D.
Mack Butler
President & Chief Executive Officer
Kenneth Ramsey
Chairman of the board
