Dear Fellow Shareholders, This 2018 report to shareholders marks twenty-five years of service for KS Bancorp, Inc. and it’s subsidiary, KS Bank, Inc. On April 28, 2019, KS Bank will celebrate ninety-five years of service to the communities we serve. In addition to those time achievements, reaching the milestone of consolidated assets of $400 million and Net Income of $3.5 million, makes 2018 a truly record year. For the year ended December 31, 2018, KS Bancorp reported net income of $3.5 million, or $3.00 per diluted share, an increase of 72.0% compared to 2017 results. During 2017 KS Bancorp had a one-time non-cash charge related to the Tax Cuts and Jobs Acts of 2017. Excluding that charge and comparing 2018 to 2017 the increase in net income would has been 26.5%. Total assets increased by $26.8 million, or 7.2%, to $400.4 million at December 31, 2018. Net loan balances increased by $9.6 million, or 3.4%, to $295.6 million at December 31, 2018 compared to $286.0 million at December 31, 2017. Total deposits increased $33.8 million, or 11.4%, to $330.4 million at December 31, 2018, compared to $296.6 million at December 31, 2017. Total shareholders’ equity decreased from $26.3 million at December 31, 2017 to $22.1 million at December 31, 2018, as a result of accumulated other comprehensive losses and stock repurchases. Much of what is written in annual reports reflects past history, what was accomplished in the past year, compared to other past years. That is important to each of us as shareholders as we ensure that our investment is giving us a fair return. We believe the financial information should also give you an insight into the direction and focus of KS Bank. Our theme stated in our 2019 strategic plan is, “People, Purpose, Passion: Community Bankers Building Partnerships.” As community bankers we know that building relationships allow us to support the goals and dreams of families and local businesses, which builds the communities we serve. Support means being a partner this year and years to come. It means being financially sound and prepared to meet customer needs with appropriate products and services. Support also requires us to live our core values of, “always doing the right thing” and “creating win-wins for customers and the Bank.” We are extremely proud that, after ninety-five years, KS Bank is continuing to grow the communities we serve and doing so in a sound and profitable way for those who invest in KS Bancorp, Inc. It takes a committed team of individuals to make any institution. Our employees are the heartbeat of our institution. It is only fitting that we honor those who have provided great leadership during their tenure at KS Bank. During 2018, William C. (Bill) Clarke, Senior Commercial Relationship Manager, retired after 32 years of service with KS Bank. Bill was a positive team member who helped KS transition from a one product (home loans) savings and loan to a full-service community bank supporting the entire community. Bill lived his values both at work and in his community service. We’re a better company because of his efforts. “Thank you, Bill!” The entire team at KS Bank is committed to serving our customers in their journey toward a sound financial future. We’ve done that now for ninety-five years, and you have our promise to continue this journey with each of you.

Respectfully,

Harold T. Keen James C. Parker President/Chief Executive Officer Chairman of the Board

To Our Shareholders, Customers and Friends

KS Bancorp, Inc. is a Smithfield, North Carolina-based, single bank holding company with approximately $400 million in assets as of December 31, 2018. KS Bank, Inc., a state-chartered savings bank, is KS Bancorp’s sole subsidiary. The Bank conducts its operations through nine full service branch offices that are located in Kenly, Goldsboro, Wilson, Garner, Selma, Clayton, Wendell, Four Oaks and Smithfield, North Carolina, as well as a mortgage origination office in Greenville, NC. There are 82 employees at the time of this writing. The Company emphasizes being a community-oriented financial institution and offers a broad range of personal and business banking products and services, mortgage products and wealth management. KS Personal Services offers a complete suite of deposit and loan products that are tailored to specific needs, while KS Business Services includes not only deposit and loan products but also payroll

The discussions included in this document and the documents referenced herein may contain forward looking statements within the meaning of the Private Securities Litigation Act of 1995, including Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. For the purposes of these discussions, any statements that are not statements of historical fact may be deemed to be forward looking statements. Such statements are often characterized by the use of qualifying words such as “expects,” “anticipates,” “believes,” “estimates,” “plans,” “projects,” or other statements concerning opinions or judgments of the Company and its management about future events. The accuracy of such forward looking statements could be affected by such factors as, including but not limited to, the financial success or changing conditions or strategies of the Company’s customers, fluctuations in interest rates, competitive product and pricing pressures within our markets, technological changes, changes in law and regulations, changes in fiscal, monetary, regulatory and tax policies, monetary fluctuations, actions of government regulators, the availability of capital and personnel and/or general economic or other conditions. You should not place undue reliance on forward looking statements. We undertake no obligation to revise or update these statements following the date of this report.

Contents Letter to Shareholders 3Financial Data 4-5 Directors & Executive Management Staff 6-7CommunityInvolvement 8-9Teaching the NextGeneration 9Employee Spotlight 10KS BancorpInformation 11Employees 11

services, merchant card services, cash management and remote deposit. KS Mortgage Services offers competitive mortgage products through a responsive team of mortgage specialists. Finally, KS Trust offers a broad array of services to help clients manage, protect and build upon their financial resources. In addition to the Smithfield location, KS Trust has an office in Asheboro and a presence in Waynesville, and offers a complete line of trust services, such as investment management, IRAs, trust administration, estate planning, charitable giving, business secession, and risk management. Currently, the Company’s stock is traded on the over-the counter bulletin board (www.otcbb.com) and the Pink Sheets (www.pinksheets.com) under the symbol “KSBI.” KS Bancorp had 1,107,776 shares of common stock, which were held by approximately 320 shareholders of record, as of December 31, 2018.

Including the KS Mortgage Services location in Greenville and the KS Trust location in Asheboro, our offices can be found in six counties and eleven communities.

KS BANCORP, INC. – ANNUAL REPORT 2018 32 KS BANCORP, INC. – ANNUAL REPORT 2018

KS Bancorp, Inc. and Subsidiary Selected Financial Data

KS BANCORP, INC. – ANNUAL REPORT 2018 54 KS BANCORP, INC. – ANNUAL REPORT 2018

Financial Condition Data: Total assets Investments (1) Loans receivable, net Deposits FHLB advances/other borrowings Stockholders’ equity Book value per common share Operating Data: Interest income Interest expense Net interest income Provision (recovery) for loan losses Noninterest income Noninterest expense Income before income taxes Income tax (benefit) expense

Net (loss) income Dividends on preferred stock Accretion of discount on preferred stock Net Income available to common stockholders

Selected Other Data: Basic earnings (loss) per share Diluted earnings (loss) per share Dividends per share Return on average assets Return on average equity Avg equity to average assets

Total risk based capital

2015

$337,434

73,512 247,627 257,514 53,935 22,908 17.49

$13,203 2,694

10,509 114

2,083 10,345 2,133

717

$1,416

--

$1,416

$1.08$1.08$0.060.43%6.27%6.86%

14.09%

2016

$359,364

76,843 266,071 285,755 46,037 24,391 18.63

$14,014 2,789

11,225 5

2,782 10,722 3,280 1,171

$2,109

- -

$2,109

$1.61$1.61$0.080.60%8.64%6.93%

14.02%

2017

$373,618

71,416 285,969 296,574 47,351 26,303 20.09

$15,278 3,031

12,247 (227)

2,789 11,010 4,253 2,194

$2,059

- -

$2,059

$1.57$1.57$0.120.56%7.93%7.01%

14.02%

2018

$ 400,258

89,020 295,630 330,423 44,255 22,125 19.97

$ 16,493 3,886

12,607 -

3,172 11,290 4,489

947

$ 3,542

- -

$ 3,542

$3.00$3.00$0.28

0.92%16.12%5.68%

13.93%

(1) Includes interest-earning deposits, time deposits, investment securities, and Federal Home Loan Bank stock.

(In Thousands, Except Per Share Amounts)

2014

$318,451

79,016 221,401 248,915 45,085 21,768 16.62

$12,663 2,569

10,094 -

1,981 10,315 1,760

490

$1,270

(246) (30)

$994

$0.76$0.76$0.000.32%4.20%7.60%

15.41%

250,000

200,000

300,000

150,000

100,000

50,000

02014201520162017

Loans Receivable, Net

$247,627$266,071

$221,401

$248,915$257,514

$285,755$296,574

Net Income AvailableTo Common Stockholders

100%

80%

60%

40%

20%

90%

70%

50%

30%

10%

0%

Total Risk Based Capital

350,000

300,000

400,000

450,000

250,000

200,000

150,000

100,000

50,000

02014201520162017

Total Assets

$318,451$337,434

$359,364$373,618

$285,969

250,000

300,000

200,000

150,000

100,000

50,000

02014201520162017

Deposits

1,000

1,500

2,000

500

02014201520162017

$994

$1,416

$2,109 $2,059

15.41%14.09%14.02%14.02%

2014201520162017

2018

$3,542

13.93%

2018

$330,423

2018

2018

$295,630

2018

$400,258

2,500

3,000

3,500

4,000

350,000

6 KS BANCORP, INC. – ANNUAL REPORT 2018 KS BANCORP, INC. – ANNUAL REPORT 2018 7

Board of Directors and Executive Management Staff

Earl W. Worley, Jr.Chief Operating Officer

Board of Directors and Executive Management

Roger K. ThomasExecutive Management

Chief Wealth Officer

Regina J. Smith Executive ManagementChief Financial Officer

H. Geoffery KokikoExecutive Management

Senior Retail Officer

Timothy N. Taylor Executive Management

Chief Credit Officer

Lisa H. BrogdonBoard of Directors

Harold T. KeenPresident/CEO

Board of Directors and Executive Management

April S. CulverBoard of Directors

James C. ParkerBoard of Directors

Chairman

B. Kenneth Jones IIBoard of Directors

Sidney E. SaulsBoard of Directors

Gordon C. WoodruffBoard of Directors

Vice-Chairman

R. Edward Scott, Jr.Board of Directors

Food Drives, Financial Literacy Training, Christmas Festivals, to First Responder Appreciations… We are a true Community Bank!

GoldsboroFirst Responders Appreciation

Kenly“Christmas On Main”

Festival Sponsor

SmithfieldFirst

RespondersAppreciation

ClaytonChristmas

ParadeSponsor

World Youth Summit Sponsor

Boys & Girls Club5K Run

WendellFirst Responders

Appreciation

WilsonChamber of Commerce

Networking Lunch Sponsor

Boys & Girls ClubVolunteer

Annual Food DriveBenefitting Local Food Banks

SelmaFirst RespondersAppreciation

Johnston CountyEconomic ForumSponsor

KS Bank employees Kathy Salzmann, Deposit Operations Manager, and Tracy McKinley, IT Manager, taught sessions on savings and cybersecurity to 4th and 5th graders at Wilson’s Mills Elementary. In addition, the bank provided each child with a piggy bank to decorate as they chose. The top three piggy banks (see below) were chosen by corporate employees as well as a group of visiting auditors. The school used all of the piggy banks to raise money for their Student Government Project, teaching the students what just a little bit of savings from a lot of people can do to benefit others. We are so proud of each participant’s hard work and really enjoyed seeing the creativity! Special thanks goes to WME teacher Michelle Douglas for coordinating the project with us! Mrs. Douglas said, “Anytime we combine a teaching experience with an interactive, more creative approach, the children will remember the lessons much better. KS Bank found a way to teach a savings lesson with a fun visual and the kids got to take the visual home to reinforce what they learned. That, to me, is a successful learning strategy!”

1st place:EnriqueDuranzo5th grade

2nd place:CaydenLopez

4th grade

3rd place: AllisonGalindo4th grade

KS BANCORP, INC. – ANNUAL REPORT 2018 98 KS BANCORP, INC. – ANNUAL REPORT 2018

In March, Wanda J. Blow joined us as our Director of Human Resources. She is responsible for recruiting new employees, managing benefit and compensation programs, managing the performance review process, developing and administering bank human resource policies, and providing counsel on human resource issues to managers and employees. Wanda comes

to KS Bank with over thirty years of human resources management experience within the financial industry.She has earned the Professional in Human Resources (PHR) certification and is a member of the Society for Human Resources Management (SHRM) and the Raleigh Wake Human Resources Management Association. A native of Pine Level, Wanda is the daughter of the late Rudolph and Martha Jones. She is married to Gordon Blow and they live in Smithfield.

KS BANCORP, INC. – ANNUAL REPORT 2018 1110 KS BANCORP, INC. – ANNUAL REPORT 2018

ANNUAL MEETINGThe Annual Shareholder’s Meeting will be held on May 16, 2019 at 7:00 PMin the Corporate Office at 1031 North Brightleaf Blvd in Smithfield, North Carolina.

CORPORATE INFORMATION1031 N Brightleaf BlvdSmithfield, NC 27577919-938-3101 919-938-2681 (Fax)http://www.ksbankinc.com

ANNUAL REPORTA copy of KS Bancorp’s AnnualReport can be furnished withouta charge by writing to:Regina J. Smith, CFO/SVPKS Bank, Inc. P.O. Box 661 Smithfield, NC 27577

COMMON STOCKThe Company had 1,107,776 shares of Common Stock outstanding, which were held by approximately 320 shareholders of record (excluding shares held in street name), as of December 31, 2018. The Common Stock was listed for quotation on the OTC Bulletin Board and the “Pink Sheets” at www.pinksheets.com and trades under the symbol KSBI.

STOCK TRANSFER AGENTShareholders needing information on transfer or lost certificate requirement Issuer Direct Corporation500 Perimeter Park DriveSuite D Morrisville, NC 27560

INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR 2019:Dixon Hughes Goodman, LLC1003 Red Banks RdP.O. Drawer 20157Greenville, NC 27858

SPECIAL LEGAL COUNSELBrooks, Pierce, McLendon,Humphrey & Leonard, LLPP.O. Box 26000Greensboro, NC 27420

PHOTOGRAPHY CREDIT:Photos By Tracy McKinleyPrinceton, NCSloan Communications Four Oaks, NC

GRAPHIC DESIGN & LAYOUT:Clint OverbyFour Oaks, NC

President/CEOHarold T. Keen

Chief Operating OfficerEarl W. Worley, Jr.

Chief Financial OfficerRegina J. Smith

Corporate SecretaryJoy B. WatsonDenise W. Elliott

Executive ManagementH. Geoffrey KokikoTimothy N. TaylorRoger K. Thomas

BRANCH PERSONNELH. Geoffrey KokikoTammy P. Mitchell

Clayton BranchCharles MarcomMelissa KennedyJordan AtkinsonRoderick Cooper

Four Oaks Branch Brian StewartGail McLambMichelle Pearce

Garner BranchJohn KerrCharlotte TrueloveAshley Spivey-CarterAnna Wommack

Goldsboro BranchDavid Barber Ashley ShallenburgDawn SkeltonJennifer Smith

Kenly BranchShannon Kirby Melissa CurryDanielle Massey

Selma BranchKelly Aycock Karen JonesVicky Wall

Smithfield BranchBrandon BarkerPam WeaverDequondra BrockingtonHannah GiddensWhitney HindyBritt Holland

Wendell BranchMatt Korff Rena WallTalena Loy

Wilson BranchJenny Hartsell Tonya LaneTynisha Lucas

Roving TellersJessica ColeyTyler ParkerKim RoscoeRebekah SiebertKaye Wood

Mortgage BankingTracie Worley Greg Fader – Greenville Office

ADMINISTRATIONAccountingRegina J. Smith Peggy FitzgeraldDeborah Whaley

CouriersTed MorganConnie Ward

Deposit OperationsKathy SalzmannSarah LangstonWendy LangstonTina Willis

E-Banking Cindy AllenBrandy Ward

Credit AdministrationTimothy N. Taylor Jade ButlerDoug CockrellTammy OldhamJohn Parker

Loan OperationsEmily RhodesKaren AycockCrystal BoswellConnie BrownWanda DanielsGreta EdwardsRoy FerryCandy JohnsonClaudia MasonErica Piper

Compliance OfficerBlair Hester

ExecutiveAdministratorDenise Elliott

Human ResourcesWanda BlowJoy Watson

Information TechnologyTracy McKinley Gary LangstonChase Smith

Internal AuditorMarilyn Logan

MarketingMichele Grady

KS Trust Roger K. ThomasHeidi WatkinsJimmy Watts

KS Bancorp Information

“KS Bank is an Equal Opportunity/Affirmative Action Employer – Minority/Women/Disabled/Veteran”

“EEO Is The Law”

In September, we welcomed Brandon O. Barker to the KS Bank team as the Commercial Relationship Manager in our Smithfield retail location. Bandon has over twelve years of experience in the banking industry as a Commercial Relationship Manager and Loan Officer. His responsibilities at KS Bank include sales of business loans, consumer loans, deposit

products, mortgage loans, and investments products. Brandon is a graduate of Campbell University with a BBA in Trust Management with a minor in Financial Planning and a Master’s of Business Administration. Barker is a native of Dunn, NC. He is married to the former Johanna Shipman from New Bern. Johanna is Vice President of Johnston County Industries in Selma, NC. The couple has one child, Harrison, who is eighteen months old.

Bill Clarke RetiresAfter Thirty-Two Years

With KS Bank! We want to thank Bill Clarke for his many years of dedication to KS Bank! Bill joined the Bank in March of 1986 and through the years he served in various capacities including Senior Mortgage Officer, Regional President, City Executive, Branch Manager, and Commercial Lending Officer. Most recently, Bill served as Senior Commercial Relationship Manager, responsible for the development and management of loan relationships greater than $500,000.Upon retirement, Bill had big plans

in store including his marriage to Betty Hall from Princeton and welcoming the birth of his first grandchild. Bill looks forward to these exciting events and more with his new bride and his three children, Matthew, Elizabeth, and Michael, along with their spouses. We wish Bill and his family all the best as he enjoys his retirement years serving his church, traveling and being a grandfather! His KS Bank family will miss his humor and positive spirit that always brightened our days with him!

D. Brian Stewart joined our bank in November. He is the Relationship Manager in the Four Oaks retail location. Brian has over twelve years of experience in the banking industry with responsibilities of day-to-day branch operations, commercial lending, sales of banking products and services, and branch profitability. He also has Series 6 and Series 63 licenses to sell investment products. Stewart is a graduate of East Carolina University with a Bachelor of Science in Communications and a Minor in English. He currently lives in Coats with his wife, Amy, and their two children.

Brandon O. Barker

Wanda J. Blow

D. Brian Stewart

Employee Spotlight