Dear Fellow Shareholders,

This report of the results of 2015 for KS Bancorp, Inc. and its subsidiary, KS Bank, Inc., is written with great enthusiasm for the immediate results shown, and for the solid groundwork that continues to be established for the future. 2015 was a year of continued balance sheet growth, increased profits and the addition of many solid customer relationships for KS Bank. We are also very proud of the additional products and services added during 2015. For the year ended December 31, 2015, the Company reported net income of $1,415,911 or $1.08 per diluted share compared to $933,490 or $.76 per diluted share at December 31, 2014. Contributing to this 42% increase in per share earnings were the redemption of Preferred Stock completed in September 2014, the increase in outstanding loans of $26.2 million and the limited increase in interest expense of $125,351.

During 2015, the Company grew its balance sheet at a very moderate pace. Consolidated total assets at December 31, 2015 were $337,434,276, an increase of 5.96% over the same period in 2014. Net loans increased $26,225,793, or 11.85% to $247,627,288 at December 31, 2015 as compared to $221,401,495 at December 31,2014. Total deposits increased $8,598,729, or 3.45%, to $257,513,535, as compared to $248,914,806 at December 31, 2014. Total stockholders’ equity increased 5.24% to $22,908,294 at December 31, 2014. In February 2015, the Company paid an annual dividend to stockholders of $.06 per share.

During 2015, KS Bank made two significant additions to its products and services that will enhance the growth of the bank and build increased value for the Company. In August, the bank added Mobile Banking with Remote Deposit Anywhere for individual customers to its line of digital services that were already available to business customers. The ability to complete most banking transactions through a tablet or smartphone allows KS Bank to serve customers at their location. With transactions moving from the teller counter to a smartphone, our team can now focus more time and energy on customer service and ensuring that we fully meet our customers’ financial needs.

The second significant addition during 2015 was Trust and Wealth Management Services. In January, the Bank added a full time Wealth Management and Investment Officer to replace a third party relationship. In July, the Bank added a team of three experienced Trust Officers who brought with them many long-time customer relationships. (Please see Wealth Management Team on page 7.) The addition of our experienced team of Wealth Management Officers and a full complement of Wealth Management Services is a major enhancement to KS Bank’s product offerings and will build for the Company into the future. At December 31, 2015, Wealth Management Services had $103 million of assets under management.

Our commitment to each of you has been one of building long-term value and continuing to build the Company and KS Bank into the highest quality community bank. That commitment is even more present as we enter 2016. We ask that you continue to give us your guidance, recommendations and support.

Respectfully,

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

To Our Shareholders, Customers

KS Bancorp, Inc. is a Smithfield, North Carolina-based, single bank holding company with approximately $337 million in assets as of December 31, 2015. 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 87 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 services (through Flex Pay), merchant card services, cash management and remote deposit.

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 2015 Core Values Winners 6Wealth Management Team 7Director Spotlight 8Executive Management Staff 9Board of Directors 10KS BancorpInformation 11Employees 11

KS Mortgage Services offers competitive mortgage products through a responsive team of mortgage specialists. Finally, KS Wealth Management Services offers a broad array of services to help clients manage, protect and build upon their financial resources. Selected wealth management services include investments, college savings programs, lifetime charitable giving, business succession planning, insurance and risk management. In addition, the Company recently launched a Trust Services Division which has an office in Asheboro and a presence in Waynesville and Wilmington, through which it offers a complete line of trust services, such as money management, IRAs, trust administration and estate administration. 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 1,309,501 shares of common stock, which were held by approximately 200 stockholders of record, as of December 31, 2015.

Including the KS Mortgage Services location in Greenville, our offices can be found in five counties and ten communities.

Time Tested,Financially Trusted

KS BANCORP, INC. – ANNUAL REPORT 2015 32 KS BANCORP, INC. – ANNUAL REPORT 2015

KS Bancorp, Inc. and Subsidiary Selected Financial Data

KS BANCORP, INC. – ANNUAL REPORT 2015 54 KS BANCORP, INC. – ANNUAL REPORT 2015

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 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 avg assets

Return on avg equity

Avg equity to avg assets

Total risk based capital

2011

$322,932

98,000

195,370

246,464

50,181

24,316

$15.45

$15,057

4,850

10,207

1,483

1,574

10,461

(163)

(573)

$410

(218)

(38)

$154

$0.12

$0.12

$0.00

0.05%

0.65%

7.19%

15.94%

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

$0.00

0.32%

4.20%

7.60%

15.41%

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%

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

(In Thousands, Except Per Share Amounts)

2013

$305,395

92,082

193,642

230,083

48,463

24,338

$15.40

$12,585

2,965

9,620

161

2,315

10,459

1,315

266

$1,049

(218)

(43)

$788

$0.60

$0.60

$0.00

0.26%

3.18%

8.04%

17.41%

2012

$314,939

94,079

196,855

243,996

43,404

25,322

$16.19

$13,676

3,846

9,830

207

2,620

11,479

764

(26)

$790

(218)

(41)

$531

$0.41

$0.41

$0.00

0.17%

2.12%

7.90%

16.70%

250,000

200,000

150,000

100,000

5,000

020112012201320142015

Loans Receivable, Net

$193,642

$247,627

$221,401

$195,370$196,855

$230,083$246,464$243,996$248,915

$257,514

Net Income AvailableTo Common Stockholders

100%

80%

60%

40%

20%

90%

70%

50%

30%

10%

0%

Total Risk Based Capital

350,000

300,000

250,000

200,000

150,000

100,000

50,000

020112012201320142015

Total Assets

$305,395$318,451

$337,434$322,932

$314,939

250,000

300,000

200,000

150,000

100,000

5,000

020112012201320142015

Deposits

1,000

1,200

1,400

1,600

800

600

400

200

020112012201320142015

$788

$994

$1,416

$154

$531

17.41%15.41%14.09% 15.94%16.70%

20112012201320142015

We build and maintain personal relationships that are mutually beneficial. Through honesty and integrity, we earn the trust of our customers. We know our customers’ names and understand what is really important.

Pictured from left to right are Carolyn Allen- Selma Financial Counselor,Kelly Aycock- Selma Relationship Manager and Tynisha Lucas- Wilson Financial Counselor

KS Bank recognizes employees throughout the year who exemplify our bank’s core values. We would like to highlight the winners in 2015 and congratulate them for living the values we think are important.

Although employees are important for any business, this is especially true in community banking. Our success is dependent on the experience and expertise of our employees. We provide many opportunities for growth and personal development to staff members who are committed to serving our customers.

Pictured from left to right are Ashley Davis- Smithfield Office Manager and Peggy Fitzgerald- Accounting Technician

We invest our time and resources, both individually and organizationally, in the local community. We are committed to helping our communities grow and to improving the quality of life for local residents.

Pictured from left to right are Susan Narron- Smithfield Financial Counselor, Gail McLamb- Four Oaks Financial Counselor, Tammy Mitchell- Business Development Officer, Cassy Massengill- Smithfield Head Teller, Susan Narron- Smithfield Financial Counselor, Ashley Davis- Smithfield Office Manager, Denise Drewry- Smithfield Customer Service Representative and Doug Cockrell- Credit Analyst

Our success is dependent upon our ability to work together as a team. We value cooperation and collaboration. Our commitment to trust, relationships and personal service must extend to our interactions with each other.

Pictured from left to right are Cassy Massengill- Smithfield Head Teller, Nikki Murray- Wealth Management Assistant, Melissa Curry- Kenly Customer Service Representative, Tammy Oldham- Credit Analyst and Kathy Salzmann- Deposit Operations Specialist

We want to develop existing relationships and continue to expand our locations and services into more communities. In order to do this, we need to recognize and adapt to the changing needs of our customers and communities.

Pictured from left to right are Tammy Mitchell- Business Development Officer, Linda Holloman- Director of Operations, Jessica MacDougall- Loan Processor and Nikki Murray, Wealth Management Assistant

KS BANCORP, INC. – ANNUAL REPORT 2015 76 KS BANCORP, INC. – ANNUAL REPORT 2015

KS Bank 2015 Core Values Winners Wealth Management Team

Create Win-Win for Customer and Bank

Learn for Life

Make a Difference at Work & In Our Communities

Always Do the Right Thing

Work with Focus & 100% Engagement

Pictured from left to right are Jim Watts- Senior Portfolio Manager, Nikki Murray- Wealth Management Assistant, Matt Keen- Wealth

Management Financial Advisor, Roger Thomas- Senior Wealth Management Consultant, and Tim Britt- Chief Wealth Officer

KS Bank added Trust Services in 2015 as part of the bank’s Wealth Management Services. In addition to our investment and asset management services, KS Bank clients will now have access to trust and estate plan-ning through KS Wealth Management Services. KS Wealth Management can also help businesses with various types of employee benefit trusts and plans. Sound management and investment of accumulated wealth has become increasingly important in today’s marketplace. KS Bank is very fortunate to bring this level of knowledge and experience to our customers. Tim C. Britt, Chief Wealth Officer, has twenty-one years of experience in Wealth Management, most recently as Director of Wealth Management managing a $500 million wealth management division with $235 million in trust assets. His background includes experience in investment management, tax, estate and financial planning as well as administration of various types of employee benefit trusts/plans. Tim maintains offices in Smithfield and in Asheboro. Jim L. Watts, Senior Portfolio Manager, has twenty-two years of fiduciary experience. He has served as Senior Investment Strategist and Relationship Officer. His experience includes an extensive background in investment management, personal trust, tax planning and estate settlement. Jim will focus on clients located in the Triad area as well as clients in the Wilmington area. Roger K. Thomas, Senior Wealth Consultant, has nine years of fiduciary experience. His background includes investment management, personal tax, tax planning and estate planning as well as administration of employee benefit accounts (specifically 401k plans). He has served as a Relationship Manager and Employee Benefits Officer. Roger will focus on serving clients in Waynesville, Wilkesboro, North Wilkesboro, Lexington and Triad areas. Matt T. Keen, Wealth Management Financial Advisor, holds Series 7 and 66 securities licenses (held with LPL Financial), as well as NC Life and Health licenses. Matt’s experience includes working as a private financial advisor for a regional financial institution in Maryland. He is responsible for delivering advisory solutions for investments, insurance, retail lending, mortgages, financial planning and estate planning. W. Nikki Murray rounds out our Wealth Management team as Wealth Management Assistant. She joined KS Bank in 2014 as a Customer Service Representative in the Smithfield Retail Office.

Director Spotlight Executive Management Staff

KS BANCORP, INC. – ANNUAL REPORT 2015 98 KS BANCORP, INC. – ANNUAL REPORT 2015

Earl W. Worley, Jr.Chief Operating Officer

Tim BrittChief Wealth Officer

Regina J. Smith Chief Financial Officer

H. Geoffery KokikoSenior Retail Officer

Timothy N. Taylor Chief Credit Officer

Deborah A. PattisonDirector of Human Resources

Harold T. KeenPresident/CEO

Being born and raised in Johnston County, Harold T. Keen contends that he is one of the luckiest people alive because he continues to live on his family farm in Four Oaks today. Harold built his house as a single young man and he and his wife, Barbara, have lived there since they were married. They raised a daughter, Catherine, and a son, Matthew, on the farm, and now, their granddaughter, Clara, visits the family farm when she comes from Greensboro, NC. Harold’s career started in the military as an Army helicopter pilot. During his three and a half years in the Army, he spent a year flying a helicopter in the Vietnam War. After serving his country, Harold spent two years working with his brother in a company that helped people with little or no education get semi-skilled jobs. Then he spent a year owning a Sizzler Family Steakhouse with his brother and decided that the restaurant business was not for him. As luck would have it, when Harold came home to be with his father and to complete his accounting degree at Johnston Community College, a visit to Smithfield Savings & Loan Association for a home loan ended with a loan and a job opportunity. In October of 1975, Harold joined Smithfield Savings & Loan Association and he has remained in banking ever since. In January of 1983, Smithfield S & L merged with Raleigh Federal Savings Bank and increased responsibilities eventually led Harold to the corporate office in downtown Raleigh. An opportunity to work back in Johnston County came in 1990 with the retirement of Harold McRae who had managed Kenly Savings & Loan Association for many years. Working with a Board of Directors who wanted to see Kenly Savings & Loan move forward to become a community bank was a growth opportunity that Harold eagerly accepted. Under Harold’s leadership, the organization expanded into offering checking accounts and other bank products/services for the first time since its establishment in 1924. With that progression, Harold has seen other significant events in the

life of KS Bank. These changes include the transition from a mutual S & L to a stockholder owned company. The organization became a traditional savings bank offering a full range of banking products and

services. Through the years, the bank has continued to evolve and now offers state-of-the-art technology and electronic/mobile banking. Harold’s hope for KS Bank in the future is that we continue to be a financial provider that truly helps businesses and individuals realize their financial goals and dreams. He believes our strengths are that we are integrated into the local communities through our employees and directors. Also, we focus on making sound business decisions and avoid taking undo risks. Operating as a locally owned and controlled financial institution in Eastern North Carolina is another major strength for KS Bank. When asked to describe his “perfect day”, Harold quickly says that he gets to live his perfect day most every day of his life. He gets to live on a farm that has been in his family since the 1780’s, he gets to share “this endeavor we call work” with folks who share his focus on serving the community, and he has a supportive family around him who have always encouraged and helped him in his career and everyday life. What would make his day even better than perfect is if he could get

a hug from his granddaughter every day! Harold adds, “Barbara and I are very blessed. We raised our family on our farm and they are good young adults who prepared themselves, through education and life experiences, to be on their own. We live in a community where we grew up with loving, caring adults and now we get to interact with them as colleagues to enhance the quality of life in Four Oaks and Johnston County. Harold’s family includes his daughter, Catherine K. Hock, who works as a counselor for Masters and Doctoral students in the School of Music at UNC- Greensboro. She is married to Noah, who is the Business Manager for the School of Music at UNC – Greensboro, and their daughter is Clara. Harold’s son, Matthew, is currently working with KS Bank as part of the Wealth Management Services team. He is responsible for delivering advisory solutions for investments, insurance, financial planning and estate planning. Harold has been involved in many civic and professional organizations throughout his career; however, if he had to choose one that meant a lot to him, he would say that being a founding member of the Johnston County Education Foundation was especially meaningful. He was instrumental in bringing Showcase of Stars to the county which continues today as the largest fundraiser for the foundation. He received an Honorary Hero Award from Johnston County Schools for his work with the Education Foundation. Other organizations in which he has been involved include the NC Banking Commission, the NC Teachers & State Employees’ Retirement System Board of Trustees, Coastal Pines of Carolina Girl Scouts Board member, First Baptist Church of Four Oaks, Four Oaks Civitan Club, South Johnston High School Advisory Board, and Greater Smithfield-Selma Chamber of Commerce. He is most proud of two awards he received during his career. They are the Order of the Long Leaf Pine award from the State of North Carolina in 2000, while Governor Jim Hunt was in office, and the 2010 Distinguished Citizen Award from the Greater Smithfield-Selma Area Chamber of Commerce.

Harold T. Keen, KS Bank President/CEO

KS BANCORP, INC. – ANNUAL REPORT 2015 1110 KS BANCORP, INC. – ANNUAL REPORT 2015

Annual MeetingThe Annual Shareholder’s Meeting will be held on May 12, 2016 at 7:00 PM in the Corporate Office at 1031 North Brightleaf Blvd inSmithfield, North Carolina.

Corporate Information1031 N Brightleaf BlvdSmithfield, NC 27577Phone 919-938-3101 Fax 919-938-2681http://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 1,309,501 shares of Common Stock outstanding, which were held by approximately 200 holders of record (excluding shares held in street name), as of December 31, 2015. 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 Agent:Shareholders needing information on stock-transfer requirement or lost certificates write to:Issuer Direct Corporation500 Perimeter Park DriveSuite DMorrisville, NC 27560

Independent Certified Public Accountants for 2015:Dixon Hughes Goodman, LLC1003 Red Banks RdP.O. Drawer 20157Greenville, NC 27858

Special Legal Counsel:Brooks, Pierce, McLendon,Humphrey & Leonard, LLPP.O. Box 26000Greensboro, NC 27420

Photography Credit:Photos by Tracy McKinleySmithfield, NC

Graphic Design & Layout:CHO Design StudiosClint 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 ManagementTimothy C. BrittH. Geoffrey KokikoDeborah A. PattisonTimothy N. Taylor

BRANCH PERSONNELClayton BranchCharles MarcomJessica FromerTina Willis

Four Oaks Branch Gail McLambMichelle Pearce

Garner BranchJohn KerrCharlotte TrueloveAudra HannigAnna Wommack

Goldsboro BranchDavid Barber Dawn SkeltonFelicia CarterHannah GiddensJennifer Smith

Kenly BranchShannon Kirby Melissa CurryKarrie King

Selma BranchKelly Aycock Carolyn AllenKaren DavisVicky Wall

Smithfield BranchBill ClarkeAshley DavisSusan NarronCassy MassengillDenise Drewry

Wendell BranchKyle Williams Mary GriffinDoreen Hogan

Wilson BranchJustin Keene Tynisha LucasAlyshia Mooring

Roving TellersSarah LangstonRusty RenfrowKaye Wood

Mortgage BankingTracie Worley Greg Fader (Greenville)

ADMINISTRATIONAccountingRegina Smith Peggy FitzgeraldHelen PollockDeborah WhaleyDiana Whitehurst

Business DevelopmentTammy Mitchell

Credit AdministrationTimothy N. Taylor Doug CockrellBlair HesterTammy OldhamJohn ParkerShaye Wagaman

Director of Operations Linda Holloman

CouriersTed MorganMack Ward

Deposit OperationsWendy Langston Kathy SalzmannStephanie Simpson Ryan

E-Banking Brandy Ward

Loan OperationsEmily RhodesKaren AycockCandace BennettCrystal BoswellConnie BrownWanda DanielsGreta EdwardsCandy JohnsonJessica MacDougall

Executive AdministratorDenise Elliott

Human ResourcesDeborah A. PattisonHeidi WatkinsJoy Watson

Information TechnologyTracy McKinley Gary LangstonChase Smith

Internal Auditor/ComplianceMarilyn Logan

MarketingMichele Grady

KS Wealth Management ServicesTimothy C. BrittMatt KeenNikki MurrayRoger ThomasJimmy Watts

KS Bancorp InformationBoard of Directors

Lisa H. BrogdonDirector

Harold T. KeenPresident/CEO

Eugene D. JacksonDirector

James C. ParkerChairman

B. Kenneth Jones IIDirector

Sidney E. SaulsDirector

Gordon C. WoodruffVice-Chairman

R. Edward Scott, Jr.Director

Earl W. Worley, Jr.Director

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