KS Bancorp, Inc. (KSBI) Announces Third Quarter 2012 Financial Results

KS Bancorp, Inc. (the “Company”) (OTCBB: KSBI), parent company of KS Bank, Inc. (the “Bank”), announced unaudited net income available to common shareholders of $91,000, or $.07 per diluted shared, for the three months ended September 30, 2012, compared to a net loss of ($454,000), or ($.35) per diluted share, for the three months ended September 30, 2011.

The Company reported net income available to common shareholders of $405,000, or $.31 per diluted shared, for the nine months ended September 30, 2012, compared to a net loss attributable to common shareholders of ($34,000), or ($.03) per diluted share, for the nine months ended September 30, 2011.

For the nine months ended September 30, 2012, net interest income was $7.3 million, compared to $7.7 million for the nine months ended September 30, 2011. Noninterest income increased to $1.9 million for the period ended September 30, 2012, compared to $1.0 million for the same period ended September 30, 2011. The increase in noninterest income is primarily attributable to a $433,000 gain on the sale of investments, compared to a loss of ($78,000) for the nine months ended September 30, 2011. Additionally, fees from presold mortgages increased $393,000 during the nine months ended September 30, 2012. Noninterest expenses increased $769,000 to $8.5 million for the nine months ended September 30, 2012, compared to $7.8 million at September 30, 2011. The increase in expenses is primarily due to the costs associated with foreclosed real estate.

The Company’s unaudited consolidated total assets decreased $11.3 million to $311.6 million at September 30, 2012, compared to $322.9 million at December 31, 2011. The decrease in the balance sheet is primarily due to a reduction in borrowings and brokered deposits. Total borrowings decreased $6.7 million from $50.1 million at December 31, 2011, to $43.4 million at September 30, 2012. Total deposits have decreased $6.0 million to $240.5 million at September 30, 2012, compared to $246.5 million at December 31, 2011. The decrease in deposits includes an $8.1 million decrease in brokered deposits. Net loan balances decreased $3.4 million with a balance of $192.0 million at September 30, 2012, compared to $195.4 million at December 31, 2011. The Company’s investment securities decreased $4.8 million to $86.5 million at September 30, 2012, compared to $91.3 million at December 31, 2011. Total stockholders’ equity increased $855,000 from $24.3 million at December 31, 2011, to $25.2 million at September 30, 2012.

Nonperforming assets, which includes nonaccrual loans and other real estate owned (OREO), decreased $5.1 million from $19.9 million at December 31, 2011, to $14.8 million at September 30, 2012. The nonperforming assets consist of $7.4 million in OREO and $7.4 million in nonaccrual loans. Net charge offs for the nine months ended September 30, 2012 were $218,000, compared to net charge offs of $1.0 million for the nine months ended September 30, 2011. The allowance for loan losses at September 30, 2012 totaled $3.4 million, or 1.73% of all outstanding loans.

The Company also announced today that its Board of Directors voted not to declare a dividend for the third quarter of 2012. The continued suspension of the quarterly dividend is to further the Company’s efforts to preserve capital. The Company’s profitability, capital levels and asset quality are factors that are considered in determining whether to resume dividend payments.

KS Bank continues to be well-capitalized according to federal regulatory standards with total risk based capital of 16.51%, tier 1 risk- based capital of 15.26%, and a leverage ratio of 9.29% at September 30, 2012. The minimum levels to be considered well capitalized for each of these ratios are 10%, 6%, and 5%, respectively.

KS Bancorp, Inc. is a Smithfield, North Carolina-based single bank holding company. KS Bank, Inc., a state-chartered savings bank, is KS Bancorp’s sole subsidiary. The Bank is a full service community bank serving the citizens of eastern North Carolina since 1924 and offers a variety of financial products and services including a securities brokerage service through an affiliation with a registered broker/dealer. There are nine full service branches located in Kenly, Selma, Clayton, Garner, Goldsboro, Wilson, Wendell, Smithfield, and Four Oaks, North Carolina plus a mortgage servicing location in Greenville, NC. For more information, visit www.ksbankinc.com.

This release contains certain forward-looking statements with respect to the financial condition, results of operations and business of the Company. These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of management of the Company and on the information available to management at the time that these disclosures were prepared. These statements can be identified by the use of words like “expect,” “anticipate,” “estimate” and “believe,” variations of these words and other similar expressions. Readers should not place undue reliance on forward-looking statements as a number of important factors could cause actual results to differ materially from those in the forward-looking statements. The Company undertakes no obligation to update any forward-looking statements.

KS Bancorp, Inc. and Subsidiary Consolidated Statements of Financial Condition September 30, 2012 December 31, (unaudited) 2011* (Dollars in thousands) ASSETS Cash and due from banks: Interest-earning $ 5,880 $ 1,182 Noninterest-earning 1,325 3,929 Time Deposit 100 100 Investment securities available for sale, at fair value 86,580 91,375 Federal Home Loan Bank stock, at cost 2,059 2,596 Presold mortgages in process of settlement 1,119 809 Loans 195,325 198,847 Less Allowance for loan losses (3,384 ) (3,477 ) Net loans 191,941 195,370 Accrued interest receivable 1,203 1,316 Foreclosed assets, net 7,398 11,696 Property and equipment, net 8,734 8,825 Other assets 5,311 5,734 Total assets $ 311,650 $ 322,932 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits $ 240,468 $ 246,464 Short-term borrowings 2,156 6,933 Long-term borrowings 41,248 43,248 Accrued interest payable 237 275 Accounts payable and accrued expenses 2,369 1,696 Total liabilities 286,478 298,616 Stockholder's Equity: Cumulative perpetual preferred stock (Series A), no par value 4,000 shares authorized, issued and outstanding $ 3,902 $ 3,866 Cumulative perpetual preferred stock (Series B), no par value 200 shares authorized, issued and outstanding 214 219 Common stock, no par value, authorized 20,000,000 shares; 1,309,501 shares issued and outstanding in 2010 and 2009 1,607 1,607 Retained earnings, substantially restricted 18,264 17,859 Accumulated other comprehensive income 1,185 765 Total stockholders' equity 25,172 24,316 Total liabilities and stockholders' equity $ 311,650 $ 322,932 * Derived from audited financial statements KS Bancorp, Inc and Subsidiary Consolidated Statements of Income (Loss) (Unaudited) Three Months Ended Nine Months Ended Sept 30, Sept 30,

2012

2011

2012

2011

( In thousands, except per share data) Interest and dividend income: Loans $ 2,803 $ 2,988 $ 8,525 $ 9,187 Investment securities Taxable 357 396 1,088 1,082 Tax-exempt 159 306 669 1,142 Dividends 8 6 26 18 Interest-bearing deposits 4 2 7 4 Total interest and dividend income 3,331 3,698 10,315 11,433 Interest expense: Deposits 511 700 1,665 2,218 Borrowings 421 484 1,302 1,493 Total interest expense 932 1,184 2,967 3,711 Net interest income 2,399 2,514 7,348 7,722 Provision for loan losses (75 ) 786 125 1,333 Net interest income after provision for loan losses 2,474 1,728 7,223 6,389 Noninterest income: Service charges on deposit accounts 283 299 831 886 Fees from presold mortgages 233 26 465 72 Gain (Loss) on sale of investments 8 (59 ) 433 (78 ) Other income 52 34 130 115 Total noninterest income 576 300 1,859 995 Noninterest expenses: Compensation and benefits 1,531 1,365 4,472 4,249 Occupancy and equipment 282 422 774 750 Data processing & outside service fees 193 20 601 601 Advertising 13 21 35 59 Net foreclosed real estate 408 485 1,091 615 Other 484 461 1,561 1,491 Total noninterest expenses 2,911 2,774 8,534 7,765 Income (loss) before income taxes 139 (746 ) 548 (381 ) Income tax expense (benefit) (17 ) (356 ) (50 ) (539 ) Net income (loss) 156 (390 ) 598 158 Dividends on preferred stock (55 ) (55 ) (163 ) (164 ) Accretion of discount on preferred stock, net (10 ) (9 ) (30 ) (28 )

Income available (loss attributable) to

common stockholders