KS Bancorp : Investor Relations Report

E Q U I T Y

R E S E A R C H

S E R V I C E S

107 Windel Dr., Suite 211

Raleigh

North Carolina

27609

919-876-8868 ph

www.equityresearch.com

SYMBOL: KSBI

TOTAL ASSETS: $571 MM

HQ: SMITHFIELD, NC

CONTACT:

HAROLD T. KEEN,

PRESIDENT

EARL W. WORLEY, JR., EVP

REGINA J. SMITH, CFO

[phone]

4TH QUARTER HIGHLIGHTS:

EPS: $1.29 VS. $1.20

NET INCOME GREW 7% FROM THE FOURTH QUARTER OF 2020

THERE WAS NO PROVISION FOR LOAN LOSSES IN 2021'S

FOURTH QUARTER, VERSUS A PROVISION OF $401,000 IN THE

YEAR-AGO QUARTER

THE BENEFIT FROM THE LOWER PROVISION WAS PARTLY OFFSET BY A DROP IN

1. RELATED INCOME

NONINTEREST EXPENSE GREW A MODEST 3%

I N V E S T O R R E L A T I O N S R E P O R T

AVAILABLE ON THE WEB AT www.equityresearch.com

KS Bancorp, Inc. (KSBI - OTC BB)

John A. (Buddy) Howard, CFA

January 26, 2022

Price:	$57.17	EPS*	2020A:	$3.95	P/E	2020A:	14.5 x
52 Wk. Range:	$25.11 - $59.00	(FY: DEC)	2021A:	$5.50		2021A:	10.4 x
Annualized Div/Div Yld: $0.64 / 1.1%		2022E:	$5.00		2022E:	11.4 x
Shrs/Mkt Cap:	1.1 mm / $63 mm	Book Value:		$33.08	Price/Book Value:	1.73 x

* EPS are diluted. Earnings in 2021 include roughly $1.0 (pretax) in nonrecurring PPP income, whereas there is none projected for 2022.

Background

KS Bancorp, Inc. is a Smithfield, North Carolina-based, single bank holding company with approximately $571 million in assets as of December 31, 2021. 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. 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 trust services. 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. KS Mortgage Services offers competitive mortgage products through a responsive team of mortgage specialists. Finally, the Company has a Trust Services Division, through which it offers a complete line of trust services, such as money management, IRAs, trust administration and estate administration. The Company also helps clients manage, protect and build upon their financial resources through college savings programs, lifetime charitable giving, investments, business succession planning, insurance and risk management. The Company's stock is traded on the over-the-counter bulletin board under the symbol "KSBI."

Net Income Increased 7% from the Year-Ago Quarter; Annual Earnings Grew 39%

KS Bancorp reported strong results for the fourth quarter and full year 2021 that were right in line with our projections. Earnings growth benefitted from a drop in the provision for loan losses (there was no provision in 2021's fourth quarter, versus $401,000 in the year-ago quarter), although that was largely offset by a drop in PPP related income ($141,000 in 2021's fourth quarter, versus $358,000 in the year- ago quarter). Balance sheet growth was led by deposits, with loans down slightly (as anticipated) due to

1. payoffs. Asset quality also remained sound. Finally, we would note that KS Bancorp's stock has continued to advance, and has achieved some of the highest long-term returns of all public banks in the Southeast.

In terms of specifics, net income was $1,431,000, or $1.29 per diluted share, in the fourth quarter of 2021, up 7% from $1,333,000, or $1.20 per diluted share, in the fourth quarter of 2020. Net interest income was $4,364,000 in 2021's fourth quarter, versus $4,513,000 in the year-ago quarter, although excluding PPP related income, net interest income would have increased. Noninterest income was $735,000 versus $814,000 over the same respective periods, with the decrease primarily reflecting lower deposit service charges and a drop in fees from presold mortgages. Cost containment was excellent, with noninterest expense totaling $3,306,000 for the fourth quarter of 2021, up only 3% from $3,209,000 in the year-ago quarter. Profitability measures were strong, with annualized ROAA for the quarter at 1.10% and ROAE at an impressive 15.84%.

YEAR 2021HIGHLIGHTS:

EPS: $5.50 VS. $3.95

FROM 12/31/20 TO 12/31/21:

NET LOANS DECREASED 6%, ASSETS GREW 18% AND DEPOSITS INCREASED 21%

CASH AND SECURITIES

GROWTH HAVE BEEN ESPECIALLY STRONG, WHICH PUTS THE BANK IN EXCELLENT SHAPE FOR FUNDING FUTURE LOAN GROWTH

EQUITY/ASSETS: 6.42%

KS BANCORP'S ROAE FOR 2021 IS THE THIRD BEST OF THE

PEER GROUP

THE ROAA FOR 2021 WAS

ALSO SUPERIOR

KSBI SHARES HAVE EXCELLENT TOTAL RETURN ON

• ONE-YEAR, THREE-YEAR AND FIVE-YEAR BASIS

KSBI STOCK IS UP ROUGHLY 31% FROM OUR Q3 2021

REPORT

NPAS-TO-ASSETS:0.27%, DOWN FROM 0.34% AT 9/30/21

RESERVES-TO-LOANS:1.43%

EPS:

2020A: $3.95

2021A: $5.50

2022E: $5.00

In terms of annual results, the Company had 2021 earnings of $6,094,000, or $5.50 per diluted share, up 39% from $4,371,000, or $3.95 per diluted share, for the year 2020. Net interest income increased 15%, noninterest income was up 10% and noninterest expense grew 5% over this period.

Balance Sheet Growth Has Been Good; Liquidity is Ample to Support Future Loan Growth

KS Bancorp's balance sheet growth has been quite solid, particularly in terms of deposits, total assets

and, within the asset category, cash and securities. For example,

Cash (Black) and Securities

from December 31, 2020 to December 31, 2021, deposits increased

(Red) in $ Millions

21%, while total assets were up 18%. (Net loans decreased roughly

200

6% over this period, mainly as a result of payoffs of PPP loans.) The

150

deposit growth has greatly accelerated as a result of the infusion of

customers' funds (from their PPP loans), one result being that the

100

Bank's cash and securities balances have swelled (see adjacent

50

chart). In fact, there was roughly $120 million in cash on the books

(21% of assets) at December 31, 2021, versus $28 million at the

0

Q4 20 Q1 21 Q2 21 Q3 21 Q4 21

year-ago date. The result is that the Bank is in excellent shape from

a liquidity standpoint and, as loan demand picks up, is in a great position to redeploy these funds into higher yielding assets. Finally, thanks to the high ROAE, capital ratios continue to improve. As of December 31, 2021, shareholders' equity was $36.6 million, or 6.42% of total assets.

KSBI Continues to Have Excellent Performance and Returns of its Stock

We continue to be impressed with KS Bancorp's performance, particularly relative to its peers, which consisted of 33 publicly traded banks in NC, SC and VA with assets between $100 million and $1 billion. As displayed below, KS Bancorp's ROAA for the year 2021 was 1.12% and was higher than the peer group median of 0.98%, while its ROAE was 17.52% and was well above the peer group median of 10.25%. (In fact, it was the third best of the 33 banks). KS Bancorp's level of NPAs/assets was slightly higher than the peer group median, though we would note that its reserve coverage, though not shown in the table, was better than the peer median. (The reserves/loans ratio was 1.43% for KS Bancorp, versus 1.14% for the peer group median.) The strong performance at the Bank has been duly noted by the market, as evidenced by superior total returns in the stock. Despite the strong performance, the shares are trading generally in line with the peers on a price-to-LTM earnings per share basis, and though the shares are trading at a premium on the basis of book value, we would argue that a premium is warranted given KS Bancorp's strong ROAE.

KSBI:

Peer Group

Comparison

(ROAA

& ROAE

Estimated f

for KSBI)

ROAA

ROAE

NPA/Assets

Price/

Price/

1 Year

3 Year

5 Year

LTM

LTM

MRQtr.

EPS

Book Value

Return

Return

Return

KSBI

1.12%

17.52%

0.27%

10.0x

1.67x

123%

122%

217%

Peer Median

0.98%

10.25%

0.21%

9.9x

0.98x

30%

30%

44%

Asset Quality Remains Good

While nonperforming assets ("NPAs") increased relative to the year-ago date, they improved on a linked quarter-end basis. Specifically, NPAs totaled $1,523,000, or 0.27% of total assets, at December 31, 2021, versus $1,883,000, or 0.34% of total assets, at September 30, 2021, and $299,000, or 0.06% of total assets, at December 31, 2020. The allowance for loan losses increased 8% to $5.0 million, or 1.43% of gross loans, at the end of 2021, compared to $4.6 million, or 1.24% of total loans, at the year-ago date.

Projections Maintained

For the year 2022, we are estimating KS Bancorp will have earnings of $5.5 million, or $5.00 per diluted share. It should be noted that there was nearly $1.0 million (pretax) in nonrecurring PPP income included in 2021's results, whereas none is projected for 2022.

ADDITIONAL INFORMATION UPON REQUEST

Copyright © 2022 Equity Research Services, Inc. All rights reserved. This material is for your information only and is not a solicitation, or an offer, to buy or sell securities mentioned. Equity Research Services, Inc. ("ERS") is a firm involved in financial advisory, equity research, valuation and investor relations services. All reports generated by ERS for the purpose of investor relations are designated "Investor Relations Report," and ERS receives a fee (from the company whose securities are described) for producing such reports. ERS may also act in a financial advisory role to the company. The information contained herein has been obtained from sources we believe reliable but in no way is guaranteed by us. Furthermore, this report contains forward- looking statements and projections that are based on certain assumptions and expectations. Accordingly, actual results may differ considerably from those reflected in this report due to such factors as those which are listed in the Company's SEC filings. Any non-factual information in the report is our opinion and is subject to change without notice.