Kentucky Bancshares (KTYB) 8-K Results of Operations and Financial Condition

Exhibit 99.1

October 31, 2016

Earnings Report

September 30, 2016

Dear Shareholders:

We are pleased to announce continued growth for your company.  Year-to-date net income was $6.3 million for the period ending September 30, 2016 compared to $5.2 million for the period ending September 30, 2015, reflecting an increase of 21.4%.  Year-to-date diluted earnings per share was $2.10 for the period ending September 30, 2016 compared to $1.85 for the same period last year, a 13.5% increase over the same period of 2015.  Total assets were $991.1 million as of September 30, 2016 compared to $933.5 million as of September 30, 2015, reflecting growth of 6.2%.

The increase in total assets of $57.6 million from prior year reflects growth from our existing branches.  The components of the change include an increase in net loans of $46.2 million, an increase in investment securities of $17.0 million, an increase in total deposits of $23.2 million, and an increase in other borrowed funds of $20.6 million.

The increase in year-to-date net income of $1.1 million from prior year was driven by an increase in net interest income after provision of $3.1 million, offset by an increase in other expenses of $2.1 million.  The rise in net interest income was due to increased loans and securities associated with the growth in those asset classes, as well as improving asset quality.  The rise in other expenses was due to, among other things, an increase in compensation expense associated with the increase in employees year-over-year and an increase in professional consulting expenses.

We are pleased with the results of the first nine months of 2016 but recognize the banking industry continues to face challenges, including heightened competition and enhanced supervisory oversight.  Increased competition is putting pressure on margins while banking regulators are becoming increasingly concerned about growth, capital levels, and cyber security, among other things.  This cumulative environment exerts downward pressure on revenues and upward pressure on costs.  In response to these challenges, we will be pursuing opportunities for profitable growth and improved efficiency to accomplish what is in the long term best interest of our shareholders, customers, and employees.

Thank you for your continued support and we look forward to the remainder of the year.

/s/Louis Prichard

Louis Prichard

President, CEO

UNAUDITED

CONSOLIDATED BALANCE SHEET

(in thousands)

					Percentage
	9/30/2016		9/30/2015		Change
Assets
Cash & Due From Banks	$	16,558	$	19,752	(16.2)	%
Interest Bearing Time Deposits		5,029		4,874	3.2
Securities		255,618		238,600	7.1
Trading Assets		5,696		5,480	3.9
Loans Held for Sale		2,899		1,520	90.7
Loans		659,970		612,504	7.7
Reserve for Loan Losses		7,405		6,142	20.6
Net Loans		652,565		606,362	7.6
Federal Funds Sold		551		3,129	(82.4)
Other Assets		52,226		53,825	(3.0)
Total Assets	$	991,142	$	933,542	6.2	%
Liabilities & Stockholders' Equity
Deposits
Demand	$	217,869	$	201,644	8.0	%
Savings & Interest Checking		319,101		305,273	4.5
Certificates of Deposit		197,228		204,088	(3.4)
Total Deposits		734,198		711,005	3.3
Repurchase Agreements		23,551		19,918	18.2
Other Borrowed Funds		128,101		107,508	19.2
Other Liabilities		8,908		6,522	36.6
Total Liabilities		894,758		844,953	5.9
Stockholders' Equity		96,384		88,589	8.8
Total Liabilities & Stockholders' Equity	$	991,142	$	933,542	6.2	%

CONSOLIDATED INCOME STATEMENT

(in thousands)

	Nine Months Ending								Three Months Ending
							Percentage								Percentage
	9/30/2016			9/30/2015			Change		9/30/2016			9/30/2015			Change
Interest Income	$	27,390		$	24,207		13.1	%	$	9,206		$	8,641		6.5	%
Interest Expense		3,330			2,983		11.6			1,140			1,043		9.3
Net Interest Income		24,060			21,224		13.4			8,066			7,598		6.2
Loan Loss Provision		775			1,025		(24.4)			175			375		(53.3)
Net Interest Income After Provision		23,285			20,199		15.3			7,891			7,223		9.2
Other Income		9,132			8,882		2.8			3,099			2,990		3.6
Other Expenses		25,553			23,494		8.8			8,617			8,569		0.6
Income Before Taxes		6,864			5,587		22.9			2,373			1,644		44.3
Income Taxes		580			409		41.8			8			103		(92.2)
Net Income	$	6,284		$	5,178		21.4	%	$	2,365		$	1,541		53.5	%
Net Change in Unrealized Gain (Loss) on Securities		3,243			766		323.4			(800)			1,988		(140.2)
Comprehensive Income (Loss)	$	9,527		$	5,944		60.3	%	$	1,565		$	3,529		(55.7)	%
Selected Ratios
Return on Average Assets		0.84	%		0.78	%				0.94	%		0.66	%
Return on Average Equity		8.94			8.47					9.83			7.14
Earnings Per Share	$	2.10		$	1.85				$	0.79		$	0.52
Earnings Per Share - assuming dilution		2.10			1.85					0.79			0.52
Cash Dividends Per Share		0.81			0.78					0.27			0.26
Book Value Per Share		32.28			29.65

Market Price	High		Low		Close
Third Quarter '16	$	31.00	$	27.00	$	31.00
Second Quarter '16		28.00		26.41		27.00