Kentucky Bancshares (KTYB) 8-K Record Earnings and Assets

Exhibit 99.1

January 31, 2017

Earnings Report – December 31, 2016

Record Earnings and Assets

Dear Shareholders:

We are pleased to announce record earnings and record assets for your company. Year-to-date net income was $8.6 million for the period ending December 31, 2016 compared to $6.8 million for the period ending December 31, 2015, reflecting an increase of 25.4%. Year-to-date diluted earnings per share was $2.87 for the period ending December 31, 2016 compared to $2.40 for the same period last year, an increase of 19.6%. Net income and diluted earnings per share were the highest in our history.

Total assets were $1.03 billion as of December 31, 2016 compared to $974.7 million as of December 31, 2015 reflecting growth of 5.5%. Total ending assets was the highest in our history.

The increase in earnings and assets reflects our collective efforts of fully incorporating Madison Bank into our operations, pursuing profitable organic growth opportunities, and implementing strategies to improve our core efficiency.

The increase in year-to-date net income of $1.7 million from prior year was driven by an increase in net interest income after provision of $3.3 million, offset by an increase in other expenses of $2.0 million. The improvement in net interest income was due to increased loans and securities associated with the growth in those asset classes as well as improved asset quality. The rise in other expenses was due to, among other things, an increase in compensation expense associated with an increase in employees year-over-year, an increase in professional consulting expenses related to an efficiency analysis conducted in 2016, and a fixed asset write down for the restructuring efforts we are currently undertaking in our Clark County region.

We believe the one-time costs for the consulting study and the restructuring changes to be an investment in our future. The costs for the efficiency study were incurred in 2016 while the benefit of the changes we made in response to the study will be derived in future periods. The restructuring changes in our Clark County market will result in a more efficient branch design, allowing us to serve more customers with the same staffing levels. 

We are pleased with the 2016 results and believe we are well positioned for 2017, but recognize the banking industry continues to face challenges including heightened competition and enhanced supervisory oversight. This environment exerts downward pressure on revenues and upward pressure on costs. In response to these challenges, we are 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 new year.

/s/Louis Prichard

Louis Prichard

President, CEO

UNAUDITED

CONSOLIDATED BALANCE SHEET

(in thousands)

					Percentage
	12/31/2016		12/31/2015		Change
Assets
Cash & Due From Banks	$	42,052	$	26,546	58.4	%
Interest Bearing Time Deposits		5,029		4,874	3.2
Securities		273,770		264,212	3.6
Trading Assets		5,592		5,531	1.1
Loans Held for Sale		724		624	16.0
Loans		656,007		624,121	5.1
Reserve for Loan Losses		7,541		6,521	15.6
Net Loans		648,466		617,600	5.0
Federal Funds Sold		1,198		1,502	(20.2)
Other Assets		51,616		53,795	(4.1)
Total Assets	$	1,028,447	$	974,684	5.5	%
Liabilities & Stockholders' Equity
Deposits
Demand	$	219,556	$	209,289	4.9	%
Savings & Interest Checking		382,020		349,183	9.4
Certificates of Deposit		201,405		200,509	0.4
Total Deposits		802,981		758,981	5.8
Repurchase Agreements		20,873		18,514	12.7
Other Borrowed Funds		103,807		99,844	4.0
Other Liabilities		7,814		7,932	(1.5)
Total Liabilities		935,475		885,271	5.7
Stockholders' Equity		92,972		89,413	4.0
Total Liabilities & Stockholders' Equity	$	1,028,447	$	974,684	5.5	%

CONSOLIDATED INCOME STATEMENT

(in thousands)

	Years Ending								Three Months Ending
							Percentage								Percentage
	12/31/2016			12/31/2015			Change		12/31/2016			12/31/2015			Change
Interest Income	$	36,554		$	33,185		10.2	%	$	9,164		$	8,978		2.1	%
Interest Expense		4,426			4,050		9.3			1,096			1,067		2.7
Net Interest Income		32,128			29,135		10.3			8,068			7,911		2.0
Loan Loss Provision		1,150			1,450		(20.7)			375			425		(11.8)
Net Interest Income After Provision		30,978			27,685		11.9			7,693			7,486		2.8
Other Income		12,149			11,484		5.8			3,017			2,602		15.9
Other Expenses		33,785			31,807		6.2			8,232			8,313		(1.0)
Income Before Taxes		9,342			7,362		26.9			2,478			1,775		39.6
Income Taxes		773			530		45.8			193			121		59.5
Net Income	$	8,569		$	6,832		25.4	%	$	2,285		$	1,654		38.1	%
Net Change in Unrealized Gain (Loss) on Securities		(1,315)			(432)		(204.4)			(4,558)			(1,198)		(280.5)
Comprehensive Income (Loss)	$	7,254		$	6,400		13.3	%	$	(2,273)		$	456		(598.5)	%
Selected Ratios
Return on Average Assets		0.86	%		0.76	%				0.91	%		0.68	%
Return on Average Equity		9.10			8.20					9.60			7.22
Earnings Per Share	$	2.87		$	2.40				$	0.77		$	0.57
Earnings Per Share - assuming dilution		2.87			2.40					0.77			0.57
Cash Dividends Per Share		1.08			1.04					0.27			0.26
Book Value Per Share		31.27			29.62

Market Price	High		Low		Close
Fourth Quarter '16	$	32.65	$	30.01	$	32.50
Third Quarter '16		31.00		27.00		31.00