SCHEDULE 14A
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
K S BANCORP, INC
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(Name of Registrant as Specified In Its Charter)

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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)

KS Bancorp, Inc.
Post Office Box 219
207 West Second Street
Kenly, North Carolina 27542
(919) 284-4157

NOTICE OF 2002 ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 7, 2002

NOTICE IS HEREBY GIVEN that the 2002 Annual Meeting of Stockholders (the
"Annual Meeting") of KS Bancorp, Inc. (the "Company") will be held on May 7,
2002, at 7:00 p.m., Eastern Time, at the offices of the Company at 207 West
Second Street, Kenly, North Carolina.

The Meeting is for the purpose of considering and voting upon the following
matters:

1. To elect three persons who will serve as directors of the Company
until the 2005 Annual Meeting of Stockholders or until their
successors are duly elected and qualify;

2. To ratify the selection of Dixon Odom PLLC as the independent auditor
for the Company for the 2002 fiscal year; and

3. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof. The Board of Directors is not
aware of any other business to be considered at the Annual Meeting.

The Board of Directors has established March 20, 2002, as the record date
for the determination of stockholders entitled to notice of and to vote at the
Annual Meeting and at any adjournments thereof. Only record holders of the
common stock of the Company as of the close of business on that date will be
entitled to vote at the Annual Meeting or any adjournments thereof. In the event
there are not sufficient shares present in person or by proxy to constitute a
quorum at the time of the Annual Meeting, the Annual Meeting may be adjourned in
order to permit further solicitation of proxies by the Company.

By Order of the Board of Directors

Secretary

Kenly, North Carolina
March 29, 2002

A form of proxy is enclosed to enable you to vote your shares at the Annual
Meeting. You are urged, regardless of the number of shares you hold, to
complete, sign, date and return the proxy promptly. A return envelope, which
requires no postage if mailed in the United States, is enclosed for your
convenience.

KS Bancorp, Inc.

PROXY STATEMENT

2002 ANNUAL MEETING OF STOCKHOLDERS
MAY 7, 2002

SOLICITATION AND VOTING OF PROXIES

General

This Proxy Statement is being furnished to stockholders of KS Bancorp, Inc.
(the "Company") in connection with the solicitation by the board of directors of
the Company (the "Board of Directors") of proxies to be used at the Annual
Meeting of Stockholders (the "Annual Meeting") to be held on May 7, 2002, at
7:00 p.m., Eastern Time, at the offices of the Company at 207 West Second
Street, Kenly, North Carolina, and at any adjournments thereof. This Proxy
Statement and the accompanying form of proxy were first mailed to stockholders
on March 29, 2002.

Other than the matters listed on the attached Notice of 2002 Annual Meeting
of Stockholders, the Board of Directors knows of no matters that will be
presented for consideration at the Annual Meeting. Execution of a proxy,
however, confers on the designated proxyholders discretionary authority to vote
the shares in accordance with their best judgment on such other business, if
any, that may properly come before the Annual Meeting or any adjournments
thereof.

Revocability of Proxy

A proxy may be revoked at any time prior to its exercise by the filing of a
written notice of revocation with the Secretary of the Company, by delivering to
the Company a duly executed proxy bearing a later date, or by attending the
Annual Meeting and voting in person. However, if you are a beneficial owner of
shares of the Company's common stock, no par value (the "Common Stock") that are
not registered in your own name, you will need appropriate documentation from
your recordholder to vote personally at the Annual Meeting.

Solicitation

The Company will pay the cost of preparing, assembling and mailing this
Proxy Statement and other proxy solicitation expenses, if any. In addition to
the use of the mail, proxies may be solicited personally or by telephone or
telegraph by directors, officers and regular employees of the Company and its
wholly-owned savings bank subsidiary, KS Bank, Inc. (the "Bank"), without
additional compensation therefor. Brokerage houses and nominees have been
requested to forward these proxy materials to the beneficial owners of shares
held of record by such persons and, upon request, the Company will reimburse
such persons for their reasonable out-of-pocket expenses in doing so.

Voting Securities and Vote Required for Approval

Regardless of the number of shares of Common Stock owned, it is important
that stockholders be present in person or represented by proxy at the Annual
Meeting. Stockholders are requested to vote by completing, signing, dating and
returning the enclosed proxy card in the provided postage-paid envelope. Any
shareholder may vote for, against, or abstain from voting on any matter to come
before the Annual Meeting. If the enclosed proxy is properly marked, signed,
dated and returned, and not revoked, it will be voted in accordance with the
instructions therein. If no instructions are given, the proxy will be voted FOR
the nominees for election to the Board of Directors named in this Proxy
Statement and for the other matters described in this Proxy Statement calling
for a vote of the stockholders. If instructions are given with respect to some
but not all proposals, such instructions as are given will be followed, but the
proxy will be voted FOR the proposals described in this Proxy Statement on which
no instructions are given.

The close of business on March 20, 2002, has been fixed by the Board of
Directors as the record date (the "Record Date") for the determination of
stockholders of record entitled to notice of and to vote at the Annual Meeting
and any adjournments thereof. As of the Record Date, the Company had outstanding
1,139,213 shares of Common Stock. Each share of Common Stock entitles its owner
to one vote on each matter calling for a vote of stockholders at the Annual
Meeting.

The presence, in person or by proxy, of the holders of at least a majority
of shares of the Common Stock entitled to vote at the Annual Meeting is
necessary to constitute a quorum at the Annual Meeting. To determine whether a
quorum is present, the Company will count all shares of common stock present at
the Annual Meeting either in person or by proxy, whether or not such shares will
be voted for any matter. Since many of our stockholders cannot attend the Annual
Meeting, it is necessary that a large number be represented by proxy.
Accordingly, the Board of Directors has designated proxies to represent those
stockholders who cannot be present in person and who desire to be so
represented. In the event there are not sufficient votes for a quorum or to
approve or ratify any proposal at the time of the Annual Meeting, the Annual
Meeting may be adjourned in order to permit the further solicitation of proxies.

In order to be elected, a nominee need only receive a plurality of the
votes cast in the election of directors. As a result, those persons nominated
who receive the largest number of votes will be elected as directors.
Accordingly, shares not voted for any reason respecting any one or more nominees
will not be counted as votes against such nominees.

As to other issues presented for a vote, the affirmative vote of the
holders of a majority of the shares of Common Stock present at the meeting, in
person or by proxy and entitled to vote, is required to constitute stockholder
approval of such proposals, unless the Company's articles of incorporation or
bylaws or applicable law imposes a different voting requirement.

Abstentions and broken non-votes will not be counted in tabulating the
votes cast on any proposal submitted to the stockholders. Proxies solicited
hereby will be returned to the Board of

Directors and will be tabulated by one or more inspectors of election designated
by the Board of Directors.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The Securities Exchange Act of 1934, as amended (the "Exchange Act"),
requires that any person or group who acquires the beneficial ownership of more
than 5% of the Common Stock notify the Securities and Exchange Commission (the
"SEC") and the Company. The table below contains certain information, as of
March 1, 2002, regarding all persons or groups, as defined in the Exchange Act,
who held of record or who are known to the Company to own beneficially, more
than 5% of the Company's Common Stock.

Amount and Nature
of Beneficial Percentage of
Name and Address Ownership/1/ Class/2/
---------------- ------------ --------

Salem Investment Counselors, Inc.
Post Office Box 25427
Winston-Salem, North Carolina 27114-5427 72,312/3/ 6.36%

Harold T. Keen
Director, President and Chief Executive
Officer of the Bank and the Company
1121 Boyette Road
Four Oaks, North Carolina 27524 90,083/4/ 7.91%

Ralph Edward Scott, Jr.
8934 Lefty Road
Kenly, North Carolina 27542 96,948/5/ 8.51%

R. Harold Hinnant
200 Pope Avenue
Kenly, North Carolina 27542 131,596/6/ 11.55%

Gordon C. Woodruff
Post Office Box 708
Smithfield, North Carolina 27577 80,834/7/ 7.10%

/1/ Voting and investment power is not shared unless otherwise indicated.

/2/ Based upon a total of 1,139,213 shares of Common Stock outstanding and the
shares underlying options that have vested or are exercisable within 60
days under the Nonqualified Stock Option Plan for Directors in which the
named individual participates. Assumes exercise of only those options
included with respect to the designated recipients.

/3/ Based upon a Schedule 13G filed February 1, 2002.

/4/ Includes shares owned by Mr. Keen's spouse and other entities controlled by
Mr. Keen, over which shares Mr. Keen effectively exercises sole or shared
voting and investment power. Includes shares allocated to Mr. Keen under
the Bank's Employee Stock Ownership Plan (the "ESOP").

/5/ Mr. Scott, Mr. Hinnant and Mr. Woodruff serve as trustees of the ESOP which
holds 80,497 shares of the Company's Common Stock. The trustees of such
plan share certain voting and investment power of such shares, and such
shares are included in this amount. This amount also includes 7,415 shares
underlying stock options that have vested or are exercisable within 60 days
under the Nonqualified Stock Option Plan for Directors.

/6/ Mr. Hinnant, Mr. Scott and Mr. Woodruff serve as trustees of the ESOP which
holds 80,497 shares of the Company's Common Stock. The trustees of such
plan share certain voting and investment power of such shares, and such
shares are included in this amount. This amount also includes 6,702 shares
underlying stock options that have vested or are exercisable within 60 days
under the Nonqualified Stock Option Plan for Directors.

/7/ Mr. Woodruff, Mr. Scott and Mr. Hinnant serve as trustees of the ESOP which
holds 80,497 shares of the Company's Common Stock. The trustees of such
plan share certain voting and investment power of such shares, and such
shares are included in this amount.

Set forth below is certain information as of March 1, 2002 regarding
beneficial ownership of the Common Stock by each of the members of the Board of
Directors (including nominees for re-election at the Annual Meeting), each of
the members of the Board of Directors of the Bank, the chief executive officer
of the Company and the Bank, and the directors and all executive officers of the
Company and the Bank as a group. All persons listed as directors are directors
of the Company and the Bank.

Amount and Nature
of Beneficial Percentage of
Name and Address Ownership/1/,/2/ Class/3/
---------------- ---------------- --------

Carroll Coleman
7368 Rock Ridge School Road
Kenly, NC 27542 1,838 .16%

Robert E. Fields
203 Bailey Avenue
Kenly, North Carolina 27542 22,380 1.96%

R. Harold Hinnant
200 Pope Avenue
Kenly, North Carolina 27542 131,596/5/,/6/ 11.55%

Harold T. Keen
President and Chief Executive
Officer of the Bank and the Company
1121 Boyette Road
Four Oaks, North Carolina 27524 90,083 7.91%

James C. Parker
117 Pineridge Lane
Goldsboro, North Carolina 27530 3,703 0.33%

R. Elton Parrish
805 North Webb Street
Selma, North Carolina 27576 31,037/4/ 2.72%

Sidney Ernest Sauls
10579 NC 50 North
Angier, North Carolina 27501 518 .05%

Ralph Edward Scott, Jr.
8934 Lefty Road
Kenly, North Carolina 27542 96,948/4/,/6/ 8.51%

Gordon C. Woodruff
Post Office Box 708
Smithfield, North Carolina 27577 80,834/6/ 7.10%

Directors and executive officers of the
Company and the Bank as a group (13
persons) 458,937/7/ 40.29%

/1/ Voting and investment power is not shared unless otherwise indicated.

/2/ Unless otherwise indicated, all shares are owned directly by the named
individuals, by their spouses and minor children, or by other entities
controlled by the named individuals.

/3/ Based upon a total of 1,139,213 shares of Common Stock outstanding and the
shares underlying options that have vested or are exercisable within 60
days under the Nonqualified Stock Option Plan for Directors or the Employee
Stock Option Plan in which the named individual participates. Assumes
exercise of only those options included with respect to the designated
recipients.

/4/ Includes 7,415 shares underlying stock options that have vested or are
exercisable within 60 days under the Nonqualified Stock Option Plan for
Directors.

/5/ Includes 6,702 shares underlying stock options that have vested or are
exercisable within 60 days under the Nonqualified Stock Option Plan for
Directors.

/6/ Includes 80,497 shares held by the Bank's ESOP. Mr. Hinnant, Mr. Scott and
Mr. Woodruff are trustees of such Plan and share certain voting and
investment power of such shares.

/7/ Includes 39,187 shares underlying stock options for directors and executive
officers that have vested or are exercisable within 60 days under the
Nonqualified Stock Option Plan for Directors and Employee Stock Option
Plan. The 80,497 shares held by the ESOP for which the trustees, Mr.
Hinnant, Mr. Scott and Mr. Woodruff, share certain voting and investment
power have been included only once in the total number of shares owned
beneficially by the directors and executive officers as a group.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
-------------------------------------------------------

Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than ten percent of the Common Stock, to
file reports of ownership and changes in ownership with the SEC. Executive
officers, directors and greater than 10% beneficial owners are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.

Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that during the fiscal year ended December 31,
2001, all of its executive officers and directors, and greater than 10%
beneficial owners complied with all applicable Section 16(a) filing
requirements.

PROPOSAL 1
ELECTION OF DIRECTORS

The Company's articles of incorporation provide that the number of
directors of the Company may not be less than five nor more than fifteen. The
exact number of directors may be fixed or changed from time to time by the Board
of Directors. The Board of Directors has currently fixed the size of the Board
at nine members.

So long as the total number of directors is nine or more, the directors may
be divided into three classes, as nearly equal as possible in number. Each class
of directors shall be elected for terms of three years each, or until their
earlier death, resignation, retirement, removal or disqualification or until
their successors shall be elected and shall qualify.

The Board of Directors has nominated Harold T. Keen, Ralph Edward Scott,
Jr. and Gordon C. Woodruff for election as directors to serve until the 2005
annual meeting of stockholders or until their earlier death, resignation,
retirement, removal or disqualification and until their successors shall be
elected and shall qualify. All of these nominees are currently serving as
directors of the Company.

The persons named in the accompanying form of proxy intend to vote any
shares of Common Stock represented by valid proxies received by them to elect
these three nominees, unless authority to vote is withheld or such proxies are
revoked. In the event that any of the nominees should become unavailable to
accept nomination or election, it is intended that the proxyholders will vote to
elect in his stead such other person as the present Board of Directors may
recommend. The present Board of Directors has no reason to believe that any of
the three nominees will be unable to serve if elected to office. In order to be
elected as a director, a nominee need only receive a plurality of the votes
cast. Accordingly, shares not voted for any reason respecting any one or more
nominees will not be counted as votes against such nominees. No stockholder has
the right to vote cumulatively his or her shares in the election of directors.

Nominees and Continuing Directors

The following table sets forth as to each nominee and each director whose
term is continuing, his name, age, principal occupation during the last five
years, the year he was first elected as a director and the year in which his
existing term of office expires.

The Board of Directors recommends a vote FOR all of the following nominees
---
for election as directors.

Age on Principal Occupation Existing
December 31, During Director Term
Name 2001 Last Five Years Since Expires
- ---- ---- -------------------- ----- -------

NOMINEES

Harold T. Keen 53 President and Chief Executive 1990/1/ 2005
Officer of the Company and the Bank

Ralph Edward Scott, Jr./2/ 49 President of Ralph E. Scott, Jr. 1987/1/ 2005
Farms, Inc.

Gordon C. Woodruff 50 Attorney at Law; 1999 2005
Partner, Woodruff, Reece & Fortner,
Attorneys at Law

DIRECTORS CONTINUING IN OFFICE

Robert E. Fields 73 Retired business owner 1977/1/ 2003
James C. Parker 50 Certified public accountant; 1996 2003
Partner, Parker & Parker, P.A., CPA

Sidney Ernest Sauls 54 Insurance agent; 2000 2003
North Carolina Farm Bureau Mutual
Insurance Company

R. Harold Hinnant/2/ 71 Retired business owner 1988/1/ 2004
R. Elton Parrish 73 Funeral Director; 1990/1/ 2004
President, Parrish Funeral Homes,
Inc.

A. Carroll Coleman 64 Manager; 1998 2004
President, P. L. Woodard & Co., Inc.

/1/ Includes service on the Board of Directors of the Bank prior to the
formation of the Company.

/2/ Mr. Scott is a distant cousin of Mr. Hinnant.

Meetings of the Board and Committees of the Board

The Board of Directors conducts its business through meetings of the Board
of Directors and through activities of its committees. The Board of Directors
meets quarterly and may have additional meetings as needed. During fiscal 2001,
the Board of Directors of the Company held 6 meetings. All of the existing
directors of the Company, including the nominees for re-election listed above,
attended at least 75 percent of the aggregate number of meetings of the Board of
Directors and committees of the Board on which they served during 2001.

The Board of Directors of the Company has three standing committees-the
Executive Committee, the Stock Option Committee and the Audit Committee.

The Executive Committee of the Board consists of R. Harold Hinnant, James
C. Parker, Ralph Edward Scott, Jr. and Harold T. Keen. The Executive Committee
has the power to act on behalf of the full Board of Directors on matters that
require action at times other than meetings of the full Board.

The Stock Option Committee consists of R. Harold Hinnant, James C. Parker
and Gordon C. Woodruff. This committee administers the KS Bancorp, Inc. Employee
Stock Option Plan and the KS Bancorp, Inc. Nonqualified Stock Option Plan for
Directors. The Stock Option Committee met 1 time during fiscal 2001.

The Audit Committee of the Board consists of James C. Parker, R. Harold
Hinnant and Robert E. Fields. The Audit Committee meets on an as needed basis
to:

. Select, evaluate, and where appropriate, replace the independent
auditors to audit the financial statements of the Company and its
subsidiaries, and, in doing so, to obtain disclosures regarding the
auditors' independence required by Independence Standards Board
Standard No. 1, as may be modified or supplemented, and to discuss
with the auditors their independence.

. Review the scope of the audit and the audit procedures used.

. Review with the independent auditors and the Company's financial and
accounting personnel the adequacy and effectiveness of the accounting
and financial controls of the Company.

. Provide sufficient opportunity for the independent auditors to meet
with the members of the Audit Committee without members of management
present.

. Be available to the independent auditors during the year for
consultation purposes.

. Discuss with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61, as it may be
modified or supplemented.

. Review with management and the independent accountants the Company's
financial disclosure documents, including all annual and quarterly
financial statements and reports filed with the Federal Deposit
Insurance Company or sent to stockholders.

. Following the satisfactory completion of each year-end review,
recommend to the Board of Directors the inclusion of the audited
financial statements in the Company's filing on Form 10-KSB.

. Review the internal audit function of the Company, including the
independence and authority of its reporting obligations, the proposed
audit plans for the coming year and the coordination of such plans
with the independent auditors.

. Receive reports or summaries of findings from any completed internal
audits, together with management responses, and monitor progress of
any proposed internal audit plan, with explanations for any deviations
from the original plan.

. Submit the minutes of all meetings of the Audit Committee to, or
discuss the matters discussed at each committee meeting with, the
Board of Directors.

. Investigate any matter brought to its attention within the scope of
its duties, with the power to retain outside counsel for this purpose
if, in its judgment, that is appropriate.

While the Audit Committee has the responsibilities and powers set forth above,
it is not the duty of the Audit Committee to plan or conduct audits or to
determine that the Company's financial statements are complete and accurate and
are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent auditor. Nor is it the duty of
the Audit Committee to conduct investigations, to resolve disagreements, if any,
between management and the independent auditor or to assure compliance with laws
and regulations. The Audit Committee met 1 time during fiscal 2001.

In addition, the Board of Directors appoints a nominating committee each
year prior to the annual meeting of stockholders to nominate persons for
election to the Board of Directors. The composition of this committee varies
from year to year.

Board of Directors of the Bank

The Bank also has a nine-member board of directors that is composed of the
same persons who are now directors of the Company.

Directors' Compensation

Directors' Fees. Members of the Board of Directors receive no fees or
compensation for serving on the Board of Directors of the Company. However, all
members of the Company's Board of Directors are also directors of the Bank. Each
member of the Bank's board of directors receives $900 per month for his service
in that capacity, except for the Chairman of the Bank's board of directors, who
receives $1100 per month. In addition, members of the Bank's loan and

audit committees receive $100 per meeting attended, and the loan and audit
committees met 5 and 1 times respectively during the fiscal year ended December
31, 2001. Board fees are subject to adjustment annually. Except for the loan and
audit committees, members receive no additional compensation for serving on any
committee of the board of directors of the Bank.

The Bank has adopted a deferred compensation plan for its directors to be
paid in the form of death benefits. The plan provides for the payment of death
benefits ranging from $2,000 to $20,000, depending upon each director's years of
service to the Bank. As of December 31, 2001, the Bank had accrued $96,551 in
expense, representing the present value of the death benefits based upon each
director's life expectancy.

Directors Stock Option Plan. The Board of Directors of the Company has
adopted the KS Bancorp, Inc. Nonqualified Stock Option Plan for Directors (the
"Directors Plan"). Members of the Board of Directors and the Bank's board of
directors are eligible recipients under the Directors Plan. Pursuant to the
Directors Plan, 40,446 shares of Common Stock were initially reserved for
issuance upon the exercise of stock options which have been granted to present
and former non-employee directors of the Bank. As a result of the Company's 4
for 3 stock split in June 1997, the Company's 5 for 4 stock split in July, 2001,
and previous exercises of options, the number of shares now reserved for
issuance under the Directors Plan is 28,947. Options to purchase 5,932 shares of
Common Stock were granted to each of the currently serving directors of the Bank
who were serving at the time the Directors Plan was adopted (Mr. Hinnant, Mr.
Fields, Mr. Parrish and Mr. Scott), other than Mr. Keen, who received no options
under the Directors Plan. The options were granted to directors of the Bank in
recognition of their past service to the Bank and as an incentive for their
continued performance. No cash consideration was paid for the options.

Options granted under the Directors Plan had an exercise price of $10.00
per share, which was the fair market value of the Common Stock on the date the
options were granted. As a result of the Company's prior stock splits, the
exercise price was adjusted to $6.00 per share in accordance with the Director's
Plan to reflect the adjustment to the per share market value of the Common Stock
that resulted from the stock splits. Options granted under the Directors Plan
have a term of ten years which expires in 2003, are not transferable except upon
death and had a vesting schedule pursuant to which 20% of the options vested on
the date they were granted and 20% vested each year thereafter. All the options
are now completely vested. In the event of a "change in control" of the Company
or the Bank, options may be exchanged for cash payments equal to the difference
between the market value of the shares subject to option and the option price.
The definition of "change in control" is similar to that described below under
"Management Compensation -- Employment Agreement." The Board of Directors can
amend the Directors Plan at any time; however, the Board of Directors cannot
make any change which would deprive an existing option holder of any of his
rights without his or her consent.

Options granted pursuant to the Directors Plan do not qualify as incentive
stock options under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") and are therefore nonqualified stock options. In general, the
holder of a nonqualified stock option will recognize compensation income equal
to the amount by which the fair market value of the Common Stock received on the
date of exercise exceeds the sum of the exercise price and any amount paid for
the nonqualified stock option. If the optionee elects to pay the exercise price
in whole or in part with Common Stock, the optionee generally will not recognize
any gain or loss

on the Common Stock surrendered in payment of the exercise price. The Company
generally will not recognize any income or be entitled to claim any deduction
upon the grant of a nonqualified stock option. At the time the optionee is
required to recognize compensation income upon the exercise of the nonqualified
stock option, the Company generally will be entitled to claim a deduction in the
amount equal to such compensation income.

Holders of options under the Directors Plan are also entitled to receive
bonus compensation under the Bank's Bonus Compensation Plan. See "-- Bonus
Compensation Plan."

Bonus Compensation Plan. In 1993, the Bank adopted a bonus compensation
plan (the "Bonus Compensation Plan") which provided that incentive compensation
would be paid to those directors and employees who hold unexercised options
issued pursuant to the Directors Plan and the KS Bancorp, Inc. Employee Stock
Option Plan (the "Employees Plan"). Under the Bonus Compensation Plan, incentive
compensation is paid soon after the close of each of the Bank's fiscal quarters.
The amount of incentive compensation awarded under the Incentive Compensation
Plan was equal to the number of shares subject to unexercised options granted
under the Directors Plan and the Employees Plan times the amount of dividends
awarded per share of Common Stock outstanding during such immediately preceding
fiscal quarter. Effective January 1, 1999, the Bonus Compensation Plan was
amended to provide that incentive compensation is payable only to non-employee
directors who hold options under the Directors Plan and is longer payable to
employees who hold unexercised options under the Employees Plan.

Executive Officers

The following table sets forth certain information with respect to the
persons who are executive officers of either the Company or the Bank or both.

Age on Positions and Occupations Employed
Name December 31, 2001 During Last Five Years Since
- ---- ----------------- ---------------------- -----

Harold T. Keen 53 President and Chief Executive Officer 1990
of the Company and the Bank

Earl W. Worley, Jr. 37 Senior Vice President of the Company 1992
and the Bank; Chief Financial Officer
William C. Clarke 45 Senior Vice President of the Company 1986
and the Bank

Kevin J. Jorgenson 54 Senior Vice President of the Company 1993
and the Bank

Ted Godwin 52 Senior Vice President of the Company 1997
and the Bank

Management Compensation

Summary Compensation Table. The executive officers of the Company are not
paid any cash compensation by the Company. However, the executive officers of
the Company are also executive officers of the Bank and receive cash
compensation from the Bank. The following table shows, for the fiscal years
ending December 31, 2001, 2000 and 1999, the cash compensation paid by the Bank,
as well as certain other compensation paid or accrued for those years, to the
Chief Executive Officer of the Bank. No other executive officer of the Bank
received salary and bonus compensation in excess of $100,000 for services
rendered in all capacities to the Bank in fiscal 2001.

Annual Compensation
-------------------
Awards
------

Other Annual
Name and Compensation Restricted Stock
Principal Position Year Salary/(1)/ Bonus ($)/(2)/ Awards
- ------------------ ---- ----------- ------ -------- ------

Harold T. Keen, 2001 $151,360 $ 6,000 -- --
President, Chief Executive 2000 $142,800 $ 6,000 -- --
Officer and Director of the 1999 $130,800 $ 6,000 -- --
Company and the Bank

Long Term Compensation
----------------------
Payouts
-------
Securities
Underlying
Options/
Stock
Appreciation
Name and Rights LTIP All Other
Principal Position (in shares) Payouts Compensation/(3)/
- ------------------ ----------- ------- -----------------

Harold T. Keen, -- -- $22,118
President, Chief Executive -- -- $14,688
Officer and Director of the -- -- $13,399
Company and the Bank

________________________

/(1)/ Includes directors' fees from the Bank in the amount of $10,800 for
1999, $10,800 for 2000 and $10,800 for 2001.

/(2)/ Under the "Other Annual Compensation" category, perquisites did not
exceed the lesser of $50,000 or 10% of salary and bonus as reported for
Mr. Keen.

/(3)/ For 2001, the total amount includes $8,821 contributed by the Bank for
Mr. Keen pursuant to the Bank's defined contribution, money purchase
pension plan, $1,404 contributed by the Bank for Mr. Keen to the Bank's
401(K) plan, and $11,893 accrued pursuant to the retirement agreement
entered into with Mr. Keen.

Stock Option Plan. The Board of Directors has adopted the KS Bancorp, Inc.
Employee Stock Option Plan (the "Employees Plan"). Pursuant to the Employees
Plan 80,896 shares of Common Stock were initially reserved for issuance upon the
exercise of options granted under the Employees Plan. During the fiscal year
ended December 31, 1993, seven officers of the Bank were granted options to
purchase such 80,896 shares of Common Stock. As a result of the Company's 4 for
3 stock split in June 1997, the Company's 5 for 4 stock split in July, 2001, and
exercises of options by employees, the number of shares now reserved for
issuance pursuant to the plan is 12,412.

All of the stock options granted under the Employees Plan are intended to
be incentive stock options under Section 422 of the Code. In the case of an
incentive stock option, an optionee is not deemed to have received taxable
income upon the grant or exercise of the stock option, provided the shares are
not disposed of by the optionee for at least one year after the date of exercise
and two years after the date of grant. No compensation deduction may be taken by
the issuing company as a result of the grant or exercise of an incentive option,
assuming these holding periods are satisfied. In the case of a nonqualified
stock option, an optionee is deemed to receive ordinary income upon exercise of
the stock option in an amount equal to the amount by which the exercise price is
exceeded by the fair market value of the stock plus any amount paid for the
option. The amount of any ordinary income deemed to be received by the optionee
upon the exercise of a nonqualified stock option is a deductible expense of the
issuing company for tax purposes.

The Employees Plan is administered by a committee appointed by the Board of
Directors of the Company. No cash consideration was paid for options granted
pursuant to the Employees Plan. Options granted under the Employees Plan had an
option exercise price of $10 per share, which was the fair market value of the
Common Stock on the effective date the options were granted. As a result of the
Company's prior stock splits, the exercise price has been adjusted to $6.00 per
share in accordance with the Employees Plan to reflect the adjustment to the per
share market value of the Common Stock that resulted from the stock splits.
Options granted under the Employees Plan have a term of no more than ten years
which expires in 2003, and options are not transferable except upon death.
Options granted under the Employees Plan had a vesting schedule pursuant to
which 20% of the options vested on the date the options were granted and 20%
vested each year thereafter. All the options are now completely vested. In the
event of a "change in control" of the Company or the Bank, options may be
exchanged for cash payments equal to the difference between the market value of
the shares subject to option and the option price. The definition of "change in
control" is similar to that described above under "Management Compensation --
Employment Agreement."

Employee Stock Ownership Plan. The Bank has established an Employee Stock
Ownership Plan (the "ESOP") for eligible employees of the Bank. Employees with
1,000 hours of employment with the Bank who have attained age 21 are eligible to
participate. The ESOP borrowed funds from the Company and used the funds to
purchase 40,448 shares of Common Stock in 1993. The ESOP acquired an additional
12,500 shares during the fiscal year 2000. As a result of the Company's 4 for 3
stock split in June 1997 and the 5 for 4 stock split in July, 2001, the number
of shares held by the ESOP has increased to 80,497 as of May 20, 2002.
Collateral for the loan is the Common Stock purchased by the ESOP which has not
been allocated to

participants. The loan is being repaid principally from the Bank's discretionary
contributions to the ESOP. Dividends, if any, paid on shares held by the ESOP
may also be used to reduce the loan. The loan has not been guaranteed by the
Bank. Shares purchased by the ESOP are held in a suspense account for allocation
among participants as the loan is repaid.

Contributions to the ESOP and shares released from the suspense account in
an amount proportional to the repayment of the ESOP loan are allocated among
ESOP participants on the basis of compensation in the year of allocation.
Benefits generally become 20% vested each year and are 100% vested after five
years of credited service. Prior to the completion of five years of credited
service, a participant who terminates employment for reasons other than death,
retirement (or early retirement), or disability will receive only vested
benefits under the ESOP. Forfeitures will be reallocated among remaining
participating employees in the same proportion as contributions. Benefits are
payable upon death, retirement, early retirement, disability or separation from
service. The Bank's contributions to the ESOP are not fixed, so benefits payable
under the ESOP cannot be estimated.

The Bank's ESOP committee may instruct the ESOP trustees regarding
investment of funds contributed to the ESOP. Participating employees may
instruct the trustees as to the voting of all shares allocated to their
respective accounts held in the ESOP. The unallocated shares held in the
suspense account, and all allocated shares for which voting instructions are not
received, will be voted by the trustees in their discretion subject to the
provisions of the Employee Retirement Income Security Act of 1974, as amended.

The ESOP may be considered an "anti-takeover" device since the ESOP may
control a sufficient percentage of the total outstanding Common Stock of the
Company so that the vote or decision whether to tender shares of the ESOP may be
used as a defense in a contested takeover.

Retirement Plan. The Bank maintains a defined contribution, money purchase
pension plan for the benefit of all of its employees who have completed six
months of service with the institution and who are at least 21 years of age.
Under the plan, the Bank contributes an amount equal to 6% of each participant's
compensation during the plan year, plus an additional 5.4% of each participant's
compensation during the plan year in excess of 80% of the Social Security wage
base. For purposes of the plan, compensation means a participant's basic rate of
annual compensation for the current calendar year, including commissions,
overtime pay, bonuses and other extra compensation.

Participants are fully vested in amounts the Bank contributes to the plan
on their behalf after seven years of service, as follows: 1 year of service, 0%;
2 years, 0%; 3 years, 20%; 4 years, 40%; 5 years, 60%; 6 years, 80%; 7 years or
more, 100%.

Benefits under the plan are payable in the event the participant's
retirement, death, disability or termination of employment. Normal retirement
age under the plan is 65 years of age. The plan also offers early retirement to
participants who are at least 60 years of age.

As of December 31, 2001, Harold T. Keen had eleven years of service under
the retirement plan.

401(k) Profit Sharing Plan. The Bank also maintains a contributory savings
plan for substantially all of its employees, which meets the requirements of
section 401(k) of the Code. Employees who have completed six months of service
and who are least 21 years of age may elect to contribute up to 15% of their
compensation to the plan each year, subject to certain maximums imposed by
federal law. The Bank will match 25% of each participant's contribution, up to a
maximum employer contribution of 1% of the participant's compensation. From time
to time, the Bank may also make discretionary profit sharing contributions to
the plan, which are allocated among participants' accounts on the basis of
compensation. For purposes of the 401(k) plan, compensation means a
participant's total compensation received from the employer.

Participants are fully vested in amounts they contribute to the plan.
Participants are fully vested in amounts the Bank contributes to the plan on
their behalf as employer matching contributions and as profit sharing
contributions after seven years of service as follows: 1 year of service, 0%; 2
years, 0%; 3 years, 20%; 4 years, 40%; 5 years, 60%; 6 years, 80%; 7 or more
years, 100%.

Retirement Agreements. The Bank sponsors a supplemental executive
retirement plan for certain executives of the Bank. The plan, which became
effective on May 1, 2001, is a deferred compensation plan that pays benefits to
the participants upon retirement at age 65. Monthly payments are made upon
retirement for a period of ten years. The benefits under the plan vest according
to a vesting schedule based upon years of service as follows: 0-5 years of
service-- 0% vested; each subsequent full year of service--10% vesting per year
until 100% vesting at 15 years of service. A participant fully vests upon
attaining age 65 without regard to years of service. If the participant dies
after retirement but before all payments have been made under the plan, the
remaining monthly payments will be made to the participant's designated
beneficiary. If the participant is terminated for cause prior to retirement, no
payments will be made to the participant. If the participant voluntarily
terminates employment or is terminated without cause, he will have a vested
interest in his accrued benefits according to the plan's vesting schedule, but
the accrued benefits will be calculated based upon a formula that considers the
executive's age and years of service. If the participant dies while employed,
but before attaining retirement age, no payments shall be made under the plan.
In addition, the executives in the supplemental executive retirement plan also
participate in a split dollar life insurance program.

During the fiscal year ending 2001, Mr. Harold Keen received a benefit of
$11,893 under the agreement.

Employment Agreement. The Bank has entered into an employment agreement
with Mr. Keen in order to establish his duties and compensation and to provide
for his continued employment with the Bank. The agreement provided for an
initial term of employment of three years. On each anniversary date thereafter,
the agreement is extended for an additional year so that the remaining term will
be three years unless written notice of non-renewal is given by the Bank's board
of directors after conducting an evaluation of Mr. Keen's performance. Mr.
Keen's agreement now provides for an annual base salary of $147,500. The
agreement also provides that the base salary shall be reviewed by the Board of
Directors not less often than annually. In

the event of a change in control (as defined below), Mr. Keen's base salary must
be increased by at least 6% annually. In addition, the employment agreement
provides for profitability and discretionary bonuses and participation in other
pension, profit-sharing or retirement plans maintained by the Bank and the
Company, as well as fringe benefits normally associated with Mr. Keen's office.
The employment agreement provides that it may be terminated by the Bank for
cause, as defined in the agreement, and that it may otherwise be terminated by
the Bank (subject to vested rights) or by Mr. Keen.

The employment agreement provides that if employment is terminated in
connection with, or within 24 months after, a change in control or if the nature
of Mr. Keen's compensation, duties or benefits are diminished following a change
in control of the Bank or the Company, and Mr. Keen terminates his employment,
he will be entitled to receive compensation equal to 2.99 times his average
annual compensation for income tax purposes for the most recent five tax years
prior to the change in control, payable in a lump sum or in equal monthly
payments. For purposes of the employment agreement, a change in control
generally will occur if (i) after the effective date of the employment
agreement, any "person" (as such term is defined in Sections 3(a)(9) and
13(d)(3) of the Exchange Act) directly or indirectly, acquires beneficial
ownership of voting stock, or acquires irrevocable proxies or any combination of
voting stock and irrevocable proxies, representing 25% or more of any class of
voting securities of either the Company or the Bank, or acquires in any manner
control of the election of a majority of the directors of either the Company or
the Bank, (ii) either the Company or the Bank consolidates or merges with or
into another corporation, association or entity, or is otherwise reorganized,
where neither the Company nor the Bank is the surviving corporation in such
transaction, or (iii) all or substantially all of the assets of either the
Company or the Bank are sold or otherwise transferred to or are acquired by any
other entity or group.

Payments under the employment agreement in the event of a change in control
may constitute an excess parachute payment under Section 280G of the Code
resulting in the imposition of an excise tax on the recipient and denial of a
deduction to the Bank for all amounts in excess of the executive's average
annual compensation for the five tax years preceding the change in control. The
agreement provides that benefits payable to the officer as a result of a change
in control will be modified or reduced to the extent deemed to be necessary by
the Bank's board of directors to avoid the imposition of excise taxes on the
employee or the disallowance of a deduction to the Company.

Certain Indebtedness and Transactions of Management

The Bank makes loans to its employees, including its executive officers and
directors, in the ordinary course of its business. The Bank has adopted a policy
that sets forth the requirements applicable to such loans. These loans are made
using the same credit and underwriting standards as are applicable to the
general public, and such loans do not involve more than the normal risk of
collectability or present other unfavorable features. Pursuant to its employee
loan policy loans to directors and employees are made on the same terms,
including interest rates and collateral, as those prevailing for comparable
transactions with nonaffiliated persons.

Set forth is a table describing the loans the Bank has made to the
directors and executive officers and members of their immediate families since
December 31, 2000 that exceed $60,000 in the aggregate.

Original Loan Balance Outstanding at
Borrower Type of Loan Amount December 31, 2001
-------- ------------ ------ -----------------

Ralph E. Scott, Jr. Commercial $100,050 $0

Report of Audit Committee

The Audit Committee of the Company's Board of Directors has reviewed and
discussed with the Company's independent auditors all matters required to be
discussed by the Statement on Auditing Standards No. 61 (Codification of
Statements of Auditing Standards), as amended. The Audit Committee has also
reviewed and discussed the Company's audited financial statements with
management. In addition, the Audit Committee obtained from the independent
auditors a formal written statement describing all relationships between the
auditors and the Company that might bear on the auditors' independence,
consistent with Independence Standards Board Standard No. 1, "Independent
Discussions with Audit Committees," as amended, and discussed with the auditors
any relationships that may impact their objectivity and independence and
satisfied itself as to the auditors' independence. Based upon the Audit
Committee's review and discussions with management and the independent auditors
described above, the Audit Committee recommended to the Board of Directors that
the Company's audited financial statements be included in its Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2001, for filing with the
SEC. The Audit Committee has also recommended reappointment of the independent
auditors, and the Board of Directors concurred in such recommendation.

James C. Parker
R. Harold Hinnant
Robert E. Fields

PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITOR

Dixon Odom PLLC has been selected as the Company's and the Bank's
independent auditor for the 2002 fiscal year. Such selection is being submitted
to the Company's stockholders for ratification. Representatives of Dixon Odom
PLLC are expected to attend the Annual Meeting and will be afforded an
opportunity to make a statement, if they so desire, and to respond to
appropriate questions from stockholders.

Dixon Odom PLLC was selected as the Company's independent auditor for the
2000 fiscal year, replacing McGladrey & Pullen, LLP, which was the Company's
independent auditor

for the years ended December 31, 1999 and December 31, 1998. Such selection was
submitted to the Company's shareholders at the 2000 annual meeting of
shareholders and was ratified. The decision to change independent auditors was
based on several factors, including location and cost, and was approved by the
Audit Committee. McGladrey & Pullen, LLP's report on the Company's financial
statements for the fiscal years ended December 31, 1999 and 1998 did not contain
an adverse opinion or disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles. During such years and the
subsequent interim period through the date of the Company's Form 10-K for the
year ended December 31, 1999, there were no disagreements between the Company
and McGladrey & Pullen, LLP on any matter of accounting principles or practice,
financial statement disclosure or auditing scope or procedure which, if not
resolved to the satisfaction of such auditor, would have caused it to make
reference to the subject of such disagreement in connection with its reports.
During the fiscal years ended December 31, 1999 and 1998 and the subsequent
interim period through the date of the Company's Form 10-K for the year ended
December 31, 1999, the Company did not consult Dixon Odom PLLC, with regard to
either: (i) the application of accounting principles to a specified transaction,
either completed or proposed; or the type of audit opinion that might be
rendered on the Company's financial statements, or (ii) any matter that was
either the subject of a disagreement or a reportable event.

The Board of Directors recommends that the shareholders vote for
ratification of the selection of Dixon Odom PLLC as independent auditor for the
Company for the fiscal year ending December 31, 2002.

DATE FOR RECEIPT OF STOCKHOLDERS' PROPOSALS

It is presently anticipated that the 2003 Annual Meeting of Stockholders
will be held in May of 2003. In order for stockholder proposals to be included
in the proxy materials for that meeting, such proposals must be received by the
Secretary of the Company at the Company's principal executive office not later
than December 1, 2002 and meet all other applicable requirements for inclusion
therein.

In the alternative, if a stockholder follows the SEC's proxy solicitation
rules, the stockholder may commence his own proxy solicitation and present a
proposal from the floor at the 2003 annual meeting of stockholders of the
Company. If a stockholder elects to do so, the holders of proxies solicited by
the Company's Board of Directors may vote the proxies under the discretionary
authority granted by those proxies on any proposals presented by such
shareholder if the Company does not receive notice of such proposal on or before
February 14, 2003.

The Company's bylaws provide that, in order to be eligible for
consideration at the annual meeting of stockholders, all nominations of
directors, other than those made by the Company's Board of Directors, must be
made in writing and must be delivered to the Secretary of the Company not less
than 30 days nor more than 50 days prior to the meeting at which such
nominations will be made; provided, however, if less than 21 days notice of the
meeting is given to stockholders, such nominations must be delivered to the
Secretary of the Company not later

than the close of business on the seventh day following the day on which the
notice of meeting was mailed.

OTHER MATTERS

Management knows of no other matters to be presented for consideration at
the Meeting or any adjournments thereof. If any other matters shall properly
come before the Meeting, it is intended that the proxyholders named in the
enclosed form of proxy will vote the shares represented thereby in accordance
with their judgment, pursuant to the discretionary authority granted therein.

MISCELLANEOUS

The Annual Report of the Company for the year ended December 31, 2001,
which includes financial statements audited and reported upon by the Company's
independent auditor, is being mailed along with this Proxy Statement; however,
it is not intended that the Annual Report be a part of this Proxy Statement or a
solicitation of proxies.

THE FORM 10-KSB FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO, WILL BE
PROVIDED FREE OF CHARGE UPON WRITTEN REQUEST DIRECTED TO: KS BANCORP, INC., POST
OFFICE BOX 219, 207 WEST SECOND STREET, KENLY, NORTH CAROLINA 27542, ATTENTION:
HAROLD T. KEEN.

By Order of the Board of Directors,

Joy B. Watson
Secretary

Kenly, North Carolina
March 29, 2002