8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

Current Report

Pursuant to Section 13 or 15(d) of the

Securities and Exchange Act of 1934

Date of Report: -April 21, 2008

Citizens South Banking Corporation

(Exact Name of Registrant as Specified in Charter)

Delaware	0-23971	54-2069979
(State or other jurisdiction	(Commission File Number)	(I.R.S. Employer
of incorporation)		Identification No.)

519 South New Hope Road, Gastonia, North Carolina	28054-4040
(Address of Principal Executive Offices)	(Zip Code)

Registrant's telephone number, including area code: 704-868-5200

Item 2.02 Results of Operations and Financial Condition

On April 21, 2008, Citizens South Banking Corporation issued a press release to announce its results of operations for the three-month periods ended March 31, 2008 and 2007. The text of the press release and related financial supplements are included as Exhibit 99.1 to this report. The information included in the text and financial supplements of the press releases is considered to be “furnished” under the Securities Exchange Act of 1934. The Company will include final financial statements and additional analyses for the three-month periods ended March 31, 2008 and 2007, as part of its Form 10-Q covering that period.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

99.1 Earnings Press Release of Citizens South Banking Corporation

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

	CITIZENS SOUTH BANKING CORPORATION
DATE: April 21, 2008	By:	/s/ Kim S. Price
		Kim S. Price
		President and Chief Executive Officer

By:	/s/ Gary F. Hoskins
	Gary F. Hoskins
	Chief Financial Officer

EXHIBIT INDEX

99.1   Earnings Press Release of Citizens South Banking Corporation

EX-99.1

  

For More Information: NEWS RELEASE

Gary F. Hoskins, CFO

(704) 884-2263

gary.hoskins@citizenssouth.com

FOR IMMEDIATE RELEASE

CITIZENS SOUTH BANKING CORPORATION ANNOUNCES EARNINGS OR THE FIRST QUARTER 2008

GASTONIA, NC, April 21, 2008 . . . . . Citizens South Banking Corporation (NASDAQ: CSBC), the holding company for Citizens South Bank, announced that net income for the quarter ended March 31, 2008, amounted to $970,000, or $0.13 per diluted share, compared to $1.4 million, or $0.18 per diluted share, for the quarter ended March 31, 2007. This represented a decrease of $0.05 per diluted share, or 27.8% for the comparable periods. The primary reason for the decrease was net interest margin compression caused primarily by the Federal Reserve Bank’s actions to decrease short-term interest rates by 200 basis points during the first quarter of 2008. This resulted in lower yields on assets tied to the prime lending rate and other short-term indices.

Margin Compression on a Linked-Quarter Basis

The Bank’s net interest margin amounted to 2.89% for the first quarter of 2008, compared to 3.01% for the fourth quarter of 2007. We experienced this limited compression in the net interest margin during the first quarter of 2008 despite the Federal Reserve Board’s actions to lower the federal funds rate by 200 basis points during the quarter. As the pace of decreases in short-term lending rates slows, the Company is expected to begin to experience margin expansion. In fact, the Company has maintained a relatively neutral interest rate position on an annual basis. However, decreases in short-term interest rates had a more pronounced negative impact in the first three months following the decrease. The short-term negative effects of decreases in interest rates are expected to be mostly offset by time deposits that mature over the next twelve months and reprice at a lower cost to the Company.

Credit Quality Remains Strong

Credit quality continues to compare very favorably with industry peers. On a linked-quarter basis, nonperforming assets totaled 0.39% of total assets at March 31, 2008, compared to 0.30% of total assets at December 31, 2007. Also, nonperforming loans to total loans totaled 0.43% at March 31, 2008, compared to 0.32% at December 31, 2007. During the past quarter, the allowance for loan losses increased from $6.1 million, or 1.10% of total loans, to $6.4 million, or 1.12% of total loans, at March 31, 2008. Net charge-offs decreased from $479,000, or 0.09% of average loans, for the quarter ended December 31, 2007, to $76,000, or 0.01% of average loans, for the first quarter of 2008.

Management attributed our stable credit quality to the fact that the Company has not been an originator or purchaser of option adjustable rate or “no documentation” portfolio mortgage loans, and the portfolio did not include any mortgage loans that the Company classifies as sub-prime. Also, the price stability of the residential real estate market in the Charlotte region has contributed to our success in avoiding significant problems in the quality of our loan portfolio.

Steady Loan Growth in the First Quarter

While the real estate market in the Charlotte, North Carolina region remains active compared to most of the country, housing starts and demand for commercial real estate have moderated. However, even under these circumstances, outstanding loans increased by $12.0 million, or 8.6% annualized, during the three-month period ended March 31, 2008. This level of growth is consistent with the 8.6% growth rate in 2007, including $12.0 million of loan growth during the fourth quarter, and $12.2 million in the third quarter.

Demand Deposit Growth

During the first quarter of 2008, demand deposits increased by $2.5 million, or 10.0% annualized, to $104.5 million. In addition, savings accounts increased at an annualized growth rate of 5.2% to $12.2 million. However, during the first quarter of 2008, the Bank did experience declining balances in more interest-sensitive deposit areas, such as money market accounts and time deposits. Money market accounts decreased by $6.0 million to $123.7 million, while time deposits decreased by $4.9 million to $342.1 million at the end of the first quarter of 2008. As a result, during the first quarter of 2008, total deposits decreased by $8.2 million, or 5.6% annualized. This decrease was largely attributable to the Company’s action to aggressively lower its deposit rates more quickly than some local competitors. The Company will continue to actively market the Company’s deposit products at pricing points are determined to be profitable.

The Company opened its 15^th full-service branch office in Rock Hill, South Carolina, during the first quarter of 2008. This additional office, our first in South Carolina, will be an integral part of our efforts to continue growing core deposits and market share in the Charlotte region. We believe that the ability to branch into York County, South Carolina brings an important strategic dimension to our franchise unavailable to many competitors serving the Charlotte community bank market.

In making the announcement, Kim S. Price, President and CEO, stated “At a time when our industry is under substantial pressure, we are pleased with our financial performance and particularly our having avoided the credit-related problems of many in our industry. Our disciplined approach to growth, underwriting, and customer focus, as well as our century-plus heritage of conservative, community banking principles are serving us well and have positioned us to excel when our industry and economy return to more normalized conditions.”

General Information

Headquartered in Gastonia, North Carolina, Citizens South Bank was founded in 1904. Deposits are FDIC insured. At March 31, 2008, the Bank had approximately $777 million in assets with 15 full-service offices in the Charlotte region, including Gaston, Iredell, Rowan, and Union counties in North Carolina, and York County, South Carolina. Citizens South Bank is an Equal Housing Lender and Member, FDIC. The Bank is a wholly-owned subsidiary of Citizens South Banking Corporation, and shares of the common stock of the Company trade on the NASDAQ Global Market under the ticker symbol “CSBC”. The Company maintains a website at www.citizenssouth.com that includes information on the Company, along with a list of products and services, branch locations, current financial information, and links to the Company’s 1934 Securities Exchange Act filings with the SEC.

  

Kim S. Price

President and CEO

Forward-looking Statements

This news release contains certain forward-looking statements which include, but are not limited to, statements of our earnings expectations, statements regarding our operating strategy, and estimates of our future costs and benefits. These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Forward-looking statements speak only as of the date they are made and the Company is under no duty to update these forward-looking statements to reflect circumstances or events that occur after the date of the forward-looking statements or to reflect the occurrence of unanticipated events. A number of factors could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements. Factors that could cause such a difference include, but are not limited to, changes in general economic conditions - either locally or nationally, competition among depository and financial institutions, the continuation of current revenue and expense trends, unforeseen changes in the Company’s markets, and legal, regulatory, or accounting changes. The Company's reports filed from time to time with the Securities and Exchange Commission, including the Company's Form 10-K for the year ended December 31, 2007, describe some of these factors.

-END-

Important Tables Follow

Citizens South Banking Corporation Selected Financial Information (dollars in thousands, except per share data)
	Quarter ended March 31, 2008			Quarter ended March 31, 2007			Year ended December 31, 2007			Year ended December 31, 2006
Reconciliation of GAAP to non-GAAP Measures: Net income, as reported (GAAP)	$	970		$	1,400		$	5,665		$	5,455
Non-operating items:
(Gain)/ loss on sale of assets, net		(242	)		(5	)		(323	)		(69	)
Reorganization & merger/integration expenses		220			-			-			57
Impairment of investments		-			-			162			-
Insurance proceeds, net		-			-			(112	)		-
Related income taxes, excl. ins. proceeds (39%)		8			2			63			5
Net Operating Income	$	956		$	1,397		$	5,455		$	5,448
Noninterest income, as reported (GAAP)	$	1,680		$	1,530		$	6,562		$	6,140
Non-operating items:
(Gain)/ loss on sale of assets, net		(242	)		(5	)		(323	)		69
Fair value adjustment on deferred comp assets		14			(37	)		(122	)		(207	)
Insurance proceeds, net		-			-			(112	)		-
Noninterest Operating Income	$	1,452		$	1,488		$	6,005		$	6,002
Noninterest expense, as reported (GAAP)	$	4,882		$	4,285		$	17,895		$	17,544
Non-operating items:
Impairment of investments		-			-			(162	)		-
Fair value adjustment on deferred comp assets		14			(37	)		(122	)		(207	)
Reorganization & merger/integration expenses		(220	)		-			-			(57	)
Noninterest Operating Expense	$	4,676		$	4,248		$	17,611		$	17,280
Per Share Data:
Average common shares outstanding, basic		7,406,656			7,862,174			7,688,595			8,017,956
Basic net income - GAAP	$	0.13		$	0.18		$	0.74		$	0.68
Basic net income - Operating		0.13			0.18			0.71			0.68
Average common shares outstanding, diluted		7,451,802			7,938,162			7,754,599			8,095,276
Diluted net income - GAAP	$	0.13		$	0.18		$	0.73		$	0.67
Diluted net income - Operating		0.13			0.18			0.70			0.67
Cash dividends declared	$	0.085		$	0.08		$	0.32		$	0.30
Period-end book value		11.21			10.71			11.05			10.61
Financial Ratios (annualized):
Return on average stockholders’ equity - GAAP		4.61	%		6.62	%		6.68	%		6.41	%
Return on avg. stockholders’ equity - Operating		4.55			6.60			6.43			6.41
Return on average assets - GAAP		0.50	%		0.77	%		0.75	%		0.76	%
Return on average assets - Operating		0.50			0.77			0.72			0.76
Efficiency ratio - GAAP		75.49	%		65.15	%		66.78	%		65.51	%
Efficiency ratio - Operating		74.89			65.20			67.12			65.19
Net interest margin (tax equivalent)		2.89	%		3.18	%		3.15	%		3.34	%
Average equity to average assets		10.93			11.61			11.26			11.86
Asset Quality Data:
Allowance for loan losses	$	6,427		$	6,023		$	6,144		$	5,764
Nonperforming loans		2,477			1,686			1,815			3,011
Nonperforming assets		3,005			1,879			2,344			3,150
Net charge-offs		76			71			911			505
Net charge-offs to average loans		0.01	%		0.01	%		0.17	%		0.10	%
Allowance for loan losses to total loans		1.12			1.16			1.10			1.12
Nonperforming loans to total loans		0.43			0.32			0.32			0.58
Nonperforming assets to total assets		0.39			0.25			0.30			0.42
Average Balances:
Total assets	$	774,030		$	738,674		$	753,085		$	716,934
Loans receivable, net of unearned income		567,039			520,342			526,913			493,324
Interest-earning assets		680,566			644,455			660,490			622,793
Deposits		579,802			565,070			575,302			535,935
Interest-bearing liabilities		636,875			603,396			618,126			586,809
Stockholders’ equity		84,568			85,784			84,783			85,035
At Period End:
Total assets	$	776,583		$	737,639		$	779,140		$	743,370
Loans receivable, net of unearned income		571,938			519,108			559,956			515,402
Interest-earning assets		685,977			648,109			690,007			647,048
Deposits		582,567			568,173			590,765			562,802
Interest-bearing liabilities		642,115			602,433			643,478			611,004
Stockholders’ equity		84,701			85,611			84,033			85,961

Citizens South Banking Corporation

Consolidated Statements of Financial Condition

(dollars in thousands)

		March 31,			December 31,
		2008			2007
		(unaudited)
ASSETS
Cash and due from banks	$	13,454		$	14,285
Interest-earning bank balances		14,620			15,454
Cash and cash equivalents		28,074			29,739
Investment securities available-for-sale, at fair value		31,725			46,519
Mortgage-backed securities available-for-sale, at fair value		70,171			69,893
Loans receivable, net unearned income		571,938			559,956
Allowance for loan losses		(6,427	)		(6,144	)
Loans receivable, net		565,511			553,812
Real estate acquired through foreclosure, net		529			529
Premises and equipment, net		17,781			17,965
Accrued interest receivable		2,708			3,254
Federal Home Loan Bank stock, at cost		4,280			4,236
Intangible assets		30,896			31,037
Bank owned life insurance		16,270			16,099
Other assets		8,638			6,057
Total assets	$	776,583		$	779,140
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposit accounts	$	104,527		$	101,981
Money market deposit accounts		123,733			129,688
Savings accounts		12,193			12,037
Time deposits		342,114			347,059
Total deposits		582,567			590,765
Borrowed money					101,324
Deferred compensation		4,992			5,389
Other liabilities		2,999			2,669
Total liabilities		691,882			695,107
Stockholders' Equity:
Common stock issued and outstanding, $0.01 par value, 20,000,000 shares
authorized, 9,062,727 issued at March 31, 2008, and December 31, 2007,
and 7,552,644 shares outstanding at March 31, 2008, and 7,610,017 shares
outstanding at December 31, 2007		91			91
Additional paid-in-capital		67,803			67,718
Unallocated common stock held by Employee Stock Ownership Plan		(1,202	)		(1,247	)
Retained earnings, substantially restricted		36,268			36,028
Accumulated unrealized loss on securities available-for-sale, net of tax		450(343	)
Treasury stock of 1,510,083 shares at March 31, 2008, and 1,452,710 shares
at December 31, 2007		(18,709	)		(18,214	)
Total stockholders’ equity		84,701			84,033
Total liabilities and stockholders’ equity	$	776,583		$	779,140

Citizens South Banking Corporation

ConsolidatedStatements of Operations(unaudited)

(in thousands, except per share data)

	Three Months
	Ended March 31,
		2008			2007
Interest income
Loans	$	9,601		$	9,893
Investment securities		413			669
Interest-bearing deposits		94			132
Mortgage-backed and related securities		864			671
Total interest income		10,972			11,365
Interest Expense
Deposits		5,066			5,341
Borrowed funds		1,119			978
Total interest expense		6,185			6,319
Net interest income		4,787			5,046
Provision for loan losses		345			330
Net interest income after provision for loan losses		4,442			4,716
Noninterest Income
Fee income on deposit accounts		678			653
Fee income on mortgage banking activities		203			232
Fee income on lending activities		111			110
Dividends on FHLB stock		62			51
Increase in cash value of bank-owned life insurance		188			209
Fair value adjustment on deferred compensation assets		(14	)		37
Net gain on sale of assets		242			5
Other noninterest income		210			233
Total noninterest income		1,680			1,530
Noninterest Expense
Compensation and benefits		2,555			2,342
Fair value adjustment on deferred compensation obligation		(14	)		37
Occupancy and equipment expense		674			668
Professional services		201			124
Amortization of intangible assets		141			165
Reorganization expenses		220			-
Other noninterest expenses		1,105			949
Total noninterest expense		4,882			4,285
Income before income taxes		1,240			1,961
Provision for income taxes		270			561
Net income	$	970		$	1,400
Basic earnings per share	$	0.13		$	0.18
Diluted earnings per share	$	0.13		$	0.18
Basic average common shares outstanding		7,406,656			7,862,174
Diluted average common shares outstanding		7,451,802			7,938,162