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: October 20, 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 October 20, 2008, Citizens South Banking Corporation issued a press release to announce its results of operations for the three and nine-month periods ended September 30, 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 and nine-month periods ended September 30, 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: October 20, 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:	PRESS RELEASE
Gary F. Hoskins, CFO
(704) 884-2263
gary.hoskins@citizenssouth.com
	FOR IMMEDIATE RELEASE

CITIZENS SOUTH BANKING CORPORATION ANNOUNCES SOLID EARNINGS AND POSITIVE ASSET QUALITY TRENDS FOR THE THIRD QUARTER OF 2008

GASTONIA, NC, October 20, 2008 . . . . . Citizens South Banking Corporation (NASDAQ: CSBC), the holding company for Citizens South Bank, reported that net income for the quarter ended September 30, 2008, amounted to $822,000, or $0.11 per diluted share, compared to $1.3 million, or $0.18 per diluted share, for the quarter ended September 30, 2007. This represents a decrease of 39.0% and 38.9%, respectively, compared to the same quarter last year.

Operating income (as calculated in the attached table) for the quarter ended September 30, 2008, totaled $1.1 million, or $0.15 per diluted share, excluding a $285,000 after-tax other-than-temporary impairment and an $8,000 after-tax net gain on the sale of assets. Operating income for the quarter ended September 30, 2007, totaled $1.3 million, or $0.18 per diluted share. This represents a decrease of 18.5% and 16.7%, respectively, compared to the same quarter last year.

Solid Credit Quality Ratios

The Company’s credit quality continued to compare favorably with industry peers and has improved on a linked-quarter basis as shown below:

	June 30, 2008		September 30, 2008
Nonperforming loans / total loans		0.64%		0.53%
Nonperforming assets / total assets		0.56%		0.55%
Nonperforming loans / total assets		0.75%		0.72%
Net charge-offs / average loans		0.07%		0.07%
Allowance for loan losses / total loans		1.12%		1.12%

Management attributes the Company’s credit quality to its conservative underwriting practices and market discipline. The Company has not been an originator or purchaser of option adjustable rate or “no documentation” portfolio mortgage loans, and the portfolio does not include any mortgage loans classified as “sub-prime.” Also, the relative price stability of the residential real estate market and generally healthy economy in the Charlotte region has contributed to our success in avoiding significant problems in the quality of our loan portfolio.

Margin Expansion on a Linked-Quarter Basis

The Company’s fully taxable equivalent net interest margin expanded by 11 basis points on a linked-quarter basis to 3.02% as the Company’s cost of funds continued to reprice at lower interest rates. This marks the largest linked quarter margin expansion by the Company over the past two years.

Strong Loan Growth

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 $23.6 million, or 15.0% annualized, during the three-month period ended September 30, 2008. This loan growth was sparked by the addition of several new lenders and additional opportunities arising as a result of several bank mergers in our market. The Company experienced loan growth in every category of loan type except for construction loans, which decreased by $11.3 million, or 11.5%. Management expects that loan growth will soften for the remainder of 2008 and well into 2009. However, we expect to make market share gains in selective asset categories as a result of the market disruptions stemming from a number of recently completed and announced mergers in the Charlotte market.

Stable Deposit Portfolio

Total outstanding deposits amounted to $584.9 million at September 30, 2008, which was comparable to the deposit balance at June 30, 2008. During the third quarter of 2008, checking account balances remained flat, after experiencing strong growth in the second quarter of 2008. Management continues to focus on increasing the Company’s number of retail and commercial accounts through employee incentives and enhanced treasury management services. The Company experienced an $8.5 million, or 7.3%, decline in money market accounts due to intense market competition. This decrease was offset by a $9.0 million increase in time deposits. The moderate level of deposit growth was largely attributable to the Company’s continued disciplined approach to deposit pricing and strong liquidity position. The Company will continue to actively market deposit products at pricing points that are determined to be economically favorable by the Company.

Noninterest Income and Expense

Noninterest operating income (as defined in the tables that follow) improved by $9,000 from the third quarter of 2007 to the third quarter of 2008. This improvement was largely due to increased fee income on deposit accounts resulting from the increased number of demand deposit accounts over the past year. Noninterest operating expense (as defined in the tables that follow) increased by $187,000, or 4.2%, during the comparable third quarter periods. This increase was primarily due to increased staffing levels related to the opening of a new full-service office in Rock Hill, South Carolina in the first quarter of 2008.

Other-than-Temporary Impairment

During the third quarter of 2008, management evaluated the Company’s investment portfolio and determined that an impairment on a $1.0 million pooled trust preferred security was “other-than-temporary.” A fair value evaluation of the security by an independent third party determined that the after-tax “other-than-temporary” impairment of the security was $285,000. As a result, this amount was charged against current quarter earnings.

In making the earnings announcement, Kim S. Price, President and CEO, stated “Citizens South Bank continues to perform favorably at a time when our industry is under substantial pressure. 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 during unprecedented market turbulence. These actions have positioned us to endure difficult economic times and to excel when our industry and economy normalizes.”

General Information

Headquartered in Gastonia, North Carolina, Citizens South Bank was founded in 1904. Deposits are FDIC insured up to applicable regulatory limits. At September 30, 2008, the Bank had approximately $823 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 September 30, 2008			Quarter ended September 30, 2007			Nine Months ended September 30, 2008			Nine Months ended September 30, 2007
Reconciliation of GAAP to non-GAAP Measures: Net income, as reported (GAAP)	$	822		$	1,349		$	2,654		$	4,338
Non-operating items (net of 39% tax):
(Gain)/ loss on sale of assets, net		(8	)		-			(167	)		(205	)
Reorganization & merger/integration expenses		-			-			134			-
Impairment of investments		285			-			285			99
Insurance proceeds, net		-			-			-			(112	)
Net Operating Income	$	1,099		$	1,349		$	2,906		$	4,120
Noninterest income, as reported (GAAP)	$	1,492		$	1,534		$	4,765		$	5,051
Non-operating items:
(Gain)/ loss on sale of assets, net		(14	)		-			(275	)		(336	)
Fair value adjustment on deferred comp assets		12			(52	)		64			(110	)
Insurance proceeds, net		-			-			-			(112	)
Noninterest Operating Income	$	1,490		$	1,482		$	4,554		$	4,493
Noninterest expense, as reported (GAAP)	$	5,145		$	4,554		$	14,729		$	13,456
Non-operating items:
Impairment of investments		(468	)		-			(468	)		(162	)
Fair value adjustment on deferred comp assets		12			(52	)		64			(110	)
Reorganization & merger/integration expenses		-			-			(220	)		-
Noninterest Operating Expense	$	4,689		$	4,502		$	14,105		$	13,184
Per Share Data:
Average common shares outstanding, basic		7,358,086			7,627,620			7,380,236			7,748,605
Basic net income - GAAP	$	0.11		$	0.18		$	0.36		$	0.56
Basic net income - Operating		0.15			0.18			0.39			0.53
Average common shares outstanding, diluted		7,386,513			7,691,722			7,414,274			7,817,438
Diluted net income - GAAP	$	0.11		$	0.18		$	0.36		$	0.55
Diluted net income - Operating		0.15			0.18			0.39			0.53
Cash dividends declared	$	0.085		$	0.08		$	0.255		$	0.24
Period-end book value		11.02			10.86			11.02			10.86
Financial Ratios (annualized):
Return on average stockholders’ equity - GAAP		3.97	%		6.37	%		4.25	%		6.83	%
Return on avg. stockholders’ equity - Operating		5.30			6.35			4.66			6.49
Return on average assets - GAAP		0.40	%		0.70	%		0.45	%		0.78	%
Return on average assets - Operating		0.53			0.70			0.49			0.74
Efficiency ratio - GAAP		74.85	%		68.61	%		74.22	%		66.37	%
Efficiency ratio - Operating		68.03			68.61			71.51			67.06
Net interest margin (tax equivalent)		3.02	%		3.13	%		2.96	%		3.19	%
Total equity to total assets		10.06			11.12			10.06			11.12
Tangible equity to tangible assets		6.59			7.29			6.59			7.29
Asset Quality Data:
Allowance for loan losses	$	7,027		$	6,292		$	7,027		$	6,292
Nonperforming loans		3,335			2,528			3,335			2,528
Nonperforming assets		4,549			3,164			4,549			3,164
Net charge-offs		449			135			932			432
Net charge-offs to average loans		0.07	%		0.02	%		0.16	%		0.08	%
Allowance for loan losses to total loans		1.12			1.15			1.12			1.15
Nonperforming loans to total loans		0.53			0.46			0.53			0.46
Nonperforming assets to total assets		0.55			0.42			0.55			0.42
Nonperforming assets to total loans		0.72			0.58			0.72			0.58
Average Balances:
Total assets	$	817,613		$	759,132		$	794,066		$	746,974
Loans receivable, net of unearned income		615,755			532,902			590,554			519,132
Interest-earning assets		724,679			668,671			700,135			653,662
Deposits		581,162			579,141			579,810			573,374
Interest-bearing liabilities		685,823			625,128			659,411			612,301
Stockholders’ equity		82,478			83,984			83,685			83,984
At Period End:
Total assets	$	823,030		$	760,987		$	823,030		$	760,987
Loans receivable, net of unearned income		621,469			548,026			621,469			548,026
Interest-earning assets		732,683			676,874			732,683			676,874
Deposits		584,928			572,114			584,928			572,114
Interest-bearing liabilities		691,600			628,084			691,600			628,084
Stockholders’ equity		82,827			84,378			82,827			84,378

Citizens South Banking Corporation

Consolidated Statements of Financial Condition

(dollars in thousands)

	September 30, 2008			December 31, 2007
	(unaudited)
ASSETS
Cash and cash equivalents		13,924			29,739
Investment securities available-for-sale, at fair value		26,512			46,519
Mortgage-backed securities available-for-sale, at fair value		81,010			69,893
Loans receivable, net unearned income		628,496			559,956
Allowance for loan losses		(7,027	)		(6,144	)
Loans receivable, net		621,469			553,812
Real estate acquired through foreclosure, net		1,214			529
Premises and equipment, net		17,334			17,965
Accrued interest receivable		2,621			3,254
Federal Home Loan Bank stock, at cost		5,355			4,236
Intangible assets		30,635			31,037
Bank owned life insurance		16,635			16,099
Other assets		6,321			6,057
Total assets	$	823,030		$	779,140

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Demand deposit accounts	$	114,318		$	101,981
Money market deposit accounts		107,555			129,688
Savings accounts		11,288			12,037
Time deposits		351,767			347,059
Total deposits		584,928			590,765
Borrowed money		147,518			96,284
Deferred compensation		5,407			5,389
Other liabilities		2,350			2,669
Total liabilities		740,203			695,107
Stockholders' Equity:
Common stock issued and outstanding, $0.01 par value, 20,000,000 shares
authorized, 9,062,727 issued at September 30, 2008, and December 31, 2007,
and 7,516,816 shares outstanding at September 30, 2008, and 7,610,017 shares
outstanding at December 31, 2007		91			91
Additional paid-in-capital		68,726			67,718
Unallocated common stock held by Employee Stock Ownership Plan		(1,110	)		(1,247	)
Retained earnings, substantially restricted		34,895			36,028
Accumulated unrealized loss on securities available-for-sale, net of tax		(1,442	)		(343	)
Treasury stock of 1,545,911 shares at September 30, 2008, and 1,452,710 shares
at December 31, 2007		(18,333	)		(18,214	)
Total stockholders’ equity		82,827			84,033
Total liabilities and stockholders’ equity	$	823,030		$	779,140

Citizens South Banking Corporation

Condensed ConsolidatedStatements of Operations (unaudited)

(in thousands, except per share data)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2008			2007		2008			2007
Interest Income:
Loans	$	9,416		$	10,377	$	28,160		$	30,331
Investment securities		358			710		1,127			2,070
Interest-bearing deposits		13			73		149			342
Mortgage-backed and related securities		1,019			783		2,825			2,150
Total interest income		10,806			11,943		32,261			34,893
Interest Expense:
Deposits		3,997			5,741		13,397			16,672
Borrowed funds		1,427			1,099		3,783			2,999
Total interest expense		5,424			6,840		17,180			19,671
Net interest income		5,382			5,103		15,081			15,222
Provision for loan losses		720			300		1,815			960
Net interest income after provision for loan losses		4,662			4,803		13,266			14,262
Noninterest Income:
Fee income on deposit accounts		802			680		2,256			2,026
Mortgage banking income		169			239		650			749
Income on lending activities		84			116		297			358
Dividends on FHLB stock		40			53		168			149
Increase in cash value of bank-owned life insurance		195			191		571			578
Fair value adjustment on deferred compensation assets		(12	)		52		(65	)		110
Life insurance proceeds, net		-			-		-			112
Net gain on sale of assets		14			-		275			336
Other noninterest income		200			203		613			633
Total noninterest income		1,492			1,534		4,765			5,051
Noninterest Expense:
Compensation and benefits		2,565			2,461		7,665			7,167
Fair value adjustment on deferred comp. obligations		(12	)		52		(64	)		110
Occupancy and equipment expense		662			661		2,012			2,001
Professional services		201			127		639			403
Amortization of intangible assets		126			156		402			483
Reorganization expenses		-			-		220			-
Impairment of securities		468			-		468			162
Other noninterest expense		1,135			1,097		3,388			3,130
Total noninterest expense		5,145			4,554		14,730			13,456
Income before income taxes		1,009			1,783		3,301			5,857
Provision for income taxes		187			434		647			1,519
Net income	$	822		$	1,349	$	2,654		$	4,338
Net income per common share:
Basic	$	0.11		$	0.18	$	0.36		$	0.56
Diluted	$	0.11		$	0.18	$	0.36		$	0.55
Weighted average common shares outstanding:
Basic		7,358,086			7,627,620		7,380,236			7,748,605
Diluted		7,386,513			7,691,722		7,414,274			7,817,438