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: January 20, 2009

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 January 20, 2009, Citizens South Banking Corporation issued a press release to announce its results of operations for the three and twelve-month periods ended December 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 and twelve-month periods ended December 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:  January 20, 2009	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

FOURTH QUARTER EARNINGS

GASTONIA, NC, January 20, 2009 ..  .  .  .  . Citizens South Banking Corporation (NASDAQ: CSBC), the holding company for Citizens South Bank, reported net income of $427,000, or $0.06 per diluted share, for the quarter ended December 31, 2008, compared to $1.3 million, or $0.18 per diluted share, for the quarter ended December 31, 2007.

Operating income (as calculated in the attached table) for the quarter ended December 31, 2008, totaled $495,000, or $0.07 per diluted share, excluding a $68,000 after-tax net loss on the sale of assets.  Operating income for the quarter ended December 31, 2007, totaled $1.3 million, or $0.18 per diluted share.

Credit Quality

The Company’s credit quality continues to compare favorably with industry peers, despite some softening in the Charlotte housing market. However, as a result of the weaker national economy and signs of regional weakness, the Company increased its allowance for loan losses from 1.12% of total loans at September 30, 2008, to 1.28% of total loans at December 31, 2008, by charging $1.4 million to its provision for loan losses during the fourth quarter of 2008.  On a linked-quarter basis, net charge-offs remained flat and the ratio of nonperforming loans to total loans improved slightly as shown in the table below:

	December 31, 2008			September 30, 2008
Nonperforming loans / total loans		0.48	%		0.53	%
Nonperforming assets / total assets		0.69	%		0.55	%
Nonperforming assets / total loans		0.90	%		0.72	%
Net charge-offs / average loans		0.07	%		0.07	%
Allowance for loan losses / total loans		1.28	%		1.12	%

While management recognizes softness in the residential housing market, historically conservative underwriting practices and market discipline has shielded the loan portfolio from the significant portfolio deterioration suffered by many other banks in the southeast.  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, residential construction loans and residential acquisition and development loans were limited to local experienced contractors and developers who personally guaranteed their debt.

Net Interest Margin

During the fourth quarter of 2008 the Federal Reserve Bank lowered short-term interest rates by 175 basis points.  As a result, the Company’s fully taxable equivalent net interest margin contracted by 18 basis points on a linked-quarter basis to 2.84%. Approximately 43% of the Company’s loans are tied to adjustable rate indices, such as the prime lending rate, which are influenced by the actions of the Federal Reserve Bank.  While the Company’s net interest income is relatively neutral to changes in interest rates over a one year time frame, decreases in short-term interest rates have a negative impact on short-term earnings.  However, the decrease in short-term earnings is partly offset by liabilities which reprice at lower rates over the next year.

Loan Portfolio

During most of 2008 the real estate market in the Charlotte, North Carolina region remained active compared to most of the country.  However, housing starts, sales prices, and demand for commercial real estate moderated during the fourth quarter of 2008.  As a result, outstanding loans decreased by $2.8 million during the three-month period ended December 31, 2008.  Management expects that loan activity in the Charlotte region will remain soft well into 2009.  However, we expect to make market share gains in selective asset categories as a result of market disruptions stemming from a number of recently completed and announced mergers in the Charlotte market and with the Company’s expansion into the Mecklenburg County, North Carolina market in the first quarter of 2009.

Deposit Portfolio

Demand deposit accounts increased by $8.4 million during the fourth quarter of 2008 to $122.7 million at December 31, 2008.   During 2008, demand deposits increased by $20.7 million, or 20.3%.  This growth was fueled by retail and commercial demand deposit account incentives, enhanced treasury management services, and increased market share derived as a result of merger disruptions of competitors.

During the fourth quarter, total deposits decreased by $3.4 million to $581.5 million at December 31, 2008.  The decrease in total deposits was primarily concentrated in interest-sensitive deposit account types such as money market accounts and time deposit accounts.  The Company’s strong demand deposit growth, disciplined approach to deposit pricing, and strong liquidity position, enable it to limit exposure to aggressive time deposit pricing.

Noninterest Income and Expense

Noninterest operating income (as defined in the tables that follow) decreased by $85,000 from the fourth quarter of 2007 to the fourth quarter of 2008.  This decrease was largely due to decreases in mortgage banking activity and lower fees generated on lending activity.  Noninterest operating expense (as defined in the tables that follow) increased by $132,000, or 3.0%, during the comparable fourth quarter periods.  This increase was primarily due to increased staffing levels and related expenses associated with the opening of a new full-service office in Rock Hill, South Carolina in 2008 and new staffing associated with the Company’s entry into the Mecklenburg County market.

In making the earnings announcement, Kim S. Price, President and CEO, stated, “During a period when the banking industry and economy are under substantial pressure, Citizens South continues to build a powerful community banking franchise in the Charlotte region.  While no company is completely immune to the effects of an economy such as the one we are experiencing, we believe that we will continue to weather the storm better than most as a result of our time-tested and disciplined approach to lending and deposit gathering.  We also believe that we can utilize our position of strength to more effectively compete in a market that has seen, and is likely to continue to see, substantial disruption and consolidation among our competitors.”

General Information

Headquartered in Gastonia, North Carolina, Citizens South Bank was founded in 1904.  Deposits are FDIC insured up to applicable regulatory limits.  At December 31, 2008, the Bank had approximately $817 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.

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, significant changes in interest rates, 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 December 31, 2008			Quarter ended December 31, 2007			12 Months ended December 31, 2008			12 Months ended December 31, 2007
Reconciliation of GAAP to non-GAAP Measures:
Net income, as reported (GAAP)	$	427		$	1,327		$	3,081		$	5,665
Non-operating items (net of 39% tax):
(Gain)/ loss on sale of assets, net		68			8			(100	)		(197	)
Reorganization & merger/integration expenses		-			-			134			-
Impairment of investments		-			-			285			99
Insurance proceeds, net		-			-			-			(112	)
Net Operating Income	$	495		$	1,335		$	3,400		$	5,455
Noninterest income, as reported (GAAP)	$	1,254		$	1,511		$	6,019		$	6,562
Non-operating items:
(Gain)/ loss on sale of assets, net		110			13			(164	)		(323	)
Fair value adjustment on deferred comp assets		63			(12	)		128			(122	)
Insurance proceeds, net		-			-			-			(112	)
Noninterest Operating Income	$	1,427		$	1,512		$	5,983		$	6,005
Noninterest expense, as reported (GAAP)	$	4,496		$	4,439		$	19,226		$	17,895
Non-operating items:
Impairment of investments		-			-			(468	)		(162	)
Fair value adjustment on deferred comp assets		63			(12	)		128			(122	)
Reorganization & merger/integration expenses		-			-			(220	)		-
Noninterest Operating Expense	$	4,559		$	4,427		$	18,666		$	17,611
Per Share Data:
Average common shares outstanding, basic		7,361,434			7,513,151			7,374,051			7,688,595
Basic net income – GAAP	$	0.06		$	0.18		$	0.42		$	0.74
Basic net income – Operating		0.07			0.18			0.46			0.71
Average common shares outstanding, diluted		7,379,466			7,570,671			7,404,087			7,754,599
Diluted net income – GAAP	$	0.06		$	0.18		$	0.42		$	0.73
Diluted net income – Operating		0.07			0.18			0.46			0.70
Cash dividends declared  on common stock	$	0.085		$	0.08		$	0.34		$	0.32
Period-end book value per common share		11.21			11.05			11.21			11.05
Financial Ratios (annualized):
Return on average stockholders’ equity – GAAP		1.92	%		6.24	%		3.62	%		6.68	%
Return on avg. stockholders’ equity – Operating		2.22			6.28			3.99			6.43
Return on average assets – GAAP		0.21	%		0.68	%		0.39	%		0.75	%
Return on average assets – Operating		0.24			0.69			0.43			0.72
Efficiency ratio – GAAP		70.53	%		68.04	%		73.32	%		66.78	%
Efficiency ratio – Operating		69.33			67.84			72.12			67.12
Net interest margin (tax equivalent)		2.84	%		3.01	%		2.92	%		3.15	%
Total equity to total assets		12.81			10.79			12.81			10.79
Tangible equity to tangible assets		9.43			7.08			9.43			7.08
Asset Quality Data:
Allowance for loan losses	$	8,026		$	6,144		$	8,026		$	6,144
Nonperforming loans		3,032			1,815			3,032			1,815
Nonperforming assets		5,633			2,344			5,633			2,344
Net charge-offs		462			479			1,394			911
Net charge-offs to average loans		0.07	%		0.09	%		0.23	%		0.17	%
Allowance for loan losses to total loans		1.28			1.10			1.28			1.10
Nonperforming loans to total loans		0.48			0.32			0.48			0.32
Nonperforming assets to total assets		0.69			0.30			0.69			0.30
Nonperforming assets to total loans		0.90			0.42			0.90			0.42
Average Balances:
Total assets	$	820,166		$	770,338		$	799,869		$	753,085
Loans receivable, net of unearned income		627,888			550,255			596,467			529,399
Interest-earning assets		733,858			680,975			708,633			660,490
Deposits		579,967			581,086			579,850			575,302
Interest-bearing liabilities		685,079			635,601			665,828			618,126
Stockholders’ equity		88,498			84,362			85,232			84,783
At Period End:
Total assets	$	817,213		$	779,140		$	817,213		$	779,140
Loans receivable, net of unearned income		626,688			559,956			626,688			559,956
Interest-earning assets		733,448			690,007			733,448			690,007
Deposits		581,488			590,765			581,488			590,765
Interest-bearing liabilities		660,881			643,478			660,881			643,478
Stockholders’ equity		104,720			84,033			104,720			84,033

Citizens South Banking Corporation

Consolidated Statements of Financial Condition

(dollars in thousands)

	December 31, 2008			December 31, 2007
	(unaudited)
ASSETS
Cash and cash equivalents		10,057			29,739
Investment securities available-for-sale, at fair value		28,905			46,519
Mortgage-backed securities available-for-sale, at fair value		80,275			69,893
Loans receivable, net unearned income		626,688			559,956
Allowance for loan losses		(8,026	)		(6,144	)
Loans receivable, net		618,662			553,812
Real estate acquired through foreclosure, net		2,601			529
Premises and equipment, net		16,834			17,965
Accrued interest receivable		2,609			3,254
Federal Home Loan Bank stock, at cost		4,793			4,236
Intangible assets		30,525			31,037
Bank owned life insurance		16,813			16,099
Other assets		5,139			6,057
Total assets	$	817,213		$	779,140
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposit accounts	$	122,731		$	101,981
Money market deposit accounts		103,271			129,688
Savings accounts		10,708			12,037
Time deposits		344,778			347,059
Total deposits		581,488			590,765
Borrowed money		124,365			96,284
Deferred compensation		5,413			5,389
Other liabilities		1,227			2,669
Total liabilities		712,493			695,107
Stockholders' Equity:
Preferred stock issued and outstanding, $0.01 par value, 10,000,000 shares authorized, 20,500 shares issued and outstanding at December 31, 2008, and no shares issued or outstanding at December 31, 2007		20,507			-
Common stock issued and outstanding, $0.01 par value, 20,000,000 shares  authorized, 9,062,727 issued at December 31, 2008, and December 31, 2007, and 7,515,957 shares outstanding at December 31, 2008, and 7,610,017 shares outstanding at December 31, 2007		91			91
Additional paid-in-capital		67,367			67,718
Unallocated common stock held by Employee Stock Ownership Plan		(1,065	)		(1,247	)
Retained earnings, substantially restricted		36,089			36,028
Accumulated unrealized loss on securities available-for-sale, net of tax		25			(343	)
Treasury stock of 1,546,770 shares at December 31, 2008, and 1,452,710 shares   at December 31, 2007		(18,294	)		(18,214	)
Total stockholders’ equity		104,720			84,033
Total liabilities and stockholders’ equity	$	817,213		$	779,140

Citizens South Banking Corporation

Condensed Consolidated Statements of Operations (unaudited)

(in thousands, except per share data)

	Three Months						Twelve Months
	Ended December 31,						Ended December 31,
	2008			2007			2008			2007
Interest Income:
Loans	$	9,069		$	10,348		$	37,229		$	40,679
Investment securities		291			600			1,419			2,670
Interest-bearing deposits		8			105			157			447
Mortgage-backed and related securities		978			789			3,803			2,939
Total interest income		10,346			11,842			42,608			46,735
Interest Expense:
Deposits		3,836			5,643			17,233			22,315
Borrowed funds		1,390			1,186			5,173			4,185
Total interest expense		5,226			6,829			22,406			26,500
Net interest income		5,120			5,013			20,202			20,235
Provision for loan losses		1,460			330			3,275			1,290
Net interest income after provision for loan losses		3,660			4,683			16,927			18,945
Noninterest Income:
Fee income on deposit accounts		775			696			3,031			2,722
Mortgage banking income		179			242			829			990
Income on lending activities		87			125			384			484
Dividends on FHLB stock		12			62			180			212
Increase in cash value of bank-owned life insurance		195			192			766			769
Fair value adjustment on deferred compensation assets		(63	)		12			(128	)		122
Life insurance proceeds, net		-			-			-			112
Net gain on sale of assets		(110	)		(13	)		164			323
Other noninterest income		179			195			793			828
Total noninterest income		1,254			1,511			6,019			6,562
Noninterest Expense:
Compensation and benefits		2,427			2,439			10,092			9,607
Fair value adjustment on deferred comp. obligations		(63	)		12			(128	)		122
Occupancy and equipment expense		647			647			2,660			2,648
Professional services		228			141			867			543
Amortization of intangible assets		110			146			512			629
Reorganization expenses		-			-			220			-
Impairment of securities		-			-			468			162
Other noninterest expense		1,147			1,054			4,535			4,184
Total noninterest expense		4,496			4,439			19,226			17,895
Income before income taxes		418			1,755			3,720			7,612
Provision for income taxes		(9	)		428			639			1,947
Net income	$	427		$	1,327		$	3,081		$	5,665
Net income per common share:
Basic	$	0.06		$	0.18		$	0.42		$	0.74
Diluted	$	0.06		$	0.18		$	0.42		$	0.73
Weighted average common shares outstanding:
Basic		7,361,434			7,513,151			7,374,051			7,688,595
Diluted		7,379,466			7,570,671			7,404,087			7,754,599