8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K/A

Current Report

Pursuant to Section 13 or 15(d) of the

Securities and Exchange Act of 1934

Date of Report: March 19, 2010

Citizens South Banking Corporation

(Exact name of registrant as specified in its charter)

Delaware	0-23971	54-2069979
(State or other jurisdiction of incorporation)	(Commission file number)	(IRS. Employer 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

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CRF 240.13e-4(c))

EXPLANATORY NOTE

On March 22, 2010, Citizens South Banking Corporation (the “Company”), filed a Current Report on Form 8-K to report that its wholly-owned subsidiary, Citizens South Bank (the “Bank”) had entered into a definitive agreement (the “Agreement”) with the Federal Deposit Insurance Corporation (the “FDIC”) on March 19, 2010, to acquire substantially all of the assets and assume substantially all of the liabilities of Bank of Hiawassee, a Georgia state-chartered bank headquartered in Hiawassee, Georgia (the “Acquisition”). In that filing the Company indicated that it would amend the Form 8-K at a later date to provide financial information required by Item 9.01 of Form 8-K. This amendment is being filed to update the disclosures in Item 2.01 and to provide the financial information required by Item 9.01.

As permitted by a request for waiver submitted to the Securities and Exchange Commission in accordance with the guidance provided in Staff Accounting Bulletin Topic 1:K, Financial Statements of Acquired Troubled Financial Institutions (“SAB 1:K”), the Company has omitted certain financial information of Bank of Hiawassee required by Rule 3-05 of Regulation S-X and the related pro forma financial information required under Article 11 of Regulation S-X. SAB 1:K provides relief from the requirements of Rule 3-05 of Regulation S-X and the related pro forma financial information required under Article 11 of Regulation S-X under certain circumstances, including a transaction such as the one set forth in the Agreement, in which the Registrant engages in an acquisition of a troubled financial institution for which historical financial statements are not reasonably available and in which federal assistance is an essential and significant part of the transaction.

ITEM 2.01 Completion of Acquisition or Disposition of Assets

On March 19, 2010, the Bank acquired certain assets and assumed certain liabilities of Bank of Hiawassee from the FDIC as receiver for Bank of Hiawassee. The acquisition was made pursuant to the terms of a purchase and assumption agreement entered into by Citizens South Bank with the FDIC on March 19, 2010. The Bank of Hiawassee was established in 1909 and operated from five locations in North Georgia—two in Hiawassee and one in Young Harris in Towns County, one in Blairsville in Union County, and one in Blue Ridge in Fannin County, Georgia. Citizens South Bank now operates from the five locations under the locally familiar registered trade names of the acquired institution, the Bank of Hiawassee • Blairsville • Blue Ridge, a Division of Citizens South Bank, in their respective North Georgia markets. The addition of the five locations brings Citizens South Bank’s total banking centers to 21 locations in the two Carolinas and Georgia.

Under the terms of the purchase and assumption agreement, Citizens South Bank acquired certain assets of Bank of Hiawassee with a fair value of approximately $343.3 million, including $183.2 million of loans, $22.3 million of investment securities, $2.2 million of Federal Home Loan Bank stock, $79.2 million of cash and cash equivalents, $1.1 million of other real estate owned, $36.3 million of FDIC loss-share receivable, $1.6 million of core deposit intangible, $15.8 million of federal funds sold and $1.5 million of other assets. Liabilities with a fair value of approximately $331.8 million were also assumed, including $292.2 million of insured and uninsured deposits, but excluding certain brokered deposits, $31.2 million of Federal Home Loan Bank advances, $7.2 million in deferred tax liability and $794,000 of other liabilities. The fair values of the assets acquired and liabilities assumed were determined based on the requirements of Financial Accounting Standards Board Topic 820: Fair Value Measurements and Disclosures. The fair value amounts are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. The amounts are also subject to adjustments based upon final settlement with the FDIC. In addition, the tax treatment of FDIC-assisted acquisitions is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the acquisition date. The terms of the purchase and assumption agreement provide for the FDIC to indemnify Citizens South Bank against claims with respect to liabilities of Bank of Hiawassee not assumed by Citizens South Bank and certain other types of claims listed in the purchase and assumption agreement.

In connection with the acquisition of Bank of Hiawassee, Citizens South Bank entered into loss-sharing agreements (the “shared-loss agreements”) with the FDIC that covered approximately $229.9 million of Bank of Hiawassee’s loans. Citizens South Bank will share in the losses, which begins with the first dollar of loss occurred, of the loan pools (including single-family residential mortgage loans and commercial loans) covered (“covered loans”) under the shared-loss agreements. Pursuant to the terms of the shared-loss agreements, the FDIC is obligated to reimburse Citizens South Bank for 80% of eligible losses of up to $102 million with respect to covered loans. The FDIC will reimburse Citizens South Bank for 95% of eligible losses in excess of $102 million with respect to

1

covered loans. Citizens South Bank has a corresponding obligation to reimburse the FDIC for 80% or 95%, as applicable, of eligible recoveries with respect to covered loans. The shared-loss agreements for commercial and single-family residential mortgage loans are in effect for five years and ten years, respectively, from the March 19, 2010, acquisition date. The loss recovery provisions with respect to eligible losses of up to $102 million are in effect for eight years from the acquisition date and the loss recovery provisions with respect to eligible losses in excess of $102 million are in effect for ten years from the acquisition date.

Citizens South Bank did not immediately acquire all the real estate, banking facilities, furniture or equipment of Bank of Hiawassee as part of the purchase and assumption agreement. Citizens South Bank has the option to purchase or lease the real estate and furniture and equipment from the Federal Deposit Insurance Corporation. The term of these options is 90 days after March 19, 2010, and may be further extended by the Federal Deposit Insurance Corporation. Acquisition costs of the real estate and furniture and equipment will be based on current appraisals and determined at a later date. Currently all banking facilities and equipment are being leased from the Federal Deposit Insurance Corporation on a month-to-month basis.

Citizens South Bank paid the FDIC a premium of approximately 1.0% for the right to assume all of the deposits of Bank of Hiawassee. In addition, the FDIC transferred to Citizens South Bank all qualified financial contracts to which Bank of Hiawassee was a party and such contracts remain in full force and effect. Because this was a FDIC-assisted transaction of a failed bank, the stockholders of Bank of Hiawassee received no consideration as a result of Citizens South Bank’s acquisition of Bank of Hiawassee’s assets.

The foregoing summary of the Agreement, including the loss-share agreements, is not complete and is qualified in its entirety by reference to the full text of the Agreement and certain exhibits attached thereto, a copy of which was previously filed as Exhibit 2.1 to the Current Report filed on Form 8-K on March 22, 2010 and is incorporated by reference into this Item 2.01.

ITEM 3.02 Unregistered Sales of Equity Securities

On March 17, 2010, in the Private Placement, the Company issued and sold 1,490,400 shares of its common stock at a purchase price of $4.50 per share and 8,280 shares of Series B Preferred Stock. The Private Placement was made pursuant to the Purchase Agreement and was exempt from registration under the Securities Act of 1933, as amended.

ITEM 9.01 Financial Statements and Exhibits

(a) Financial Statements of Businesses Acquired

Discussion

As set forth in Item 2.01 above, on March 19, 2010, the Bank acquired substantially all of the assets and assumed substantially all of the liabilities of Bank of Hiawassee pursuant to the purchase and assumption agreement with the FDIC. A narrative description of the anticipated effects of the acquisition on the Company’s financial condition, liquidity, capital resources and operating results is presented below. This discussion should be read in conjunction with the historical financial statements and related notes of the Company, which have been filed with the Securities and Exchange Commission (“the SEC”) and the audited statement of assets acquired and liabilities assumed of Bank of Hiawassee, which is included as Exhibit 99.1 to this filing.

The acquisition increased the Bank’s total assets and total liabilities, which are expected to positively affect the Bank’s operating results, to the extent that the Bank earns more from the interest earned on its assets than it pays on its liabilities. The Bank’s ability to successfully collect interest and principal on loans acquired will also impact the Bank’s cash flows and operating results.

2

The Company has determined that the acquisition of the net assets of Bank of Hiawassee constitutes a business acquisition as defined by Financial Accounting Standards Board Accounting Standard Codification Topic 805: “Business Combinations.” Accordingly, the assets acquired and liabilities assumed as of March 19, 2010 are presented at their fair values in the table below as required by that topic. In many cases, the determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. These fair value estimates are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. Citizens South Bank and the Federal Deposit Insurance Corporation are engaged in ongoing discussions that may impact which assets and liabilities are ultimately acquired or assumed by Citizens South Bank and/or the purchase price of such assets and liabilities.

Financial Condition. In the acquisition, Citizens South Bank purchased $183.2 million in loans at fair value, net of a $46.7 million discount. This amount represents approximately 25.5% of our total loans (net of the allowance for loan losses) at March 31, 2010. Other real estate acquired was $1.1 million at fair value. Approximately $11.5 million in net after-tax gain, a Federal Deposit Insurance Corporation indemnification asset of $36.3 million and a $1.6 million core deposit intangible were recorded in connection with this FDIC-assisted transaction.

Citizens South Bank acquired $79.2 million in cash and cash equivalents and $22.3 million in investment securities at fair value.

Investment Portfolio. Citizens South Bank acquired $22.3 million of investment securities at estimated fair market value in the Bank of Hiawassee acquisition. The acquired securities were predominantly U.S. Treasury securities, U.S. Government agency and U.S. Government sponsored enterprise debt securities and U.S. Government agency and U.S. Government sponsored enterprise mortgage-backed securities.

The following table present the composition of the investment securities portfolio acquired at March 19, 2010:

	March 19, 2010
	(In thousands)
U.S. Government agency and sponsored enterprise debt securities	$	6,153
U.S. Government agency and sponsored enterprise mortgage-backed securities		11,449
Corporate debt securities		751
Municipal securities		3,956
Investment securities	$	22,309

In addition, Citizens South Bank also acquired $2.2 million in Federal Home Loan Bank stock.

The following table presents a summary of yields and contractual maturities of the investment securities portfolio acquired at March 19, 2010:

	Within One Year				After One But Within  Five Years				After Five But Within 10 Years				After Ten Years				Total
	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
	(Dollars in thousands)
U.S. Government agency and sponsored enterprise debt securities	$	—	—	%	$	3,147	2.08	%	$	3,006	1.85	%	$	—	—	%	$	6,153	1.97
U.S. Government agency and sponsored enterprise mortgage-backed securities		—	—			75	3.57			163	3.77			11,211	4.07			11,449	4.07
Corporate debt securities		250	5.75			501	6.00			—	—			—	—			751	5.92
Other securities		—	—			201	4.48			529	3.15			3,226	6.01			3,956	5.55
Total investments	$	250	5.75	%	$	3,924	2.73	%	$	3,698	2.12	%	$	14,437	4.50	%	$	22,309	3.81	%

3

Covered loans. The following table presents the balance of each major category of loans acquired in the Bank of Hiawassee acquisition as of March 19, 2010:

	March 19, 2010
	Amount			% of Loans
	(Dollars in thousands)
Real estate loans:
Residential single family	$	67,158		29.21	%
Residential multifamily		7,974		3.47
Commercial and industrial real estate		124,713		54.25
Construction		4,974		2.16
Total real estate loans		204,819		89.09
Other loans:
Commercial business		17,359		7.55
Other consumer		7,730		3.36
Total other loans		25,089		10.91
Total covered loans		229,908		100.00	%
Total discount resulting from acquisition date fair value		(46,701	)
Net Loans	$	183,207

The Bank also acquired other real estate owned with a fair value of $1.1 million. Citizens South Bank refers to the loans acquired in the Bank of Hiawassee acquisition as “covered loans” as Citizens South Bank will be reimbursed by the Federal Deposit Insurance Corporation for a substantial portion of any future losses on them under the terms of the shared-loss agreements.

At the March 19, 2010, acquisition date, Citizens South Bank estimated the fair value of the Bank of Hiawassee acquisition loan portfolio at $183.2 million, which represents the expected discounted cash flows from the portfolio. In estimating such fair value, we (a) calculated the contractual amount and timing of undiscounted principal and interest payments (the “undiscounted contractual cash flows”) and (b) estimated the amount and timing of undiscounted expected principal and interest payments (the “undiscounted expected cash flows”). The amount by which the undiscounted expected cash flows exceed the estimated fair value (the “accretable yield”) is accreted into interest income over the life of the loans. The difference between the undiscounted contractual cash flows and the undiscounted expected cash flows represents the nonaccretable difference.

The nonaccretable difference represents an estimate of the credit risk in the Bank of Hiawassee acquisition loan portfolio at the acquisition date. The credit risk is not reflected in the allowance for loan losses.

As part of the loan portfolio fair value estimation, the Bank established the FDIC indemnification asset, which represents the present value of the estimated losses on covered loans to be reimbursed by the Federal Deposit Insurance Corporation. The FDIC indemnification asset will be reduced as losses are recognized on covered loans and loss-sharing payments are received from the FDIC. Realized losses in excess of acquisition date estimates will increase the FDIC indemnification asset. Conversely, if realized losses are less than acquisition date estimates, the FDIC indemnification asset will be reduced by a charge to earnings.

Covered loans under the shared-loss agreements with the Federal Deposit Insurance Corporation are reported in loans exclusive of the estimated Federal Deposit Insurance Corporation indemnification asset. The covered loans acquired in the Bank of Hiawassee acquisition transaction are and will continue to be subject to Citizens South Bank’s internal and external credit review. As a result, if and when credit deterioration is noted subsequent to the March 19, 2010, acquisition date, such deterioration will be measured through Citizens South Bank’s loss-reserving methodology, and a provision for loan losses will be charged to earnings with a partially offsetting noninterest income item reflecting the increase to the Federal Deposit Insurance Corporation indemnification asset.

Based on our preliminary unaudited financial results for the first quarter of 2010, net income for the Company was $10.0 million, or $1.29 per share, compared with a loss of $30.5 million, or $4.11 per share in the fourth quarter of 2009. The first quarter earnings include a pre-tax gain of $18.7 million from the acquisition of Bank of Hiawassee.

4

A summary of the covered loans (excluding other real estate owned) acquired in the Bank of Hiawassee acquisition as of March 19, 2010, and the related discount is as follows:

	Credit-impaired Loans		Other Loans		Total
	(In thousands)
Real estate loans:
Residential single family	$	4,821	$	62,337	$	67,158
Residential multifamily		4,759		3,215		7,974
Commercial and industrial real estate		15,720		108,993		124,713
Construction		1,534		3,440		4,974
Total real estate loans		26,834		177,985		204,819
Other loans:
Commercial business		2,376		14,983		17,359
Other consumer		—		7,730		7,730
Total other loans		2,376		22,713		25,089
Total loans		29,210		200,698		229,908
Total discount resulting from acquisition date fair value		13,577		33,124		46,701
Net loans	$	15,633	$	167,574	$	183,207

Credit-impaired covered loans are those loans showing evidence of credit deterioration since origination, and it is probable, at the date of acquisition, that we will not collect all contractually required principal and interest payments. Generally, the acquired loans that meet our definition for nonaccrual status fall within the definition of credit-impaired covered loans.

The undiscounted contractual cash flows for the covered credit-impaired loans and covered other loans are $29.2 million and $200.7 million, respectively. The amounts include principal only and do not reflect accrued interest as of the date of the acquisition. The undiscounted estimated cash flows not expected to be collected for the covered credit-impaired loans and covered other loans are $12.7 million and $34.6 million, respectively.

The accretable yield on credit-impaired loans represents the amount by which the undiscounted expected cash flows exceed the estimated fair value. At March 19, 2010, such accretable yield was approximately $850,000. Credit-impaired loans are reviewed each reporting period to determine whether any changes occurred in expected cash flows that would result in a reclassification from nonaccretable difference to accretable yield.

Contractual Maturity of Loan Portfolio. The following table presents the maturity schedule with respect to certain individual categories of loans acquired and provides separate analyses with respect to fixed rate loans and floating rate loans as of March 19, 2010. The amounts shown in the table are unpaid balances.

	Within One Year		After One But Within Five Years		More Than Five Years		Total
	(In thousands)
Real estate loans:
Residential single family	$	24,689	$	34,792	$	7,677	$	67,158
Residential multifamily		913		5,511		1,550		7,974
Commercial and industrial real estate		61,130		52,099		11,484		124,713
Construction		4,510		464		—		4,974
Total real estate loans		91,242		92,866		20,711		204,819
Other loans:
Commercial business		10,869		4,927		1,563		17,359
Other consumer		2,481		4,532		717		7,730
Total other loans		13,350		9,459		2,280		25,089
Total loans	$	104,592	$	102,325	$	22,991	$	229,908
Total fixed rate	$	86,828	$	85,726	$	4,601	$	177,155
Total variable rate		17,764		16,599		18,390		52,753
Total	$	104,592	$	102,325	$	22,991	$	229,908

5

Deposits. The Bank of Hiawassee acquisition increased the Bank’s deposits by $292.2 million at March 19, 2010. The following table presents a summary of the deposits acquired and the average interest rates in effect at the acquisition date:

	March 19, 2010
	Amount		Rate
	(Dollars in thousands)
Non-interest bearing	$	23,341	0.00	%
Interest checking		42,705	0.80
Money market		23,367	1.11
Savings		5,996	0.10
Time deposits:
Less than $100,000		98,317	2.33
$100,000 or greater		97,725	2.24
Time deposits fair value adjustment:
Less than $100,000		424
$100,000 or greater		344
Total deposits	$	292,219

At March 19, 2010, scheduled maturities of time deposits were as follows:

Year of Maturity	March 19, 2010
	(In thousands)
2010	$	127,599
2011		46,746
2012		7,698
2013		1,905
2014 & thereafter		12,094
Total	$	196,042

Borrowings. As of March 19, 2010, there was $30.0 million in principal balance of borrowings outstanding from the Federal Home Loan Bank with a fair value of $31.6 million. The borrowings are both term and callable advances and were secured by a blanket lien on eligible loans plus securities. The amount of callable advances at March 19, 2010, was $21.0 million. The maturities shown are the contractual maturities for all advances.

The following table summarizes the principal balance of Federal Home Loan Bank advances outstanding and weighted average interest rates at March 19, 2010:

Year of Maturity	Principal Balance		Rate
	(Dollars in thousands)
2010	$	2,000	3.50	%
2014		8,000	3.43
2015		3,500	3.80
2016		4,000	4.46
2017		5,000	3.13
2018		7,500	2.96
Total	$	30,000

In the Bank of Hiawassee acquisition, the Bank assumed $291.2 million in deposits at fair value. This amount represents approximately 32.9% of our total deposits of $994.1 million at March 31, 2010. Citizens South Bank also assumed $31.2 million in Federal Home Loan Bank advances, at fair value.

In its assumption of the deposit liabilities, the Bank determined that the customer relationships associated with these deposits have intangible value. Citizens South Bank applied Financial Accounting Standards Board Accounting Standard Codification Topic 805, “Business Combinations,” which prescribes the accounting for goodwill and other intangible assets, such as core deposit intangibles in a business combination. The Bank determined the fair value of a core deposit intangible asset totaling approximately $1.6 million, which will be amortized on an accelerated basis over an eight year period, which is its estimated economic life. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates, age of deposit relationships, and the maturities of time deposits. Future amortization of this core deposit intangible asset over the estimated economic life will decrease results of operations. Since amortization is a non-cash item, it will have no effect upon future liquidity and cash flows. For the calculation of regulatory capital, this core deposit intangible asset is disallowed and is a reduction of equity capital. As such the Company expects no material impact on regulatory capital.

6

Operating Results and Cash Flows. The Company’s management has from time to time become aware of acquisition opportunities and has performed various levels of review related to potential acquisitions in the past. This particular transaction was attractive to us for a variety of reasons, including the ability to move into new markets in Georgia, and the attractiveness of immediate core deposit growth with low cost of funds given that over the past several years, organic core deposit growth has been exceptionally difficult as financial institutions compete for deposits. Based on these and other factors, including the level of Federal Deposit Insurance Corporation loss protection related to the acquired loans, we believe that this acquisition has had and will continue to have a positive impact on our earnings.

We expect that the acquisition will positively affect our operating results in the near term. We believe that the transaction will improve our net interest income, as we earn more from interest earned on its loans and investments than it pays in interest on deposits and borrowings.

The extent to which our operating results may be adversely affected by the acquired loans is offset to a significant extent by the shared-loss agreements and the related discounts reflected in the fair value of these assets at the acquisition date. In accordance with the provisions of Financial Accounting Standards Board Accounting Standard Codification Topic 310-30, “Receivables,” the fair values of the acquired loans reflect an estimate of expected losses related to the acquired loans. As a result, Citizens South Bank’s operating results would only be adversely affected by loan losses of the acquired loans to the extent that such losses exceed the expected losses reflected in the fair value of the acquired loans at the acquisition date. In addition, to the extent that the stated interest rate on acquired loans was not considered a market rate of interest at the acquisition date, appropriate adjustments to the acquisition-date fair value were recorded. These adjustments mitigate the risk associated with the acquisition of loans earning a below-market rate of return.

Topic 310-30 applies to a loan with evidence of deterioration of credit quality since origination, acquired by completion of a transfer for which it is probable at acquisition that the investor will be unable to collect all contractually required payments receivable. Topic 310-30 prohibits carrying over or creating an allowance for loan losses upon initial recognition for loans that fall under its scope. On the acquisition date, the estimate of the contractual principal and interest payments for all impaired loans acquired in the acquisition was $29.2 million and the estimated fair value of the loans was $15.6 million. These amounts were determined based upon the estimated remaining life of the underlying loans, which include the effects of estimated prepayments, expected credit losses and market liquidity and interest rates.

On the acquisition date, the unpaid principal balance for all nonimpaired loans acquired in the acquisition was $200.7 million and the estimated fair value of the loans totaled $167.6 million. The fair value of nonimpaired loans was determined based upon the estimated remaining life of the underlying loans, which include the effects of estimated prepayments, expected credit losses and adjustments related to market liquidity and prevailing interest rates at the acquisition date.

The shared-loss agreements will likely have a material impact on the cash flows and operating results of Citizens South Bank in both the short-term and the long-term. In the short-term, it is likely that there will be a significant amount of the covered loans that will experience deterioration in payment performance or will be determined to have inadequate collateral values to repay the loans. In such instances, Citizens South Bank will likely no longer receive payments from the borrowers, which will impact cash flows. The shared-loss agreements may not fully offset the financial effects of such a situation. However, if a loan is subsequently charged off or charged down after we exhaust our best efforts at collection, the shared-loss agreements will cover a substantial portion of the loss associated with the covered assets.

The effects of the shared-loss agreements on cash flows and operating results in the long-term will be similar to the short-term effects described above. The long-term effects that Citizens South Bank may experience will depend primarily on the ability of the borrowers under the various loans covered by the shared-loss agreements to make payments over time. As the shared-loss agreements cover up to a ten-year period, changing economic conditions will likely impact the timing of future charge-offs and the resulting reimbursements from the Federal

7

Deposit Insurance Corporation. The Bank believes that any recapture of interest income and recognition of cash flows from the borrowers or received from the Federal Deposit Insurance Corporation may be recognized unevenly over this period, as we exhaust our collection efforts under its normal practices. In addition, Citizens South Bank recorded substantial discounts related to the purchase of these covered loans. A portion of these discounts will be accretable to income over the economic life of the underlying loans and will be dependent upon the timing and success of the Bank’s collection efforts on the covered loans.

Liquidity and Capital Resources. The Bank believes that its liquidity position will be improved as a result of this transaction. Citizens South Bank acquired $79.2 million in cash and cash equivalents, as well as $22.3 million of investment securities. These additions to Citizens South Bank’s balance sheet represent additional support for its liquidity needs.

Deposits in the amount of $292.2 million were also assumed. Of this amount, $95.4 million were in the form of highly liquid transaction accounts. Certificates of deposit comprised $196.8 million of total deposits, or 67.4%. Through March 31, 2010, we have retained substantially all of the deposits assumed.

Based on our preliminary unaudited financial results for the first quarter of 2010, net income for the Company was $10.0 million, or $1.29 per share, compared with a loss of $30.5 million, or $4.11 per share in the fourth quarter of 2009. The first quarter earnings include a pre-tax gain of $18.7 million from the acquisition of Bank of Hiawassee.

Below are Citizens South Bank’s regulatory ratios as of March 31, 2010 reflecting the Bank of Hiawassee acquisition and the sale of shares of common stock and Series B Preferred Stock in the private placement. The Bank remains “well-capitalized” after taking into consideration the results of the transaction and a private placement of common stock and preferred stock immediately prior to the acquisition:

Tier 1 leverage ratio	9.18	%
Tier 1 risk based capital ratio	14.47	%
Total risk based capital ratio	15.53	%

Financial Statements

The following financial statements are attached hereto as exhibit 99.1 and incorporated by reference into this Item 9.01:

Audited Statement of Assets Acquired and Liabilities Assumed at March 19, 2010

Exhibits

23.1	Consent of Independent Registered Public Accounting Firm
99.1	Statement of Assets Acquired and Liabilities Assumed at March 19, 2010

8

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: June 4, 2010	By:	/S/    KIM S. PRICE
		Kim S. Price
		President and Chief Executive Officer
	By:	/S/    GARY F. HOSKINS
		Gary F. Hoskins
		Chief Financial Officer

9

EX-23.1

Exhibit 23.1

Consent of Independent Certified Public Accountants

The Board of Directors

Citizens South Banking Corporation

Gastonia, North Carolina

We consent to the reference to the incorporation by reference in the registration statements of Citizens South Banking Corporation on Form S-3 (Nos. 333-166879 and 333-144696) and on Form S-8 (Nos. 333-103218, 333-77657 and 333-111228) of our report, dated May 17, 2010, related to the audit of the statement of assets acquired and liabilities assumed by Citizens South Banking Corporation and subsidiaries pursuant to the Purchase and Assumption Agreement, dated March 19, 2010, which is included in the Current Report on Form 8-K/A of Citizens South Banking Corporation filed with the Securities and Exchange Commission on June 4, 2010.

/s/ Cherry, Bekaert & Holland, L.L.P.

Gastonia, NC

June 4, 2010.

EX-99.1

Exhibit 99.1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Audit Committee of the Board of Directors and Stockholders of Citizens South Banking Corporation

We have audited the accompanying statement of assets acquired and liabilities assumed by Citizens South Banking Corporation and subsidiaries (the “Company”) pursuant to the Purchase and Assumption Agreement, dated March 19, 2010, executed by the Company with the Federal Deposit Insurance Corporation. This financial statement is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the accompanying statement of assets acquired and liabilities assumed by Citizens South Banking Corporation pursuant to the Purchase and Assumption Agreement dated March 19, 2010, is fairly presented, in all material respects, in conformity with accounting principles generally accepted in the United States of America.

Gastonia, North Carolina

May 17, 2010

Statement of Assets Acquired and Liabilities Assumed

	March 19, 2010
Assets
Cash and cash equivalents	$	79,221,031
Federal funds sold		15,837,280
Investment securities		22,308,696
Federal Home Loan Bank stock		2,248,000
Loans		183,206,518
FDIC indemnification asset		36,301,489
Other real estate owned		1,075,882
Core deposit intangible		1,636,675
Vehicles and equipment, net		208,112
Accrued interest receivable		1,179,196
Other assets		106,356
Total assets acquired	$	343,329,235
Liabilities
Deposits	$	292,219,376
Borrowed money		31,582,930
Deferred tax liability		7,222,359
Other liabilities		793,830
Total liabilities	$	331,818,495
Net assets acquired	$	11,510,740

Notes to Statement of Assets Acquired and Liabilities Assumed

NOTE 1 — BASIS OF PRESENTATION

Citizens South Bank (referred to herein as “Citizens South” or the “Bank”), which was chartered in 1904, is a federally chartered savings bank headquartered in Gastonia, North Carolina. All of the stock for the Bank is owned by Citizens South Banking Corporation (referred to herein as the “Company”) which was incorporated in Delaware on March 19, 1998, for the purpose of acting as the holding company for the Bank. The Bank is the Company’s principal asset. The shares of the Company’s common stock trade on the Nasdaq Global Market under the ticker symbol “CSBC”.

The accounting and reporting policies of the Company are in conformity with accounting principles generally accepted in the United States of America. As described in Note 2 – FDIC-Assisted Acquisition, Citizens South acquired substantially all assets and assumed substantially all liabilities of the former Bank of Hiawassee (referred to herein as “BOH”) in an FDIC-assisted acquisition (the “BOH Acquisition”) on March 19, 2010. The acquisition of the net assets of BOH constitutes a business acquisition as defined by the Business Combinations topic (ASC 805). The Business Combinations topic establishes principles and requirements for how the acquirer of a business recognizes and measures in its financials statements the identifiable assets acquired and the liabilities assumed. Accordingly, the estimated fair values of the acquired assets, including the FDIC indemnification asset and identifiable intangible assets, and the assumed liabilities in the BOH Acquisition were measured and recorded at the March 19, 2010, acquisition date.

Fair Value of Assets Acquired and Liabilities Assumed

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date reflecting assumptions that a market participant would use when pricing an asset or liability. In some cases, the estimation of fair values requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. We describe below the methods used to determine the fair values of the significant assets acquired and liabilities assumed.

Cash and cash equivalents

The carrying amounts approximate fair values due to the short-term nature of these instruments.

Investment securities and Federal Home Loan Bank Stock

The fair value for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair value estimates are based on observable inputs including quoted market prices for similar instruments, quoted market prices that are not in an active market or other inputs that are observable in the market. In the absence of observable inputs, fair value is estimated based on pricing models and/or discounted cash flow methodologies. The fair value of acquired Federal Home Loan Bank (“FHLB”) stock was estimated to be its redemption value. The FHLB requires member banks to purchase its stock as a condition of membership and the amount of FHLB stock owned varies based on the level of FHLB advances outstanding. This stock is generally redeemable and is presented at the redemption value.

Loans

We refer to the loans acquired in the BOH Acquisition as “covered loans” as we will be reimbursed for a substantial portion of any future losses on them under the terms of the FDIC shared-loss agreements. At the March 19, 2010, acquisition date, we estimated the fair value of the BOH Acquisition loan portfolio subject to the FDIC shared-loss agreement at $183.2 million, which represents the discounted expected cash flows from the portfolio. In estimating such fair value, we (a) calculated the contractual amount and timing of undiscounted principal and interest payments and (b) estimated the amount and timing of undiscounted expected principal and interest payments. The amount by which the undiscounted expected cash flows exceed the estimated fair value is accreted into interest income over the life of the loans. The difference between the undiscounted contractual cash flows and the undiscounted expected cash flows is the nonaccretable difference. The nonaccretable difference represents an estimate of the credit risk in the BOH Acquisition loan portfolio at the acquisition date. In calculating expected cash flows, management made several assumptions regarding prepayments, collateral cash flows, the timing of defaults, and the loss severity of

defaults. Other factors that market participants expect were considered in determining the fair value of acquired loans included loan pool level estimated cash flows, type of loan and related collateral, risk classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates.

FDIC indemnification asset

The FDIC indemnification asset is measured separately from each of the covered loan categories, as it is not contractually embedded in any of the covered loan categories. For example, the FDIC indemnification asset related to estimated future loan losses is not transferable should the Bank sell a loan prior to foreclosure or maturity. The $36.3 million fair value of the FDIC indemnification asset represents the present value of the estimated cash payments expected to be received from the FDIC for future losses on covered loans based on the credit adjustment estimated for each covered loan pool and the loss sharing percentages. The estimated gross cash flows associated with this asset are $37.8 million. These cash flows were then discounted at a rate of 3.7% to reflect the uncertainty of the timing and receipt of the loss sharing reimbursement from the FDIC. The ultimate collectability of the FDIC indemnification asset is dependent upon the performance of the underlying covered loans, the passage of time and claims paid by the FDIC.

Other real estate owned

Other real estate owned is presented at its estimated fair value and is not subject to the FDIC loss-sharing agreements. The fair values were based mostly on recent sales, best price offerings and appraisals prepared by qualified independent third party appraisers.

Core deposit intangible

The estimated fair value of the core deposit intangible asset was based on a valuation prepared by an independent third party. In determining the estimated life and valuation, core deposits, which excluded brokered and internet time deposits, were analyzed based on factors such as type of deposit, deposit retention, interest rates, and age of the deposit relationships. Based on this valuation, the core deposit intangible asset will be amortized over the projected useful lives of the related deposits on an accelerated basis over eight years.

Deposit liabilities

The fair values used for demand and savings deposits are, by definition, equal to the amount payable on demand at the reporting date. The fair values for time deposits are estimated using a discounted cash flow method that applies interest rates currently being offered on time deposits to a schedule of aggregated contractual maturities of such time deposits.

Borrowings

The fair value for FHLB advances is estimated using a discounted cash flow method based on the current market rates for comparable FHLB advances.

Deferred taxes

Deferred income taxes relate to the differences between the financial statement and tax basis of assets acquired and liabilities assumed in this transaction. Deferred taxes are reported based upon the principles in FASB Topic 740: Income Taxes, and are calculated based on the estimated federal and state income tax rates currently in effect for the Bank, which is consistent with market participant expectations.

Use of Estimates

Management of the Bank made a number of significant estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the statement of assets acquired and liabilities assumed. Management exercised significant judgment regarding assumptions about market participant expectations regarding discount rates, future expected cash flows including prepayments, default rates, market conditions and other future events that are highly subjective in nature, and subject to change, and all of which affected the estimation of the fair values of the net assets acquired in the BOH Acquisition. Actual results could differ from those estimates. Others provided with the same information could draw different reasonable conclusions and calculate different fair values. Changes that may vary significantly from our assumptions include loan prepayments, the rate of default, the severity of defaults, the estimated market values of collateral at disposition, the timing of such disposition, and deposit attrition.

NOTE 2 — FDIC-ASSISTED ACQUISITION

On March 19, 2010, the Bank acquired certain assets and assumed certain liabilities of Bank of Hiawassee from the Federal Deposit Insurance Corporation (“FDIC”) in an FDIC-assisted transaction. As part of the Purchase and Assumption Agreement, the Bank and the FDIC entered into two shared-loss agreements, whereby the FDIC will cover a substantial portion of any future losses on loans (and related unfunded loan commitments) and accrued interest on loans for up to 90 days. We refer to the acquired loans subject to the shared-loss agreements collectively as “covered loans.” Under the terms of the our shared-loss agreements, the FDIC will absorb 80% of losses and share in 80% of loss recoveries on the first $102 million on covered loans and absorb 95% of losses and share in 95% of loss recoveries exceeding $102 million. The shared-loss agreement for single family residential mortgage loans is in effect for 10 years and the loss-share agreement for all other loans is in effect for 5 years from the March 19, 2010 acquisition date and the loss recovery provisions are in effect for 10 years and 8 years, respectively, from the acquisition date. In the BOH acquisition the Bank acquired $183.2 million in loans at fair value, $79.2 million of cash and cash equivalents, $15.8 million of federal funds sold, $22.3 million in investment securities, $1.1 million of other real estate owned, $2.2 million of FHLB stock and $1.5 million of other assets of Bank of Hiawassee from the FDIC. The Bank also assumed liabilities with fair values of $292.2 million of deposits and $31.6 million in FHLB advances of Bank of Hiawassee from the FDIC.

Bank of Hiawassee was a full-service commercial bank headquartered in Hiawassee, Georgia that operated five branch locations in the Northern Georgia region. We made this acquisition to enter into a new market outside the Charlotte, North Carolina region and to allow us to expand our geographic footprint. The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting (formerly the purchase method). The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the March 19, 2010 acquisition date. The application of the acquisition method of accounting resulted in a net after-tax gain of $11.5 million. A summary of the net assets received from the FDIC and the estimated fair value adjustments resulting in the net gain are as follows:

	March 19, 2010
	(In thousands)
Bank of Hiawassee’s cost basis net assets on March 19, 2010	$	(35,251	)
Cash payment from the FDIC		66,400
Fair value adjustments:
Loans		(46,701	)
Core deposit intangible		1,637
FDIC loss-share receivable		36,301
Other real estate owned		(83	)
Time deposits		(768	)
Federal Home Loan Bank advances		(1,583	)
Deferred tax liability		(7,222	)
Other liabilities		(1,219	)
Net after-tax gain from BOH Acquisition	$	11,511

The net gain represents the excess of the estimated fair value of the assets acquired over the estimated fair value of the liabilities assumed and is influenced significantly by the FDIC-assisted transaction process. Under the FDIC-assisted transaction process, only certain assets and liabilities are transferred to the acquirer and, depending on the nature and amount of the acquirer’s bid, the FDIC may be required to make a cash payment to the acquirer.

NOTE 3 — INVESTMENT SECURITIES AND FHLB STOCK

The Bank acquired $22.3 million of investment securities at estimated fair market value in the BOH Acquisition. The acquired securities were predominantly U.S. Government agency and U.S. Government sponsored enterprise debt securities, U.S. Government sponsored enterprise mortgage-backed securities and municipal securities. The Bank also acquired $2.2 million in Federal Home Loan Bank (“FHLB”) Stock. The fair value of investment securities acquired is as follows:

	March 19, 2010
	(In thousands)
U.S. Government agency and sponsored enterprise debt securities	$	6,153
U.S. Government agency and sponsored enterprise mortgage-backed securities		11,449
Corporate debt securities		751
Municipal securities		3,956
Total investment securities	$	22,309

Advances from the FHLB are secured in part by a portion of these securities at March 19, 2010. See Note 6—Borrowings. Investment securities have contractual terms to maturity and require periodic payments to reduce principal. In addition, expected maturities may differ from contractual maturities because obligors and/or issuers may have the right to call or prepay obligations with or without call or prepayment penalties. The estimated fair value of investment securities at March 19, 2010, is shown below by contractual maturity.

	Fair Value
	(In thousands)
Due within one year	$	250
Due after one through five years		3,924
Due after five through ten years		3,698
Due after ten years		14,437
Total investment securities	$	22,309

NOTE 4 — LOANS COVERED BY LOSS SHARING

The book value of the various types of loans covered by loss sharing at March 19, 2010 is as follows:

	March 19, 2010
	Amount		% of Loans
	(Dollars in thousands)
Real estate loans:
Residential single family	$	67,158	29	%
Residential multi-family		7,934	4	%
Commercial and industrial real estate		124,713	54	%
Construction		4,974	2	%
Total real estate loans		204,819	89	%
Other loans:
Commercial business		17,359	8	%
Other consumer		7,730	3	%
Total other loans		25,089	11	%
Loans covered by loss sharing	$	229,908	100	%

We refer to the loans acquired in the BOH Acquisition as “covered loans” as we will be reimbursed for a substantial portion of any future losses on them under the terms of the FDIC shared-loss agreement. At the March 19, 2010

acquisition date, we estimated the fair value of the Bank of Hiawassee’s loan portfolio subject to the shared-loss agreement at $183.2 million which represents the expected cash flows from the portfolio. In estimating such fair value, we (a) calculated the contractual amount and timing of undiscounted principal and interest payments and (b) estimated the amount and timing of undiscounted expected principal and interest payments. The amount by which the undiscounted expected cash flows exceed the estimated fair value is accreted into interest income over the life of the loans. The difference between the undiscounted contractual cash flows and the undiscounted expected cash flows is the nonaccretable difference. The nonaccretable difference represents an estimate of the credit risk in the Bank of Hiawassee’s loan portfolio at the acquisition date. At March 19, 2010, credit-impaired loans totaled $15.6 million which represented unpaid balances of $29.2 million reduced by a discount of $13.6 million resulting from acquisition date fair value adjustments. The non-credit-impaired other loans totaled $167.6 million which represented unpaid balances of $200.7 million reduced by a discount of $33.1 million resulting from acquisition date fair value adjustments. The Bank evaluated the loans acquired for impairment in accordance with the provisions of FASB Topic 310-30: Loans and Debt Securities Acquired with Deteriorated Credit Quality. Credit-impaired loans are those loans showing evidence of credit deterioration since origination and it is probable, at the date of acquisition, that the Bank will not collect all contractually required principal and interest payments. Generally, the acquired loans that meet the Bank’s definition for nonaccrual status fall within the definition of credit-impaired covered loans. The loans acquired in the BOH Acquisition are and will continue to be subject to the Bank’s internal and external credit review. As a result, if credit deterioration is noted subsequent to the March 19, 2010, acquisition date, such deterioration will be measured through our loss reserving methodology and a provision for credit losses will be charged to earnings with a partially offsetting noninterest income item reflecting the increase to the FDIC shared-loss receivable for covered loans.

NOTE 5 — DEPOSITS

Deposit liabilities assumed are composed of the following at March 19, 2010:

	March 19, 2010
	Amount		Rate
	(Dollars in thousands)
Non-interest bearing	$	23,341	—
Interest checking		42,705	0.80	%
Money market		23,367	1.11	%
Savings		5,996	0.10	%
Time deposits:
Less than $100,000		98,317	2.33	%
$100,000 or greater		97,725	2.34	%
Time deposits fair value adjustment		768
Total deposits	$	292,219

At March 19, 2010, scheduled maturities of time deposits were as follows:

Year	March 19, 2010
	(In thousands)
2010	$	127,599
2011		46,746
2012		7,698
2013		1,905
2014 & thereafter		12,094
Total	$	196,042

We recorded a $1.6 million core deposit intangible with an estimated eight-year life. The estimated amortization expense for the remainder of 2010 and for the subsequent five years is as follows:

Year	Estimated Amortization Expense
	(In thousands)
2010	$	273
2011		330
2012		284
2013		239
2014		193
2015 & thereafter		318
Total	$	1,637

NOTE 6 — BORROWINGS

The FHLB advances acquired at March 19, 2010, are both term and callable advances and were secured by a blanket lien on eligible loans plus securities. The callable advances allow the FHLB, at their option, to terminate the advances at quarterly intervals beyond the advance dates. The amount of callable advances at March 19, 2010, was $21.0 million. While the FHLB may call the advances to be repaid for any reason, they are likely to be called if market rates are higher than the advances’ stated rates on the call dates. We may repay the advances at any time with a prepayment penalty, a significant portion of which is included in the fair value adjustment. The following table summarizes the FHLB advances outstanding and weighted average interest rate at March 19, 2010:

Year of Maturity	Amount		Rate
	(Dollars in thousands)
2010	$	2,000	3.50	%
2011		8,000	3.43	%
2012		3,500	3.80	%
2013		4,000	4.46	%
2014		5,000	3.13	%
2015 and thereafter		7,500	2.96	%
Total		30,000
Fair value adjustment		1,583
Total	$	31,583

NOTE 7 — DEFERRED INCOME TAXES

The deferred tax liability of $7.2 million as of March 19, 2010, is related to the differences between the financial statement and tax basis of assets acquired and liabilities assumed in this transaction. For income tax purposes, the BOH Acquisition will be accounted for as an asset purchase and the tax bases of assets acquired will be allocated based on fair values in accordance with the Internal Revenue Code and related regulations.

NOTE 8 — SUBSEQUENT EVENTS

Subsequent events are events and transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. The effects of subsequent events and transactions are recognized in the financial statements when they provide additional evidence about conditions that existed at the balance sheet date. We have evaluated events and transactions occurring subsequent to March 19, 2010, through the date of filing of this report. The Bank experienced some minor attrition in its deposit base after March 19, 2010. Total deposits decreased from $291.5 million (excluding fair value adjustments) as of March 19, 2010, to $258.7 million at March 31, 2010. Such an evaluation resulted in no material adjustments to the accompanying financial statement.