GASTONIA, N.C., July 16 /PRNewswire-FirstCall/ -- Citizens South Banking Corporation CSBC, the holding company for Citizens South Bank, announced that net income for the quarter ended June 30, 2007, amounted to $1.6 million, or $0.20 per diluted share, compared to $1.3 million, or $0.17 per diluted share, for the quarter ended June 30, 2006. This represents an increase of $243,000, or 18.0%, in net income year over year and an increase of $.03, or 17.6%, in earnings per diluted share. Operating earnings for the second quarter of 2007 amounted to $1.4 million, or $0.18 per diluted share, compared to $1.3 million, or $0.17 per diluted share, for the second quarter of 2006. This represents a 5.9% increase in diluted operating earnings per share for the second quarter.

Improved Loan Growth in the Second Quarter

After moderate loan growth during the first quarter of $3.5 million, outstanding loans increased by $20.3 million through the second quarter of 2007, representing an annualized increase of 7.9%. The $17.2 million increase in outstanding loans during the second quarter was primarily due to a $19.2 million increase in loan production during the second quarter and a normalization of loan payoffs which were abnormally high in the first quarter of 2007. The real estate market in the Charlotte, North Carolina area remains vibrant, but competition for quality borrowers remains fierce, resulting in highly competitive pricing for new loans.

Credit Quality Remains Strong

Credit quality continues to compare favorably with industry peers with nonperforming assets amounting to 0.39% of total assets at June 30, 2007, compared to 0.37% of total assets at June 30, 2006. At the same time, reserves for loan losses increased from $5.4 million, or 1.06% of total loans, at June 30, 2006, to $6.1 million, or 1.14% of total loans, at June 30, 2007. Net charge-offs amounted to $296,000 for the first half of 2007 compared to $255,000 for the first half of 2006.

Strong Core Deposit Growth

Core deposits, which include demand deposits, money market deposit accounts, and savings accounts, increased by $12.5 million, or 11.2% annualized, during the first half of 2007. During this period, management aggressively marketed core deposit products and executed incentive programs for opening new core deposit accounts. Total deposits increased at a slightly slower rate, growing by $20.7 million, or 7.4% annualized.

Moderate Margin Compression on a Linked-Quarter Basis

The margin compression experienced during the second half of 2006 stabilized somewhat in the first half of 2007. The Company's net interest margin amounted to 3.14% for the second quarter 2007, representing a four basis point decrease on a linked-quarter basis. This compares favorably to declines of 14 basis points and 10 basis points, respectively, on a linked- quarter basis in the last two quarters of 2006. The continued flat to inverted yield curve, coupled with the competitive pressures for quality loans and local deposits were the primary reasons for the moderate margin compression. However, it should be noted that the Company is recovering a portion of the net interest margin through a reduced income tax provision provided by the reinvestment of taxable investments into tax-advantaged investments which have a higher tax-equivalent yield.

Favorable Operating Noninterest Income and Expense Trends

During the comparable quarters, noninterest operating income increased by $184,000, or 13.5%, to $1.5 million, while noninterest operating expense increased by $174,000, or 4.0%, to $4.5 million. The increase in noninterest operating income was primarily attributable to a $163,000 increase in fee income generated from mortgage lending activities. The mortgage banking area added several new originators during the past year and restructured its commission schedule for compensating originators on fee income rather than loan production. The increase in noninterest operating expense was primarily due to the addition of several loan production personnel hired during the past year. These additional personnel contributed to our strong loan growth in the second quarter of 2007.

In making the announcement, Kim S. Price, President and CEO, stated "We are especially proud to be able to continue our earnings growth momentum and positive credit quality measures during this flat yield curve and unstable credit environment. Our team continues to execute on our core community banking philosophy regardless of the environment. Also, we are fortunate to operate in the continually positive Charlotte geographic region that shows little to none of the stresses demonstrated in other markets nationally."

General Information

Headquartered in Gastonia, North Carolina, Citizens South Bank was founded in 1904. Deposits are FDIC insured. At June 30, 2007, the Bank had approximately $755 million in assets with 14 full-service offices in the Charlotte region, including Gaston, Iredell, Rowan, and Union counties in North Carolina, and three loan production offices in Mecklenburg 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, 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, 2006, describe some of these factors.

    Citizens South Banking Corporation
    Selected Financial Information
    (dollars in thousands, except per share data)

                                 Quarter     Quarter   Six months  Six months
                                  ended       ended      ended       ended
                                 June 30,    June 30,   June 30,    June 30,
                                   2007        2006       2007        2006
    Reconciliation of GAAP to
     non-GAAP Measures:
    Net income, as reported
     (GAAP)                        $1,589      $1,347     $2,989      $2,534
    Non-operating items:
       (Gain)/ loss on sale of
        assets, net                  (332)         (9)      (336)         47
       Impairment of
        investments                   162           -        162           -
       Merger and integration
        related expense                 -           -          -          57
       Insurance proceeds, net       (112)          -       (112)          -
       Related income taxes,
        excl. ins. proceeds (39%)      67           3         68         (40)
    Net Operating Income           $1,374      $1,341     $2,771      $2,598

    Noninterest income, as
     reported (GAAP)               $1,988      $1,369     $3,517      $2,783
    Non-operating items:
       (Gain)/ loss on sale of
        assets, net                  (332)         (9)      (336)         47
       Insurance proceeds, net       (112)          -       (112)          -
    Operating Noninterest
     Income                        $1,544      $1,360     $3,069      $2,830

    Noninterest expense, as
     reported (GAAP)               $4,617      $4,281     $8,902      $8,827
    Non-operating items:
       Impairment of
        investments                  (162)          -       (162)          -
       Merger and integration
        related expenses                -           -          -         (57)
    Operating Noninterest
     Expense                       $4,455      $4,281     $8,740      $8,770

    Per Share Data:
    Average common shares
     outstanding, basic         7,750,385   8,049,042  7,810,089   8,053,954
    Basic net income - GAAP         $0.21       $0.17      $0.38       $0.31
    Basic net income -
     Operating                       0.18        0.17       0.36        0.32
    Average common shares
     outstanding, diluted       7,816,793   8,123,232  7,881,287   8,131,987
    Diluted net income - GAAP       $0.20       $0.17      $0.38       $0.31
    Diluted net income -
     Operating                       0.18        0.17       0.35        0.32
    Cash dividends declared         $0.08      $0.075      $0.16       $0.15
    Period-end book value           10.69       10.24      10.69       10.24

    Financial Ratios
     (annualized):
    Return on average
    stockholders' equity -
     GAAP                            7.50 %      6.37 %     7.06 %      6.05 %
    Return on avg.
    stockholders' equity -
     Operating                       6.48        6.34       6.55        6.19
    Return on avg.
    stockholders' equity -
     Tangible                       10.29       10.25      10.38       10.01
    Return on average assets -
     GAAP                            0.86 %      0.76 %     0.81 %      0.72 %
    Return on average assets -
     Operating                       0.74        0.75       0.75        0.74
    Return on average assets -
     Tangible                        0.77        0.79       0.79        0.78
    Efficiency ratio - GAAP         65.40 %     65.04 %    65.29 %     67.40 %
    Efficiency ratio -
     Operating                      67.33       65.13      66.28       66.73
    Net interest margin             3.14 %      3.41 %     3.16 %      3.41 %
    Average equity to average
     assets                         11.44       11.90      11.51       11.97

    Asset Quality Data:
    Allowance for loan losses      $6,128      $5,414     $6,128      $5,414
    Nonperforming loans             2,461       1,974      2,461       1,974
    Nonperforming assets            2,910       2,653      2,910       2,653
    Net charge-offs                   225         129        296         255
    Allowance for loan losses
     to total loans                  1.14 %      1.06 %     1.14 %      1.06 %
    Nonperforming loans to
     total loans                     0.46        0.39       0.46        0.39
    Nonperforming assets to
     total assets                    0.39        0.37       0.39        0.37

    Average Balances:
    Total assets                 $742,910    $710,799   $741,242    $706,683
    Loans receivable, net of
     unearned income              512,746     487,137    512,247     480,045
    Interest-earning assets       647,389     613,899    646,158     610,500
    Deposits                      576,250     495,004    570,490     490,332
    Interest-bearing
     liabilities                  608,380     583,864    605,888     579,606
    Stockholders' equity           84,967      84,613     85,342      84,564

    At Period End:
    Total assets                 $755,486    $716,160   $755,486    $716,160
    Loans receivable, net of
     unearned income              535,699     504,499    535,699     504,449
    Interest-earning assets       668,138     626,109    668,138     626,109
    Deposits                      583,545     536,265    583,545     536,265
    Interest-bearing
     liabilities                  623,449     588,234    623,449     588,234
    Stockholders' equity           84,211      84,530     84,211      84,530



    Citizens South Banking Corporation
    Consolidated Statements of Financial Condition
    (dollars in thousands)

                                                    June 30,     December 31,
                                                      2007           2006
                                                   (unaudited)
      ASSETS

    Cash and due from banks                          $11,244        $17,581
    Interest-earning bank balances                     1,900          8,640
    Cash and cash equivalents                         13,144         26,221
    Investment securities available-for-sale,
     at fair value                                    67,833         65,326
    Mortgage-backed securities available-for-sale,
     at fair value                                    65,167         60,691
    Loans receivable, net unearned income            535,699        515,402
    Allowance for loan losses                         (6,128)        (5,764)
    Loans receivable, net                            529,571        509,638
    Real estate acquired through foreclosure, net        449            139
    Premises and equipment, net                       18,361         18,287
    Accrued interest receivable                        3,348          3,236
    Federal Home Loan Bank stock, at cost              3,223          3,581
    Intangible assets                                 31,339         31,666
    Bank owned life insurance                         15,751         15,527
    Other assets                                       7,300          9,058

    Total assets                                    $755,486       $743,370

      LIABILITIES AND STOCKHOLDERS' EQUITY

    Liabilities:
    Demand deposit accounts                          $92,564        $90,540
    Money market deposit accounts                    129,561        117,632
    Savings accounts                                  14,583         16,027
    Time deposits                                    346,837        338,603
    Total deposits                                   583,545        562,802
    Borrowed money                                    78,699         85,964
    Deferred compensation                              5,172          5,724
    Other liabilities                                  3,859          2,919
    Total liabilities                                671,275        657,409

    Stockholders' Equity:
    Common stock issued and outstanding, $0.01 par
     value, 20,000,000 shares authorized, 9,062,727
     issued at June 30, 2007, and December 31, 2006,
     and 7,886,457 shares outstanding at June 30, 2007,
     and 8,111,659 shares outstanding at December 31,
     2006                                                 91             91
    Additional paid-in-capital                        68,592         68,578
    Unallocated common stock held by Employee
     Stock Ownership Plan                             (1,339)        (1,430)
    Unearned compensation related to Recognition
     and Retention Plan                               (1,117)        (1,139)
    Retained earnings, substantially restricted       34,586         33,031
    Accumulated unrealized loss on securities
     available-for-sale, net of tax                   (1,787)          (991)
    Treasury stock of 1,176,270 shares at
     June 30, 2007, and 951,068 shares at
     December 31, 2006                               (14,815)       (12,179)
    Total stockholders' equity                        84,211         85,961

    Total liabilities and stockholders' equity      $755,486       $743,370



    Citizens South Banking Corporation
    Consolidated Statements of Operations (unaudited)
    (in thousands, except per share data)

                                     Three Months           Six Months
                                    Ended June 30,         Ended June 30,
                                  2007         2006       2007       2006
    Interest income
    Loans                        $10,061      $9,193    $19,954    $17,697
    Investment securities            691         499      1,359        991

    Interest-bearing deposits        137         124        270        276
    Mortgage-backed and related
     securities                      696         667      1,367      1,383
        Total interest income     11,585      10,483     22,950     20,347

    Interest Expense
    Deposits                       5,591       4,216     10,931      7,944
    Borrowed funds                   922       1,053      1,900      2,090
    Total interest expense         6,513       5,269     12,831     10,034

    Net interest income            5,072       5,214     10,119     10,313
    Provision for loan losses        330         280        660        565
    Net interest income after
     provision for loan losses     4,742       4,934      9,459      9,748

    Noninterest Income
    Fee income on deposit accounts   693         736      1,347      1,414
    Fee income on mortgage
     banking activities              277         115        510        193
    Fee income on lending
     activities                      133         141        242        312
    Dividends on FHLB stock           46          57         96        111
    Increase in cash value of
     bank-owned life insurance       178         167        387        414

    Fair value adjustment on
     deferred compensation assets     21        (21)         58         43
    Life insurance proceeds, net     112           -        112          -
    Net gain / (loss) on sale of
     assets                          332           9        336       (47)
    Other noninterest income         196         165        429        343
         Total noninterest income  1,988       1,369      3,517      2,783

    Noninterest Expense
    Compensation and benefits      2,363       2,201      4,706      4,580
    Fair value adjustment on
     deferred compensation
     obligation                       21        (21)         58         43
    Occupancy and equipment
     expense                         672         667      1,340      1,379
    Professional services            153         134        276        304
    Amortization of intangible
     assets                          162         186        327        372
    Impairment of investments        162           -        162          -
    Merger and integration related
     expenses                          -           -          -         57
    Other noninterest expenses     1,084       1,114      2,033      2,092
         Total noninterest
          expense                  4,617       4,281      8,902      8,827

    Income before income taxes     2,113       2,022      4,074      3,704

    Provision for income taxes       524         675      1,085      1,170

    Net income                    $1,589      $1,347     $2,989     $2,534

    Basic earnings per share       $0.21       $0.17      $0.38      $0.31

    Diluted earnings per share     $0.20       $0.17      $0.38      $0.31

    Basic average common shares
     outstanding               7,750,385   8,049,042  7,810,089  8,053,954
    Diluted average common
     shares outstanding        7,816,793   8,123,232  7,881,287  8,131,987

Source: Citizens South Banking Corporation