UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003.
|_| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________
Commission File Number 0-23971
Citizens South Banking Corporation
(Exact name of registrant as specified in its charter)
Delaware 54-2069979
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
245 West Main Avenue, Gastonia, North Carolina 28052-4140
(Address of principal executive offices)
Registrant's telephone number, including area code: (704)-868-5200
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check |X| whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check |X| whether the Registrant is an accelerated filer.
Yes |_| No |X|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common stock, $0.01 par value
8,926,908 shares outstanding as of August 12, 2003.
Citizens South Banking Corporation
INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements ......................... 1
Consolidated Statements of Financial Condition
June 30, 2003 and December 31, 2002 .................... 1
Consolidated Statements of Operations
three and six months ended June 30, 2003 and 2002 ........ 2
Consolidated Statements of Comprehensive Income
six months ended June 30, 2003 and 2002 .................. 3
Consolidated Statements of Changes in Stockholders' Equity
six months ended June 30, 2003 and 2002 .................. 4
Consolidated Statements of Cash Flows
six months ended June 30, 2003 and 2002 .................. 5
Notes to Consolidated Financial Statements ................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................. 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. Controls and Procedures ................................... 16
PART II. OTHER INFORMATION ................................................. 17
SIGNATURES ................................................................. 19
Exhibit 31.1 Certification of Chief Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 ............. 20
Exhibit 31.2 Certification of Chief Financial Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 ............. 21
Exhibit 32.1 Statement of Chief Executive Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 ............. 22
Exhibit 32.2 Statement of Chief Financial Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 ............. 23
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Citizens South Banking Corporation
Consolidated Statements of Financial Condition
(in thousands, except per share data)
June 30, December 31,
2003 2002
------------ ------------
(unaudited)
Assets:
Cash and due from banks .................................................. $ 7,796 $ 7,607
Interest-earning bank balances ........................................... 28,062 39,392
------------ ------------
Cash and cash equivalents ............................................. 35,858 46,999
Investment securities available-for-sale, at fair value .................. 29,089 39,594
Mortgage-backed and related securities available-for-sale, at fair value . 96,219 70,409
Loans receivable, net unearned income .................................... 301,759 302,901
Allowance for loan losses ................................................ (3,002) (2,995)
------------ ------------
Loans, net ............................................................ 298,757 299,906
Real estate owned ........................................................ 146 1,307
Accrued interest receivable .............................................. 1,829 1,912
Premises and equipment, net .............................................. 12,890 8,807
Federal Home Loan Bank stock ............................................. 2,575 2,639
Cash value of life insurance policies .................................... 10,098 6,834
Core deposit intangible .................................................. 1,252 1,484
Goodwill ................................................................. 6,671 6,671
Other assets ............................................................. 5,833 6,005
------------ ------------
Total assets .......................................................... $ 501,217 $ 492,567
============ ============
Liabilities and Stockholders' Equity:
Noninterest demand deposit accounts ...................................... $ 13,053 $ 11,203
Interest-bearing demand deposit accounts ................................. 28,774 25,773
Money market deposit accounts ............................................ 42,939 35,811
Savings accounts ......................................................... 39,284 43,670
Time deposits ............................................................ 220,964 224,405
------------ ------------
Total deposits ........................................................ 345,014 340,862
Borrowed money ........................................................... 52,671 47,575
Advances from borrowers for taxes and insurance .......................... 911 440
Accrued interest payable ................................................. 315 382
Other liabilities ........................................................ 7,053 6,925
------------ ------------
Total liabilities ..................................................... 405,964 396,184
Common stock, $0.01 par value, 20,000,000 shares authorized, 8,926,908
shares issued and outstanding at June 30, 2003, 9,062,727 shares issued
and outstanding at December 31, 2002 .................................. 88 91
Additional paid-in-capital ............................................... 68,304 68,176
Unallocated common stock held by Employee Stock Ownership Plan ........... (2,070) (2,161)
Retained earnings, substantially restricted .............................. 29,991 28,739
Accumulated unrealized gain on securities available-for-sale, net of tax . 1,663 1,538
Treasury stock of 135,819 shares at cost ................................. (2,723) 0
------------ ------------
Total stockholders' equity ............................................ 95,253 96,383
------------ ------------
Total liabilities and stockholders' equity ............................... $ 501,217 $ 492,567
============ ============
See accompanying notes to consolidated financial statements.
1
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,
-------------- --------------
2003 2002 2003 2002
---- ---- ---- ----
Interest Income:
Loans ................................................. $ 4,364 $ 5,425 $ 8,833 $ 11,013
Investment securities ................................. 272 357 689 679
Interest-bearing deposits ............................. 73 113 162 215
Mortgage-backed and related securities ................ 936 297 1,864 585
----------- ----------- ----------- -----------
Total interest income ............................... 5,645 6,192 11,548 12,492
Interest Expense:
Deposits .............................................. 1,693 1,992 3,434 4,118
Borrowed funds ........................................ 593 547 1,180 1,098
----------- ----------- ----------- -----------
Total interest expense .............................. 2,286 2,539 4,614 5,216
----------- ----------- ----------- -----------
Net interest income ................................... 3,359 3,653 6,934 7,276
Provision for loan losses ............................. 15 70 30 135
----------- ----------- ----------- -----------
Net interest income after provision for loan losses . 3,344 3,583 6,904 7,141
Noninterest Income:
Fee income on deposit accounts ........................ 621 571 1,178 1,093
Income on mortgage banking and other lending activities 267 171 513 314
Dividends on FHLB stock ............................... 27 44 58 99
Gain on sale of assets ................................ 45 21 60 109
Fair value adjustment on Rabbi trust assets ........... 156 (70) 187 (51)
Other noninterest income .............................. 242 167 447 358
----------- ----------- ----------- -----------
Total noninterest income ............................ 1,358 904 2,443 1,922
Noninterest Expense:
Compensation and benefits ............................. 1,498 1,311 2,986 2,698
Fair value adjustment on deferred compensation ........ 156 (70) 187 (51)
Occupancy and equipment expense ....................... 318 349 643 710
Professional services ................................. 211 99 332 178
Amortization of intangible assets ..................... 106 252 232 608
Loss on sale of assets ................................ 3 17 13 16
Other noninterest expenses ............................ 839 752 1,501 1,585
----------- ----------- ----------- -----------
Total noninterest expense ........................... 3,131 2,710 5,894 5,744
Income before income taxes ............................ 1,571 1,777 3,453 3,319
Provision for income taxes ............................ 447 647 1,122 1,197
----------- ----------- ----------- -----------
Net income ............................................ $ 1,124 $ 1,130 $ 2,331 $ 2,122
=========== =========== =========== ===========
Basic earnings per share .............................. $ 0.13 $ 0.13 $ 0.27 $ 0.24
Diluted earnings per share ............................ $ 0.13 $ 0.13 $ 0.26 $ 0.24
Basic average common shares outstanding ............... 8,660,195 8,776,726 8,708,740 8,731,925
Diluted average common shares outstanding ............. 8,808,915 8,923,672 8,840,222 8,735,209
See accompanying notes to consolidated financial statements.
2
Citizens South Banking Corporation
Consolidated Statements of Comprehensive Income (unaudited)
(in thousands)
Six Months Ended
June 30,
----------------------
2003 2002
--------- ---------
Net income ......................................................... $ 2,331 $ 2,122
Other comprehensive income, net of tax:
Unrealized gains on securities available for sale:
Unrealized holding gains arising during period ............. 152 178
Reclassification adjustment for (gains) included in net income (27) (45)
--------- ---------
Other comprehensive income ..................................... 125 133
--------- ---------
Comprehensive income ............................................... $ 2,456 $ 2,255
--------- ---------
See accompanying notes to consolidated financial statements.
3
Citizens South Banking Corporation
Consolidated Statements of Changes in Stockholders' Equity (unaudited)
(in thousands)
Six Months Ended
June 30,
----------------------
2003 2002
--------- ---------
Common stock:
At beginning of period .................................................. $ 91 $ 4,581
Repurchase of common stock .............................................. (2) 0
Exercise of options ..................................................... (1) 0
--------- ---------
At end of period ........................................................ 88 4,581
--------- ---------
Additional paid-in-capital:
At beginning of period .................................................. 68,176 16,843
Allocation from shares purchased with loan from ESOP .................... 3 0
Exercise of options ..................................................... 125 0
--------- ---------
At end of period ........................................................ 68,304 68,176
--------- ---------
Unallocated common stock held by ESOP:
At beginning of period .................................................. (2,161) (1,240)
Allocation from shares purchased with loan from ESOP .................... 91 57
--------- ---------
At end of period ........................................................ (2,070) (1,183)
--------- ---------
Retained earnings, substantially restricted:
At beginning of period .................................................. 28,739 25,105
Net income .............................................................. 2,331 2,122
Cash dividends declared on common stock ................................. (1,079) (280)
--------- ---------
At end of period ........................................................ 29,991 26,947
--------- ---------
Accumulated unrealized gain on securities available for sale, net of tax:
At beginning of period .................................................. 1,538 1,116
Other comprehensive results, net of tax ................................. 125 133
--------- ---------
At end of period ........................................................ 1,663 1,249
--------- ---------
Treasury Stock:
At beginning of period .................................................. 0 (4,776)
Repurchase of common stock .............................................. (2,723) 0
--------- ---------
At end of period ........................................................ (2,723) (4,776)
--------- ---------
See accompanying notes to consolidated financial statements.
4
Citizens South Banking Corporation
Consolidated Statements of Cash Flows (unaudited)
(in thousands)
Six Months Ended
June 30,
--------------------
2003 2002
-------- --------
Cash flows from operating activities:
Net income ...................................................................... $ 2,331 $ 2,122
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses ................................................... 30 135
Depreciation ................................................................ 322 413
(Gain) on sale of investments, available for sale ........................... (42) (70)
(Gain) on sale of other assets .............................................. (4) (23)
Purchase of bank-owned life insurance ....................................... (3,000) 0
Deferred loan origination fees .............................................. (83) (43)
Allocation of shares to the ESOP ............................................ 94 57
(Increase) decrease in accrued interest receivable .......................... 84 (211)
Amortization of intangible assets ........................................... 232 608
(Increase) decrease in other assets ......................................... (278) 3,451
Increase (decrease) in other liabilities .................................... 313 (2,684)
-------- --------
Net cash provided by (used for) operating activities ...................... (1) 3,755
Cash flows from investing activities:
Net decrease in loans receivable ................................................ 1,202 11,868
Proceeds from the sale of loans ................................................. 0 1,361
Proceeds from the sale of investment securities ................................. 7,000 2,000
Proceeds from the sale of mortgage-backed securities ............................ 525 3,066
Proceeds from the sale of other assets .......................................... 1,040 156
Maturities and prepayments of investment securities ............................. 10,008 926
Maturities and prepayments of mortgage-backed securities ........................ 12,037 7,424
Purchases of investments ........................................................ (6,850) (10,000)
Purchases of mortgage-backed securities ......................................... (37,779) (10,995)
Sale of FHLB stock .............................................................. 65 503
Capital expenditures for premises and equipment ................................. (4,428) (284)
-------- --------
Net cash provided by (used for) investment activities ..................... (17,180) 6,025
Cash flows from financing activities:
Net increase (decrease) in deposits ............................................. 4,152 (6,864)
Exercise of options ............................................................. 125 0
Repurchase of common stock ...................................................... (2,725) 0
Dividends paid to stockholders .................................................. (1,079) (280)
Net increase (decrease) in borrowed money ....................................... 5,096 (1,531)
Increase in advances from borrowers for insurance and taxes ..................... 471 735
-------- --------
Net cash provided by (used for) financing activities ...................... 6,040 (7,940)
Net increase (decrease) in cash and cash equivalents .............................. (11,141) 1,840
Cash and cash equivalents at beginning of period .................................. 46,999 20,939
-------- --------
Cash and cash equivalents at end of period ........................................ $ 35,858 $ 22,779
======== ========
See accompanying notes to consolidated financial statements.
5
CITIZENS SOUTH BANKING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
In management's opinion, the accompanying consolidated financial
statements, which are unaudited, reflect all adjustments, consisting solely of
normal recurring accruals, necessary for a fair presentation of the financial
information as of and for the three- and six-month periods ended June 30, 2003
and 2002, in conformity with accounting principles generally accepted in the
United States of America. Results for the three and six months ended June 30,
2003, are not necessarily indicative of the results that may be expected for the
year ending December 31, 2003.
The consolidated financial statements include the accounts of Citizens
South Banking Corporation (the "Company") and the Company's wholly-owned
subsidiary, Citizens South Bank (the "Bank").
Per share amounts and average shares outstanding have been adjusted to
reflect the 2.1408-for-1 exchange ratio used in the stock offering that closed
on September 30, 2002, discussed in Note 2.
The organization and business of the Company, accounting policies
followed, and other related information are contained in the notes to the
consolidated financial statements of the Company as of and for the years ended
December 31, 2002, 2001, and 2000, filed as part of the Company's annual report
on Form 10-K. These consolidated financial statements should be read in
conjunction with the annual consolidated financial statements.
The Company's critical accounting policy relates to the evaluation of the
allowance for loan losses which is based on management's opinion of an amount
that is adequate to absorb losses in the Company's existing portfolio. The
allowance for loan losses is established through a provision for loan losses
based on available information including the composition of the loan portfolio,
historical loan losses, specific impaired loans, availability and quality of
collateral, age of the various portfolios, changes in local economic conditions,
and loan performance and quality of the portfolio. Different assumptions used in
evaluating the adequacy of the Company's allowance for loan losses could result
in material changes in the Company's consolidated financial condition or
consolidated financial results of operations. The Company's policies with
respect to the methodology for determining the allowance for loan losses involve
a higher degree of complexity and require management to make subjective
judgments that often require assumptions or estimates about uncertain matters.
These critical policies and their assumptions are periodically reviewed with the
Board of Directors.
In accordance with SFAS No. 123, Accounting for Stock-Based Compensation,
as amended by SFAS No. 148, Accounting for Stock-Based Compensation - Transition
and Disclosure - An Amendment of FASB Statement No. 123, the Company has adopted
the disclosure-only option and elected to apply the provisions of APB No. 25 for
financial statement purposes. As such, no stock-based employee compensation cost
is reflected in net income for these plans.
6
Pro forma information regarding net income and earnings per share have
been determined as if the Company had accounted for its employee stock options
using the fair value method, and is presented below (note that earnings per
share numbers for the three and six months ended June 30, 2002, have been
adjusted to reflect the exchange ratio of 2.1408-to-1):
Three months ended Six Months ended
June 30, June 30,
----------------------- ----------------------
2003 2002 2003 2002
---- ---- ---- ----
Net income (in thousands):
As reported $ 1,124 $ 1,130 $ 2,331 $ 2,122
Deduct: Total stock-based employee
compensation cost determined under
the fair value method, net of tax (85) (17) (117) (35)
--------- --------- --------- ---------
Pro forma $ 1,039 $ 1,113 $ 2,214 $ 2,087
--------- --------- --------- ---------
Basic earnings per share:
As reported $ 0.13 $ 0.13 $ 0.27 $ 0.24
Pro forma $ 0.12 $ 0.13 $ 0.25 $ 0.24
Diluted earnings per share:
As reported $ 0.13 $ 0.13 $ 0.26 $ 0.24
Pro forma $ 0.12 $ 0.12 $ 0.25 $ 0.24
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for the three- and six-month periods ending June 30, 2003 and
2002: dividend yield of 3.27%, expected volatility of 20%, risk-free investment
rate of 5.0%, and expected lives of 7 years.
Note 2 - Mutual-to-Stock Conversion and Related Stock Offering
On September 30, 2002, the mutual-to-stock conversion of Citizens South
Holdings, MHC, the mutual holding company (the "Mutual Holding Company") of
Citizens South Banking Corporation, the predecessor of the Company, and the
related stock offering of the Mutual Holding Company's ownership interest in
Citizens South Banking Corporation were completed. In conjunction with the stock
offering, the Company sold 5,259,945 shares of common stock at $10.00 per share.
Net proceeds from the stock offering amounted to $45.6 million.
Prior to the completion of the conversion, the Mutual Holding Company
owned 2,457,007 shares, or approximately 58.4% of the outstanding shares of
common stock in Citizens South Banking Corporation. Upon conversion, each share
of the $1.00 par value per share, common stock of Citizens South Banking
Corporation held by the public was exchanged for 2.1408 shares of $0.01 par
value per share, common stock of the Company which preserved the previous
shareholders' ownership interest in Citizens South Banking Corporation. As a
result, all historical financial information that is based on or derived from
the actual or average number of outstanding shares of common stock during any
period prior to September 30, 2002, has been appropriately adjusted to reflect
the exchange ratio of 2.1408-to-1. The conversion was accounted for as a change
in corporate form with no subsequent change in historical basis for the
Company's assets, liabilities, and equity. A special liquidation account is
maintained for the benefit of eligible account holders in the unlikely event of
a complete liquidation of the Company, as defined in the plan of conversion.
7
Note 3 - Use of Estimates
The financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America which require
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Note 4 - Earnings per Share
Earnings per share has been determined under the provisions of the
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per
Share. For the quarters ended June 30, 2003 and 2002, basic earnings per share
has been computed based upon the weighted average common shares outstanding of
8,660,195 and 8,776,726, respectively. For the six months ended June 30, 2003
and 2002, basic earnings per share has been computed based upon the weighted
average common shares outstanding of 8,708,740 and 8,731,925, respectively
The only potential stock of the Company, as defined in Statement of
Financial Accounting Standards No. 128, Earnings Per Share, is stock options
granted to various directors and officers of the Bank. The following is a
summary of the diluted earnings per share calculation for the three and six
months ended June 30, 2003 and 2002 (in thousands, except share and per share
data):
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2003 2002 2003 2002
---- ---- ---- ----
Net income .................................. $ 1,124 $ 1,130 $ 2,331 $ 2,122
Weighted average outstanding shares ......... 8,660,195 8,776,726 8,708,740 8,731,925
Dilutive effect of stock options ............ 148,720 146,946 131,482 3,284
---------- ---------- ---------- ----------
Weighted average diluted shares ............. 8,808,915 8,923,672 8,840,222 8,735,209
Diluted earnings per share .................. $ 0.13 $ 0.13 $ 0.26 $ 0.24
Note 5 - Stock Compensation Plans
On April 12, 1999, the Company's shareholders approved the Citizens South
Bank 1999 Stock Option Plan that provided for the issuance of 211,335 options
for directors and officers to purchase the Company's common stock. Pursuant to
the conversion, the 211,335 options to purchase shares of common stock under the
1999 Stock Option Plan were converted for 452,425 options, with the exercise
prices of the previously granted options adjusted according to the same
2.1408-to-1 ratio. As of June 30, 2003, 306,220 options were issued and
unexercised, including 45,034 reload options. Also, 170,705 options had been
exercised and 20,534 options were unissued. The issued and unexercised options
had a converted weighted average exercise price of $6.70 and a weighted average
contractual life of 71 months. There were 282,671 options fully vested as of
June 30, 2003, of which 68% were incentive options and 32% were non-statutory
stock options.
Note 6 - Dividend Declaration
On July 21, 2003, the Board of Directors of the Company approved and
declared a regular cash dividend of $0.06 per share of common stock to
shareholders of record as of August 1, 2003 and payable on August 15, 2003.
8
Note 7 - Impact of Recently Issued Accounting Standards
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities,
was issued in June 2002 and addresses financial accounting and reporting for
costs associated with exit or disposal activities. This statement is effective
for exit or disposal activities initiated after December 31, 2002; its adoption
effective January 1, 2003 did not have a material impact on the financial
statements of the Company.
SFAS No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure - An Amendment of FASB Statement No. 123, was issued in December 2002
and provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The disclosure requirements of
this statement are effective for fiscal years ending after December 15, 2002 and
are included in these interim financial statements.
SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities, was issued in April 2003 and amends SFAS No. 133 for certain
decisions made by the Financial Accounting Standards Board as part of the
Derivatives Implementation Group process and to clarify the definition of a
derivative. This statement is effective for contracts entered into or modified
after June 30, 2003, except for certain specific issues already addressed by the
Derivatives Implementation Group and declared effective that are included in the
statement. The adoption of the provisions of this statement is not expected to
have a material impact on the financial statements of the Company.
SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity, was issued in May 2003 and establishes standards
for how to classify and measure certain financial instruments with
characteristics of both liabilities and equity. This statement is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. The adoption of the provisions of this statement is not expected to
have a material impact on the financial statements of the Company.
FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Guarantees of Indebtedness of Others an interpretation
of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No.
34 was issued in November 2002 and elaborates on the disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. The adoption
of the provisions of this FASB Interpretation did not have a material impact on
the financial statements of the Company.
FASB Interpretation No. 46, Consolidation of Variable Interest Entities an
interpretation of ARB No. 51 was issued in January 2003 and addresses
consolidation by business enterprises of variable interest entities. The Company
does not have a variable interest entities as defined by this Interpretation and
therefore, the adoption of the provisions of this FASB Interpretation did not
have a significant effect on financial position or results of operations of the
Company.
9
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
From time to time, the Company may publish forward looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, and similar matters. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward looking statements provided that the Company notes that a variety of
factors could cause the Company's actual results to differ materially from the
anticipated results expressed in the Company's forward looking statements.
Factors that may cause actual results to differ materially from those projected
in the forward looking statements include, but are not limited to, general
economic conditions that are less favorable than expected, changes in market
interest rates that result in reduced interest margins, risks in the loan
portfolio, including prepayments, are greater than expected, legislation or
regulatory changes that have a less than favorable impact on the business of the
Company are enacted, and competitive pressures increase significantly.
Statements included in this report should be read in conjunction with the
Company's Annual Report on Form 10-K which is incorporated into this discussion
by this reference. Forward looking statements speak only as of the date they are
made and the Company does not undertake to update 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. Accordingly,
past results and trends should not be used by investors to anticipate future
results or trends.
Comparison of Financial Condition
Assets. Total assets of the Company increased by $8.6 million, or 1.8%,
from $492.6 million as of December 31, 2002, to $501.2 million as of June 30,
2003. This increase was primarily funded by an $9.2 million increase in deposits
and borrowings. During the six-month period, the Company invested excess
liquidity into mortgage-backed securities resulting in a $25.8 million, or
36.7%, increase in mortgage-backed securities to $96.2 million. This excess
liquidity was due to the $45.6 million in net proceeds received from the
September 30, 2002 stock offering and the increased level of prepayments on
residential mortgage loans. As a result of these historically high levels of
mortgage loan prepayments, net loans decreased by $1.1 million to $298.8
million. Most of these prepayments were concentrated in the one-to-four family
permanent residential mortgage loan portfolio, which decreased by $20.7 million,
or 13.9%, to $128.1 million. The portfolio of one-to-four family permanent
residential loans also decreased due to the fact that management typically
originates all new fixed-rate residential loans in the name of various third
party investors. By closing and funding these loans in the name of a third
party, the Company reduces its overall vulnerability to rising interest rates
and immediately recognizes fee income from the origination of these loans. In
addition, this program allows the Bank to offer a broader range of mortgage loan
products to its customers. During the same period, the combined gross portfolios
for all other loans, including residential construction, multifamily
residential, commercial mortgage, land, commercial business, and consumer loans,
increased by $18.8 million, or 11.8%, to $178.4 million. Management will
continue to seek to grow these loan portfolios in a safe and sound manner with
an emphasis on adjustable-rate loans or shorter-term fixed rate loans. Also
during the period, the Company sold a large parcel of real estate owned for $1.1
million, purchased a $2.0 million parcel of property to be used for a branch
relocation and a new corporate office with available outparcels, and purchased
$3.0 million in bank-owned life insurance. The Company also invested in the
completion of the Mooresville, NC, office that was completed in July 2003, and
the renovations of the Salisbury, NC, and Rockwell, NC offices that are expected
to be completed in August 2003.
10
Allowance for loan losses and nonperforming assets. The Company has
established a systematic methodology for determining the adequacy of the
allowance for loan losses. This methodology is set forth in a formal policy and
considers all loans in the portfolio. Specific allowances are established for
certain individual loans that management considers impaired. The remainder of
the portfolio is segmented into groups of loans with similar risk
characteristics for evaluation and analysis. Management's periodic evaluation of
the allowance is consistently applied and based on inherent losses in the
portfolio, past loan loss experience, risks inherent in the different types of
loans, the estimated value of any underlying collateral, current economic
conditions, the borrower's financial position, and other relevant internal and
external factors that may affect loan collectibility. The allowance for loan
losses is increased by charging provisions for loan losses against income. As of
June 30, 2003, the allowance for loan losses amounted to $3.0 million.
Management believes that this amount meets the requirement for losses on loans
that management considers to be impaired, for known losses, and for incurred
losses inherent in the remaining loan portfolios. Although management believes
that it uses the best information available to make such determinations, future
adjustments to the allowance for loan losses may be necessary and results of
operations could be significantly adversely affected if circumstances differ
substantially from the assumptions used in making the determinations. The
following table presents an analysis of changes in the allowance for loan losses
for the periods and information with respect to nonperforming assets at the
dates indicated.
At and For the Three At and For the Six
Months Ended June 30, Months Ended June 30,
------------------------ ------------------------
2003 2002 2003 2002
---- ---- ---- ----
(dollars in thousands) (dollars in thousands)
Allowance for loan losses:
Beginning of period ........... $ 3,000 $ 3,022 $ 2,995 $ 3,126
Add:
Provision for loan losses . 15 70 30 135
Recoveries ................ 0 1 2 2
Less:
Charge-offs ............... 13 0 25 170
---------- ---------- ---------- ----------
End of period ................. $ 3,002 $ 3,093 $ 3,002 $ 3,093
Nonaccrual loans .............. $ 802 $ 1,309 $ 802 $ 1,309
Real estate owned ............. 146 1,538 146 1,538
---------- ---------- ---------- ----------
Nonperforming assets .......... $ 948 $ 2,847 $ 948 $ 2,847
Allowance for loan losses as a
percentage of total loans 0.98% 0.94% 0.98% 0.94%
Nonperforming loans to
total loans .............. 0.26% 0.40% 0.26% 0.40%
Nonperforming assets to
total assets ............. 0.19% 0.65% 0.19% 0.65%
Interest income that would have been recorded for the six months ended
June 30, 2003 and 2002, had nonaccruing loans had been current in accordance
with their original terms amounted to $33,000 and $56,000, respectively.
11
Liabilities. Total liabilities increased by $9.8 million, or 2.5%, from
$396.2 million as of December 31, 2002, to $406.0 million as of June 30, 2003.
This increase was primarily due to a $5.1 million increase in borrowed money and
a $4.1 million increase in total deposits. During the quarter the Company repaid
a $5.0 million Federal Home Loan Bank adjustable rate advance and replaced these
funds with $10.0 million of fixed rate advances. These additional borrowed funds
were used to purchase mortgage-backed securities. Total borrowings, including
repurchase agreements, increased $5.1 million, or 10.7%, to $52.7 million. Also
during the quarter, total deposits increased by $4.1 million, or 1.2%. Core
deposits, which include checking accounts, savings accounts, and money market
deposit accounts, increased by $7.5 million, or 6.4%, to $124.0 million as of
June 30, 2003. These increases were partly offset by a $3.4 million decrease in
higher-costing time deposits to $221.0 million. Management plans to continue in
its efforts to gain deposit market share through new product development and
branch expansion with an emphasis on core deposits.
Equity. Total equity decreased by $1.1 million, or 1.1%, from $96.4
million as of December 31, 2002, to $95.3 million as of June 30, 2003. The
decrease in equity was primarily due to the repurchase of 210,000 shares of
common stock for $2.7 million, at an average cost of $12.93 per share. The
Company received regulatory approval to repurchase 343,027 shares of common
stock on March 28, 2003, for purposes of acquiring shares for its stock option
plan. As of June 30, 2003, the Company had the authority to repurchase 133,027
additional shares of common stock. Management will consider repurchasing
additional shares of common stock of the Company at prices that are considered
to be attractive and in the best interests of both the Company and its
investors. In addition, the Company paid cash dividends totaling $1.1 million
during the six-month period, representing $0.12 per share. These decreased in
equity were partially offset by $2.3 million in earnings and a $125,000 increase
in accumulated unrealized gains on available-for-sale securities.
Comparison of Results of Operations for the Three Months Ended June 30,
2003 and 2002
General. Net income for the Company for the three months ended June 30,
2003, amounted to $1.1 million, or $0.13 per share, as compared to $1.1 million,
or $0.13 per share, for the three months ended June 30, 2002.
Net interest income. Net interest income decreased by $294,000, or 8.1%,
to $3.4 million for the three months ended June 30, 2003. Interest income
decreased by $548,000, or 8.8%, primarily as a result of a 122 basis point, or
19.5%, decrease in the average yield on earning assets to 5.05%. The decrease in
yield was partially offset by a $49.2 million, or 12.1%, increase in the average
outstanding balance of interest earning assets to $454.7 million. The increase
in average interest earning assets was primarily due to the $45.6 million in net
proceeds received from the stock offering that closed on September 30, 2002 as
described in Note 2. Interest expense decreased by $253,000, or 10.0%, during
the period. This reduction in interest expense was due to a 30 basis point, or
11.2%, reduction in the average cost of funds to 2.39%, and a $4.5 million, or
1.2%, increase in the average balance of interest-bearing liabilities to $383.4
million. Average interest-bearing liabilities increased primarily as a result of
an increase in borrowed money that was used to purchase mortgage-backed
securities. The net interest margin for the Company was 3.32% for the quarter
ended June 30, 2002, compared to 2.69% for the quarter ended June 30, 2003. The
net interest margin decreased primarily as a result of an increased level of
mortgage loan refinancings and decreases in the yield on prime-based consumer
and commercial loans.
Provision for loan losses. The provision for loan losses amounted to
$15,000 for the three months ended June 30, 2003, compared to $70,000 for the
three months ended June 30, 2002. The amount of the provision for loan losses
was reduced, in part, due to a reduction in the amount of outstanding loans
resulting from the increased level of residential loan prepayments. Management
establishes the provision for loan losses based on available information
including the composition of the loan portfolio, historical loan losses,
specific
12
impaired loans, availability and quality of collateral, age of the various
portfolios, changes in local economic conditions, and loan performance and
quality of the portfolio. There have been no material changes in management's
methods for determining the provision for loan losses during the past year. The
allowance for loan losses was $3.0 million, or 0.98% of gross loans, as of June
30, 2003, compared to $3.1 million, or 0.94% of gross loans, as of June 30,
2002. The ratio of the allowance for loan losses to gross loans has increased
during the past year due, in part, to the increased concentration of commercial
real estate and commercial business loans during the past year. Future loan loss
provisions will be made based on management's analysis and review of the
information cited above.
Noninterest income. Noninterest income increased to $1.4 million for the
three months ended June 30, 2003, as compared to $904,000 for the three months
ended June 30, 2002. This represents an increase of $454,000, or 50.2%. This
increase was primarily due to a $226,000 increase in the fair value adjustment
on Rabbi trust assets, which is offset by a corresponding charge against
noninterest expense. Also, fee income derived from lending and mortgage banking
activities increased $96,000, or 56.1%, due to higher residential loan
originations resulting from historically low interest rates. These loans are
generally originated on behalf of a third party and all fees collected are
recognized as current period income. Income on deposit accounts increased
$50,000, or 8.7%, due, in part, to the increased number of fee-generating demand
deposit accounts. Management plans to continue in its efforts to increase its
outstanding balance of fee-generating demand deposit accounts through targeted
advertising and branch expansion. Other noninterest income increased $91,000, or
75.7%, due, in part, to income derived from the increase in cash value on a $3.4
million increase in bank-owned life insurance.
During the quarter ended June 30, 2003, the Company recognized a gain of
$45,000 resulting primarily from the sale of a $5.0 million investment security
that was expected to be called during the quarter. During the quarter ended June
30, 2002, the Company recognized a gain of $21,000 resulting primarily from the
sale of $1.7 million in investment securities.
Noninterest expense. Noninterest expense amounted to $3.1 million for the
quarter ended June 30, 2003, compared to $2.7 million for the quarter ended June
30, 2002, representing an increase of $421,000, or 15.5%. This increase was
largely due to a $226,000 increase in the fair value adjustment on deferred
compensation, which is offset by a corresponding increase in noninterest income.
Compensation and benefits increased $188,000, or 14.4%, due, in part, to
increased staffing associated with the opening of the Company's tenth
full-service office in Mooresville, North Carolina, in July 2003. Professional
services increased $111,000, or 112.2%, due to additional outside services being
needed to operate a fully-public company and to ensure proper corporate
governance in light of new regulatory requirements. Other noninterest expenses
increased $117,000, or 20.2%, due in part to increased communication expenses
for upgrading existing systems and increased stock expenses. These increases
were offset by a $146,000 reduction in the amortization of the core deposit
premium. The core deposit intangible, created as a result of the Company's
acquisition of Innes Street Financial Corporation ("Innes Street") in December
2001, is being amortized over a seven-year period using the accelerated method.
Also, the Company realized a $26,000 reduction in advertising expense and a
$31,000 reduction in occupancy and equipment expense due to expenses incurred in
2002 as a result of the change in the name of the Company from Gaston Federal
Bancorp, Inc, to Citizens South Banking Corporation and the acquisition of Innes
Street.
Income taxes. Income taxes amounted to $447,000, or 28.5% of taxable
income, for the quarter ended June 30, 2003, as compared to $647,000, or 36.4%
of taxable income, for the quarter ended June 30 2002. This reduction in the
effective tax rate is primarily due to the benefits derived for owning an
increased amount of tax-advantaged assets such as municipal securities,
bank-owned life insurance, and government agency securities.
13
Comparison of Results of Operations for the Six Months Ended June 30, 2003 and
2002
General. Net income for the Company for the six months ended June 30,
2003, amounted to $2.3 million, or $0.26 per share, as compared to $2.1 million,
or $0.24 per share, for the six months ended June 30, 2002. This represents a
9.8% increase in net income and an 8.3% in earnings per share during the
comparable periods.
Net interest income. Net interest income decreased by $343,000, or 4.7%,
to $6.9 million for the six months ended June 30, 2003. Interest income
decreased by $944,000, or 7.6%, primarily as a result of a 116 basis point, or
18.3%, decrease in the average yield on earning assets to 5.17%. The decrease in
yield was partially offset by a $54.7 million, or 13.7%, increase in the average
outstanding balance of interest earning assets to $453.9 million. The increase
in average interest earning assets was primarily due to the $45.6 million in net
proceeds received from the stock offering that closed on September 30, 2002, as
described in Note 2. Interest expense decreased by $602,000, or 11.5%, during
the comparable period. This reduction in interest expense was due to a 29 basis
point, or 10.6%, reduction in the average cost of funds to 2.46%, and a $3.2
million, or 0.9%, decrease in the average balance of interest-bearing
liabilities to $379.1 million. Average interest-bearing liabilities decreased
primarily as a result of a decrease in deposits following the Innes Street
acquisition. Many of these deposits were higher costing time deposits that were
not renewed following maturity. The net interest margin for the Company was
3.29% for the six months ended June 30, 2002, compared to 2.79% for the six
months ended June 30, 2003. The net interest margin decreased primarily as a
result of an increased level of mortgage loan refinancings and decreases in the
yield on prime-based consumer and commercial loans.
Provision for loan losses. The provision for loan losses amounted to
$30,000 for the six months ended June 30, 2003, compared to $135,000 for the six
months ended June 30, 2002. The amount of the provision for loan losses was
reduced, in part, due to a reduction in the amount of outstanding loans
resulting from the increased level of residential loan prepayments. Management
establishes the provision for loan losses based on available information
including the composition of the loan portfolio, historical loan losses,
specific impaired loans, availability and quality of collateral, age of the
various portfolios, changes in local economic conditions, and loan performance
and quality of the portfolio. There have been no material changes in
management's methods for determining the provision for loan losses during the
past year. The allowance for loan losses was $3.0 million, or 0.98% of gross
loans, as of June 30, 2003, compared to $3.1 million, or 0.94% of gross loans,
as of June 30, 2002. The ratio of the allowance for loan losses to gross loans
has increased during the past year due, in part, to the increased concentration
of commercial real estate and commercial business loans during the past year.
Future loan loss provisions will be made based on management's analysis and
review of the information cited above.
Noninterest income. Noninterest income increased to $2.4 million for the
six months ended June 30, 2003, as compared to $1.9 million for the six months
ended June 30, 2002. This represents an increase of $520,000, or 27.1%. This
increase was primarily due to a $238,000 increase in the fair value adjustment
on Rabbi trust assets, which is offset by a corresponding charge against
noninterest expense. Also, fee income derived from lending and mortgage banking
activities increased $199,000, or 63.4%, due to higher residential loan
originations resulting from historically low interest rates. These loans are
generally originated on behalf of a third party and all fees collected are
recognized as current period income. Income on deposit accounts increased
$85,000, or 7.8%, due, in part, to the increased number of fee-generating demand
deposit accounts. Management plans to continue in its efforts to increase its
outstanding balance of fee-generating demand deposit accounts through targeted
advertising and branch expansion. Other noninterest income increased $121,000,
14
or 45.6%, due, in part, to income derived from the increase in cash value on a
$3.4 million increase in bank-owned life insurance.
During the six months ended June 30, 2003, the Company recognized a gain
of $60,000 resulting primarily from the sale of a $5.0 million investment
security. During the six months ended June 30, 2002, the Company recognized a
gain of $109,000 resulting primarily from the sale of $3.1 million in
mortgage-backed securities, $2.0 million in investment securities, and $1.4
million in fixed-rate residential loans.
Noninterest expense. Noninterest expense amounted to $5.9 million for the
six months ended June 30, 2003, compared to $5.7 million for the six months
ended June 30, 2002, representing an increase of $149,000, or 2.6%. This
increase was largely due to a $238,000 increase in the fair value adjustment on
deferred compensation, which is offset by a corresponding increase in
noninterest income. Compensation and benefits increased $289,000, or 10.7%, due,
in part, to increased staffing associated with the opening of the Company's
tenth full-service office in Mooresville, North Carolina, in July 2003.
Professional services increased $153,000, or 86.1%, due to additional outside
services being needed to operate a fully-public company and to ensure proper
corporate governance in light of new regulatory requirements. Other noninterest
expenses increased $74,000, or 6.3%, due in part to increased communication
expenses for upgrading existing systems and increased stock expenses. These
increases were offset by a $376,000 reduction in the amortization of the core
deposit premium. The core deposit intangible, created as a result of the
Company's acquisition of Innes Street in December 2001, is being amortized over
a seven-year period using the accelerated method. Also, the Company realized a
$75,000 reduction in data processing expense, a $18,000 reduction in advertising
expense and a $31,000 reduction in occupancy and equipment expense due to
expenses incurred in 2002 as a result of the change in the name of the Company
from Gaston Federal Bancorp, Inc, to Citizens South Banking Corporation and the
acquisition of Innes Street Financial Corporation.
Income taxes. Income taxes amounted to $1.1 million, or 32.5% of taxable
income, for the six months ended June 30, 2003, as compared to $1.2 million, or
36.1% of taxable income, for the six months ended June 30 2002. This reduction
in the effective tax rate is primarily due to the benefits derived for owning an
increased amount of tax-advantaged assets such as municipal securities,
bank-owned life insurance, and government agency securities.
Liquidity, Market Risk, and Capital Resources
The objective of the Company's liquidity management policy is to ensure
the availability of sufficient funds to meet the cash needs of borrowers and
depositors and to provide funds necessary to maintain the normal operations of
the Company. The Company's liquidity is primarily affected by fluctuations in
deposit and lending activities, maturities of investments and borrowed money,
and investments in capital improvements and market expansion. Its liquidity is
also impacted by certain off-balance sheet items such as loan commitments,
unfunded portions of construction loans, and unused lines of credit. At June 30,
2003, the Company had loan commitments of $17.9 million, undisbursed portions of
construction loans of $5.4 million, and unused lines of credit of $66.5 million.
Neither the Company nor its subsidiaries have incurred off-balance sheet
obligations through the use of or investment in derivative financial instruments
or structured finance or special purpose entities organized as corporations,
partnerships, limited liability companies, or trusts.
The Company's primary sources of internally generated funds are principal
and interest payments on loans receivable, cash flows generated from operations,
cash flows generated by investment and mortgage-backed securities, and growth in
core deposits. As of June 30, 2003, the Company's cash and due from banks and
interest-earning bank balances totaled $35.9 million compared to $47.0 million
as of December 31, 2002. This $11.1 million decrease was largely due to a $17.2
million decrease in net cash used for investment
15
activities. These investment activities include the purchase of $37.8 million in
mortgage-backed securities, the purchase of $6.9 million in investment
securities and $4.4 million in capital expenditures. These capital expenditures
included the acquisition of land for a branch relocation and a new corporate
office in Gastonia, NC, construction of a new branch in Mooresville, NC, and
remodeling and renovations to the branch offices in Salisbury, NC, and Rockwell,
NC. The decrease in cash for investment activities was partly offset by the sale
of $7.5 million in mortgage-backed and investment securities, $1.0 million from
the sale of real estate owned, and $22.0 million in maturities and prepayments
on mortgage-backed and investment securities. The Company also used $1,000 for
operating activities. These funds were primarily used to purchase $3.0 million
in bank-owned life insurance, the effects of which were partly offset by net
income of $2.3 million, $322,000 in depreciation, and $232,000 in the
amortization of intangible assets. The funds used for operating and investment
activities were partly offset by $6.0 million in cash provided by financing
activities. These financing activities primarily consisted of a $4.1 million
increase in deposits and a $5.1 million increase in borrowed money. The cash
provided by these financing activities was partly offset by $1.1 million in
dividend payments to shareholders and $2.7 million used to repurchase shares of
common stock.
The Company's external sources of funds include large denomination
wholesale deposits and advances from the Federal Home Loan Bank of Atlanta
("FHLB"). If the Company requires funds beyond its internal funding
capabilities, the Company has $73.6 million in additional advances available
from its line of credit with the FHLB. These FHLB advances are secured by a
blanket lien on first mortgage residential loans held by the Company. Given the
Company's current liquidity position, availability of credit, and cash flows
from internal sources, management believes that the Company has the ability to
meet deposit withdrawals on demand or at contractual maturity, to repay
borrowings as they mature, and to fund new loans and commitments as
opportunities arise.
The Company's most significant form of market risk is interest rate risk,
as the Company's assets and liabilities are sensitive to changes in interest
rates. The Company's Asset / Liability Committee ("ALCO") is responsible for
monitoring its level of interest rate risk and ensuring compliance with
Board-adopted limits. During the 2003 fiscal year, the Company purchased $37.8
million in mortgage-backed securities with excess liquidity held by the Company
as a result of the September 2002 stock offering. These mortgage-backed
securities typically have a balloon or interest rate adjustment after an initial
seven- or five-year period, or have a fixed rate for ten years based on a
ten-year amortization schedule. There were no other changes in the Company's
asset or liability composition that could result in a material change in the
Company's analysis of interest rate sensitivity as discussed in the Company's
Annual Report on Form 10-K for the year ended December 31, 2002.
The Bank is subject to various regulatory capital requirements
administered by the banking regulatory agencies. As of June 30, 2003, Citizens
South Bank's level of capital exceeded all applicable regulatory requirements.
Citizens South Bank's Tier I capital was $60.0 million, or 12.2% of adjusted
assets. The minimum Tier I capital ratio is 4.00%. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly discretionary
actions by the regulators that, if undertaken, could have a direct material
effect on the Bank's financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classifications
are subject to qualitative judgments by the regulators about components,
risk-weightings, and other factors.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
16
The information required by this item is included above in Item 2,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, under the caption "Liquidity, Market Risk, and Capital Resources."
ITEM 4. Controls and Procedures
Under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, the Company has evaluated the effectiveness of the design and operation
of its disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) under the Exchange Act) as of the end of the period covered by this
quarterly report. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that, as of the end of the period covered by
this quarterly report, the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed in the reports
that the Company files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC's rules
and forms.
PART II. OTHER INFORMATION
Legal Proceedings
There are various claims and lawsuits in which the Bank is periodically
involved incidental to the Company's business. In the opinion of management, no
material loss is expected from any of such pending claims or lawsuits.
Changes in Securities and Use of Proceeds
Not applicable.
Defaults Upon Senior Securities
Not applicable.
Submission of Matters to a Vote of Security Holders
The following proposals were considered and acted upon at the Annual
Meeting of Stockholders of the Company held on May 12, 2003:
Proposal 1: To consider the election of two Directors to the Board of Directors.
Senator David W. Hoyle For 7,769,760 Withheld 17,154
Ben R. Rudisill, II For 7,773,530 Withheld 13,384
Proposal 2: To consider the ratification of the appointment of Cherry, Bekaert,
& Holland, L.L.P. as auditors for the Company for the fiscal year ending
December 31, 2003.
For 7,740,155 Against 36,709 Abstain 10,050
No other business came before the meeting.
17
Exhibits and Report on Form 8-K.
(a) Exhibits:
31.1 Certification of Chief Executive Officer furnished pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer furnished pursuant to
Section 302 of Sarbanes-Oxley Act of 2002.
32.1 Written statement of Chief Executive Officer furnished pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Written statement of Chief Financial Officer furnished pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) The Company filed the following reports on Form 8-K with the SEC during
the quarter ended June 30, 2003:
(1) April 24, 2003: The Company reported that on April 21, 2003, it had
issued two press releases regarding earnings for the quarter ended
March 31, 2003, and the declaration of dividends.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
Citizens South Banking Corporation
Date: August 13, 2003 By: /s/ Kim S. Price
--------------------------------------------
Kim S. Price
President and Chief Executive Officer
Date: August 13, 2003 By: /s/ Gary F. Hoskins
--------------------------------------------
Gary F. Hoskins
Executive Vice President, Chief Financial
Officer and Treasurer
19