Citizens South Banking 8-K Citizens South Banking Corporation Announces a

For More Information:	NEWS RELEASE
Gary F. Hoskins, CFO
(704) 884-2263
gary.hoskins@citizenssouth.com

FOR IMMEDIATE RELEASE

CITIZENS SOUTH BANKING CORPORATION ANNOUNCES A

5.9% INCREASE IN SECOND QUARTER OPERATING EARNINGS PER SHARE

GASTONIA, NC, July 16, 2007. . . . . Citizens South Banking Corporation (NASDAQ: 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.

-END-

Important Tables Follow

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Citizens South Banking Corporation

Selected Financial Information

(dollars in thousands, except per share data)

		Quarter ended June 30, 2007			Quarter ended June 30, 2006			Six months ended June 30, 2007			Six months ended June 30, 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

ConsolidatedStatements of Operations(unaudited)

(in thousands, except per share data)

	Three Months Ended June 30,					Six Months 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