Citizens South Banking 8-K Citizens South Banking Corporation Announces Record Earnings of $5.5 Million for 2006

Exhibit 99.1

Citizens South Banking Corporation Announces Record Earnings of $5.5 Million for 2006

          GASTONIA, N.C., Jan. 22 /PRNewswire-FirstCall/ -- Citizens South Banking Corporation (Nasdaq: CSBC), the holding company for Citizens South Bank, announced that net income for the year ended December 31, 2006, amounted to a record $5.5 million, or $.67 per diluted share, compared to $3.3 million, or $.45 per diluted share, for the year ended December 31, 2005.  This represents an increase of $2.2 million, or 66.7%, in net income for the year and an increase of $.22, or 32.8%, per diluted share.

          Also for the year, net operating earnings, which excludes net gains on sales of assets and merger-related expenses, amounted to $5.4 million, or $.67 per diluted share, in 2006 compared to $3.5 million, or $.48 per diluted share, in 2005.  This represents an increase of $2.0 million, or 57.0%, in operating income and an increase of $.20, or 41.7%, per operating diluted earnings per share. 

          Fourth Quarter Results - Diluted Operating EPS up 80%

          Net income for the quarter ended December 31, 2006, was $1.5 million, or $.18 per diluted share, compared to $505,000, or $.06 per diluted share, for the quarter ended December 31, 2005.  This represents a $978,000, or 193.7%, increase in net income for the fourth quarter of 2006 when compared to the fourth quarter of 2005.  Diluted earnings per share increased by $.12, or 200.0%, for the same periods.

          Net operating income, which excludes net gains on sales of assets and merger-related expenses, amounted to $1.4 million, or $.18 per diluted share, for the quarter ended December 31, 2006, compared to $752,000, or $.10 per diluted share, for the quarter ended December 31, 2005.  This represents a $665,000, or 88.4%, increase in net operating income and a $.08, or 80.0%, increase in operating diluted earnings per share for the comparable quarters. 

          Net Interest Income up 15% in Fourth Quarter

          Net interest income increased by $649,000, or 14.5%, during the fourth quarter of 2006, compared to the fourth quarter of 2005.  This increase was primarily the result of continued loan growth, and a continuing change in the asset mix.  Total loans increased by $42.2 million, or 8.9%, to $515.4 million during the year ended December 31, 2006.  This increase in loans was primarily funded by deposit growth of $45.0 million, or 8.7%, to $562.8 million. 

          Favorable Operating Noninterest Income and Expenses

          During the comparable quarters, noninterest operating income, which excludes net gains or losses on sale of assets, increased by $340,000, or 26.9%, to $1.6 million, while noninterest operating expense, which excludes merger-related expenses, increased by only $210,000, or 5.1%, to $4.3 million. The increase in noninterest income was partially attributable to an expanded customer base and an incentive program for our lenders which resulted in higher fee income from loan and deposit products.  A restructuring of our mortgage banking and financial services divisions also contributed to the growth in fee revenue.

          Growth in noninterest operating expense was held to only 5.1% by the execution of our Performance Enhancement Plan.  At the same time, we have been able to expand our franchise with three full-service offices in Union County, North Carolina, a full-service office in Belmont, North Carolina, and a new loan production office in Rock Hill, South Carolina. 

          Credit Quality Remains Strong

          Credit quality continues to compare favorably with industry peers. Nonperforming assets totaled $3.2 million, or 0.42% of total assets, at December 31, 2006, compared to $3.7 million, or 0.53% of total assets, at December 31, 2005.

          In making the announcement, Kim S. Price, President and CEO, stated, “It is a pleasure to be able to report record earnings during a period when many community banks have struggled with a flat yield curve, deposit gathering, and a slowing real estate market.  Our team’s steady, focused and successful efforts to grow and reposition our balance sheet, coupled with a commitment to delivering true community bank service, have built the framework for a more effective earnings model.” 

          General Information

          Headquartered in Gastonia, North Carolina, Citizens South Bank was founded in 1904.  Deposits are FDIC insured.  At December 31, 2006, the Bank had approximately $743 million in assets with 14 full-service offices in the Charlotte region, including Gaston, Iredell, Rowan, and Union counties in North Carolina, and two loan production offices in Mecklenburg County, 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, our ability to successfully integrate Trinity Bank, 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, 2005, describe some of these factors.

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

	Quarter ended December 31, 2006			Quarter ended December 31, 2005			Year ended December 31, 2006			Year ended December 31, 2005
Reconciliation of GAAP to non-GAAP Measures:
Net income, as reported (GAAP)	$	1,483		$	505		$	5,455		$	3,273
Non-operating items:
(Gain)/ loss on sale of assets, net		(109	)		20			(69	)		(62	)
Merger and integration related expense		0			384			57			384
Related income taxes (39%)		43			(157	)		5			(126	)
Net Operating Income	$	1,417		$	752		$	5,448		$	3,469
Per Share Data:
Average common shares outstanding, basic		7,945,802			7,782,235			8,017,956			7,207,368
Basic net income - GAAP	$	0.19		$	0.06		$	0.68		$	0.45
Basic net income - Operating		0.18			0.10			0.68			0.48
Average common shares outstanding, diluted		8,022,321			7,874,361			8,095,276			7,298,219
Diluted net income - GAAP	$	0.18		$	0.06		$	0.67		$	0.45
Diluted net income - Operating		0.18			0.10			0.67			0.48
Cash dividends declared	$	0.075		$	0.07		$	0.30		$	0.28
Period-end book value		10.61			10.16			10.61			10.16
Financial Ratios (annualized):
Return on average stockholders’ equity - GAAP		6.86	%		2.45	%		6.41	%		4.40	%
Return on avg. stockholders’ equity - Operating		6.55			3.64			6.41			4.67
Return on average assets - GAAP		0.80	%		0.32	%		0.76	%		0.60	%
Return on average assets - Operating		0.77			0.48			0.76			0.64
Efficiency  ratio - GAAP		63.29	%		78.70	%		65.51	%		71.98	%
Efficiency ratio - Operating		63.97			71.61			65.20			70.15
Net interest margin		3.17	%		3.17	%		3.31	%		3.23	%
Average equity to average assets		11.70			13.25			11.86			13.69
Asset Quality Data:
Allowance for loan losses	$	5,764		$	5,104		$	5,764		$	5,104
Nonperforming loans		3,011			2,551			3,011			2,551
Nonperforming assets		3,150			3,708			3,150			3,708
Net charge-offs		95			328			502			398
Allowance for loan losses to total loans		1.12	%		1.08	%		1.12	%		1.08	%
Nonperforming loans to total loans		0.58			0.55			0.58			0.55
Nonperforming assets to total assets		0.42			0.53			0.42			0.53
Average Balances:
Total assets	$	733,153		$	618,662		$	716,934		$	543,311
Loans receivable, net of unearned income		509,717			417,466			493,324			347,720
Interest-earning assets		641,624			560,766			622,793			479,510
Deposits		556,778			468,148			535,935			395,327
Interest-bearing liabilities		599,622			522,215			586,809			438,308
Stockholders’ equity		85,774			81,955			85,035			74,362
At Period End:
Total assets	$	743,370		$	701,094		$	743,370		$	701,094
Loans receivable, net of unearned income		515,402			473,336			515,402			473,336
Interest-earning assets		646,819			612,240			646,819			612,240
Intangible asset		31,666			32,424			31,666			32,424
Deposits		562,802			517,544			562,802			517,544
Interest-bearing liabilities		610,212			585,095			610,212			585,095
Stockholders’ equity		85,961			84,258			85,961			84,258

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

	December 31, 2006			December 31, 2005
	(unaudited)
ASSETS
Cash and due from banks	$	17,581		$	8,863
Interest-earning bank balances		8,640			17,790
Cash and cash equivalents		26,221			26,653
Investment securities available-for-sale, at fair value		65,326			53,429
Mortgage-backed securities available-for-sale, at fair value		60,691			70,236
Loans receivable, net unearned income		515,402			473,336
Allowance for loan losses		(5,764	)		(5,104	)
Loans receivable, net		509,638			468,232
Real estate acquired through foreclosure, net		139			1,157
Premises and equipment, net		18,287			19,819
Accrued interest receivable		3,236			2,539
Federal Home Loan Bank stock, at cost		3,581			4,084
Intangible assets		31,666			32,424
Bank owned life insurance		15,527			14,828
Other assets		9,058			7,693
Total assets	$	743,370		$	701,094
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Demand deposit accounts	$	90,540		$	85,489
Money market deposit accounts		117,632			104,421
Savings accounts		16,027			23,654
Time deposits		338,603			303,980
Total deposits		562,802			517,544
Borrowed money		85,736			91,342
Deferred compensation		5,723			5,849
Other liabilities		3,148			2,101
Total liabilities		657,409			616,836
Stockholders’ Equity:
Common stock issued and outstanding, $0.01 par value, 20,000,000 shares authorized, 9,062,727 issued at December 31, 2006, and December 31, 2005, and 8,104,683 shares outstanding at December 31, 2006, and 8,291,544 shares outstanding at December 31, 2005		91			91
Additional paid-in-capital		68,578			68,468
Unallocated common stock held by Employee Stock Ownership Plan		(1,430	)		(1,613	)
Unearned compensation related to Recognition and Retention Plan		(1,139	)		(1,419	)
Retained earnings, substantially restricted		33,031			30,311
Accumulated unrealized loss on securities available-for-sale, net of tax		(991	)		(1,567	)
Treasury stock of 958,044 shares at December 31, 2006, and 771,183 shares at December 31, 2005		(12,179	)		(10,013	)
Total stockholders’ equity		85,961			84,258
Total liabilities and stockholders’ equity	$	743,370		$	701,094

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

	Three Months Ended December 31,					Twelve Months Ended December 31,
	2006		2005			2006		2005
Interest income
Loans	$	9,946	$	7,168		$	37,447	$	22,128
Investment securities		539		446			1,997		1,603
Interest-bearing deposits		351		202			838		463
Mortgage-backed and related securities		610		720			2,637		2,754
Total interest income		11,446		8,536			42,919		26,948
Interest Expense
Deposits		5,300		3,115			18,103		8,977
Borrowed funds		1,021		945			4,176		2,492
Total interest expense		6,321		4,060			22,279		11,469
Net interest income		5,125		4,476			20,640		15,479
Provision for loan losses		300		575			1,165		985
Net interest income after provision for loan losses		4,825		3,901			19,475		14,494
Noninterest Income
Fee income on deposit accounts		699		697			2,856		2,486
Fee income on mortgage banking and lending activities		419		174			1,283		573
Dividends on FHLB stock		53		46			221		155
Increase in cash value of bank-owned life insurance		181		156			762		615
Fair value adjustment on deferred compensation assets		64		26			207		83
Net gain/(loss) on sale of assets		109		(20	)		69		62
Other noninterest income		190		167			743		467
Total noninterest income		1,715		1,246			6,141		4,441
Noninterest Expense
Compensation and benefits		2,326		2,077			9,187		7,188
Fair value adjustment on deferred compensation obligation		64		26			207		83
Occupancy and equipment expense		624		634			2,614		2,101
Professional services		130		97			550		540
Amortization of intangible assets		176		160			734		409
Merger and integration-related expenses		0		384			57		384
Other noninterest expenses		1,009		1,125			4,195		3,634
Total noninterest expense		4,329		4,503			17,544		14,339
Income before income taxes		2,211		644			8,072		4,596
Provision for income taxes		728		139			2,617		1,323
Net income	$	1,483	$	505		$	5,455	$	3,273
Basic earnings per share	$	0.19	$	0.06		$	0.68	$	0.45
Diluted earnings per share	$	0.18	$	0.06		$	0.67	$	0.45
Basic average common shares outstanding		7,945,802		7,782,235			8,017,956		7,207,368
Diluted average common shares outstanding		8,022,321		7,874,361			8,095,276		7,298,219

SOURCE  Citizens South Banking Corporation
          -0-                                                       01/22/2007
          /CONTACT:  Gary F. Hoskins, CFO of Citizens South Banking Corporation, +1-704-884-2263, gary.hoskins@citizenssouth.com /
          /Web site:  http://www.citizenssouth.com /
          (CSBC)