SCHEDULE 14-A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Citizens South Banking Corporation
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
........................................................................
2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
April 2, 2004
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Citizens South Banking Corporation. The Annual Meeting will be held at the
Gaston County Public Library at 1555 East Garrison Boulevard, Gastonia, North
Carolina, at 10:30 a.m. (local time) on May 10, 2004.
The enclosed Notice of Annual Meeting and proxy statement describe the formal
business to be transacted.
The Annual Meeting is being held so that stockholders will be given an
opportunity to elect two directors and to ratify the appointment of Cherry,
Bekaert & Holland, L.L.P. as auditors for Citizens South Banking Corporation's
2004 fiscal year.
The Board of Directors of Citizens South Banking Corporation has determined that
the matters to be considered at the Annual Meeting are in the best interest of
Citizens South Banking Corporation and its stockholders. For the reasons set
forth in the proxy statement, the Board of Directors unanimously recommends a
vote "FOR" each matter to be considered.
On behalf of the Board of Directors, we urge you to sign, date and return the
enclosed white proxy card as soon as possible even if you currently plan to
attend the Annual Meeting. Your vote is important, regardless of the number of
shares that you own. Voting by proxy will not prevent you from voting in person,
but will assure that your vote is counted if you are unable to attend the
meeting.
Sincerely,
Kim S. Price
President and Chief Executive Officer
Citizens South Banking Corporation
245 West Main Avenue
Gastonia, North Carolina 28053-2249
(704) 868-5200
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 10, 2004
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of Citizens South Banking Corporation will be held at the Gaston
County Public Library at 1555 East Garrison Boulevard, Gastonia, North Carolina
28054-5156, on May 10, 2004 at 10:30 a.m., local time.
A proxy statement and white proxy card for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The election of two directors of Citizens South Banking Corporation;
2. The ratification of the appointment of Cherry, Bekaert & Holland,
L.L.P. as auditors for Citizens South Banking Corporation for the
fiscal year ending December 31, 2004; and
such other matters as may properly come before the Meeting, or any adjournments
thereof. The Board of Directors is not aware of any other business to come
before the Meeting.
Any action may be taken on the foregoing proposals at the Meeting on the
date specified above, or on any date or dates to which by original or later
adjournment the Meeting may be adjourned. Stockholders of record at the close of
business on March 15, 2004 are the stockholders entitled to vote at the Meeting,
and any adjournments thereof. A list of stockholders entitled to vote at the
Meeting will be available at 245 West Main Avenue, Gastonia, North Carolina, for
a period of 10 days prior to the Meeting and will also be available for
inspection at the Meeting.
EACH STOCKHOLDER, WHETHER HE OR SHE PLANS TO ATTEND THE MEETING, IS
REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED WHITE PROXY CARD WITHOUT DELAY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE. ANY PROXY GIVEN BY THE STOCKHOLDER MAY BE
REVOKED AT ANY TIME BEFORE IT IS EXERCISED. A PROXY MAY BE REVOKED BY FILING
WITH THE SECRETARY OF CITIZENS SOUTH BANKING CORPORATION A WRITTEN REVOCATION OR
A DULY EXECUTED PROXY BEARING A LATER DATE. ANY STOCKHOLDER PRESENT AT THE
MEETING MAY REVOKE HIS OR HER PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT
BEFORE THE MEETING. HOWEVER, IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT
REGISTERED IN YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR
RECORD HOLDER IN ORDER TO VOTE PERSONALLY AT THE MEETING.
By Order of the Board of Directors
Paul L. Teem, Jr.
Secretary
Gastonia, North Carolina
April 2, 2004
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IMPORTANT: A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO
POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
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PROXY STATEMENT
of
CITIZENS SOUTH BANKING CORPORATION
245 West Main Avenue
Gastonia, North Carolina 28053-2249
(704) 868-5200
ANNUAL MEETING OF STOCKHOLDERS
MAY 10, 2004
This proxy statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Citizens South Banking
Corporation (the "Company") to be used at the Annual Meeting of Stockholders of
the Company (the "Meeting"), which will be held at the Gaston County Public
Library at 1555 East Garrison Boulevard, Gastonia, North Carolina 28054-5156, on
May 10, 2004 at 10:30 a.m., local time, and all adjournments thereof. The
accompanying Notice of Annual Meeting of Stockholders and this proxy statement
are first being mailed to stockholders on or about April 2, 2004.
REVOCATION OF PROXIES
Stockholders who execute proxies in the form solicited hereby retain the
right to revoke them in the manner described below. Unless so revoked, the
shares represented by such proxies will be voted at the Meeting and all
adjournments thereof. Proxies solicited on behalf of the Board of Directors of
Citizens South Banking Corporation will be voted in accordance with the
directions given thereon. Please sign and return your proxy to our corporate
secretary at Citizens South Banking Corporation in order for your vote to be
counted. Where no instructions are indicated, signed proxies will be voted "FOR"
the proposals set forth in this proxy statement for consideration at the
Meeting.
Proxies may be revoked by sending written notice of revocation to the
Secretary of Citizens South Banking Corporation, Paul L. Teem, Jr., at the
address of Citizens South Banking Corporation shown above, by filing a duly
executed proxy bearing a later date or by voting in person at the Meeting. The
presence at the Meeting of any stockholder who had given a proxy shall not
revoke such proxy unless the stockholder delivers his or her ballot in person at
the Meeting or delivers a written revocation to the Secretary of Citizens South
Banking Corporation prior to the voting of such proxy.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Holders of record of Citizens South Banking Corporation common stock
("common stock") at the close of business on March 15, 2004 (the "Voting Record
Date") are entitled to one vote for each share held. As of the Voting Record
Date, there were 8,486,384 shares of common stock issued and outstanding. The
presence in person or by proxy of at least a majority of the issued and
outstanding shares of common stock entitled to vote is necessary to constitute a
quorum at the Meeting.
In accordance with the provisions of the Certificate of Incorporation of
the Company, record holders of common stock who beneficially own in excess of
10% of the outstanding shares of common stock (the "Limit") are not entitled to
any vote with respect to the shares held in excess of the Limit. The Company's
Certificate of Incorporation authorizes the Board of Directors (i) to make all
determinations necessary to implement and apply the Limit, including determining
whether persons or entities are acting in concert, and (ii) to demand that any
person who is reasonably believed to beneficially own stock in excess of the
Limit supply information to the Company to enable the Board of Directors to
implement and apply the Limit.
Persons and groups who beneficially own in excess of five percent of
Citizens South Banking Corporation's common stock are required to file certain
reports with the Securities and Exchange Commission ("SEC") regarding such
ownership pursuant to the Securities Exchange Act of 1934 (the "Exchange Act").
The following table sets forth beneficial ownership of the Company's outstanding
common stock, as of the Voting Record Date, by those persons who held more than
five percent of the Company's outstanding shares and by directors and executive
officers of the Company, individually and as a group.
Amount of Shares Owned and Percent of Shares of
Name and Address of Beneficial Owner Nature of Beneficial Ownership Common Stock Outstanding (3)
- ----------------------------------------------------------- ------------------------------ ----------------------------
Mendon Capital Advisors Corp. (1) 467,200 5.08%
150 Allens Creek Road
Rochester, New York 14618
Citizens South Bank Employee Stock Ownership Plan (2) 456,507 4.97%
245 West Main Avenue
Gastonia, North Carolina 28053-2249
Kim S. Price 266,222 2.90%
Eugene R. Matthews, II 81,832 *
Senator David W. Hoyle 198,429 2.16%
Martha B. Beal 116,139 1.26%
James J. Fuller 71,466 *
Charles D. Massey 112,973 1.23%
Ben R. Rudisill, II 129,191 1.41%
Gary F. Hoskins 117,664 1.28%
Paul L. Teem, Jr. 184,528 2.01%
Michael R. Maguire 59,974 *
Vance B. Brinson, Jr. 27,787 *
Daniel M. Boyd, IV 18,336 *
J. Stephen Huffstetler 63,578 *
All directors and executive officers 1,448,119 15.76%
as a group (13 persons)
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(1) Based exclusively on a Schedule 13G filed by Mendon Capital Advisors Corp.
with the SEC on March 4, 2004.
(2) All shares are held on behalf of the plan by a third-party trustee.
(3) Calculated by dividing the number of shares in the second column of this
table by the total number of shares of common stock outstanding at the
Voting Record Date (8,486,384 shares) plus 704,428 shares representing the
total number of shares that may be acquired pursuant to the exercise of
stock options that are currently exercisable or are exercisable within 60
days of the Voting Record Date.
* Less than 1%.
VOTING PROCEDURES AND METHOD OF COUNTING VOTES
As to the election of directors, the white proxy card provided by the
Board of Directors enables a stockholder to vote "FOR" the election of the two
nominees proposed by the Board of Directors or to "WITHHOLD AUTHORITY" to vote
for the nominees being proposed. Under Delaware law and the Company's
Certificate of Incorporation and Bylaws, directors are elected by a plurality of
the shares voted at the Meeting without regard to either broker non-votes or
proxies as to which the authority to vote for the nominee is withheld.
As to the ratification of Cherry, Bekaert & Holland, L.L.P. as auditors of
the Company, by checking the appropriate box a stockholder may vote "FOR" the
item, vote "AGAINST" the item or "ABSTAIN" from voting on the item. The
ratification of auditors must be approved by a majority of the shares voted at
the Meeting without regard to broker non-votes or proxies marked abstain.
In the event at the time of the Meeting there are not sufficient votes for
a quorum or to approve or ratify any matter being presented, the Meeting may be
adjourned in order to permit the further solicitation of proxies.
Proxies solicited hereby will be returned to the Company and will be
tabulated by inspectors of election designated by the Board of Directors of the
Company.
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PROPOSAL I--ELECTION OF DIRECTORS
Citizens South Banking Corporation's Board of Directors is currently
composed of seven persons, and is divided into three classes with one class of
directors elected each year. Directors are generally elected to serve for a
three year period or until their respective successors shall have been elected
and shall qualify. Two directors will be elected at the Meeting. The Board of
Directors has nominated Kim S. Price and Eugene R. Matthews II, each to serve
for a three-year term.
The table below sets forth certain information, as of the record date,
regarding the Board of Directors. Historical information includes service as a
director with Citizens South Bank and its predecessors. It is intended that the
proxies solicited on behalf of the Board of Directors (other than proxies in
which the vote is withheld as to one or more nominees) will be voted at the
Meeting for the election of the nominees identified below. If any nominee is
unable to serve, the shares represented by all such proxies will be voted for
the election of such substitute as the Board of Directors may recommend. At this
time, the Board of Directors knows of no reason why any of the nominees might be
unable to serve, if elected. There are no arrangements or understandings between
any nominee and any other person pursuant to which such nominee was selected.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE NOMINEES.
Shares of Common
Current Stock
Director Term Beneficially Percent
Name Age Positions Held Since Expires Owned (15) of Class
- ------------------------- --- --------------------------- -------- ------- ----------------- ---------
NOMINEES
Kim S. Price 48 President, Chief Executive 1997 2004 266,222(1) 2.90%
Officer and Director
Eugene R. Matthews, II 47 Director 1998 2004 81,832(2) *
DIRECTORS
Senator David W. Hoyle 65 Chairman 1975 2006 198,429(3) 2.16%
Martha B. Beal 72 Director 1993 2005 116,139(4) 1.26%
James J. Fuller 60 Director 1972 2005 71,466(4) *
Charles D. Massey 66 Director 1971 2005 112,973(5) 1.23%
Ben R. Rudisill, II 60 Vice Chairman 1977 2006 129,191(6) 1.41%
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Gary F. Hoskins 40 Executive Vice President, 117,664(7) 1.28%
Treasurer and Chief
Financial Officer
Paul L. Teem, Jr. 56 Executive Vice President, 184,528(8) 2.01%
Secretary and Chief
Administrative Officer
Michael R. Maguire 46 Senior Vice President and 59,974(9) *
Chief Credit Officer
Vance B. Brinson, Jr. 57 Executive Vice President 27,787(10) *
and Chief Lending Officer
Daniel M. Boyd, IV 42 Executive Vice President 18,336(11) *
J. Stephen Huffstetler 48 Senior Vice President 63,578(12) *
All directors and executive officers 1,448,119(13)(14) 15.76%
as a group (13 persons)
- ----------
(1) Includes 154,307 shares that may be acquired pursuant to presently
exercisable stock options.
(2) Includes 27,665 shares that may be acquired pursuant to presently
exercisable stock options.
(3) Includes 30,731 shares that may be acquired pursuant to presently
exercisable stock options.
(4) Includes 37,655 shares that may be acquired pursuant to presently
exercisable stock options.
(5) Includes 22,670 shares that may be acquired pursuant to presently
exercisable stock options.
(6) Includes 30,754 shares that may be acquired pursuant to presently
exercisable stock options.
(footnotes continue on following page)
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- ----------
(7) Includes 50,561 shares that may be acquired pursuant to presently
exercisable stock options.
(8) Includes 74,059 shares that may be acquired pursuant to presently
exercisable stock options.
(9) Includes 41,408 shares that may be acquired pursuant to presently
exercisable stock options.
(10) Includes 14,850 shares that may be acquired pursuant to presently
exercisable stock options.
(11) Includes 4,000 shares that may be acquired pursuant to presently
exercisable stock options.
(12) Includes 39,476 shares that may be acquired pursuant to presently
exercisable stock options.
(13) Includes 565,791 shares that may be acquired pursuant to presently
exercisable stock options.
(14) Includes 45,264 shares allocated to the accounts of executive officers
under the ESOP and excludes the remaining 411,243 shares (amounting to
4.97% of the shares outstanding) owned by the ESOP for the benefit of
employees. Under the terms of the ESOP, shares of common stock allocated
to the account of employees are voted in accordance with the instructions
of the respective employees. Unallocated shares are voted by the ESOP
trustee in a manner calculated to most accurately reflect the instructions
it has received from participants regarding the allocated shares, unless
its fiduciary duty requires otherwise.
(15) Unless otherwise indicated, each person effectively exercises sole (or
shared with spouse) voting and dispositive power as to the shares
reported.
* Less than 1%
The business experience for the past five years for each of Citizens South
Banking Corporation's directors and executive officers is as follows:
Directors
Senator David W. Hoyle is a North Carolina State Senator and has served in
that position since 1993. Prior to that, Senator Hoyle was a self-employed real
estate developer and investor. Senator Hoyle has served as Chairman of the Board
since January 1998.
Ben R. Rudisill, II is the President of Rudisill Enterprises, Inc., a
wholesale beverage distributor, and has served in that position since 1976. Mr.
Rudisill has served as Vice Chairman of the Board since January 1998.
Kim S. Price is the President and Chief Executive Officer of Citizens
South Banking Corporation and Citizens South Bank, and has served in these
positions since August 1997.
Martha B. Beal was the Vice President, Secretary, Treasurer, and Financial
Officer of Chelsea House, Inc., a manufacturer of decorative arts, accessories
and furniture, from 1973 until her retirement in 1998.
James J. Fuller is the President of Mount Holly Furniture Company, Inc.,
and has served in that position since 1972.
Charles D. Massey is a private investor and retired in 2003 as the
Managing Partner of Massey Properties, a real estate investment firm, a position
he had served in since 1975. From 1957 to 2000, Mr. Massey also served in
various positions with The Massey Company, Inc., a wholesale industrial
distributor, from which he retired in December 2000 as Director of Information
Services.
Eugene R. Matthews, II is the Vice President and Regional Director of
Stores of Belk, Inc., a department store chain, and has served in that position
since 1998. From 1980 to 1998, Mr. Matthews served as Senior Vice President and
a director of Matthews-Belk Co., Inc., a department store chain.
Executive Officers Who are Not Directors
Gary F. Hoskins has served as Executive Vice President, Treasurer and
Chief Financial Officer of Citizens South Banking Corporation and Citizens South
Bank since August 1997.
Paul L. Teem, Jr. has served as Executive Vice President and Secretary of
Citizens South Banking Corporation and Citizens South Bank since 1983, and Chief
Administrative Officer since November 2000.
Michael R. Maguire has served as Senior Vice President and Chief Credit
Officer of Citizens South Bank since May 1999. Prior to that Mr. Maguire served
as a Vice President and in various executive capacities in the commercial
banking functions of First Union National Bank of North Carolina from 1984 to
May 1999.
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Vance Burton ("Burt") Brinson, Jr. has served as Executive Vice President
of Citizens South Bank since March 2002. Prior to that Mr. Brinson served as a
Senior Vice President and in various executive capacities in the commercial
banking functions of Wachovia Bank, N.A., from 1977 to March 2002.
Daniel M. Boyd, IV has served as Executive Vice President of Citizens
South Bank since September 2002. Prior to that Mr. Boyd served as Executive Vice
President - Commercial Lending at First Gaston Bank of North Carolina from 1995
to September 2002. Prior to that Mr. Boyd served as Vice President - Commercial
Banking and in various executive capacities in the commercial banking functions
of Wachovia Bank, N.A., from 1984 to July 1995.
John Stephen ("Steve") Huffstetler has served as Senior Vice President of
Citizens South Bank since March 1997.
Board Independence
The Board of Directors has determined that, except as to Mr. Price, each
member of the Board is an "independent director" within the meaning of the
Nasdaq corporate governance listing standards. Mr. Price is not considered
independent because he is an executive officer of Citizens South Banking
Corporation.
Meetings and Committees of the Board of Directors
General. The business of Citizens South Banking Corporation is conducted
at regular and special meetings of the full Board and its standing committees.
The standing committees include the Executive, Audit, Nominating and Corporate
Governance and Compensation Committees. During the fiscal year ended December
31, 2003, the Board of Directors of Citizens South Banking Corporation held four
regular meetings and three special meetings. No member of the Board or any
committee thereof attended fewer than 75% of said meetings. Executive sessions
of the independent directors are held on a regularly scheduled basis.
Executive Committee. The Executive Committee consists of Directors Hoyle
(Chairman), Rudisill, Matthews and Price. The Executive Committee meets as
necessary when the Board is not in session to exercise general control and
supervision in all matters pertaining to the interests of Citizens South Banking
Corporation, subject at all times to the direction of the Board of Directors.
The Executive Committee met 14 times during the fiscal year ended December 31,
2003.
Compensation Committee. The Compensation Committee consists of Directors
Rudisill (Chairman), Fuller and Matthews. The Compensation Committee reviews and
administers compensation, including stock options and stock awards, benefits and
other matters of personnel policy and practice. The Committee met two times
during the fiscal year ended December 31, 2003. Each member of the Compensation
Committee is considered "independent" as defined in the Nasdaq corporate
governance listing standards. The report of the Compensation Committee is
included elsewhere in this proxy statement.
Nominating and Corporate Governance Committee. The Nominating and
Corporate Governance Committee consists of Directors Fuller (Chairman), Hoyle,
Beal, Massey, Rudisill and Matthews. Each member of the Nominating and Corporate
Governance Committee is considered "independent" as defined in the Nasdaq
corporate governance listing standards. Citizens South Banking Corporation's
Board of Directors has adopted a written charter for the Committee, which is
available at Citizens South Banking Corporation's website at
www.citizenssouth.com. The Committee met two times during the fiscal year ended
December 31, 2003.
The functions of the Nominating and Corporate Governance Committee include
the following:
o to lead the search for individuals qualified to become members of
the Board and to select director nominees to be presented for
stockholder approval;
o to review and monitor compliance with the requirements for board
independence;
o to review the committee structure and make recommendations to the
Board regarding committee membership;
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o to develop and recommend to the Board for its approval a set of
corporate governance guidelines; and
o to develop and recommend to the Board for its approval a
self-evaluation process for the Board and its committees.
The Nominating and Corporate Governance Committee identifies nominees by
first evaluating the current members of the Board of Directors willing to
continue in service. Current members of the Board with skills and experience
that are relevant to Citizens South Banking Corporation's business and who are
willing to continue in service are first considered for re-nomination, balancing
the value of continuity of service by existing members of the Board with that of
obtaining a new perspective. If any member of the Board does not wish to
continue in service, or if the Committee or the Board decides not to re-nominate
a member for re-election, or if the size of the Board is increased, the
Committee would solicit suggestions for director candidates from all Board
members. In addition, the Committee is authorized by its charter to engage a
third party to assist in the identification of director nominees. The Nominating
and Corporate Governance Committee would seek to identify a candidate who at a
minimum satisfies the following criteria:
o has the highest personal and professional ethics and integrity and
whose values are compatible with Citizens South Banking
Corporation's;
o has had experiences and achievements that have given him or her the
ability to exercise and develop good business judgment;
o is willing to devote the necessary time to the work of the Board and
its committees, which includes being available for Board and
committee meetings;
o is familiar with the communities in which Citizens South Banking
Corporation operates and/or is actively engaged in community
activities;
o is involved in other activities or interests that do not create a
conflict with his or her responsibilities to Citizens South Banking
Corporation and its stockholders; and
o has the capacity and desire to represent the balanced, best
interests of the stockholders of Citizens South Banking Corporation
as a group, and not primarily a special interest group or
constituency.
In addition, the Nominating and Corporate Governance Committee will
determine whether a candidate satisfies the qualifications requirements of the
Company's Bylaws, which require any person appointed or elected to the Board of
Directors to own at least 100 shares of the Company's common stock and to reside
or work in a county in which Citizens South Bank maintains an office (at the
time of appointment or election) or in a county contiguous to a county in which
Citizens South Bank maintains an office.
Finally, the Nominating and Corporate Governance Committee will take into
account whether a candidate satisfies the criteria for "independence" under the
Nasdaq corporate governance listing standards, and if a nominee is sought for
service on the audit committee, the financial and accounting expertise of a
candidate, including whether the individual qualifies as an audit committee
financial expert.
Procedures for the Nomination of Directors by Stockholders. The Nominating
and Corporate Governance Committee has adopted procedures for the submission of
director nominees by stockholders. If a determination is made that an additional
candidate is needed for the Board, the Nominating and Corporate Governance
Committee will consider candidates submitted by Citizens South Banking
Corporation's stockholders. Stockholders can submit qualified names of
candidates for director by writing to our Corporate Secretary, at 245 West Main
Avenue, Post Office Box 2249, Gastonia, North Carolina 28053-2249. The Corporate
Secretary must receive a submission not less than ninety (90) days prior to the
anniversary date of Citizens South Banking Corporation's proxy materials for the
preceding year's annual meeting. The submission must include the following
information:
6
o the name and address of the stockholder as they appear on Citizens
South Banking Corporation's books, and number of shares of Citizens
South Banking Corporation's common stock that are owned beneficially
by such stockholder (if the stockholder is not a holder of record,
appropriate evidence of the stockholder's ownership will be
required);
o the name, address and contact information for the candidate, and the
number of shares of common stock of Citizens South Banking
Corporation that are owned by the candidate (if the candidate is not
a holder of record, appropriate evidence of the stockholder's
ownership will be required);
o a statement of the candidate's business and educational experience;
o such other information regarding the candidate as would be required
to be included in the proxy statement pursuant to SEC Rule 14A;
o a statement detailing any relationship between the candidate and
Citizens South Banking Corporation;
o a statement detailing any relationship between the candidate and any
customer, supplier or competitor of Citizens South Banking
Corporation;
o detailed information about any relationship or understanding between
the proposing stockholder and the candidate; and
o a statement that the candidate is willing to be considered and
willing to serve as a director if nominated and elected.
Submissions that are received and that meet the criteria outlined above
are forwarded to the Chairman of the Nominating and Corporate Governance
Committee for further review and consideration. A nomination submitted by a
stockholder for presentation by the stockholder at an annual meeting of
stockholders must comply with the procedural and informational requirements
described in this proxy statement under the heading "Stockholder Proposals and
Nominations."
Stockholder Communications with the Board. A stockholder of Citizens South
Banking Corporation who wishes to communicate with the Board or with any
individual director may write to the Corporate Secretary of the Company, 245
West Main Avenue, Post Office Box 2249, Gastonia, North Carolina 28053-2249,
Attention: Board Administration. The letter should indicate that the author is a
stockholder and if shares are not held of record, should include appropriate
evidence of stock ownership. Depending on the subject matter, management will:
o forward the communication to the director or directors to whom it is
addressed;
o attempt to handle the inquiry directly, for example where it is a
request for information about the Company or a stock-related matter;
or
o not forward the communication if it is primarily commercial in
nature, relates to an improper or irrelevant topic, or is unduly
hostile, threatening, illegal or otherwise inappropriate.
At each Board meeting, management will present a summary of all
communications received since the last meeting that were not forwarded and make
those communications available to the directors.
The Audit Committee. The Audit Committee consists of Directors Massey
(Chairman), Rudisill, Matthews and Beal. Each member of the Audit Committee is
considered "independent" as defined in the Nasdaq corporate governance listing
standards and under SEC Rule 10A-3. The duties and responsibilities of the Audit
Committee include, among other things:
o retaining, overseeing and evaluating a firm of independent certified
public accountants to audit Citizens South Banking Corporation's
annual financial statements;
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o in consultation with the independent auditors and the internal
auditor, reviewing the integrity of Citizens South Banking
Corporation's financial reporting processes, both internal and
external;
o approving the scope of the audit in advance;
o reviewing the financial statements and the audit report with
management and the independent auditors;
o considering whether the provision by the external auditors of
services not related to the annual audit and quarterly reviews is
consistent with maintaining the auditor's independence;
o reviewing earnings and financial releases and quarterly reports
filed with the SEC;
o consulting with the internal audit staff and reviewing management's
administration of the system of internal accounting controls;
o approving all engagements for audit and non-audit services by the
independent auditors; and
o reviewing the adequacy of the audit committee charter.
The Audit Committee met four times during the fiscal year ended December
31, 2003. The Audit Committee reports to the Board on its activities and
findings. The Board of Directors has determined that Ben R. Rudisill, II
qualifies as an "audit committee financial expert" as that term is defined by
the rules and regulations of the SEC.
Audit Committee Report
The Audit Committee operates under a written charter adopted by the Board
of Directors (appended to this proxy statement as Appendix A and available on
the Company's website at www.citizenssouth.com).
Management is responsible for Citizens South Banking Corporation's
internal controls and financial reporting processes. The independent auditors
are responsible for performing an independent audit of Citizens South Banking
Corporation's consolidated financial statements in accordance with auditing
standards generally accepted in the United States and issuing a report thereon.
The Audit Committee's responsibility is to monitor and oversee these processes.
As part of its ongoing activities, the Audit Committee has:
o reviewed and discussed with management, and the independent
auditors, Citizens South Banking Corporation's audited consolidated
financial statements for the year ended December 31, 2003;
o discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61, Communications
with Audit Committees, as amended; and
o received the written disclosures and the letter from the independent
auditors required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, and has discussed
with the independent auditors their independence from Citizens South
Banking Corporation.
Based on the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited consolidated financial
statements be included in Citizens South Banking Corporation's Annual Report on
Form 10-K for the year ended December 31, 2003 and be filed with the SEC. In
addition, the Audit Committee approved the engagement of Cherry, Bekaert &
Holland, L.L.P. as Citizens South Banking Corporation's independent auditors for
the year ending December 31, 2004, subject to the ratification of this
appointment by the stockholders of Citizens South Banking Corporation.
This report shall not be deemed incorporated by reference by any general
statement incorporating by reference this proxy statement into any filing under
the Securities
8
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,
except to the extent that Citizens South Banking Corporation specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
The Audit Committee
Charles D. Massey (Chairman)
Martha B. Beal
Eugene R. Matthews, II
Ben R. Rudisill, II
Code of Ethics
Citizens South Banking Corporation has adopted a Code of Ethics that is
applicable to the officers, directors and employees of Citizens South Banking
Corporation, including its principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing
similar functions. The Code of Ethics is available on Citizens South Banking
Corporation's website at www.citizenssouth.com. Amendments to and waivers from
the Code of Ethics will also be disclosed on Citizens South Banking
Corporation's website.
Compensation of Directors
Fees. Each non-employee director of the Company (other than the Chairman
of the Board) receives a monthly retainer of $1,083. The Chairman of the Board
of the Company receives a monthly retainer of $1,667. In addition, each
non-employee director of the Company receives a fee of $1,000 for each Board
meeting attended and $300 for each Committee meeting attended (except for the
Company's Executive Committee, for which directors receive $400 for each meeting
attended).
Except for Company Director Beal, who has attained the Bank Board's
mandatory retirement age, all Company directors currently serve on the Board of
Directors of Citizens South Bank, the Company's subsidiary. Each non-employee
director receives a fee of $350 for each Bank Board meeting attended and $300
for each Bank Committee meeting attended (except for the Executive Committee of
the Bank, for which the directors receive $400 for each meeting attended).
Directors are permitted one paid absence from Company Board meetings and two
paid absences from Bank Board meetings.
Deferred Compensation and Income Continuation Agreement. In May 1986,
Citizens South Bank entered into nonqualified deferred compensation agreements
("DCAs") for the benefit of certain directors at that time, including Directors
Fuller, Hoyle, Massey and Rudisill. The DCAs were amended in March 2004. The
DCAs provide each director with the opportunity to defer up to $20,000 of their
annual compensation into the DCA. Amounts credited to a director's account under
the DCA will be paid in 120 equal monthly payments (i) to the director upon his
retirement from service on or after attaining age 70, (ii) to the director
immediately upon termination of his service due to disability, or (iii) to the
director's beneficiaries upon his death. If the director voluntarily terminates
his service before age 70, his retirement benefit will be paid at age 70 and
will be based on the accrued retirement liability balance existing on the date
service terminates. If a director's service terminates within one year after a
change in control of the Company, the DCA provides for a lump sum cash payment
of the retirement benefit projected to be accrued at the point when the director
would have attained age 70. Benefits under the DCAs are forfeited if the
director's service is terminated for cause. The DCA is an unfunded plan for tax
purposes and for purposes of the Employment Retirement Income Security Act
("ERISA"). All obligations arising under the DCA are payable from the general
assets of Citizens South Bank.
Supplemental Retirement Plan. In February 1992, Citizens South Bank
entered into nonqualified supplemental retirement agreements ("SRAs") for
certain directors at that time, including Directors Fuller, Hoyle, Massey and
Rudisill. Citizens South Bank entered into SRAs for Directors Beal and Matthews
in October 2000. The SRAs provide for an annual benefit that ranges from $4,000
to $15,600, payable beginning at age 70. Monthly benefits are provided for
designated beneficiaries of directors. Amounts not paid to the director,
beneficiaries or spouse are paid to the estate of the director in a lump sum.
Benefits under the SRAs are forfeited if the director's service is terminated
for cause. The SRA is considered an unfunded plan for tax and ERISA purposes.
All obligations arising under the SRAs are payable from the general assets of
Citizens South Bank.
9
Stock Benefit Plans. Directors are eligible to receive awards of stock
options and restricted stock. On November 3, 2003, each non-employee director of
the Company was granted non-qualified options to purchase 22,670 shares of
common stock of the Company and 10,510 restricted stock awards. All stock
options vest in 20% increments over a five-year period from the date of the
director's first election to the Board of Directors. Restricted stock awards
vest over a seven-year period, commencing on the date of the award, at the rate
of 30% immediately, 10% on January 2, 2004, 10% on November 3, 2005 and 10% per
year on November 3 of each year thereafter, or upon the director's disability,
normal retirement, death, or following a change in control of the Company.
Executive Compensation
The following table sets forth certain information as to the total
remuneration paid to the Chief Executive Officer and the five most highly
compensated executive officers, other than the Chief Executive Officer, who
earned over $100,000 in salary and bonuses during any of the last three fiscal
years (the "Named Executive Officers").
Annual Compensation Long-Term Compensation
--------------------------------------- --------------------------------
Awards Payouts
--------------------- -------
Restricted Options/ All Other
Name and Year Ended Other Annual Stock SARS LTIP Compensation
Principal Position 12/31 Salary (1) Bonus (2) Compensation (3) Awards (4) (#) Payouts (5)
- ----------------------------- ---------- ---------- --------- ---------------- ---------- -------- ------- ------------
Kim S. Price 2003 $190,008 $ -- $ -- $639,200 109,305 -- $80,161 (6)
President, Chief Executive 2002 150,000 41,580 -- -- -- -- 77,714 (6)
Officer and Director 2001 139,368 34,000 -- -- -- -- 39,597 (6)
Paul L. Teem, Jr. 2003 100,008 -- -- 376,000 74,059 -- 65,731 (6)
Executive Vice President, 2002 95,016 21,949 -- -- -- -- 53,252 (6)
Secretary and Chief 2001 90,192 15,000 -- -- -- -- 28,755 (6)
Administrative Officer
Gary F. Hoskins 2003 92,016 -- -- 300,800 50,561 -- 25,997 (6)
Executive Vice President, 2002 80,016 21,064 -- -- -- -- 14,229 (6)
Treasurer and Chief Financial 2001 75,264 12,500 -- -- -- -- 11,183 (6)
Officer
Michael R. Maguire 2003 94,512 -- -- 150,400 20,000 -- 23,386 (6)
Senior Vice President and 2002 92,520 17,094 -- -- -- -- 17,574 (6)
Chief Credit Officer 2001 88,032 15,500 -- -- -- -- 12,842 (6)
Vance Burton Brinson, Jr. 2003 116,016 -- 14,882 150,400 20,000 -- 25,566
Executive Vice President 2002 89,045 25,918 -- -- -- -- 2,475
2001 -- -- -- -- -- -- --
Daniel M. Boyd, IV 2003 102,504 -- 12,660 150,400 20,000 -- 20,845
Executive Vice President 2002 29,167 6,930 -- -- -- -- 875
2001 -- -- -- -- -- -- --
- ----------
(1) Includes compensation deferred at the election of executives pursuant to
the 401(k) Plan of Citizens South Bank.
(2) Includes bonuses deferred at the election of executives pursuant to the
401(k) Plan of Citizens South Bank.
(3) Citizens South Bank provides certain members of senior management with
certain other personal benefits. In cases where the aggregate value of
such personal benefits did not exceed the lesser of $50,000 or 10% of the
total annual salary and bonus reported for each officer, the value of such
benefits is not included in this table. With respect to Mr. Brinson, the
amount shown consists of $11,726 in an automobile allowance (and
associated expenses) and $3,156 in country club fees; with respect to Mr.
Boyd, the amount shown consists of $9,000 in an automobile allowance and
$3,660 in country club fees.
(4) The following number of shares of common stock was awarded under the 2003
Recognition and Retention Plan to: Mr. Price-42,500 shares; Mr.
Teem-25,000 shares; Mr. Hoskins-20,000 shares; and Messrs. Maguire,
Brinson and Boyd-10,000 shares each. The market value per share was $15.04
at the time of award. The shares awarded vest over a seven-year period,
commencing on the date of award, at the rate of 30% immediately, 10% on
January 2, 2004, 10% on November 3, 2005 and 10% per year on November 3 of
each year thereafter.
(5) Includes employer contributions to Citizens South Bank's 401(k) Plan and
Employee Stock Ownership Plan on behalf of the executive.
(6) Includes the vested portion of the annual increase in the value of
Citizens South Bank's 2001 Executive Supplemental Retirement Plan.
10
Employment Agreement. Citizens South Bank has entered into an employment
agreement with its President and Chief Executive Officer, Kim S. Price, which
provides for a term of 36 months. On each anniversary date, the agreement may be
extended for an additional 12 months, so that the remaining term shall be 36
months. If the agreement is not renewed, the agreement will expire 36 months
following the anniversary date. At January 1, 2004, the base salary for Mr.
Price was $196,658. The base salary may be increased but not decreased. In
addition to the base salary, the agreement provides for, among other things,
participation in stock benefit plans and other employee and fringe benefits
applicable to executive personnel. The agreement provides for termination by
Citizens South Bank for cause at any time. In the event Citizens South Bank
terminates the executive's employment for reasons other than for cause, or in
the event of the executive's resignation from Citizens South Bank upon the
occurrence of certain events that would amount to a constructive termination,
the executive would be entitled to severance pay in an amount equal to 2.99
times the annual rate of Base Salary (which includes any salary deferred at the
election of Mr. Price) at the time of termination, plus the highest annual cash
bonus paid to him during the prior three years. Citizens South Bank would also
continue the executive's life, health, dental and disability coverage for the
unexpired term of the agreement. In the event the payments include an "excess
parachute payment" as defined by Section 280G of the Internal Revenue Code
(relating to payments made in connection with a change in control), the payments
would be reduced in order to avoid having an excess parachute payment.
In the event of the executive's disability, the executive will receive his
base salary for the remaining term of the agreement or one year, whichever is
longer, reduced by any benefits paid to the executive pursuant to any disability
insurance policy maintained by Citizens South Bank. In the event of the
executive's death, Citizens South Bank will pay his base salary to his named
beneficiaries for one year following his death, and will also continue medical,
dental, and other benefits to his family for one year. The employment agreement
provides that, following termination of employment, other than following a
change in control, the executive will not compete with Citizens South Bank for a
period of one year.
Executive Supplemental Retirement Plan. Citizens South Bank has adopted an
Executive Supplemental Retirement Plan for certain executives, including Messrs.
Price, Teem, Maguire, Hoskins, Brinson and Boyd. The Executive Supplemental
Retirement Plan is a non-qualified, unfunded deferred compensation plan
evidenced by separate agreements for each executive. Although the Executive
Supplemental Retirement Plan is unfunded, Citizens South Bank has purchased life
insurance policies on each executive that are actuarially designed to offset the
annual expenses associated with the plan and will, if the actuarial assumptions
are accurate, offset all of the costs associated with the plan during the life
of the executive, providing complete recovery of all plan costs upon the
executive's death. The amount of an executive's benefit will be determined
pursuant to the accrual of two accounts: (i) a pre-retirement account and (ii)
an index retirement benefit account. The pre-retirement account is a liability
reserve account of Citizens South Bank and is increased or decreased each year
by the aggregate annual after-tax income from specified life insurance contracts
reduced by an "opportunity cost," which is calculated by taking into account
Citizens South Bank's after-tax cost of funds. The index retirement benefit
account is equal to the excess of the annual earnings of the insurance policies
over the "opportunity cost." Upon retirement at age 65 (normal retirement) or on
or after age 55 (early retirement), the balance in the executive's
pre-retirement account will be paid in 156 monthly installments commencing
within 30 days following the executive's retirement. In addition, upon normal or
early retirement, the executive will receive an index retirement benefit
annually until his death. Should the executive die prior to having received the
entire amount of his pre-retirement account, the unpaid balance will be paid in
a lump sum to his designated beneficiaries.
Messrs. Price and Teem vest in their benefits under the plan at the rate
of 20% per year of employment with Citizens South Bank. Both Mr. Price and Mr.
Teem are 100% vested in their accrued benefit. Each of Messrs. Maguire, Hoskins,
Brinson and Boyd will vest in his benefits under the plan at the rate of 10% per
year times the number of years from the effective date of the agreement, to a
maximum of 75%, prior to attaining age 60. Upon attainment of age 60, each
executive's vested percentage in his accounts will be 75%, and will increase by
5% for each subsequent year, until full vesting at age 65.
In the event Mr. Price, Teem, Maguire, Hoskins, Brinson or Boyd becomes
disabled prior to termination of employment and the executive's employment is
terminated because of such disability, the executive will be entitled to receive
the balance in his pre-retirement account payable in 156 monthly installments
commencing 30 days following termination of service due to disability. In
addition, the executive will receive the annual index retirement benefit until
the executive's death. The benefits are forfeitable by the executive if the
executive's service is terminated for cause. In the event of a change in control
of the Company, the executive will be entitled to the
11
benefits due upon attainment of early retirement, as if the executive had been
continuously employed by Citizens South Bank until his early retirement date. At
December 31, 2003, Messrs. Price, Teem, Maguire, Hoskins, Brinson and Boyd had
$145,000, $129,000, $34,000, $19,000, $0 and $0, respectively, accrued to their
pre-retirement accounts.
Split Dollar Death Benefits. In conjunction with the adoption of the
Executive Supplemental Retirement Plan, Citizens South Bank also adopted
Endorsement Split Dollar Agreements with the six executives covered by the
Executive Supplemental Retirement Plan. Under the Endorsement Split Dollar
Agreements, if the executives die while employed by Citizens South Bank, their
beneficiaries will be paid a death benefit equal to 100% of the net-at-risk
insurance portion of the proceeds on certain life insurance policies purchased
by Citizens South Bank on the executives' lives. If an executive dies after
termination of employment with Citizens South Bank, the executive's beneficiary
would receive a portion of the net-at-risk insurance proceeds equal to the
amount of the net-at-risk insurance proceeds multiplied by the executive's
vested percentage. Messrs. Price and Teem vest in their death benefits under the
agreements at the rate of 20% per year of employment with Citizens South Bank.
At the end of 2003, Mr. Teem was 100% vested in his accrued benefit and Mr.
Price was 100% vested. Each of Messrs. Maguire, Hoskins, Brinson and Boyd will
vest in his death benefits under his agreement at the rate of 10% per year times
the number of years from the effective date of the executive agreement, to a
maximum of 75%, prior to attaining age 60. Upon attainment of age 60, their
vested percentage in his death benefit will be 75%, and will increase by 5% for
each subsequent year, until full vesting at age 65. The net-at-risk insurance
portion is the total proceeds less the cash value of the policy.
Merger/Acquisition Protection Agreements. Citizens South Bank has entered
into a merger/acquisition protection agreement with each of Michael R. Maguire,
its Senior Vice President and Chief Credit Officer, Paul L. Teem, Jr., its
Executive Vice President, Gary F. Hoskins, its Executive Vice President and
Chief Financial Officer, Daniel M. Boyd, IV, its Executive Vice President and V.
Burton Brinson, Jr., its Executive Vice President, pursuant to which each
executive will be paid as severance a sum equal to one and one-half times his
annual compensation, including base salary at the highest rate of pay and
aggregate bonuses paid during the 12-month period prior to termination of
employment in the event of a change in control of Citizens South Bank or
Citizens South Banking Corporation. In addition, the executive would be entitled
to continued life, medical, dental and disability coverage for 18 months
following termination of employment. In exchange for this protection, the
executive has agreed not to directly or indirectly compete against Citizens
South Bank or Citizens South Banking Corporation for twelve months following the
payment of the severance amount. The term of the agreement continues during the
term of his employment and for twelve months following a change in control of
Citizens South Bank or Citizens South Banking Corporation.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee has ever been an officer or
employee of Citizens South Banking Corporation or any of its subsidiaries or
affiliates (including Citizens South Bank). None of our executive officers has
served on the board of directors or on the compensation committee of any other
entity, from which any officers served either on our Board or on our
Compensation Committee.
Report of the Compensation Committee on Executive Compensation
The Compensation Committee annually reviews the compensation levels of
executive officers of Citizens South Banking Corporation and Citizens South Bank
and recommends changes to the Board of Directors. The Compensation Committee is
composed entirely of non-employee directors. It is intended that the executive
compensation program will enable Citizens South Banking Corporation to attract,
develop, retain and motivate qualified executive officers who are capable of
maximizing its performance for the benefit of its stockholders. The Compensation
Committee's strategy seeks to provide competitive compensation strongly aligned
with the financial and stock performance of Citizens South Banking Corporation.
The compensation program has three key elements: base salary, annual incentive
bonuses and long-term equity-based compensation.
In 2002, Citizens South Banking Corporation retained a recognized
compensation consulting firm to review its annual compensation package for
executive officers. Compensation levels of Citizens South Banking Corporation
were compared to other similarly situated publicly-traded financial services
companies in Citizens South Banking Corporation's market area. The review
determined that base salaries, annual incentive bonuses and
12
equity-based compensation offered by Citizens South Banking Corporation were
within the competitive range of similarly situated financial services companies
at that time.
Base Salaries. Base salary levels and changes to such levels reflect a
variety of factors including the results of the Compensation Committee's review
of reports of independent consulting firms, including the report described
above, and the executive's contribution to the long-term goals of Citizens South
Banking Corporation as well as recent results. The Compensation Committee also
considers employment agreements, if any, which entitle executives to certain
salaries and other benefits. Changes to base salaries are based on numerous
objective criteria and the weighing of such criteria using a previously
established formula.
Incentive Bonuses. In 2002, Citizens South Banking Corporation adopted a
Management Incentive Plan for certain officers from which performance-oriented
bonuses may be paid in any given year based on the executive's relative
responsibilities and ability to improve the financial and operating performance
of Citizens South Banking Corporation. The Compensation Committee annually
determines the officers eligible to participate in the plan.
The plan is based on operating earnings of Citizens South Bank. If
Citizens South Bank's operating earnings exceed a specified target, a bonus pool
is created based on the amount by which the target is exceeded. An individual
executive's bonus is based upon the achievement of individual performance goals
considering elements of performance such as Citizens South Banking Corporation's
actual operating performance considered in relation to targeted long range
strategic plans. Other criteria also are considered, including the executive's
initiative, contribution to overall corporate performance, and managerial
ability. No incentive bonuses were paid for the year ended December 31, 2003.
Equity-Based Compensation. The final component of compensation consists of
stock options and restricted stock awards. In 2003, the Company's stockholders
approved the 2003 Recognition and Retention Plan and the 2003 Stock Option Plan.
In accordance with these plans, awards of stock options and restricted stock
were made to executive officers during 2003. All stock options vest in 20%
increments over a five-year period from the date of the executive's employment
with the Bank. Restricted stock awards vest over a seven-year period, commencing
on the date of the award, at the rate of 30% immediately, 10% on January 2,
2004, 10% on November 3, 2005, and 10% per year on November 3 of each year
thereafter. These awards will become immediately exercisable upon the
executive's disability, normal retirement, death, or following a change in
control of the Company. The Compensation Committee believes that long-term
incentives are the most effective way of aligning executive compensation with
the creation of value for stockholders through stock appreciation. Awards of
equity-based compensation were based on individual performance as well as the
executive's ability to impact the financial and operating performance of
Citizens South Banking Corporation. Future awards will be dependent on Company
and individual performance, as well as competitive market conditions.
The full Board of Directors (without the participation of Mr. Price)
determines the compensation of the Chief Executive Officer based on
recommendations of the Compensation Committee. Factors considered by the
Compensation Committee in recommending the Chief Executive Officer's 2003 base
salary included the financial performance of Citizens South Banking Corporation
and the advancement of its long-term strategic goals. During 2003, the
executive's base salary increased to $190,008 from $150,000. The executive did
not receive an incentive bonus in 2003, compared to an incentive bonus of
$41,580 received in the prior year. In 2003, the Chief Executive Officer was
granted 109,305 stock options and 42,500 shares of restricted common stock. The
Compensation Committee determined these awards based on a study of other
comparable institutions, its philosophy on the importance of emphasizing equity
participation, and its evaluation of the Chief Executive Officer's long-term
contribution to the Company's performance and his efforts and actions in
successfully building an institution and management team capable of leading a
public company.
The Compensation Committee
Ben R. Rudisill, II (Chairman)
James J. Fuller
Eugene R. Matthews, II
13
Stock Performance Graph
Set forth hereunder is a stock performance graph comparing (a) the
cumulative total return on the common stock for the period beginning with the
last trade of Citizens South Banking Corporation's stock on December 31, 1998,
as reported by the Nasdaq Stock Market, through December 31, 2003, (b) the
cumulative total return on stocks included in the Russell 2000 Index over such
period, and (c) the cumulative total return on stocks included in the SNL
Southeast Thrift Index over such period. Cumulative return assumes the
reinvestment of dividends, and is expressed in dollars based on an assumed
initial investment of $100.
Citizens South Banking Corporation
[LINE GRAPH OMITTED]
Period Ended
-------------------------------------------------------------------------------
Index 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
- --------------------------------------------------------------------------------------------------------------------------------
Citizens South Banking Corporation 100.00 88.96 87.95 123.10 182.09 253.74
Russell 2000 100.00 121.26 117.59 120.52 95.83 141.11
SNL Southeast Thrift Index 100.00 99.22 97.65 149.30 175.14 265.60
There can be no assurance that the common stock's performance will
continue in the future with the same or similar trend depicted in the graph.
Citizens South Banking Corporation will not make or endorse any predictions as
to future stock performance.
Stock Benefit Plans
Stock Option Plans. In 1999 Citizens South Bank adopted, and Citizens
South Banking Corporation's stockholders approved, the 1999 Stock Option Plan.
In 2003, Citizens South Banking Corporation adopted, and its stockholders
approved, the 2003 Stock Option Plan.
14
Set forth below is certain information regarding options granted to the
Named Executive Officers during 2003:
=================================================================================================================================
OPTION GRANTS IN LAST FISCAL YEAR
=================================================================================================================================
Individual Grants
- ---------------------------------------------------------------------------------------------------------------------------------
Percent of Total
Options Options Granted to Grant Date Present
Name Granted Employees in FY 2003 Exercise Price Expiration Date Value (1)
- ---------------------------------------------------------------------------------------------------------------------------------
Kim S. Price 9,305 (2) 1.55% $15.06 April 19, 2009 $3.71
Kim S. Price 100,000 16.70% $15.04 November 3, 2013 $3.70
Paul L. Teem, Jr. 14,059 (2) 2.35% $12.98 April 19, 2009 $2.94
Paul L. Teem, Jr. 60,000 10.02% $15.04 November 3, 2013 $3.70
Gary F. Hoskins 10,561 (2) 1.76% $12.98 April 19, 2009 $2.94
Gary F. Hoskins 40,000 6.68% $15.04 November 3, 2013 $3.70
Michael R. Maguire 20,000 3.34% $15.04 November 3, 2013 $3.70
V. Burton Brinson, Jr. 20,000 3.34% $15.04 November 3, 2013 $3.70
Daniel M. Boyd, IV 20,000 3.34% $15.04 November 3, 2013 $3.70
=================================================================================================================================
- ----------
(1) The grant date present value was derived using the Black-Scholes option
pricing model with the following assumptions: volatility of 30.0%; risk
free rate of return of 5.0%; dividend yield of 1.848%; and a five-year
option life.
(2) Represents options granted as reload options pursuant to the 1999 Stock
Option Plan in exchange for shares of common stock used by the optionee in
satisfaction of all or a portion of the exercise price of an original
option grant. The reload options are subject to all of the same terms and
conditions as the original option, including the remaining option exercise
term, except that the exercise price of the reload option is determined at
the time the original option is exercised.
Pursuant to these plans, options to purchase common stock of the Company
were granted to directors and certain executive officers and employees of the
Company as determined by the Compensation Committee which administers the plans.
The committee also determines the period over which such awards will vest and
become exercisable. The 1999 plan provides for awards in the form of stock
options, reload options, limited stock appreciation rights and dividend
equivalent rights. The 2003 plan provides for awards in the form of stock
options, reload options and limited stock appreciation rights. Set forth below
is certain information concerning options outstanding to the Named Executive
Officers at December 31, 2003.
==============================================================================================================================
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
==============================================================================================================================
Number of Unexercised Value of Unexercised
Options at In-The-Money Options at
Year-End Year-End (1)
---------------------------------------------------------
Shares Acquired Value Exercisable/Unexercisable Exercisable/Unexercisable
Name Upon Exercise Realized (2) (#) ($)
- ------------------------------------------------------------------------------------------------------------------------------
Kim S. Price................ 25,000 $ 236,375 154,307 /-- $375,542 / $--
- ------------------------------------------------------------------------------------------------------------------------------
Paul L. Teem, Jr............ 32,557 $ 240,108 74,059 /-- $13,637 / $--
- ------------------------------------------------------------------------------------------------------------------------------
Gary F. Hoskins............. 24,456 $ 180,363 50,561 /-- $10,244 / $--
- ------------------------------------------------------------------------------------------------------------------------------
Michael R. Maguire.......... -- $-- 33,126 / 8,282 $134,902 / $33,729
- ------------------------------------------------------------------------------------------------------------------------------
V. Burton Brinson, Jr....... -- $-- 7,425 / 29,701 $22,900 / $91,605
- ------------------------------------------------------------------------------------------------------------------------------
Daniel M. Boyd, IV.......... -- $-- 4,000 / 16,000 $-- / $--
==============================================================================================================================
- ----------
(1) Equals the difference between the aggregate exercise price of such options
and the aggregate fair market value of the shares of common stock that
would be received upon exercise, assuming such exercise occurred on
December 31, 2003, at which date the last trade price of the common stock
as quoted on the Nasdaq National Market was $13.95.
(2) Equals the difference between the aggregate exercise price of such options
and the aggregate fair market value of the shares of common stock that
were received upon exercise.
Employee Stock Ownership Plan and Trust. Citizens South Bank implemented
an employee stock ownership plan in connection with its initial mutual holding
company reorganization. The employee stock
15
ownership plan was established effective January 1, 1998, and purchased 169,068
shares of common stock in the initial public offering that was completed on
April 9, 1998 and 105,198 shares in the offering that was completed on September
30, 2002. Employees with at least one year of employment in which they work
1,000 hours or more with Citizens South Bank and who have attained age 21 are
eligible to participate in the employee stock ownership plan. The employee stock
ownership plan borrowed funds from Citizens South Banking Corporation and used
those funds to purchase the shares of the common stock of Citizens South Banking
Corporation. The collateral for the loan is the common stock purchased by the
employee stock ownership plan. The loan is being repaid principally from
Citizens South Bank's contributions to the employee stock ownership plan over a
period of 15 years. The interest rate on the loan adjusts at the prime rate,
which is the base rate charged on corporate loans at large U.S. money center
commercial banks. Shares purchased by the employee stock ownership plan are held
in a suspense account for allocation among participants as the loan is repaid.
Contributions to the employee stock ownership plan and shares released
from the suspense account in an amount proportional to the repayment of the
employee stock ownership plan loan are allocated among employee stock ownership
plan participants on the basis of compensation in the year of allocation. For
the plan year ended December 31, 2003, 33,260 shares were released from the
suspense account and allocated to employees. Benefits will not vest at all
during the first four years of service and will become 100% vested upon the
completion of five years of service. Employees who were employed by Gaston
Federal Savings and Loan Association, Citizens South Bank's mutual predecessor,
generally received credit for up to five years of service with the mutual
institution. A participant also becomes 100% vested upon early or normal
retirement, disability or death of the participant or a change in control (as
defined in the employee stock ownership plan). A participant who terminates
employment for reasons other than death, retirement or disability prior to five
years of credited service will forfeit his entire benefit under the employee
stock ownership plan. Benefits will be payable in the form of common stock and
cash upon death, retirement, early retirement, disability or separation from
service. Citizens South Bank's contributions to the employee stock ownership
plan are discretionary, and subject to the loan terms and tax law limits and,
therefore, benefits payable under the employee stock ownership plan cannot be
estimated. Citizens South Bank is required to record compensation expense in an
amount equal to the fair market value of the shares released from the suspense
account.
Citizens South Bank's Board of Directors administers the employee stock
ownership plan. Citizens South Bank has appointed an independent financial
institution to serve as trustee of the employee stock ownership plan. The
employee stock ownership plan committee may instruct the trustee regarding
investment of funds contributed to the employee stock ownership plan. The
employee stock ownership plan trustee, subject to its fiduciary duty, must vote
all allocated shares held in the employee stock ownership plan in accordance
with the instructions of participating employees. Under the employee stock
ownership plan, nondirected shares and shares held in the suspense account will
be voted in a manner calculated to most accurately reflect the instructions the
trustee has received from participants regarding the allocated stock so long as
such vote is in accordance with the provisions of ERISA.
Restricted Stock Plans. In 1999, Citizens South Bank adopted, and the
Company's stockholders approved, the 1999 Recognition and Retention Plan. In
2003, the Company adopted and its stockholders approved the 2003 Recognition and
Retention Plan. Under these plans the Company has issued common stock to key
employees and directors. Awards vest for plan participants in accordance with
schedules determined by the Compensation Committee of the Board of Directors. If
a recipient ceases continuous service with the Company due to normal retirement,
death or disability, or following a change in control of the Company, shares
subject to restriction will immediately vest; in the event of cessation of
continuous service for any other reason, unvested shares are forfeited and
returned to the Company. Recipients have the right to vote non-vested shares
that have been awarded and will receive dividends declared on such shares.
Equity Compensation Plan Disclosure. Set forth below is information as of
December 31, 2003 regarding compensation plans under which equity securities of
Citizens South Banking Corporation are authorized for issuance.
16
=============================================================================================================================
Number of Securities to be Number of Securities
Issued upon Exercise of Weighted Average Remaining Available for
Plan Outstanding Options and Rights Exercise Price Issuance under Plan
- -----------------------------------------------------------------------------------------------------------------------------
Equity compensation plans approved 810,953 $ 7.00 23,354(1)
by stockholders
- -----------------------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by stockholders -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total 810,953 $ 7.00 23,354(1)
=============================================================================================================================
(1) There are no shares available for future issuance pursuant to the 1999
Recognition and Retention Plan and 541 shares underlying options available
for future issuance pursuant to the 1999 Stock Option Plan. There are
13,838 shares available for future issuance pursuant to the 2003
Recognition and Retention Plan and 8,975 shares underlying options
available for future issuance pursuant to the 2003 Stock Option Plan.
Section 16(a) Beneficial Ownership Reporting Compliance
The common stock of Citizens South Banking Corporation is registered with
the SEC pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the
"Exchange Act"). The officers and directors of Citizens South Banking
Corporation and beneficial owners of greater than 10% of Citizens South Banking
Corporation's common stock ("10% beneficial owners") are required to file
reports on Forms 3, 4, and 5 with the SEC disclosing beneficial ownership and
changes in beneficial ownership of the common stock. SEC rules require
disclosure in Citizens South Banking Corporation's Proxy Statement or Annual
Report on Form 10-K of the failure of an officer, director, or 10% beneficial
owner of Citizens South Banking Corporation's common stock to file a Form 3, 4,
or 5 on a timely basis. All of Citizens South Banking Corporation's officers and
directors filed these reports on a timely basis for 2003.
Transactions with Certain Related Persons
Federal law and regulation generally requires that all loans or extensions
of credit to executive officers and directors must be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with the general public and must not involve
more than the normal risk of repayment or present other unfavorable features.
However, pursuant to federal regulations permitting executive officers and
directors to receive the same terms through benefit or compensation plans that
are widely available to other employees as long as the director or executive
officer is not given preferential treatment compared to the other participating
employees, Citizens South Bank extended loans to Directors Hoyle and Matthews
and to Bank officer Huffstetler (summarized in the table below).
Set forth below is certain information as to loans made by Citizens South
Bank to certain of its directors and executive officers, or their affiliates,
whose aggregate indebtedness to Citizens South Bank exceeded $60,000 at any time
since January 1, 2003. Unless otherwise indicated, all of the loans are secured
loans and all loans designated as residential loans are first mortgage loans
secured by the borrower's principal place of residence.
Highest Interest
Original Balance Balance on Rate on
Loan During December 31, December 31,
Name of Individual Loan Type Date Originated Amount 2003 2003 2003
- -------------------------- -------------------------- --------------- ---------- ----------- ------------ ------------
Senator David W. Hoyle Residential (refinance) 1/03 $ 205,000 $ 205,500 $ 201,193 4.625%
Residential (second home) 2/03 $ 669,300 669,300 656,539 4.375%
Home equity line of credit 1/03 $ 50,000 50,000 41,149 Prime
Residential (refinance) 2/98 $ 191,200 $ 138,180 $ -- N/A
Residential (second home) 5/98 $ 500,000 $ 369,520 $ -- N/A
Home equity line of credit 12/96 $ 100,000 $ 65,189 $ -- N/A
Eugene R. Matthews, II Residential 3/94 $ 148,000 $ 111,928 $ 104,178 5.75%
B. Frank Matthews, II (1) Residential 1/98 $ 232,000 $ 172,384 $ -- N/A
Residential 4/98 $ 134,400 $ 98,660 $ -- N/A
J. Stephen Huffstetler Residential 7/97 $ 170,000 $ 155,696 $ 152,460 5.75%
Home equity line of credit 2/00 $ 50,800 $ 44,504 $ 34,638 Prime
- ----------
(1) The borrower is a former director of Citizens South Bank and the father of
Director Eugene R. Matthews, II.
17
Section 402 of the Sarbanes-Oxley Act of 2002 generally prohibits an
issuer from: (1) extending or maintaining credit; (2) arranging for the
extension of credit; or (3) renewing an extension of credit in the form of a
personal loan for an officer or director. There are several exceptions to this
general prohibition, one of which is applicable to the Company. Sarbanes-Oxley
does not apply to loans made by a depository institution that is insured by the
FDIC and is subject to the insider lending restrictions of the Federal Reserve
Act. All loans to the Company's directors and officers are made in conformity
with the Federal Reserve Act and the Federal Reserve Board Regulation O.
PROPOSAL II--RATIFICATION OF APPOINTMENT OF AUDITORS
The Audit Committee has approved the engagement of Cherry, Bekaert &
Holland, L.L.P. to be Citizens South Banking Corporation's auditors for the 2004
fiscal year, subject to the ratification of the engagement by Citizens South
Banking Corporation's stockholders. At the Meeting, stockholders will consider
and vote on the ratification of the engagement of Cherry, Bekaert & Holland,
L.L.P. for Citizens South Banking Corporation's fiscal year ending December 31,
2004. A representative of Cherry, Bekaert & Holland, L.L.P. is expected to
attend the Meeting to respond to appropriate questions and to make a statement
if he so desires.
Stockholder ratification of the selection of Cherry, Bekaert & Holland,
L.L.P. is not required by Citizens South Banking Corporation's bylaws or
otherwise. However, the Board is submitting the selection of the independent
auditors to the stockholders for ratification as a matter of good corporate
practice. If the stockholders fail to ratify the selection of Cherry, Bekaert &
Holland, L.L.P., the Audit Committee will reconsider whether or not to retain
that firm. Even if the selection is ratified, the Audit Committee in its
discretion may direct the appointment of a different independent accounting firm
at any time during the year if it determines that such change is in the best
interests of Citizens South Banking Corporation and its stockholders.
Fees Paid to Cherry, Bekaert & Holland, L.L.P.
Set forth below is certain information concerning aggregate fees billed
for professional services rendered by Cherry, Bekaert & Holland, L.L.P. to
Citizens South Banking Corporation during 2003 and 2002:
Audit Fees. The aggregate fees billed to the Company by Cherry, Bekaert &
Holland, L.L.P. for professional services rendered by Cherry, Bekaert & Holland,
L.L.P. for the audit of Citizens South Banking Corporation's annual financial
statements, review of the financial statements included in Citizens South
Banking Corporation's Quarterly Reports on Form 10-Q and services that are
normally provided by Cherry, Bekaert & Holland, L.L.P. in connection with
statutory and regulatory filings and engagements were $40,126 and $126,542
during the fiscal years ended December 31, 2003 and 2002, respectively.
Audit Related Fees. The aggregate fees billed to the Company by Cherry,
Bekaert & Holland, L.L.P. for assurance and related services rendered by Cherry,
Bekaert & Holland, L.L.P. that are reasonably related to the performance of the
audit of and review of the financial statements and that are not already
reported in "--Audit Fees," above, were $13,555 and $30,755 during the fiscal
years ended December 31, 2003 and 2002, respectively. During the year ended
December 31, 2003, audit related fees included fees for assistance and review of
FHLB collateral certification, research related to the Sarbanes-Oxley Act of
2002, Bank Secrecy Act procedures, and various disclosure information. During
the year ended December 31, 2002, audit related fees included fees for
accounting assistance related to the acquisition of Innes Street Financial
Corporation of Salisbury, North Carolina, of $30,755.
Tax Fees. The aggregate fees billed to the Company by Cherry, Bekaert &
Holland, L.L.P. for professional services rendered by Cherry, Bekaert & Holland,
L.L.P. for tax compliance, tax advice and tax planning were $25,271 and $23,716
during the fiscal years ended December 31, 2003 and 2002, respectively. These
services included fees for various tax services in 2003 and, in 2002, which
included preparation of the 2001 Innes Street Financial Corporation tax returns
as well as Innes Street's final tax return as of December 31, 2001.
All Other Fees. There were no aggregate fees billed to the Company by
Cherry, Bekaert & Holland, L.L.P. that are not described above during the fiscal
years ended December 31, 2003 and 2002.
18
The Audit Committee has considered whether the provision of non-audit
services, which related in 2003 primarily to tax preparation services and
research related to the Sarbanes-Oxley Act of 2002 and in 2002 primarily to
accounting assistance related to the acquisition of Innes Street Financial
Corporation and tax preparation services, is compatible with maintaining Cherry,
Bekaert & Holland, L.L.P.'s independence. The Audit Committee concluded that
performing such services does not affect Cherry, Bekaert & Holland, L.L.P.'s
independence in performing its function as auditor of Citizens South Banking
Corporation.
Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of
Independent Auditor
The Audit Committee's policy is to pre-approve all audit and non-audit
services provided by the independent auditors. These services may include audit
services, audit-related services, tax services and other services. Pre-approval
is generally provided for up to one year and any pre-approval is detailed as to
particular service or category of services and is generally subject to a
specific budget. The Audit Committee has delegated pre-approval authority to its
Chairman when expedition of services is necessary. The independent auditors and
management are required to periodically report to the full Audit Committee
regarding the extent of services provided by the independent auditors in
accordance with this pre-approval, and the fees for the services performed to
date.
In 2003, 3.8% of the fees paid to Cherry, Bekaert & Holland, L.L.P. for
non-audit services were paid following a waiver of the Audit Committee's
pre-approval requirement for audit and non-audit services provided by the
independent auditors.
Required Vote and Recommendation of the Board of Directors
In order to ratify the selection of Cherry, Bekaert & Holland, L.L.P. as
the auditors for the 2004 fiscal year, the proposal must receive at least a
majority of the votes cast, either in person or by proxy, in favor of such
ratification.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF CHERRY,
BEKAERT & HOLLAND, L.L.P. AS AUDITORS FOR THE 2004 FISCAL YEAR.
STOCKHOLDER PROPOSALS AND NOMINATIONS
In order to be eligible for inclusion in Citizens South Banking
Corporation's proxy materials for next year's Annual Meeting of Stockholders,
any stockholder proposal to take action at such meeting must be received at
Citizens South Banking Corporation's executive office, 245 West Main Avenue,
Gastonia, North Carolina 28053-2249, no later than December 3, 2004. Nothing in
this paragraph shall be deemed to require the Company to include in its proxy
statement and proxy relating to an annual meeting any stockholder proposal that
does not meet all of the requirements for inclusion established by the SEC.
The Bylaws of Citizens South Banking Corporation provide an advance notice
procedure for certain business, or nominations to the Board of Directors, to be
brought before an annual meeting. In order for a stockholder to properly bring
business before an annual meeting, or to propose a nominee to the Board, the
stockholder must give written notice to the Secretary of Citizens South Banking
Corporation not less than ninety (90) days before the date fixed for such
meeting; provided, however, that in the event that less than one hundred (100)
days notice or prior public disclosure of the date of the meeting is given or
made, notice by the stockholder to be timely must be received no later than the
close of business on the tenth day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure was made. The
notice must include the stockholder's name, record address, and number of shares
owned by the stockholder, describe briefly the proposed business, the reasons
for bringing the business before the annual meeting, and any material interest
of the stockholder in the proposed business. In the case of nominations to the
Board, certain information regarding the nominee must be provided. Nothing in
the paragraph shall be deemed to require Citizens South Banking Corporation to
include in its proxy statement and proxy relating to an annual meeting any
stockholder proposal which does not meet all of the requirements or inclusion
established by the SEC in effect at the time such proposal is received.
19
The date on which the next Annual Meeting of Stockholders of Citizens
South Banking Corporation is expected to be held is May 9, 2005. Accordingly,
advance written notice of business or nominations to the Board of Directors to
be brought before next year's Annual Meeting of Stockholders must be given to
Citizens South Banking Corporation no later than February 9, 2005. If notice is
received after February 9, 2005, it will be considered untimely, and the Company
will not be required to present the matter at the meeting.
MISCELLANEOUS
The Board of Directors is not aware of any business to come before the
Meeting other than the matters described above in this proxy statement. However,
if any matters should properly come before the Meeting, it is intended that
holders of the proxies will act as directed by a majority of the Board of
Directors, except for matters related to the conduct of the Meeting, as to which
they shall act in accordance with their best judgment.
The cost of solicitation of proxies will be borne by Citizens South
Banking Corporation. Citizens South Banking Corporation will reimburse brokerage
firms and other custodians, nominees and fiduciaries for reasonable expenses
incurred by them in sending proxy materials to the beneficial owners of common
stock. In addition to solicitations by mail, directors, officers and regular
employees of Citizens South Bank may solicit proxies personally or by telephone
without additional compensation.
A copy of the Citizens South Banking Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 2003 will be furnished without
charge to stockholders as of the record date upon written request to the
Secretary, Citizens South Banking Corporation, 245 West Main Avenue, Gastonia,
North Carolina 28053-2249.
BY ORDER OF THE BOARD OF DIRECTORS
Paul L. Teem, Jr.
Gastonia, North Carolina Secretary
April 2, 2004
20
APPENDIX A
CITIZENS SOUTH BANKING CORPORATION
Gastonia, North Carolina
Audit Committee Charter
Adopted March 15, 2004
I. Purpose
The Audit Committee (the "Committee") is a committee of the Board of Directors
(the "Board") of Citizens South Banking Corporation (the "Company"). The
Committee's primary function is to assist the Board in monitoring:
o the integrity of the Company's financial statements
o the qualifications and independence of the Company's independent
auditor
o the performance of the Company's internal audit function and
independent auditor
o the Company's disclosure controls and system of internal controls
over financial reporting
The Committee should foster adherence to, and encourage continuous improvement
of, the Company's policies, procedures and practices. The Committee should also
provide an open avenue of communication among financial and senior management,
the internal audit function, the independent auditor and the Board.
The Committee has the authority, to the extent it deems necessary or
appropriate, to retain independent legal, accounting or other advisors. The
Company shall provide for appropriate funding, as determined by the Committee,
for payment of compensation to the independent auditor for the purpose of
rendering or issuing an audit report and to any advisors employed by the
Committee.
The Committee will report regularly to the Board. The Committee shall review and
assess the adequacy of this Charter annually and recommend any proposed changes
to the Board for approval.
II. Composition and Meetings
The Committee shall be comprised of at least three (3) directors, as determined
by the Board. Each Committee member shall be an independent director, as defined
by all applicable rules and regulations, including the listing standards of
Nasdaq, and free from any relationship (including disallowed compensatory
arrangements) that, in the opinion of the Board, would interfere with the
exercise of his or her independent judgment as a member of the Committee.
All members of the Committee shall be able to read and understand fundamental
financial statements, including a company's balance sheet, income statement and
cash flow statement. At least one member of the Committee shall have past
employment experience in finance or accounting, requisite professional
certification in accounting, or other comparable experience. The Board shall
determine whether at least one member of the Committee qualifies as an "audit
committee financial expert" in compliance with criteria established by the SEC
and other relevant regulations. The existence of such member, including his or
her name and whether he or she is independent, shall be disclosed in periodic
filings as required by the SEC.
The members of the Committee shall be elected by the Board and shall serve until
their successors are duly elected and qualified. Unless a Chair is elected by
the full Board, the members of the Committee may designate a Chair by majority
vote of the full Committee membership.
The Committee shall meet at least quarterly or more frequently as circumstances
dictate. Each regularly scheduled meeting shall conclude with an executive
session of the Committee absent members of management and on such terms and
conditions as the Committee may choose. As part of its responsibility to foster
open communication, the Committee will meet periodically with management, the
internal auditor and the independent auditor in separate executive sessions to
discuss any matters that the Committee or each of those parties believe should
be discussed privately. The Committee will meet quarterly with the independent
auditor and management to discuss the Company's financial statements.
A-1
III. Duties and Responsibilities
The Committee, to the extent it deems necessary or appropriate, shall:
Financial Statement and Disclosure Matters
o Review and discuss with management and the independent auditor the
Company's annual audited financial statements, including disclosures
made in management's discussion and analysis, and recommend to the
Board whether the audited financial statements should be included in
the Company's Form 10-K.
o Review and discuss with management and the independent auditor the
Company's quarterly financial statements prior to the filing of the
Company's Form 10-Q, including the results of the independent
auditor's review of the quarterly financial statements.
o Review and discuss with management and the independent auditor the
certifications of the Company's chief executive officer and chief
financial officer about any significant deficiencies in the design
or operation of internal controls or material weaknesses therein and
any fraud involving management or other employees who have a
significant role in the Company's internal controls, as required by
the Sarbanes-Oxley Act of 2002 (Sections 302 and 906), and the
relevant reports rendered by the independent auditor.
o Discuss with management and the independent auditor significant
financial reporting issues and judgments made in connection with the
preparation of the Company's financial statements, including any
significant changes in the Company's selection or application of
accounting principles, any major issues as to the adequacy of the
Company's internal controls and any special steps adopted in light
of material control deficiencies.
o Review and discuss quarterly reports from the independent auditor
on:
a. all critical accounting policies and practices used or
to be used;
b. all alternative treatments of financial information
within generally accepted accounting principles that
have been discussed with management, ramifications of
the use of such alternative disclosures and treatments,
and the treatment preferred by the independent auditor;
and
c. other material written communications between the
independent auditor and management, such as any
management letter or schedule of unadjusted differences.
o Discuss with management the Company's earnings press releases,
including the use of "pro forma" or "adjusted" non-GAAP information,
as well as financial information and earnings guidance provided to
analysts and ratings agencies. Such discussions may be on general
terms (i.e., discussion of the types of information to be disclosed
and the type of presentation to be made).
o Discuss with management and the independent auditor the effect of
regulatory and accounting initiatives as well as off-balance sheet
structures on the Company's financial statements.
o Discuss with management the Company's major financial risk exposures
and the steps management has taken to monitor and control such
exposures, including the Company's risk assessment and risk
management policies.
o Review with management, corporate counsel and the independent
auditor the status of legal matters, including the significance of
such matters on the Company's financial statements, and the adequacy
of disclosures regarding such matters in the Company's financial
statements and SEC filings.
o Review with management and the independent auditor all related party
transactions and determine that all required disclosures are
included in the Company's annual report and annual proxy statement.
o Review with the independent auditor the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit, any difficulties encountered in the course of
the audit, any restrictions on the scope of activities or access to
requested information, and any significant disagreements with
management.
Independent Auditor
o Appoint, compensate and oversee the work performed by the
independent auditor for the purpose of preparing an audit report on
the Company's financial statements or related work. Review the
performance of the independent auditor and remove the independent
auditor if circumstances warrant. The independent auditor shall
report directly to the Committee and the Committee shall oversee the
resolution of disagreements between management and the independent
auditor in the event they arise. Consider whether the auditor's
performance of permissible non-audit services is compatible with the
auditor's independence.
A-2
o Review and evaluate the lead partner of the independent auditor
team. Ensure the rotation of the lead audit partner and the audit
partner responsible for reviewing the audit as required by law.
o Obtain and review a report from the independent auditor at least
annually regarding:
a. the internal quality control procedures of the
independent auditor's firm;
b. any material issues raised by the most recent internal
quality control review, peer review or by any inquiry or
investigation by governmental or professional
authorities, within the preceding five years, respecting
one or more independent audits carried out by the firm,
and any steps taken to deal with any such issues; and
c. all relationships between the independent auditor and
the Company.
o Review and pre-approve both audit and non-audit services to be
provided by the independent auditor (other than with respect to
non-significant exceptions permitted by the Sarbanes-Oxley Act of
2002) in accordance with the Company's pre-approval policy.
o Meet with the independent auditor prior to the audit to discuss the
planning and staffing of the audit.
o Employees or former employees of the independent auditor who
participated in any capacity in the audit of the Company will not be
hired by the Company unless (a) it is determined that such a hiring
would not violate any rules and regulations and (b) the hiring is
pre-approved by the Board.
Internal Audit
o Review and advise on the appointment and replacement of the senior
internal audit executive.
o Review activities, organizational structure and qualifications of
the internal audit function.
o Review the significant reports to management prepared by the
internal auditor and management's responses.
o Review the internal audit charter annually and recommend changes, if
any.
o Review periodically with the independent auditor the budget,
staffing and responsibilities of the internal audit function.
o Review periodically with the internal auditor any significant
difficulties, disagreements with management or scope restrictions
encountered in the course of the function's work.
Other Responsibilities
o Discuss with management and the independent auditor any
correspondence with regulators or governmental agencies and any
reports that raise material issues regarding the Company's financial
statements or accounting policies.
o Establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters, and the confidential,
anonymous submission by employees of concerns regarding questionable
accounting or auditing matters.
o Conduct a review of all related party transactions (those
transactions required to be disclosed in the Company's proxy
statement pursuant to Item 404 of the SEC's Regulation S-K) for the
purpose of determining whether a conflict of interest exists. Where
the Committee determines, in its judgment, that no such conflict of
interest exists, the Committee may authorize such transaction.
IV. Limitation of Audit Committee's Role
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements and disclosures are complete
and accurate and are in accordance with generally accepted accounting principles
and applicable rules and regulations. These are the responsibilities of
management and the independent auditor.
A-3
APPENDIX A
REVOCABLE PROXY
CITIZENS SOUTH BANKING CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
May 10, 2004
The undersigned hereby appoints the full Board of Directors, with full
powers of substitution to act as attorneys and proxies for the undersigned to
vote all shares of common stock of Citizens South Banking Corporation which the
undersigned is entitled to vote at the Annual Meeting of Stockholders (the
"Meeting") to be held at the Gaston County Public Library at 1555 East Garrison
Boulevard, Gastonia, North Carolina, at 10:30 a.m. (local time) on May 10, 2004.
The official proxy committee is authorized to cast all votes to which the
undersigned is entitled as follows:
VOTE
FOR WITHHELD
--- --------
1. The election as Directors of all nominees
listed below each to serve for a three-year |_| |_|
term
Kim S. Price
Eugene R. Matthews, II
INSTRUCTION: To withhold your vote for one
or more nominees, write the name of the
nominee(s) on the line(s) below.
______________________________
______________________________
VOTE
FOR WITHHELD ABSTAIN
--- -------- -------
2. The ratification of the appointment of
Cherry, Bekaert & Holland, L.L.P. as |_| |_| |_|
auditors for the fiscal year ending
December 31, 2004.
The Board of Directors recommends a vote "FOR" each of the listed proposals.
- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS STATED ABOVE. IF ANY OTHER
BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THE
ABOVE-NAMED PROXIES AT THE DIRECTION OF A MAJORITY OF THE BOARD OF DIRECTORS. AT
THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE
PRESENTED AT THE MEETING.
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting or at
any adjournment thereof and after notification to the Secretary of Citizens
South Banking Corporation at the Meeting of the stockholder's decision to
terminate this proxy, then the power of said attorneys and proxies shall be
deemed terminated and of no further force and effect. This proxy may also be
revoked by sending written notice to the Secretary of Citizens South Banking
Corporation at the address set forth on the Notice of Annual Meeting of
Stockholders, or by the filing of a later proxy statement prior to a vote being
taken on a particular proposal at the Meeting.
The undersigned acknowledges receipt from Citizens South Banking
Corporation prior to the execution of this proxy of a Notice of the Meeting and
a proxy statement dated April 2, 2004.
Dated: ____________________, 2004 |_| Check Box if You Plan
to Attend Meeting
_________________________________ ___________________________________
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
_________________________________ ___________________________________
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this card. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title. If
shares are held jointly, each holder should sign.
- --------------------------------------------------------------------------------
Please complete and date this proxy and return it promptly
in the enclosed postage-prepaid envelope.
- --------------------------------------------------------------------------------
REVOCABLE PROXY
CITIZENS SOUTH BANKING CORPORATION
|X| PLEASE MARK VOTES
AS IN THIS EXAMPLE
CITIZENS SOUTH BANKING CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
MAY 10, 2004
The undersigned hereby appoints the full Board of Directors, with full powers of
substitution to act as attorneys and proxies for the undersigned to vote all
shares of common stock of Citizens South Banking Corporation which the
undersigned is entitled to vote at the Annual Meeting of Stockholders (the
"Meeting") to be held at the Gaston County Public Library at 1555 East Garrison
Boulevard, Gastonia, North Carolina, at 10:30 a.m. (local time) on May 10, 2004.
The official proxy committee is authorized to cast all votes to which the
undersigned is entitled as follows:
Vote
With-
For held
1. The election as Directors of all nominees listed |_| |_|
below each to serve for a three-year term
Kim S. Price
Eugene R. Matthews, II
INSTRUCTION: To withhold your vote for one or more nominees, write the name of
the nominee(s) on the line below.
______________________________________________________________________________
Vote
With-
For held Abstain
2. The ratification of the appointment of Cherry, |_| |_| |_|
Bekaert & Holland, L.L.P. as auditors for the
fiscal year ending December 31, 2004.
The Board of Directors recommends a vote "FOR" each of the listed
proposals.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS STATED ABOVE.
IF ANY OTHER BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY
THE ABOVE-NAMED PROXIES AT THE DIRECTION OF A MAJORITY OF THE BOARD OF
DIRECTORS. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER
BUSINESS TO BE PRESENTED AT THE MEETING.
PLEASE CHECK BOX IF YOU PLAN TO ATTEND THE MEETING. |_|
Please be sure to sign and date this Proxy in the box below. Date _____________
________________________________________________________________________________
Stockholder sign above Co-holder (if any) sign above
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Detach above card, complete, date, sign and mail in postage-paid envelope
provided.
CITIZENS SOUTH BANKING CORPORATION
Should the above signed be present and elect to vote at the Meeting or at
any adjournment thereof and after notification to the Secretary of Citizens
South Banking Corporation at the Meeting of the stockholder's decision to
terminate this proxy, then the power of said attorneys and proxies shall be
deemed terminated and of no further force and effect. This proxy may also be
revoked by sending written notice to the Secretary of Citizens South Banking
Corporation at the address set forth on the Notice of Annual Meeting of
Stockholders, or by the filing of a later proxy statement prior to a vote being
taken on a particular proposal at the Meeting.
The above signed acknowledges receipt from Citizens South Banking
Corporation prior to the execution of this proxy of a Notice of the Meeting and
a proxy statement dated April 2, 2004.
Please sign exactly as your name appears on this card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
Please complete and date this proxy and return it promptly
in the enclosed postage-prepaid envelope.
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If your address has changed, please correct the address in the space provided
below and return this portion with the proxy in the envelope provided.
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