SCHEDULE 14-A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Citizens South Banking Corporation
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] 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:
...........................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
...........................................
4) Proposed maximum aggregate value of transaction:
...........................................
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
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.:
3) Filing Party:
4) Date Filed: March 24, 2003
April 3, 2003
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 12, 2003.
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
2003 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
the 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 12, 2003
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 12, 2003 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, 2003; 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 24, 2003 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 3, 2003
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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
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ANNUAL MEETING OF STOCKHOLDERS
MAY 12, 2003
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This proxy statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Citizens South Banking
Corporation to be used at the Annual Meeting of Stockholders of Citizens South
Banking Corporation (the "Meeting"), which will be held at the Gaston County
Public Library at 1555 East Garrison Boulevard, Gastonia, North Carolina
28054-5156, on May 12, 2003 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 3,
2003.
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REVOCATION OF PROXIES
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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, 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.
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VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
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Holders of record of Citizens South Banking Corporation common stock
("common stock") at the close of business on March 24, 2003 (the "Voting Record
Date") are entitled to one vote for each share held. As of the Voting Record
Date, there were 9,076,552 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 information as to those persons who were the
beneficial owners of more than five percent of Citizens South Banking
Corporation's outstanding shares of common stock on the Voting Record Date.
Amount of Shares Owned and Percent of Shares of
Name and Address of Beneficial Owner Nature of Beneficial Ownership (1) Common Stock Outstanding
- -------------------------------------------- -------------------------------------- ----------------------------
Citizens South Bank Employee Stock Ownership 460,734 5.08%
Plan
245 West Main Avenue
Gastonia, North Carolina 28053-2249
<FN>
____________________________
(1) All shares are held on behalf of the plan by a third-party trustee.
</FN>
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VOTING PROCEDURES AND METHOD OF COUNTING VOTES
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As to the election of directors, the white proxy card provided by the Board
of Directors enables the stockholders 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 being 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
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Citizens South Banking Corporation's Board of Directors is currently
composed of seven persons. The bylaws provide that approximately one-third of
the directors are to be elected annually. 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 Senator David W. Hoyle and Ben R. Rudisill,
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.
2
Shares of
Current Common Stock
Director Term Beneficially Percent
Name Age Positions Held Since Expires Owned (13) of Class
- ---------------------------------- ----- ---------------------- -------- ------- ---------------- ----------
NOMINEES
Senator David W. Hoyle 64 Chairman 1975 2003 165,249(1) 1.82%
Ben R. Rudisill, II 59 Vice Chairman 1977 2003 96,011(2) 1.06%
DIRECTORS
Kim S. Price 47 President, Chief 1997 2004 118,056(3) 1.30%
Executive Officer and
Director
Martha B. Beal 71 Director 1993 2005 82,959(4) *
James J. Fuller 59 Director 1972 2005 39,337(4) *
Charles D. Massey 65 Director 1971 2005 79,793 *
Eugene R. Matthews II 46 Director 1998 2004 48,502(5) *
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Gary F. Hoskins 39 Executive Vice 55,466(6) *
President, Treasurer
and Chief Financial
Officer
Paul L. Teem, Jr. 55 Executive Vice 96,039(7) 1.06%
President, Secretary
and Chief
Administrative Officer
Michael R. Maguire 45 Senior Vice President 23,162(8) *
and Chief Credit
Officer
Vance B. Brinson, Jr. 56 Executive Vice 4,388(9) *
President and Chief
Lending Officer
Daniel M. Boyd, IV 41 Executive Vice 21 *
President
J. Stephen Huffstetler 47 Senior Vice President 32,026(10) *
All directors and executive officers 841,009(11)(12) 9.27%
as a group (13 persons)
<FN>
__________________________________
(1) Includes 8,061 shares that may be acquired pursuant to presently
exercisable stock options.
(2) Includes 8,084 shares that may be acquired pursuant to presently
exercisable stock options.
(3) Includes 70,002 shares that may be acquired pursuant to presently
exercisable stock options.
(4) Includes 14,985 shares that may be acquired pursuant to presently
exercisable stock options.
(5) Includes 4,995 shares that may be acquired pursuant to presently
exercisable stock options.
(6) Includes 24,456 shares that may be acquired pursuant to presently
exercisable stock options.
(7) Includes 32,557 shares that may be acquired pursuant to presently
exercisable stock options.
(8) Includes 17,126 shares that may be acquired pursuant to presently
exercisable stock options.
(9) Includes 3,425 shares that may be acquired pursuant to presently
exercisable stock options.
(10) Includes 20,476 shares that may be acquired pursuant to presently
exercisable stock options.
(11) Includes 219,152 shares that may be acquired pursuant to presently
exercisable stock options.
(12) Includes 28,179 shares allocated to the accounts of executive officers
under the ESOP and excludes the remaining 432,555 shares (amounting to
5.08% 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.
(13) Unless otherwise indicated, each person effectively exercises sole (or
shared with spouse) voting and dispositive power as to the shares reported.
* Less than 1%
</FN>
The business experience for the past five years for each of Citizens South
Banking Corporation's directors and executive officers is as follows:
Directors
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.
3
Charles D. Massey is the Managing Partner of Massey Properties, a real
estate investment firm, and has served in that position 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.
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.
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 of
Matthews-Belk Co., Inc., a department store chain.
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.
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.
Vance Burton ("Burt") Brinson, Jr. has served as Executive Vice President
and Chief Lending Officer 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 service 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.
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 and Compensation Committees.
During the fiscal year ended December 31, 2002, the Board of Directors of
Citizens South Banking Corporation met at four regular meetings. No member of
the Board or any committee thereof attended less than 75% of said meetings.
Executive Committee. The Executive Committee consists of Directors Hoyle
(who serves as 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, 2002.
4
Nominating Committee. The Nominating Committee consists of all non-employee
directors of Citizens South Banking Corporation, and met two times during the
fiscal year ended December 31, 2002. The Nominating Committee considers and
recommends nominees to the Board of Directors. While the committee will consider
nominees recommended by stockholders, it has not actively solicited
recommendations from stockholders. Nominations by stockholders must comply with
certain procedural and informational requirements set forth in the bylaws of
Citizens South Banking Corporation. See "Stockholder Proposals and Nominations."
Compensation Committee. The Compensation Committee consists of directors
Ben R. Rudisill, II (Chairman), James J. Fuller and Eugene R. Matthews, II. 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 four times during the fiscal year ended December 31,
2002.
Audit Committee. The Audit Committee consists of Directors Massey (who
serves as Chairman), Rudisill and Beal. Each member of the Audit Committee is
"independent" as defined in the listing standards of the National Association of
Securities Dealers. The Audit Committee examines and approves the audit report
prepared by the independent auditors of Citizens South Bank, reviews and
recommends the independent auditors to be engaged by Citizens South Banking
Corporation, reviews the internal accounting controls of Citizens South Banking
Corporation, and reviews and approves internal audit policies and procedures.
The Company's Board of Directors has adopted a written charter for the Audit
Committee. The Audit Committee met four times during the fiscal year ended
December 31, 2002.
Audit Committee Report
The Audit Committee operates under a written charter adopted by the Board
of Directors, which was included as an appendix to the Company's proxy statement
dated January 12, 2001. Each member of the Audit Committee satisfies the
definition of independent director as established by the Nasdaq.
Management is responsible for the Company's internal controls and financial
reporting process. The independent auditors are responsible for performing an
independent audit of the Company's consolidated financial statements in
accordance with auditing standards generally accepted in the United States and
to issue 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, the Company's audited consolidated financial statements
for the year ended December 31, 2002;
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 the Company.
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 the Company's Annual Report on Form 10-K for the year
ended December 31, 2002 and be filed with the SEC. In addition, the Audit
Committee recommended that the Board of Directors appoint Cherry, Bekaert &
Holland, L.L.P. as the Company's independent auditors for the year ending
December 31, 2003, subject to the ratification of this appointment by the
stockholders of the Company.
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 Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended, except to the extent that the Company 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
Ben R. Rudisill, II
5
Employment Agreements
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, 2003, the base salary for Mr. Price was
$190,008. 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.
In February 2003, Citizens South Banking Corporation and Ronald E. Bostian,
Executive Vice President and Director, mutually agreed to terminate his
employment agreement upon his retirement. In consideration for the termination
of the agreement, Mr. Bostian received a lump sum cash payment of $122,500.
Executive Supplemental Retirement Plan. In June 2001, Citizens South Bank
adopted an Executive Supplemental Retirement Plan for six executives, including
Messrs. Price, Teem, Maguire and Hoskins. 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. At the end of 2002, both
Mr. Price and Mr. Teem were 100% vested in their accrued benefit. Each of Mr.
Maguire and Mr. Hoskins 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.
6
In the event Mr. Price, Teem, Maguire, or Hoskins 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, the executive will be
entitled to the 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, 2002, Messrs. Price, Teem, Maguire and Hoskins
had $62,964, $47,843, $14,557 and $9,024, 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 2002, Mr. Teem was 100% vested in his accrued benefit and Mr.
Price was 100% vested. Each of Mr. Maguire and Mr. Hoskins 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, and Daniel M.
Boyd, IV, 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 of Directors
Fees. During the fiscal year ended December 31, 2002, non-employee
Directors of Citizens South Bank received a retainer fee of $12,000 ($15,600 for
the Chairman), plus a fee of $300 per Board meeting attended, $400 per meeting
for attendance at Executive Committee meetings and $300 per meeting for all
other committee meetings.
Deferred Compensation and Income Continuation Agreement. In May 1986,
Citizens South Bank entered into nonqualified deferred compensation agreements
("DCA") for the benefit of certain Directors at that time, including Directors
Fuller, Hoyle, Massey, and Rudisill. The DCAs provided each director with the
opportunity to defer up to $20,000 of their annual compensation into the DCA. In
the event of a director's termination of employment, amounts credited to his
account under the DCA will be paid to him in 120 equal monthly installments
beginning not later than the sixth month following the end of Citizens South
Bank's year in which the director reaches age 70. In the event of death, amounts
under the DCA will be paid to the director's designated beneficiaries. 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. Citizens South Bank
7
paid $49,248 during the fiscal year ended December 31, 2002 pursuant to the
DCAs.
Supplemental Retirement Plan. In February 1992, Citizens South Bank entered
into nonqualified supplemental retirement agreements ("SRA") 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.
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 SRA 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 SRA are payable from the
general assets of Citizens South Bank. During the fiscal year ended December 31,
2002, Citizens South Bank paid a total of $41,089 pursuant to the SRAs.
Executive Compensation
The following table sets forth certain information as to the total
remuneration paid to executive officers of Citizens South Banking Corporation
who earned over $100,000 in salary and bonuses during fiscal 2002.
Annual Compensation Long-Term Compensation
-------------------------------- --------------------------------------------------------------
Awards Payouts
--------------------------- ---------------------------------
Year Other Annual Restricted All Other
Name and Ended Compensation Stock Options/ LTIP Compensation
Principal Position 12/31 (1) Salary (2) Bonus (3) (4) Awards SARS(#) Payouts (5)
- -------------------------- --------- ---------- --------- ------------ ---------- -------- ------- ------------
Kim S. Price 2002 $ 150,000 $ 41,580 -- -- -- -- $ 77,714(6)
President, Chief Executive 2001 $ 139,368 $ 34,000 -- -- -- -- $ 39,597(6)
Officer, and Director 2000 $ 130,008 $ 25,000 -- -- -- -- $ 13,321
Paul L. Teem, Jr. 2002 $ 95,016 $ 21,949 -- -- -- -- $ 53,252(6)
Executive Vice President, 2001 $ 90,192 $ 15,000 -- -- -- -- $ 28,755(6)
Secretary, and Chief 2000 $ 87,384 $ 12,000 -- -- -- -- $ 10,565
Administrative Officer
Ronald E. Bostian (7) 2002 $ 150,000 -- -- -- -- -- $ 4,500
Executive Vice President
and Director
Gary F. Hoskins 2002 $ 80,016 $ 21,064 -- -- -- -- $ 14,229(6)
Senior Vice President, 2001 $ 75,264 $ 12,500 -- -- -- -- 11,183(6)
Treasurer, and Chief 2000 $ 72,916 $ 10,000 -- -- -- -- 8,765
Financial Officer
Michael R. Maguire 2002 $ 92,520 $ 17,094 -- -- -- -- $ 17,574(6)
Senior Vice President and 2001 $ 88,032 $ 15,500 -- -- -- -- $ 12,842(6)
Chief Credit Officer 2000 $ 85,296 $ 10,000 -- -- -- -- $ 9,427
<FN>
_____________________________
(1) Compensation for the year 2000 reflects a fiscal year ending on September
30. In 2001, Citizens South Banking Corporation changed the end of its
fiscal year to December 31.
(2) Includes compensation deferred at the election of executives pursuant to
the 401(k) Plan of Citizens South Bank.
(3) Includes bonuses deferred at the election of executives pursuant to the
401(k) Plan of Citizens South Bank.
(4) Citizens South Bank provides certain members of senior management with
certain other personal benefits, the aggregate value of which 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.
(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.
(7) Mr. Bostian retired from all positions with Citizens South Banking
Corporation and Citizens South Bank on February 14, 2003.
</FN>
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists entirely of non-employee directors and
there are no interlocks or insider participation in compensation decisions. The
Company does not engage in any transactions with any of the members of the
Compensation Committee other than banking transactions in the ordinary course of
business. All loans and commitments included in those transactions were made and
are expected to be made on substantially the same terms, including interest rate
and collateral as those prevailing at the time for comparable transactions with
8
other borrowers and did not and are not expected to involve more than the normal
risk of collectibility or present other unfavorable features.
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 equity-based
compensation offered by Citizens South Banking Corporation are within the
competitive range of similarly situated financial services companies.
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.
Equity-Based Compensation. The final component of compensation consists of
stock options and restricted stock awards. 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 are based on individual
performance as well as the executive's ability to impact the financial and
operating performance of Citizens South Banking Corporation.
The full Board of Directors 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 2002 base salary included the financial performance of
Citizens South Banking Corporation and the advancement of its long-term
strategic goals. During 2002, the executive's base salary increased to $150,000
from $139,368. The executive's incentive bonus, calculated using the same
methodology as for other senior executives, amounted to $41,580 in 2002 compared
to $34,000 in the prior year.
9
The Compensation Committee
Ben R. Rudisill, II (Chairman)
James J. Fuller
Eugene R. Matthews, II
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 April 13, 1998, as
reported by the Nasdaq Stock Market, through December 31, 2002, (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.
[OBJECT OMITTED]
Period Ended
-------------------------------------------------------------------------
----------- ------------ ----------- ----------- ----------- ------------
Index 04/13/98 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
- ------------------------------------------- ----------- ------------ ----------- ----------- ----------- ------------
Citizens South Banking Corporation 100.00 72.75 64.71 63.98 89.55 132.46
Russell 2000 100.00 88.73 107.59 104.34 106.93 85.03
SNL Southeast Thrift Index 100.00 79.22 78.60 77.36 118.28 138.75
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.
10
Stock Benefit Plans
1999 Stock Option Plan. During the fiscal year ended September 30, 1999,
Citizens South Bank adopted, and Citizens South Banking Corporation's
stockholders approved, the Citizens South Bank 1999 Stock Option Plan. Directors
and employees are entitled to receive option grants under this plan. No options
were granted to executive officers or directors during 2002. Set forth below is
certain information concerning options outstanding to the Named Executive
Officers at December 31, 2002. No options were exercised by the Named Executive
Officers during the year ended December 31, 2002.
====================================================================================================================
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 (#) ($)
- ---------------------------- ---------------- ----------------- ------------------------- --------------------------
Kim S. Price............ -- $-- 56,001 / 14,001 $257,325 / $64,335
- ---------------------------- ---------------- ----------------- ------------------------- --------------------------
Paul L. Teem, Jr........ -- $-- 26,045 / 6,512 $119,677 / $29,923
- ---------------------------- ---------------- ----------------- ------------------------- --------------------------
Gary F. Hoskins......... -- $-- 19,564 / 4,892 $89,897 / $22,478
- ---------------------------- ---------------- ----------------- ------------------------- --------------------------
Michael R. Maguire...... -- $-- 12,844 / 8,564 $59,018 / $39,352
============================ ================ ================= ========================= ==========================
<FN>
____________________________
(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, 2002, at which date the last trade price of the common stock
as quoted on the Nasdaq National Market was $10.20.
</FN>
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 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, 2002, 32,580 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.
11
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.
Set forth below is information as of December 31, 2002 regarding equity
compensation plans categorized by those plans that have been approved by
stockholders and those plans that have not been approved by stockholders.
=============================== ============================ ============================ ============================
Number of Securities to be
Issued upon Exercise of Number of Securities
Outstanding Options and Weighted Average Remaining Available for
Plan Rights Exercise Price Issuance under Plan
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans 380,401 $ 5.73 20,534(1)
approved by stockholders
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans not
approved by stockholders -- -- --
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Total 380,401 $ 5.73 20,534(1)
=============================== ============================ ============================ ============================
<FN>
(1) There are no shares available for future issuance pursuant to the 1999
Recognition and Retention Plan and 20,534 shares underlying options
available for future issuance pursuant to the 1999 Stock Option Plan.
</FN>
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 2002, except a Form 4
reporting the exercise of stock options by director Charles D. Massey was filed
six business days after the due date.
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, recent regulations now permit 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.
Pursuant to such a program, Citizens South Bank has extended loans to Directors
Hoyle, Matthews, and Price.
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, 2002. 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.
12
Interest
Original Highest Balance on Rate on
Date Loan Balance December 31, December 31,
Name of Individual Loan Type Originated Amount During 2002 2002 2002
- ------------------------- -------------------------- ---------- --------- ----------- ------------ ------------
Senator David W. Hoyle Residential (refinance) 2/98 $ 191,200 $ 149,648 $ 138,180 5.75%
Residential (second home) 5/98 $ 500,000 $ 400,312 $ 369,520 6.00%
Home equity line of credit 12/96 $ 100,000 $ 65,189 $ 65,189 Prime + 1%
Eugene R. Matthews, II Residential 3/94 $ 148,000 $ 119,246 $ 111,928 5.75%
B. Frank Matthews, II (1) Residential 1/98 $ 232,000 $ 186,821 $ 172,384 5.875%
Residential 4/98 $ 134,400 $ 107,161 $ 98,660 5.875%
Kim S. Price Residential 5/98 $ 375,000 $ 288,992 $ -- N/A
J. Stephen Huffstetler Residential 07/97 $ 170,000 $ 159,209 $ 155,696 5.75%
Home equity line of credit 02/00 $ 50,800 $ 45,754 $ 44,504 Prime
<FN>
________________________________
(1) The borrower is a former Director of Citizens South Bank and the father of
Director Eugene R. Matthews, II.
</FN>
Other than as described above, all loans the principal balances of which
exceeded $60,000 at any time during the fiscal year ended December 31, 2002,
made by Citizens South Bank to executive officers, directors, immediate family
members of executive officers and directors, or organizations with which
executive officers and directors are affiliated, were made in the ordinary
course of business, on substantially the same terms including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons.
- --------------------------------------------------------------------------------
PROPOSAL II--RATIFICATION OF APPOINTMENT OF AUDITORS
- --------------------------------------------------------------------------------
The Board of Directors of Citizens South Banking Corporation has approved
the engagement of Cherry, Bekaert & Holland, L.L.P. to be Citizens South Banking
Corporation's auditors for the 2003 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, 2003. 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.
Audit Fees. Provided below is certain information concerning aggregate fees
billed for professional services rendered by Cherry, Bekaert & Holland, L.L.P.
during 2002:
Audit Fees(1) $ 126,542
Audit-related fees(2) 30,755
Tax Fees(3) 23,716
All Other Fees --
----------
Total Fees $ 181,013
==========
<FN>
(1) Includes assistance with and review of Citizens South Banking Corporation's
registration statement and prospectus, including the audited consolidated
financial statements presented therein, prepared and filed with the SEC in
connection with Citizens South Banking Corporation's "second step"
reorganization and stock offering.
(2) Includes due diligence, consultations and the required audit in connection
with Citizens South Banking Corporation's acquisition of Innes Street
Financial Corporation.
(3) Includes the preparation of final tax returns for Innes Street Financial
Corporation in connection with its acquisition, as well as
acquisition-related tax advice.
</FN>
The services for which non-audit fees were paid during 2002 included review
of and consultation with respect to Citizens South Banking Corporation's
registration statement and prospectus related to its reorganization and stock
offering ($83,400), accounting assistants, including the preparation of a
required audit under SEC accounting rules, related to the acquisition of Innes
Street Financial Corporation ($24,000), and the preparation of tax returns for
Citizens South Banking Corporation, including the preparation of the final tax
return of Innes Street Financial Corporation ($23,000).
The Audit Committee has considered whether the provision of non-audit
services, which relate primarily to accounting assistance related to the
13
acquisition of Innes Street Financial Corporation and tax preparation services
rendered, 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 the Holding Company.
In order to ratify the selection of Cherry, Bekaert & Holland, L.L.P. as
the auditors for the 2003 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 2003 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, 2003. Any such
proposals shall be subject to the requirements of the proxy rules adopted under
the Exchange Act.
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.
The date on which the next Annual Meeting of Stockholders of Citizens South
Banking Corporation is expected to be held is May 10, 2004. Accordingly, advance
written notice of business or nominations to the Board of Directors to be
brought before the 2003 Annual Meeting of Stockholders must be given to Citizens
South Banking Corporation no later than February 10, 2004.
A stockholder of Citizens South Banking Corporation has advised Citizens
South Banking Corporation in writing that it plans to nominate two directors in
opposition to the Board's nominees 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 the 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.
Citizens South Banking Corporation has retained Georgeson Shareholder
Communications, Inc., a proxy solicitation firm, to assist in the solicitation
of proxies. It is not expected that the cost of using the proxy solicitation
firm for solicitation of proxies will exceed $15,000. In addition to
solicitations by mail, directors, officers and regular employees of Citizens
South Bank may solicit proxies personally or by telegraph or telephone without
additional compensation.
14
A copy of the Citizens South Banking Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 2002 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 3, 2003
15
REVOCABLE PROXY
CITIZENS SOUTH BANKING CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
May 12, 2003
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 12, 2003.
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
Senator David W. Hoyle
Ben R. Rudisill, 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, 2003.
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 3, 2003.
Dated: _______________, 2003 [ ] 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.
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Please complete and date this proxy and return it promptly
in the enclosed postage-prepaid envelope.
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