SCHEDULE 14-A INFORMATION
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Citizens South Banking Corporation
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(Name of Registrant as Specified In Its Charter)
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paid previously. Identify the previous filing by registration statement
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[Letterhead of Citizens South Banking Corporation]
April 10, 2009
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 H. D.
Whitener Community Room at Citizens South Bank, 519 South New Hope Road,
Gastonia, North Carolina, at 10:30 a.m. (local time) on May 11, 2009.
The enclosed Notice of Annual Meeting and proxy statement describe the formal
business to be transacted.
The business to be conducted at the Annual Meeting consists of the election of
two directors; an advisory, non-binding proposal to approve our executive
compensation programs and policies as described herein; and the ratification of
the appointment of Cherry, Bekaert & Holland, L.L.P. as our independent
registered public accounting firm for 2009.
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" the election of directors, "FOR" the approval of our executive
compensation programs and policies, and "FOR" the ratification the of the
appointment of Cherry, Bekaert & Holland, L.L.P. as independent registered
public accounting firm for the year ending December 31, 2009.
On behalf of the Board of Directors, we urge you to sign, date and return the
enclosed 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,
\s\ Kim S. Price
Kim S. Price
President and Chief Executive Officer
Citizens South Banking Corporation
519 South New Hope Road
Gastonia, North Carolina 28054-4040
(704) 868-5200
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 11, 2009
Notice is hereby given that the Annual Meeting of Stockholders of Citizens
South Banking Corporation will be held at the H. D. Whitener Community Room at
Citizens South Bank, 519 South New Hope Road, Gastonia, North Carolina
28054-4040, on May 11, 2009 at 10:30 a.m., local time.
A proxy statement and proxy card for the annual meeting are enclosed.
The annual meeting is for the purpose of considering and acting upon:
1. The election of two directors;
2. An advisory, non-binding proposal to approve our executive
compensation programs and policies;
3. The ratification of the appointment of Cherry, Bekaert & Holland,
L.L.P. as our independent registered public accounting firm for the
year ending December 31, 2009; and
such other matters as may properly come before the annual meeting, or any
adjournments thereof. The Board of Directors is not aware of any other business
to come before the annual meeting.
Any action may be taken on the foregoing proposals at the annual meeting on
the date specified above, or on any date or dates to which the annual meeting
may be adjourned. Stockholders of record at the close of business on March 13,
2009 are the stockholders entitled to vote at the annual meeting, and any
adjournments thereof. A list of stockholders entitled to vote at the annual
meeting will be available at 519 South New Hope Road, Gastonia, North Carolina,
for a period of 10 days prior to the annual meeting and will also be available
for inspection at the annual meeting.
EACH STOCKHOLDER, WHETHER HE OR SHE PLANS TO ATTEND THE MEETING, IS
REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED 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
ANNUAL MEETING MAY REVOKE HIS OR HER PROXY AND VOTE PERSONALLY ON EACH MATTER
BROUGHT BEFORE THE ANNUAL 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 ANNUAL
MEETING.
By Order of the Board of Directors
\s\ Paul L. Teem, Jr.
Paul L. Teem, Jr.
Secretary
Gastonia, North Carolina
April 10, 2009
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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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IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON MAY 11, 2009: THIS PROXY STATEMENT,
INCLUDING THE NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS, AND CITIZENS SOUTH
BANKING CORPORATION'S 2008 ANNUAL REPORT TO STOCKHOLDERS ON FORM 10-K ARE EACH
AVAILABLE ON THE INTERNET AT WWW.CFPPROXY.COM/5372.
PROXY STATEMENT
of
CITIZENS SOUTH BANKING CORPORATION
519 South New Hope Road
Gastonia, North Carolina 28054-4040
(704) 868-5200
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ANNUAL MEETING OF STOCKHOLDERS
MAY 11, 2009
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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, which will be held at the H. D. Whitener Community Room at
Citizens South Bank, 519 South New Hope Road, Gastonia, North Carolina
28054-4040, on May 11, 2009 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 10,
2009.
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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 annual 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 annual
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 annual
meeting. The presence at the annual 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 annual 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 at the
close of business on March 13, 2009 are entitled to one vote for each share
held. As of March 13, 2009, there were 7,515,957 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 annual meeting.
In accordance with the provisions of our Certificate of Incorporation,
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. Our 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 us to enable the Board of Directors to implement and apply
the Limit.
Persons and groups who beneficially own in excess of five percent of our
common stock are required to file certain reports with the Securities and
Exchange Commission regarding such ownership pursuant to the Securities Exchange
Act of 1934. The following table sets forth beneficial ownership of Citizens
South Banking Corporation's outstanding common stock, as of March 13, 2009, by
those persons known to us who held more than five percent of Citizens South
Banking Corporation's outstanding shares. Information with respect to share
ownership of directors and executive officers is included in "Proposal I -
Election of Directors."
Amount of Shares Owned and Percent of Shares of
Name and Address of Beneficial Owner Nature of Beneficial Ownership Common Stock Outstanding
- -------------------------------------------- ---------------------------------- ------------------------------
Mendon Capital Advisors Corp. (1) 697,827 9.28%
150 Allens Creek Road
Rochester, New York 14618
Citizens South Bank Employee Stock Ownership 415,547 5.53%
Plan (2)
519 South New Hope Road
Gastonia, North Carolina 28054-4040
(1) Based exclusively on a Schedule 13G filed by Mendon Capital Advisors Corp.
with the Securities and Exchange Commission dated February 27, 2009 and
filed March 2, 2009.
(2) All shares are held on behalf of the plan by a third-party trustee.
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VOTING PROCEDURES AND METHOD OF COUNTING VOTES
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As to the election of directors, the 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 our Certificate of Incorporation
and Bylaws, directors are elected by a plurality of the shares voted at the
annual 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 approval of our executive compensation programs and policies and
the ratification of Cherry, Bekaert & Holland, L.L.P. as our independent
registered public accounting firm, a stockholder may vote "FOR" the item, vote
"AGAINST" the item or "ABSTAIN" from voting on the item by checking the
appropriate box. The approval of our executive compensation programs and
policies and the ratification of the independent registered public accounting
firm must be approved by a majority of the shares voted at the annual meeting
without regard to broker non-votes or proxies marked "ABSTAIN."
In the event at the time of the annual meeting there are not sufficient
votes for a quorum or to approve or ratify any matter being presented, the
annual meeting may be adjourned in order to permit the further solicitation of
proxies.
Proxies solicited hereby will be returned to Citizens South Banking
Corporation and will be tabulated by Kelly Woodward Byrd, CPA, Vice President
and Controller of Citizens South Bank, the inspector of election designated by
the Board of Directors of Citizens South Banking Corporation.
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PROPOSAL I--ELECTION OF DIRECTORS
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The Board of Directors is composed of six 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 and until their respective
successors shall have been elected and shall qualify. Two directors will be
elected at the annual meeting. The Board of Directors has nominated Senator
David W. Hoyle and Ben R. Rudisill, II for three-year terms, each of whom has
agreed to serve if elected.
The table below sets forth certain information, as of the record date,
regarding the Board of Directors and our executive officers. 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 annual meeting for the election of the nominees
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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" EACH OF THE
NOMINEES LISTED IN THIS PROXY STATEMENT.
Shares of
Current Common Stock
Director Term Beneficially Percent
Name Age Positions Held Since Expires Owned(1) of Class(15)
- ---------------------------- ------ ---------------- --------- ---------- --------------- ---------------
NOMINEES
Senator David W. Hoyle 70 Chairman 1975 2009 206,229(2) 2.57%
Ben R. Rudisill, II 65 Vice Chairman 1977 2009 145,245(3) 1.81%
DIRECTORS
Kim S. Price 53 President, Chief 1997 2010 308,835(4) 3.84%
Executive Officer and
Director
Eugene R. Matthews, II 52 Director 1998 2010 124,216(5) 1.55%
James J. Fuller 65 Director 1972 2011 58,281(6) *
Charles D. Massey 71 Director 1971 2011 114,766(6) 1.43%
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Gary F. Hoskins 46 Executive Vice 149,934(7) 1.87%
President, Treasurer
and Chief Financial
Officer
Paul L. Teem, Jr. 61 Executive Vice 208,596(8) 2.60%
President, Secretary
and Chief
Administrative Officer
Michael R. Maguire 51 Senior Vice President 64,317(9) *
and Chief Credit
Officer
Daniel M. Boyd, IV 47 Executive Vice 55,064(10) *
President and Chief
Operating Officer
J. Stephen Huffstetler 53 Senior Vice President 77,039(11) *
Kimberly G. Cooke 40 Senior Vice President 17,296(12) *
Ira M. Flowe, Jr. 44 Senior Vice President 16,382(13) *
Patricia T. Kahle 49 Senior Vice President 6,532 *
All directors and executive 1,552,732(14)(15) 19.33%
officers
as a group (14 persons)
(1) Unless otherwise indicated, each person effectively exercises sole (or
shared with spouse) voting and dispositive power as to the shares reported.
(2) Includes 30,731 shares that may be acquired pursuant to presently
exercisable stock options.
(3) Includes 30,754 shares that may be acquired pursuant to presently
exercisable stock options.
(4) Includes 154,307 shares that may be acquired pursuant to presently
exercisable stock options.
(5) Includes 27,665 shares that may be acquired pursuant to presently
exercisable stock options, plus 27,900 shares owned by a charitable
foundation of which Mr. Matthews serves as President and as a trustee.
(6) Includes 22,670 shares that may be acquired pursuant to presently
exercisable stock options.
(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 33,908 shares that may be acquired pursuant to presently
exercisable stock options.
(10) Includes 20,000 shares that may be acquired pursuant to presently
exercisable stock options.
(footnotes continue on following page)
3
(continued from previous page)
(11) Includes 35,476 shares that may be acquired pursuant to presently
exercisable stock options.
(12) Includes 7,852 shares that may be acquired pursuant to presently
exercisable stock options.
(13) Includes 6,000 shares that may be acquired pursuant to presently
exercisable stock options.
(14) Includes 197,440 shares held indirectly by executive officers in
Bank-sponsored qualified retirement plans, which consists of 112,030 shares
allocated to the accounts of executive officers under the 401(k) Plan and
excludes the remaining 255,791 shares owned by the 401(k) Plan for the
benefit of employees, and 85,410 shares allocated to the accounts of
executive officers under the ESOP and excludes the remaining 330,137 shares
owned by the ESOP for the benefit of employees. Under the terms of the
401(k) Plan and the ESOP, shares of common stock allocated to the accounts
of employees are voted in accordance with the instructions of the
respective employees. Unallocated shares in the ESOP 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) Includes 516,653 shares that may be acquired pursuant to presently
exercisable stock options; calculation of percentage reflects the inclusion
of such shares.
* Less than 1%
The business experience for the past five years for each of Citizens South
Banking Corporation's directors who will serve through the annual meeting 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. Senator Hoyle also serves as a director of The Shaw Group, a
publicly traded company.
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.
James J. Fuller is the President of Mount Holly Furniture Company, Inc.,
and has served in that position since 1972. This corporation currently is
primarily engaged in real estate.
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.
Daniel M. Boyd, IV has served as Executive Vice President of Citizens South
Bank since September 2002, and was appointed Chief Operating Officer in February
2008. Prior to joining Citizens South Bank, Mr. Boyd served as Executive Vice
President - Commercial Lending at First Gaston Bank of North Carolina from 1995
4
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.
Kimberly ("Kim") Goins Cooke has served as a Senior Vice President of
Citizens South Bank since October 17, 2005. Mrs. Cooke joined Citizens South
Bank as Vice President in August 2003 and serves as Chief Information Officer,
having charge of Loan Administration, Deposit Operations, and Information
Technology. From 2002 to 2003, she served as Assistant Vice President of Bank
Operations at Carolina Trust Bank, Lincolnton, North Carolina. From 1995 to
2002, she served as Senior Vice President of Bank Operations at First Gaston
Bank, and, prior to that, she was employed as a Loan Officer by Lincoln Bank of
North Carolina for six years.
Ira M. ("Don") Flowe, Jr. has served as a Senior Vice President of Citizens
South Bank since October 18, 2004. Mr. Flowe manages the Commercial Banking
Group and earned his Master of Business Administration degree at Duke
University. Mr. Flowe joined Citizens South Bank in 2004 from SouthTrust Bank,
Cornelius, North Carolina, where, from 2003 to 2004, he served as Group Vice
President. From 2002 to 2003, he served as Vice President of First Charter Bank,
Charlotte, and, prior to that, he was employed by First Union National Bank of
North Carolina for three years.
Patricia ("Pat") T. Kahle has served as a Senior Vice President of Citizens
South Bank since October 31, 2005. Mrs. Kahle joined Citizens South Bank as a
result of the merger of Trinity Bank into Citizens South Bank on that date. Mrs.
Kahle manages the Retail Banking Group, with responsibility for the Bank's
branch network together with its operations and security. From 2003 to 2005, she
served as Assistant Vice President and Assistant Secretary of Trinity Bank,
Monroe, North Carolina. From 1990 to 1996, she served as Assistant Vice
President and Branch Manager at Wachovia Bank, and, prior to that, she was
employed as a Vice President and Branch Manager by American Commercial Bank for
four years.
Board Independence
The Board of Directors has determined that, except for 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.
In determining the independence of the directors listed above, the Board of
Directors reviewed the following transactions, which are not required to be
reported under "--Transactions With Certain Related Persons," below. Senator
David W. Hoyle has two residential mortgage loans and a home equity line of
credit with Citizens South Bank. Director Eugene R. Matthews, II, has a mortgage
loan with Citizens South Bank. Director Ben R. Rudisill, II has a home equity
line of credit with Citizens South Bank, is a guarantor of a commercial line of
credit with Citizens South Bank to a company of which Mr. Rudisill is a 50%
partner, and is the sole owner of another company that has a commercial line of
credit with Citizens South Bank.
References to our Website Address
References to our website address throughout this proxy statement and the
accompanying materials are for informational purposes only, or to fulfill
specific disclosure requirements of the Securities and Exchange Commission's
rules or the listing standards of the Nasdaq Stock Market. These references are
not intended to, and do not, incorporate the contents of our website by
reference into this proxy statement or the accompanying materials.
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 year ended December 31, 2008,
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 the aggregate of: (i) the total number of
5
meetings of the Board of Directors (held during the period for which he or she
has been a director); and (ii) the total number of meetings held by all
committees of the Board on which he or she served (during the periods that he or
she served). Executive sessions of the independent directors are held on a
regularly scheduled basis. While Citizens South Banking Corporation has no
formal policy on director attendance at annual meetings of stockholders,
directors are encouraged to attend. All then-current directors attended the last
Annual Meeting of Stockholders held on May 12, 2008.
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 12 times during the year ended December 31, 2008.
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 four times
during the year ended December 31, 2008. Each member of the Compensation
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 Compensation Committee makes all compensation decisions for the
President and Chief Executive Officer and approves recommendations from the
President and Chief Executive Officer regarding compensation for all other
senior executives, including the other named executives. The President and Chief
Executive Officer annually reviews the performance of each senior executive
(other than the President and Chief Executive Officer whose performance is
reviewed by the Compensation Committee). The conclusions reached and
recommendations based on these reviews, including with respect to salary
adjustments and annual award amounts, are presented to the Compensation
Committee. The Compensation Committee can exercise its discretion in modifying
any recommended adjustments or awards to executives.
In November 2006, the Compensation Committee engaged Burns-Fazzi, Brock &
Associates, now of Charlotte, North Carolina, and formerly of Atlanta, Georgia,
an executive compensation and benefits consultant to the financial services
industry, to conduct peer group studies on compensation and benefits and
industry-standard comparisons for the Compensation Committee's annual review of
its total compensation program for the President and Chief Executive Officer as
well as for other senior executives and directors. Burns-Fazzi, Brock &
Associates provided the Compensation Committee with relevant market data and
alternatives to consider when making compensation decisions for the Named
Executive Officers, which market data and alternatives were used in determining
2008 compensation.
For 2008, in making compensation decisions, the Compensation Committee
compared each element of total compensation against a peer group of ten
publicly-traded financial institutions that have assets that are relatively
comparable to Citizens South Bank and that are located in North Carolina and
Virginia (collectively, the "Peer Banks"). The Peer Banks, which are
periodically reviewed and updated by the Compensation Committee, consists of
companies against which the Committee believes we compete for talent and for
stockholder investment. The Compensation Committee requests and reviews survey
data for information relating to compensation practices at other financial
institutions of similar asset and business mix as well as general compensation
trends in the private sector. In addition to comparative information gathered
from the proxy statements of the Peer Banks, corroborative information has been
identified from a compensation survey conducted by America's Community Banks.
The consultants have ensured that the findings are reasonably consistent with
information in the Burns-Fazzi, Brock & Associates database of compensation and
benefits information for executives and directors among financial institutions
in the Mid-Atlantic region of the United States.
Nominating and Corporate Governance Committee. The Nominating and Corporate
Governance Committee consists of Directors Fuller (Chairman), Hoyle, 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
6
Citizens South Banking Corporation's website at www.citizenssouth.com. The
Committee met once during the year ended December 31, 2008.
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;
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 our
Bylaws, which require any person appointed or elected to the Board of Directors
to own at least 100 shares of our 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.
7
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 Recommendation of Director Nominees by Stockholders. The
Nominating and Corporate Governance Committee has adopted procedures for the
submission of recommendations for director nominees by stockholders. There have
been no material changes to these procedures since they were previously
disclosed in the proxy statement for our 2008 annual meeting of 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 519 South New Hope Road, Gastonia, North Carolina 28054-4040. The
Corporate Secretary must receive a submission not less than 90 days prior to the
anniversary date of Citizens South Banking Corporation's proxy materials for the
preceding year's annual meeting for a candidate to be considered for next year's
annual meeting of stockholders. The submission must include the following
information:
o a statement that the writer is a stockholder and is proposing a
candidate for consideration by the Nominating and Corporate Governance
Committee;
o the qualifications of the candidate and why the candidate is being
proposed;
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 Securities and Exchange
Commission 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.
8
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." No
submissions for Board nominees were received by Citizens South Banking
Corporation for the annual meeting.
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 Citizens South
Banking Corporation, 519 South New Hope Road, Gastonia, North Carolina
28054-4040, 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 Citizens South Banking Corporation 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 and Matthews. Each member of the Audit Committee is
considered "independent" as defined in the Nasdaq corporate governance listing
standards and under Securities and Exchange Commission Rule 10A-3. The duties
and responsibilities of the Audit Committee include, among other things:
o retaining, overseeing and evaluating an independent registered public
accounting firm to audit Citizens South Banking Corporation's annual
financial statements;
o in consultation with the independent registered public accounting firm
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 registered public accounting firm;
o considering whether the provision by the external independent
registered public accounting firm of services not related to the
annual audit and quarterly reviews is consistent with maintaining the
independent registered public accounting firm's independence;
o reviewing earnings and financial releases and quarterly reports filed
with the Securities and Exchange Commission;
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 registered public accounting firm; and
9
o reviewing the adequacy of the audit committee charter.
The Audit Committee met eight times during the year ended December 31,
2008. 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 Securities and Exchange Commission.
Audit Committee Report
The Audit Committee operates under a written charter adopted by the Board
of Directors which is available on Citizens South Banking Corporation's website
at www.citizenssouth.com.
Management has the primary responsibility for internal controls and
financial reporting processes. The independent registered public accounting firm
is responsible for performing an independent audit of the 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.
The Audit Committee has:
o reviewed and discussed with management, and the independent registered
public accounting firm, our audited consolidated financial statements
for the year ended December 31, 2008 and management's assessment of
the effectiveness of internal controls over financial reporting as of
December 31, 2008;
o discussed with the independent registered public accounting firm 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
registered public accounting firm required by Independence Standards
Board Standard No. 1, Independence Discussions with Audit Committees,
and have discussed with the independent registered public accounting
firm their independence.
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 our Annual Report on Form 10-K for the year ended
December 31, 2008 and be filed with the Securities and Exchange Commission. In
addition, the Audit Committee engaged Cherry, Bekaert & Holland, L.L.P. as our
independent registered public accounting firm for the year ending December 31,
2009, subject to the ratification of this appointment by our stockholders.
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 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)
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, and 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.
10
Executive Compensation
The following table sets forth for the years ended December 31, 2008 and
2007 certain information as to the total remuneration paid by us to Mr. Price,
who serves as President and Chief Executive Officer and the three most highly
compensated executive officers of Citizens South Banking Corporation or Citizens
South Bank other than Mr. Price ("Named Executive Officers").
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
Non-equity Nonqualified
incentive deferred All other
Name and principal Stock Option Plan compensation compensation
position Year Salary Bonus awards awards compensation earnings ($) Total
($) ($) ($)(1) ($)(2) ($)(3) ($) (4)(5) ($)
- -------------------- ----- ------- --------- ------------- ---------- ---------- ------------ ------------- -----------
Kim S. Price, 2008 259,375 -- 77,120 15,050 13,781 -- 28,548 393,874
President, Chief 2007 250,000 -- 63,920 -- 64,800 -- 33,415 412,135
Executive Officer and
Director
Gary F. Hoskins, 2008 132,000 -- 39,874 6,450 6,485 -- 13,387 198,196
Executive Vice 2007 120,000 -- 32,674 -- 15,876 -- 19,990 188,540
President, Treasurer
and Chief Financial
Officer
Daniel M. Boyd, IV, 2008 150,000 -- 36,119 8,600 3,243 -- 31,805 229,767
Executive Vice 2007 135,000 -- 24,119 -- 18,225 -- 31,698 209,042
President
Vance B. Brinson, Jr. 2008 132,500 -- -- -- -- -- 112,609 245,109
Executive Vice 2007 132,500 -- 15,040 -- 11,483 -- 35,240 194,263
President (6)
(footnotes begin on following page)
11
(footnotes from previous page)
(1) Reflects the compensation expense recognized for financial statement
reporting purposes in accordance with FAS 123(R) on outstanding restricted
stock awards.
(2) Reflects the compensation expense recognized for financial statement
reporting purposes in accordance with FAS 123(R) on outstanding stock
option awards. The assumptions used in the valuation of these awards are
included in Notes 1 and 14 to our audited financial statements for the year
ended December 31, 2008 included in our Annual Report on Form 10-K for the
year ended December 31, 2008 as filed with the Securities and Exchange
Commission.
(3) See "--Cash Incentives" for information related to payments listed in this
column for the year ended December 31, 2008.
(4) The compensation represented by the amounts for 2008 set forth in the All
Other Compensation column for the Named Executive Officers is detailed in
the following table. See footnote (5) for a discussion of perquisites
listed in the following table.
Cash
Employee Premiums dividends
stock on on
ownership Life long-term unvested Payments Total all
401(k) plan plan insurance care restricted upon other
Name Perquisites contributions contributions premiums insurance stock retirement compensation
- --------- ------------- -------------- ------------- --------- ----------- --------- ------------ --------------
Kim S. Price -- $7,781 $5,659 $2,784 $5,248 $7,076 -- $28,548
Gary F.
Hoskins -- $3,960 $4,142 $391 $1,019 $3,875 -- $13,387
Daniel M.
Boyd, IV $15,767 $4,500 $4,747 $962 $1,101 $4,728 -- $31,805
Vance B.
Brinson, Jr. -- $497 -- $3,426 -- $240 108,446 $112,609
- ------------------------------------------------------------------------------------------------------------------------------------
(5) Total perquisites for Messrs. Price, Hoskins and Brinson were less than
$10,000 for the year ended December 31, 2008. For the year ended December
31, 2008, perquisites provided to Mr. Boyd consisted of $6,767 for country
club fees and $9,000 for automobile expenses.
(6) Mr. Brinson retired from Citizens South Bank on February 15, 2008. In
connection with Mr. Brinson's retirement, Citizens South Banking
Corporation and Citizens South Bank entered into a separation agreement and
release with Mr. Brinson. In return for a release of all possible claims
against Citizens South Banking Corporation and Citizens South Bank, as well
as in return for a noncompetition and a non-solicitation (as to both
employees and customers) agreement, Citizens South Bank agreed to the
following: (i) to continue paying Mr. Brinson's base salary through
December 31, 2008 (a total payment of $115,938 from February 15, 2008);
(ii) to provide an enhanced benefit under his Salary Continuation Agreement
of $134,237, bringing the total value under this agreement to $263,222;
(iii) to extend the expiration date for the exercise of 17,126 stock
options granted in 2002 through the original expiration date of the option,
or March 2012; and (iv) to provide continuing health and dental insurance
coverage, at Citizens South Bank's cost, until the earlier to occur of Mr.
Brinson's 65th birthday or his employment on a full time basis by another
employer (actual total cost of $6,455, as Mr. Brinson has obtained
employment elsewhere). In 2008, the Company accrued compensation expenses
of $108,446 for items (ii), (iii) and (iv), which amount is included in
Payments upon retirement in footnote 4.
TARP/CPP Executive Compensation Compliance and Restrictions
As part of our participation in the Capital Purchase Program ("CPP") of the
Troubled Assets Relief Program ("TARP") and our acceptance of a $20.5 million
investment from the U.S. Treasury Department ("Treasury") in December 2008, we
agreed to adhere to several restrictions relative to compensation for our five
senior executive officers ("SEOs"), which include the executives listed in our
Summary Compensation Table, except for Mr. Brinson, during the time in which the
Treasury holds any equity or debt securities of Citizens South Banking
Corporation acquired through the CPP. At the time of our acceptance into the
CPP, the restrictions and requirements included:
12
o A provision to recover any bonus or incentive compensation paid to an
SEO that was based on financial statements deemed materially
inaccurate;
o A prohibition on any golden parachute payments to our SEOs;
o A limitation on the deductibility of compensation to $500,000 (instead
of $1,000,000), without exceptions for performance-based compensation;
and
o A requirement to ensure that our incentive compensation programs are
structured to prevent SEOs from taking inappropriate risks that
threaten the value of the institution.
At the time that we entered the CPP, our SEOs understood that these
restrictions or requirements might change and waived any claim against the
United States or us for any changes to compensation or benefits that are
required to comply with the regulations issued by the Treasury, as published in
the Federal Register on October 20, 2008.
In February 2009, TARP was amended by the American Recovery and
Reinvestment Act of 2009. Such amendments further restrict our ability to pay
executive compensation. Specifically, under the new prohibitions, since Citizens
South Banking Corporation received less than $25 million of financial
assistance, we are prohibited from paying or accruing any bonus, retention
award, or incentive compensation to our most highly-compensated employee during
the period that we have an outstanding obligation to the Treasury arising from
the financial assistance provided under CPP. This restriction continues until
repayment of the Treasury's investment, but excludes any period during which
only warrants are outstanding. This restriction also does not apply to our
issuance of restricted stock to our most highly-compensated employee so long as:
(i) the restricted stock does not fully vest during the CPP obligation period;
(ii) has a value no greater than one-third of the total amount of "annual
compensation" of the executive receiving the restricted stock; and (iii) is
subject to such other terms as the Treasury determines to be in the public
interest.
In addition, the new legislation expands the prohibition against paying
golden parachute payments by defining a golden parachute payment as any payment
to an SEO or any of the next five most highly compensated employees for
departure from Citizens South Banking Corporation for any reason, except for
payments for services performed or benefits accrued. Accordingly, for as long as
we participate in the CPP, our SEOs will not be entitled to any payments upon
departure from Citizens South Banking Corporation other than payments for
services performed or which were accrued at the time of departure. Regulatory
guidance has not yet been issued on the restrictions set forth in the new
legislation. Such guidance, when issued, may change the manner in which such
restrictions are applied.
As required under the United States Department of Treasury's TARP Capital
Purchase Program, the Compensation Committee certifies that it has reviewed with
Citizens South Banking Corporation's Senior Risk Officer the SEO incentive
compensation arrangements and has made reasonable efforts to ensure that such
arrangements do not encourage SEO's to take unnecessary and excessive risks that
could threaten the value of the financial institution.
Employment Agreement. Citizens South Banking Corporation and Citizens South
Bank (collectively, "Citizens South") have entered into an amended and restated
employment agreement with their President and Chief Executive Officer, Kim S.
Price. The agreement 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, 2009, the base
salary for Mr. Price was $259,375. 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 for cause at any time. In the event Citizens South
terminates the executive's employment for reasons other than for cause, or in
the event of the executive's resignation from Citizens South upon the occurrence
of certain events that would amount to a constructive termination, the executive
would be entitled to receive his base salary for the remaining unexpired term of
the employment agreement, plus an amount of cash equal to the value of unvested
stock options held by the executive payable in a lump sum within 90 days of
termination of employment, plus an amount of cash equal to the value of unvested
employer contributions to the Citizens South 401(k) Plan as of the date of
termination of employment. Citizens South would also continue the executive's
life, health and dental coverage for the unexpired term of the agreement.
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. Citizens South would also
continue the executive's life, health, dental and disability coverage for the
unexpired term of the agreement. In the event of the executive's death, Citizens
13
South will pay his base salary to his named beneficiaries for one year following
his death, and will also continue medical and dental benefits to his family for
one year.
In the event of a change in control, the executive will receive a lump sum
cash payment equal to three times the executive's annual compensation, including
his base salary at the time of the change of control, plus the average cash
bonuses and cash incentive compensation earned by the executive for the three
years immediately preceding the change in control, but excluding the value of
any stock-based compensation. The executive will also become fully vested in any
qualified and non-qualified plans maintained by Citizens South that do not
otherwise address the effect of a change in control, and the executive will
receive a lump sum cash payment equal to the value of employer contributions to
the Citizens South 401(k) plan on the executive's behalf as if the executive had
remained employed for the entire plan year. Citizens South would also continue
the executive's life, health and dental coverage for the unexpired term of the
agreement. The agreement also provides for additional cash payments to
compensate the executive in the event the executive incurs an excise tax under
Sections 280G or 4999 of the Internal Revenue Code as a result of excess
parachute payments received by the executive in connection with a change in
control.
Severance Agreements. Citizens South Banking Corporation has entered into
an amended severance agreement with each of Gary F. Hoskins, its Executive Vice
President and Chief Financial Officer, and Daniel M. Boyd, IV, its Executive
Vice President. The agreements provide that upon a voluntary or involuntary
termination following a change in control, for a reason other than cause, an
executive will be paid as severance a sum equal to one and one-half times his
annual compensation, including base salary on the date of the change in control
or on the date of the executive's termination of employment, whichever is
greater, plus cash bonuses and incentive compensation earned for the calendar
year before the change in control, or immediately before the year of
termination, whichever is greater. The executives will also become fully vested
in any qualified and non-qualified plans in which they participate, if the plan
does not address the effect of a change in control, and will be entitled to have
contributions made on their behalf to a 401(k), retirement, or profit sharing
plan as if the executive's employment had not terminated before the end of the
plan year. In addition, the executive would be entitled to continued life,
medical and dental coverage for 18 months following termination of employment.
The agreement provides for a term of 36 months. On each anniversary date, the
agreement will automatically extend for an additional 12 months unless notice is
given that the agreement will not be renewed. Unless terminated earlier, the
agreement shall terminate when the executive reaches age 65.
Cash Incentives. We employ performance-based annual incentives under our
Executive Annual Incentive Plan to motivate Named Executive Officers to execute
specific financial and non-financial elements of our business plan and to reward
individual conduct that supports shared corporate goals. Annual incentives are
formulaic and earned principally on the basis of the level of attainment of
pre-determined earnings targets, together with individual performance objectives
for each Named Executive Officer. Actual incentive payments are based in part on
a subjective evaluation of performance and in part on the achievement of shared
corporate financial goals.
For 2008, each of our Named Executive Officers had the opportunity to earn
an incentive payment once our earnings per share equaled or exceeded a threshold
level of $0.67 per fully diluted share. The incentive payment is further based
on a subjective, retrospective review of corporate and individual performance
indicators. A subjective assessment of performance relative to individual
performance objectives determined the ultimate payment.
Individual performance factors for Mr. Price consisted of an assessment of
the effectiveness of capital deployment initiatives during the year, expense
discipline reflected in our efficiency ratio, development of a compelling vision
and long-term corporate strategy, and personal involvement in the development of
a strong investor relations program. Individual performance factors for Mr.
Hoskins included effective operational management as reflected in the
achievement of individual objectives by his direct reports, progress on
development of key managers and a management succession plan, successful use of
wholesale funding sources to achieve balance sheet and revenue growth and
progress in re-balancing the components of our securities portfolio, as well as
contributions to investor relations and long-term strategic planning
initiatives. Individual performance factors for Mr. Boyd and Mr. Brinson
consisted of success in expanding our Central Piedmont Carolinas franchise in
commercial and retail banking through additional de novo branch openings and
success in building brand recognition through effective advertising, superior
customer service, and community involvement.
14
Final award decisions reflected our actual earnings per share, the
Compensation Committee's subjective assessment of the individual performance
factors described above, and, in the case of executives other than the Chief
Executive Officer, the Chief Executive Officer's subjective assessment of their
individual performance. The Compensation Committee also took into account the
adverse interest rate environment that continued and the slowdown in residential
real estate markets that emerged during the year and the quality of management's
response to these and other competitive factors.
For the fiscal year ended December 31, 2008, the Named Executive Officers'
incentive payments, maximum award opportunities, and actual incentives awarded
as a percentage of maximum, were:
2008 Bonus amount paid Maximum award opportunity Actual award as a percent
Name ($) of maximum
- --------------------------- ------------------------ ----------------------------- ---------------------------
Kim S. Price 13,781 $103,750 13.3%
Gary F. Hoskins 6,485 33,000 19.7
Daniel M. Boyd, IV 3,243 37,500 8.7
Vance B. Brinson, Jr. -- -- --
The payment of annual incentives to each of the named executives in amounts
less than the maximum incentive opportunity is attributable to the level of
annual income per share and extraordinary items for 2008 and the weight accorded
to the Compensation Committee's assessment of individual performance relative to
individual goals in each case. No specific factors were dispositive in any
individual case. Awards made to Named Executive Officers for performance in 2008
are also reflected in the "Non-equity incentive plan compensation" column of the
Summary Compensation Table.
The non-equity incentive plan bonuses for 2008 were paid to the Named
Executive Officers in November of each year to enable them to pay taxes on
shares of restricted stock that vested at that time. The Compensation Committee
took this action to enable the officers to retain the vested shares (rather than
sell shares to pay taxes due) and thereby increase each officer's stock
ownership. All or part of the amount paid would have been treated as a
discretionary bonus if such amounts were to have been greater than the incentive
bonus earned.
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.
Pursuant to these plans, options to purchase common stock of Citizens South
Banking Corporation were granted to directors and certain executive officers and
employees of Citizens South Banking Corporation as determined by the
Compensation Committee that 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, and
dividend equivalent rights. The 2003 plan provides for awards in the form of
stock options and reload options. There were no options granted to the Named
Executive Officers or to Citizens South Banking Corporation's directors pursuant
to these plans during 2008.
Restricted Stock Plans. In 1999, Citizens South Bank adopted, and Citizens
South Banking Corporation's stockholders approved, the 1999 Recognition and
Retention Plan. In 2003, Citizens South Banking Corporation adopted and its
stockholders approved the 2003 Recognition and Retention Plan. Under these
plans, Citizens South Banking Corporation 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 Citizens South Banking Corporation
due to normal retirement, death or disability, or following a change in control
of Citizens South Banking Corporation, 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 Citizens South Banking
Corporation. Recipients have the right to vote non-vested shares that have been
awarded and will receive dividends declared on such shares. There were no
restricted shares awarded to the Named Executive Officers or to the Citizens
South Banking Corporation's directors pursuant to these plans during 2008.
2008 Equity Incentive Plan. In 2008, Citizens South Banking Corporation
adopted, and its stockholders approved, the 2008 Equity Incentive Plan. This
plan provides for the grant of incentive stock options, non-qualified options,
15
and restricted recognition and retention stock awards that have been structured
to reward holders for stock price appreciation that is achieved over time
without compromising fundamental elements of our business plan. Our current
policy is to consider stock option grants and/or recognition and retention stock
grants to executive officers, with consideration given to episodic grants at the
time of promotion or hire to promoted or newly hired executives.
Pursuant to the 2008 plan, options to purchase common stock of Citizens
South Banking Corporation were granted to certain executive officers and
employees of Citizens South Banking Corporation as determined by the
Compensation Committee that administers the plan. The Committee has never
granted options with an exercise price that is less than the closing price of
our shares of common stock on the grant date. The Committee also determines the
period over which such awards will vest and become exercisable. The plan
provides for awards in the form of stock options without reload or dividend
equivalent rights.
Pursuant to the plan, there were 70,000 incentive stock options granted to
our Named Executive Officers and 14,000 non-qualified options granted to our
directors during 2008. Options granted vest in five equal annual installments,
with the first installment becoming exercisable on the first anniversary of the
date of grant, or June 16, 2009, and succeeding installments on each anniversary
thereafter through June 16, 2013.
Pursuant to the plan, there were a total of 40,500 restricted shares
awarded to the Named Executive Officers and 9,000 restricted shares awarded to
the Company's directors on June 16, 2008, that will vest over a five-year
period, at the rate of 10% on June 16, 2009, 10% on June 16, 2010, 10% on June
16, 2011, 35% on June 16, 2012, and 35% on June 16, 2013. If a recipient ceases
continuous service with Citizens South Banking Corporation due to normal
retirement, death or disability, or following a change in control of Citizens
South Banking Corporation, 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 Citizens South Banking Corporation.
Recipients have the right to vote non-vested shares that have been awarded and
will receive dividends declared on such shares.
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 in
1998, and purchased 169,068 shares of common stock in the initial public
offering that was completed in 1998, and 105,198 shares in the offering that was
completed in 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, 2008, 29,298 shares were released from the suspense
account and allocated to employees. Benefits will not vest at all during the
first two years of service and will become 100% vested upon the completion of
three 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 three 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.
16
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.
17
Outstanding Equity Awards at Year End. The following table sets forth
information with respect to outstanding equity awards as of December 31, 2008
for the Named Executive Officers.
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2008
- -------------------------------------------------------------------------------------------------------------------------
Option awards
- -------------------------------------------------------------------------------------------------------------------------
Equity
incentive
awards
Number of Number of number of
securities securities securities
underlying underlying underlying
unexercised unexercised unexercised Option
options (#) options (#) unearned exercise Option
Name exercisable unexercisable options (#) price ($) expiration date
Kim S. Price 45,002 -- -- 5.605 04/19/2009
9,305 -- -- 15.06 04/19/2009
100,000 -- -- 15.04 11/03/2013
35,000 -- -- 8.00 06/16/2018
Gary F. Hoskins 10,561 -- -- 12.98 04/19/2009
40,000 -- -- 15.04 11/03/2013
15,000 -- -- 8.00 06/16/2018
Daniel M. Boyd, IV 20,000 -- -- 15.04 11/03/2013
20,000 -- -- 8.00 06/16/2018
Vance B. Brinson, Jr. 17,126 -- -- 7.264 03/25/2012
- ------------------------------------------------------------------------------------------------------------------------
Stock awards
- ------------------------------------------------------------------------------------------------------------------------
Equity
incentive
plan awards:
Equity market or
incentive plan payout value
awards: number of unearned
Number of of unearned shares,
shares or Market value of shares, units units or
units of shares or units or other other rights
stock that of stock that rights that that have
have not have not vested have not not vested
Name vested (#) ($)(4) vested (#) ($)
Kim S. Price
8,500(1) 50,915 -- --
16,500 (2) 98,835 -- --
Gary F. Hoskins
4,000(1) 23,960 -- --
1,000(3) 5,990 -- --
9,000(2) 53,910 -- --
Daniel M. Boyd, IV
2,000(1) 11,980 -- --
15,000(2) 89,850 -- --
Vance B. Brinson, Jr. -- -- -- --
(1) Shares vest in equal installments on November 3, 2009 and 2010.
(2) Shares were granted on June 16, 2008, and will vest over a five-year
period, at the rate of 10% on June 16, 2009, 10% on June 16, 2010, 10% on
June 16, 2011, 35% on June 16, 2012, and 35% on June 16, 2013.
(3) Shares were granted on January 22, 2007, and will cliff vest on January 22,
2012.
(4) Based on the $5.99 per share trading price of our common stock on December
31, 2008.
18
Salary Continuation Agreements. Citizens South Bank has entered into Salary
Continuation Agreements with Messrs. Price, Hoskins and Boyd. The Salary
Continuation Agreements constitute a non-qualified, unfunded deferred
compensation plan evidenced by separate agreements for each executive. The
amount of an executive's benefit is determined under the individual agreement
with the executive, and is, assuming retirement at the normal retirement age of
65, an annual benefit of $148,500 in the case of Mr. Price, and $45,000 in the
case of each of Messrs. Hoskins and Boyd. The annual benefit is payable in
monthly installments for the executive's lifetime. In the event of termination
of employment prior to normal retirement age for reasons other than death,
disability, termination for cause or following a change in control, the
executive will receive a reduced benefit, payable at normal retirement age,
assuming the executive is at least partially vested in a benefit at the time of
termination of employment. In the case of Mr. Price, the reduced benefit is
fully vested. In all other cases, an executive will be 75% vested in a reduced
benefit at age 60, will increase in vesting at the rate of 5% per year from age
61 to 65, and prior to age 60, will vest ratably in accordance with the terms of
the executive's Salary Continuation Agreement until the executive attains age
60. As of December 31, 2008, Mr. Hoskins is 70% vested, and Mr. Boyd is 40%
vested. In the event Messrs. Price, Hoskins, or Boyd becomes disabled prior to
termination of employment at normal retirement age and the executive's
employment is terminated because of such disability, the executive will be
entitled to receive a disability benefit upon attainment of normal retirement
age. The early termination benefit and the disability benefit are calculated as
an annual payment stream of the accrual balance (or vested accrual balance in
the case of an early termination benefit other than due to disability) that
exists at the end of the year immediately prior to the year in which the early
termination or disability occurs, using a standard discount rate of 8.5%, and
increasing the benefit amount annually by 2% to offset inflation, beginning in
the year after payment of the benefit commences. In the event of their
termination of employment prior to normal retirement age due to disability,
Messrs. Price, Hoskins, and Boyd would receive an annual benefit of $85,671,
$20,999 and $9,963, respectively, commencing upon their normal retirement age.
Upon their early retirement, Messrs. Price, Hoskins and Boyd would receive an
annual benefit of $85,671, $14,700 and $3,985, respectively, commencing upon
their normal retirement age. The benefits are forfeitable by the executive if
the executive's service is terminated for cause.
In the event that an executive dies during active service or following
termination of employment while receiving benefits, Citizens South Bank will pay
to the executive's beneficiary, the accrual balance (or vested accrual balance
in the case of an early termination benefit) remaining at the time of the
executive's death. In addition, the executive's beneficiary will be entitled to
the following split dollar death benefits discussed immediately below.
In the event of a change in control of Citizens South Banking Corporation
followed by the executive's involuntary termination of employment within 12
months or voluntary termination of employment within 12 months due to good
reason (as defined in the plan), each of Messrs. Price and Hoskins will be
entitled to their normal retirement age accrual benefit, discounted to present
value and payable within three days after termination of employment. The present
value of the payments that Messrs. Price and Hoskins would receive assuming that
a change in control occurred on December 31, 2008, is $553,788 and $89,538,
respectively. Under the same circumstances, Mr. Boyd would be entitled to his
then-existing accrual benefit, or $22,991, without regard to his vesting
percentage, payable within three days after termination of employment. In
addition, Mr. Price's Salary Continuation Agreement provides a gross-up payment
to him in the event the change in control benefit payable under the Salary
Continuation Agreement causes an excess parachute payment under Section 280G of
the Internal Revenue Code. The Salary Continuation Agreements indemnify each
executive for legal fees incurred in pursuing the executive's rights to payment
of the executive's benefit in the event of a change in control. Such
indemnification for legal fees is up to $500,000 in the case of Mr. Price,
$100,000 in the case of Mr. Hoskins, and $25,000 in the case of Mr. Boyd. At
December 31, 2008, Messrs. Price, Hoskins and Boyd had an accrual balance of
$319,485; $41,783; and $22,991, respectively.
Split Dollar Death Benefits. In conjunction with the adoption of the Salary
Continuation Agreements, Citizens South Bank entered into Endorsement Split
Dollar Agreements with the six executives covered by the Salary Continuation
Agreements. Under the Endorsement Split Dollar Agreements, if at the time of
termination of the executive's employment, the executive is entitled to benefits
under the Salary Continuation Agreement, or if the executive dies while employed
by Citizens South Bank, the executive's beneficiaries will be paid a death
benefit equal to the product of 100% of the net death proceeds (in excess of the
cash surrender value of the policy) multiplied by the executive's vested
percentage under the Salary Continuation Agreement (which will be deemed to be
19
100% in the event of the executive's death, disability or termination due to a
change in control). The executives' vested percentages are described above in
"--Salary Continuation Agreements." In the event of the executives' deaths as of
December 31, 2008, the beneficiaries of Messrs. Price, Hoskins and Boyd would
receive a split dollar death benefit of $870,008, $255,260 and $525,429,
respectively.
20
Directors' Compensation
The following table sets forth for the year ended December 31, 2008
certain information as to the total remuneration we paid to our directors other
than Mr. Price, who does not receive separate compensation for his services as
director.
DIRECTOR COMPENSATION TABLE FOR THE YEAR ENDED DECEMBER 31, 2008
Non-equity Nonqualified
incentive plan deferred
Fees earned or Stock awards Option awards compensation compensation
Name paid in cash ($) ($)(1) ($)(2) ($) earnings ($)
- ------------------------- ------------------ ------------- -------------- ---------------- ----------------
Senator David W. Hoyle 36,000 17,247 (4) 1,204 -- 6,256
Ben R. Rudisill, II 32,650 17,247 (5) 1,204 -- 6,174
James J. Fuller 25,700 17,247 (6) 1,204 -- 5,607
Charles D. Massey 31,600 17,247 (7) 1,204 -- --
Eugene R. Matthews, II 34,450 17,247 (9) 1,204 -- --
All other
compensation
Name ($)(3) Total ($)
- ------------------------- --------------- ---------------
Senator David W. Hoyle 1,110 61,817
Ben R. Rudisill, II 5,466 62,741
James J. Fuller 5,466 55,224
Charles D. Massey 54,471(8) 104,522
Eugene R. Matthews, II 5,630 58,531
(1) Reflects awards to each director of 10,510 shares of restricted stock with
a grant-date fair value of $158,070 granted on November 3, 2003 under the
2003 Citizens South Banking Corporation Recognition and Retention Plan
approved by stockholders on October 23, 2003. Shares vest at the rate of
30% on November 3, 2003, 10% on January 2, 2004 and 10% on November 3,
2005, 2006, 2007, 2008, 2009 and 2010. Also reflects awards to each
director of 1,800 shares of restricted stock with a grant-date fair value
of $14,400 pursuant to the 2008 Citizens South Banking Corporation Equity
Incentive Plan approved by stockholders on May 12, 2008. Shares vest over a
five-year period, commencing on June 16, 2008, the date of the grant, at
the rate of 10% on June 16, 2009, 10% on June 16, 2010, 10% on June 16,
2011, 35% on June 16, 2012, and 35% on June 16, 2012. The value shown for
the award grant is the amount recognized for financial statement reporting
purposes with respect to the year ended December 31, 2008 in accordance
with SFAS 123(R).
(2) Reflects the grant pursuant to the 2008 Equity Incentive Plan to each
outside director of non-statutory stock options to purchase 2,800 shares at
an exercise price of $8.00. Awards vest in five equal annual installments,
with the first installment vesting one year from the date of the grant, or
on June 16, 2009, and continuing each anniversary thereafter through June
16, 2013. The value shown for the options grant is the amount recognized
for financial statement reporting purposes with respect to the year ended
December 31, 2008 in accordance with SFAS 123(R). The assumptions used in
the valuation of these awards are included in Notes 1 and 14 to our audited
financial statements for the year ended December 31, 2008 included in our
Annual Report on Form 10-K for the year ended December 31, 2008 as filed
with the Securities and Exchange Commission.
(3) Reflects cash dividends on unvested shares of restricted stock granted
under the 2003 Citizens South Banking Corporation Recognition and Retention
Plan and the 2008 Citizens South Banking Corporation Equity Incentive Plan.
Also includes $4,356, $4,356, $4,393 and $4,520 in premiums on long-term
care insurance for Mr. Rudisill, Mr. Fuller, Mr. Massey and Mr. Matthews,
respectively.
(4) At December 31, 2008, Senator Hoyle had 3,902 unvested shares of restricted
stock and held 8,061 stock options with an exercise price of $10.42 per
share, 22,670 stock options with an exercise price of $15.04 per share, and
2,800 stock options with an exercise price of $8.00 per share.
(5) At December 31, 2008, Mr. Rudisill had 3,902 unvested shares of restricted
stock and held 8,064 stock options with an exercise price of $10.39 per
share, 22,670 stock options with an exercise price of $15.04 per share, and
2,800 stock options with an exercise price of $8.00 per share.
(6) At December 31, 2008, Mr. Fuller had 3,902 unvested shares of restricted
stock and held 22,670 stock options with an exercise price of $15.04 per
share, and 2,800 stock options with an exercise price of $8.00 per share.
(7) At December 31, 2008, Mr. Massey had 3,902 unvested shares of restricted
stock and held 22,670 stock options with an exercise price of $15.04 per
share and 2,800 stock options with an exercise price of $8.00 per share.
(8) During 2008, Mr. Massey was paid $40,968 in benefits pursuant to the 1986
Deferred Compensation and Income Continuation Agreement and $8,000 in
benefits pursuant to the 1992 Supplemental Retirement Plan.
(9) At December 31, 2008, Mr. Matthews had 3,902 unvested shares of restricted
stock and held 4,995 stock options with an exercise price of $5.605 per
share, 22,670 stock options with an exercise price of $15.04 per share and
2,800 stock options with an exercise price of $8.00 per share.
21
Compensation of Directors
Fees. Each non-employee director of Citizens South Banking Corporation
(other than the Chairman of the Board) receives a monthly retainer of $1,083.
The Chairman of the Board of Citizens South Banking Corporation receives a
monthly retainer of $1,667. In addition, each non-employee director of Citizens
South Banking Corporation receives a fee of $1,000 for each Board meeting
attended and $300 for each Committee meeting attended. Non-employee members of
Citizens South Banking Corporation's Executive Committee receive $400 for each
meeting attended, the Chairman of the Audit Committee receives $1,450 for each
meeting attended, and non-employee members of the Audit Committee receive $350
for each meeting attended.
Except for Director Massey, all of our directors currently serve on the
Board of Directors of Citizens South Bank, Citizens South Banking Corporation'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 Citizens South 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. Citizens South
Bank has entered into nonqualified deferred compensation agreements ("DCAs") for
the benefit of Directors Fuller, Hoyle, Massey and Rudisill. The DCAs provided
each director with a one-time opportunity to defer up to $20,000 of 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 Citizens South Banking Corporation, 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.
Supplemental Retirement Plan. Citizens South Bank has entered into
nonqualified supplemental retirement agreements ("SRAs") for Directors Fuller,
Hoyle, Massey, Matthews and Rudisill. The SRAs provide for an annual benefit
that ranges from $8,000 to $15,600, payable in monthly installments beginning at
age 70 for a period of 15 years. In the event of a director's pre-retirement
death or death before all payments under the SRA have been made to the director,
monthly benefits are provided for the director's designated beneficiary or
beneficiaries. If a director dies without a valid beneficiary designation, the
surviving spouse will be his beneficiary, or if none, then the benefits will be
paid to the director's personal representative. Benefits under the SRAs are
forfeited if the director's service is terminated for cause.
Stock Benefit Plans. Directors are eligible to receive awards of stock
options and restricted stock. On November 3, 2003, each non-employee director of
Citizens South Banking Corporation was granted non-qualified options to purchase
22,670 shares of common stock of Citizens South Banking Corporation 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 Citizens South Banking Corporation.
In 2008, Citizens South Banking Corporation adopted, and its stockholders
approved, the 2008 Equity Incentive Plan. Awards under the 2008 plan, which
include incentive stock options, non-qualified options and restricted
recognition and retention shares, have been structured to reward holders for
stock price appreciation that is achieved over time without compromising
fundamental elements of our business plan.
Pursuant to the 2008 plan, options to purchase common stock of Citizens
South Banking Corporation were granted to directors as determined by the
Compensation Committee that administers the plan. The Committee has never
granted options with an exercise price that is less than the closing price of
our shares of common stock on the grant date. The committee also determines the
period over which such awards will vest and become exercisable. The 2008 plan
provides for awards in the form of stock options without reload or dividend
equivalent rights. Pursuant to the 2008 plan, there were 14,000 non-qualified
22
options granted to the directors during 2008. Options granted shall vest in five
equal annual installments, with the first installment becoming exercisable on
the first anniversary of the date of grant, or June 16, 2009, and succeeding
installments on each anniversary thereafter through June 16, 2013.
Pursuant to the 2008 plan, there were a total of 9,000 restricted shares
awarded to the directors on June 16, 2008, that will vest over a five-year
period, commencing on June 16, 2008, the date of the award, at the rate of 10%
on June 16, 2009, 10% on June 16, 2010, 10% on June 16, 2011, 35% on June 16,
2012, and 35% on June 16, 2013. If a recipient ceases continuous service with
Citizens South Banking Corporation due to normal retirement, death or
disability, or following a change in control of Citizens South Banking
Corporation, 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 Citizens South Banking Corporation. Recipients have
the right to vote non-vested shares that have been awarded and will receive
dividends declared on such shares.
Additional Equity Compensation Plan Disclosure
Set forth below is information as of December 31, 2008 regarding
compensation plans under which equity securities of Citizens South Banking
Corporation are authorized for issuance.
=============================== ============================ ============================ ============================
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 878,118 $12.12 68,625 (1)
approved by stockholders
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans not
approved by stockholders -- -- --
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Total 878,118 $12.12 68,625 (1)
=============================== ============================ ============================ ============================
(1) There are no shares available for future issuance pursuant to the 1999
Recognition and Retention Plan and 1,612 shares underlying options
available for future issuance pursuant to the 1999 Stock Option Plan. There
are 4,538 shares available for future issuance pursuant to the 2003
Recognition and Retention Plan and 24,475 shares underlying options
available for future issuance pursuant to the 2003 Stock Option Plan. There
are 38,000 shares available for future issuance pursuant to the 2008 Equity
Incentive Plan, of which 10,000 shares may be issued as restricted stock
and 28,000 shares underlying options available for future issuance.
Section 16(a) Beneficial Ownership Reporting Compliance
The common stock of Citizens South Banking Corporation is registered with
the Securities and Exchange Commission pursuant to Section 12(b) of the
Securities Exchange Act of 1934. 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 Securities and Exchange Commission
disclosing beneficial ownership and changes in beneficial ownership of the
common stock. Securities and Exchange Commission 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. Based on Citizens South Banking Corporation's review of ownership
reports, none of Citizens South Banking Corporation's officers or directors
failed to file these reports on a timely basis for 2008.
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.
Although federal regulations 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, Citizens
South Bank does not provide loans to executive officers and directors on
preferential terms when compared to persons who are not affiliated with Citizens
South Bank.
23
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 Citizens South Banking Corporation.
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 our directors and officers are made in
conformity with the Federal Reserve Act and the Federal Reserve Board Regulation
O.
In accordance with the listing standards of the Nasdaq Stock Market, any
new transactions that would be required to be reported under this section of
this proxy statement must be approved by our audit committee or another
independent body of the board of directors.
- --------------------------------------------------------------------------------
PROPOSAL II--ADVISORY, NON-BINDING PROPOSAL TO APPROVE OUR EXECUTIVE
COMPENSATION PROGRAM AND POLICIES
- --------------------------------------------------------------------------------
In February 2009, the American Recovery and Reinvestment Act of 2009
("ARRA") was enacted. ARRA revised Section 111(e) of the Emergency Economic
Stabilization Act to require any recipient of funds in the TARP to permit a
separate stockholder vote to approve the compensation of executives, as
disclosed pursuant to the compensation disclosure rules of the Securities and
Exchange Commission. Under this legislation, the stockholder vote is not binding
on the board of directors of the TARP participant, and may not be construed as
overruling any decision by the participant's board of directors. Therefore, in
order to comply with ARRA as a recipient of TARP funds, the Board of Directors
of Citizens South Banking Corporation is providing stockholders with the
opportunity to cast an advisory (non-binding) vote to approve at the Annual
Meeting the compensation program and policies of Citizens South Banking
Corporation.
This proposal, commonly known as a "Say-on-Pay" proposal, gives you as a
stockholder the opportunity to vote on our executive pay program through the
following resolution:
"Resolved, that the stockholders approve the overall executive
pay-for-performance compensation programs and policies employed by Citizens
South Banking Corporation, as described in this proxy statement, including the
tabular disclosure regarding named executive officer compensation in this proxy
statement."
Because your vote is advisory, it will not be binding upon the Board of
Directors. However, the Compensation Committee will take into account the
outcome of the vote when considering future executive compensation arrangements.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE EXECUTIVE
COMPENSATION POLICIES AND PROCEDURES EMPLOYED BY THE COMPENSATION COMMITTEE.
- --------------------------------------------------------------------------------
PROPOSAL III--RATIFICATION OF APPOINTMENT OF THE INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
Citizens South Banking Corporation's independent registered public
accounting firm for the year ended December 31, 2008 was Cherry, Bekaert &
Holland, L.L.P. The Audit Committee has engaged Cherry, Bekaert & Holland,
L.L.P. to be Citizens South Banking Corporation's independent registered public
accounting firm for the year ending December 31, 2009, subject to the
ratification of the engagement by Citizens South Banking Corporation's
stockholders. At the annual meeting, stockholders will consider and vote on the
ratification of the engagement of Cherry, Bekaert & Holland, L.L.P. for the year
ending December 31, 2009. A representative of Cherry, Bekaert & Holland, L.L.P.
is expected to attend the annual meeting to respond to appropriate questions and
to make a statement if he or she so desires.
24
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 of Directors is submitting the selection of the
independent registered public accounting firm 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 registered public 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 2008 and 2007:
Audit Fees. The aggregate fees billed to Citizens South Banking Corporation
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, audit of management's assessment of
the effectiveness of internal control over financial reporting, 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 $69,000 and $89,500 during the years ended December 31, 2008
and 2007, respectively.
Audit-Related Fees. There were no fees billed to Citizens South Banking
Corporation by Cherry, Bekaert & Holland, L.L.P. for assurance and related
services rendered by Cherry, Bekaert & Holland, L.L.P. that were 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 during the
years ended December 31, 2008 and 2007.
Tax Fees. There were no fees billed to Citizens South Banking Corporation
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 during the years ended December 31, 2008 and 2007.
All Other Fees. There were no fees billed to Citizens South Banking
Corporation by Cherry, Bekaert & Holland, L.L.P. that are not described above
during the years ended December 31, 2008 and 2007.
For 2008 and 2007, there were no non-audit services that could have
affected Cherry, Bekaert & Holland, L.L.P.'s independence in performing its
function as the independent registered public accounting firm of Citizens South
Banking Corporation.
Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of the
Independent Registered Public Accounting Firm
The Audit Committee's policy is to pre-approve all audit and non-audit
services provided by the independent registered public accounting firm. 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 registered public accounting firm and management are required to
periodically report to the full Audit Committee regarding the extent of services
provided by the independent registered public accounting firm in accordance with
this pre-approval, and the fees for the services performed to date.
In 2008 and 2007, there were no fees paid to Cherry, Bekaert & Holland,
L.L.P. that were not pre-approved by the Audit Committee.
25
Required Vote and Recommendation of the Board of Directors
In order to ratify the selection of Cherry, Bekaert & Holland, L.L.P. as
the independent registered public accounting firm for the year ending December
31, 2009, 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 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR
THE YEAR ENDING DECEMBER 31, 2009.
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STOCKHOLDER PROPOSALS AND NOMINATIONS
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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, 519 South New Hope Road,
Gastonia, North Carolina 28054-4040, no later than December 11, 2009. Nothing in
this 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 that does not meet all of the requirements for inclusion
established by the Securities and Exchange Commission.
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 90 days before the date fixed for such meeting;
provided, however, that in the event that less than 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 Securities and Exchange Commission 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, 2010. 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, 2010. If notice is
received after February 9, 2010, it will be considered untimely, and Citizens
South Banking Corporation will not be required to present the matter at the
meeting.
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MISCELLANEOUS
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The Board of Directors is not aware of any business to come before the
annual meeting other than the matters described above in this proxy statement.
However, if any matters should properly come before the annual 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 annual
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
26
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 year ended December 31, 2008 will be furnished without charge to
stockholders as of the record date upon written request to the Secretary,
Citizens South Banking Corporation, 519 South New Hope Road, Gastonia, North
Carolina 28054-4040.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Paul L. Teem, Jr.
Paul L. Teem, Jr.
Gastonia, North Carolina Secretary
April 10, 2009
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON MAY 11, 2009: THIS PROXY STATEMENT,
INCLUDING THE NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS, AND CITIZENS SOUTH
BANKING CORPORATION'S 2008 ANNUAL REPORT TO STOCKHOLDERS ON FORM 10-K ARE EACH
AVAILABLE ON THE INTERNET AT WWW.CFPPROXY.COM/5372.
27
REVOCABLE PROXY
CITIZENS SOUTH BANKING CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
May 11, 2009
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 to be held
at the H. D. Whitener Community Room at Citizens South Bank, 519 South New Hope
Road, Gastonia, North Carolina, at 10:30 a.m. (local time) on May 11, 2009. The
official proxy committee is authorized to cast all votes to which the
undersigned is entitled as follows:
FOR VOTE
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.
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FOR AGAINST ABSTAIN
2. An advisory, non-binding proposal to approve our [ ] [ ] [ ]
executive compensation programs and policies.
FOR AGAINST ABSTAIN
[ [ [ [ [ ]
3. The ratification of the appointment of Cherry, Bekaert & Holland,
L.L.P. as our independent registered public accounting firm for the
year ending December 31, 2009.
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 annual meeting
or at any adjournment thereof and after notification to the Secretary of
Citizens South Banking Corporation at the annual 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 annual meeting.
The undersigned acknowledges receipt from Citizens South Banking
Corporation prior to the execution of this proxy of a Notice of the annual
meeting, audited financial statements and a proxy statement dated April 10,
2009.
Dated: , 2009 [ ] Check Box if You Plan
---------------------------- to Attend Meeting
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PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
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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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IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON MAY 11, 2009: CITIZENS SOUTH BANKING
CORPORATION'S PROXY STATEMENT, INCLUDING THE NOTICE OF THE ANNUAL MEETING OF
STOCKHOLDERS, AND CITIZENS SOUTH BANKING CORPORATION'S 2008 ANNUAL REPORT TO
STOCKHOLDERS ON FORM 10-K ARE EACH AVAILABLE ON THE INTERNET AT
WWW.CFPPROXY.COM/5372.