EXHIBIT 10.5

SEVERANCE AGREEMENT WITH GARY F. HOSKINS

        This SEVERANCE AGREEMENT (this "Agreement") is entered into as of this
17th day of May, 2004, by and between Citizens South Banking Corporation, a
Delaware corporation (the "Corporation"), and Gary F. Hoskins, Executive Vice
President, Treasurer, and Chief Financial Officer (the "Executive") of Citizens
South Bank, a federally chartered savings bank and wholly owned subsidiary of
the Corporation.

        WHEREAS, the Executive is employed by Citizens South Bank and the
Executive has made and is expected to continue to make major contributions to
the profitability, growth, and financial strength of the Corporation and its
subsidiaries,

        WHEREAS, the Corporation recognizes that, as is the case for most
companies, the possibility of a Change in Control (as defined in Section 1(c))
exists,

        WHEREAS, the Corporation desires to assure itself of the current and
future continuity of management and desires to establish minimum severance
benefits for certain of its officers, including the Executive, if a Change in
Control occurs,

        WHEREAS, the Corporation wishes to ensure that officers and other key
employees are not practically disabled from discharging their duties if a
proposed or actual transaction involving a Change in Control occurs,

        WHEREAS, the Corporation desires to provide additional inducement for
the Executive to continue to remain in the ongoing employ of the Corporation and
subsidiary, and

        WHEREAS, none of the conditions or events included in the definition of
the term "golden parachute payment" that is set forth in section 18(k)(4)(A)(ii)
of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in
Federal Deposit Insurance Corporation Rule 359.1(f)(1)(ii) [12 CFR
359.1(f)(1)(ii)] exists or, to the best knowledge of the Corporation, is
contemplated insofar as either of the Corporation or any of its subsidiaries is
concerned.

        NOW THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows.

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1.      CHANGE IN CONTROL COMBINED WITH EMPLOYMENT TERMINATION

        (a) Termination of Executive Within 12 Months After a Change in Control.
If a Change in Control occurs during the term of this Agreement and if either of
the following occurs, the Executive shall be entitled to severance benefits
specified in Section 2 of this Agreement -

    1)  Termination by Citizens South Banking Corporation or Subsidiary: the
        Executive's employment with the Corporation or its Subsidiary(ies) is
        involuntarily terminated within 12 months after a Change in Control,
        except for termination under Section 4 of this Agreement. For purposes
        of this Agreement, "Subsidiary" means an entity in which the Corporation
        directly or indirectly beneficially owns 50% or more of the outstanding
        voting securities, or

    2)  Termination by the Executive for Good Reason: the Executive terminates
        his employment with the Corporation or Subsidiary(ies) for Good Reason
        (as defined in Section 3) within 12 months after a change in control.

        If the Executive is removed from office or if his or her employment
terminates after discussions with a third party regarding a Change in Control
commence, and if those discussions ultimately conclude with a Change in Control,
then for purposes of this Agreement the removal of the Executive or termination
of employment shall be deemed to have occurred after the Change in Control.

        (b) Definition of Change in Control. For purposes of this Agreement,
"Change in Control" means any of the following events occur -

        1)      Merger: the Corporation merges into or consolidates with another
                corporation, or merges another corporation into the Corporation,
                and as a result less than 50% of the combined voting power of
                the resulting corporation immediately after the merger or
                consolidation is held by persons who were the holders of the
                Corporation's voting securities immediately before the merger or
                consolidation. For purposes of this Agreement, the term person
                means an individual, corporation, partnership, trust,
                association, joint venture, pool, syndicate, sole
                proprietorship, unincorporated organization or other entity, or

        2)      Acquisition of Significant Share Ownership: a report on Schedule
                13D, Schedule TO, or another form or schedule (other than
                Schedule 13G), is filed or is required to be filed under
                Sections 13(d) or 14(d) of the Securities Exchange Act of 1934,
                if the schedule discloses that the filing person or persons
                acting in concert has or have become the beneficial owner of 25%
                or more of a class of the Corporation's voting securities (but
                this clause (2) shall not apply to beneficial ownership of
                voting shares held by a Subsidiary in a fiduciary capacity), or

        3)      Change in Board Composition: during any period of two
                consecutive years, individuals who constitute the Corporation's
                board of directors at the beginning of the two-year period cease
                for any reason to constitute at least a majority thereof;
                provided, however, that - for purposes of this clause (3) - each
                director who is first elected by the board (or first nominated
                by the board for election by stockholders) by a vote of at least
                two-thirds (2/3) of the directors who were directors at the
                beginning of the period shall be deemed to have been a director
                at the beginning of the two-year period, or

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        4)      Sale of Assets: The Corporation sells to a third party
                substantially all of the Corporation's assets. For purposes of
                this Agreement, sale of substantially all of the Corporation's
                assets includes sale of Citizens South Bank alone.

2.      SEVERANCE BENEFITS

        (a) Severance Benefits. The severance benefits to which the Executive is
entitled under Section 1 are as follows -

        1)      Lump Sum Payment: The Corporation shall make or cause to be made
                a lump sum payment to the Executive in an amount in cash equal
                to 1.5 times the Executive's annual compensation. For purposes
                of this Agreement, annual compensation means (a) the Executive's
                annual base salary on the date of the Change in Control or the
                Executive's termination of employment, whichever amount is
                greater, plus (b) any cash bonuses or cash incentive
                compensation earned for the calendar year immediately before the
                year in which the Change in Control occurred or immediately
                before the year in which termination of employment occurred,
                whichever amount is greater, regardless of when the bonus or
                incentive compensation is or was paid. The Corporation
                recognizes that the bonus and incentive compensation earned by
                the Executive for a particular year's service might be paid in
                the year after the calendar year in which the bonus or incentive
                compensation is earned. The amount payable to the Executive
                hereunder shall not be reduced to account for the time value of
                money or discounted to present value. The payment required under
                this Section 2(a)(1) is payable no later than 5 business days
                after the date the Executive's employment terminates. If the
                Executive terminates employment for Good Reason, the date of
                termination shall be the date specified by the Executive in his
                notice of termination.

        2)      Retirement Benefit Plans: The Corporation shall cause the
                Executive to become fully vested in any qualified and
                non-qualified plans, programs or arrangements in which the
                Executive participated if the plan, program, or arrangement does
                not address the effect of a change in control. The Corporation
                also shall contribute or cause a Subsidiary to contribute to any
                account of the Executive under a 401(k) plan, retirement plan,
                or profit-sharing plan the matching and voluntary contributions,
                if any, that would have been made had the Executive's employment
                not terminated before the end of the plan year.

        3)      Other Benefit Plans: The Corporation shall cause to be continued
                life, medical and dental coverage substantially identical to the
                coverage maintained by the Corporation for the Executive prior
                to his severance. Such coverage and payments shall cease after
                18 months, or sooner if the Executive becomes employed
                elsewhere.

(c) Mitigation Is Not Required. The Corporation hereby acknowledges that it will
be difficult and could be impossible (1) for the Executive to find reasonably
comparable employment after his employment terminates, and (2) to measure the
amount of damages the Executive suffers as a result of termination.
Additionally, the Corporation acknowledges that its general severance pay plans
do not provide for mitigation, offset or reduction of any severance payment
received thereunder. Accordingly, the Corporation further acknowledges that the
payment of severance benefits by the Corporation under this Agreement is
reasonable and will be liquidated damages, and the Executive shall not be
required to mitigate the amount of any payment provided for in this Agreement by
seeking other employment or otherwise, nor will any profits, income, earnings or
other benefits from any source whatsoever create any mitigation, offset,
reduction or any other obligation on the part of the Executive hereunder or
otherwise.

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3.      GOOD REASON

        For purposes of this Agreement, "Good Reason" means the occurrence of
any of the events or conditions without the Executive's express written consent
-

        (a) Reduction in Base Salary: involuntary reduction in the Executive's
base salary, or

        (b) Reduced Participation in Bonus, Incentive, Compensation, and Other
Plans: involuntary reduction in the Executive's bonus, incentive, and other
compensation award opportunities under the Corporation's or Subsidiary(ies)'s
benefit plans, unless a company-wide reduction of all officers' award
opportunities occurs simultaneously, or

        (c) Participation in Benefit Plans: involuntary discontinuance of the
Executive's participation in any officer or employee benefit plans maintained by
the Corporation or Subsidiary(ies), unless such plans are discontinued by reason
of law or loss of tax deductibility to the Corporation with respect to
contributions to such plans, or are discontinued as a matter of policy applied
equally to all participants in such plans, or

        (d) Reduction in Responsibilities or Status: assignment to the Executive
of duties or responsibilities that are materially inconsistent with the
Executive's duties and responsibilities immediately before the Change in
Control; any other action by the Corporation or its successor that results in a
material reduction or material adverse change in the Executive's position,
authority, duties or responsibilities; failure to nominate the Executive as a
director of the Corporation if the Executive shall have been a director
immediately before the Change in Control; or failure to elect or reelect the
Executive or cause the Executive to be elected or reelected to the board of
directors of Citizens South Bank if the Executive shall have been a director
immediately before the Change in Control, or

        (e) Failure to Obtain Assumption Agreement: failure to obtain an
assumption of the Corporation's obligations under this Agreement by any
successor to the Corporation, regardless of whether such entity becomes a
successor to the Corporation as a result of a merger, consolidation, sale of
assets, or other form of reorganization, or

        (f) Material Breach: a material breach of this Agreement by the
Corporation that is not corrected within a reasonable time, or

        (g) Relocation of the Executive: relocation of the Corporation's
principal executive offices, or requiring the Executive to change his principal
work location, to any location that is more than 50 miles from the location of
the Corporation's principal executive offices on the date of this Agreement.

4.      TERMINATION FOR WHICH NO SEVERANCE BENEFITS ARE PAYABLE

        (a) No Severance for Termination for Cause. The Bank may terminate the
Executive's employment at any time. Anything in this Agreement to the contrary
notwithstanding, under no circumstance shall the Executive be entitled to
severance benefits if his employment terminates for Cause.

        1)      Cause Means Commission of Any of the Following Acts: For
                purposes of this Agreement, "Cause" means the Executive shall
                have committed any of the following acts -

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                a)      Fraud, Embezzlement, Theft or Other Crime: an act of
                        fraud, embezzlement, or theft in connection with his
                        duties or in the course of his employment with the
                        Corporation or a Subsidiary, or commission of a felony
                        or commission of a misdemeanor involving moral
                        turpitude, or

                b)      Damage to Property: intentional wrongful damage to the
                        business or property of the Corporation or
                        Subsidiary(ies), which, in the Corporation's sole
                        judgment, causes material harm to the Corporation or
                        Subsidiary(ies), or

                c)      Negligence and Other Actions: gross negligence,
                        insubordination, disloyalty, or dishonesty in the
                        performance of his duties as an officer of the
                        Corporation or Subsidiary(ies), or

                d)      Violation of Law or Policy: intentional violation of any
                        law or significant policy of the Corporation or
                        Subsidiary(ies) committed in connection with the
                        Executive's employment, which, in the Corporation's sole
                        judgment, has an adverse effect on the Corporation or
                        Subsidiary(ies), or

                e)      Disclosure of Trade Secrets: intentional wrongful
                        disclosure of secret processes or confidential
                        information of the Corporation or a Subsidiary, which,
                        in the Corporation's sole judgment, causes material harm
                        to the Corporation or the Subsidiary, or

                f)      Competing with the Corporation: intentional wrongful
                        engagement in any competitive activity. For purposes of
                        this Agreement, competitive activity means the
                        Executive's participation, without the written consent
                        of a senior executive officer of the Corporation, in the
                        management of any business enterprise if (1) the
                        enterprise engages in substantial and direct competition
                        with the Corporation, (2) the enterprise's revenues
                        derived from any product or service competitive with any
                        product or service of the Corporation or Subsidiary(ies)
                        amounted to 10% or more of the enterprise's revenues for
                        its most recently completed fiscal year, and (3) the
                        Corporation's revenues from the product or service
                        amounted to 10% of the Corporation's revenues for its
                        most recently completed fiscal year. A competitive
                        activity does not include mere ownership of securities
                        in an enterprise and the exercise of rights appurtenant
                        thereto, provided the Executive's share ownership does
                        not give his practical or legal control of the
                        enterprise. For this purpose, ownership of less than 5%
                        of the enterprise's outstanding voting securities shall
                        conclusively be presumed to be insufficient for
                        practical or legal control, and ownership of more than
                        50% shall conclusively be presumed to constitute
                        practical and legal control.

                                If the Executive is now or hereafter becomes
                        subject to an agreement not to compete with the
                        Corporation or Subsidiary(ies), a breach by the
                        Executive of that other non-competition agreement shall
                        be grounds for denial of severance benefits for Cause
                        under this clause (f) of Section 4(a)(1). But if the
                        Executive engages in a competitive activity under
                        circumstances justifying denial of severance benefits
                        for Cause under this clause (f), that shall not
                        necessarily be grounds for concluding that the Executive
                        has also breached the other

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                        non-competition agreement to which he is or may become
                        subject. This clause (f) is not intended to and shall
                        not be construed to supersede or amend any provision of
                        an employment or non-competition agreement to which the
                        Executive is or may become subject. This clause (f) does
                        not grant to the Executive any right or privilege to
                        engage in other activities or enterprises, whether in
                        competition with the Corporation or otherwise, or

                g)      Termination for Cause under an Employment Agreement: any
                        actions that have caused the Executive to be terminated
                        for cause under any employment agreement existing on the
                        date hereof or hereafter entered into between the
                        Executive and the Corporation or a Subsidiary.

        2)      Definition of "Intentional": For purposes of this Agreement, no
                act or failure to act on the part of the Executive shall be
                deemed to have been intentional if it was due primarily to an
                error in judgment or negligence. An act or failure to act on the
                Executive's part shall be considered intentional if it is not in
                good faith and if it is without a reasonable belief that the
                action or failure to act is in the best interests of the
                Corporation or a Subsidiary.

        (b) The Executive's Right to Severance Is Subject to Regulatory
Considerations. Payments made to the Executive under this Agreement or otherwise
are subject to and conditioned upon their compliance with 12 USC section 1828(k)
and any regulations promulgated thereunder. Anything in this Agreement to the
contrary notwithstanding, the Executive's entitlement to severance benefits
under this Agreement is subject to the following regulatory considerations.

        1)      If the Executive is suspended from office or temporarily
                prohibited from participating in the Bank's affairs by a notice
                served under section 8(e)(3) (12 USC 1818(e)(3)) or 8(g) (12 USC
                1818(g)) of the Federal Deposit Insurance Act, as amended by the
                Financial Institutions Reform, Recovery and Enforcement Act of
                1989, the Bank's obligations under this Agreement shall be
                suspended as of the date of service, unless stayed by
                appropriate proceedings. If the charges in the notice are
                dismissed, the Bank may in its discretion (a) pay the Executive
                all or part of the compensation withheld while the obligations
                under this Agreement were suspended and (b) reinstate in whole
                or in part any of the obligations that were suspended.

        2)      If the Executive is removed or permanently prohibited from
                participating in the Bank's affairs by an order issued under
                section 8(e) (12 USC 1818(e)) or 8(g) (12 USC 1818(g)) of the
                Federal Deposit Insurance Act, as amended by the Financial
                Institutions Reform, Recovery and Enforcement Act of 1989, all
                obligations of the Bank under this Agreement shall terminate as
                of the effective date of the order, but vested rights of the
                parties shall not be affected.

        3)      If the Bank is in default as defined in section 3(x) (12 USC
                1813(x)(1)) of the Federal Deposit Insurance Act, as amended by
                the Financial Institutions Reform, Recovery and Enforcement Act
                of 1989, all obligations of the Bank under this Agreement shall
                terminate as of the date of default, but vested rights of the
                parties shall not be affected.

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        4)      All obligations of the Bank under this Agreement shall be
                terminated, except to the extent determined that continuation of
                the Agreement is necessary for the continued operation of the
                Bank, (a) by the Federal Deposit Insurance Corporation when the
                FDIC enters into an agreement to provide assistance to or on
                behalf of the Bank under the authority contained in section
                13(c) (12 USC 1823(c)) of the Federal Deposit Insurance Act, as
                amended by the Financial Institutions Reform, Recovery and
                Enforcement Act of 1989, or (b) when the Bank is determined by
                the FDIC to be in an unsafe or unsound condition. Vested rights
                of the parties shall not be affected, however.

        (c) No Severance under this Agreement for the Executive's Death or
Disability. Anything in this Agreement to the contrary notwithstanding, under no
circumstance shall the Executive be entitled to severance benefits under this
Agreement if -

        1) Death: the Executive dies while actively employed by the Corporation
        or a Subsidiary, or

        2) Disability: the Executive becomes totally disabled while actively
        employed by the Corporation or a Subsidiary. For purposes of this
        Agreement, the term "totally disabled" means that because of injury or
        sickness the Executive is unable to perform his duties.

        The benefits, if any, payable to the Executive or his beneficiary(ies)
or estate relating to his death or disability shall be determined solely by such
benefit plans or arrangements as the Corporation or Subsidiary may have with the
Executive relating to death or disability, not by this Agreement.

5.      TERM OF AGREEMENT

        The initial term of this Agreement shall be for a period of three years,
commencing May 17, 2004. On the first anniversary of the May 17, 2004 effective
date of this Agreement, and on each anniversary thereafter, this Agreement shall
be extended automatically for one additional year unless the Corporation's board
of directors gives notice to the Executive in writing at least 90 days before
the anniversary that the term of this Agreement will not be extended. If the
board of directors determines not to extend the term, it shall promptly notify
the Executive. References herein to the term of this Agreement mean the initial
term and extensions of the initial term. Unless terminated earlier, this
Agreement shall terminate when the Executive reaches age 65. If the board of
directors decides not to extend the term of this Agreement, this Agreement shall
nevertheless remain in force until its term expires. The board's decision not to
extend the term of this Agreement shall not - by itself - give the Executive any
rights under this Agreement to claim an adverse change in his position,
compensation or circumstances or otherwise to claim entitlement to severance
benefits under this Agreement.

6.      THIS AGREEMENT IS NOT AN EMPLOYMENT CONTRACT

        The parties hereto acknowledge and agree that (a) this Agreement is not
a management or employment agreement and (b) nothing in this Agreement shall
give the Executive any rights or impose any obligations to continued employment
by the Corporation or any Subsidiary or successor of the Corporation, nor shall
it give the Corporation any rights or impose any obligations for the continued
performance of duties by the Executive for the Corporation or any Subsidiary or
successor of the Corporation.

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7.      WITHHOLDING OF TAXES

        The Corporation may withhold from any benefits payable under this
Agreement all Federal, state, local or other taxes as may be required by law,
governmental regulation or ruling.

8.      SUCCESSORS AND ASSIGNS

        (a) This Agreement Is Binding on the Corporation's Successors. This
Agreement shall be binding upon the Corporation and any successor to the
Corporation, including any persons acquiring directly or indirectly all or
substantially all of the business or assets of the Corporation by purchase,
merger, consolidation, reorganization, or otherwise. Any such successor shall
thereafter be deemed to be "Citizens South Banking Corporation" for purposes of
this Agreement. But this Agreement and the Corporation's obligations under this
Agreement are not otherwise assignable, transferable or delegable by the
Corporation. By agreement in form and substance satisfactory to the Executive,
the Corporation shall require any successor to all or substantially all of the
business or assets of the Corporation expressly to assume and agree to perform
this Agreement in the same manner and to the same extent the Corporation would
be required to perform if no such succession had occurred.

        (b) This Agreement Is Enforceable by the Executive and His Heirs. This
Agreement will inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributes and legatees.

        (c) This Agreement Is Personal in Nature and Is Not Assignable. This
Agreement is personal in nature. Without written consent of the other party,
neither party shall assign, transfer, or delegate this Agreement or any rights
or obligations under this Agreement except as expressly provided in this Section
8. Without limiting the generality or effect of the foregoing, the Executive's
right to receive payments hereunder is not assignable or transferable, whether
by pledge, creation of a security interest, or otherwise, except for a transfer
by Executive's will or by the laws of descent and distribution. If the Executive
attempts an assignment or transfer that is contrary to this Section 8, the
Corporation shall have no liability to pay any amount to the assignee or
transferee.

9.      NOTICES

        All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered by hand
or mailed, certified or registered mail, return receipt requested, with postage
prepaid (a) to the Corporation at 519 South New Hope Road, P.O. Box 2249,
Gastonia, North Carolina 28053-2249, Attn: Corporate Secretary, (b) to the
Executive at the address appearing on the Corporation's records, or (c) to such
other address as the party may designate by like notice.

10.     CAPTIONS AND COUNTERPARTS

        The headings and subheadings used in this Agreement are included solely
for convenience and shall not affect the interpretation of this Agreement. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed to be an original, but all of which together shall constitute one and the
same agreement.

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11.     AMENDMENTS AND WAIVERS

        No provision of this Agreement may be modified or amended except in a
writing signed by the Executive and by the Corporation. No waiver by either
party of any breach by the other or waiver of compliance with any condition or
provision of this Agreement shall be deemed a waiver of similar provisions or
conditions at the same time or at any other time.

12.     SEVERABILITY

        The provisions of this Agreement shall be deemed severable. The
invalidity or unenforceability of any provision shall not affect the validity or
enforceability of the other provisions of this Agreement. Any provision held to
be invalid or unenforceable shall be reformed to the extent (and only to the
extent) necessary to make it valid and enforceable.

13.     GOVERNING LAW

        The validity, interpretation, construction and performance of this
Agreement shall be governed by and construed in accordance with the substantive
laws of the State of North Carolina, without giving effect to the principles of
conflict of laws of such State.

14.     ENTIRE AGREEMENT

        This Agreement constitutes the entire agreement between the Corporation
and the Executive concerning the subject matter hereof. No rights are granted to
the Executive under this Agreement other than those specifically set forth
herein. No agreements or representations, oral or otherwise, expressed or
implied concerning the subject matter of this Agreement have been made by either
party that are not set forth expressly in this Agreement.

        Without limiting the generality of the foregoing, the parties hereto
acknowledge and agree that this Agreement supersedes in its entirety any prior
Merger/Acquisition Protection Agreement entered into by the Executive and the
Corporation or by the Executive and Citizens South Bank, as amended or
supplemented. Any Merger/Acquisition Protection Agreement entered into prior to
this Agreement shall hereafter be void and of no force or effect.

        IN WITNESS WHEREOF, the parties have executed this Severance Agreement
as of the date first written above.

CITIZENS SOUTH BANKING CORPORATION

By: /s/ Kim S. Price
    -------------------------------------
Its President and Chief Executive Officer

EXECUTIVE

/s/ Gary F. Hoskins

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