UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                   FORM 10-K/A
                                Amendment No. 1

[X]             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                  For the Fiscal Year Ended December 31, 2008

                                       OR

[ ]            TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                          SECURITIES EXCHANGE ACT OF 1934
             For the transition period from _________ to ________.

                             File Number 000-31937

                            GRANDSOUTH BANCORPORATION
             (Exact name of Registrant as specified in its Charter)

             South Carolina                              57-1104394
    (State or Other Jurisdiction            (IRS Employer Identification Number)
      of Incorporation or Organization)

                381 Halton Road, Greenville, South Carolina 29607
                (Address of Principal Executive Office, Zip Code)

       Registrant's Telephone Number, Including Area Code: (864) 770-1000

    Securities Registered Pursuant to Section 12(b) of the Exchange Act: None

      Securities Registered Pursuant to Section 12(g) of the Exchange Act:
                           Common Stock, No Par Value
                                (Title of Class)

Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act.  Yes [ ] No [X]

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or Section 15(d) of the Act.  Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted  electronically  and
posted on its corporate Web site, if any, every  Interactive  Data File required
to be submitted  and posted  pursuant to Rule 405 of  Regulation  S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to  submit  and  post  such  files).  Yes  [ ] No [ ]  (Not  yet  applicable  to
Registrant)

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.   [ ]

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated filer, a non-accelerated  filer or a smaller reporting company.  See
definitions of  "accelerated  filer," "large  accelerated  filer,"  and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

         Large accelerated filer [ ]             Accelerated filer [ ]

         Non-accelerated filer [ ]               Smaller Reporting Company  [X]
(Do not check if smaller reporting company)

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Act). [ ] Yes [X] No

The aggregate market value of the voting common equity held by non-affiliates on
June  30,  2008,  which  was the  last  day of the  Registrant's  most  recently
completed second fiscal quarter, based on the average of the bid and asked price
on the OTC Bulletin Board, was  approximately  $23,780,883.  For purposes of the
foregoing  calculation  only,  all  directors  and  executive  officers  of  the
Registrant have been deemed affiliates.

         As of March 23, 2009,  there were 3,573,695  shares of the Registrant's
Common Stock, no par value, outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Annual Report to  Shareholders  for the year ended December
     31, 2008 - Parts I and II

<PAGE>

                                EXPLANATORY NOTE

         This  Amendment  No. 1 to  Registrant's  Form  10-K for the year  ended
December 31, 2008, is being filed for the purpose of including  the  information
required  by Part  III of this  form.  Registrant  had  originally  intended  to
incorporate the Part III information by reference into the Form 10-K pursuant to
General Instruction G(3). However,  Registrant  subsequently delayed the date of
its annual meeting of  shareholders,  and definitive proxy materials will not be
filed  within 120 days of  Registrant's  fiscal  year end as required by General
Instruction G(3).


                          10-K CROSS REFERENCE INDEX

                                     Part I                                 Page
Item 1   Business .......................................................     2
Item 1A  Risk Factors ...................................................    10
Item 1B  Unresolved Staff Comments ......................................    13
Item 2   Description of Properties ......................................    13
Item 3   Legal Proceedings ..............................................    13
Item 4   Submission of Matters to a Vote of Security Holders ............    13
                                     Part II
Item 5   Market for Registrant's Common Equity, Related Stockholder
           Matters, and Issuer Purchases of Equity Securities ...........    14
Item 6   Selected Financial Data ........................................    14
Item 7   Management's Discussion and Analysis of Financial Condition
           and Results of Operations ....................................    14
Item 7A  Quantitative and Qualitative Disclosures about
           Market Risk ..................................................    14
Item 8   Financial Statements and Supplementary Data ....................    14
Item 9   Changes In and Disagreements with Accountants
           on Accounting and Financial Disclosure .......................    14
Item 9A(T) Controls and Procedures ......................................    14
Item 9B  Other Information ..............................................    15
                                    Part III
Item 10  Directors, Executive Officers and Corporate Governance .........    15
Item 11  Executive Compensation .........................................    16
Item 12  Security Ownership of Certain Beneficial Owners and Management
         and Related Stockholder Matters ................................    26
Item 13  Certain Relationships and Related Transactions, and
           Director Independence ........................................    28
Item 14  Principal Accountant Fees and Services .........................    29
                                    Part IV
Item 15  Exhibits and Financial Statement Schedules .....................    30



<Page>
                        CAUTIONARY NOTICE WITH RESPECT TO
                           FORWARD LOOKING STATEMENTS

         This report contains "forward-looking statements" within the meaning of
the  securities  laws.  The  Private  Securities  Litigation  Reform Act of 1995
provides a safe harbor for forward-looking  statements.  In order to comply with
the terms of the safe harbor,  the Compamy notes that a variety of factors could
cause the Company's actual results and experience to differ  materially from the
anticipated   results  or  other   expectations   expressed  in  the   Company's
forwarding-looking statements.

         All statements that are not historical  facts are statements that could
be  "forward-looking   statements."  You  can  identify  these   forward-looking
statements  through the use of words such as "may," "will,"  "should,"  "could,"
"would," "expect,"  "anticipate,"  "assume," indicate,"  "contemplate,"  "seek,"
"plan,"  "predict,"  "target,"  "potential,"  "believe,"  "intend,"  "estimate,"
"project,"  "continue,"  or  other  similar  words.  Forward-looking  statements
include,  but are not limited to,  statements  regarding  the  Company's  future
business  prospects,   revenues,  working  capital,  liquidity,  capital  needs,
interest costs, income, business operations and proposed services.

         These  forward-looking  statements  are based on current  expectations,
estimates and projections about the banking industry,  management's beliefs, and
assumptions made by management.  Such information includes,  without limitation,
discussions  as to estimates,  expectations,  beliefs,  plans,  strategies,  and
objectives  concerning  future  financial  and  operating   performance.   These
statements  are not guarantees of future  performance  and are subject to risks,
uncertainties and assumptions that are difficult to predict.  Therefore,  actual
results  may  differ  materially  from those  expressed  or  forecasted  in such
forward-looking  statements.  The risks and uncertainties  include,  but are not
limited to:

     o    future economic and business conditions;
     o    lack of  sustained  growth in the  economies of the  Company's  market
          areas;
     o    government monetary and fiscal policies;
     o    the  effects of changes in interest  rates on the levels,  composition
          and costs of deposits, loan demand, and the values of loan collateral,
          securities, and interest sensitive assets and liabilities;
     o    the effects of  competition  from a wide  variety of local,  regional,
          national and other providers of financial,  investment,  and insurance
          services,  as well as  competitors  that offer  banking  products  and
          services by mail, telephone, computer and/or the Internet;
     o    credit risks;
     o    higher than anticipated levels of defaults on loans;
     o    perceptions by depositors about the safety of their deposits;
     o    the  failure  of  assumptions  underlying  the  establishment  of  the
          allowance for loan losses and other estimates,  including the value of
          collateral securing loans;
     o    the risks of opening new offices,  including,  without limitation, the
          related  costs  and  time  of  building  customer   relationships  and
          integrating  operations as part of these  endeavors and the failure to
          achieve  expected  gains,  revenue growth and/or expense  savings from
          such endeavors;
     o    changes in laws and regulations, including tax, banking and securities
          laws and regulations;
     o    changes in accounting policies, rules and practices;
     o    cost and difficulty of implementing changes in technology or products;
     o    the  effects of war or other  conflicts,  acts of  terrorism  or other
          catastrophic  events that may affect general  economic  conditions and
          economic confidence;
     o    ability to weather the current economic downturn;
     o    loss of consumer or investor confidence; and
     o    other factors and  information  described in this report and in any of
          the  other  reports  that we file  with the  Securities  and  Exchange
          Commission under the Securities Exchange Act of 1934.

         All  forward-looking   statements  are  expressly  qualified  in  their
entirety by this cautionary notice. The Company has no obligation,  and does not
undertake,  to update,  revise or correct any of the forward-looking  statements
after the date of this  report.  The Company  has  expressed  its  expectations,
beliefs and projections in good faith and believes they have a reasonable basis.
However,  there is no assurance that these expectations,  beliefs or projections
will result or be achieved or accomplished.

                                     PART I

Item 1.  Business.

General

         The Company is a South Carolina corporation organized in 2000 under the
laws of South Carolina for the purpose of being a holding company for GrandSouth
Bank (the "Bank").  On October 2, 2000,  pursuant to a Plan of Exchange approved
by the shareholders,  all of the outstanding shares of capital stock of the Bank
were  exchanged for shares of common stock of the Company and the Company became
the  owner of all of the  outstanding  capital  stock of the Bank.  The  Company
presently  engages in no business  other than that of owning the Bank and has no
employees.
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<Page>

         The Bank is a South  Carolina  state  bank which was  incorporated  and
commenced  operations as a commercial  bank in 1998.  The Bank operates from its
offices in  Greenville,  Fountain Inn and  Anderson,  South  Carolina.  The main
office is located at 381 Halton Road, in  Greenville,  South  Carolina,  and the
branch  offices are located at 325 South Main  Street,  in Fountain  Inn,  South
Carolina and 1601 North Fant Street in Anderson, South Carolina.

         The Bank offers a full array of commercial  banking  services.  Deposit
services include business and personal checking accounts, NOW accounts,  savings
accounts,  money market  accounts,  various term  certificates  of deposit,  IRA
accounts, and other deposit services.  Most of the Bank's deposits are attracted
from individuals and small businesses. The Bank does not offer trust services.

         The Bank  offers  secured  and  unsecured,  short-to-intermediate  term
loans,  with  floating and fixed  interest  rates for  commercial,  consumer and
residential purposes. Consumer loans include: car loans, home equity improvement
loans  (secured  by first and second  mortgages),  personal  expenditure  loans,
education  loans,  overdraft  lines of credit,  and the like.  Commercial  loans
include short term  unsecured  loans,  short and  intermediate  term real estate
mortgage  loans,  loans  secured by listed  stocks,  loans secured by equipment,
inventory,  accounts  receivable,  and the like.  Management  believes  that the
credit staff possesses  knowledge of the community and lending skills sufficient
to enable the Bank to maintain a sufficient volume of high quality loans.

         Management of the Bank  believes that the loan  portfolio is adequately
diversified.  There are no significant concentrations of loans in any particular
individuals,  industries or groups of related  individuals or industries and the
Bank has no foreign  loans.  The loan portfolio  consists  primarily of mortgage
loans and extensions of credit to businesses and individuals in its service area
within  Greenville and Anderson  Counties,  South Carolina.  The economy of this
area is diversified  and does not depend on any one industry or group of related
industries.  Management has established loan policies and practices that include
general  limitations  on   loan-to-collateral   value  for  different  types  of
collateral,  requirements  for  appraisals,  obtaining and  maintaining  current
credit and financial information on borrowers, and credit approvals.

         Other services  offered by the Bank include safe deposit  boxes,  night
depository service,  VISA(R) and MasterCard(R)  charge cards, tax deposits,  and
traveler's checks.

         At December  31,  2008,  the Bank  employed 69 persons  full-time.  The
Company has no  employees.  Management  of the Bank  believes  that its employee
relations are excellent.

Competition

         As of June 30,  2008,  the most  recent date for which  information  is
available,  the Bank competed in the Greenville  County,  South Carolina  market
with 33 other  banks and  savings  banks  with 167 branch  locations.  Aggregate
deposits in the Greenville County market were  approximately  $10.1 billion. The
Bank had a 2.15% share of the Greenville County market as of that date. The Bank
also has an office in Anderson  County,  South  Carolina,  where, as of June 30,
2008,  it  competed  with 20  other  banks  and  savings  banks  with 63  branch
locations.  Aggregate  deposits in the Anderson County market were $2.3 billion.
The Bank had a 3.75% share of the market.

         Banks generally compete with other financial  institutions  through the
savings  products and services  offered,  the pricing of services,  the level of
service provided,  the convenience and availability of services,  and the degree
of expertise  and  personal  concern  with which  services  are  offered.  South
Carolina law permits statewide branching by banks and savings institutions,  and
many financial  institutions  in the state have branch  networks.  Consequently,
commercial  banking  in  South  Carolina  is  highly  competitive.  Furthermore,
out-of-state  banks may commence  operations  and compete in the Bank's  primary
service area. Many large banking organizations,  several of which are controlled
by out-of-state ownership, currently operate in the Bank's market area.

         In the conduct of certain areas of its business, the Bank competes with
commercial banks, savings and loan associations, credit unions, consumer finance
companies,  insurance  companies,  money market mutual funds and other financial
institutions, some of which are not subject to the same degree of regulation and
restriction  imposed upon the Bank. Many of these competitors have substantially
greater  resources and lending limits than the Bank and offer certain  services,
such as international  banking  services and trust services,  that the Bank does
not provide.  Moreover,  most of these  competitors  have more  numerous  branch
offices located throughout their market areas, a competitive  advantage that the
Bank  does  not  have to the  same  degree.  Such  competitors  may also be in a
position to make more effective use of media advertising,  support services, and
electronic technology than can the Bank.

         The banking industry is significantly  affected by prevailing  economic
conditions as well as by government policies and regulations  concerning,  among
other things,  monetary and fiscal affairs,  the housing  industry and financial
institutions.  Deposits at banks are influenced by a number of economic factors,
including interest rates, competing  instruments,  levels of personal income and

                                       3
<Page>

savings,  and the extent to which interest on retirement savings accounts is tax
deferred.  Lending  activities  are  also  influenced  by a number  of  economic
factors,  including  demand  for  and  supply  of  housing,  conditions  in  the
construction  industry,  and availability of funds. Primary sources of funds for
lending  activities  include savings  deposits,  income from  investments,  loan
principal  repayments,   and  proceeds  from  sales  of  loans  to  conventional
participating lenders.

Effects of Government Regulation

         Bank  holding  companies  and banks  are  extensively  regulated  under
federal and state law. To the extent that the  following  information  describes
statutory  and  regulatory  provisions,  it is  qualified  in  its  entirety  by
reference to such  statutes and  regulations.  Any change in  applicable  law or
regulation  may have a material  effect on the  business  of the Company and the
Bank.

         General

         As a bank holding  company under the Bank Holding Company Act ("BHCA"),
the  Company  obtained  the  approval of the Board of  Governors  of the Federal
Reserve System (the "Federal Reserve") to acquire the Bank and is subject to the
regulations of the Federal Reserve. Under the BHCA, the Company's activities and
those of its subsidiaries are limited to banking, managing or controlling banks,
furnishing  services to or performing  services for its subsidiaries or engaging
in any other  activity  which the Federal  Reserve  determines  to be so closely
related to banking or managing or controlling  banks as to be a proper  incident
thereto. The Company may engage in a broader range of activities if it becomes a
"financial  holding company"  pursuant to the  Gramm-Leach-Bliley  Act, which is
described  below under the caption  "Gramm-Leach-Bliley  Act" The BHCA prohibits
the Company  from  acquiring  direct or indirect  control of more than 5% of the
outstanding  voting stock or substantially all of the assets of any bank or from
merging or  consolidating  with  another  bank  holding  company  without  prior
approval of the Federal  Reserve.  Additionally,  the BHCA prohibits the Company
from engaging in or from  acquiring  ownership or control of more than 5% of the
outstanding voting stock of any company engaged in a non-banking business unless
such business is determined by the Federal  Reserve to be so closely  related to
banking as to be properly  incident  thereto.  The BHCA generally does not place
territorial   restrictions  on  the  activities  of  such  non-banking   related
activities.

         The Company is also subject to regulation and  supervision by the South
Carolina  State Board of Financial  Institutions  (the "State  Board").  A South
Carolina bank holding company must provide the State Board with information with
respect to the financial  condition,  operations,  management and  inter-company
relationships of the holding company and its subsidiaries.  The State Board also
may require such other information as is necessary to keep itself informed about
whether the  provisions  of South  Carolina law and the  regulations  and orders
issued  thereunder  by the State Board have been  complied  with,  and the State
Board may examine any bank holding company and its subsidiaries.

         Obligations of the Company to its Subsidiary Bank

         A number of obligations  and  restrictions  are imposed on bank holding
companies  and their  depository  institution  subsidiaries  by Federal  law and
regulatory  policy that are designed to reduce  potential  loss  exposure to the
depositors of such depository  institutions and to the Federal Deposit Insurance
Corporation ("FDIC") insurance funds in the event the depository  institution is
in danger of becoming insolvent or is insolvent.  For example,  under the policy
of the Federal Reserve,  a bank holding company is required to serve as a source
of financial  strength to its subsidiary  depository  institutions and to commit
resources to support such institutions in

                                       4
<Page>

circumstances  where it might not do so absent such  policy.  In  addition,  the
"cross-guarantee"  provisions of the Federal  Deposit  Insurance Act, as amended
("FDIA"),  require  insured  depository  institutions  under  common  control to
reimburse  the FDIC for any  loss  suffered  or  reasonably  anticipated  by the
Deposit  Insurance  Fund of the FDIC as a result of the  default  of a  commonly
controlled insured depository  institution or for any assistance provided by the
FDIC to a  commonly  controlled  insured  depository  institution  in  danger of
default.  The FDIC may decline to enforce the  cross-guarantee  provisions if it
determines that a waiver is in the best interest of the Deposit  Insurance Fund.
The  FDIC's  claim for  damages is  superior  to claims of  shareholders  of the
insured  depository  institution  or its holding  company but is  subordinate to
claims of depositors,  secured creditors and holders of subordinated debt (other
than affiliates) of the commonly controlled insured depository institutions.

         The FDIA also provides that amounts  received from the  liquidation  or
other resolution of any insured  depository  institution by any receiver must be
distributed (after payment of secured claims) to pay the deposit  liabilities of
the  institution  prior to payment  of any other  general  or  unsecured  senior
liability,   subordinated  liability,  general  creditor  or  shareholder.  This
provision gives depositors a preference over general and subordinated  creditors
and  shareholders  in the event a receiver is appointed to distribute the assets
of the Bank.

         Any capital  loans by a bank holding  company to any of its  subsidiary
banks are  subordinate  in right of payment  to  deposits  and to certain  other
indebtedness of such subsidiary  bank. In the event of a bank holding  company's
bankruptcy,  any  commitment  by the bank  holding  company  to a  federal  bank
regulatory  agency to maintain the capital of a subsidiary  bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.

         Capital Adequacy Guidelines for Bank Holding Companies and State Banks

         The various federal bank regulators,  including the Federal Reserve and
the FDIC have adopted  risk-based and leverage capital  adequacy  guidelines for
assessing bank holding company and bank capital adequacy. These standards define
what qualifies as capital and establish minimum capital standards in relation to
assets and off-balance sheet exposures, as adjusted for credit risks.

         Failure to meet capital  guidelines could subject the Bank to a variety
of enforcement remedies,  ranging from, for example, a prohibition on the taking
of brokered  deposits to the termination of deposit insurance by the FDIC or the
appointment of a receiver.

         The risk-based  capital  standards of both the Federal  Reserve and the
FDIC explicitly identify concentrations of credit risk and the risk arising from
non-traditional  activities, as well as an institution's ability to manage these
risks,  as  important  factors  to be taken  into  account  by the  agencies  in
assessing an institution's overall capital adequacy. The capital guidelines also
provide that an institution's exposure to a decline in the economic value of its
capital  due to changes in interest  rates be  considered  by the  agencies as a
factor in evaluating a bank's  capital  adequacy.  The Federal  Reserve also has
issued additional  capital  guidelines for bank holding companies that engage in
certain trading activities.

         Payment of Dividends

         The  Company is a legal  entity  separate  and  distinct  from its bank
subsidiary.  Most of the  revenues of the  Company  are  expected to result from
dividends  paid to the Company by the Bank.  There are statutory and  regulatory
requirements  applicable to the payment of dividends by subsidiary banks as well
as by the Company to its  shareholders.

         Certain Transactions by the Company with its Affiliates

         Federal  law   regulates   transactions   among  the  Company  and  its
affiliates,  including  the  amount of the  Bank's  loans to or  investments  in
nonbank affiliates and the amount of advances to third parties collateralized by
securities of an affiliate.  Further,  a bank holding company and its affiliates
are prohibited  from engaging in certain tie-in  arrangements in connection with
any extension of credit, lease or sale of property or furnishing of services.

                                       5
<Page>

         FDIC Insurance Assessments

         The FDIC merged the Bank  Insurance  Fund and the  Savings  Association
Insurance  Fund to form the Deposit  Insurance Fund ("DIF") on March 31, 2006 in
accordance  with the  Federal  Deposit  Insurance  Reform Act of 2005.  The FDIC
maintains the DIF by assessing depository institutions an insurance premium. The
amount each institution is assessed is based upon statutory factors that include
the balance of insured  deposits  as well as the degree of risk the  institution
poses to the  insurance  fund.  The FDIC uses a risk-based  premium  system that
assesses higher rates on those  institutions that pose greater risks to the DIF.
Since January 1, 2007, the FDIC has placed each  institution in one of four risk
categories  using a two-step  process based first on capital ratios (the capital
group assignment) and then on other relevant  information (the supervisory group
assignment).  Effective  January 1, 2007, rates range between 5 and 43 cents per
$100 in assessable  deposits.  As a result of the actual and predicted impact on
the DIF of bank  failures  in 2008 and 2009,  however,  the FDIC has altered its
methodology  for  computing  assessments,  beginning  with  assessments  due  in
September  2009 based on  assessable  deposits at June 30,  2009.  Under the new
methodology,  assessments  will  range  between  7 and  77.5  cents  per $100 in
assessable deposits. The FDIC has also proposed to make an additional "emergency
assessment"  of 20 cents per $100 of assessable  deposits held on June 30, 2009,
which will be payable in September 2009.

         Regulation of the Bank

         The Bank is subject to regulation  and  examination by the State Board.
In  addition,  the Bank is subject to various  other state and federal  laws and
regulations,  including state usury laws, laws relating to fiduciaries, consumer
credit laws and laws relating to branch banking.  The Bank's loan operations are
also subject to certain federal consumer credit laws and regulations promulgated
thereunder,  including,  but not limited to: the federal  Truth-In-Lending  Act,
governing  disclosures of credit terms to consumer borrowers;  the Home Mortgage
Disclosure Act, requiring financial  institutions to provide certain information
concerning their mortgage lending; the Equal Credit Opportunity Act and the Fair
Housing  Act,  prohibiting  discrimination  on the basis of  certain  prohibited
factors in extending  credit;  and the Fair Debt Collection  Act,  governing the
manner in which  consumer  debts may be collected by  collection  agencies.  The
deposit  operations  of the Bank are also  subject to the Truth in Savings  Act,
requiring  certain  disclosures  about  rates  paid  on  savings  accounts;  the
Expedited   Funds   Availability   Act,  which  deals  with  disclosure  of  the
availability  of funds  deposited in accounts and the  collection  and return of
checks by banks;  the Right to Financial  Privacy Act,  which  imposes a duty to
maintain  certain   confidentiality   of  consumer  financial  records  and  the
Electronic  Funds Transfer Act and  regulations  promulgated  thereunder,  which
govern  automatic   deposits  to  and  withdrawals  from  deposit  accounts  and
customers'  rights and  liabilities  arising  from the use of  automated  teller
machines and other electronic banking services.  The Bank is also subject to the
Fair Credit  Reporting  Act,  governing the use and provision of  information to
credit  reporting  agencies;  the Bank Secrecy Act,  dealing  with,  among other
things, the reporting of certain currency transactions; and the USA Patriot Act,
dealing with,  among other things,  requiring  the  establishment  of anti-money
laundering  programs including  standards for verifying customer  information at
account opening.

         The  Bank  is  also  subject  to  the  requirements  of  the  Community
Reinvestment  Act (the  "CRA").  The CRA imposes on  financial  institutions  an
affirmative  and  ongoing  obligation  to meet the credit  needs of their  local
communities,  including low- and moderate-income neighborhoods,  consistent with
the safe and sound operation of those institutions. Each financial institution's
actual performance in meeting community credit needs is evaluated as part of the
examination process, and also is considered in evaluating mergers,  acquisitions
and applications to open a branch or facility.

         Other Safety and Soundness Regulations

         Prompt  Corrective  Action.  The federal  banking  agencies  have broad
powers under  current  federal law to take prompt  corrective  action to resolve
problems of insured depository institutions.  The extent of these powers depends
upon whether the  institutions in question are "well  capitalized,"  "adequately
capitalized,"    "undercapitalized,"    "significantly    undercapitalized"   or
"critically undercapitalized."

                                       6
<PAGE>

         A bank that is "undercapitalized"  becomes subject to provisions of the
FDIA:   restricting  payment  of  capital  distributions  and  management  fees;
requiring the FDIC to monitor the condition of the bank; requiring submission by
the bank of a capital  restoration plan;  prohibiting the acceptance of employee
benefit plan deposits; restricting the growth of the bank's assets and requiring
prior approval of certain  expansion  proposals.  A bank that is  "significantly
undercapitalized" is also subject to restrictions on compensation paid to senior
management  of the bank,  and a bank that is  "critically  undercapitalized"  is
further subject to  restrictions on the activities of the bank and  restrictions
on payments of subordinated debt of the bank. The purpose of these provisions is
to require banks with less than adequate capital to act quickly to restore their
capital and to have the FDIC move promptly to take over banks that are unwilling
or unable to take such steps.

         Brokered Deposits.  Under current FDIC regulations,  "well capitalized"
banks may accept brokered deposits without restriction, "adequately capitalized"
banks may accept  brokered  deposits  with a waiver  from the FDIC  (subject  to
certain  restrictions on payment of rates), while  "undercapitalized"  banks may
not accept brokered  deposits.  The regulations  provide that the definitions of
"well capitalized," "adequately capitalized" and "undercapitalized" are the same
as the  definitions  adopted by the agencies to implement the prompt  corrective
action  provisions  described in the  previous  paragraph.  Management  does not
believe  that  these  regulations  will have a  material  adverse  effect on the
operations of the Bank.

         Interstate Banking

         Under the Riegle-Neal  Interstate Banking and Branching  Efficiency Act
of 1994 the Company and any other  adequately  capitalized  bank holding company
located in South  Carolina can acquire a bank located in any other state,  and a
bank  holding  company  located  outside  South  Carolina  can acquire any South
Carolina-based  bank, in either case subject to certain  deposit  percentage and
other restrictions.  Unless prohibited by state law, adequately  capitalized and
managed bank holding  companies are permitted to  consolidate  their  multistate
bank operations into a single bank subsidiary and to branch  interstate  through
acquisitions. De novo branching by an out-of-state bank is permitted only if the
laws of the host state expressly permit it. The authority of a bank to establish
and operate  branches within a state continue to be subject to applicable  state
branching laws. South Carolina law permits such interstate  branching but not de
novo branching by an out-of-state bank.

         Gramm-Leach-Bliley Act

         The Gramm-Leach-Bliley Act (the "Act") makes it easier for affiliations
between banks,  securities firms and insurance companies to take place,  removed
Depression-era barriers that had separated banks and securities firms, and seeks
to protect the privacy of consumers' financial information.

         Under  provisions  of  the  legislation  and  regulations   adopted  by
appropriate regulators, banks, securities firms and insurance companies are able
to structure new affiliations  through a holding company  structure or through a
financial subsidiary. The legislation creates a new type of bank holding company
called a "financial  holding  company" which has powers much more extensive than
those of standard holding companies.  These expanded powers include authority to
engage in "financial activities," which are activities that are (1) financial in
nature;  (2)  incidental  to  activities  that are  financial in nature;  or (3)
complementary  to a  financial  activity  and that do not  impose  a safety  and
soundness risk. Significantly,  the permitted financial activities for financial
holding  companies include authority to engage in merchant banking and insurance
activities,  including insurance portfolio investing. A bank holding company can
qualify as a financial holding company and expand the services it offers only if
all of its subsidiary depository institutions are well-managed, well-capitalized
and have received a rating of "satisfactory" on their last CRA examination.

                                       7
<PAGE>

         The  legislation  also  creates  another  new type of  entity  called a
"financial subsidiary." A financial subsidiary may be used by a national bank or
a group of national banks to engage in many of the same activities permitted for
a financial holding company, though several of these activities,  including real
estate development or investment,  insurance or annuity underwriting,  insurance
portfolio  investing and merchant  banking,  are reserved for financial  holding
companies.  A bank's  investment  in a financial  subsidiary  affects the way in
which the bank calculates its regulatory capital, and the assets and liabilities
of financial  subsidiaries  may not be consolidated  with those of the bank. The
bank must also be certain that its risk  management  procedures  are adequate to
protect it from  financial and  operational  risks created both by itself and by
any financial subsidiary.  Further, the bank must establish policies to maintain
the separate corporate  identities of the bank and its financial  subsidiary and
to prevent each from becoming liable for the obligations of the other.

         The Act also  establishes  the  concept  of  "functional  supervision,"
meaning that  similar  activities  should be  regulated  by the same  regulator.
Accordingly,  the Act spells out the regulatory authority of the bank regulatory
agencies, the Securities and Exchange Commission (the "SEC") and state insurance
regulators  so that each type of activity  is  supervised  by a  regulator  with
corresponding  expertise.  The  Federal  Reserve is  intended  to be an umbrella
supervisor  with the  authority to require a bank  holding  company or financial
holding  company or any subsidiary of either to file reports as to its financial
condition,  risk management  systems,  transactions with depository  institution
subsidiaries  and  affiliates,  and compliance  with any federal law that it has
authority to enforce.

         Although the Act reaffirms that states are the regulators for insurance
activities  of  all  persons,  including   federally-chartered  banks,  the  Act
prohibits  states from preventing  depository  institutions and their affiliates
from conducting insurance activities.

         The Act also  establishes  a minimum  federal  standard  of  privacy to
protect the confidentiality of a consumer's  personal financial  information and
gives the consumer the power to choose how personal financial information may be
used by financial institutions.

         The  Act  and  the  regulations  adopted  pursuant  to the  Act  create
opportunities  for the Company to offer  expanded  services to  customers in the
future,  though  the  Company  has not yet  determined  what the  nature  of the
expanded  services  might be or when the Company might find it feasible to offer
them. The Act has increased competition from larger financial  institutions that
are  currently  more  capable  than  the  Company  of  taking  advantage  of the
opportunity  to  provide a  broader  range of  services.  However,  the  Company
continues to believe that its commitment to providing high quality, personalized
service to customers will permit it to remain competitive in its market area.

         Legislative Proposals

         Proposed  legislation which could significantly  affect the business of
banking is introduced in Congress from time to time. For example, numerous bills
are pending in Congress and the South Carolina  Legislature  to provide  various
forms of relief to  homeowners  from  foreclosure  of  mortgages  as a result of
publicity surrounding economic problems resulting from subprime mortgage lending
and the economic adjustments in national real estate markets.  Management of the
Bank cannot  predict the future  course of such  legislative  proposals or their
impact on the Company and the Bank should they be adopted.

         Sarbanes-Oxley Act of 2002

         The  Sarbanes-Oxley  Act was enacted in 2002,  and  mandated  extensive
reforms and requirements  for public  companies.  The SEC has adopted  extensive
regulations  pursuant  to  the  requirements  of  the  Sarbanes-Oxley  Act.  The
Sarbanes-Oxley  Act and the SEC's  regulations have increased the Company's cost
of doing  business,  particularly  its  fees for  internal  and  external  audit
services  and  legal  services,  and the law and  regulations  are  expected  to
continue  to do so.  However,  the  Company  does  not  believe  that it will be
affected  by  Sarbanes-Oxley  and the  regulations  in ways that are  materially
different or more  onerous than those of other public  companies of similar size
and in similar businesses.

                                       8
<PAGE>

           Fiscal and Monetary Policy

           Banking is a business  which  depends to a large  extent on  interest
rate  differentials.  In general,  the difference between the interest paid by a
bank on its deposits and its other  borrowings,  and the interest  received by a
bank on its loans and securities  holdings,  constitutes  the major portion of a
bank's  earnings.  Thus, the earnings and growth of the Company and the Bank are
subject to the  influence of economic  conditions  generally,  both domestic and
foreign,  and also to the monetary and fiscal  policies of the United States and
its agencies,  particularly the Federal Reserve.  The Federal Reserve  regulates
the supply of money through  various means,  including  open market  dealings in
United States government securities, the discount rate at which banks may borrow
from the Federal Reserve, and the reserve  requirements on deposits.  The nature
and timing of any changes in such  policies  and their impact on the Company and
the Bank cannot be predicted.

         Governmental Response to 2008 Financial Crisis

         During the fourth quarter of 2008 and continuing into the first quarter
of 2009 the FDIC,  the Federal  Reserve,  the  Department  of the  Treasury  and
Congress  took a number of actions  designed to  alleviate  or correct  mounting
problems in the financial services industry.  A number of these initiatives were
directly applicable to community banks.

         Congress  enacted  the  Emergency  Economic  Stabilization  Act of 2008
which,  among other things,  temporarily  increased  the maximum  amount of FDIC
deposit insurance from $100,000 to $250,000 and created a Troubled Assets Relief
Program ("TARP") administered by Treasury. In October,  2008, Treasury announced
a Capital Purchase Program ("CPP") under TARP to increase the capital of healthy
banks. Under the CPP, Treasury would purchase preferred stock with warrants from
qualified banks and bank holding companies in an amount up to 3% of the seller's
risk-weighed  assets  as  of  September  30,  2008.   Institutions   wishing  to
participate in the CPP were required to file an application with their principal
federal  regulators.   The  Company  filed  such  an  application  and  received
preliminary  approval to sell  preferred  stock to the Treasury,  and in January
2009 sold 9,450 shares of redeemable  preferred stock with a redemption value of
$1,000 per share to the Treasury for $9 million. That transaction has imposed on
the Company a number of open-ended  administrative burdens,  including having to
permit  Treasury to amend  unilaterally  the stock purchase  agreement to comply
with  subsequent  changes in applicable  federal  statutes,  restrictions on the
payment of dividends, and restrictions on executive compensation,  including the
tax  deductibility  of such  compensation.  The  burdens and  restrictions  will
continue as long as the Treasury owns the preferred stock.

         The FDIC  also  implemented  in  October,  2008 a  Temporary  Liquidity
Guarantee Program consisting of a deposit insurance  component pursuant to which
it  undertook  to  provide  deposit   insurance  in  an  unlimited   amount  for
non-interest  bearing  transaction  accounts,  and a  debt  guarantee  component
pursuant to which it undertook to fully guarantee senior,  unsecured debt issued
by banks or bank holding  companies.  Coverage of both  components was automatic
until December 5, 2008, at which time covered  institutions could opt out of one
or both of the components. Institutions not opting out would be charged fees for
their  participation  in the  components.  The  Bank  did not opt out of  either
component.

         An  unfortunate  consequence  of the  difficulties  that have beset the
banking  industry in the last year has been a large  increase in bank  failures,
which has led to  substantial  claims  being made  against  the  FDIC's  Deposit
Insurance Fund. In order to increase the amount in the Deposit Insurance Fund to
reflect the increased risk of additional bank failures and insurance claims, the
FDIC has  raised  its  assessments  on banks  for 2009 and has also  proposed  a
special one-time assessment of 20 cents per $100 of assessable  deposits,  to be
paid in  September,  2009 based on deposits  at June 30,  2009.  There  appears,
however,  to be a possibility  that the  assessment  will be reduced if Congress
authorizes  the FDIC to  borrow  sufficient  funds.  Assuming  that the  special
assessment is imposed as proposed and without reduction,  the additional cost to
the Bank in 2009 would be approximately $660,849.

         Additional  governmental  efforts to ameliorate the problems afflicting
the banking  industry have been adopted or proposed,  or are being considered by
Congress and various governmental  entities.  The Company is presently unable to
predict the impact of any such changes, although it appears that they are likely
to increase  operating  expenses in the near term  without  creating  completely
offsetting benefits.

         Further Information

         Further  information  about the business of the Company and the Bank is
set forth in this Form 10-K under Item 6 -"Management's  Discussion and Analysis
or Plan of Operation."

                                       9
<PAGE>

Item 1A.  Risk Factors

                                  RISK FACTORS

                          Risks Related to Our Business

         There can be no  assurance  that recent  government  actions  will help
stabilize the U.S. financial system.

In response to the financial  crises  affecting the banking system and financial
markets  and going  concern  threats  to  investment  banks and other  financial
institutions,  various branches and agencies of the U.S.  government have put in
place laws,  regulations and programs to address capital and liquidity issues in
the banking system. There can be no assurance,  however, as to the actual impact
that such laws,  regulations  and programs will have on the  financial  markets,
including the extreme levels of volatility, liquidity and confidence issues, and
limited credit  availability  currently being  experienced.  The failure of such
laws,  regulations  and programs to help  stabilize the financial  markets and a
continuation  or  worsening  of  current   financial  market   conditions  could
materially and adversely affect our business,  financial  condition,  results of
operations, access to credit or the trading price of our common stock.

         Current levels of market volatility are unprecedented.

The  volatility  and  disruption  of  financial  and credit  markets has reached
unprecedented  levels for recent times. In some cases, the markets have produced
downward  pressure on stock prices and credit  availability  for certain issuers
without  regard to those  issuers'  underlying  financial  strength.  If current
levels of market disruption and volatility  continue or worsen,  there can be no
assurance that we will not experience an adverse effect,  which may be material,
on our ability to access  capital and on our business,  financial  condition and
results of operations.

         The soundness of other financial  institutions  could adversely  affect
us.

Financial  services  institutions  are  interrelated  as a  result  of  trading,
clearing,  counterparty,  or  other  relationships.  We  have  exposure  to many
different  industries and counterparties,  and we routinely execute transactions
with  counterparties  in the financial  services  industry,  including  brokers,
dealers,   commercial  banks,   investment   banks,  and  government   sponsored
enterprises. Many of these transactions expose us to credit risk in the event of
default of our  counterparty.  In addition,  our credit risk may be  exacerbated
when the  collateral  we hold cannot be realized or is  liquidated at prices not
sufficient  to recover the full amount of the loan or other  obligation  due us.
There is no assurance  that any such losses would not  materially  and adversely
affect our results of operations or earnings.

         Current market developments may adversely affect our industry, business
and results of operations.

Dramatic declines in the housing market during the prior year, with falling home
prices  and  increasing   foreclosures  and   unemployment,   have  resulted  in
significant  write-downs  of asset values by financial  institutions,  including
government-sponsored  entities and major commercial and investment banks.  These
write-downs,  initially of  mortgage-backed  securities  but spreading to credit
default  swaps  and other  derivative  securities  have  caused  many  financial
institutions  to seek  additional  capital,  to merge with  larger and  stronger
institutions and, in some cases, to fail. Reflecting concern about the stability
of the  financial  markets  generally and the strength of  counterparties,  many
lenders and institutional  investors have reduced,  and in some cases, ceased to
provide  funding to  borrowers,  including  other  financial  institutions.  The
resulting lack of available credit,  lack of confidence in the financial sector,
increased  volatility in the  financial  markets and reduced  business  activity
could  materially  and adversely,  directly or indirectly,  affect our business,
financial condition and results of operations.

         Our growth  strategy will require  future  increases in capital that we
may not be able to accomplish.

         We are required by banking  regulators  to maintain  various  ratios of
capital to assets.  As our assets grow we expect our  capital  ratios to decline
unless we can increase our earnings or raise sufficient new capital to keep pace
with asset growth.  Our ability to raise  additional  capital,  if needed,  will
depend,  among other things,  on conditions in the capital markets at that time,
which are outside our control,  and on our financial  condition and performance.
If we are unable to limit a capital ratio decline by increasing our capital,  we
will have to  restrict  our asset  growth as we approach  the  minimum  required
capital to asset ratios.

         We may be unable to successfully manage our sustained growth.

         Our future  profitability  will depend in part on our ability to manage
growth  successfully.  Our ability to manage growth  successfully will depend on
our  ability to  maintain  cost  controls  and asset  quality  while  attracting

                                       10
<PAGE>

additional loans and deposits, as well as on factors beyond our control, such as
economic conditions and interest rate trends. If we grow too quickly and are not
able to control  costs and  maintain  asset  quality,  growth  could  materially
adversely affect our financial performance.

         We depend on the services of a number of key  personnel,  and a loss of
any of those  personnel  could  disrupt  our  operations  and  result in reduced
revenues.

         We are a relationship-driven  organization.  Our growth and development
to date have  depended  in large part on the  efforts  of our senior  management
team.  These senior  officers  have primary  contact with our  customers and are
extremely important in maintaining personalized  relationships with our customer
base,  which are key aspects of our business  strategy,  and in  increasing  our
market  presence.  The  unexpected  loss of services of one or more of these key
employees  could have a material  adverse  effect on our operations and possibly
result in  reduced  revenues  if we were  unable to find  suitable  replacements
promptly.

         If our loan customers do not pay us as they have  contracted to, we may
experience losses.

         Our  principal  revenue  producing  business  is making  loans.  If our
customers do not repay the loans, we will suffer losses. Even though we maintain
an allowance for loan losses, the amount of the allowance may not be adequate to
cover the losses we  experience.  We attempt to mitigate this risk by a thorough
review of the  creditworthiness of loan customers.  Nevertheless,  there is risk
that  our  credit  evaluations  will  prove  to be  inaccurate  due  to  changed
circumstances or otherwise.

         Our business is concentrated in the Upstate area of South Carolina, and
a downturn in the economy of the area,  a decline in area real estate  values or
other events in our market area may adversely affect our business.

         Substantially  all of our  business is located in the  Upstate  area of
South Carolina.  As a result, our financial  condition and results of operations
may be  affected  by changes  in the  Upstate  economy.  A  prolonged  period of
economic  recession,  a general decline in real estate values in our market area
or other  adverse  economic  conditions  in the Upstate and South  Carolina  may
result in decreases in demand for our services, increases in nonpayment of loans
and  decreases in the value of  collateral  securing  loans,  which could have a
material adverse effect on our business,  future prospects,  financial condition
or results of operations.

         We face strong  competition from larger,  more established  competitors
which may adversely affect our ability to operate profitably.

         We encounter strong competition from financial  institutions  operating
in the Upstate area of South Carolina.  In the conduct of our business,  we also
compete with credit unions,  insurance companies,  money market mutual funds and
other financial  institutions,  some of which are not subject to the same degree
of regulation as we are. Many of these  competitors have  substantially  greater
resources  and  lending  abilities  than we have  and  offer  services,  such as
investment  banking,  trust and  international  banking  services that we do not
provide.  We believe that we have been able to, and will continue to be able to,
compete  effectively with these institutions  because of our experienced bankers
and  personalized  service,  as well as through  loan  participations  and other
strategies and techniques. However, we cannot promise that we are correct in our
belief.  If we are wrong,  our ability to operate  profitably  may be negatively
affected.

         Technological  changes  affect  our  business,  and we may  have  fewer
resources than many of our competitors to invest in technological improvements.

         The   financial   services   industry   continues   to  undergo   rapid
technological  changes  with  frequent  introductions  of new  technology-driven
products and services.  In addition to enabling financial  institutions to serve
clients better, the effective use of technology may increase  efficiency and may
enable financial institutions to reduce costs. Our future success may depend, in
part,  upon our ability to use technology to provide  products and services that
provide  convenience to customers and to create  additional  efficiencies in our
operations.  We may need to make significant  additional capital  investments in
technology in the future,  and we may not be able to  effectively  implement new
technology-driven   products  and  services.   Many  of  our  competitors   have
substantially greater resources to invest in technological improvements.

         Our  profitability  and  liquidity  are affected by changes in interest
rates and economic conditions.

         Our  profitability  depends upon our net interest income,  which is the
difference between interest earned on our interest earning assets, such as loans
and investment securities, and interest expense on interest bearing liabilities,
such as deposits  and  borrowings.  Our net  interest  income will be  adversely
affected  when market  interest  rates  change such that the  interest we pay on
deposits and borrowings  increases  faster than the interest earned on loans and
investments,  or, conversely,  when the interest earned on loans and investments
decreases  faster than the interest we pay on deposits and borrowings.  Interest

                                       11

<PAGE>

rates,  and  consequently  our results of  operations,  are  affected by general
economic  conditions  (domestic  and foreign) and fiscal and monetary  policies.
Monetary and fiscal  policies may  materially  affect the level and direction of
interest  rates.  Beginning in June 2004 through June 2006, the Federal  Reserve
raised rates 17 times for a total increase of 4.25%. Increases in interest rates
generally  decrease the market values of interest earning  investments and loans
held and therefore may  adversely  affect our liquidity and earnings.  Increased
interest rates also generally  affect the volume of mortgage loan  originations,
the resale value of mortgage  loans  originated  for resale,  and the ability of
borrowers to perform  under  existing  loans of all types.  Since  September 18,
2007, the Federal Reserve has decreased interest rates significantly.  Decreases
in  interest  rates  generally  have the  opposite  effect on  market  values of
interest-bearing  assets, the volume of mortgage loan  originations,  the resale
value of mortgage loans  originated for resale,  and the ability of borrowers to
perform  under  existing  loans of all types  from the  effect of  increases  in
interests rates.

                        Risks Related to Our Common Stock

         Our  common  stock has a  limited  trading  market,  which may make the
prompt execution of sale transactions difficult.

         Although  our  common  stock  may be  traded  from  time  to time on an
individual basis, no active trading market has developed and none may develop in
the  foreseeable  future.  Our  common  stock  is not  traded  on any  exchange.
Accordingly,  if you wish to sell shares you may  experience  a delay or have to
sell them at a lower price in order to sell them promptly, if at all.

         We may issue additional securities, which could affect the market price
of our common stock and dilute your ownership.

         We may issue  additional  securities to raise  additional  capital,  to
support growth, or to make acquisitions. Sales of a substantial number of shares
of our common  stock,  or the  perception  by the market  that those sales could
occur, could cause the market price of our common stock to decline or could make
it more difficult for us to raise capital through the sale of common stock or to
use our common stock in future acquisitions.

         We do not plan to pay cash dividends in the foreseeable future.

         We have never paid cash dividends and do not plan to pay cash dividends
in the  foreseeable  future.  We plan to use the funds that might  otherwise  be
available to pay dividends to expand our business.

         Declaration  and payment of dividends are within the  discretion of our
board of directors.  Our bank will be our most likely source of funds with which
to pay cash dividends. Our bank's declaration and payment of future dividends to
us are within the discretion of the bank's board of directors, and are dependent
upon its earnings,  financial condition,  its need to retain earnings for use in
the business and any other pertinent factors. The bank's payment of dividends is
also subject to various regulatory requirements.

         Provisions in our articles of incorporation  and South Carolina law may
discourage  or prevent  takeover  attempts,  and these  provisions  may have the
effect of reducing the market price for our stock.

         Our articles of incorporation  include several provisions that may have
the  effect  of  discouraging  or  preventing  hostile  takeover  attempts,  and
therefore of making the removal of incumbent management difficult.  In addition,
South Carolina law contains  several  provisions that may make it more difficult
for a third party to acquire  control of us without the approval of our board of
directors,  and may make it more  difficult  or  expensive  for a third party to
acquire a majority of our  outstanding  common  stock.  To the extent that these
provisions are effective in discouraging or preventing  takeover attempts,  they
may tend to reduce the market price for our stock.

         Our  common  stock  is  not  insured,  so you  could  lose  your  total
investment.

         Our  common  stock is not a  deposit  or  savings  account,  and is not
insured by the Federal  Deposit  Insurance  Corporation or any other  government
agency. Should our business fail you could lose your total investment.

                                       12
<PAGE>

                          Risks Related to Our Industry

         We are  subject  to  governmental  regulation  which  could  change and
increase our cost of doing business or have an adverse affect on our business.

         We  operate  in  a  highly  regulated   industry  and  are  subject  to
examination,  supervision  and  comprehensive  regulation by various federal and
state agencies. Our compliance with the requirements of these agencies is costly
and may limit our  growth and  restrict  certain  of our  activities,  including
payment of dividends, mergers and acquisitions,  investments, loans and interest
rates charged,  and locations of offices.  We are also subject to capitalization
guidelines  established  by federal  authorities  and our  failure to meet those
guidelines  could  result,  in an extreme  case,  in our bank's  being placed in
receivership.  We have also recently been subjected to some of the extensive and
expensive  requirements imposed on public companies by the Sarbanes-Oxley Act of
2002 and related regulations.

         The laws and  regulations  applicable  to the  banking  industry  could
change at any time,  and we cannot  predict  the impact of these  changes on our
business or profitability.  Because  government  regulation  greatly affects the
business  and  financial  results  of all  commercial  banks  and  bank  holding
companies,  our cost of compliance could adversely affect our ability to operate
profitably.

         We are  susceptible  to changes in monetary  policy and other  economic
factors which may adversely affect our ability to operate profitably.

         Changes in governmental,  economic and monetary policies may affect the
ability of our bank to attract  deposits  and make loans.  The rates of interest
payable  on  deposits  and  chargeable  on loans are  affected  by  governmental
regulation  and fiscal policy as well as by national,  state and local  economic
conditions.  All of these  matters  are  outside of our  control  and affect our
ability to operate profitably.

Item 1B.  Unresolved Staff Comments

         Not required for smaller reporting companies.

Item 2.    Description of Property.

         The Bank leases  property at the  intersection of Halton Road and Rocky
Slope Road in  Greenville,  South  Carolina, where its main  office  facility is
located.  The  property is leased  until 2021 for $1,000 per month for years one
through  five,  $1,322 per month for years six through  fifteen,  and $1,521 per
month for years sixteen through the end of the lease term. This facility,  which
was completed in August 2002, is a 20,000 square foot, three story building. The
cost of building and furnishing the new facility totaled $2.9 million.  The Bank
owns the property located at 1601 North Fant Street in Anderson, South Carolina,
where a branch office is located.

         The Bank  leases  property  at the corner of South Main Street and East
Knight Street in Fountain Inn where a branch office is located.  The property is
leased until 2018 for $800 per month from Blake P. Garrett,  Jr., Trustee,  with
four  five-year  renewal  options.  Lease  payments  are  subject to increase to
reflect  increases in the Consumer  Price Index.  Blake P. Garrett,  Jr., is the
brother of Mason Y. Garrett,  Chairman of the Board of Directors of the Bank and
the Company.  Blake P. Garrett, Jr., is trustee for a partnership which owns the
property.


Item 3.    Legal Proceedings.

           The Bank is from time to time a party to  various  legal  proceedings
arising in the ordinary  course of business,  but  management of the Bank is not
aware  of  any  pending  or  threatened   litigation  or  unasserted  claims  or
assessments  that are  expected  to  result in  losses,  if any,  that  would be
material to the Bank's business and operations.

Item 4.    Submission of Matters to Vote of Security Holders.

Special Meeting of Shareholders

         On  December  22,  2008,   the  Company  held  a  special   meeting  of
shareholders to vote on an amendment to the Company's  Articles of Incorporation
to  authorize  the issuance of 20 million  shares of  preferred  stock with such
preferences,  limitations,  and relative  rights,  within legal  limits,  of one
class,  or one or more  series  within  the  class,  as are set by the  Board of
Directors.  The  amendment  was  approved at the special  meeting and the voting
results were as follows:

Shares Voted For        Shares Voted Against    Abstentions     Broker Non-Votes
----------------        --------------------    -----------     ----------------

 2,477,331                   13,777                399                -


                                       13
<PAGE>
                                     PART II

         The portions of the 2008 Annual Report to Shareholders  incorporated by
reference into this Form 10-K are set forth in Exhibit 13 hereto.

Item 5. Market for Registrant's  Common Equity, Related  Stockholder Matters and
Issuer Purchases of Equity Securities.

         The  information  set forth under the caption "Market for Common Equity
and Related  Stockholder  Matters" and in Note 16 to the Company's  Consolidated
Financial Statements in the Company's Annual Report to Shareholders for the year
ended  December 31, 2008 (the "2008 Annual  Report") is  incorporated  herein by
reference.

Securities Authorized for Issuance under Equity Compensation Plans

         The information  required by Item 201(d) of Regulation S-K is set forth
in Item 12 of this Form 10-K.

Sales of Unregistered Securities

         The  Company did not sell any equity  securities  during 2008 that were
not registered under the Securities Act of 1933.

Purchases of Equity Securities by the Company and Affiliated Purchasers

         Neither  the Company nor any  "affiliated  purchaser"  as defined in 17
C.F.R.  240.10b-18(a)(3)  purchased  any  shares  or units  of any  class of the
Company's  equity  securities  that is registered  pursuant to Section 12 of the
Exchange Act during the fourth  quarter of 2008.  Accordingly,  no disclosure is
required pursuant to 17 C.F.R. Section 229.703.

Item 6.  Selected Financial Data.

         Not required for smaller reporting companies.

Item 7.  Management's Discussion and Analysis or Plan of Operation.

         The  information set forth under the caption  "Management's  Discussion
and  Analysis  of  Financial   Condition   and  Results  of  Operation"  in  the
Registrant's  2008  Annual  Report to  Shareholders  is  incorporated  herein by
reference.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk.

         Not required for smaller reporting companies.

Item 8.  Financial Statements and Supplementary Data.

         The Consolidated  Financial  Statements,  including Notes thereto,  and
Report of Independent Registered Public Accounting Firm thereon set forth in the
Registrant's  2008 Annual  Report to  Shareholders  are  incorporated  herein by
reference.

Item 9.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure.

         Not Applicable.

Item 9A(T).  Controls and Procedures.

Effectiveness of Disclosure Controls and Procedures

         Based on the evaluation required by 17 C.F.R. Section  240.13a-15(b) or
240.15d-15(b) of the Company's disclosure controls and procedures (as defined in
17  C.F.R.  Sections  240.13a-15(e)  or  240.15d-15(e)),   the  Company's  chief
executive  officer and chief financial  officer concluded that such controls and
procedures,  as of the end of the period  covered by this  annual  report,  were
effective.

Management's Report on Internal Control Over Financial Reporting

         Management  of  the  Company  is  responsible  for   establishing   and
maintaining  adequate  internal  control over financial  reporting as defined in
Rule 13a-15(f) of the Securities  Exchange Act of 1934 as amended (the "Exchange
Act").  The Company's  internal  control over  financial  reporting is a process
designed to provide reasonable  assurance regarding the reliability of financial
reporting and the preparation of financial  statements for external  purposes in
accordance with accounting principles generally accepted in the United States of
America.  The Company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records,  that in
reasonable   detail,   accurately  and  fairly  reflect  the   transactions  and
dispositions  of the Company's  assets;  (2) provide  reasonable  assurance that
transactions  are recorded as necessary to permit the  preparation  of financial
statements in accordance with generally accepted accounting  principles and that
receipts and  expenditures  of the Company are made only in accordance  with the
authorizations  of the  Company's  management  and  directors;  and (3)  provide

                                       14
<PAGE>

reasonable  assurance  regarding  prevention or timely detection of unauthorized
acquisition,  use or  disposition  of the  Company's  assets  that  could have a
material impact on the financial statements.

         Under  the  supervision  and  with  the  participation  of  management,
including  the Chief  Executive  Officer and the Chief  Financial  Officer,  the
Company  conducted an evaluation of the  effectiveness  of its internal  control
over  financial  reporting  as of  December  31,  2008  based  on  the  criteria
established  in a report  entitled  "Internal  Control -  Integrated  Framework"
promulgated  by the  Committee  of  Sponsoring  Organizations  of  the  Treadway
Commission and the  interpretive  guidance issued by the Securities and Exchange
Commission  in  Release  No.  34-55929.  Based  on this  evaluation,  management
concluded  that the  Company's  internal  control over  financial  reporting was
effective as of December 31, 2008.

         This  annual  report  does not  include  an  attestation  report of the
Company's  independent  registered  public  accounting  firm regarding  internal
control over financial reporting because  management's report was not subject to
attestation  by the  Company's  registered  public  accounting  firm pursuant to
temporary  rules of the  Securities  and  Exchange  Commission  that  permit the
Company to provide only management's report in this annual report.

Changes in Internal Control Over Financial Reporting

         The  Company  is  continually  seeking to improve  the  efficiency  and
effectiveness  of its operations and of its internal  controls.  This results in
modifications to its processes throughout the Company.  However,  there has been
no change in the Company's internal control over financial  reporting during the
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the Company's internal control over financial reporting.

Item 9B.  Other Information.

         No  information  was  required to be disclosed in a Form 8-K during the
fourth quarter of 2008 that was not so disclosed.

                                    PART III

Item 10.  Directors, Executive Officers and Corporate Governance.

Directors

<TABLE>
<CAPTION>
                                   Positions      Director                     Business Experience for
        Name (Age)               With Company       Since                        the Past Five Years
        ----------               ------------       -----                        -------------------

<S>                           <C>                   <C>           <C>
Ronald K. Earnest (54)           President and      1998*         Our President and Chief Operating Officer since
                                   Director                       October 2000; President and Chief Executive Officer of
                                                                  GrandSouth Bank since October 2000.

Harold E. Garrett (40)             Director         1998*         Owner, Garrett's Discount Golf Carts, Fountain Inn,
                                                                  South Carolina.

Mason Y. Garrett (66)          Chairman and Chief   1998*         Our Chairman and Chief Executive Officer since October
                                Executive Officer                 2000.

Michael L. Gault (53)              Director         1998*         Owner, Gault's Service Center, Fountain Inn, South
                                                                  Carolina (food mart - service station).

Baety O. Gross, Jr. (61)           Director         1998*         Attorney, Simpsonville, South Carolina.

S. Hunter Howard, Jr. (55)         Director         2000*         Corporate Advisory Partner, Scott McElveen, LLP, Certified
                                                                  Public Accountants since November, 2008; President and
                                                                  Chief Executive Officer, South Carolina Chamber of
                                                                  Commerce, Columbia, South Carolina, until October
                                                                  2008.

S. Blanton Phillips (40)           Director         2001          Owner and Chief Executive Officer, BPS, Inc. since
                                                                  2002 (temporary staffing firm).

J.Calhoun Pruitt, Jr.(59)          Director         2006          Attorney, Pruitt and Pruitt, Anderson, South Carolina.
</TABLE>

* Includes  service as a director of GrandSouth Bank before we acquired the Bank
on October 2, 2000.

                                       15
<PAGE>

         Harold E. Garrett and John B. Garrett are the sons of Mason Y. Garrett.
Otherwise,  none of the  executive  officers or directors  are related by blood,
marriage or adoption in the degree of first cousin or closer.

Executive Officers

         Our  executive  officers  are Ronald K.  Earnest and Mason Y.  Garrett.
Information  about  Messrs.  Earnest  and  Garrett  is  set  forth  above  under
"Directors."  Although  he has  not  been  designated  as  one of our  executive
officers,  John B. Garrett (age 38) is our principal  financial  officer and the
principal  financial  officer  of our  Bank.  Mr.  Garrett  has  served in those
positions since 2000.

Section 16(a) Beneficial Ownership Reporting Compliance

         As required by Section  16(a) of the  Securities  Exchange Act of 1934,
our directors, executive officers and certain individuals are required to report
periodically  their beneficial  ownership of our common stock and any changes in
beneficial  ownership  to the  Securities  and Exchange  Commission.  Based on a
review of Section 16(a) reports available to us and any representations  made to
us, it appears  that all such  reports for these  persons were filed in a timely
fashion during 2008.

         Code of Ethics

         The  Company  has  adopted a code of ethics  (as  defined  by 17 C.F.R.
229.406) that applies to its principal executive officer and principal financial
officer.  The Company will provide a copy of the code of ethics, free of charge,
to any person  upon  written  request  to J. B.  Garrett,  Corporate  Secretary,
GrandSouth  Bancorporation,  Inc., 381 Halton Road,  Greenville,  South Carolina
29607.

         Audit Committee

         The  Company  has a  separately  designated  standing  Audit  Committee
established in accordance  with Section  3(a)(58)(A) of the Securities  Exchange
Act of 1934.  The Audit  Committee is  comprised  of Michael L. Gault,  Baety O.
Gross, Jr., S. Hunter Howard,  Jr., S. Blanton Phillips,  and J. Calhoun Pruitt,
all of whom are  non-employee  directors.  Each member of the Audit Committee is
independent as defined in the Nasdaq Rules.  The Audit  Committee is responsible
for  appointment  of the  independent  auditors  and  oversees  the internal and
external audit function.

         Audit Committee Financial Expert

         The Company's  board of directors has determined  that the Company does
not have an "audit committee  financial expert," as that term is defined by Item
407(d)(5)  of  Regulation  S-K   promulgated  by  the  Securities  and  Exchange
Commission,  serving on its Audit Committee.  After reviewing the experience and
training of all of the Company's independent  directors,  the board of directors
has  concluded  that no  independent  director  meets the SEC's  very  demanding
definition.  Therefore,  it would be  necessary  to find a qualified  individual
willing to serve as a director and have that person elected by the  shareholders
in order to have an "audit committee  financial expert" serving on the Company's
Audit Committee. The Company's Board is, however,  authorized to use consultants
to provide financial  accounting  expertise in any instance where members of the
Board believe such assistance would be useful. Accordingly, the Company does not
believe  that it needs to have an  "audit  committee  financial  expert"  on its
Audit Committee.

Item 11. Executive Compensation.

Executive Compensation

         The following table shows  information about  compensation  awarded to,
earned by or paid to our Chief Executive  Officer,  Chief Financial  Officer and
our President during 2008.


                                    16
<PAGE>

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Name                                   Year      Salary         Bonus     Option       Nonquali-      All            Total
and                                                ($)           ($)      Awards       fied           Other           ($)
Principal                                                                   ($)(1)     Deferred       Compen-
Position                                                                               Compensa-      sation
                                                                                       tion              ($)(2)
                                                                                       Earnings
                                                                                           ($)
--------------------------------       ----      --------     -------      -------      -------       -------     --------
<S>                                    <C>       <C>          <C>          <C>          <C>           <C>         <C>
Mason Y. Garrett                       2008      $100,000     $     -      $21,280      $     -       $13,750     $135,030
    Chairman of the Board              2007      $100,000           -      $21,877            -       $17,434     $139,311
    and Chief Executive Officer

Ronald K. Earnest                      2008      $278,250     $     -      $21,280      $51,993       $25,658     $377,181
    President and Chief                2007      $265,000     $35,000      $21,877      $ 3,794       $25,210     $350,881
    Operating Officer

J. B. Garrett                          2008       $94,500      $4,000      $10,356      $     -       $ 8,253     $117,109
    Senior Vice President              2007       $90,000      $7,500      $10,486            -       $ 7,928     $115,914
    and Chief Financial Officer
</TABLE>

(1)  The assumptions  made in valuation of option awards are set forth in Note 1
     to our audited  financial  statements for the year ended December 31, 2008,
     which are  included in our Form 10-K for the year ended  December  31, 2008
     and in our 2008 Annual  Report to  Shareholders.  The amounts shown in this
     column are the dollar amounts recognized for financial  statement reporting
     purposes  with  respect to 2008 in  accordance  with  Financial  Accounting
     Standard  123R,  and do not represent cash payments to the persons named or
     amounts that they may realize in the future.
(2)  Includes  our 2008  contributions  to the Bank's  401(k)  Plan on behalf of
     Messrs. M. Garrett, J. Garrett and Earnest, respectively;  premiums we paid
     for medical insurance,  disability insurance and life insurance for each of
     Messrs.  M. Garrett,  J. Garrett and Earnest;  country club and eating club
     dues and expenses paid on behalf of Messrs. M. Garrett and Earnest; and the
     aggregate  incremental  cost to us of providing  automobiles to Messrs.  M.
     Garrett and Earnest as follows:

<TABLE>
<CAPTION>
                                                          Medical and                                   Automobiles
                                     401(K)          Disability Insurance       Life Insurance         and Club dues
                                     ------          --------------------       --------------         -------------
<S>                                 <C>                   <C>                     <C>                    <C>
    M. Garrett                      $     -               $4,320                  $1,188                 $8,810
    R. Earnest                       11,130                4,320                   1,398                  8,810
    J. Garrett                        3,782                4,320                     150                      -
</TABLE>

Overview of Executive Compensation Objectives

         The  following   discussion  provides  information  about  compensation
decisions  for Mason Y.  Garrett,  our Chief  Executive  Officer,  and Ronald K.
Earnest,  our President and Chief Operating Officer, who are our only designated
executive  officers,  as well as for John B. Garrett,  our Senior Vice President
and Chief Financial Officer and our next most highly compensated senior officer,
but whom we have not  designated  as an  executive  officer.  (Although  John B.
Garrett is not designated as an executive  officer,  we use the term  "executive
officers" throughout this discussion to refer to Messrs.
M. Garrett, Earnest and J.B. Garrett.)

         Executive Compensation Objectives

         Our Board of Directors sets  executive  officer  compensation,  and has
historically  followed an informal  policy of providing our  executive  officers
with a total compensation package consisting of salary,  bonuses,  insurance and
other benefits,  and stock options.  The Board's objectives in setting executive
compensation are:

          o    to  attract,  motivate  and retain  talented  and  dedicated  key
               executives;
          o    to set  salaries  and  benefits  and,  from  time to time,  award
               options,   at   competitive   levels   designed   to   foster   a
               team-orientation  toward  achievement of our business  objectives
               and to  encourage  our  executive  officers  to  perform at their
               highest  levels  in  order  to  increase  earnings  and  value to
               shareholders; and
          o    where  appropriate,  to award  bonuses and  increase  salaries to
               reward our executive officers for performance.

                                       17
<PAGE>

         Compensation  is designed to reward our individual  executive  officers
both for their  personal  performance  and for  performance  of our Company with
respect to growth in assets and earnings, expansion and increases in shareholder
value. The Board has not historically set specific advance goals for personal or
corporate  performance.  The Board makes its decisions about allocations between
long-term  and  current  compensation,  allocations  between  cash and  non-cash
compensation,  and  allocations  among  various  forms of  compensation,  in its
discretion based on the Board's  subjective  assessment of how these allocations
will best meet the Board's overall compensation goals outlined above.

         Components of Executive Compensation

         During  2008,   compensation  for  our  executive   officers  consisted
primarily of three key components:  base salary,  bonuses and option awards.  We
also  provide  various  additional  benefits to  executive  officers,  including
health,  life and disability plans,  retirement plans,  employment and change of
control arrangements,  and perquisites.  As reported in the Summary Compensation
table,  for 2008,  base salary  comprised  approximately  75% of total executive
officer  compensation,  bonuses  comprised  approximately  1% of total executive
officer  compensation,   option  awards  comprised  approximately  8%  of  total
executive  officer  compensation,  plan benefits  comprised  approximately 8% of
total executive officer compensation, and perquisites comprised approximately 8%
of total  executive  officer  compensation.  The  Board of  Directors  based its
decisions  to  allocate  executive  officer  compensation  in this manner on its
subjective  assessment of how such allocation  would meet our goals of remaining
competitive  and of  linking  compensation  to  our  corporate  performance  and
individual executive officer performance.

         Factors Considered in Setting Compensation

         At least annually,  our President  discusses his proposed  compensation
with our Chief Executive Officer, and makes  recommendations with respect to the
various  elements and amounts of  compensation  that he believes are appropriate
based on our overall  financial  performance and the extent to which we have met
our financial goals, our compliance with applicable regulatory requirements, and
our  President's  personal  performance in helping us achieve our goals.  In the
context of his compensation  discussions with our Chief Executive  Officer,  our
President may also refer to information  about types and amounts of compensation
awarded to executive officers of other financial institutions in our market area
and  in  the  southeast,  which  he  derives  from  proxy  statements  for  such
institutions and other publicly available sources.  He provides this information
for comparison  purposes only, and not with the intention that  compensation  of
such other  executive  officers  should be used to create  target levels for his
compensation.  Based on these  discussions,  our President  and Chief  Executive
Officer negotiate a mutually agreeable  compensation  package for our President,
which  our  Chief  Executive   Officer  then  presents  to  the  Board  for  its
consideration. Historically, the Board has deferred to these recommendations and
has approved the compensation proposed for our President.  Similarly,  our Chief
Executive Officer makes annual  recommendations to our Board with respect to the
various  elements and amounts of  compensation  that he believes are appropriate
for him. The Board has also historically  deferred to these  recommendations and
approved the proposed compensation for our Chief Executive Officer. In approving
the  proposed  compensation,  our Board  also has taken into  consideration  Mr.
Garrett's  and  Mr.  Earnest's   knowledge,   skills,  scope  of  authority  and
responsibilities, job performance and tenure with us as an executive officer, as
well as the Board's  perception of the fairness of the compensation paid to them
in  relation to what we pay our other  officers.  In  particular,  the Board has
taken into account that Mr. Earnest and Mr. Garrett, both of whom have been with
us  since we  organized,  have  been  largely  responsible  for our  growth  and
performance over the past nine years.

         The Board has  delegated to Mr.  Earnest the authority to set the types
and amounts of compensation for our other senior  officers,  including our Chief
Financial  Officer  (with the  exception of  equity-based  awards,  which may be
recommended  by Mr.  Earnest,  but must be approved by our Board).  Mr.  Earnest
makes his decisions about our Chief Financial  Officer's  compensation  based on
various subjective factors,  including his knowledge of financial and accounting
matters,  his scope of authority and  responsibilities,  his job performance and
his experience.

         We review the levels of  compensation  paid to our  executive  officers
annually and make  adjustments  based on the foregoing  factors as well as other
subjective factors.

         Timing of Executive Compensation Decisions

         Annual salary  reviews and  adjustments  and bonus awards are routinely
made in December of each year at our last  regularly  scheduled  Board  meeting.
Equity-based  awards may be made at various times during the year.  Compensation
determinations  may also be made at other  times  during the year in the case of
newly hired  executives or promotions  of existing  employees  that could not be
deferred until the next monthly board meeting.  The Board does not time any form
of  compensation  award,  including  equity-based  awards,  to coincide with the
release of material non-public information.

                                       18
<PAGE>

         Stock Options

         Stock option awards are also set by the Board at levels believed (based
on  representations of our Chief Executive Officer) to be competitive with other
financial  institutions and to advance our goal of retaining key executives,  as
well as levels believed to appropriately  align the interests of management with
the interests of  shareholders.  Since options are granted with exercise  prices
set at fair market  value of our common  stock on the date of grant,  executives
can only benefit from the options if the price of our stock increases. The Board
believes  the costs to our  Company  of  granting  options  as opposed to paying
additional cash compensation,  both in terms of the impact on earnings under the
new  accounting  rules for options  and  potential  dilution of the  outstanding
common  stock,  are  far-outweighed  by the benefits  provided to us in terms of
providing  incentives  to  our  executive  officers  to  increase  earnings  and
shareholder  value.  The Board does not award  options  every year,  and did not
award any in 2008.

         Employment Agreement and Retirement Benefits

         We have entered into an employment  agreement with our  President,  Mr.
Earnest, that provides,  among other things, for payments to him if we terminate
his employment  other than for cause or in the event of disability or death,  if
there is a change of control of our Company,  or if Mr.  Earnest  terminates his
employment  because of certain  actions taken by us. This agreement is described
under the caption  "--Noncompetition,  Severance and  Employment  Agreement." We
have also entered into an Executive  Supplemental  Retirement Agreement with Mr.
Earnest that provides for payments to Mr. Earnest upon his retirement,  death or
disability,  or  termination  of  employment  after a change  of  control.  This
agreement is described under the caption  "--Executive  Supplemental  Retirement
Plan." The  events set forth as  triggering  events  for the  payments  in these
agreements  were selected  because they are events similar to those provided for
in many employment  agreements for executive officers of financial  institutions
throughout South Carolina.  It has become  increasingly common in South Carolina
for community  financial  institutions  to provide for such payments  under such
conditions.  We believe these types of arrangements  are an important  factor in
attracting  and retaining our executive  officers by assuring them financial and
employment  status  protections in the event control of our Company changes.  We
believe  such  assurances  of financial  and  employment  protections  help free
executives from personal concerns over their futures,  and, thereby, can help to
align their  interests  more closely with those of  shareholders  in negotiating
transactions that could result in a change of control.

         Other Benefits

         We provide our executive  officers with insurance  benefits provided to
all other employees and make contributions to our 401(k) plan on their behalf on
the same basis as we make contributions for all other employees. We also provide
additional life insurance  coverage in an amount equal to one and one-half times
annual salary at death to each of Messrs. M. Garrett, Earnest and J. Garrett.

         We also pay country club and eating club dues for our President and our
Chief Executive Officer and provide each of them with an automobile for business
and personal use. In addition,  we  encourage,  and pay for our  executives  and
their  spouses,  to  attend  banking  conventions  and  seminars.  The Board has
determined that these benefits play an important role in our executive officers'
business development activities on behalf of our Company.

         The Board has also  determined  that  providing the foregoing  benefits
helps to  retain  key  executives  and is an  important  factor in  keeping  our
executive compensation packages competitive in our market area.

         2009 Compensation Adjustments

         For 2009, the Board has increased base salaries for Messrs. Earnest and
J. Garrett to $292,163 and $99,225,  respectively.  Mr. M. Garrett's base salary
remained unchanged at $100,000.

         Tax and Accounting Considerations

         We expense salary,  bonus and incentive  compensation and benefit costs
as they  are  incurred  for tax  and  accounting  purposes.  Salary,  bonus  and
incentive  compensation,  and some benefit payments are taxable to the recipient
as ordinary income. The tax and accounting  treatment of the various elements of
compensation  is not a major  factor in our  decision  making  with  respect  to
executive  compensation.  To  maintain  flexibility  in  compensating  executive
officers in a manner designed to promote varying  corporate goals, the Committee
has not adopted a policy requiring all compensation to be deductible.

         Security Ownership Guidelines and Hedging of Securities

         We do not  have  any  formal  security  ownership  guidelines  for  our
executive  officers,  but  all  of our  executive  officers  beneficially  own a
significant  number  of  shares.  We do not  have  any  policies  regarding  our
executive officers' hedging the economic risk of ownership of our shares.

                                       19
<PAGE>
         Financial Restatement

         The Board of Directors does not have a policy with respect to adjusting
retroactively  any  cash or  equity  based  incentive  compensation  paid to our
executive  officers  where payment was  conditioned  on  achievement  of certain
financial  results that were  subsequently  restated or otherwise  adjusted in a
manner  that would  reduce the size of an award or payment,  or with  respect to
recovery of any amount  determined to have been  inappropriately  received by an
individual executive.  If such a restatement were ever to occur, the Board would
expect to address  such matters on a  case-by-case  basis in light of all of the
relevant circumstances.

Noncompetition, Severance and Employment Agreement

         Term and Compensation

         We  have  entered  into  a  Noncompetition,  Severance  and  Employment
Agreement with Mr. Earnest.  Mr. Earnest's Employment Agreement provides for his
employment as our President and Chief Operating Officer.  The agreement is for a
rolling  three year term,  unless notice of  termination  of the rolling term is
given by either  party.  Any party  may,  by  notice  to the  others,  cause the
agreement to cease to extend  automatically and, upon such notice, the "term" of
the agreement will be the three years following the date of such notice, and the
agreement  will terminate upon the expiration of such term. If no such notice is
given  and the  agreement  is  terminated  as a result  of our  terminating  Mr.
Earnest's  employment,  then for the purposes of calculating any amounts payable
to Mr.  Earnest  as a result  of such  termination,  the  remaining  term of the
agreement will be deemed to be three years from the date of such termination.

         The agreement provides for a base salary of at least $265,000 per year.
The base salary may be increased by the Board of Directors  from time to time in
its  discretion.  The agreement  also  provides for payment of annual  incentive
bonuses  determined in accordance  with the terms of any incentive plans adopted
by the Board of  Directors,  stock  options  at the  discretion  of the Board of
Directors, an automobile,  country club dues, and any other employee benefits we
generally  provide  to our  most  highly  ranking  executives  for so long as we
provide such benefits.  Other terms of the agreement  include terms dealing with
termination  and the rights of Mr.  Earnest to  payments  following  termination
after  a  change  of  control  and  under  certain  other   circumstances,   and
noncompetition, confidentiality and related agreements.

         Termination of Employment by the Company

         The agreement provides that if we terminate Mr. Earnest's employment as
a result  of  disability  or if he dies  while  employed  by us, we will have no
obligation  to make any payments to him except with respect to vested  rights or
benefits.  The agreement provides that we may terminate Mr. Earnest's employment
for cause and we will have no obligation to make any payments to him except with
respect to vested  rights or benefits,  unless we terminate his  employment  for
cause after a change of control.

         If we terminate Mr. Earnest's  employment  within 24 months following a
change  of  control,  and such  termination  is not for  cause or as a result of
disability or his death, we will be required to pay him immediately as severance
the compensation and benefits  discussed above under " - Term and  Compensation"
that  would  otherwise  be  payable  over  the  three  years  subsequent  to his
termination.

         The agreement defines "change of control" as any of the following:  (a)
an acquisition  (other than directly from us) of any of our voting securities by
any person, or persons acting as a group,  immediately after which the person or
group has  ownership of more than 50% of the  combined  voting power of our then
outstanding voting securities (however,  such an acquisition by us or by certain
entities  controlled by us, or an  acquisition  in  connection  with a merger or
similar  transaction  subsequent to which the persons who were our  shareholders
immediately prior to the transaction still own at least a majority of the voting
power of the  surviving  entity and  subsequent  to which the  persons  who were
members of our Board of Directors  immediately prior to the transaction continue
to constitute at least a majority of the board of the surviving entity after the
transaction,  will not be deemed to be a change of  control);  (b) a majority of
the individuals who were members of our Board of Directors as of the date of the
employment  agreement,  or persons  subsequently elected by a vote of at least a
majority of those directors, are replaced for any reason during any twelve month
period; (c) a merger,  consolidation or  reorganization,  unless the persons who
were our shareholders  immediately prior to the transaction still own at least a
majority of the voting power of the surviving  entity after the  transaction and
the persons who were members of our Board of Directors  immediately prior to the
transaction  continue  to  constitute  at least a  majority  of the board of the


                                       20
<PAGE>

surviving entity after the transaction;  or (d) the sale or other disposition of
all or substantially all of our assets (other than to one of our  subsidiaries).
The agreement  further provides that, if Mr. Earnest's  employment is terminated
without cause prior to a change of control and he reasonably  demonstrates  that
termination  was at the request of a third party who  indicated  an intention or
took steps reasonably  calculated to effect a change of control and who actually
effectuated  a change of  control,  or that  termination  otherwise  occurred in
connection  with,  or in  anticipation  of, a change of  control  that  actually
occurred,  then the date of the change of control  with  respect to Mr.  Earnest
will  mean  the  date  immediately  prior  to the  date  of  termination  of his
employment.

         If we terminate Mr. Earnest's  employment in the absence of a change of
control,  and such  termination is not for cause or as a result of disability or
his  death,  we will  be  required  to pay  him  immediately  as  severance  the
compensation and benefits  discussed above under " - Term and  Compensation" for
the remaining term of the agreement.

         Termination of Employment by Mr. Earnest

         If we materially breach the agreement and do not cure the breach within
30 days after Mr. Earnest gives us written notice of the breach, Mr. Earnest may
terminate  the  agreement,  and we will be  required to pay him  immediately  as
severance  the  compensation  and  benefits  discussed  above under " - Term and
Compensation" that would otherwise be payable over the three years subsequent to
his termination.  If Mr. Earnest  terminates his employment for good reason,  we
will be  required to pay him  immediately  as  severance  the  compensation  and
benefits  discussed above under " - Term and Compensation"  that would otherwise
be payable over the three years subsequent to his termination.

         The agreement  defines  "good reason" for Mr.  Earnest to terminate the
agreement as: (a) a material diminution of his base compensation; (b) a material
diminution  of  his  authority,  duties  or  responsibilities;  (c)  a  material
diminution in the authority,  duties or  responsibilities  of the supervisors to
whom he is  required  to report;  (d) a material  diminution  in the budget over
which he retains authority;  (e) a material change in the geographic location at
which he is required to perform  services;  or (f) any other material  breach of
the agreement by us.

         If Mr. Earnest  terminates his employment other than as a result of our
uncured  material  breach of the  agreement or for good reason,  we will have no
obligation  to make any payments to him except with respect to vested  rights or
benefits  and he  will  be  subject  to the  non-competition  provisions  of the
agreement.



                                       21
<PAGE>

         Other Provisions of the Agreement

         If we terminate Mr. Earnest's employment,  other than for cause or as a
result of disability or his death,  or if Mr. Earnest  terminates his employment
as a result of our material  breach of the agreement or for good reason,  all of
his rights  pursuant to awards of share grants or options  granted by us will be
deemed to have vested and will be released from all conditions and restrictions,
except for restrictions on transfer  pursuant to the Securities Act of 1933, and
Mr.  Earnest will be deemed to be credited with service with us and the Bank for
the  remaining  term of the  agreement for the purposes of our benefit plans and
the Bank's benefit plans.

         For purposes of determining the severance  payments we must make to Mr.
Earnest in the event we terminate  his  employment  other than for cause or as a
result of disability or his death,  or in the event Mr.  Earnest  terminates his
employment  as a result  of our  material  breach of the  agreement  or for good
reason,  (a) the  amount of annual  salary  will be deemed to be the  annualized
salary being paid immediately prior to the termination, (b) the annual amount of
unfixed compensation (such as a bonus) will be deemed to be equal to the average
of such  compensation  over  the  three  year  period  immediately  prior to the
termination,  and (c) the annual amount of benefits will be deemed to be the sum
of the costs to us and the Bank of providing  the benefits to him for the twelve
month period ending immediately prior to the termination.

         In the event of a change of control,  Mr.  Earnest's stock options will
all vest,  even if he remains  employed by us, and he will have a minimum of one
year from vesting to exercise the options. If, however, such accelerated vesting
or minimum  exercise  period  would be  inconsistent  with the terms of the plan
under which the options were issued, the plan will control.

         If any payment provided for in the agreement would, if paid, constitute
a "golden  parachute  payment" as defined in 12 C.F.R. ss. 359.1(f) as in effect
on the date the payment is due,  our  obligation  to make such  payment  will be
subject  to an  additional  condition  that the  circumstances  which  cause the
payment to be a "golden parachute  payment" shall have ceased to exist, but such
payment  will  become  payable  in full at such  time as the  condition  is met,
together with  interest at the prime rate,  compounded  annually,  from the date
such payment  would have been due had it not been a "golden  parachute  payment"
until paid.

         The agreement  requires Mr. Earnest to maintain the  confidentiality of
our confidential  business information during the term of his employment with us
or  the  Bank  and  for a  period  of 24  months  following  termination  of his
employment. If we terminate Mr. Earnest's employment for cause prior to a change
of control, or if he voluntarily  terminates his employment prior to a change of
control, then, for a period of one year following termination, he may not engage
in certain competitive activities,  including: (a) accepting employment with any
financial  institutions in our market areas;  (b) interfering  with our employee
and  customer  relationships;   (c)  soliciting  banking  business  or  customer
relationships  from our customers;  (d) soliciting  business on the basis of his
former affiliation with us; or (e) otherwise competing,  directly or indirectly,
with us. If,  however,  Mr.  Earnest's  employment is terminated  for any reason
following a change of control,  there will be no limitation  on his  competitive
activities with us, including direct competition.

         The  foregoing  is  merely  a  summary  of  certain  provisions  of the
Noncompetition,  Severance  and  Employment  Agreement,  and is qualified in its
entirety  by  reference  to such  Agreement,  which  has  been  filed  with  the
Securities  and Exchange  Commission as an Exhibit to our Form 10-K for the year
ended December 31, 2007.



                                       22
<PAGE>

Executive Supplemental  Retirement Plan and Endorsement Method Split Dollar Plan
Agreement

         Executive Supplemental Retirement Plan

         We have  entered into an Executive  Supplemental  Retirement  Agreement
with Ronald K. Earnest, our President and Chief Operating Officer. The agreement
provides for payments of benefits to Mr. Earnest commencing at his retirement at
age 65, or  earlier  in the event of death or  disability.  The  agreement  also
provides for payment of a related death benefit to his designated beneficiary.

         The agreement  requires that we establish a liability  reserve  account
(the  "Pre-Retirement  Account")  on our books for the  benefit of Mr.  Earnest.
Prior to his retirement,  this account is to be increased or decreased each year
until his retirement by the Index Retirement Benefit. "Index Retirement Benefit"
is  defined  by the  agreement  as (1) the  excess of (A) the  aggregate  annual
after-tax  income from the life  insurance  policy we have purchased to fund our
obligations  under the agreement over (B) the product of the amount  obtained by
multiplying  (i) the  average  federal  funds rate times (ii) the sum of (x) the
premiums paid for the life insurance policy plus (y) the amount of any after-tax
benefits paid to Mr. Earnest plus (z) the after-tax  product of (i) and (ii) for
all previous years, (2) divided by a factor equal to 1.05 minus the marginal tax
rate. The life insurance  policies we purchased have an aggregate face amount of
$2,142,367  and the aggregate  premiums we paid were  $736,000.  The period over
which payments are to be made and the amount of payments  varies  depending upon
whether Mr. Earnest's employment terminates as a result of his retirement at age
65, or his employment terminates as a result of death.

         If Mr. Earnest remains  employed by us until he reaches age 65, he will
be entitled to receive  the  balance in the  Pre-Retirement  Account in 15 equal
annual installments beginning 30 days after his retirement. In addition to these
payments and commencing in  conjunction  with them, Mr. Earnest will be paid the
Index Retirement Benefit for each plan year after his retirement,  including the
remaining portion of the plan year following retirement.

         If Mr. Earnest  voluntarily  resigns for good reason or if we discharge
him without  cause prior to his  reaching age 65, he will be entitled to receive
25% times the number of full years of employment  with us from the date of first
employment  (to a maximum  of 100%),  times the  balance  in the  Pre-Retirement
Account  payable  to him in 15  equal  annual  installments  commencing  30 days
following his reaching age 65. In addition to these  payments and  commencing in
conjunction  with them,  he will  receive  25% times the number of full years of
employment  with us from the date of first  employment  with us (to a maximum of
100%),  times the Index Retirement  Benefit for each plan year subsequent to the
year in which he reaches age 65, and including the remaining portion of the plan
year in which he reaches age 65 until his death.

         If Mr.  Earnest  dies while  there is a balance  in his  Pre-Retirement
Account, the unpaid balance of the Pre-Retirement Account will be paid in a lump
sum to the  individual or individuals  he has  designated.  This payment will be
made the first day of the  second  month  following  his death.  If Mr.  Earnest
becomes disabled,  and his employment is terminated  because of such disability,
he will  immediately  begin  receiving the same benefits  discussed  above as he
would  receive if he had  retired at age 65,  even if he has not reached age 65,
and he will be 100% vested in the entire benefit amount.

         If there is a change of control of our Company,  and,  within 24 months
thereafter,  Mr.  Earnest  terminates  his  employment  for good reason or if we
discharge him without cause prior to his reaching age 65, he will be entitled to
receive the same benefits  discussed  above upon  attaining age 65, as if he had
been  continuously  employed  by us until  reaching  age 65. He will also remain
eligible for all death benefits provided for above.


                                       23
<PAGE>

         A "change of control"  will be deemed to have been  effected if either:
(1) voting  control  over more than 50% of our stock is  acquired,  directly  or
indirectly,  by any person or group acting in concert; (2) our Company is merged
with or into any other  entity  and our  shareholders  immediately  prior to the
merger own less than 50% of the combined  voting power of the surviving  entity;
or (3) more than 50% of our assets are acquired,  directly or indirectly, by any
person or group acting in concert during any consecutive 12 month period.

         Although  we  plan  to use  the  life  insurance  policy  to  fund  our
obligations under the agreement, our obligations are independent of the policy.

         Endorsement Method Split Dollar Plan Agreement

         In conjunction with the Supplemental Executive Retirement Plan, we have
also  entered  into  a Life  Insurance  Endorsement  Method  Split  Dollar  Plan
Agreement.  We are required to pay the premiums for a life  insurance  policy or
policies on the life of Mr.  Earnest.  We own the policies.  Upon Mr.  Earnest's
death,  his  beneficiary  will be  entitled  to an  amount  equal  to 80% of the
net-at-risk  insurance  portion of the proceeds of the policy.  The  net-at-risk
insurance  portion is the total  proceeds less the cash value of the policy.  We
will be  entitled  to the  remainder  of the  proceeds.  We will  share with Mr.
Earnest any interest due on the death proceeds on a pro rata basis.

         The  foregoing  is  merely  a  summary  of  certain  provisions  of the
Executive Supplemental  Retirement Agreement and Endorsement Method Split Dollar
Plan Agreement, and is qualified in its entirety by reference to such Agreement,
which has been filed with the Securities  and Exchange  Commission as an Exhibit
to our Form 10-K for the year ended December 31, 2007.

         Outstanding Equity Awards At 2008 Fiscal Year-End

         The following table provides  information,  on an award-by-award basis,
about options to purchase shares of our common stock our executive officers held
at the end of 2008.  We have not granted any other  equity  based  awards to our
executive officers.

                                         Option Awards

   ----------------    ------------     -------------     ------       ---------
   Name                 Number           Number           Option      Option
                        of               of               Exercise    Expiration
                        Securities       Securities       Price       Date
                        Underlying       Underlying            ($)
                        Unexercised      Unexercised
                        Options          Options
                              (#)              (#)
                        Exercisable     Unexercisable
   ----------------    ------------     -------------     ------       ---------
   Mason Y. Garrett          22,558          15,039(1)      8.64       8/19/2015
                             38,651               0         5.18       1/16/2012

   Ronald K. Earnest         22,558          15,039(1)      8.64       8/19/2015
                             38,651               0         3.58       3/21/2011

   J. B. Garrett              2,200           3,300(2)     12.27       4/19/2016
                              4,840           1,210(3)      6.08       2/18/2014
                                600           2,400(4)     15.55       5/15/2017

(1)  These options vest in increments of 7,519 shares on each of August 19, 2009
     and 2010.
(2)  These  options  vested/vest  in increments of 1,100 shares on each of April
     19, 2009, 2010 and 2011.
(3)  These options vested on February 18, 2008.
(4)  These  options  vest in  increments  of 600 shares on each of May 15, 2009,
     2010, 2011 and 2012.


                                       24
<PAGE>



1998 Stock Option Plan

         We maintain a stock option plan for the benefit of directors,  officers
and  employees.  The  Board of  Directors  believes  stock  options  provide  an
excellent  method to attract and retain key  employees,  officers and directors,
and to provide them with  incentives  that help to closely align their interests
with ours.

         The 1998 Stock Option Plan was originally  adopted by the  shareholders
of GrandSouth Bank at the 1998 annual meeting of  shareholders,  and was assumed
by us upon our  acquisition of the Bank. The Plan was amended at the 2005 Annual
Meeting of  Shareholders  to increase  the number of shares of our common  stock
reserved for issuance under the plan. The plan, as amended,  reserves a total of
856,028 shares  (adjusted for stock  dividends) for issuance under the plan. The
plan provides for the grant of both  incentive  stock options and  non-qualified
stock  options.  Options may be granted  pursuant to the plan to persons who are
directors, officers or employees of our Company or any subsidiary at the time of
grant.  Non-employee  directors  are only  eligible to be granted  non-qualified
stock  options.  The plan may be  administered  by the Board of  Directors  or a
committee appointed by the Board.

         The Board of  Directors  or the  committee  selects  the  employees  to
receive  grants under the plan and  determines  the number of shares  covered by
options  granted  under the  plan.  All  incentive  stock  options  must have an
exercise  price not less than the fair market  value of the Common  Stock at the
date of  grant,  as  determined  by the  Board of  Directors  or the  committee.
Non-qualified  options have such  exercise  prices as may be  determined  by the
Board of Directors  or the  committee  at the time of grant,  and such  exercise
prices  may be less than  fair  market  value.  The  Board of  Directors  or the
committee  may set other terms for the exercise of the options but may not grant
to any one holder more than $100,000 of incentive  stock  options  (based on the
fair market value of the optioned shares on the date of the grant of the option)
which first become exercisable in any calendar year. No options may be exercised
after  ten years  from the date of grant,  and  options  may not be  transferred
except by will or the laws of descent and distribution.  Incentive stock options
may be exercised  only while the optionee is our  employee,  within three months
after the date of termination of employment, or within twelve months of death or
disability.  Terms  relating  to  exercisability  of  non-qualified  options  on
termination  of  employment,  death  or  disability  are as set by the  Board of
Directors or the committee. The number of shares reserved for issuance under the
plan,  the number of shares  covered by  outstanding  options,  and the exercise
prices of  options  will be  adjusted  in the event of  changes in the number of
outstanding   shares  of  common   stock   effected   without   our  receipt  of
consideration,  such as stock splits,  stock dividends,  merger,  consolidation,
recapitalization,  and the like.  The Board of Directors  may amend,  suspend or
terminate the plan, but may not increase (except as discussed above) the maximum
number of shares reserved for issuance under the plan,  materially  increase the
benefits  accruing to  participants  under the plan,  or  materially  modify the
eligibility  requirements  under the plan without your approval or ratification.
The plan  terminated in November,  2008, and no options were granted  thereunder
after that date.  However,  the Board  expects to adopt  another  equity plan to
replace  the  1998  Plan  and  currently  intends  to  submit  the  new  plan to
shareholders for approval at the 2010 Annual Meeting.

         The foregoing  description is merely a summary of the 1998 Stock Option
Plan and is  qualified  in its  entirety  by the terms of the plan.  The plan is
filed  with  the  Securities  and  Exchange  Commission  as an  appendix  to the
Company's Proxy Statement for the 2005 Annual Meeting of Shareholders,  which is
available on the Securities and Exchange Commission's website at www.sec.gov.

Temporary Limitation of Payments

         In  connection  with the sale of preferred  stock to the United  States
Treasury on January 9, 2009,  Messrs.  M.  Garrett,  Earnest and J. Garrett have
waived  certain  rights and  agreed to the  modification  of their  compensation
during the period that any of the  preferred  stock is held by the United States
Treasury in order to comply with certain  provisions of the  Emergency  Economic
Stability Act of 2008 and the regulations issued thereunder.  Accordingly,  some
of the  compensation  and  benefits  discussed  above may not be  payable if the
payment is due or accrues  during the period that any of the preferred  stock is
held by the United States Treasury.


                                       25
<PAGE>

                           2008 DIRECTOR COMPENSATION

         The table below sets forth information  about  compensation we provided
to our directors  for their service to the Company and the Bank in 2008.  During
2008, we paid our directors $900 for each meeting of the Board of Directors. For
2009, we have  increased  director fees to $950 per meeting.  These payments are
not contingent  upon  attendance at the meetings.  All of our directors are also
directors of our Bank, but the Bank does not pay any additional  fees. We do not
pay our  directors  who are also our  executive  officers  for their  service as
directors.

                           2008 Director Compensation

          Name                              Fees          Option        Total
                                           Earned         Awards         ($)
                                             or           ($)(1)
                                           Paid in
                                            Cash
                                             ($)
          -----------------               ------            -----        ------
          Harold E. Garrett               10,800            3,113        13,913
          Michael L. Gault                10,800            3,113        13,913
          Baety O. Gross, Jr.             10,800            3,113        13,913
          S. Hunter Howard, Jr.           10,800            3,113        13,913
          S. Blanton Phillips             10,800            3,113        13,913
          J. Calhoun Pruitt, Jr.          10,800            2,736        13,536

(1)      The amounts shown in this column are the dollar amounts  recognized for
         financial  statement reporting purposes with respect to the fiscal year
         in accordance  with FAS 123(R),  and do not represent  cash payments to
         our  directors  or amounts  that may be realized by them in the future.
         The  assumptions  made in valuation  of option  awards are set forth in
         Note 1 to our audited financial  statements for the year ended December
         31,  2008,  which  are  included  in our Form  10-K for the year  ended
         December 31, 2008 and in our 2008 Annual  Report to  Shareholders.  The
         grant  date fair  value of each  option  award is $2.83 per  share.  At
         December  31,  2008,  each  director in the table above held options to
         purchase a total of 5,500 shares. For each director, except Mr. Pruitt,
         2,200 of these options are currently  exercisable,  and for Mr. Pruitt,
         1,100 of these options are currently exercisable.

Item 12.  Security  Ownership of Certain  Beneficial  Owners and  Management and
          Related Stockholder Matters.

Security Ownership

         The following table shows information as of May 5, 2009 about shares of
our  common  stock  beneficially  owned by each of our  directors  and  director
nominees and each officer  named in the Summary  Compensation  Table.  Except as
otherwise indicated,  to management's  knowledge,  all shares are owned directly
with sole voting  power.  Other than as shown  below,  no persons  were known by
management  to be the  beneficial  owners,  as  defined  in  Rule  13d-3  of the
Securities Exchange Commission, of 5% or more of our common stock.

     Name of Beneficial Owner            Amount and Nature of         Percent of
       (and address of 5% owners)        Beneficial Ownership            Class
     ----------------------------        --------------------            -----

     Ronald K. Earnest                       225,680 (1)                 6.0
       381 Halton Road
       Greenville, S.C.
     Harold E. Garrett                       143,204 (2)                 4.0
       Fountain Inn, S.C.
     Mason Y. Garrett                        656,895 (3)                18.1
       381 Halton Road
       Greenville, S. C.
     J. B. Garrett                           110,824 (4)                 3.1
       Greenville, S.C.
     Michael L. Gault                         65,275 (5)                 1.8
       Fountain Inn, S.C.
     Baety O. Gross, Jr.                      40,809 (6)                 1.1
       Simpsonville, S.C.
     S. Hunter Howard, Jr.                    19,872 (7)                   *
       Columbia, S.C.
     S. Blanton Phillips                      15,174 (8)                   *
       Fountain Inn, S.C.
     J. Calhoun Pruitt, Jr.                    2,100 (9)                   *
       Anderson, S.C.                       ________

     All Directors and executive           1,278,333 (10)               35.8
     officers as a group
     (9 persons)
*Less than 1%.

                                       26
<PAGE>

(1)   Includes currently exercisable options to purchase 61,209 shares.
(2)   Includes  4,296 shares held by Mr.  Garrett's wife as to which Mr. Garrett
      disclaims  beneficial  ownership;  2,223  shares  held by Mr.  Garrett  as
      custodian  for his  daughter  and  6,519  shares  held by Mr.  Garrett  as
      custodian for his son; and currently exercisable options to purchase 3,300
      shares. Of the total shares beneficially owned by Mr. Garrett, 113,100 are
      pledged as collateral.
(3)   Includes currently exercisable options to purchase 61,209 shares;  175,062
      shares owned by Mr.  Garrett's  wife,  as to which Mr.  Garrett  disclaims
      beneficial  ownership;  26,116 shares held by Mr. Garrett as custodian for
      his  son;   2,223  shares  held  by  Mr.  Garrett  as  custodian  for  his
      step-daughter;  and 61,492 shares held by Mr. Garrett as custodian for his
      brother.  Of the total shares  beneficially owned by Mr. Garrett,  152,265
      are pledged as collateral.
(4)   Includes  currently  exercisable  options to purchase 9,950 shares;  2,019
      shares owned by Mr.  Garrett's  wife,  as to which Mr.  Garrett  disclaims
      beneficial  ownership;  and 8,514 shares held by Mr.  Garrett as custodian
      for his  sons.  Of the total  shares  beneficially  owned by Mr.  Garrett,
      67,436 are pledged as collateral.
(5)   Includes  currently  exercisable  options to purchase  3,300  shares;  and
      60,875 shares held by Mr. Gault's wife and children, as to which Mr. Gault
      disclaims beneficial ownership.
(6)   Includes  currently  exercisable  options to purchase  3,300  shares;  and
      19,061 shares held by Mr. Gross' wife and children,  as to which Mr. Gross
      disclaims beneficial ownership.
(7)   Includes currently exercisable options to purchase 3,300 shares.
(8)   Includes  currently  exercisable  options to purchase 3,300 shares. Of the
      total shares  beneficially  owned by Mr.  Phillips,  10,795 are pledged as
      collateral.
(9)   Includes  currently  exercisable  options to purchase  1,100 shares.  (10)
      Includes currently exercisable options to purchase 308,794 shares.

Equity Compensation Plan Information

         The following  table sets forth  aggregated  information as of December
31, 2008 about all of the Company's  compensation  plans  (including  individual
compensation  arrangements)  under which  equity  securities  of the Company are
authorized for issuance:

<TABLE>
<CAPTION>
Plan category                   Number of securities         Weighted-average             Number of securities
                                to be issued upon            exercise price of            remaining available
                                exercise of                  outstanding options,         for future issuance
                                outstanding options,         warrants and rights          under equity
                                warrants and rights                                       compensation plans
                                                                                          (excluding securities
                                                                                          reflected in column(a))
                                (a)                          (b)                          (c)
------------------------------- ---------------------------- ---------------------------- ----------------------------
<S>                                    <C>                        <C>                            <C>
Equity compensation
plans approved by
security holders (1)                   302,692                    $7.90                          553,336

Equity compensation
plans not approved
by security holders                        -0-                      -0-                              -0-

Total
</TABLE>
(1)  Options issued and shares reserved  pursuant to  Registrant's  amended 1998
     Stock Option Plan.  The number of shares  subject to  outstanding  options,
     exercise  prices  and  number  of shares  remaining  available  for  future
     issuance of options  have been  restated to reflect the 5% stock  dividends
     declared in January  2003 and the 10% stock  dividends  declared in January
     2004, February 2005 and July 2006.


                                       27
<PAGE>

Item 13.  Certain   Relationships   and  Related   Transactions,   and  Director
          Independence.

Certain Relationships and Related Transactions

         In the  ordinary  course  of its  business,  our Bank  makes  loans to,
accepts  deposits from,  and provides  other banking  services to our directors,
officers, principal shareholders,  their associates and members of such persons'
immediate  families.  Loans are made on substantially the same terms,  including
rates  and  collateral,   as  those   prevailing  at  the  time  for  comparable
transactions  with other persons and do not involve more than the normal risk of
collectibility or present other unfavorable features. Rates paid on deposits and
fees charged for other banking services,  and other terms of these transactions,
are also the same as those  prevailing at the time for  comparable  transactions
with other  persons.  The aggregate  dollar amount of such loans  outstanding at
December 31, 2008 and 2007 was $3,963,000 and $2,427,000,  respectively. None of
such  loans  have been on  non-accrual  status,  90 days or more  past  due,  or
restructured   at  any  time.  The  Bank  expects  to  continue  to  enter  into
transactions in the ordinary course of business on similar terms with directors,
officers, principal shareholders, their associates, and members of such persons'
immediate families.

         From time to time,  we may also  enter  into  other  types of  business
transactions  or  arrangements  for  services  with  our  directors,   officers,
principal  shareholders,  or their  associates  and  members of their  immediate
families.  These types of transactions or services might include,  among others,
leases of real  property and legal  services.  We would  usually only enter into
such  arrangements  if we  determine  that  the  prices  or  rates  offered  are
comparable to those available to us from unaffiliated  third parties.  We do not
have written policies or procedures with respect to such transactions.

         We lease a lot at the  corner  of South  Main  Street  and East  Knight
Street in  Fountain  Inn,  South  Carolina.  The lot is leased  for 20 years for
$9,000 a year from Blake P. Garrett,  Jr., Trustee,  with four five-year renewal
options.  Lease  payments  are subject to increase to reflect  increases  in the
Consumer Price Index. Blake P. Garrett, Jr., is the brother of Mason Y. Garrett,
Chairman of our Board of Directors,  and the uncle of Harold E. Garrett,  one of
our directors.  Blake P. Garrett, Jr., is trustee for the partnership which owns
the property.  Baety O. Gross,  Jr., who is one of our  directors,  from time to
time provides legal services to us and we expect him to continue to do so in the
future.  Although he has not previously  done so, we also expect that J. Calhoun
Pruitt, Jr., who is also one of our directors,  may provide legal services to us
in the future.

Director Independence

         Our Board of Directors  has  determined  that none of Michael L. Gault,
Baety O. Gross, Jr., S. Hunter Howard,  Jr., S. Blanton Phillips,  or J. Calhoun
Pruitt, Jr. has a relationship  which, in the opinion of our Board of Directors,
would  interfere with the exercise of  independent  judgment in carrying out the
responsibilities  of a director,  and that each such director is  independent as
defined in The Nasdaq  Stock  Market,  Inc.  Marketplace  Rules,  as modified or
supplemented (the "Nasdaq Rules"). As disclosed under "Certain Relationships and
Related  Transactions"  our independent  directors and some of their  affiliates
from time to time have loan and deposit and other banking relationships with, or
provide  legal  services  to,  our  Bank.  Our  Board  does not  consider  these
relationships to compromise our directors' independence.

         All members of the Company's  Audit  Committee are  independent as such
term is defined by the Nasdaq Global Market  Marketplace  Rules.  All members of
the Board of  Directors  served as the  Company's  Compensation  and  Nominating
Committees,  and, not all members of the Board are  independent  as such term is
defined by the Nasdaq Global Market Marketplace Rules.


                                       28
<PAGE>


Item 14.  Principal Accountant Fees and Services

Fees Paid to Independent Auditors

         Set forth below is  information  about fees  billed by our  independent
auditors  for  audit  services  rendered  in  connection  with the  consolidated
financial statements and reports for the years ended December 31, 2008 and 2007,
and for other services rendered during such years on our behalf and on behalf of
the Bank, as well as all  out-of-pocket  expenses  incurred in  connection  with
these services.

                                       Year Ended                 Year Ended
                                   December 31, 2008          December 31, 2007
                                   -----------------          -----------------
Audit Fees                             74,500                   $68,000
Audit-Related Fees                          -                         -
Tax Fees                                7,200                    10,000
All Other Fees                          6,345                         -
                                       ------                   -------
      Total                            88,645                   $78,000
                                       ======                   =======

Audit Fees

         Audit fees include fees incurred for professional services rendered for
the audit of our  consolidated  financial  statements  and review of the interim
condensed  consolidated  financial statements included in quarterly reports, and
services  that are normally  provided by our  independent  auditor in connection
with  statutory and  regulatory  filings or  engagements,  and attest  services,
except those not required by statute or regulation.

Audit-Related Fees

         Audit-related  fees include fees  incurred  for  assurance  and related
services that are reasonably  related to the  performance of the audit or review
of our consolidated  financial statements and that are not reported under "Audit
Fees."

Tax Fees

         Tax fees  include  fees for tax  compliance/preparation  and  other tax
services. Tax compliance/preparation fees include fees incurred for professional
services related to federal and state tax compliance. Other tax services include
fees billed for other miscellaneous tax consulting and planning.

All Other Fees

         All other fees would  include  fees for all other  services  other than
those reported above.

         In making its decision to appoint Elliott Davis, LLC as our independent
auditors for the fiscal year ending  December  31, 2009,  the Board of Directors
considered whether services other than audit and audit-related services provided
by that firm are compatible with  maintaining the independence of Elliott Davis,
LLC.

Board  Pre-Approval of Audit and Permissible  Non-Audit  Services of Independent
Auditors

         The Board of Directors  pre-approves all audit and permitted  non-audit
services  (including  the fees and terms  thereof)  provided by the  independent
auditors,   subject  to  possible  limited  exceptions  for  non-audit  services
described  in Section  10A of the  Securities  Exchange  Act of 1934,  which are
approved by the Board prior to completion  of the audit.  The Board may delegate
to one or more  designated  members of the Board the  authority  to  pre-approve
audit and permissible non-audit services, provided such pre-approval decision is
presented to the full Board at its next scheduled meeting.

         General  pre-approval of certain audit,  audit-related and tax services
is  granted  by the  Board at the  first  Board  meeting  each  year.  The Board
subsequently reviews fees paid. Specific  pre-approval is required for all other
services.   During  2008,  all  audit  and  permitted  non-audit  services  were
pre-approved by the Board.

                                       29
<PAGE>

                                    Part IV


Item 15. Exhibits, Financial Statement Schedules

(a)(1) and (2)  Financial Statements and Financial Schedules

     -    Report of Independent Registered Public Accounting Firm.
     -    Consolidated Balance Sheets - December 31, 2008 and 2007
     -    Consolidated  Statements  of Income - Years ended  December  31, 2008,
          2007 and 2006
     -    Consolidated   Statements  of  Changes  in  Shareholders'  Equity  and
          Comprehensive Income - Years ended December 31, 2008, 2007 and 2006
     -    Consolidated Statements of Cash Flows - Years ended December 31, 2008,
          2007 and 2006
     -    Notes to Consolidated Financial Statements

(3)      Description of Exhibits.

Exhibit No.          Description
-----------          -----------

3.1                 Articles of Incorporation of Registrant, as amended (1)(6)
3.2                 Bylaws of Registrant (1)
4.1                 Form of Common Stock Certificate (2)
4.2                 Form of Stock Certificate for Series T Preferred Stock (6)
4.3                 Form of Stock Certificate for Series W Preferred Stock (6)
4.4                 Warrant for Purchase of Shares of Series W Preferred
                     Stock(6)
10.1                1998 Stock Option Plan, as amended (3)
10.2                Form of Stock Option Agreement (2)
10.3                Executive Supplemental Retirement Plan Executive
                    Agreement with Ronald K. Earnest, as amended in
                     compliance with I.R.C. Section 409A and related
                     regulations (4)
10.4                Noncompetition, Severance and Employment Agreement
                     between Registrant and Ronald K. Earnest, as amended in
                     compliance with I.R.C. Section 409A and related
                     regulations (4)
10.5                Amended and Restated Declaration of Trust of GrandSouth
                     Capital Trust I, dated as of May 10, 2006 (5)
10.6                Guarantee Agreement of GrandSouth Bancorporation, dated
                     as of May 10, 2006 (5)
10.7                Indenture between GrandSouth Bancorporation and
                     Wilmington Trust Company, dated as of May 10, 2007 (5)
10.8                Letter Agreement, dated January 9, 2009 between
                     GrandSouth Bancorporation and the United States Department
                     of the Treasury relating to issuance and sale of the Series
                     T and Series W preferred stock and warrant (6)
13                  Portions of the Annual Report to Shareholders  for the
                     Year Ended December 31, 2008 (previously filed)
21                  Subsidiaries of Registrant (4)
23                  Consent of Elliott Davis, LLC
31.1                Rule 13a-14(a)/15d-14(a) Certifications
31.2                Rule 13a-14(a)/15d-14(a) Certifications
32                  18 U.S.C. Section 1350 Certifications

-------------
(1)  Incorporated by reference to exhibits to Form 8-A filed November 13, 2000.
(2)  Incorporated  by  reference  to  exhibits to Form 10-KSB for the year ended
     December 31, 2000.
(3)  Incorporated  by reference to  Registrant's  Proxy  Statement  for the 2005
     Annual Meeting of Shareholders.
(4)  Incorporated by reference to Registrant's Form 10-K for the year ended
     December 31, 2007
(5)  Incorporated by reference to Registrant's Form 10-QSB for the quarter ended
     June 30, 2006.
(6)  Incorporated  by reference to Current  Report on Form 8-K filed January 12,
     2009


                                       30
<PAGE>

                                   SIGNATURES

         In accordance  with Section 13 or 15(d) of the Securities  Exchange Act
of 1934, the registrant caused this amended report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                           GrandSouth Bancorporation


April 29, 2009             By: s/Mason Y. Garrett
                              --------------------------------------------------
                                 Mason Y. Garrett
                                 Chief Executive Officer


                           By: s/J. B. Garrett
                              --------------------------------------------------
                                 J. B. Garrett
                                 Senior Vice President
                                 (Chief Financial and Principal Accounting
                                    Officer)


         In  accordance  with the Exchange  Act,  this  amended  Report has been
signed below by the  following  persons on behalf of the  registrant  and in the
capacities and on the dates indicated:
<Table>
<Caption>

Signature                                Title                                              Date
---------                                -----                                              ----
<S>                                      <C>                                                <C>
s/Blanton S. Phillips
---------------------------------------  Director                                           April 29, 2009
Blanton S. Phillips

s/Ronald K. Earnest                      President, Chief Operating Officer, Director       April 29, 2009
--------------------------------
Ronald K. Earnest

s/Harold E. Garrett                      Director                                           April 29, 2009
--------------------------------
Harold E. Garrett

s/Mason Y. Garrett                       Chairman, Director                                 April 29, 2009
--------------------------------
Mason Y. Garrett

s/Michael L. Gault                       Director                                           April 29, 2009
--------------------------------
Michael L. Gault

                                         Director                                           April __, 2009
--------------------------------
Baety O. Gross


--------------------------------         Director                                           April __, 2009
S. Hunter Howard, Jr.

                                         Director                                           April __, 2009
--------------------------------
J. Calhoun Pruitt, Jr.
</Table>



                                       31
<PAGE>

                                  EXHIBIT INDEX


Exhibit No.               Description

3.1                 Articles of Incorporation of Registrant, as amended (1)(6)
3.2                 Bylaws of Registrant (1)
4.1                 Form of Common Stock Certificate (2)
4.2                 Form of Stock Certificate for Series T Preferred Stock (6)
4.3                 Form of Stock Certificate for Series W Preferred Stock (6)
4.4                 Warrant for Purchase of Shares of Series W Preferred
                     Stock(6)
10.1                1998 Stock Option Plan, as amended (3)
10.2                Form of Stock Option Agreement (2)
10.3                Executive Supplemental Retirement Plan Executive
                    Agreement with Ronald K. Earnest, as amended in
                     compliance with I.R.C. Section 409A and related
                     regulations (4)
10.4                Noncompetition, Severance and Employment Agreement
                     between Registrant and Ronald K. Earnest, as amended in
                     compliance with I.R.C. Section 409A and related
                     regulations (4)
10.5                Amended and Restated Declaration of Trust of GrandSouth
                     Capital Trust I, dated as of May 10, 2006 (5)
10.6                Guarantee Agreement of GrandSouth Bancorporation, dated
                     as of May 10, 2006 (5)
10.7                Indenture between GrandSouth Bancorporation and
                     Wilmington Trust Company, dated as of May 10, 2007 (5)
10.8                Letter Agreement, dated January 9, 2009 between
                     GrandSouth Bancorporation and the United States Department
                     of the Treasury relating to issuance and sale of the Series
                     T and Series W preferred stock and warrant (6)
13                  Portions of the Annual Report to Shareholders  for the
                     Year Ended December 31, 2008 (previously filed)
21                  Subsidiaries of Registrant (4)
23                  Consent of Elliott Davis, LLC
31.1                Rule 13a-14(a)/15d-14(a) Certifications
31.2                Rule 13a-14(a)/15d-14(a) Certifications
32                  18 U.S.C. Section 1350 Certifications

-------------
(1)  Incorporated by reference to exhibits to Form 8-A filed November 13, 2000.
(2)  Incorporated  by  reference  to  exhibits to Form 10-KSB for the year ended
     December 31, 2000.
(3)  Incorporated  by reference to  Registrant's  Proxy  Statement  for the 2005
     Annual Meeting of Shareholders.
(4)  Incorporated by reference to Registrant's Form 10-K for the year ended
     December 31, 2007
(5)  Incorporated by reference to Registrant's Form 10-QSB for the quarter ended
     June 30, 2006.
(6)  Incorporated  by reference to Current  Report on Form 8-K filed January 12,
     2009



                                       32