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

                                   FORM 10-K

[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 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

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

(2)  Portions of the Registrant's Proxy Statement for the 2009 Annual Meeting of
     Shareholders - Part III


<PAGE>

                          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 ...........    13
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 .........................................    15
Item 12  Security Ownership of Certain Beneficial Owners and Management
         and Related Stockholder Matters ................................    15
Item 13  Certain Relationships and Related Transactions, and
           Director Independence ........................................    16
Item 14  Principal Accountant Fees and Services .........................    16
Item 15  Exhibits and Financial Statement Schedules .....................    16



<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.

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         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."

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         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.

         The information set forth under the captions "Management of the Company
--  Directors"  and  "--  Executive  Officers"  and  "Section  16(a)  Beneficial
Ownership Reporting Compliance" in registrant's definitive proxy statement filed
with the  Securities  and  Exchange  Commission  for the 2009 Annual  Meeting of
Shareholders  (the  "Proxy  Statement")  is  incorporated  herein by  reference.
Directors  serve for a one year term, or until their  successors are elected and
qualify to serve.

         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

                                       15
<PAGE>

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.

         The information set forth under the captions "Management  Compensation"
and "2008 Director  Compensation" in the Proxy Statement is incorporated  herein
by reference.

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

         The  information  set forth under the caption  "Security  Ownership  of
Certain Beneficial Owners and Management" in the Proxy Statement is incorporated
herein by reference.


                      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.

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

         The information set forth under the caption "Certain  Relationships and
Related  Transactions" and "Governance  Matters - Director  Independence" in the
Proxy  Statement  is  incorporated  herein  by  reference.  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, as set forth under
"Governance  Matters -- Director  Independence" in the Proxy Statement,  not all
members  of the Board are  independent  as such term is  defined  by the  Nasdaq
Global Market Marketplace Rules.


                                    16
<PAGE>

                                    PART IV

Item 14.  Principal Accountant Fees and Services

         The  information  set forth under the caption  "Independent  Registered
Public  Accounting  Firm - Fees  Paid to  Independent  Auditors"  and "--  Board
Pre-Approval  of  Audit  and  Permissible   Non-Audit  Services  of  Independent
Auditors" in the Proxy Statement is incorporated herein by reference.

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
21                  Subsidiaries of Registrant
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

                                       17
<PAGE>

                                   SIGNATURES

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

                           GrandSouth Bancorporation


March 30, 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 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>

---------------------------------------  Director                                           March __, 2009
Blanton S. Phillips

s/Ronald K. Earnest                      President, Chief Operating Officer, Director       March 30, 2009
--------------------------------
Ronald K. Earnest

s/Harold E. Garrett                      Director                                           March 30, 2009
--------------------------------
Harold E. Garrett

s/Mason Y. Garrett                       Chairman, Director                                 March 30, 2009
--------------------------------
Mason Y. Garrett

s/Michael L. Gault                       Director                                           March 30, 2009
--------------------------------
Michael L. Gault

s/Baety O. Gross                         Director                                           March 30, 2009
--------------------------------
Baety O. Gross


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

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

                                       18
<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
21                  Subsidiaries of Registrant
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


                                       19