- Quarterly Report (10-Q)

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

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO ____________.

Commission File Number: 000-31937

GRANDSOUTH BANCORPORATION
(Exact name of registrant as specified in its charter)

Incorporated in the State of South Carolina
I.R.S. Employer Identification Number 57-1104394

381 Halton Road, Greenville, SC 29607
(Address of Principal Executive Offices)

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

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.
[ X ] Yes [ ] 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).
[ X ] Yes [ ] No (Not yet applicable to the Registrant)

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 "large accelerated filer," "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 a smaller reporting company)

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock - No Par Value, 3,565,964 Shares Outstanding on November 13, 2009

GRANDSOUTH BANCORPORATION

Index to Form 10-Q

 Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 Consolidated Balance Sheets ...................................... 3
 Consolidated Statements of Income ................................ 4
 Consolidated Statements of Changes in Shareholders' Equity
 and Comprehensive Income ..................................... 6
 Consolidated Statements of Cash Flows ............................ 7
 Notes to Unaudited Consolidated Financial Statements ............. 9

Item 2. Management's Discussion and Analysis of Financial Condition
 and Results of Operations .................................... 21

Item 3. Quantitative and Qualitative Disclosures About Market Risk ....... 31

Item 4T. Controls and Procedures .......................................... 31


PART II. OTHER INFORMATION

Item 6. Exhibits ......................................................... 31

SIGNATURES ................................................................. 32

Exhibit Index .............................................................. 33

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

GRANDSOUTH BANCORPORATION
Consolidated Balance Sheets

 (Unaudited)
 September 30, December 31,
 2009 2008
 ----- ----
 (Dollars in thousands, except per share)
Assets
 Cash and due from banks ............................................................. $ 6,181 $ 2,329
 Interest bearing transaction accounts with other banks .............................. 6,371 8,453
 Federal funds sold .................................................................. 2,229 429
 -------- --------
 Cash and cash equivalents ....................................................... 14,781 11,211
 Certificates of deposit with other banks ............................................ 2,000 2,000
 Securities available for sale ....................................................... 35,698 47,378
 Other investments, at cost .......................................................... 2,090 1,926
 Loans, net of allowance for loan losses of $5,530
 for 2009 and $4,110 for 2008 .................................................... 299,657 297,523
 Premises and equipment, net ......................................................... 4,612 4,744
 Bank owned life insurance ........................................................... 5,100 4,944
 Assets acquired in settlement of loans .............................................. 2,105 674
 Interest receivable ................................................................. 1,950 2,077
 Deferred income taxes ............................................................... 485 1,033
 Goodwill ............................................................................ 737 737
 Other assets ........................................................................ 1,609 770
 -------- --------
 Total assets ................................................................. $370,824 $375,017
 ======== ========

Liabilities
 Deposits
 Noninterest bearing ............................................................. $ 16,484 $ 15,331
 Interest bearing ................................................................ 286,780 295,554
 -------- --------
 Total deposits ............................................................... 303,264 310,885
 Long-term Federal Home Loan Bank advances ........................................... 24,000 29,000
 Junior subordinated debentures ...................................................... 8,247 8,247
 Interest payable .................................................................... 393 639
 Other liabilities ................................................................... 1,983 2,073
 -------- --------
 Total liabilities ............................................................ 337,887 350,844
 -------- --------

Shareholders' equity
 Preferred stock - Series T - $1,000 per share liquidation preference;
 issued and outstanding - 9,000 at September 30, 2009 and
 none at December 31, 2008 ....................................................... 7,685 -
 Preferred stock, Series W - $1,000 per share liquidation preference;
 issued and outstanding - 450 at September 30, 2009 and
 none at December 31, 2008 ....................................................... 1,371 -
 Common stock - no par value; 20,000,000 shares authorized;
 issued and outstanding - 3,573,695 at September 30, 2009 and
 3,573,695 at December 31, 2008 .................................................. 20,029 19,940
 Retained earnings ................................................................... 3,548 3,970
 Accumulated other comprehensive income .............................................. 304 263
 -------- --------
 Total shareholders' equity ................................................... 32,937 24,173
 -------- --------
 Total liabilities and shareholders' equity ................................... $370,824 $375,017
 ======== ========