Document/Exhibit Description Pages Size
1: 10-K/A Amendment to Annual Report 33 197K
2: EX-23 Consent of Experts or Counsel 1 6K
3: EX-31.1 Certification per Sarbanes-Oxley Act (Section 302) 2± 10K
4: EX-31.2 Certification per Sarbanes-Oxley Act (Section 302) 2± 10K
5: EX-32 Certification per Sarbanes-Oxley Act (Section 906) 1 5K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K/A
Amendment No. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2008
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ________.
File Number 000-31937
GRANDSOUTH BANCORPORATION
(Exact name of Registrant as specified in its Charter)
South Carolina 57-1104394
(State or Other Jurisdiction (IRS Employer Identification Number)
of Incorporation or Organization)
381 Halton Road, Greenville, South Carolina 29607
(Address of Principal Executive Office, Zip Code)
Registrant's Telephone Number, Including Area Code: (864) 770-1000
Securities Registered Pursuant to Section 12(b) of the Exchange Act: None
Securities Registered Pursuant to Section 12(g) of the Exchange Act:
Common Stock, No Par Value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files). Yes [ ] No [ ] (Not yet applicable to
Registrant)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of "accelerated filer," "large accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller Reporting Company [X]
(Do not check if smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). [ ] Yes [X] No
The aggregate market value of the voting common equity held by non-affiliates on
June 30, 2008, which was the last day of the Registrant's most recently
completed second fiscal quarter, based on the average of the bid and asked price
on the OTC Bulletin Board, was approximately $23,780,883. For purposes of the
foregoing calculation only, all directors and executive officers of the
Registrant have been deemed affiliates.
As of March 23, 2009, there were 3,573,695 shares of the Registrant's
Common Stock, no par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December
31, 2008 - Parts I and II
EXPLANATORY NOTE
This Amendment No. 1 to Registrant's Form 10-K for the year ended
December 31, 2008, is being filed for the purpose of including the information
required by Part III of this form. Registrant had originally intended to
incorporate the Part III information by reference into the Form 10-K pursuant to
General Instruction G(3). However, Registrant subsequently delayed the date of
its annual meeting of shareholders, and definitive proxy materials will not be
filed within 120 days of Registrant's fiscal year end as required by General
Instruction G(3).
10-K CROSS REFERENCE INDEX
Part I Page
Item 1 Business ....................................................... 2
Item 1A Risk Factors ................................................... 10
Item 1B Unresolved Staff Comments ...................................... 13
Item 2 Description of Properties ...................................... 13
Item 3 Legal Proceedings .............................................. 13
Item 4 Submission of Matters to a Vote of Security Holders ............ 13
Part II
Item 5 Market for Registrant's Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity Securities ........... 14
Item 6 Selected Financial Data ........................................ 14
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 14
Item 7A Quantitative and Qualitative Disclosures about
Market Risk .................................................. 14
Item 8 Financial Statements and Supplementary Data .................... 14
Item 9 Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure ....................... 14
Item 9A(T) Controls and Procedures ...................................... 14
Item 9B Other Information .............................................. 15
Part III
Item 10 Directors, Executive Officers and Corporate Governance ......... 15
Item 11 Executive Compensation ......................................... 16
Item 12 Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters ................................ 26
Item 13 Certain Relationships and Related Transactions, and
Director Independence ........................................ 28
Item 14 Principal Accountant Fees and Services ......................... 29
Part IV
Item 15 Exhibits and Financial Statement Schedules ..................... 30
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.
2
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
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
circumstances where it might not do so absent such policy. In addition, the
"cross-guarantee" provisions of the Federal Deposit Insurance Act, as amended
("FDIA"), require insured depository institutions under common control to
reimburse the FDIC for any loss suffered or reasonably anticipated by the
Deposit Insurance Fund of the FDIC as a result of the default of a commonly
controlled insured depository institution or for any assistance provided by the
FDIC to a commonly controlled insured depository institution in danger of
default. The FDIC may decline to enforce the cross-guarantee provisions if it
determines that a waiver is in the best interest of the Deposit Insurance Fund.
The FDIC's claim for damages is superior to claims of shareholders of the
insured depository institution or its holding company but is subordinate to
claims of depositors, secured creditors and holders of subordinated debt (other
than affiliates) of the commonly controlled insured depository institutions.
The FDIA also provides that amounts received from the liquidation or
other resolution of any insured depository institution by any receiver must be
distributed (after payment of secured claims) to pay the deposit liabilities of
the institution prior to payment of any other general or unsecured senior
liability, subordinated liability, general creditor or shareholder. This
provision gives depositors a preference over general and subordinated creditors
and shareholders in the event a receiver is appointed to distribute the assets
of the Bank.
Any capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
Capital Adequacy Guidelines for Bank Holding Companies and State Banks
The various federal bank regulators, including the Federal Reserve and
the FDIC have adopted risk-based and leverage capital adequacy guidelines for
assessing bank holding company and bank capital adequacy. These standards define
what qualifies as capital and establish minimum capital standards in relation to
assets and off-balance sheet exposures, as adjusted for credit risks.
Failure to meet capital guidelines could subject the Bank to a variety
of enforcement remedies, ranging from, for example, a prohibition on the taking
of brokered deposits to the termination of deposit insurance by the FDIC or the
appointment of a receiver.
The risk-based capital standards of both the Federal Reserve and the
FDIC explicitly identify concentrations of credit risk and the risk arising from
non-traditional activities, as well as an institution's ability to manage these
risks, as important factors to be taken into account by the agencies in
assessing an institution's overall capital adequacy. The capital guidelines also
provide that an institution's exposure to a decline in the economic value of its
capital due to changes in interest rates be considered by the agencies as a
factor in evaluating a bank's capital adequacy. The Federal Reserve also has
issued additional capital guidelines for bank holding companies that engage in
certain trading activities.
Payment of Dividends
The Company is a legal entity separate and distinct from its bank
subsidiary. Most of the revenues of the Company are expected to result from
dividends paid to the Company by the Bank. There are statutory and regulatory
requirements applicable to the payment of dividends by subsidiary banks as well
as by the Company to its shareholders.
Certain Transactions by the Company with its Affiliates
Federal law regulates transactions among the Company and its
affiliates, including the amount of the Bank's loans to or investments in
nonbank affiliates and the amount of advances to third parties collateralized by
securities of an affiliate. Further, a bank holding company and its affiliates
are prohibited from engaging in certain tie-in arrangements in connection with
any extension of credit, lease or sale of property or furnishing of services.
5
FDIC Insurance Assessments
The FDIC merged the Bank Insurance Fund and the Savings Association
Insurance Fund to form the Deposit Insurance Fund ("DIF") on March 31, 2006 in
accordance with the Federal Deposit Insurance Reform Act of 2005. The FDIC
maintains the DIF by assessing depository institutions an insurance premium. The
amount each institution is assessed is based upon statutory factors that include
the balance of insured deposits as well as the degree of risk the institution
poses to the insurance fund. The FDIC uses a risk-based premium system that
assesses higher rates on those institutions that pose greater risks to the DIF.
Since January 1, 2007, the FDIC has placed each institution in one of four risk
categories using a two-step process based first on capital ratios (the capital
group assignment) and then on other relevant information (the supervisory group
assignment). Effective January 1, 2007, rates range between 5 and 43 cents per
$100 in assessable deposits. As a result of the actual and predicted impact on
the DIF of bank failures in 2008 and 2009, however, the FDIC has altered its
methodology for computing assessments, beginning with assessments due in
September 2009 based on assessable deposits at June 30, 2009. Under the new
methodology, assessments will range between 7 and 77.5 cents per $100 in
assessable deposits. The FDIC has also proposed to make an additional "emergency
assessment" of 20 cents per $100 of assessable deposits held on June 30, 2009,
which will be payable in September 2009.
Regulation of the Bank
The Bank is subject to regulation and examination by the State Board.
In addition, the Bank is subject to various other state and federal laws and
regulations, including state usury laws, laws relating to fiduciaries, consumer
credit laws and laws relating to branch banking. The Bank's loan operations are
also subject to certain federal consumer credit laws and regulations promulgated
thereunder, including, but not limited to: the federal Truth-In-Lending Act,
governing disclosures of credit terms to consumer borrowers; the Home Mortgage
Disclosure Act, requiring financial institutions to provide certain information
concerning their mortgage lending; the Equal Credit Opportunity Act and the Fair
Housing Act, prohibiting discrimination on the basis of certain prohibited
factors in extending credit; and the Fair Debt Collection Act, governing the
manner in which consumer debts may be collected by collection agencies. The
deposit operations of the Bank are also subject to the Truth in Savings Act,
requiring certain disclosures about rates paid on savings accounts; the
Expedited Funds Availability Act, which deals with disclosure of the
availability of funds deposited in accounts and the collection and return of
checks by banks; the Right to Financial Privacy Act, which imposes a duty to
maintain certain confidentiality of consumer financial records and the
Electronic Funds Transfer Act and regulations promulgated thereunder, which
govern automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services. The Bank is also subject to the
Fair Credit Reporting Act, governing the use and provision of information to
credit reporting agencies; the Bank Secrecy Act, dealing with, among other
things, the reporting of certain currency transactions; and the USA Patriot Act,
dealing with, among other things, requiring the establishment of anti-money
laundering programs including standards for verifying customer information at
account opening.
The Bank is also subject to the requirements of the Community
Reinvestment Act (the "CRA"). The CRA imposes on financial institutions an
affirmative and ongoing obligation to meet the credit needs of their local
communities, including low- and moderate-income neighborhoods, consistent with
the safe and sound operation of those institutions. Each financial institution's
actual performance in meeting community credit needs is evaluated as part of the
examination process, and also is considered in evaluating mergers, acquisitions
and applications to open a branch or facility.
Other Safety and Soundness Regulations
Prompt Corrective Action. The federal banking agencies have broad
powers under current federal law to take prompt corrective action to resolve
problems of insured depository institutions. The extent of these powers depends
upon whether the institutions in question are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized."
6
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
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
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
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
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
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
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
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
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company's assets that could have a
material impact on the financial statements.
Under the supervision and with the participation of management,
including the Chief Executive Officer and the Chief Financial Officer, the
Company conducted an evaluation of the effectiveness of its internal control
over financial reporting as of December 31, 2008 based on the criteria
established in a report entitled "Internal Control - Integrated Framework"
promulgated by the Committee of Sponsoring Organizations of the Treadway
Commission and the interpretive guidance issued by the Securities and Exchange
Commission in Release No. 34-55929. Based on this evaluation, management
concluded that the Company's internal control over financial reporting was
effective as of December 31, 2008.
This annual report does not include an attestation report of the
Company's independent registered public accounting firm regarding internal
control over financial reporting because management's report was not subject to
attestation by the Company's registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit the
Company to provide only management's report in this annual report.
Changes in Internal Control Over Financial Reporting
The Company is continually seeking to improve the efficiency and
effectiveness of its operations and of its internal controls. This results in
modifications to its processes throughout the Company. However, there has been
no change in the Company's internal control over financial reporting during the
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the Company's internal control over financial reporting.
Item 9B. Other Information.
No information was required to be disclosed in a Form 8-K during the
fourth quarter of 2008 that was not so disclosed.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Directors
[Enlarge/Download Table]
Positions Director Business Experience for
Name (Age) With Company Since the Past Five Years
---------- ------------ ----- -------------------
Ronald K. Earnest (54) President and 1998* Our President and Chief Operating Officer since
Director October 2000; President and Chief Executive Officer of
GrandSouth Bank since October 2000.
Harold E. Garrett (40) Director 1998* Owner, Garrett's Discount Golf Carts, Fountain Inn,
South Carolina.
Mason Y. Garrett (66) Chairman and Chief 1998* Our Chairman and Chief Executive Officer since October
Executive Officer 2000.
Michael L. Gault (53) Director 1998* Owner, Gault's Service Center, Fountain Inn, South
Carolina (food mart - service station).
Baety O. Gross, Jr. (61) Director 1998* Attorney, Simpsonville, South Carolina.
S. Hunter Howard, Jr. (55) Director 2000* Corporate Advisory Partner, Scott McElveen, LLP, Certified
Public Accountants since November, 2008; President and
Chief Executive Officer, South Carolina Chamber of
Commerce, Columbia, South Carolina, until October
2008.
S. Blanton Phillips (40) Director 2001 Owner and Chief Executive Officer, BPS, Inc. since
2002 (temporary staffing firm).
J.Calhoun Pruitt, Jr.(59) Director 2006 Attorney, Pruitt and Pruitt, Anderson, South Carolina.
* Includes service as a director of GrandSouth Bank before we acquired the Bank
on October 2, 2000.
15
Harold E. Garrett and John B. Garrett are the sons of Mason Y. Garrett.
Otherwise, none of the executive officers or directors are related by blood,
marriage or adoption in the degree of first cousin or closer.
Executive Officers
Our executive officers are Ronald K. Earnest and Mason Y. Garrett.
Information about Messrs. Earnest and Garrett is set forth above under
"Directors." Although he has not been designated as one of our executive
officers, John B. Garrett (age 38) is our principal financial officer and the
principal financial officer of our Bank. Mr. Garrett has served in those
positions since 2000.
Section 16(a) Beneficial Ownership Reporting Compliance
As required by Section 16(a) of the Securities Exchange Act of 1934,
our directors, executive officers and certain individuals are required to report
periodically their beneficial ownership of our common stock and any changes in
beneficial ownership to the Securities and Exchange Commission. Based on a
review of Section 16(a) reports available to us and any representations made to
us, it appears that all such reports for these persons were filed in a timely
fashion during 2008.
Code of Ethics
The Company has adopted a code of ethics (as defined by 17 C.F.R.
229.406) that applies to its principal executive officer and principal financial
officer. The Company will provide a copy of the code of ethics, free of charge,
to any person upon written request to J. B. Garrett, Corporate Secretary,
GrandSouth Bancorporation, Inc., 381 Halton Road, Greenville, South Carolina
29607.
Audit Committee
The Company has a separately designated standing Audit Committee
established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934. The Audit Committee is comprised of Michael L. Gault, Baety O.
Gross, Jr., S. Hunter Howard, Jr., S. Blanton Phillips, and J. Calhoun Pruitt,
all of whom are non-employee directors. Each member of the Audit Committee is
independent as defined in the Nasdaq Rules. The Audit Committee is responsible
for appointment of the independent auditors and oversees the internal and
external audit function.
Audit Committee Financial Expert
The Company's board of directors has determined that the Company does
not have an "audit committee financial expert," as that term is defined by Item
407(d)(5) of Regulation S-K promulgated by the Securities and Exchange
Commission, serving on its Audit Committee. After reviewing the experience and
training of all of the Company's independent directors, the board of directors
has concluded that no independent director meets the SEC's very demanding
definition. Therefore, it would be necessary to find a qualified individual
willing to serve as a director and have that person elected by the shareholders
in order to have an "audit committee financial expert" serving on the Company's
Audit Committee. The Company's Board is, however, authorized to use consultants
to provide financial accounting expertise in any instance where members of the
Board believe such assistance would be useful. Accordingly, the Company does not
believe that it needs to have an "audit committee financial expert" on its
Audit Committee.
Item 11. Executive Compensation.
Executive Compensation
The following table shows information about compensation awarded to,
earned by or paid to our Chief Executive Officer, Chief Financial Officer and
our President during 2008.
16
SUMMARY COMPENSATION TABLE
[Enlarge/Download Table]
Name Year Salary Bonus Option Nonquali- All Total
and ($) ($) Awards fied Other ($)
Principal ($)(1) Deferred Compen-
Position Compensa- sation
tion ($)(2)
Earnings
($)
-------------------------------- ---- -------- ------- ------- ------- ------- --------
Mason Y. Garrett 2008 $100,000 $ - $21,280 $ - $13,750 $135,030
Chairman of the Board 2007 $100,000 - $21,877 - $17,434 $139,311
and Chief Executive Officer
Ronald K. Earnest 2008 $278,250 $ - $21,280 $51,993 $25,658 $377,181
President and Chief 2007 $265,000 $35,000 $21,877 $ 3,794 $25,210 $350,881
Operating Officer
J. B. Garrett 2008 $94,500 $4,000 $10,356 $ - $ 8,253 $117,109
Senior Vice President 2007 $90,000 $7,500 $10,486 - $ 7,928 $115,914
and Chief Financial Officer
(1) The assumptions made in valuation of option awards are set forth in Note 1
to our audited financial statements for the year ended December 31, 2008,
which are included in our Form 10-K for the year ended December 31, 2008
and in our 2008 Annual Report to Shareholders. The amounts shown in this
column are the dollar amounts recognized for financial statement reporting
purposes with respect to 2008 in accordance with Financial Accounting
Standard 123R, and do not represent cash payments to the persons named or
amounts that they may realize in the future.
(2) Includes our 2008 contributions to the Bank's 401(k) Plan on behalf of
Messrs. M. Garrett, J. Garrett and Earnest, respectively; premiums we paid
for medical insurance, disability insurance and life insurance for each of
Messrs. M. Garrett, J. Garrett and Earnest; country club and eating club
dues and expenses paid on behalf of Messrs. M. Garrett and Earnest; and the
aggregate incremental cost to us of providing automobiles to Messrs. M.
Garrett and Earnest as follows:
[Download Table]
Medical and Automobiles
401(K) Disability Insurance Life Insurance and Club dues
------ -------------------- -------------- -------------
M. Garrett $ - $4,320 $1,188 $8,810
R. Earnest 11,130 4,320 1,398 8,810
J. Garrett 3,782 4,320 150 -
Overview of Executive Compensation Objectives
The following discussion provides information about compensation
decisions for Mason Y. Garrett, our Chief Executive Officer, and Ronald K.
Earnest, our President and Chief Operating Officer, who are our only designated
executive officers, as well as for John B. Garrett, our Senior Vice President
and Chief Financial Officer and our next most highly compensated senior officer,
but whom we have not designated as an executive officer. (Although John B.
Garrett is not designated as an executive officer, we use the term "executive
officers" throughout this discussion to refer to Messrs.
M. Garrett, Earnest and J.B. Garrett.)
Executive Compensation Objectives
Our Board of Directors sets executive officer compensation, and has
historically followed an informal policy of providing our executive officers
with a total compensation package consisting of salary, bonuses, insurance and
other benefits, and stock options. The Board's objectives in setting executive
compensation are:
o to attract, motivate and retain talented and dedicated key
executives;
o to set salaries and benefits and, from time to time, award
options, at competitive levels designed to foster a
team-orientation toward achievement of our business objectives
and to encourage our executive officers to perform at their
highest levels in order to increase earnings and value to
shareholders; and
o where appropriate, to award bonuses and increase salaries to
reward our executive officers for performance.
17
Compensation is designed to reward our individual executive officers
both for their personal performance and for performance of our Company with
respect to growth in assets and earnings, expansion and increases in shareholder
value. The Board has not historically set specific advance goals for personal or
corporate performance. The Board makes its decisions about allocations between
long-term and current compensation, allocations between cash and non-cash
compensation, and allocations among various forms of compensation, in its
discretion based on the Board's subjective assessment of how these allocations
will best meet the Board's overall compensation goals outlined above.
Components of Executive Compensation
During 2008, compensation for our executive officers consisted
primarily of three key components: base salary, bonuses and option awards. We
also provide various additional benefits to executive officers, including
health, life and disability plans, retirement plans, employment and change of
control arrangements, and perquisites. As reported in the Summary Compensation
table, for 2008, base salary comprised approximately 75% of total executive
officer compensation, bonuses comprised approximately 1% of total executive
officer compensation, option awards comprised approximately 8% of total
executive officer compensation, plan benefits comprised approximately 8% of
total executive officer compensation, and perquisites comprised approximately 8%
of total executive officer compensation. The Board of Directors based its
decisions to allocate executive officer compensation in this manner on its
subjective assessment of how such allocation would meet our goals of remaining
competitive and of linking compensation to our corporate performance and
individual executive officer performance.
Factors Considered in Setting Compensation
At least annually, our President discusses his proposed compensation
with our Chief Executive Officer, and makes recommendations with respect to the
various elements and amounts of compensation that he believes are appropriate
based on our overall financial performance and the extent to which we have met
our financial goals, our compliance with applicable regulatory requirements, and
our President's personal performance in helping us achieve our goals. In the
context of his compensation discussions with our Chief Executive Officer, our
President may also refer to information about types and amounts of compensation
awarded to executive officers of other financial institutions in our market area
and in the southeast, which he derives from proxy statements for such
institutions and other publicly available sources. He provides this information
for comparison purposes only, and not with the intention that compensation of
such other executive officers should be used to create target levels for his
compensation. Based on these discussions, our President and Chief Executive
Officer negotiate a mutually agreeable compensation package for our President,
which our Chief Executive Officer then presents to the Board for its
consideration. Historically, the Board has deferred to these recommendations and
has approved the compensation proposed for our President. Similarly, our Chief
Executive Officer makes annual recommendations to our Board with respect to the
various elements and amounts of compensation that he believes are appropriate
for him. The Board has also historically deferred to these recommendations and
approved the proposed compensation for our Chief Executive Officer. In approving
the proposed compensation, our Board also has taken into consideration Mr.
Garrett's and Mr. Earnest's knowledge, skills, scope of authority and
responsibilities, job performance and tenure with us as an executive officer, as
well as the Board's perception of the fairness of the compensation paid to them
in relation to what we pay our other officers. In particular, the Board has
taken into account that Mr. Earnest and Mr. Garrett, both of whom have been with
us since we organized, have been largely responsible for our growth and
performance over the past nine years.
The Board has delegated to Mr. Earnest the authority to set the types
and amounts of compensation for our other senior officers, including our Chief
Financial Officer (with the exception of equity-based awards, which may be
recommended by Mr. Earnest, but must be approved by our Board). Mr. Earnest
makes his decisions about our Chief Financial Officer's compensation based on
various subjective factors, including his knowledge of financial and accounting
matters, his scope of authority and responsibilities, his job performance and
his experience.
We review the levels of compensation paid to our executive officers
annually and make adjustments based on the foregoing factors as well as other
subjective factors.
Timing of Executive Compensation Decisions
Annual salary reviews and adjustments and bonus awards are routinely
made in December of each year at our last regularly scheduled Board meeting.
Equity-based awards may be made at various times during the year. Compensation
determinations may also be made at other times during the year in the case of
newly hired executives or promotions of existing employees that could not be
deferred until the next monthly board meeting. The Board does not time any form
of compensation award, including equity-based awards, to coincide with the
release of material non-public information.
18
Stock Options
Stock option awards are also set by the Board at levels believed (based
on representations of our Chief Executive Officer) to be competitive with other
financial institutions and to advance our goal of retaining key executives, as
well as levels believed to appropriately align the interests of management with
the interests of shareholders. Since options are granted with exercise prices
set at fair market value of our common stock on the date of grant, executives
can only benefit from the options if the price of our stock increases. The Board
believes the costs to our Company of granting options as opposed to paying
additional cash compensation, both in terms of the impact on earnings under the
new accounting rules for options and potential dilution of the outstanding
common stock, are far-outweighed by the benefits provided to us in terms of
providing incentives to our executive officers to increase earnings and
shareholder value. The Board does not award options every year, and did not
award any in 2008.
Employment Agreement and Retirement Benefits
We have entered into an employment agreement with our President, Mr.
Earnest, that provides, among other things, for payments to him if we terminate
his employment other than for cause or in the event of disability or death, if
there is a change of control of our Company, or if Mr. Earnest terminates his
employment because of certain actions taken by us. This agreement is described
under the caption "--Noncompetition, Severance and Employment Agreement." We
have also entered into an Executive Supplemental Retirement Agreement with Mr.
Earnest that provides for payments to Mr. Earnest upon his retirement, death or
disability, or termination of employment after a change of control. This
agreement is described under the caption "--Executive Supplemental Retirement
Plan." The events set forth as triggering events for the payments in these
agreements were selected because they are events similar to those provided for
in many employment agreements for executive officers of financial institutions
throughout South Carolina. It has become increasingly common in South Carolina
for community financial institutions to provide for such payments under such
conditions. We believe these types of arrangements are an important factor in
attracting and retaining our executive officers by assuring them financial and
employment status protections in the event control of our Company changes. We
believe such assurances of financial and employment protections help free
executives from personal concerns over their futures, and, thereby, can help to
align their interests more closely with those of shareholders in negotiating
transactions that could result in a change of control.
Other Benefits
We provide our executive officers with insurance benefits provided to
all other employees and make contributions to our 401(k) plan on their behalf on
the same basis as we make contributions for all other employees. We also provide
additional life insurance coverage in an amount equal to one and one-half times
annual salary at death to each of Messrs. M. Garrett, Earnest and J. Garrett.
We also pay country club and eating club dues for our President and our
Chief Executive Officer and provide each of them with an automobile for business
and personal use. In addition, we encourage, and pay for our executives and
their spouses, to attend banking conventions and seminars. The Board has
determined that these benefits play an important role in our executive officers'
business development activities on behalf of our Company.
The Board has also determined that providing the foregoing benefits
helps to retain key executives and is an important factor in keeping our
executive compensation packages competitive in our market area.
2009 Compensation Adjustments
For 2009, the Board has increased base salaries for Messrs. Earnest and
J. Garrett to $292,163 and $99,225, respectively. Mr. M. Garrett's base salary
remained unchanged at $100,000.
Tax and Accounting Considerations
We expense salary, bonus and incentive compensation and benefit costs
as they are incurred for tax and accounting purposes. Salary, bonus and
incentive compensation, and some benefit payments are taxable to the recipient
as ordinary income. The tax and accounting treatment of the various elements of
compensation is not a major factor in our decision making with respect to
executive compensation. To maintain flexibility in compensating executive
officers in a manner designed to promote varying corporate goals, the Committee
has not adopted a policy requiring all compensation to be deductible.
Security Ownership Guidelines and Hedging of Securities
We do not have any formal security ownership guidelines for our
executive officers, but all of our executive officers beneficially own a
significant number of shares. We do not have any policies regarding our
executive officers' hedging the economic risk of ownership of our shares.
19
Financial Restatement
The Board of Directors does not have a policy with respect to adjusting
retroactively any cash or equity based incentive compensation paid to our
executive officers where payment was conditioned on achievement of certain
financial results that were subsequently restated or otherwise adjusted in a
manner that would reduce the size of an award or payment, or with respect to
recovery of any amount determined to have been inappropriately received by an
individual executive. If such a restatement were ever to occur, the Board would
expect to address such matters on a case-by-case basis in light of all of the
relevant circumstances.
Noncompetition, Severance and Employment Agreement
Term and Compensation
We have entered into a Noncompetition, Severance and Employment
Agreement with Mr. Earnest. Mr. Earnest's Employment Agreement provides for his
employment as our President and Chief Operating Officer. The agreement is for a
rolling three year term, unless notice of termination of the rolling term is
given by either party. Any party may, by notice to the others, cause the
agreement to cease to extend automatically and, upon such notice, the "term" of
the agreement will be the three years following the date of such notice, and the
agreement will terminate upon the expiration of such term. If no such notice is
given and the agreement is terminated as a result of our terminating Mr.
Earnest's employment, then for the purposes of calculating any amounts payable
to Mr. Earnest as a result of such termination, the remaining term of the
agreement will be deemed to be three years from the date of such termination.
The agreement provides for a base salary of at least $265,000 per year.
The base salary may be increased by the Board of Directors from time to time in
its discretion. The agreement also provides for payment of annual incentive
bonuses determined in accordance with the terms of any incentive plans adopted
by the Board of Directors, stock options at the discretion of the Board of
Directors, an automobile, country club dues, and any other employee benefits we
generally provide to our most highly ranking executives for so long as we
provide such benefits. Other terms of the agreement include terms dealing with
termination and the rights of Mr. Earnest to payments following termination
after a change of control and under certain other circumstances, and
noncompetition, confidentiality and related agreements.
Termination of Employment by the Company
The agreement provides that if we terminate Mr. Earnest's employment as
a result of disability or if he dies while employed by us, we will have no
obligation to make any payments to him except with respect to vested rights or
benefits. The agreement provides that we may terminate Mr. Earnest's employment
for cause and we will have no obligation to make any payments to him except with
respect to vested rights or benefits, unless we terminate his employment for
cause after a change of control.
If we terminate Mr. Earnest's employment within 24 months following a
change of control, and such termination is not for cause or as a result of
disability or his death, we will be required to pay him immediately as severance
the compensation and benefits discussed above under " - Term and Compensation"
that would otherwise be payable over the three years subsequent to his
termination.
The agreement defines "change of control" as any of the following: (a)
an acquisition (other than directly from us) of any of our voting securities by
any person, or persons acting as a group, immediately after which the person or
group has ownership of more than 50% of the combined voting power of our then
outstanding voting securities (however, such an acquisition by us or by certain
entities controlled by us, or an acquisition in connection with a merger or
similar transaction subsequent to which the persons who were our shareholders
immediately prior to the transaction still own at least a majority of the voting
power of the surviving entity and subsequent to which the persons who were
members of our Board of Directors immediately prior to the transaction continue
to constitute at least a majority of the board of the surviving entity after the
transaction, will not be deemed to be a change of control); (b) a majority of
the individuals who were members of our Board of Directors as of the date of the
employment agreement, or persons subsequently elected by a vote of at least a
majority of those directors, are replaced for any reason during any twelve month
period; (c) a merger, consolidation or reorganization, unless the persons who
were our shareholders immediately prior to the transaction still own at least a
majority of the voting power of the surviving entity after the transaction and
the persons who were members of our Board of Directors immediately prior to the
transaction continue to constitute at least a majority of the board of the
20
surviving entity after the transaction; or (d) the sale or other disposition of
all or substantially all of our assets (other than to one of our subsidiaries).
The agreement further provides that, if Mr. Earnest's employment is terminated
without cause prior to a change of control and he reasonably demonstrates that
termination was at the request of a third party who indicated an intention or
took steps reasonably calculated to effect a change of control and who actually
effectuated a change of control, or that termination otherwise occurred in
connection with, or in anticipation of, a change of control that actually
occurred, then the date of the change of control with respect to Mr. Earnest
will mean the date immediately prior to the date of termination of his
employment.
If we terminate Mr. Earnest's employment in the absence of a change of
control, and such termination is not for cause or as a result of disability or
his death, we will be required to pay him immediately as severance the
compensation and benefits discussed above under " - Term and Compensation" for
the remaining term of the agreement.
Termination of Employment by Mr. Earnest
If we materially breach the agreement and do not cure the breach within
30 days after Mr. Earnest gives us written notice of the breach, Mr. Earnest may
terminate the agreement, and we will be required to pay him immediately as
severance the compensation and benefits discussed above under " - Term and
Compensation" that would otherwise be payable over the three years subsequent to
his termination. If Mr. Earnest terminates his employment for good reason, we
will be required to pay him immediately as severance the compensation and
benefits discussed above under " - Term and Compensation" that would otherwise
be payable over the three years subsequent to his termination.
The agreement defines "good reason" for Mr. Earnest to terminate the
agreement as: (a) a material diminution of his base compensation; (b) a material
diminution of his authority, duties or responsibilities; (c) a material
diminution in the authority, duties or responsibilities of the supervisors to
whom he is required to report; (d) a material diminution in the budget over
which he retains authority; (e) a material change in the geographic location at
which he is required to perform services; or (f) any other material breach of
the agreement by us.
If Mr. Earnest terminates his employment other than as a result of our
uncured material breach of the agreement or for good reason, we will have no
obligation to make any payments to him except with respect to vested rights or
benefits and he will be subject to the non-competition provisions of the
agreement.
21
Other Provisions of the Agreement
If we terminate Mr. Earnest's employment, other than for cause or as a
result of disability or his death, or if Mr. Earnest terminates his employment
as a result of our material breach of the agreement or for good reason, all of
his rights pursuant to awards of share grants or options granted by us will be
deemed to have vested and will be released from all conditions and restrictions,
except for restrictions on transfer pursuant to the Securities Act of 1933, and
Mr. Earnest will be deemed to be credited with service with us and the Bank for
the remaining term of the agreement for the purposes of our benefit plans and
the Bank's benefit plans.
For purposes of determining the severance payments we must make to Mr.
Earnest in the event we terminate his employment other than for cause or as a
result of disability or his death, or in the event Mr. Earnest terminates his
employment as a result of our material breach of the agreement or for good
reason, (a) the amount of annual salary will be deemed to be the annualized
salary being paid immediately prior to the termination, (b) the annual amount of
unfixed compensation (such as a bonus) will be deemed to be equal to the average
of such compensation over the three year period immediately prior to the
termination, and (c) the annual amount of benefits will be deemed to be the sum
of the costs to us and the Bank of providing the benefits to him for the twelve
month period ending immediately prior to the termination.
In the event of a change of control, Mr. Earnest's stock options will
all vest, even if he remains employed by us, and he will have a minimum of one
year from vesting to exercise the options. If, however, such accelerated vesting
or minimum exercise period would be inconsistent with the terms of the plan
under which the options were issued, the plan will control.
If any payment provided for in the agreement would, if paid, constitute
a "golden parachute payment" as defined in 12 C.F.R. ss. 359.1(f) as in effect
on the date the payment is due, our obligation to make such payment will be
subject to an additional condition that the circumstances which cause the
payment to be a "golden parachute payment" shall have ceased to exist, but such
payment will become payable in full at such time as the condition is met,
together with interest at the prime rate, compounded annually, from the date
such payment would have been due had it not been a "golden parachute payment"
until paid.
The agreement requires Mr. Earnest to maintain the confidentiality of
our confidential business information during the term of his employment with us
or the Bank and for a period of 24 months following termination of his
employment. If we terminate Mr. Earnest's employment for cause prior to a change
of control, or if he voluntarily terminates his employment prior to a change of
control, then, for a period of one year following termination, he may not engage
in certain competitive activities, including: (a) accepting employment with any
financial institutions in our market areas; (b) interfering with our employee
and customer relationships; (c) soliciting banking business or customer
relationships from our customers; (d) soliciting business on the basis of his
former affiliation with us; or (e) otherwise competing, directly or indirectly,
with us. If, however, Mr. Earnest's employment is terminated for any reason
following a change of control, there will be no limitation on his competitive
activities with us, including direct competition.
The foregoing is merely a summary of certain provisions of the
Noncompetition, Severance and Employment Agreement, and is qualified in its
entirety by reference to such Agreement, which has been filed with the
Securities and Exchange Commission as an Exhibit to our Form 10-K for the year
ended December 31, 2007.
22
Executive Supplemental Retirement Plan and Endorsement Method Split Dollar Plan
Agreement
Executive Supplemental Retirement Plan
We have entered into an Executive Supplemental Retirement Agreement
with Ronald K. Earnest, our President and Chief Operating Officer. The agreement
provides for payments of benefits to Mr. Earnest commencing at his retirement at
age 65, or earlier in the event of death or disability. The agreement also
provides for payment of a related death benefit to his designated beneficiary.
The agreement requires that we establish a liability reserve account
(the "Pre-Retirement Account") on our books for the benefit of Mr. Earnest.
Prior to his retirement, this account is to be increased or decreased each year
until his retirement by the Index Retirement Benefit. "Index Retirement Benefit"
is defined by the agreement as (1) the excess of (A) the aggregate annual
after-tax income from the life insurance policy we have purchased to fund our
obligations under the agreement over (B) the product of the amount obtained by
multiplying (i) the average federal funds rate times (ii) the sum of (x) the
premiums paid for the life insurance policy plus (y) the amount of any after-tax
benefits paid to Mr. Earnest plus (z) the after-tax product of (i) and (ii) for
all previous years, (2) divided by a factor equal to 1.05 minus the marginal tax
rate. The life insurance policies we purchased have an aggregate face amount of
$2,142,367 and the aggregate premiums we paid were $736,000. The period over
which payments are to be made and the amount of payments varies depending upon
whether Mr. Earnest's employment terminates as a result of his retirement at age
65, or his employment terminates as a result of death.
If Mr. Earnest remains employed by us until he reaches age 65, he will
be entitled to receive the balance in the Pre-Retirement Account in 15 equal
annual installments beginning 30 days after his retirement. In addition to these
payments and commencing in conjunction with them, Mr. Earnest will be paid the
Index Retirement Benefit for each plan year after his retirement, including the
remaining portion of the plan year following retirement.
If Mr. Earnest voluntarily resigns for good reason or if we discharge
him without cause prior to his reaching age 65, he will be entitled to receive
25% times the number of full years of employment with us from the date of first
employment (to a maximum of 100%), times the balance in the Pre-Retirement
Account payable to him in 15 equal annual installments commencing 30 days
following his reaching age 65. In addition to these payments and commencing in
conjunction with them, he will receive 25% times the number of full years of
employment with us from the date of first employment with us (to a maximum of
100%), times the Index Retirement Benefit for each plan year subsequent to the
year in which he reaches age 65, and including the remaining portion of the plan
year in which he reaches age 65 until his death.
If Mr. Earnest dies while there is a balance in his Pre-Retirement
Account, the unpaid balance of the Pre-Retirement Account will be paid in a lump
sum to the individual or individuals he has designated. This payment will be
made the first day of the second month following his death. If Mr. Earnest
becomes disabled, and his employment is terminated because of such disability,
he will immediately begin receiving the same benefits discussed above as he
would receive if he had retired at age 65, even if he has not reached age 65,
and he will be 100% vested in the entire benefit amount.
If there is a change of control of our Company, and, within 24 months
thereafter, Mr. Earnest terminates his employment for good reason or if we
discharge him without cause prior to his reaching age 65, he will be entitled to
receive the same benefits discussed above upon attaining age 65, as if he had
been continuously employed by us until reaching age 65. He will also remain
eligible for all death benefits provided for above.
23
A "change of control" will be deemed to have been effected if either:
(1) voting control over more than 50% of our stock is acquired, directly or
indirectly, by any person or group acting in concert; (2) our Company is merged
with or into any other entity and our shareholders immediately prior to the
merger own less than 50% of the combined voting power of the surviving entity;
or (3) more than 50% of our assets are acquired, directly or indirectly, by any
person or group acting in concert during any consecutive 12 month period.
Although we plan to use the life insurance policy to fund our
obligations under the agreement, our obligations are independent of the policy.
Endorsement Method Split Dollar Plan Agreement
In conjunction with the Supplemental Executive Retirement Plan, we have
also entered into a Life Insurance Endorsement Method Split Dollar Plan
Agreement. We are required to pay the premiums for a life insurance policy or
policies on the life of Mr. Earnest. We own the policies. Upon Mr. Earnest's
death, his beneficiary will be entitled to an amount equal to 80% of the
net-at-risk insurance portion of the proceeds of the policy. The net-at-risk
insurance portion is the total proceeds less the cash value of the policy. We
will be entitled to the remainder of the proceeds. We will share with Mr.
Earnest any interest due on the death proceeds on a pro rata basis.
The foregoing is merely a summary of certain provisions of the
Executive Supplemental Retirement Agreement and Endorsement Method Split Dollar
Plan Agreement, and is qualified in its entirety by reference to such Agreement,
which has been filed with the Securities and Exchange Commission as an Exhibit
to our Form 10-K for the year ended December 31, 2007.
Outstanding Equity Awards At 2008 Fiscal Year-End
The following table provides information, on an award-by-award basis,
about options to purchase shares of our common stock our executive officers held
at the end of 2008. We have not granted any other equity based awards to our
executive officers.
Option Awards
---------------- ------------ ------------- ------ ---------
Name Number Number Option Option
of of Exercise Expiration
Securities Securities Price Date
Underlying Underlying ($)
Unexercised Unexercised
Options Options
(#) (#)
Exercisable Unexercisable
---------------- ------------ ------------- ------ ---------
Mason Y. Garrett 22,558 15,039(1) 8.64 8/19/2015
38,651 0 5.18 1/16/2012
Ronald K. Earnest 22,558 15,039(1) 8.64 8/19/2015
38,651 0 3.58 3/21/2011
J. B. Garrett 2,200 3,300(2) 12.27 4/19/2016
4,840 1,210(3) 6.08 2/18/2014
600 2,400(4) 15.55 5/15/2017
(1) These options vest in increments of 7,519 shares on each of August 19, 2009
and 2010.
(2) These options vested/vest in increments of 1,100 shares on each of April
19, 2009, 2010 and 2011.
(3) These options vested on February 18, 2008.
(4) These options vest in increments of 600 shares on each of May 15, 2009,
2010, 2011 and 2012.
24
1998 Stock Option Plan
We maintain a stock option plan for the benefit of directors, officers
and employees. The Board of Directors believes stock options provide an
excellent method to attract and retain key employees, officers and directors,
and to provide them with incentives that help to closely align their interests
with ours.
The 1998 Stock Option Plan was originally adopted by the shareholders
of GrandSouth Bank at the 1998 annual meeting of shareholders, and was assumed
by us upon our acquisition of the Bank. The Plan was amended at the 2005 Annual
Meeting of Shareholders to increase the number of shares of our common stock
reserved for issuance under the plan. The plan, as amended, reserves a total of
856,028 shares (adjusted for stock dividends) for issuance under the plan. The
plan provides for the grant of both incentive stock options and non-qualified
stock options. Options may be granted pursuant to the plan to persons who are
directors, officers or employees of our Company or any subsidiary at the time of
grant. Non-employee directors are only eligible to be granted non-qualified
stock options. The plan may be administered by the Board of Directors or a
committee appointed by the Board.
The Board of Directors or the committee selects the employees to
receive grants under the plan and determines the number of shares covered by
options granted under the plan. All incentive stock options must have an
exercise price not less than the fair market value of the Common Stock at the
date of grant, as determined by the Board of Directors or the committee.
Non-qualified options have such exercise prices as may be determined by the
Board of Directors or the committee at the time of grant, and such exercise
prices may be less than fair market value. The Board of Directors or the
committee may set other terms for the exercise of the options but may not grant
to any one holder more than $100,000 of incentive stock options (based on the
fair market value of the optioned shares on the date of the grant of the option)
which first become exercisable in any calendar year. No options may be exercised
after ten years from the date of grant, and options may not be transferred
except by will or the laws of descent and distribution. Incentive stock options
may be exercised only while the optionee is our employee, within three months
after the date of termination of employment, or within twelve months of death or
disability. Terms relating to exercisability of non-qualified options on
termination of employment, death or disability are as set by the Board of
Directors or the committee. The number of shares reserved for issuance under the
plan, the number of shares covered by outstanding options, and the exercise
prices of options will be adjusted in the event of changes in the number of
outstanding shares of common stock effected without our receipt of
consideration, such as stock splits, stock dividends, merger, consolidation,
recapitalization, and the like. The Board of Directors may amend, suspend or
terminate the plan, but may not increase (except as discussed above) the maximum
number of shares reserved for issuance under the plan, materially increase the
benefits accruing to participants under the plan, or materially modify the
eligibility requirements under the plan without your approval or ratification.
The plan terminated in November, 2008, and no options were granted thereunder
after that date. However, the Board expects to adopt another equity plan to
replace the 1998 Plan and currently intends to submit the new plan to
shareholders for approval at the 2010 Annual Meeting.
The foregoing description is merely a summary of the 1998 Stock Option
Plan and is qualified in its entirety by the terms of the plan. The plan is
filed with the Securities and Exchange Commission as an appendix to the
Company's Proxy Statement for the 2005 Annual Meeting of Shareholders, which is
available on the Securities and Exchange Commission's website at www.sec.gov.
Temporary Limitation of Payments
In connection with the sale of preferred stock to the United States
Treasury on January 9, 2009, Messrs. M. Garrett, Earnest and J. Garrett have
waived certain rights and agreed to the modification of their compensation
during the period that any of the preferred stock is held by the United States
Treasury in order to comply with certain provisions of the Emergency Economic
Stability Act of 2008 and the regulations issued thereunder. Accordingly, some
of the compensation and benefits discussed above may not be payable if the
payment is due or accrues during the period that any of the preferred stock is
held by the United States Treasury.
25
2008 DIRECTOR COMPENSATION
The table below sets forth information about compensation we provided
to our directors for their service to the Company and the Bank in 2008. During
2008, we paid our directors $900 for each meeting of the Board of Directors. For
2009, we have increased director fees to $950 per meeting. These payments are
not contingent upon attendance at the meetings. All of our directors are also
directors of our Bank, but the Bank does not pay any additional fees. We do not
pay our directors who are also our executive officers for their service as
directors.
2008 Director Compensation
Name Fees Option Total
Earned Awards ($)
or ($)(1)
Paid in
Cash
($)
----------------- ------ ----- ------
Harold E. Garrett 10,800 3,113 13,913
Michael L. Gault 10,800 3,113 13,913
Baety O. Gross, Jr. 10,800 3,113 13,913
S. Hunter Howard, Jr. 10,800 3,113 13,913
S. Blanton Phillips 10,800 3,113 13,913
J. Calhoun Pruitt, Jr. 10,800 2,736 13,536
(1) The amounts shown in this column are the dollar amounts recognized for
financial statement reporting purposes with respect to the fiscal year
in accordance with FAS 123(R), and do not represent cash payments to
our directors or amounts that may be realized by them in the future.
The assumptions made in valuation of option awards are set forth in
Note 1 to our audited financial statements for the year ended December
31, 2008, which are included in our Form 10-K for the year ended
December 31, 2008 and in our 2008 Annual Report to Shareholders. The
grant date fair value of each option award is $2.83 per share. At
December 31, 2008, each director in the table above held options to
purchase a total of 5,500 shares. For each director, except Mr. Pruitt,
2,200 of these options are currently exercisable, and for Mr. Pruitt,
1,100 of these options are currently exercisable.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
Security Ownership
The following table shows information as of May 5, 2009 about shares of
our common stock beneficially owned by each of our directors and director
nominees and each officer named in the Summary Compensation Table. Except as
otherwise indicated, to management's knowledge, all shares are owned directly
with sole voting power. Other than as shown below, no persons were known by
management to be the beneficial owners, as defined in Rule 13d-3 of the
Securities Exchange Commission, of 5% or more of our common stock.
Name of Beneficial Owner Amount and Nature of Percent of
(and address of 5% owners) Beneficial Ownership Class
---------------------------- -------------------- -----
Ronald K. Earnest 225,680 (1) 6.0
381 Halton Road
Greenville, S.C.
Harold E. Garrett 143,204 (2) 4.0
Fountain Inn, S.C.
Mason Y. Garrett 656,895 (3) 18.1
381 Halton Road
Greenville, S. C.
J. B. Garrett 110,824 (4) 3.1
Greenville, S.C.
Michael L. Gault 65,275 (5) 1.8
Fountain Inn, S.C.
Baety O. Gross, Jr. 40,809 (6) 1.1
Simpsonville, S.C.
S. Hunter Howard, Jr. 19,872 (7) *
Columbia, S.C.
S. Blanton Phillips 15,174 (8) *
Fountain Inn, S.C.
J. Calhoun Pruitt, Jr. 2,100 (9) *
Anderson, S.C. ________
All Directors and executive 1,278,333 (10) 35.8
officers as a group
(9 persons)
*Less than 1%.
26
(1) Includes currently exercisable options to purchase 61,209 shares.
(2) Includes 4,296 shares held by Mr. Garrett's wife as to which Mr. Garrett
disclaims beneficial ownership; 2,223 shares held by Mr. Garrett as
custodian for his daughter and 6,519 shares held by Mr. Garrett as
custodian for his son; and currently exercisable options to purchase 3,300
shares. Of the total shares beneficially owned by Mr. Garrett, 113,100 are
pledged as collateral.
(3) Includes currently exercisable options to purchase 61,209 shares; 175,062
shares owned by Mr. Garrett's wife, as to which Mr. Garrett disclaims
beneficial ownership; 26,116 shares held by Mr. Garrett as custodian for
his son; 2,223 shares held by Mr. Garrett as custodian for his
step-daughter; and 61,492 shares held by Mr. Garrett as custodian for his
brother. Of the total shares beneficially owned by Mr. Garrett, 152,265
are pledged as collateral.
(4) Includes currently exercisable options to purchase 9,950 shares; 2,019
shares owned by Mr. Garrett's wife, as to which Mr. Garrett disclaims
beneficial ownership; and 8,514 shares held by Mr. Garrett as custodian
for his sons. Of the total shares beneficially owned by Mr. Garrett,
67,436 are pledged as collateral.
(5) Includes currently exercisable options to purchase 3,300 shares; and
60,875 shares held by Mr. Gault's wife and children, as to which Mr. Gault
disclaims beneficial ownership.
(6) Includes currently exercisable options to purchase 3,300 shares; and
19,061 shares held by Mr. Gross' wife and children, as to which Mr. Gross
disclaims beneficial ownership.
(7) Includes currently exercisable options to purchase 3,300 shares.
(8) Includes currently exercisable options to purchase 3,300 shares. Of the
total shares beneficially owned by Mr. Phillips, 10,795 are pledged as
collateral.
(9) Includes currently exercisable options to purchase 1,100 shares. (10)
Includes currently exercisable options to purchase 308,794 shares.
Equity Compensation Plan Information
The following table sets forth aggregated information as of December
31, 2008 about all of the Company's compensation plans (including individual
compensation arrangements) under which equity securities of the Company are
authorized for issuance:
[Enlarge/Download Table]
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)
------------------------------- ---------------------------- ---------------------------- ----------------------------
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
(1) Options issued and shares reserved pursuant to Registrant's amended 1998
Stock Option Plan. The number of shares subject to outstanding options,
exercise prices and number of shares remaining available for future
issuance of options have been restated to reflect the 5% stock dividends
declared in January 2003 and the 10% stock dividends declared in January
2004, February 2005 and July 2006.
27
Item 13. Certain Relationships and Related Transactions, and Director
Independence.
Certain Relationships and Related Transactions
In the ordinary course of its business, our Bank makes loans to,
accepts deposits from, and provides other banking services to our directors,
officers, principal shareholders, their associates and members of such persons'
immediate families. Loans are made on substantially the same terms, including
rates and collateral, as those prevailing at the time for comparable
transactions with other persons and do not involve more than the normal risk of
collectibility or present other unfavorable features. Rates paid on deposits and
fees charged for other banking services, and other terms of these transactions,
are also the same as those prevailing at the time for comparable transactions
with other persons. The aggregate dollar amount of such loans outstanding at
December 31, 2008 and 2007 was $3,963,000 and $2,427,000, respectively. None of
such loans have been on non-accrual status, 90 days or more past due, or
restructured at any time. The Bank expects to continue to enter into
transactions in the ordinary course of business on similar terms with directors,
officers, principal shareholders, their associates, and members of such persons'
immediate families.
From time to time, we may also enter into other types of business
transactions or arrangements for services with our directors, officers,
principal shareholders, or their associates and members of their immediate
families. These types of transactions or services might include, among others,
leases of real property and legal services. We would usually only enter into
such arrangements if we determine that the prices or rates offered are
comparable to those available to us from unaffiliated third parties. We do not
have written policies or procedures with respect to such transactions.
We lease a lot at the corner of South Main Street and East Knight
Street in Fountain Inn, South Carolina. The lot is leased for 20 years for
$9,000 a year from Blake P. Garrett, Jr., Trustee, with four five-year renewal
options. Lease payments are subject to increase to reflect increases in the
Consumer Price Index. Blake P. Garrett, Jr., is the brother of Mason Y. Garrett,
Chairman of our Board of Directors, and the uncle of Harold E. Garrett, one of
our directors. Blake P. Garrett, Jr., is trustee for the partnership which owns
the property. Baety O. Gross, Jr., who is one of our directors, from time to
time provides legal services to us and we expect him to continue to do so in the
future. Although he has not previously done so, we also expect that J. Calhoun
Pruitt, Jr., who is also one of our directors, may provide legal services to us
in the future.
Director Independence
Our Board of Directors has determined that none of Michael L. Gault,
Baety O. Gross, Jr., S. Hunter Howard, Jr., S. Blanton Phillips, or J. Calhoun
Pruitt, Jr. has a relationship which, in the opinion of our Board of Directors,
would interfere with the exercise of independent judgment in carrying out the
responsibilities of a director, and that each such director is independent as
defined in The Nasdaq Stock Market, Inc. Marketplace Rules, as modified or
supplemented (the "Nasdaq Rules"). As disclosed under "Certain Relationships and
Related Transactions" our independent directors and some of their affiliates
from time to time have loan and deposit and other banking relationships with, or
provide legal services to, our Bank. Our Board does not consider these
relationships to compromise our directors' independence.
All members of the Company's Audit Committee are independent as such
term is defined by the Nasdaq Global Market Marketplace Rules. All members of
the Board of Directors served as the Company's Compensation and Nominating
Committees, and, not all members of the Board are independent as such term is
defined by the Nasdaq Global Market Marketplace Rules.
28
Item 14. Principal Accountant Fees and Services
Fees Paid to Independent Auditors
Set forth below is information about fees billed by our independent
auditors for audit services rendered in connection with the consolidated
financial statements and reports for the years ended December 31, 2008 and 2007,
and for other services rendered during such years on our behalf and on behalf of
the Bank, as well as all out-of-pocket expenses incurred in connection with
these services.
Year Ended Year Ended
December 31, 2008 December 31, 2007
----------------- -----------------
Audit Fees 74,500 $68,000
Audit-Related Fees - -
Tax Fees 7,200 10,000
All Other Fees 6,345 -
------ -------
Total 88,645 $78,000
====== =======
Audit Fees
Audit fees include fees incurred for professional services rendered for
the audit of our consolidated financial statements and review of the interim
condensed consolidated financial statements included in quarterly reports, and
services that are normally provided by our independent auditor in connection
with statutory and regulatory filings or engagements, and attest services,
except those not required by statute or regulation.
Audit-Related Fees
Audit-related fees include fees incurred for assurance and related
services that are reasonably related to the performance of the audit or review
of our consolidated financial statements and that are not reported under "Audit
Fees."
Tax Fees
Tax fees include fees for tax compliance/preparation and other tax
services. Tax compliance/preparation fees include fees incurred for professional
services related to federal and state tax compliance. Other tax services include
fees billed for other miscellaneous tax consulting and planning.
All Other Fees
All other fees would include fees for all other services other than
those reported above.
In making its decision to appoint Elliott Davis, LLC as our independent
auditors for the fiscal year ending December 31, 2009, the Board of Directors
considered whether services other than audit and audit-related services provided
by that firm are compatible with maintaining the independence of Elliott Davis,
LLC.
Board Pre-Approval of Audit and Permissible Non-Audit Services of Independent
Auditors
The Board of Directors pre-approves all audit and permitted non-audit
services (including the fees and terms thereof) provided by the independent
auditors, subject to possible limited exceptions for non-audit services
described in Section 10A of the Securities Exchange Act of 1934, which are
approved by the Board prior to completion of the audit. The Board may delegate
to one or more designated members of the Board the authority to pre-approve
audit and permissible non-audit services, provided such pre-approval decision is
presented to the full Board at its next scheduled meeting.
General pre-approval of certain audit, audit-related and tax services
is granted by the Board at the first Board meeting each year. The Board
subsequently reviews fees paid. Specific pre-approval is required for all other
services. During 2008, all audit and permitted non-audit services were
pre-approved by the Board.
29
Part IV
Item 15. Exhibits, Financial Statement Schedules
(a)(1) and (2) Financial Statements and Financial Schedules
- Report of Independent Registered Public Accounting Firm.
- Consolidated Balance Sheets - December 31, 2008 and 2007
- Consolidated Statements of Income - Years ended December 31, 2008,
2007 and 2006
- Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income - Years ended December 31, 2008, 2007 and 2006
- Consolidated Statements of Cash Flows - Years ended December 31, 2008,
2007 and 2006
- Notes to Consolidated Financial Statements
(3) Description of Exhibits.
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation of Registrant, as amended (1)(6)
3.2 Bylaws of Registrant (1)
4.1 Form of Common Stock Certificate (2)
4.2 Form of Stock Certificate for Series T Preferred Stock (6)
4.3 Form of Stock Certificate for Series W Preferred Stock (6)
4.4 Warrant for Purchase of Shares of Series W Preferred
Stock(6)
10.1 1998 Stock Option Plan, as amended (3)
10.2 Form of Stock Option Agreement (2)
10.3 Executive Supplemental Retirement Plan Executive
Agreement with Ronald K. Earnest, as amended in
compliance with I.R.C. Section 409A and related
regulations (4)
10.4 Noncompetition, Severance and Employment Agreement
between Registrant and Ronald K. Earnest, as amended in
compliance with I.R.C. Section 409A and related
regulations (4)
10.5 Amended and Restated Declaration of Trust of GrandSouth
Capital Trust I, dated as of May 10, 2006 (5)
10.6 Guarantee Agreement of GrandSouth Bancorporation, dated
as of May 10, 2006 (5)
10.7 Indenture between GrandSouth Bancorporation and
Wilmington Trust Company, dated as of May 10, 2007 (5)
10.8 Letter Agreement, dated January 9, 2009 between
GrandSouth Bancorporation and the United States Department
of the Treasury relating to issuance and sale of the Series
T and Series W preferred stock and warrant (6)
13 Portions of the Annual Report to Shareholders for the
Year Ended December 31, 2008 (previously filed)
21 Subsidiaries of Registrant (4)
23 Consent of Elliott Davis, LLC
31.1 Rule 13a-14(a)/15d-14(a) Certifications
31.2 Rule 13a-14(a)/15d-14(a) Certifications
32 18 U.S.C. Section 1350 Certifications
-------------
(1) Incorporated by reference to exhibits to Form 8-A filed November 13, 2000.
(2) Incorporated by reference to exhibits to Form 10-KSB for the year ended
December 31, 2000.
(3) Incorporated by reference to Registrant's Proxy Statement for the 2005
Annual Meeting of Shareholders.
(4) Incorporated by reference to Registrant's Form 10-K for the year ended
December 31, 2007
(5) Incorporated by reference to Registrant's Form 10-QSB for the quarter ended
June 30, 2006.
(6) Incorporated by reference to Current Report on Form 8-K filed January 12,
2009
30
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant caused this amended report to be signed on its behalf by
the undersigned, thereunto duly authorized.
GrandSouth Bancorporation
April 29, 2009 By: s/Mason Y. Garrett
--------------------------------------------------
Mason Y. Garrett
Chief Executive Officer
By: s/J. B. Garrett
--------------------------------------------------
J. B. Garrett
Senior Vice President
(Chief Financial and Principal Accounting
Officer)
In accordance with the Exchange Act, this amended Report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
[Enlarge/Download Table]
Signature Title Date
--------- ----- ----
s/Blanton S. Phillips
--------------------------------------- Director April 29, 2009
Blanton S. Phillips
s/Ronald K. Earnest President, Chief Operating Officer, Director April 29, 2009
--------------------------------
Ronald K. Earnest
s/Harold E. Garrett Director April 29, 2009
--------------------------------
Harold E. Garrett
s/Mason Y. Garrett Chairman, Director April 29, 2009
--------------------------------
Mason Y. Garrett
s/Michael L. Gault Director April 29, 2009
--------------------------------
Michael L. Gault
Director April __, 2009
--------------------------------
Baety O. Gross
-------------------------------- Director April __, 2009
S. Hunter Howard, Jr.
Director April __, 2009
--------------------------------
J. Calhoun Pruitt, Jr.
31
EXHIBIT INDEX
Exhibit No. Description
3.1 Articles of Incorporation of Registrant, as amended (1)(6)
3.2 Bylaws of Registrant (1)
4.1 Form of Common Stock Certificate (2)
4.2 Form of Stock Certificate for Series T Preferred Stock (6)
4.3 Form of Stock Certificate for Series W Preferred Stock (6)
4.4 Warrant for Purchase of Shares of Series W Preferred
Stock(6)
10.1 1998 Stock Option Plan, as amended (3)
10.2 Form of Stock Option Agreement (2)
10.3 Executive Supplemental Retirement Plan Executive
Agreement with Ronald K. Earnest, as amended in
compliance with I.R.C. Section 409A and related
regulations (4)
10.4 Noncompetition, Severance and Employment Agreement
between Registrant and Ronald K. Earnest, as amended in
compliance with I.R.C. Section 409A and related
regulations (4)
10.5 Amended and Restated Declaration of Trust of GrandSouth
Capital Trust I, dated as of May 10, 2006 (5)
10.6 Guarantee Agreement of GrandSouth Bancorporation, dated
as of May 10, 2006 (5)
10.7 Indenture between GrandSouth Bancorporation and
Wilmington Trust Company, dated as of May 10, 2007 (5)
10.8 Letter Agreement, dated January 9, 2009 between
GrandSouth Bancorporation and the United States Department
of the Treasury relating to issuance and sale of the Series
T and Series W preferred stock and warrant (6)
13 Portions of the Annual Report to Shareholders for the
Year Ended December 31, 2008 (previously filed)
21 Subsidiaries of Registrant (4)
23 Consent of Elliott Davis, LLC
31.1 Rule 13a-14(a)/15d-14(a) Certifications
31.2 Rule 13a-14(a)/15d-14(a) Certifications
32 18 U.S.C. Section 1350 Certifications
-------------
(1) Incorporated by reference to exhibits to Form 8-A filed November 13, 2000.
(2) Incorporated by reference to exhibits to Form 10-KSB for the year ended
December 31, 2000.
(3) Incorporated by reference to Registrant's Proxy Statement for the 2005
Annual Meeting of Shareholders.
(4) Incorporated by reference to Registrant's Form 10-K for the year ended
December 31, 2007
(5) Incorporated by reference to Registrant's Form 10-QSB for the quarter ended
June 30, 2006.
(6) Incorporated by reference to Current Report on Form 8-K filed January 12,
2009
32
Dates Referenced Herein and Documents Incorporated by Reference
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