| Virginia(State or other jurisdiction ofincorporation or organization)                    | 54-1647596(I.R.S. EmployerIdentification No.) |
|------------------------------------------------------------------------------------------|-----------------------------------------------|
|  113 West Main StreetIndependence, Virginia(Address of principal executive offices) |   24348(Zip Code)                   |

| Large accelerated filer   £                                           | Accelerated filer   £    |
|-------------------------------------------------------------------------------------------|----------------------------------------------|
| Non-accelerated filer   £ (Do not check if smaller reporting company) | Smaller reporting company   R |

----

| Item 1.    | Financial Statements                                                               |   |     |
|------------|------------------------------------------------------------------------------------|--------|----------|
|       |                                                                               |   |     |
|       | Consolidated Balance Sheets—September 30, 2010 (Unaudited)                   |   |     |
|       | and December 31, 2009 (Audited)                                                    |   | 3        |
|       |                                                                               |   |     |
|       | Unaudited Consolidated Statements of Income—Nine Months Ended                |   |     |
|       | September 30, 2010 and September 30, 2009                                          |   | 4        |
|       |                                                                               |   |     |
|       | Unaudited Consolidated Statements of Income—Three Months Ended               |   |     |
|       | September 30, 2010 and September 30, 2009                                          |   | 5        |
|       |                                                                               |   |     |
|       | Consolidated Statements of Changes in Stockholders’ Equity—Nine Months |   |     |
|       | Ended September 30, 2010 (Unaudited) and Year Ended December 31, 2009 (Audited)    |   | 6        |
|       |                                                                               |   |     |
|       | Unaudited Consolidated Statements of Cash Flows—Nine Months Ended            |   |     |
|       | September 30, 2010 and September 30, 2009                                          |   | 7        |
|       |                                                                               |   |     |
|       | Notes to Consolidated Financial Statements                                         |   |   8 |
|       |                                                                               |   |     |
| Item 2.    | Management’s Discussion and Analysis of Financial Condition                  |   |     |
|       | and Results of Operations                                                          |   | 19       |
|       |                                                                               |   |     |
| Item 3.    | Quantitative and Qualitative Disclosures about Market Risk                         |   | 22       |
|       |                                                                               |   |     |
| Item 4.    | Controls and Procedures                                                            |   | 23       |
|       |                                                                               |   |     |
| PART II    | OTHER INFORMATION                                                                  |   |     |
|       |                                                                               |   |     |
| Item 1.    | Legal Proceedings                                                                  |   | 24       |
|       |                                                                               |   |     |
| Item 1A.   | Risk Factors                                                                       |   | 24       |
|       |                                                                               |   |     |
| Item 2.    | Unregistered Sales of Equity Securities and Use of Proceeds                        |   | 24       |
|       |                                                                               |   |     |
| Item 3.    | Defaults Upon Senior Securities                                                    |   | 24       |
|       |                                                                               |   |     |
| Item 4.    | Removed and Reserved                                                               |   | 24       |
|       |                                                                               |   |     |
| Item 5.    | Other Information                                                                  |   | 24       |
|       |                                                                               |   |     |
| Item 6.    | Exhibits                                                                           |   | 24       |
|       |                                                                               |   |     |
| Signatures |                                                                               |   | 25       |

----

|                                                        |   |   |   |   | September 30, |        |        | December 31, |   |
|-------------------------------------------------------------|--------|--------|--------|--------|---------------|-------------|-------------|--------------|--------|
|                                                        |   |   |   |   | 2010          |        |        | 2009         |   |
| Assets                                                      |   |   |   |   | (Unaudited)   |        |        | (Audited)    |   |
|                                                        |   |   |   |   |          |        |        |         |   |
| Cash and due from banks                                     |   |   |   |   | $             | 9,026,939   |        |         | $      | 8,637,123 |   |
| Interest-bearing deposits with banks                        |   |   |   |   |          | 3,303,254   |        |         |   | 300,000 |   |
| Federal funds sold                                          |   |   |   |   |          | 28,727,284  |        |         |   | 19,356,999 |   |
| Investment securities available for sale                    |   |   |   |   |          | 42,484,888  |        |         |   | 39,859,119 |   |
| Investment securities held to maturity                      |   |   |   |   |          |        |        |         |   |   |   |
| (fair value approximately $2,330,861 at September 30, 2010, |   |   |   |   |          |        |        |         |   |   |   |
| and $2,254,196 at December 31,  2009)             |   |   |   |   |          | 2,209,841   |        |         |   | 2,174,882 |   |
| Restricted equity securities                                |   |   |   |   |          | 1,671,800   |        |         |   | 1,783,700 |   |
| Loans, net of allowance for loan losses of $4,245,835 at    |   |   |   |   |          |        |        |         |   |   |   |
| September 30, 2010 and $3,555,273 at December 31, 2009      |   |   |   |   |          | 257,445,564 |        |         |   | 266,628,050 |   |
| Cash value of life insurance                                |   |   |   |   |          | 8,323,134   |        |         |   | 8,098,134 |   |
| Foreclosed assets                                           |   |   |   |   |          | 3,056,726   |        |         |   | 2,808,885 |   |
| Property and equipment, net                                 |   |   |   |   |          | 10,719,962  |        |         |   | 11,133,834 |   |
| Accrued interest receivable                                 |   |   |   |   |          | 2,549,564   |        |         |   | 2,626,164 |   |
| Other assets                                                |   |   |   |   |          | 5,553,131   |        |         |   | 6,195,031 |   |
|                                                        |   |   |   |   | $             | 375,072,087 |        |         | $      | 369,601,921 |   |
| Liabilities and Stockholders’ Equity                  |   |   |   |   |          |        |        |         |   |   |   |
|                                                        |   |   |   |   |          |        |        |         |   |   |   |
| Liabilities                                                 |   |   |   |   |          |        |        |         |   |   |   |
| Deposits                                                    |   |   |   |   |          |        |        |         |   |   |   |
| Noninterest-bearing                                         |   |   |   |   | $             | 46,796,434  |        |         | $      | 44,924,699 |   |
| Interest-bearing                                            |   |   |   |   |          | 270,346,925 |        |         |   | 268,558,517 |   |
| Total deposits                                              |   |   |   |   |          | 317,143,359 |        |         |   | 313,483,216 |   |
|                                                        |   |   |   |   |          |        |        |         |   |   |   |
| Long-term debt                                              |   |   |   |   |          | 25,000,000  |        |         |   | 25,000,000 |   |
| Accrued interest payable                                    |   |   |   |   |          | 809,851     |        |         |   | 382,653 |   |
| Other liabilities                                           |   |   |   |   |          | 585,346     |        |         |   | 196,107 |   |
|                                                        |   |   |   |   |          | 343,538,556 |        |         |   | 339,061,976 |   |
|                                                        |   |   |   |   |          |        |        |         |   |   |   |
| Commitments and contingencies                               |   |   |   |   |          |        | -           |         |   |   | - |   |
|                                                        |   |   |   |   |          |        |        |         |   |   |   |   |
| Stockholders’ equity                                  |   |   |   |   |          |        |        |         |   |   |   |   |
| Preferred stock, $25 par value; 500,000                     |   |   |   |   |          |        |        |         |   |   |   |   |
| shares authorized; none issued                              |   |   |   |   |          |        | -           |         |   |   | - |   |
| Common stock, $1.25 par value; 2,000,000 shares             |   |   |   |   |          |        |        |         |   |   |   |   |
| authorized; 1,718,968 shares issued                         |   |   |   |   |          |        |        |         |   |   |   |   |
| in 2010 and 2009, respectively                              |   |   |   |   |          |        | 2,148,710   |         |   |   | 2,148,710 |   |
| Surplus                                                     |   |   |   |   |          |        | 521,625     |         |   |   | 521,625 |   |
| Retained earnings                                           |   |   |   |   |          |        | 28,982,413  |         |   |   | 28,497,214 |   |
| Accumulated other comprehensive income (loss)               |   |   |   |   |          |        | (119,217    | )            |   |   | (627,604 | ) |
|                                                        |   |   |   |   |          |        | 31,533,531  |         |   |   | 30,539,945 |   |
|                                                        |   |   |   |   |          | $           | 375,072,087 |         |   | $ | 369,601,921 |   |

----

|                                     |   | Nine Months Ended |       |
|------------------------------------------|--------|-------------------|------------|
|                                     |   | September 30,     |       |
|                                     |   | 2010              |       |   | 2009 |   |
|                                     |   | (Unaudited)       |       |   | (Unaudited) |   |
| Interest income                          |   |              |       |   |   |   |
| Loans and fees on loans                  |   | $                 | 12,660,654 |   |   | $ | 13,417,581 |   |
| Interest-bearing deposits in banks       |   |              | 3,636      |   |   |   | - |   |
| Federal funds sold                       |   |              | 31,091     |   |   |   | 27,380 |   |
| Investment securities:                   |   |              |       |   |   |   |   |   |
| Taxable                                  |   |              | 1,030,937  |   |   |   | 1,274,714 |   |
| Exempt from federal income tax           |   |              | 273,191    |   |   |   | 311,080 |   |
|                                     |   |              | 13,999,509 |   |   |   | 15,030,755 |   |
|                                     |   |              |       |   |   |   |   |   |
| Interest expense                         |   |              |       |   |   |   |   |   |
| Deposits                                 |   |              | 4,240,737  |   |   |   | 5,656,925 |   |
| Interest on borrowings                   |   |              | 790,071    |   |   |   | 877,496 |   |
|                                     |   |              | 5,030,808  |   |   |   | 6,534,421 |   |
| Net interest income                      |   |              | 8,968,701  |   |   |   | 8,496,334 |   |
|                                     |   |              |       |   |   |   |   |   |
| Provision for loan losses                |   |              | 1,562,733  |   |   |   | 862,331 |   |
| Net interest income after                |   |              |       |   |   |   |   |   |
| provision for loan losses                |   |              | 7,405,968  |   |   |   | 7,634,003 |   |
|                                     |   |              |       |   |   |   |   |   |
| Noninterest income                       |   |              |       |   |   |   |   |   |
| Service charges on deposit accounts      |   |              | 798,554    |   |   |   | 736,123 |   |
| Increase in cash value of life insurance |   |              | 225,000    |   |   |   | 225,000 |   |
| Net realized gains on securities         |   |              | 203,101    |   |   |   | 165,773 |   |
| Gain on sale of cost-based investment    |   |              | 213,499    |   |   |   | - |   |
| Other income                             |   |              | 512,952    |   |   |   | 470,418 |   |
|                                     |   |              | 1,953,106  |   |   |   | 1,597,314 |   |
|                                     |   |              |       |   |   |   |   |   |
| Noninterest expense                      |   |              |       |   |   |   |   |   |
| Salaries and employee benefits           |   |              | 4,694,115  |   |   |   | 4,923,179 |   |
| Occupancy expense                        |   |              | 348,119    |   |   |   | 359,606 |   |
| Equipment expense                        |   |              | 584,234    |   |   |   | 631,765 |   |
| Other expense                            |   |              | 2,480,717  |   |   |   | 2,324,989 |   |
|                                     |   |              | 8,107,185  |   |   |   | 8,239,539 |   |
| Income before income taxes               |   |              | 1,251,889  |   |   |   | 991,778 |   |
|                                     |   |              |       |   |   |   |   |   |
| Income tax expense                       |   |              | 251,000    |   |   |   | 160,000 |   |
| Net income                               |   | $                 | 1,000,889  |   |   | $ | 831,778 |   |
|                                     |   |              |       |   |   |   |   |   |
| Basic earnings per share                 |   | $                 | 0.58       |   |   | $ | 0.48 |   |
| Weighted average shares outstanding      |   |              | 1,718,968  |   |   |   | 1,718,968 |   |
| Dividends declared per share             |   | $                 | 0.30       |   |   | $ | 0.30 |   |

----

|                                     |   | Three Months Ended |      |
|------------------------------------------|--------|--------------------|-----------|
|                                     |   | September 30,      |      |
|                                     |   | 2010               |      |   | 2009 |   |
|                                     |   | (Unaudited)        |      |   | (Unaudited) |   |
| Interest income                          |   |               |      |   |   |   |
| Loans and fees on loans                  |   | $                  | 4,184,684 |   |   | $ | 4,477,716 |   |
| Interest-bearing deposits in banks       |   |               | 3,307     |   |   |   | - |   |
| Federal funds sold                       |   |               | 11,132    |   |   |   | 8,624 |   |
| Investment securities:                   |   |               |      |   |   |   |   |   |
| Taxable                                  |   |               | 348,850   |   |   |   | 410,220 |   |
| Exempt from federal income tax           |   |               | 87,223    |   |   |   | 98,412 |   |
|                                     |   |               | 4,635,196 |   |   |   | 4,994,972 |   |
|                                     |   |               |      |   |   |   |   |   |
| Interest expense                         |   |               |      |   |   |   |   |   |
| Deposits                                 |   |               | 1,363,655 |   |   |   | 1,755,274 |   |
| Interest on borrowings                   |   |               | 266,251   |   |   |   | 266,251 |   |
|                                     |   |               | 1,629,906 |   |   |   | 2,021,525 |   |
| Net interest income                      |   |               | 3,005,290 |   |   |   | 2,973,447 |   |
|                                     |   |               |      |   |   |   |   |   |
| Provision for loan losses                |   |               | 712,974   |   |   |   | 280,694 |   |
| Net interest income after                |   |               |      |   |   |   |   |   |
| provision for loan losses                |   |               | 2,292,316 |   |   |   | 2,692,753 |   |
|                                     |   |               |      |   |   |   |   |   |
| Noninterest income                       |   |               |      |   |   |   |   |   |
| Service charges on deposit accounts      |   |               | 293,772   |   |   |   | 274,797 |   |
| Increase in cash value of life insurance |   |               | 75,000    |   |   |   | 69,000 |   |
| Net realized gains on securities         |   |               | 170,134   |   |   |   | 1,592 |   |
| Gain on sale of cost-based investment    |   |               | 213,499   |   |   |   | - |   |
| Other income                             |   |               | 198,771   |   |   |   | 149,335 |   |
|                                     |   |               | 951,176   |   |   |   | 494,724 |   |
|                                     |   |               |      |   |   |   |   |   |
| Noninterest expense                      |   |               |      |   |   |   |   |   |
| Salaries and employee benefits           |   |               | 1,539,286 |   |   |   | 1,632,452 |   |
| Occupancy expense                        |   |               | 103,345   |   |   |   | 121,501 |   |
| Equipment expense                        |   |               | 188,243   |   |   |   | 209,833 |   |
| Other expense                            |   |               | 818,453   |   |   |   | 790,568 |   |
|                                     |   |               | 2,649,327 |   |   |   | 2,754,354 |   |
| Income before income taxes               |   |               | 594,165   |   |   |   | 433,123 |   |
|                                     |   |               |      |   |   |   |   |   |
| Income tax expense                       |   |               | 146,000   |   |   |   | 87,000 |   |
| Net income                               |   | $                  | 448,165   |   |   | $ | 346,123 |   |
|                                     |   |               |      |   |   |   |   |   |
| Basic earnings per share                 |   | $                  | 0.26      |   |   | $ | 0.20 |   |
| Weighted average shares outstanding      |   |               | 1,718,968 |   |   |   | 1,718,968 |   |
| Dividends declared per share             |   | $                  | 0.10      |   |   | $ | 0.10 |   |

----

|                        |                                |   |   |         |   |   |   |      |   |     |   |    |          |   |   | Accumulated   |      |   |   |       |
|-----------------------------|-------------------------------------|--------|--------|--------------|--------|--------|--------|-----------|--------|----------|--------|---------|---------------|--------|--------|---------------|-----------|--------|--------|------------|
|                        |                                |   |   |         |   |   |   |      |   |     |   |    |          |   |   | Other         |      |   |   |       |
|                        |                                |   |   | Common Stock |   |   |   |      |   | Retained |   |    | Comprehensive |   |   |          |      |
|                        |                                |   |   | Shares       |   |   | Amount |      |   | Surplus  |   |    | Earnings      |   |   | Income (Loss) |      |   | Total  |       |
|                        |                                |   |   |         |   |   |   |      |   |     |   |    |          |   |   |          |      |   |   |       |
| Balance, December 31, 2008  |                                |   |   | 1,718,968    |   |   | $      | 2,148,710 |   |     | $      | 521,625 |          |   | $      | 28,302,082    |      |   | $      | (1,955,722 | ) |   | $ | 29,016,695 |   |
|                        |                                |   |   |         |   |   |   |      |   |     |   |    |          |   |   |          |      |   |   |       |   |   |   |   |   |   |
| Comprehensive income        |                                |   |   |         |   |   |   |      |   |     |   |    |          |   |   |          |      |   |   |       |   |   |   |   |   |
|                        | Net income                          |   |   |         | -      |   |   |      | -      |     |   |    | -             |   |   |          | 882,719   |   |   |       | - |   |   |   | 882,719 |   |
|                        | Net change in pension reserve       |   |   |         |   |   |   |      |   |     |   |    |          |   |   |          |      |   |   |       |   |   |   |   |   |   |
|                        | net of income taxes of $555,893     |   |   |         |   |   |   |      | -      |     |   |    | -             |   |   |          | -         |   |   |       | 1,079,087 |   |   |   | 1,079,087 |   |
|                        | Net change in unrealized            |   |   |         |   |   |   |      |   |     |   |    |          |   |   |          |      |   |   |       |   |   |   |   |   |   |
|                        | gain on investment                  |   |   |         |   |   |   |      |   |     |   |    |          |   |   |          |      |   |   |       |   |   |   |   |   |   |
|                        | securities available for            |   |   |         |   |   |   |      |   |     |   |    |          |   |   |          |      |   |   |       |   |   |   |   |   |   |
|                        | sale, net of taxes of $203,119      |   |   |         | -      |   |   |      | -      |     |   |    | -             |   |   |          | -         |   |   |       | 394,290 |   |   |   | 394,290 |   |
|                        | Reclassification adjustment,        |   |   |         |   |   |   |      |   |     |   |    |          |   |   |          |      |   |   |       |   |   |   |   |   |   |
|                        | net of income taxes of ($74,830)    |   |   |         | -      |   |   |      | -      |     |   |    | -             |   |   |          | -         |   |   |       | (145,259 | ) |   |   | (145,259 | ) |
| Total comprehensive income  |                                |   |   |         |   |   |   |      |   |     |   |    |          |   |   |          |      |   |   |       |   |   |   | 2,210,837 |   |
|                        |                                |   |   |         |   |   |   |      |   |     |   |    |          |   |   |          |      |   |   |       |   |   |   |   |   |   |   |
|                        | Dividends paid                      |   |   |         |   |   |   |      |   |     |   |    |          |   |   |          |      |   |   |       |   |   |   |   |   |   |
|                        | ($.40 per share)                    |   |   |         | -      |   |   |      | -      |     |   |    | -             |   |   |          | (687,587  | )      |   |       | - |   |   |   | (687,587 | ) |
| Balance, December 31, 2009  |                                |   |   | 1,718,968    |   |   |   | 2,148,710 |   |     |   | 521,625 |          |   |   | 28,497,214    |      |   |   | (627,604   | ) |   |   | 30,539,945 |   |
|                        |                                |   |   |         |   |   |   |      |   |     |   |    |          |   |   |          |      |   |   |       |   |   |   |   |   |   |   |
| Comprehensive income        |                                |   |   |         |   |   |   |      |   |     |   |    |          |   |   |          |      |   |   |       |   |   |   |   |   |
|                        | Net income                          |   |   |         | -      |   |   |      | -      |     |   |    | -             |   |   |          | 1,000,889 |   |   |       | - |   |   |   | 1,000,889 |   |
|                        | Net change in unrealized            |   |   |         |   |   |   |      |   |     |   |    |          |   |   |          |      |   |   |       |   |   |   |   |   |   |
|                        | loss on investment                  |   |   |         |   |   |   |      |   |     |   |    |          |   |   |          |      |   |   |       |   |   |   |   |   |   |
|                        | securities available for            |   |   |         |   |   |   |      |   |     |   |    |          |   |   |          |      |   |   |       |   |   |   |   |   |   |
|                        | sale, net of taxes of $330,951 |   |   |         | -      |   |   |      | -      |     |   |    | -             |   |   |          | -         |   |   |       | 642,434 |   |   |   | 642,434 |   |
|                        | Reclassification adjustment,        |   |   |         |   |   |   |      |   |     |   |    |          |   |   |          |      |   |   |       |   |   |   |   |   |   |
|                        | net of income taxes of ($69,054)    |   |   |         | -      |   |   |      | -      |     |   |    | -             |   |   |          | -         |   |   |       | (134,047 | ) |   |   | (134,047 | ) |
| Total comprehensive income  |                                |   |   |         |   |   |   |      |   |     |   |    |          |   |   |          |      |   |   |       |   |   |   | 1,509,276 |   |
|                        |                                |   |   |         |   |   |   |      |   |     |   |    |          |   |   |          |      |   |   |       |   |   |   |   |   |   |   |
|                        | Dividends paid                      |   |   |         |   |   |   |      |   |     |   |    |          |   |   |          |      |   |   |       |   |   |   |   |   |   |
|                        | ($.30 per share)                    |   |   |         | -      |   |   |      | -      |     |   |    | -             |   |   |          | (515,690  | )      |   |       | - |   |   |   | (515,690 | ) |
| Balance, September 30, 2010 |                                |   |   | 1,718,968    |   |   | $      | 2,148,710 |   |     | $      | 521,625 |          |   | $      | 28,982,413    |      |   | $      | (119,217   | ) |   | $ | 31,533,531 |   |

----

|                                                                                                  |   | Nine Months Ended |        |
|-------------------------------------------------------------------------------------------------------|--------|-------------------|-------------|
|                                                                                                  |   | September 30,     |        |
|                                                                                                  |   | 2010              |        |   | 2009 |   |
|                                                                                                  |   | (Unaudited)       |        |   | (Unaudited) |   |
| Cash flows from operating activities                                                                  |   |              |        |   |   |   |
| Net income                                                                                            |   | $                 | 1,000,889   |   |   | $ | 831,778 |   |
| Adjustments to reconcile net income                                                                   |   |              |        |   |   |   |   |   |
| to net cash provided by operations:                                                                   |   |              |        |   |   |   |   |   |
| Depreciation and amortization                                                                         |   |              | 571,500     |   |   |   | 616,500 |   |
| Provision for loan losses                                                                             |   |              | 1,562,733   |   |   |   | 862,331 |   |
| Deferred income taxes                                                                                 |   |              | (12,000     | ) |   |   | 639,628 |   |
| Net realized gains on securities                                                                      |   |              | (203,101    | ) |   |   | (165,773 | ) |
| Accretion of discount on securities, net of                                                           |   |              |        |   |   |   |   |   |
|      amortization of premiums                                                |   |              | 163,351     |   |   |   | 76,344 |   |
| Deferred compensation                                                                                 |   |              | (21,246     | ) |   |   | (17,272 | ) |
| Net realized (gain) loss on foreclosed assets                                                         |   |              | (1,733      | ) |   |   | 9,487 |   |
| Changes in assets and liabilities:                                                                    |   |              |        |   |   |   |   |   |
|      Cash value of life insurance                                            |   |              | (225,000    | ) |   |   | (225,000 | ) |
|      Accrued income                                                          |   |              | 76,600      |   |   |   | 613,854 |   |
|      Other assets                                                            |   |              | 392,004     |   |   |   | 11,540 |   |
|      Accrued interest payable                                                |   |              | 427,198     |   |   |   | 427,703 |   |
|      Other liabilities                                                       |   |              | 410,485     |   |   |   | (2,698,977 | ) |
|           Net cash provided by operating activities |   |              | 4,141,680   |   |   |   | 982,143 |   |
|                                                                                                  |   |              |        |   |   |   |   |   |
| Cash flows from investing activities                                                                  |   |              |        |   |   |   |   |   |
| Net increase in interest-bearing deposits                                                             |   |              | (3,003,254  | ) |   |   | - |   |
| Net decrease in federal funds sold                                                                    |   |              | (9,370,285  | ) |   |   | (4,579,314 | ) |
| Purchases of available-for-sale investment securities                                                 |   |              | (28,352,647 | ) |   |   | (13,980,295 | ) |
| Sales of available-for-sale investment securities                                                     |   |              | 4,041,712   |   |   |   | 5,657,100 |   |
| Maturities/calls/paydowns of available-for-sale investment securities                                 |   |              | 22,460,240  |   |   |   | 13,607,028 |   |
| Maturities/calls/paydowns of held-to-maturity investment securities                                   |   |              | -           |   |   |   | 500,000 |   |
| (Purchases) sales of restricted equity securities                                                     |   |              | 111,900     |   |   |   | (51,950 | ) |
| Net (increase) decrease in loans                                                                      |   |              | 7,161,753   |   |   |   | (756,581 | ) |
| Proceeds from the sale of foreclosed assets                                                           |   |              | 211,892     |   |   |   | 191,668 |   |
| Purchases of property and equipment, net of sales                                                     |   |              | (157,628    | ) |   |   | (780,900 | ) |
|           Net cash used in investing activities     |   |              | (6,896,317  | ) |   |   | (193,244 | ) |
|                                                                                                  |   |              |        |   |   |   |   |   |
| Cash flows from financing activities                                                                  |   |              |        |   |   |   |   |   |
| Net increase in deposits                                                                              |   |              | 3,660,143   |   |   |   | 5,680,125 |   |
| Dividends paid                                                                                        |   |              | (515,690    | ) |   |   | (515,690 | ) |
| Net decrease in long-term debt                                                                        |   |              | -           |   |   |   | (5,000,000 | ) |
|      Net cash provided by financing activities                               |   |              | 3,144,453   |   |   |   | 164,435 |   |
|      Net increase in cash and due from banks                                 |   |              | 389,816     |   |   |   | 953,334 |   |
|                                                                                                  |   |              |        |   |   |   |   |   |
| Cash and due from banks, beginning                                                                    |   |              | 8,637,123   |   |   |   | 9,536,772 |   |
| Cash and due from banks, ending                                                                       |   | $                 | 9,026,939   |   |   | $ | 10,490,106 |   |
|                                                                                                  |   |              |        |   |   |   |   |   |
| Supplemental disclosure of cash flow information                                                      |   |              |        |   |   |   |   |   |
| Interest paid                                                                                         |   | $                 | 4,603,610   |   |   | $ | 6,106,718 |   |
| Taxes paid                                                                                            |   | $                 | 100,000     |   |   | $ | 190,000 |   |
| Transfers of loans to foreclosed properties                                                           |   | $                 | 458,000     |   |   | $ | 520,000 |   |

----

----

----

|                              |   | Amortized |       |   | Unrealized |   |      | Unrealized |   |   | Fair    |   |
|-----------------------------------|--------|-----------|------------|--------|------------|--------|-----------|------------|--------|--------|---------|--------|
|                              |   | Cost      |       |   | Gains      |   |      | Losses     |   |   | Value   |   |
|                              |   |      |       |   |       |   |      |       |   |   |    |   |
| September 30, 2010                |   |      |       |   |       |   |      |       |   |   |    |   |
| Available for sale:               |   |      |       |   |       |   |      |       |   |   |    |   |
| U.S. Government agency securities |   | $         | 1,291,681  |   |       | $      | 64,778    |       |   | $      | -       |   |   | $ | 1,356,459 |   |
| Government sponsored enterprises  |   |      | 17,917,104 |   |       |   | 321,216   |       |   |   | 59,053  |   |   |   | 18,179,267 |   |
| Mortgage-backed securities        |   |      | 14,854,927 |   |       |   | 694,053   |       |   |   | 16,995  |   |   |   | 15,531,985 |   |
| State and municipal securities    |   |      | 7,071,280  |   |       |   | 347,500   |       |   |   | 1,603   |   |   |   | 7,417,177 |   |
|                              |   | $         | 41,134,992 |   |       | $      | 1,427,547 |       |   | $      | 77,651  |   |   | $ | 42,484,888 |   |
| Held to maturity:                 |   |      |       |   |       |   |      |       |   |   |    |   |   |   |   |   |
| State and municipal securities    |   | $         | 2,209,841  |   |       | $      | 121,020   |       |   | $      | -       |   |   | $ | 2,330,861 |   |
|                              |   |      |       |   |       |   |      |       |   |   |    |   |   |   |   |   |
| December 31, 2009                 |   |      |       |   |       |   |      |       |   |   |    |   |   |   |   |   |
| Available for sale:               |   |      |       |   |       |   |      |       |   |   |    |   |   |   |   |   |
| U.S. Government agency securities |   | $         | 1,629,026  |   |       | $      | 81,689    |       |   | $      | -       |   |   | $ | 1,710,715 |   |
| Government sponsored enterprises  |   |      | 13,067,890 |   |       |   | 38,375    |       |   |   | 204,195 |   |   |   | 12,902,070 |   |
| Mortgage-backed securities        |   |      | 17,295,436 |   |       |   | 560,310   |       |   |   | -       |   |   |   | 17,855,746 |   |
| State and municipal securities    |   |      | 7,287,155  |   |       |   | 162,768   |       |   |   | 59,335  |   |   |   | 7,390,588 |   |
|                              |   | $         | 39,279,507 |   |       | $      | 843,142   |       |   | $      | 263,530 |   |   | $ | 39,859,119 |   |
| Held to maturity:                 |   |      |       |   |       |   |      |       |   |   |    |   |   |   |   |   |
| State and municipal securities    |   | $         | 2,174,882  |   |       | $      | 86,889    |       |   | $      | 7,575   |   |   | $ | 2,254,196 |   |

----

|                                |   | Less Than 12 Months |      |   | 12 Months or More |   |    | Total  |   |
|-------------------------------------|--------|---------------------|-----------|--------|-------------------|--------|---------|--------|--------|
|                                |   | Fair                |      |   | Unrealized        |   |    | Fair   |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                                |   | Value               |      |   | Losses            |   |    | Value  |   |   | Losses |   |   | Value |   |   | Losses |   |
|                                |   |                |      |   |              |   |    |   |   |   |   |   |   |   |   |   |   |   |
| September 30, 2010                  |   |                |      |   |              |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Available for sale                  |   |                |      |   |              |   |    |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Government agency securities   |   | $                   | -         |   |              | $      | -       |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Government sponsored enterprises    |   |                | 7,212,942 |   |              |   | 59,053  |   |   |   | - |   |   |   | - |   |   |   | 7,212,942 |   |   |   | 59,053 |   |
| Mortgage-backed securities          |   |                | 1,900,821 |   |              |   | 16,995  |   |   |   | - |   |   |   | - |   |   |   | 1,900,821 |   |   |   | 16,995 |   |
| State and municipal securities      |   |                | 630,242   |   |              |   | 1,603   |   |   |   | - |   |   |   | - |   |   |   | 630,242 |   |   |   | 1,603 |   |
| Total securities available for sale |   | $                   | 9,744,005 |   |              | $      | 77,651  |   |   | $ | - |   |   | $ | - |   |   | $ | 9,744,005 |   |   | $ | 77,651 |   |
|                                |   |                |      |   |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Held to maturity                    |   |                |      |   |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| State and municipal securities      |   | $                   | -         |   |              | $      | -       |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
|                                |   |                |      |   |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2009                   |   |                |      |   |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Available for sale                  |   |                |      |   |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Government agency securities   |   | $                   | -         |   |              | $      | -       |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Government sponsored enterprises    |   |                | 5,454,054 |   |              |   | 204,195 |   |   |   | - |   |   |   | - |   |   |   | 5,454,054 |   |   |   | 204,195 |   |
| Mortgage-backed securities          |   |                |      |   |              |   |    |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| State and municipal securities      |   |                | 1,006,692 |   |              |   | 8,439   |   |   |   | 708,900 |   |   |   | 50,896 |   |   |   | 1,715,592 |   |   |   | 59,335 |   |
| Total securities available for sale |   | $                   | 6,460,746 |   |              | $      | 212,634 |   |   | $ | 708,900 |   |   | $ | 50,896 |   |   | $ | 7,169,646 |   |   | $ | 263,530 |   |
|                                |   |                |      |   |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Held to maturity                    |   |                |      |   |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| State and municipal securities      |   | $                   | -         |   |              | $      | -       |   |   | $ | 220,031 |   |   | $ | 7,575 |   |   | $ | 220,031 |   |   | $ | 7,575 |   |

----

|            |   | Nine-months ended Sep 30, |    |   | Three-months ended Sep 30, |   |
|-----------------|--------|---------------------------|---------|--------|----------------------------|--------|
|            |   | 2010                      |    |   | 2009                       |   |   | 2010 |   |   | 2009 |   |
|            |   |                      |    |   |                       |   |   |   |   |   |   |   |
| Realized gains  |   | $                         | 243,085 |   |                       | $      | 223,298 |   |   | $ | 170,134 |   |   |   | 1,592 |   |
| Realized losses |   |                      | (39,984 | )      |                       |   | (57,525 | ) |   |   | -- |   |   |   | -- |   |
|            |   | $                         | 203,101 |   |                       | $      | 165,773 |   |   | $ | 170,134 |   |   | $ | 1,592 |   |

|                                   |   | Available for Sale |       |   | Held to Maturity |   |
|----------------------------------------|--------|--------------------|------------|--------|------------------|--------|
|                                   |   | Amortized          |       |   | Fair             |   |   | Amortized |   |   | Fair |   |
|                                   |   | Cost               |       |   | Value            |   |   | Cost |   |   | Value |   |
|                                   |   |               |       |   |             |   |   |   |   |   |   |   |
| Due in one year or less                |   | $                  | 11,262     |   |             | $      | 11,470 |   |   | $ | - |   |   |   | - |   |
| Due after one year through five years  |   |               | 3,543,058  |   |             |   | 3,730,537 |   |   |   | 1,500,446 |   |   |   | 1,584,382 |   |
| Due after five years through ten years |   |               | 10,793,391 |   |             |   | 11,235,905 |   |   |   | 227,751 |   |   |   | 233,362 |   |
| Due after ten years                    |   |               | 26,787,281 |   |             |   | 27,506,976 |   |   |   | 481,644 |   |   |   | 513,117 |   |
|                                   |   | $                  | 41,134,992 |   |             | $      | 42,484,888 |   |   | $ | 2,209,841 |   |   | $ | 2,330,861 |   |

|                              |   | 2010   |       |   | 2009   |   |
|-----------------------------------|--------|--------|------------|--------|--------|--------|
|                              |   |   |       |   |   |   |
| Balance, beginning                |   | $      | 3,555,273  |   |   | $      | 3,359,946 |   |
| Provision charged to expense      |   |   | 1,562,733  |   |   |   | 862,331 |   |
| Recoveries of amounts charged off |   |   | 163,332    |   |   |   | 21,271 |   |
| Amounts charged off               |   |   | (1,035,503 | )      |   |   | (879,572 | ) |
| Balance, ending                   |   | $      | 4,245,835  |   |   | $      | 3,363,976 |   |

|                          |   | 2010   |     |   | 2009   |   |
|-------------------------------|--------|--------|----------|--------|--------|--------|
|                          |   |   |     |   |   |   |
| Tax at statutory federal rate |   | $      | 425,642  |   |   | $      | 337,205 |   |
| Tax exempt interest income    |   |   | (115,658 | )      |   |   | (119,753 | ) |
| Other tax exempt income       |   |   | (76,500  | )      |   |   | (76,500 | ) |
| Other                         |   |   | 17,516   |   |   |   | 19,048 |   |
|                          |   | $      | 251,000  |   |   | $      | 160,000 |   |

----

|                                         |   | Nine-months ended Sep 30, |     |   | Three-months ended Sep 30, |   |
|----------------------------------------------|--------|---------------------------|----------|--------|----------------------------|--------|
|                                         |   | 2010                      |     |   | 2009                       |   |   | 2010 |   |   | 2009 |   |
|                                         |   |                      |     |   |                       |   |   |   |   |   |   |   |
| Service cost                                 |   | $                         | 308,880  |   |                       | $      | 293,307 |   |   | $ | 102,960 |   |   |   | 97,769 |   |
| Interest cost                                |   |                      | 312,774  |   |                       |   | 286,107 |   |   |   | 104,258 |   |   |   | 95,369 |   |
| Expected return on plan assets               |   |                      | (495,213 | )      |                       |   | (347,828 | ) |   |   | (165,071 | ) |   |   | (129,147 | ) |
| Amortization of net obligation at transition |   |                      | -        |   |                       |   | (15 | ) |   |   | - |   |   |   | (5 | ) |
| Amortization of prior service cost           |   |                      | 2,424    |   |                       |   | 8,085 |   |   |   | 808 |   |   |   | 2,695 |   |
| Amortization of net (gain) or loss           |   |                      | 29,097   |   |                       |   | 108,303 |   |   |   | 9,699 |   |   |   | 36,101 |   |
| Net periodic benefit cost                    |   | $                         | 157,962  |   |                       | $      | 347,959 |   |   | $ | 52,654 |   |   | $ | 102,782 |   |

|                         |   | 2010   |       |   | 2009   |   |
|------------------------------|--------|--------|------------|--------|--------|--------|
|                         |   |   |       |   |   |   |
| Commitments to extend credit |   | $      | 14,229,994 |   |   | $      | 17,447,278 |   |
| Standby letters of credit    |   |   | -          |   |   |   | - |   |
|                         |   | $      | 14,229,994 |   |   | $      | 17,447,278 |   |

----

----

|                                    |   | September 30, 2010 |    |   | December 31, 2009 |   |
|-----------------------------------------|--------|--------------------|---------|--------|-------------------|--------|
|                                    |   | Carrying           |    |   | Fair              |   |   | Carrying |   |   | Fair |   |
|                                    |   | Amount             |    |   | Value             |   |   | Amount |   |   | Value |   |
|                                    |   |               |    |   |              |   |   |   |   |   |   |   |
| Financial assets                        |   |               |    |   |              |   |   |   |   |   |   |   |
| Cash and due from banks                 |   | $                  | 9,027   |   |              | $      | 9,027 |   |   | $ | 8,637 |   |   | $ | 8,637 |   |
| Interest bearing deposits with banks    |   |               | 3,303   |   |              |   | 3,303 |   |   |   | 300 |   |   |   | 300 |   |
| Federal funds sold                      |   |               | 28,727  |   |              |   | 28,727 |   |   |   | 19,357 |   |   |   | 19,357 |   |
| Securities, available for sale          |   |               | 42,485  |   |              |   | 42,485 |   |   |   | 39,859 |   |   |   | 39,859 |   |
| Securities, held to maturity            |   |               | 2,210   |   |              |   | 2,331 |   |   |   | 2,175 |   |   |   | 2,254 |   |
| Restricted equity securities            |   |               | 1,672   |   |              |   | 1,672 |   |   |   | 1,784 |   |   |   | 1,784 |   |
| Loans, net of allowance for loan losses |   |               | 257,446 |   |              |   | 264,358 |   |   |   | 266,628 |   |   |   | 269,442 |   |
| Cash value of life insurance            |   |               | 8,323   |   |              |   | 8,323 |   |   |   | 8,098 |   |   |   | 8,098 |   |
| Accrued interest receivable             |   |               | 2,550   |   |              |   | 2,550 |   |   |   | 2,626 |   |   |   | 2,626 |   |
|                                    |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities                   |   |               |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                |   |               | 317,143 |   |              |   | 320,121 |   |   |   | 313,483 |   |   |   | 315,789 |   |
| Long-term debt                          |   |               | 25,000  |   |              |   | 28,593 |   |   |   | 25,000 |   |   |   | 27,511 |   |
| Accrued interest payable                |   |               | 810     |   |              |   | 810 |   |   |   | 383 |   |   |   | 383 |   |

----

----

| September 30, 2010                       |   | Total  |       |   | Level 1 |   |   | Level 2 |   |   | Level 3    |   |
|------------------------------------------|--------|--------|------------|--------|---------|--------|--------|---------|--------|--------|------------|--------|
|                                     |   |   |       |   |    |   |   |    |   |   |       |   |
| Investment securities available for sale |   |   |       |   |    |   |   |    |   |   |       |   |
| U.S. Government agency securities        |   | $      | 1,356,459  |   |    | $      | -      |    |   | $      | 1,356,459  |   |   | $ | - |   |
| Government sponsored enterprises         |   |   | 18,179,267 |   |    |   | -      |    |   |   | 18,179,267 |   |   |   | - |   |
| Mortgage-backed securities               |   |   | 15,531,985 |   |    |   | -      |    |   |   | 15,531,985 |   |   |   | - |   |
| State and municipal securities           |   |   | 7,417,177  |   |    |   | -      |    |   |   | 7,417,177  |   |   |   | - |   |
| Total investment securities              |   |   |       |   |    |   |   |    |   |   |       |   |   |   |   |   |
|   available for sale           |   | $      | 42,484,888 |   |    | $      | -      |    |   | $      | 42,484,888 |   |   | $ | - |   |
| Total assets at fair value               |   | $      | 42,484,888 |   |    | $      | -      |    |   | $      | 42,484,888 |   |   | $ | - |   |
|                                     |   |   |       |   |    |   |   |    |   |   |       |   |   |   |   |   |
| Total liabilities at fair value          |   | $      | -          |   |    | $      | -      |    |   | $      | -          |   |   | $ | - |   |
|                                     |   |   |       |   |    |   |   |    |   |   |       |   |   |   |   |   |
| December 31, 2009                        |   | Total  |       |   | Level 1 |   |   | Level 2 |   |   | Level 3    |   |
|                                     |   |   |       |   |    |   |   |    |   |   |       |   |   |   |   |   |
| Investment securities available for sale |   |   |       |   |    |   |   |    |   |   |       |   |   |   |   |   |
| U.S. Government agency securities        |   | $      | 1,710,715  |   |    | $      | -      |    |   | $      | 1,710,715  |   |   | $ | - |   |
| Government sponsored enterprises         |   |   | 12,902,070 |   |    |   | -      |    |   |   | 12,902,070 |   |   |   | - |   |
| Mortgage-backed securities               |   |   | 17,855,746 |   |    |   | -      |    |   |   | 17,855,746 |   |   |   | - |   |
| State and municipal securities           |   |   | 7,390,588  |   |    |   | -      |    |   |   | 7,390,588  |   |   |   | - |   |
| Total investment securities              |   |   |       |   |    |   |   |    |   |   |       |   |   |   |   |   |
|   available for sale           |   | $      | 39,859,119 |   |    | $      | -      |    |   | $      | 39,859,119 |   |   | $ | - |   |
| Total assets at fair value               |   | $      | 39,859,119 |   |    | $      | -      |    |   | $      | 39,859,119 |   |   | $ | - |   |
|                                     |   |   |       |   |    |   |   |    |   |   |       |   |   |   |   |   |
| Total liabilities at fair value          |   | $      | -          |   |    | $      | -      |    |   | $      | -          |   |   | $ | - |   |

| September 30, 2010              |   | Total  |      |   | Level 1 |   |   | Level 2 |   |   | Level 3   |   |
|---------------------------------|--------|--------|-----------|--------|---------|--------|--------|---------|--------|--------|-----------|--------|
|                            |   |   |      |   |    |   |   |    |   |   |      |   |
| Loans                           |   | $      | 2,146,871 |   |    | $      | -      |    |   | $      | 1,177,671 |   |   | $ | 969,200 |   |
| Foreclosed assets               |   |   | 634,000   |   |    |   | -      |    |   |   | -         |   |   |   | 634,000 |   |
| Total assets at fair value      |   | $      | 2,780,871 |   |    | $      | -      |    |   | $      | 1,177,671 |   |   | $ | 1,603,200 |   |
|                            |   |   |      |   |    |   |   |    |   |   |      |   |   |   |   |   |
| Total liabilities at fair value |   | $      | -         |   |    | $      | -      |    |   | $      | -         |   |   | $ | - |   |

----

| December 31, 2009               |   | Total  |      |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
|---------------------------------|--------|--------|-----------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
|                            |   |   |      |   |    |   |   |    |   |   |    |   |
| Loans                           |   | $      | 1,365,896 |   |    | $      | -      |    |   | $      | 637,004 |   |   | $ | 728,892 |   |
| Foreclosed assets               |   |   | 331,159   |   |    |   | -      |    |   |   | 67,159  |   |   |   | 264,000 |   |
| Total assets at fair value      |   | $      | 1,697,055 |   |    | $      | -      |    |   | $      | 704,163 |   |   | $ | 992,892 |   |
|                            |   |   |      |   |    |   |   |    |   |   |    |   |   |   |   |   |
| Total liabilities at fair value |   | $      | -         |   |    | $      | -      |    |   | $      | -       |   |   | $ | - |   |

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| Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|--------|---------------------------------------------------------------------------------------------|

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| Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|--------|---------------------------------------------------------------------------------------------|

----

| Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|--------|---------------------------------------------------------------------------------------------|

----

----

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|   | 31.1   | Rule 13(a)-14(a) Certification of Chief Executive Officer.                                          |
|--------|--------|-----------------------------------------------------------------------------------------------------|
|   |   |                                                                                                |
|   | 31.2   | Rule 13(a)-14(a) Certification of Chief Financial Officer.                                          |
|   |   |                                                                                                |
|   | 32.1   | Statement of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C.Section 1350. |

----

|                    | GRAYSON BANKSHARES, INC. |
|-------------------------|--------------------------|
|                    |                     |   |   |
|                    |                     |   |   |
|                    |                     |   |   |
| Date: November 15, 2010 | By:                      | /s/ Jacky K. Anderson |   |
|                    |                     | Jacky K. Anderson |   |
|                    |                     | President and Chief Executive Officer |
|                    |                     |   |   |
|                    |                     |   |   |
|                    | By:                      | /s/ Blake M. Edwards |   |
|                    |                     | Blake M. Edwards |   |
|                    |                     | Chief Financial Officer |   |

----

|   | Exhibit No. | Description                                                                                          |
|--------|-------------|------------------------------------------------------------------------------------------------------|
|   |        |                                                                                                 |
|   | 31.1        | Rule 13(a)-14(a) Certification of Chief Executive Officer.                                           |
|   |        |                                                                                                 |
|   | 31.2        | Rule 13(a)-14(a) Certification of Chief Financial Officer.                                           |
|   |        |                                                                                                 |
|   | 32.1        | Statement of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350. |