SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

              [X] Quarterly Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                  For the quarterly period ended June 30, 2002

              [ ] Transition Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

          For the transition period from ____________ to _____________

                         Commission file number: 0-30535

                            GRAYSON BANKSHARES, INC.
             (Exact Name of Registrant as Specified in its Charter)


                 Virginia                                  54-1647596
      (State or Other Jurisdiction of                   (I.R.S. Employer
      Incorporation or Organization)                  Identification No.)

           113 West Main Street
          Independence, Virginia                             24348
 (Address of Principal Executive Offices)                  (Zip Code)

Registrant's telephone number, including area code  (276) 773-2811


         Indicate  by check  mark  whether  the  registrant:  (1) has  filed all
reports  required to be filed by Section 13 or 15(d) of the  Exchange Act 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  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of June 30, 2002.

           1,718,968 shares of common stock, par value $1.25 per share



<PAGE>


                            GRAYSON BANKSHARES, INC.

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                             Page No.

Part I.       Financial Information
<S>      <C>      <C>                                                                          <C>
         Item 1.  Financial Statements

                  Consolidated Balance Sheets
                  June 30, 2002 and December 31, 2001...........................................3

                  Consolidated Statements of Income
                  For the Six Months Ended June 30, 2002 and 2001...............................4

                  Consolidated Statements of Income
                  For the Three Months Ended June 30, 2002 and 2001.............................5

                  Consolidated Statements of Stockholders' Equity
                  For the Six Months Ended June 30, 2002 and
                  the Year Ended December 31, 2001..............................................6

                  Consolidated Statements of Cash Flows
                  For the Six Months Ended June 30, 2002 and 2001...............................7

                  Notes to Consolidated Financial Statements....................................8

         Item 2.  Management's Discussion and Analysis of Financial Condition
                  and Results of Operations....................................................10

         Item 3.  Quantitative and Qualitative Disclosures About Market Risk...................12


Part II.      Other Information

         Item 1.  Legal Proceedings............................................................13

         Item 2.  Changes in Securities and Use of Proceeds....................................13

         Item 3.  Defaults Upon Senior Securities..............................................13

         Item 4.  Submission of Matters to a Vote of Security Holders..........................13

         Item 5.  Other Information............................................................13

         Item 6.  Exhibits and Reports on Form 8-K.............................................13

Signatures

</TABLE>


                                       2
<PAGE>

                          Part I: Financial Information

Item 1:  Financial Statements

                     Grayson Bankshares, Inc. and Subsidiary
                           Consolidated Balance Sheets
                       June 30, 2002 and December 31, 2001

<TABLE>
<CAPTION>


                                                               June 30,           December 31,
Assets                                                           2002                  2001
                                                            ---------------    ----------------
                                                               (Unaudited)            (Audited)
<S>                                                         <C>                <C>
Cash and due from banks                                     $     6,244,738    $      8,715,457
Interest-bearing deposits with banks                                      -                   -
Federal funds sold                                               13,548,345          12,636,046
Investment securities available for sale                         38,537,164          26,010,899
Investment securities held to maturity                            5,381,076           6,615,328
Restricted equity securities                                        845,450             825,750
Loans, net of allowance for loan losses of $1,940,627
  at June 30, 2002 and $1,821,966 at December 31, 2001          148,116,696         140,897,841
Property and equipment, net                                       3,423,177           2,913,998
Accrued income                                                    1,980,801           1,713,644
Other assets                                                      5,118,301           1,140,177
                                                            ---------------    ----------------
                                                            $   223,195,748    $    201,469,140
                                                            ===============    ================

Liabilities and Stockholders' Equity

Liabilities
Demand deposits                                             $    20,625,508    $     20,790,306
Interest-bearing demand deposits                                 16,625,904          15,168,088
Savings deposits                                                 35,978,640          31,606,065
Large denomination time deposits                                 31,602,253          29,944,872
Other time deposits                                              85,344,508          81,813,651
                                                            ---------------    ----------------
     Total deposits                                             190,176,813         179,322,982

FHLB Advances                                                    10,000,000                   -

Accrued interest payable                                            353,351             267,798
Other liabilities                                                   596,182             792,587
                                                            ---------------    ----------------
                                                                201,126,346         180,383,368

Commitments and contingencies

Stockholders' equity
Preferred stock, $25 par value; 500,000
   shares authorized; none issued                                         -                   -
Common stock, $1.25 par value; 5,000,000 shares
   authorized; 1,718,968 shares issued and
   outstanding in 2002 and 2001                                   2,148,710           2,148,710
Surplus                                                             521,625             521,625
Retained earnings                                                18,989,022          18,221,877
Accumulated other comprehensive income (loss)                       410,045             193,561
                                                            ---------------    ----------------
                                                                 22,069,402          21,085,773
                                                            ---------------    ----------------
                                                            $   223,195,748    $    201,469,140
                                                            ===============    ================

</TABLE>

See Notes to Consolidated Financial Statements

                                       3
<PAGE>

                     Grayson Bankshares, Inc. and Subsidiary
                        Consolidated Statements of Income
                 For the Six Months ended June 30, 2002 and 2001



                                                     Six Months Ended
                                                          June 30,
                                                   2002              2001
                                               -------------    --------------
Interest income:                                (Unaudited)       (Unaudited)
   Loans and fees on loans                     $   5,866,571    $    5,932,691
   Federal funds sold                                116,604           201,012
   Investment securities:
     Taxable                                         841,610           549,971
     Exempt from federal income tax                  249,311           236,708
   Deposits with banks                                     -                 -
                                               -------------    --------------
                                                   7,074,096         6,920,382

Interest expense:
   Deposits                                        3,143,529         3,687,731
   Interest on borrowings                            210,034                 -
                                               -------------    --------------
                                                   3,353,563         3,687,731
         Net interest income                       3,720,533         3,232,651

Provision for loan losses                            210,000           135,000
                                               -------------    --------------
   Net interest income after
     provision for loan losses                     3,510,533         3,097,651
                                               -------------    --------------

Noninterest income:
   Service charges on deposit accounts               160,986           163,859
   Other income                                      184,076            49,005
                                               -------------    --------------
                                                     345,062           212,864
                                               -------------    --------------

Noninterest expense:
   Salaries and employee benefits                  1,447,236         1,289,210
   Occupancy expense                                  58,984            65,453
   Equipment expense                                 207,160           172,489
   Other expense                                     579,897           533,693
                                               -------------    --------------
                                                   2,293,277         2,060,845
         Income before income taxes                1,562,318         1,249,670

Income tax expense                                   417,000           357,000
                                               -------------    --------------
         Net income                            $   1,145,318    $      892,670
                                               =============    ==============

Basic earnings per share                       $         .67    $          .52
                                               =============    ==============
Weighted average shares outstanding                1,718,968         1,718,968
                                               =============    ==============



See Notes to Consolidated Financial Statements

                                       4
<PAGE>

                     Grayson Bankshares, Inc. and Subsidiary
                        Consolidated Statements of Income
                For the Three Months ended June 30, 2002 and 2001


                                                     Three Months Ended
                                                            June 30,
                                                     2002              2001
                                                 -------------    --------------
Interest income:                                  (Unaudited)       (Unaudited)
   Loans and fees on loans                       $   2,926,605    $    2,954,331
   Federal funds sold                                   54,733            97,169
   Investment securities:
     Taxable                                           448,960           275,804
     Exempt from federal income tax                    142,672           115,161
   Deposits with banks                                       -                 -
                                                 -------------    --------------
                                                     3,572,970         3,442,465

Interest expense:
   Deposits                                          1,555,526         1,844,924
   Interest on borrowings                              115,267                 -
                                                 -------------    --------------
                                                     1,670,793         1,844,924
         Net interest income                         1,902,177         1,597,541

Provision for loan losses                              105,000            60,000
                                                 -------------    --------------
   Net interest income after
     provision for loan losses                       1,797,177         1,537,541
                                                 -------------    --------------

Noninterest income:
   Service charges on deposit accounts                  89,606            85,468
   Other income                                        110,319            20,476
                                                 -------------    --------------
                                                       199,925           105,944
                                                 -------------    --------------

Noninterest expense:
   Salaries and employee benefits                      758,429           663,531
   Occupancy expense                                    29,068            32,447
   Equipment expense                                   103,020            87,553
   Other expense                                       301,675           301,017
                                                 -------------    --------------
                                                     1,192,192         1,084,548
         Income before income taxes                    804,910           558,937

Income tax expense                                     218,000           160,000
                                                 -------------    --------------
         Net income                              $     586,910    $      398,937
                                                 =============    ==============

Basic earnings per share                         $         .34    $          .23
                                                 =============    ==============
Weighted average shares outstanding                  1,718,968         1,718,968
                                                 =============    ==============


See Notes to Consolidated Financial Statements

                                       5

<PAGE>

                     Grayson Bankshares, Inc. and Subsidiary
                 Consolidated Statements of Stockholders' Equity
           For the Six Months ended June 30, 2002 (unaudited) and the
                     Year ended December 31, 2001 (audited)

<TABLE>
<CAPTION>

                                                                                      Accumulated
                                      Common Stock                                       Other
                                      ------------                       Retained    Comprehensive
                                   Shares      Amount       Surplus      Earnings    Income (Loss)        Total
                                   ------      ------       -------      --------    -------------   -------------


<S>                               <C>        <C>           <C>         <C>             <C>             <C>
Balance, December 31, 2000        1,718,968  $ 2,148,710   $  521,625  $  16,986,754   $    (19,428)   $ 19,637,661

   Comprehensive income
   Net income                             -            -            -      1,939,900              -       1,939,900
   Net change in unrealized
     appreciation on investment
     securities available for
     sale, net of taxes of $109,722       -            -            -              -        212,989         212,989
                                                                                                       ------------
     Total comprehensive income                                                                           2,152,889

   Dividends paid
     ($.41 per share)                     -            -            -       (704,777)             -        (704,777)

                                  ---------  -----------   ----------  -------------   ------------    ------------
Balance, December 31, 2001        1,718,968    2,148,710      521,625     18,221,877        193,561      21,085,773

   Comprehensive income
   Net income                             -            -            -      1,145,318              -       1,145,318
   Net change in unrealized
     appreciation on investment
     securities available for
     sale, net of taxes of $111,522       -             -           -              -        216,484         216,484
                                                                                                       ------------
   Total comprehensive income                                                                             1,361,802

   Dividends paid
       ($.22 per share)                   -            -            -       (378,173)             -        (378,173)
                                  ---------  -----------   ----------  -------------   ------------    ------------
Balance, June 30, 2002            1,718,968  $ 2,148,710   $ 521,625   $  18,989,022   $    410,045    $ 22,069,402
                                  =========  ===========   ==========  =============   ============    ============

</TABLE>

See Notes to Consolidated Financial Statements

                                       6
<PAGE>

                     Grayson Bankshares, Inc. and Subsidiary
                      Consolidated Statements of Cash Flows
                 For the Six Months ended June 30, 2002 and 2001

<TABLE>
<CAPTION>

                                                                               Six Months Ended
                                                                                   June 30,
                                                                           2002              2001
                                                                       -------------    --------------
                                                                        (Unaudited)      (Unaudited)
<S>                                                                    <C>              <C>
Cash flows from operating activities:
   Net income                                                          $   1,145,318    $      892,670
   Adjustments to reconcile net income
     to net cash provided by operations:
       Depreciation and amortization                                         177,000           148,800
       Provision for loan losses                                             210,000           135,000
       Deferred income taxes                                                  26,000            31,000
       Net realized gains on securities                                       (1,750)           (2,407)
       Accretion of discount on securities, net of
         amortization of premiums                                             51,590            13,072
       Deferred compensation                                                   3,356             5,508
       Changes in assets and liabilities:
         Accrued income                                                     (267,157)         (174,610)
         Other assets                                                       (115,646)          (14,181)
         Accrued interest payable                                             85,553            (2,542)
         Other liabilities                                                  (199,761)         (195,822)
                                                                       -------------    --------------
           Net cash provided by operating activities                       1,114,503           836,488
                                                                       -------------    --------------

Cash flows from investing activities:
   (Increase) decrease in interest-bearing deposits with banks                     -                 -
   Net (increase) decrease in federal funds sold                            (912,299)         (135,211)
   Purchases of investment securities                                    (14,151,619)       (7,553,437)
   Sales of investment securities                                                  -         2,401,407
   Maturities of investment securities                                     3,137,772         4,148,459
   Purchases of restricted equity securities                                 (19,700)                -
   Net increase in loans                                                  (7,428,855)       (4,507,502)
   Purchases of bank-owned life insurance                                 (4,000,000)                -
   Purchases of property and equipment, net of sales                        (686,179)         (143,908)
                                                                       -------------    --------------
           Net cash used in investing activities                         (24,060,880)       (5,790,192)
                                                                       -------------    --------------

Cash flows from financing activities:
   Net increase (decrease) in demand,
     savings and NOW deposits                                              5,665,593          (234,048)
   Net increase in time deposits                                           5,188,238         7,481,424
   Dividends paid                                                           (378,173)         (343,794)
   Net increase (decrease) in other borrowings                            10,000,000                 -
                                                                       -------------    --------------
           Net cash provided by financing activities                      20,475,658         6,903,582
                                                                       -------------    --------------
           Net increase (decrease) in cash and cash equivalents           (2,470,719)        1,949,878

Cash and cash equivalents, beginning                                       8,715,457         4,993,526
                                                                       -------------    --------------
Cash and cash equivalents, ending                                      $   6,244,738    $    6,943,404
                                                                       =============    ==============

Supplemental disclosure of cash flow information:
   Interest paid                                                       $   3,268,010    $    3,690,273
                                                                       =============    ==============
   Taxes paid                                                          $     410,930    $      335,680
                                                                       =============    ==============
</TABLE>


See Notes to Consolidated Financial Statements

                                       7
<PAGE>

                     Grayson Bankshares, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements


Note 1.  Organization and Summary of Significant Accounting Policies

Organization

Grayson   Bankshares,   Inc.  (the  Company)  was  incorporated  as  a  Virginia
corporation  on February  3, 1992 to acquire  the stock of The Grayson  National
Bank (the Bank). The Bank was acquired by the Company on July 1, 1992.

The Bank was organized under the laws of the United States in 1900 and currently
serves  Grayson  County,  Virginia  and  surrounding  areas  through six banking
offices. As an FDIC insured,  National Banking Association,  the Bank is subject
to regulation by the  Comptroller  of the Currency.  The Company is regulated by
the Federal Reserve.

The  consolidated  financial  statements as of June 30, 2002 and for the periods
ended June 30, 2002 and 2001 included herein, have been prepared by the Company,
without  audit,  pursuant to the rules and  regulations  of the  Securities  and
Exchange Commission. In the opinion of management,  the information furnished in
the interim consolidated financial statements reflects all adjustments necessary
to present  fairly the Company's  consolidated  financial  position,  results of
operations,  changes in  stockholders'  equity  and cash flows for such  interim
periods. Management believes that all interim period adjustments are of a normal
recurring  nature.  These  consolidated  financial  statements should be read in
conjunction  with the  Company's  audited  financial  statements  and the  notes
thereto as of December 31, 2001, included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2001.

The  accounting  and  reporting  policies  of the  Company  and the Bank  follow
generally  accepted  accounting  principles  and  general  practices  within the
financial services industry.

Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
the Bank, which is wholly owned. All significant,  intercompany transactions and
balances have been eliminated in consolidation.

Note 2.  Allowance for Loan Losses

The following is an analysis of the allowance for loan losses for the six months
ended June 30.

                                                  2002              2001
                                              -------------    --------------

Balance, beginning                            $   1,821,966    $    1,760,999
Provision charged to expense                        210,000           135,000
Recoveries of amounts charged off                    97,439            37,021
Amounts charged off                                (188,778)          (99,737)
                                              -------------    --------------
Balance, ending                               $   1,940,627    $    1,833,283
                                              =============    ==============

Note 3.  Income Taxes

A reconciliation  of income tax expense computed at the statutory federal income
tax rate to income tax expense  included in the statements of income for the six
months ended June 30, 2002 and 2001 follows:

                                                  2002              2001
                                              -------------    --------------

Tax at statutory federal rate                 $     531,188    $      424,888
Tax exempt interest income                          (86,806)          (81,841)
Alternative minimum tax credit                            -                 -
Other                                               (27,382)           13,953
                                              -------------    --------------
                                              $     417,000    $      357,000
                                              =============    ==============

                                       8
<PAGE>



                     Grayson Bankshares, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements


Note 4.  Commitments and Contingencies

Financial Instruments with Off-Balance-Sheet Risk

The Bank is party to financial  instruments with  off-balance-sheet  risk in the
normal course of business to meet the financing  needs of its  customers.  These
financial  instruments  include commitments to extend credit and standby letters
of credit. These instruments involve, to varying degrees,  credit risk in excess
of the amount recognized in the consolidated balance sheets.

The Bank's exposure to credit loss in the event of  nonperformance  by the other
party to the financial  instrument for  commitments to extend credit and standby
letters of credit is represented by the contractual amount of those instruments.
The Bank uses the same credit  policies in making  commitments  and  conditional
obligations  as for  on-balance-sheet  instruments.  A  summary  of  the  Bank's
commitments at June 30, 2002 and 2001 is as follows:

                                                  2002              2001
                                              -------------    --------------

Commitments to extend credit                  $   5,942,424    $    4,833,998
Standby letters of credit                                 -                 -
                                              -------------    --------------
                                              $   5,942,424    $    4,833,998
                                              =============    ==============

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without  being  drawn  upon,  the total  commitment  amounts do not  necessarily
represent  future  cash   requirements.   The  Bank  evaluates  each  customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained,  if
deemed necessary by the Bank upon extension of credit,  is based on management's
credit evaluation of the party. Collateral held varies, but may include accounts
receivable,  inventory,  property  and  equipment,  residential  real estate and
income-producing commercial properties.

Standby  letters of credit  are  conditional  commitments  issued by the Bank to
guarantee the performance of a customer to a third party.  Those  guarantees are
primarily  issued to support  public and  private  borrowing  arrangements.  The
credit risk  involved in issuing  letters of credit is  essentially  the same as
that involved in extending loan facilities to customers.  Collateral held varies
as specified above and is required in instances which the Bank deems necessary.


                                       9


<PAGE>

                          Part I: Financial Information

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



General

The following  discussion provides information about the major components of the
results of operations and financial  condition of the Company.  This  discussion
and  analysis  should be read in  conjunction  with the  Consolidated  Financial
Statements  and Notes to  Consolidated  Financial  Statements  included  in this
report.

Results of Operations

Total interest income  increased by $130,505 for the quarter ended June 30, 2002
compared to the quarter ended June 30, 2001,  while interest expense on deposits
and other borrowings  decreased by $174,131 over the same period.  This resulted
in an increase in net interest  income of $304,636 or 19.07%.  This  increase is
due primarily to the stabilization of interest rates,  which enabled the Bank to
recapture  some of the  interest  margin  that was lost  during  the rapid  rate
declines of 2001.

Other income was up $89,843 in the second quarter of 2002 compared to the second
quarter of 2001.  This is a result of increases in the cash value of  bank-owned
life insurance policies which were purchased in January 2002.

The provision for credit losses was $105,000 for the quarter ended June 30, 2002
and $60,000 for the quarter  ended June 30, 2001.  An increase in the  provision
was  necessary  based on  overall  loan  growth  as well as an  increase  in the
percentage  of  commercial  credits.  Management  believes the provision and the
resulting allowance for loan losses are adequate.

Total other expenses increased by $107,644,  or 9.93% for the quarter ended June
30, 2002 compared to the quarter ended June 30, 2001. This is due primarily to a
cost increase of over twenty percent for employee medical benefits and equipment
costs associated with the upgrading of various computer systems.

The significant increases in net interest income and other income resulted in an
increase in net income before taxes of $245,973, or 44.01% for the quarter ended
June 30, 2002, compared to the same quarter in 2001.  Increased income generated
an increase in income tax expense,  however our effective tax rate  decreased by
approximately  one percentage point due to increases in tax-exempt  investments.
Net income  increased by $187,973,  or 47.12% to $586,910 for the second quarter
of 2002 compared to the same period in 2001.

For the six months  ended June 30,  2002,  total  interest  income  increased by
$153,714  compared to the six-month  period ended June 30, 2001,  while interest
expense decreased by $334,168 over the same period. This resulted in an increase
in net interest  income of $487,882,  or 15.09%.  As stated above,  net interest
margins increased as interest rates began to stabilize.

Other  income was up  $135,071  for the  six-month  period  ended June 30,  2002
compared to the same period in 2001.  Again this was the result of  increases in
the cash value of bank-owned life insurance policies.

Normal cost increases,  combined with the  aforementioned  costs of benefits and
equipment  upgrades,  resulted  in an  overall  increase  in other  expenses  of
$232,432  for the first six months of 2002  compared  to the first six months of
2001.  Net income for the  six-month  period  ended June 30, 2002  increased  by
$252,648, or 28.30% compared to the six-month period ended June 30, 2001.

                                       10
<PAGE>

                          Part I: Financial Information

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



Financial Condition

Total assets increased by $21,726,608,  or 10.78% from December 31, 2001 to June
30, 2002. Net loans increased by $7,218,855 and investment  securities increased
by $11,311,713.

Total deposits increased by $10,853,831, or 6.05% from December 31, 2001 to June
30, 2002. In the fourth  quarter of 2001,  the Bank applied for, and was granted
membership  in the  Federal  Home  Loan  Bank of  Atlanta.  The Bank  used  this
membership in the first quarter of 2002 to borrow funds at a low  fixed-interest
rate and in turn invest the funds in securities with similar maturities in order
to enhance earnings. FHLB advances were $10,000,000 at June 30, 2002.

Shareholders'   equity  totaled   $22,069,402  at  June  30,  2002  compared  to
$21,085,773  at December  31,  2001.  The  $983,629  increase  was the result of
earnings  for the six months  combined  with an increase in the market  value of
securities  that are  classified  as  available  for sale,  less the  payment of
dividends of $378,173.

Regulatory  guidelines  relating to capital adequacy provide minimum  risk-based
ratios at the Bank level which assess capital  adequacy while  encompassing  all
credit risks, including those related to off-balance sheet activities.  The Bank
(a wholly  owned  subsidiary  of the  Company)  exceeds all  regulatory  capital
guidelines and is considered to be well capitalized.

Forward-Looking Statements

Certain  information  contained in this discussion may include  "forward-looking
statements"  within the meaning of Section 27A of the Securities Act of 1933, as
amended,  and Section 21E of the  Securities  Exchange Act of 1934,  as amended.
These  forward-looking  statements  are generally  identified by phrases such as
"the Company expects," "the Company  believes" or words of similar import.  Such
forward-looking  statements  involve known and unknown risks including,  but not
limited to, changes in general economic and business  conditions,  interest rate
fluctuations,  competition  within and from  outside the banking  industry,  new
products and  services in the banking  industry,  risk  inherent in making loans
such as  repayment  risks  and  fluctuating  collateral  values,  problems  with
technology  utilized by the Company,  changing  trends in customer  profiles and
changes in laws and regulations applicable to the Company.  Although the Company
believes that its expectations  with respect to the  forward-looking  statements
are based upon  reliable  assumptions  within the bounds of its knowledge of its
business  and  operations,  there  can  be no  assurance  that  actual  results,
performance or achievements  of the Company will not differ  materially from any
future  results,  performance  or  achievements  expressed  or  implied  by such
forward-looking statements.

                                       11

<PAGE>


                          Part I: Financial Information

Item 3:  Quantitative and Qualitative Disclosures about Market Risk



The principal  goals of the Bank's asset and liability  management  strategy are
the maintenance of adequate  liquidity and the management of interest rate risk.
Liquidity  is the  ability  to  convert  assets  to  cash  to  fund  depositors'
withdrawals or borrowers'  loans without  significant  loss.  Interest rate risk
management  balances  the effects of interest  rate  changes on assets that earn
interest or liabilities on which interest is paid, to protect the Bank from wide
fluctuations  in its net interest  income which could result from  interest rate
changes.

Management  must ensure that  adequate  funds are available at all times to meet
the needs of its  customers.  On the asset side of the balance  sheet,  maturing
investments,  loan payments,  maturing loans,  federal funds sold, and unpledged
investment securities are principal sources of liquidity.  On the liability side
of the balance sheet,  liquidity  sources include core deposits,  the ability to
increase large denomination certificates,  federal fund lines from correspondent
banks,  borrowings from the Federal Home Loan Bank and the Federal Reserve Bank,
as well as the ability to generate  funds through the issuance of long-term debt
and equity.

Interest  rate risk is the effect that  changes in interest  rates would have on
interest  income  and  interest   expense  as   interest-sensitive   assets  and
interest-sensitive  liabilities either reprice or mature. Management attempts to
maintain  the  portfolios  of  interest-earning   assets  and   interest-bearing
liabilities  with  maturities  or  repricing  opportunities  at levels that will
afford  protection from erosion of net interest margin, to the extent practical,
from changes in interest rates.

The Bank uses a number of tools to manage  its  interest  rate  risk,  including
simulating net interest income under various  scenarios,  monitoring the present
value change in equity under the same  scenarios,  and monitoring the difference
or gap between rate sensitive assets and rate sensitive liabilities over various
time periods.

The earnings  simulation  model  forecasts  annual net income under a variety of
scenarios  that  incorporate  changes in the absolute  level of interest  rates,
changes  in  the  shape  of  the  yield  curve  and  changes  in  interest  rate
relationships.  Management  evaluates  the effect on net  interest  income  from
gradual  changes in the Prime  Rate of up to 300 basis  points up or down over a
12-month  period.  The current model  indicates that an increase in rates of 300
basis  points  over the next  twelve  months  would  result in a decrease in net
interest income of $561,000,  or 13.24%, while a similar decrease in rates would
result in an increase in net interest income of $520,000,  or 12.28%.  The model
also incorporates  Management's forecasts for balance sheet growth,  noninterest
income  and  noninterest  expense.  The  interest  rate  scenarios  are used for
analytical  purposes and do not  represent  Management's  view of future  market
movements.  Rather,  these are  intended  to  provide a measure of the degree of
volatility  interest  rate  movements  may apply to the earnings of the Company.
Modeling the  sensitivity of earnings to interest rate risk is highly  dependent
on numerous  assumptions  embedded in the simulation  model.  While the earnings
sensitivity  analysis  incorporates  Management's best estimate of interest rate
and balance sheet  dynamics  under  various  market rate  movements,  the actual
behavior and resulting earnings impact likely will differ from that projected.


                                       12

<PAGE>


                           Part II: Other Information


                     Grayson Bankshares, Inc. and Subsidiary




Item 1.  Legal Proceedings

         There are no material pending legal proceedings to which the Company or
         its  subsidiary  is a party or of which  any of their  property  is the
         subject.

Item 2.  Changes in Securities and Use of Proceeds

         Not applicable

Item 3.  Defaults Upon Senior Securities

         Not applicable

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

         At the Company's Annual Meeting of Shareholders  held on April 9, 2002,
         the  shareholders of the Company voted upon the following  matters with
         the following results:

         The  election of the  following  persons as directors of the Company to
         serve until the third  annual  meeting  following  their  election  and
         therefore until their successors have been elected and have qualified:

                  Name                            Votes For       Votes Withheld
                  ----                            ---------       --------------

                  Jacky K. Anderson               1,397,055           2,892
                  Fred B. Jones                   1,396,505           3,442
                  J. David Vaughan                1,397,355           2,592
                  Thomas M. Jackson, Jr.          1,396,705           3,242


Item 5.  Other Information

         None

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

                  99.1 - Statement   of   Chief   Executive   Officer  and Chief
                  Financial Officer Pursuant to 18 U.S.C.ss. 1350

(b)      Reports on 8-K
                  None

                                       13

<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended,  the  registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.

                                GRAYSON BANKSHARES, INC.



Date:  August 14, 2002          By:      /s/ Jacky K. Anderson
                                   --------------------------------------------
                                      Jacky K. Anderson
                                      President and Chief Executive Officer



Date:  August 14, 2002           By:      /s/ Blake M. Edwards, Jr.
                                    -------------------------------------------
                                      Blake M. Edwards, Jr.
                                      Chief Financial Officer



                                       14