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

                                    FORM 10-Q

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

                  For the quarterly period ended March 31, 2004

              [ ] 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)

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


         Indicate  by check  mark  whether  the  registrant:  (1) has  filed all
reports  required to be filed by Section 13 or 15(d) of the Securities  Exchange
Act of 1934 during the preceding 12 months (or for such shorter  period that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____


         Indicate by check mark whether the registrant is an  accelerated  filer
(as defined in Rule 12b-2 of the Exchange Act). Yes _____ No __X__

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date:

                   1,718,968 shares of Common Stock, par value
               $1.25 per share, outstanding as of April 30, 2004.


<PAGE>

PART I     FINANCIAL INFORMATION

Item 1.  Financial Statements

         Consolidated Balance Sheets--March 31, 2004
          and December 31, 2003 ...............................................3

         Consolidated Statements of Income--Three Months Ended
          March 31, 2004 and March 31, 2003 ...................................4

         Consolidated Statements of Stockholders' Equity--Three Months
          Ended March 31, 2004 and Year Ended December 31, 2003 ...............5

         Consolidated Statements of Cash Flows--Three Months Ended
          March 31, 2004 and March 31, 2003 ...................................6

         Notes to Consolidated Financial Statements............................7

Item 2.  Management's Discussion and Analysis of Financial Condition
          and Results of Operations ...........................................9

Item 3.  Quantitative and Qualitative Disclosures about Market Risk. .........11

Item 4.  Controls and Procedures.. ...........................................12

PART II    OTHER INFORMATION

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

Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchases of
          Equity Securities...................................................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 ...................................................................14


                                       2
<PAGE>



                          Part I: Financial Information

Item 1:  Financial Statements


                     Grayson Bankshares, Inc. and Subsidiary
                           Consolidated Balance Sheets
                      March 31, 2004 and December 31, 2003
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                    March 31,         December 31,
Assets                                                                                2004                 2003
                                                                                -----------------  -----------------
                                                                                   (Unaudited)            (Audited)
<S>                                                                            <C>                <C>
Cash and due from banks                                                         $     6,435,887    $     11,748,140
Federal funds sold                                                                   16,847,364          15,305,544
Investment securities available for sale                                             41,601,585          41,239,131
Investment securities held to maturity                                                3,766,247           3,960,887
Restricted equity securities                                                          1,081,750           1,081,750
Loans, net of allowance for loan losses of $2,412,176
  at March 31, 2004 and $2,395,387 at December 31, 2003                             181,319,052         176,154,730
Cash value of life insurance                                                          4,737,731           4,677,731
                                                                                      4,521,918           4,126,234
Property and equipment, net                                                           6,144,837           6,228,192
Accrued income                                                                        1,839,888           1,891,116
Other assets                                                                          2,042,893           1,577,707
                                                                                ---------------    ----------------
                                                                                $   265,817,234    $    263,864,928
                                                                                ===============    ================

Liabilities and Stockholders' Equity

Liabilities
Demand deposits                                                                 $    25,314,457    $     26,708,360
Interest-bearing demand deposits                                                     19,164,777          19,359,587
Savings deposits                                                                     52,088,836          53,415,745
Large denomination time deposits                                                     34,872,176          34,695,733
Other time deposits                                                                  92,795,052          94,039,723
                                                                                ---------------    ----------------
     Total deposits                                                                 224,235,298         228,219,148

FHLB advances                                                                         15,000,000         10,000,000
Accrued interest payable                                                                548,272             264,640
Other liabilities                                                                       601,527             780,344
                                                                                ---------------    ----------------
                                                                                    240,385,097         239,264,132

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 2004 and 2003                                                       2,148,710           2,148,710
Surplus                                                                                 521,625             521,625
Retained earnings                                                                    22,112,793          21,587,202
Accumulated other comprehensive income                                                  649,009             343,259
                                                                                ---------------    ----------------
                                                                                     25,432,137          24,600,796
                                                                                ---------------    ----------------
                                                                                $   265,817,234    $    263,864,928
                                                                                ===============    ================

</TABLE>

See Notes to Consolidated Financial Statements.



                                       3
<PAGE>




                     Grayson Bankshares, Inc. and Subsidiary
                        Consolidated Statements of Income
               For the Three Months ended March 31, 2004 and 2003
-------------------------------------------------------------------------------



                                            Three Months Ended
                                                March 31,
                                            2004         2003
                                         ----------   ----------
Interest income:                         (Unaudited)  (Unaudited)
   Loans and fees on loans               $3,075,099   $2,815,234
   Federal funds sold                        33,043       70,079
   Investment securities:
     Taxable                                349,608      469,670
     Exempt from federal income tax         118,899      114,797
                                         ----------   ----------
                                          3,576,649    3,469,780

Interest expense:
   Deposits                               1,036,532    1,416,177
   Interest on borrowings                   115,268      114,001
                                         ----------   ----------
                                          1,151,800    1,530,178
         Net interest income              2,424,849    1,939,602

Provision for loan losses                    90,000       90,000
                                         ----------   ----------
   Net interest income after
     provision for loan losses            2,334,849    1,849,602
                                         ----------   ----------

Noninterest income:
   Service charges on deposit accounts      116,619       91,030
   Other income                             157,596    1,013,305
                                         ----------   ----------
                                            274,215    1,104,335

Noninterest expense:
   Salaries and employee benefits         1,021,995      840,442
   Occupancy expense                         58,477       35,169
   Equipment expense                        155,113      107,441
   Other expense                            362,422      337,469
                                         ----------   ----------
                                          1,598,007    1,320,521
         Income before income taxes       1,011,057    1,633,416

Income tax expense                          262,000      487,000
                                         ----------   ----------
         Net income                      $  749,057   $1,146,416
                                         ==========   ==========

Basic earnings per share                 $      .44   $      .67
                                         ==========   ==========
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 Stockholders' Equity
             For the Three Months ended March 31, 2004 (unaudited)
                 and the Year ended December 31, 2003 (audited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                        Accumulated
                                                                                           Other
                                         Common Stock                     Retained      Comprehensive
                                     Shares       Amount       Surplus    Earnings      Income (Loss)     Total
                                     ------       ------       -------    --------      -------------     -----
<S>                             <C>        <C>           <C>         <C>            <C>            <C>
Balance, December 31, 2002        1,718,968  $ 2,148,710   $  521,625  $  19,967,611  $     591,571  $   23,229,517

   Comprehensive income
   Net income                             -            -            -      3,338,559              -       3,338,559
   Net change in unrealized
     appreciation on investment
     securities available for
     sale, net of taxes of $(127,918)     -            -            -              -       (248,312)       (248,312)
                                                                                                         ----------
     Total comprehensive income                                                                           3,090,247

   Dividends paid
     ($1.00 per share)                    -            -            -     (1,718,968)             -      (1,718,968)


Balance, December 31, 2003        1,718,968    2,148,710      521,625     21,587,202        343,259      24,600,796
                                  ---------    ---------      -------     ----------        -------      ----------

   Comprehensive income
   Net income                             -            -            -        749,057              -         749,057
   Net change in unrealized
     appreciation on investment
     securities available for
     sale, net of taxes of $157,508       -             -           -              -        305,750         305,750
                                                                                                          ----------
   Total comprehensive income                                                                             1,054,807

   Dividends paid
       ($.13 per share)                   -            -            -       (223,466)             -        (223,466)

Balance, March 31, 2004           1,718,968   $2,148,710   $ 521,625   $  22,112,793  $     649,009  $   25,432,137
                                 ==========   ==========   ==========  =============  =============  ==============
</TABLE>




See Notes to Consolidated Financial Statements.



                                       5
<PAGE>




                     Grayson Bankshares, Inc. and Subsidiary
                      Consolidated Statements of Cash Flows
               For the Three Months ended March 31, 2004 and 2003
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                          Three Months Ended
                                                                                               March 31,
                                                                                        2004              2003
                                                                                    -------------    --------------
                                                                                     (Unaudited)       (Unaudited)
<S>                                                                               <C>              <C>
Cash flows from operating activities:
   Net income                                                                       $     749,057    $    1,146,416
   Adjustments to reconcile net income
     to net cash provided by operations:
       Depreciation and amortization                                                      137,500            90,000
       Provision for loan losses                                                           90,000            90,000
       Deferred income taxes                                                              311,000            43,000
       Net realized gains on securities                                                   (33,015)         (869,597)
       Accretion of discount on securities, net of
         amortization of premiums                                                          63,921            50,070
       Deferred compensation                                                                1,361             2,153
       Changes in assets and liabilities:
         Cash value of life insurance                                                     (60,000)          (60,000)
         Accrued income                                                                    51,228           (71,250)
         Other assets                                                                    (933,694)          (11,337)
         Accrued interest payable                                                         283,632           353,154
         Other liabilities                                                               (180,178)          212,929
                                                                                    -------------    --------------
           Net cash provided by operating activities                                      480,812           975,538
                                                                                    -------------    --------------

Cash flows from investing activities:
   Net (increase) decrease in federal funds sold                                       (1,541,820)       (6,014,384)
   Purchases of investment securities                                                  (4,190,011)      (12,531,389)
   Sales of investment securities                                                       2,639,145        10,998,533
   Maturities of investment securities                                                  1,815,404         2,931,254
   Purchases of restricted equity securities                                                    -          (120,100)
   Net increase in loans                                                               (5,254,322)       (1,477,191)
   Purchases of property and equipment, net of sales                                      (54,145)         (485,684)
                                                                                    -------------    --------------
           Net cash used in investing activities                                       (6,585,749)       (6,698,961)
                                                                                    -------------    --------------

Cash flows from financing activities:
   Net increase (decrease) in demand,
     savings and NOW deposits                                                          (1,393,903)        1,557,725
   Net increase (decrease) in time deposits                                            (2,589,947)        2,782,000
   Dividends paid                                                                        (223,466)         (206,276)
   Net increase in other borrowings                                                     5,000,000                 -
                                                                                    -------------    --------------
           Net cash provided by financing activities                                      792,684         4,133,449
                                                                                    -------------    --------------
           Net increase (decrease) in cash and cash equivalents                        (5,312,253)       (1,589,974)

Cash and cash equivalents, beginning                                                   11,748,140        11,265,444
                                                                                    -------------    --------------
Cash and cash equivalents, ending                                                   $   6,435,887    $    9,675,470
                                                                                    =============    ==============

Supplemental disclosure of cash flow information:
   Interest paid                                                                    $     868,168    $    1,177,024
                                                                                    =============    ==============
   Taxes paid                                                                       $       2,535    $       51,147
                                                                                    =============    ==============

</TABLE>



See Notes to Consolidated Financial Statements.



                                       6
<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 Grayson  National Bank was organized  under the laws of the United States in
1900 and currently serves Grayson County, Virginia and surrounding areas through
seven 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 March 31, 2004 and for the periods
ended March 31, 2004 and 2003 included herein, have been prepared by Grayson
Bankshares, Inc., 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, 2003, included in the
Company's Form 10-K for the fiscal year ended December 31, 2003. The results of
operations for the three month periods ended March 31, 2004 and 2003 are not
necessarily indicative of the results to be expected for the full year.

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 three
months ended March 31, 2004 and 2003.

                                                         2004              2003
                                                  -----------       -----------

Balance, beginning                                $ 2,395,387       $ 2,189,028
Provision charged to expense                           90,000            90,000
Recoveries of amounts charged off                      10,213             9,455
Amounts charged off                                   (83,424)          (76,151)
                                                  -----------       -----------
Balance, ending                                   $ 2,412,176       $ 2,212,332
                                                  ===========       ===========

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
three months ended March 31, 2004 and 2003 follows:

                                                      2004              2003
                                                    ---------         ---------

Tax at statutory federal rate                       $ 343,759         $ 555,361
Tax exempt interest income                            (47,205)          (47,359)
Other tax exempt income                               (40,294)          (27,200)
Other                                                   5,740             6,198
                                                    ---------         ---------
                                                    $ 262,000         $ 487,000
                                                    =========         =========



                                       7
<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 March 31, 2004 and 2003 is as follows:

                                                       2003              2002
                                                    ----------        ----------

Commitments to extend credit                        $7,807,626        $6,533,667
Standby letters of credit                                 --                --
                                                    ----------        ----------
                                                    $7,807,626        $6,533,667
                                                    ==========        ==========

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 that the Bank deems necessary.



                                       8
<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.

Critical Accounting Policies

For a discussion of the Company's critical accounting policies, including its
allowance for loan losses, see the Company's Annual Report on Form 10-K for the
year ended December 31, 2003.

Results of Operations

Total interest income increased by $106,869 for the quarter ended March 31, 2004
compared to the quarter ended March 31, 2003, while interest expense on deposits
and other borrowings decreased by $378,378 over the same period. The increase in
interest income is attributable to an increase in average loans outstanding
while the decrease in interest expense came as a result of the general decreases
in interest rates that have occurred over the past year. The result was an
increase in net interest income of $485,247 or 25.02%.

Other income was down $830,120 in the first quarter of 2004 compared to the
first quarter of 2003. This decrease was due to securities gains of
approximately $870,000 that were realized in the first quarter of 2003. Those
gains were the result of the restructuring of a leveraging strategy that was
implemented in the first quarter of 2002 and were not recurring in nature.

The provision for credit losses was $90,000 for each of the quarters ended March
31, 2004 and 2003. The reserve for loan losses at March 31, 2004 was
approximately 1.31% of total loans. Management believes the provision and the
resulting allowance for loan losses are adequate.

Total other expenses increased by $277,486, or 21.01% for the quarter ended
March 31, 2004 compared to the quarter ended March 31, 2003. Increases in
salaries and employee benefits came as a result of employee additions as well as
cost increases for employee medical benefits and defined-benefit retirement
plans. Increases in occupancy, equipment and other expenses came as a result of
branching activity in 2003.

The increases in net interest income combined with the decrease in other income
and increases in other expenses, resulted in a decrease in net income before
taxes of $622,359, for the quarter ended March 31, 2004, compared to the same
quarter in 2003. Net income decreased by $397,359, or 34.66% to $749,057 for the
first quarter of 2004 compared to net income of $1,146,416 for the same period
in 2003. The decrease in net income was due to the securities gains in 2003 that
are noted above in the discussion of other income.

Financial Condition

Total assets increased by $1,952,306, or 0.74% from December 31, 2003 to March
31, 2004. Net loans increased by $5,164,322, federal funds sold increased by
$1,541,820, and investment securities increased by $167,814.

Total deposits decreased by $3,983,850, or 1.75% from December 31, 2003 to March
31, 2004. FHLB advances increased by $5,000,000, to $15,000,000 at March 31,
2004 compared to $10,000,000 at December 31, 2003.

Shareholders' equity totaled $25,432,137 at March 31, 2004 compared to
$24,600,796 at December 31, 2003. The $831,341 increase was the result of
earnings for the three months combined with an increase in the market value of
securities classified as available for sale of $305,750, less the payment of
dividends of $223,466.



                                       9
<PAGE>



                          Part I: Financial Information

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

--------------------------------------------------------------------------------

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
exceeds all regulatory capital guidelines and is considered to be well
capitalized.

Liquidity and Capital Resources

Federal fund lines available from correspondent banks totaled $9,100,000 at
March 31, 2004. No balances were outstanding on these lines at March 31, 2004,
or December 31, 2003. Borrowings from the Federal Home Loan Bank totaled
$10,000,000 at December 31, 2003 and $15,000,000 at March 31, 2004. The
remaining unused credit line from the Federal Home Loan Bank as of March 31,
2004 is approximately $24,500,000.

The liquidity ratio (the level of liquid assets divided by total deposits plus
short-term liabilities) was 26.1% at March 31, 2004 and 28.9% at December 31,
2003. These ratios are considered to be adequate by management.

The Bank uses cash and federal funds sold to meet its daily funding needs. If
funding needs are met through holdings of excess cash and federal funds, then
profits might be sacrificed as higher-yielding investments are foregone in the
interest of liquidity. Therefore management determines, based on such items as
loan demand and deposit activity, an appropriate level of cash and federal funds
and seeks to maintain that level.

The Bank prefers to maintain a quiet investment security portfolio. The primary
goals of the investment portfolio are liquidity management and maturity gap
management. As investment securities mature the proceeds are reinvested in
federal funds sold if the federal funds level needs to be increased, otherwise
the proceeds are reinvested in similar investment securities. The majority of
investment security transactions consist of replacing securities that have been
called or matured. The Bank keeps a significant portion of its investment
portfolio in unpledged assets that are less than 18 months to maturity. These
investments are a preferred source of funds in that they can be disposed of in
any interest rate environment without causing significant damage to that
quarter's profits.

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.  For additional information on known and unknown
risks, see the "Caution About Forward Looking Statements" section in
the Company's Annual Report on Form 10-K for the year ended December 31,
2003.


                                       10
<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 $475,000, or 4.73%, while a similar decrease in rates would
result in an increase in net interest income of $320,000, or 3.19%. 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.




                                       11
<PAGE>



                          Part I: Financial Information

Item 4:  Controls and Procedures

--------------------------------------------------------------------------------

As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's President and Chief Executive Officer along
with the Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15. Based upon that evaluation, the Company's President and Chief
Executive Officer along with the Chief Financial Officer concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in our periodic SEC filings.

The Company's management is also responsible for establishing and maintaining
adequate internal control over financial reporting. There were no changes in the
Company's internal control over financial reporting identified in connection
with the evaluation of it that occurred during the Company's last fiscal quarter
that materially affected, or are reasonably likely to materially affect,
internal control over financial reporting.



                                       12
<PAGE>



                           Part II: Other Information




                     Grayson Bankshares, Inc. and Subsidiary

--------------------------------------------------------------------------------

Item 1.  Legal Proceedings

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

Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
         Securities

         Not applicable

Item 3.  Defaults Upon Senior Securities

         Not applicable

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

         None

Item 5.  Other Information

         None

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

                  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.

(b)      Reports on 8-K
         None



                                       13
<PAGE>



                                   SIGNATURES


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



                                           GRAYSON BANKSHARES, INC.




Date:  May 13, 2004                        By:    /s/ Jacky K. Anderson
                                                -----------------------------
                                                      Jacky K. Anderson
                                                      President and CEO



                                           By:    /s/ Blake M. Edwards
                                                ----------------------------
                                                      Blake M. Edwards
                                                      Chief Financial Officer


                                       14
<PAGE>




                                  Exhibit Index


         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.