SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                For the quarterly period ended September 30, 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 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 September 30, 2002.

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



<PAGE>


                            GRAYSON BANKSHARES, INC.

                                TABLE OF CONTENTS

                                                                        Page No.
Part I.       Financial Information

         Item 1.  Financial Statements

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

                  Consolidated Statements of Income
                  For the Nine Months Ended September 30, 2002 and 2001........4

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

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

                  Consolidated Statements of Cash Flows
                  For the Nine Months Ended September 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

         Item 4.  Controls and Procedures.....................................13


Part II.      Other Information

         Item 1.  Legal Proceedings...........................................14

         Item 2.  Changes in Securities and Use of Proceeds...................14

         Item 3.  Defaults Upon Senior Securities.............................14

         Item 4.  Submission of Matters to a Vote of Security Holders.........14

         Item 5.  Other Information...........................................14

         Item 6.  Exhibits and Reports on Form 8-K............................14

Signatures



                                       2
<PAGE>


                          Part I: Financial Information

Item 1:  Financial Statements

--------------------------------------------------------------------------------
                     Grayson Bankshares, Inc. and Subsidiary
                           Consolidated Balance Sheets
                    September 30, 2002 and December 31, 2001
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                 September 30,           December 31,
Assets                                                                               2002                    2001
                                                                                -----------------      ----------------
                                                                                   (Unaudited)            (Audited)
<S>                                                                            <C>                <C>
Cash and due from banks                                                         $    11,010,690    $      8,715,457
Interest-bearing deposits with banks                                                          -                   -
Federal funds sold                                                                   13,149,400          12,636,046
Investment securities available for sale                                             39,430,551          26,010,899
Investment securities held to maturity                                                4,753,283           6,615,328
Restricted equity securities                                                            845,450             825,750
Loans, net of allowance for loan losses of $2,084,206
  at September 30, 2002 and $1,821,966 at December 31, 2001                         153,142,945         140,897,841
Property and equipment, net                                                           3,615,851           2,913,998
Accrued income                                                                        1,946,202           1,713,644
Other assets                                                                          5,089,704           1,140,177
                                                                                ---------------    ----------------
                                                                                $   232,984,076    $    201,469,140
                                                                                ===============    ================

Liabilities and Stockholders' Equity

Liabilities
Demand deposits                                                                 $    21,938,768    $     20,790,306
Interest-bearing demand deposits                                                     17,651,554          15,168,088
Savings deposits                                                                     37,178,427          31,606,065
Large denomination time deposits                                                     33,311,580          29,944,872
Other time deposits                                                                  88,494,659          81,813,651
                                                                                ---------------    ----------------
     Total deposits                                                                 198,574,988         179,322,982

FHLB Advances                                                                        10,000,000                   -

Accrued interest payable                                                                752,180             267,798
Other liabilities                                                                       622,158             792,587
                                                                                ---------------    ----------------
                                                                                    209,949,326         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                                                                    19,667,874          18,221,877
Accumulated other comprehensive income (loss)                                           696,541             193,561
                                                                                ---------------    ----------------
                                                                                     23,034,750          21,085,773
                                                                                ---------------    ----------------
                                                                                $   232,984,076    $    201,469,140
                                                                                ===============    ================

</TABLE>

See Notes to Consolidated Financial Statements

                                       3
<PAGE>


--------------------------------------------------------------------------------
                     Grayson Bankshares, Inc. and Subsidiary
                        Consolidated Statements of Income
              For the Nine Months ended September 30, 2002 and 2001
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                         Nine Months Ended
                                                                                            September 30,
                                                                                        2002             2001
                                                                                    -------------   -------------
<S>                                                                                <C>             <C>
Interest income:                                                                     (Unaudited)      (Unaudited)
   Loans and fees on loans                                                          $   8,925,294    $    8,921,169
   Federal funds sold                                                                     175,994           272,592
   Investment securities:
     Taxable                                                                            1,349,497           844,043
     Exempt from federal income tax                                                       321,355           351,591
   Deposits with banks                                                                          -                 -
                                                                                    -------------    --------------
                                                                                       10,772,140        10,389,395
Interest expense:
   Deposits                                                                             4,686,115         5,492,367
   Interest on borrowings                                                                 326,568                 -
                                                                                    -------------    --------------
                                                                                        5,012,683         5,492,367
         Net interest income                                                            5,759,457         4,897,028

Provision for loan losses                                                                 315,000           205,000
                                                                                    -------------    --------------
   Net interest income after
     provision for loan losses                                                          5,444,457         4,692,028
                                                                                    -------------    --------------
Noninterest income:
   Service charges on deposit accounts                                                    253,107           247,576
   Other income                                                                           310,477            76,550
                                                                                    -------------    --------------
                                                                                          563,584           324,126
                                                                                    -------------    --------------
Noninterest expense:
   Salaries and employee benefits                                                       2,207,522         1,927,115
   Occupancy expense                                                                       90,912            98,581
   Equipment expense                                                                      321,456           263,158
   Other expense                                                                          897,981           764,255
                                                                                    -------------    --------------
                                                                                        3,517,871         3,053,109
         Income before income taxes                                                     2,490,170         1,963,045

Income tax expense                                                                        666,000           560,500
                                                                                    -------------    --------------
         Net income                                                                 $   1,824,170    $    1,402,545
                                                                                    =============    ==============

Basic earnings per share                                                            $        1.06    $          .82
                                                                                    =============    ==============
Weighted average shares outstanding                                                     1,718,968         1,718,968
                                                                                    =============    ==============


</TABLE>








See Notes to Consolidated Financial Statements

                                       4
<PAGE>


--------------------------------------------------------------------------------
                     Grayson Bankshares, Inc. and Subsidiary
                        Consolidated Statements of Income
             For the Three Months ended September 30, 2002 and 2001
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                         Three Months Ended
                                                                                            September 30,
                                                                                        2002              2001
                                                                                    -------------    -------------
Interest income:                                                                     (Unaudited)       (Unaudited)
<S>                                                                                <C>              <C>
   Loans and fees on loans                                                          $   3,058,723    $    2,988,478
   Federal funds sold                                                                      59,390            71,580
   Investment securities:
     Taxable                                                                              507,887           294,072
     Exempt from federal income tax                                                        72,044           114,883
   Deposits with banks                                                                          -                 -
                                                                                    -------------    --------------
                                                                                        3,698,044         3,469,013

Interest expense:
   Deposits                                                                             1,542,586         1,804,636
   Interest on borrowings                                                                 116,534                 -
                                                                                    -------------    --------------
                                                                                        1,659,120         1,804,636
         Net interest income                                                            2,038,924         1,664,377

Provision for loan losses                                                                 105,000            70,000
                                                                                    -------------    --------------
   Net interest income after
     provision for loan losses                                                          1,933,924         1,594,377
                                                                                    -------------    --------------
Noninterest income:
   Service charges on deposit accounts                                                     92,121            83,717
   Other income                                                                           126,401            27,545
                                                                                    -------------    --------------
                                                                                          218,522           111,262
                                                                                    -------------    --------------
Noninterest expense:
   Salaries and employee benefits                                                         760,286           637,905
   Occupancy expense                                                                       31,928            33,128
   Equipment expense                                                                      114,296            90,669
   Other expense                                                                          318,084           230,562
                                                                                    -------------    --------------
                                                                                        1,224,594           992,264
                                                                                    -------------    --------------
         Income before income taxes                                                       927,852           713,375

Income tax expense                                                                        249,000           203,500
                                                                                    -------------    --------------
         Net income                                                                 $     678,852    $      509,875
                                                                                    =============    ==============

Basic earnings per share                                                            $         .39    $          .30
                                                                                    =============    ==============
Weighted average shares outstanding                                                     1,718,968         1,718,968
                                                                                    =============    ==============
</TABLE>





See Notes to Consolidated Financial Statements

                                       5
<PAGE>


--------------------------------------------------------------------------------
                     Grayson Bankshares, Inc. and Subsidiary
                 Consolidated Statements of Stockholders' Equity
          For the Nine Months ended September 30, 2002 (unaudited) and
                   the Year ended December 31, 2001 (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, 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                             -            -            -      1,824,170              -       1,824,170
   Net change in unrealized
     appreciation on investment
     securities available for
     sale, net of taxes of $259,111       -            -            -              -        502,980         502,980
                                                                                                          ---------
   Total comprehensive income                                                                             2,327,150

   Dividends paid
       ($.22 per share)                   -            -            -       (378,173)             -        (378,173)
                                  ---------    ---------      -------     ----------        -------      ----------
Balance, September 30, 2002       1,718,968   $2,148,710   $ 521,625   $  19,667,874  $     696,541  $   23,034,750
                                 ==========   ==========   ==========  =============  =============  ==============

</TABLE>








See Notes to Consolidated Financial Statements

                                       6
<PAGE>

--------------------------------------------------------------------------------
                     Grayson Bankshares, Inc. and Subsidiary
                      Consolidated Statements of Cash Flows
              For the Nine Months ended September 30, 2002 and 2001
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                         Nine Months Ended
                                                                                            September 30,
                                                                                        2002              2001
                                                                                    -------------     ------------
                                                                                     (Unaudited)       (Unaudited)
<S>                                                                               <C>              <C>
Cash flows from operating activities:
   Net income                                                                       $   1,824,170    $    1,402,545
   Adjustments to reconcile net income
     to net cash provided by operations:
       Depreciation and amortization                                                      277,500           223,200
       Provision for loan losses                                                          315,000           205,000
       Deferred income taxes                                                              (52,000)           36,500
       Net realized gains on securities                                                    (1,750)           (2,792)
       Accretion of discount on securities, net of
         amortization of premiums                                                          84,946            24,444
       Deferred compensation                                                                4,318             7,547
       Changes in assets and liabilities:
         Accrued income                                                                  (232,558)         (247,823)
         Other assets                                                                    (156,638)          (93,850)
         Accrued interest payable                                                         484,382           426,472
         Other liabilities                                                               (174,747)         (147,888)
                                                                                    -------------    --------------
           Net cash provided by operating activities                                    2,372,623         1,833,355
                                                                                    -------------    --------------

Cash flows from investing activities:
   (Increase) decrease in interest-bearing deposits with banks                                  -                 -
   Net (increase) decrease in federal funds sold                                         (513,354)       (3,125,472)
   Purchases of investment securities                                                 (16,561,165)      (10,573,226)
   Sales of investment securities                                                               -         2,401,407
   Maturities of investment securities                                                  5,682,453         6,775,494
   Purchases of restricted equity securities                                              (19,700)                -
   Net increase in loans                                                              (12,560,104)       (7,344,825)
   Purchases of bank-owned life insurance                                              (4,000,000)                -
   Purchases of property and equipment, net of sales                                     (979,353)         (216,233)
                                                                                    -------------    --------------
           Net cash used in investing activities                                      (28,951,223)      (12,082,855)
                                                                                    -------------    --------------

Cash flows from financing activities:
   Net increase (decrease) in demand,
     savings and NOW deposits                                                           9,204,290         1,349,801
   Net increase in time deposits                                                       10,047,716        10,838,505
   Dividends paid                                                                        (378,173)         (343,794)
   Net increase (decrease) in other borrowings                                         10,000,000                 -
                                                                                    -------------    --------------
           Net cash provided by financing activities                                   28,873,833        11,844,512
                                                                                    -------------    --------------
           Net increase (decrease) in cash and cash equivalents                         2,295,233         1,595,012

Cash and cash equivalents, beginning                                                    8,715,457         4,993,526
                                                                                    -------------    --------------
Cash and cash equivalents, ending                                                   $  11,010,690    $    6,588,538
                                                                                    =============    ==============

Supplemental disclosure of cash flow information:
   Interest paid                                                                    $   4,528,301    $    5,065,895
                                                                                    =============    ==============
   Taxes paid                                                                       $     731,219    $      507,290
                                                                                    =============    ==============
</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  September  30, 2002 and for the
periods ended September 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 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 nine
months ended September 30.

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

Balance, beginning                       $   1,821,966    $    1,760,999
Provision charged to expense                   315,000           205,000
Recoveries of amounts charged off              175,610            58,612
Amounts charged off                           (228,370)         (282,328)
                                         -------------    --------------
Balance, ending                          $   2,084,206    $    1,742,283
                                         =============    ==============

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 nine
months ended September 30, 2002 and 2001 follows:
<TABLE>
<CAPTION>

                                                                                        2002              2001
                                                                                    -------------    --------------
<S>                                                                               <C>               <C>
Tax at statutory federal rate                                                       $     846,658    $      667,435
Tax exempt interest income                                                               (109,261)         (119,541)
Tax exempt increase in cash value of insurance                                            (54,400)                -
Other                                                                                     (16,997)           12,606
                                                                                    -------------    --------------
                                                                                    $     666,000    $      560,500
                                                                                    =============    ==============
</TABLE>

                                       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 Septemer 30, 2002 and 2001 is as follows:

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

Commitments to extend credit             $   6,222,286    $    5,421,965
Standby letters of credit                            -                 -
                                         -------------    --------------
                                         $   6,222,286    $    5,421,965
                                         =============    ==============

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

--------------------------------------------------------------------------------
Results of Operations

Total interest income  increased by $229,031 for the quarter ended September 30,
2002 compared to the quarter ended September 30, 2001, while interest expense on
deposits and other borrowings  decreased by $145,516 over the same period.  This
resulted  in an  increase in net  interest  income of  $374,547 or 22.50%.  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  $107,260  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 September 30,
2002 and $70,000 for the quarter  ended  September  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 $232,330,  or 23.41% for the quarter  ended
September 30, 2002 compared to the quarter ended September 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 $214,477, or 30.07% for the quarter ended
September  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 1.69% due to increases in tax-exempt investments. Net
income  increased by $168,977,  or 33.14% to $678,852 for the second  quarter of
2002 compared to net income of $509,875 for the same period in 2001.

For the nine months ended September 30, 2002, total interest income increased by
$382,745  compared to the  nine-month  period ended  September  30, 2001,  while
interest expense decreased by $479,684 over the same period. This resulted in an
increase in net interest  income of $862,429,  or 17.61%.  As stated above,  net
interest margins increased as interest rates began to stabilize.

Other income was up $239,458 for the nine-month  period ended September 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
$464,762 for the first nine months of 2002  compared to the first nine months of
2001. Net income for the nine-month period ended September 30, 2002 increased by
$421,625, or 30.06% compared to the nine-month period ended September 30, 2001.

Financial Condition

Total  assets  increased  by  $31,514,936,  or 15.64% from  December 31, 2001 to
September 30, 2002. Net loans increased by $12,245,104 and investment securities
increased by $11,557,307.

Total  deposits  increased by  $19,252,006,  or 10.74% from December 31, 2001 to
September 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 Septembre 30, 2002.

Shareholders'  equity  totaled  $23,034,750  at September  30, 2002  compared to
$21,085,773  at December 31,  2001.  The  $1,948,977  increase was the result of
earnings  for the nine months  combined  with a $502,980  increase in the market
value of securities  that are classified as available for sale, less the payment
of dividends of $378,173.


                                       10
<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
(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 $621,000,  or 8.64%,  while a similar decrease in rates would
result in an increase in net interest  income of $568,000,  or 7.91%.  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 I: Financial Information

Item 4:  Controls and Procedures
--------------------------------------------------------------------------------

Within the 90 days prior to the date of this report,  the Company 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 the Company's  disclosure  controls and procedures pursuant to Rule
13a-14,  under the Securities Exchange Act of 1934, as amended.  Based upon that
evaluation,  the Company's  President and Chief Executive Officer along with the
Chief Financial  Officer  concluded that the Company's  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 filings with the Securities and Exchange Commission.

There have been no significant  changes in the Company's internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date that the Company carried out this evaluation.


































                                       13


<PAGE>



                           Part II: Other Information

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 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

         None

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




                                       14
<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:  November 12, 2002                      By:      /s/Jacky K. Anderson
                                                       President and CEO


                                              By;      /s/Blake M. Edwards
                                                       Chief Financial Officer






                                       15
<PAGE>




                                 CERTIFICATIONS

         I, Jacky K. Anderson certify that:

         1. I have reviewed this quarterly report on Form 10-Q of Grayson
Bankshares, Inc.;

         2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

         4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

                  a) designed such disclosure controls and procedures to ensure
         that material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this quarterly report
         is being prepared;

                  b) evaluated the effectiveness of the registrant's disclosure
         controls and procedures as of a date within 90 days prior to the filing
         date of this quarterly report (the "Evaluation Date"); and

                  c) presented in this quarterly report our conclusions about
         the effectiveness of the disclosure controls and procedures based on
         our evaluation as of the Evaluation Date;

         5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

                  a) all significant deficiencies in the design or operation of
         internal controls which could adversely affect the registrant's ability
         to record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

                  b) any fraud, whether or not material, that involves
         management or other employees who have a significant role in the
         registrant's internal controls; and

         6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.


Date:  November 12, 2002
                                          /s/ Jacky K. Anderson
                                          Jacky K. Anderson
                                          President and Chief Executive Officer









                                       16
<PAGE>


                                 CERTIFICATIONS

         I, Blake M. Edwards certify that:

         1. I have reviewed this quarterly report on Form 10-Q of Grayson
Bankshares, Inc.;

         2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

         4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

                  a) designed such disclosure controls and procedures to ensure
         that material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this quarterly report
         is being prepared;

                  b) evaluated the effectiveness of the registrant's disclosure
         controls and procedures as of a date within 90 days prior to the filing
         date of this quarterly report (the "Evaluation Date"); and

                  c) presented in this quarterly report our conclusions about
         the effectiveness of the disclosure controls and procedures based on
         our evaluation as of the Evaluation Date;

         5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

                  a) all significant deficiencies in the design or operation of
         internal controls which could adversely affect the registrant's ability
         to record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

                  b) any fraud, whether or not material, that involves
         management or other employees who have a significant role in the
         registrant's internal controls; and

         6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.


Date:  November 12, 2002
                                         /s/ Blake M. Edwards
                                          Blake M. Edwards
                                          Chief Financial Officer









                                       17