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 September 30, 2003

              [ ] 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 September 30, 2003.


<PAGE>
PART I     FINANCIAL INFORMATION

Item 1.  Financial Statements

         Consolidated Balance Sheets--September 30, 2003
          and December 31, 2002................................................3

         Consolidated Statements of Income--Nine Months Ended
          September 30, 2003 and September 30, 2002............................4

         Consolidated Statements of Income--Three Months Ended
          September 30, 2003 and September 30, 2002........................... 5

         Consolidated Statements of Stockholders' Equity--Nine Months
          Ended September 30, 2003 and Year Ended December 31, 2002............6

         Consolidated  Statements of Cash Flows--Nine Months
          Ended September 30, 2003 and September 30, 2002......................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, 2003 and December 31, 2002
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                 September 30,           December 31,
Assets                                                                               2003                   2002
                                                                                ---------------         -------------
                                                                                   (Unaudited)            (Audited)
<S>                                                                             <C>                <C>
Cash and due from banks                                                         $     7,883,540    $     11,265,444
Interest-bearing deposits with banks                                                          -                   -
Federal funds sold                                                                   15,133,523          19,740,228
Investment securities available for sale                                             43,538,905          40,120,124
Investment securities held to maturity                                                3,654,496           3,906,401
Restricted equity securities                                                          1,081,750             845,450
Loans, net of allowance for loan losses of $2,285,891
  at September 30, 2003 and $2,189,028 at December 31, 2002                         170,838,251         154,190,005
Property and equipment, net                                                           5,741,235           4,126,234
Accrued income                                                                        2,136,513           1,798,906
Other assets                                                                          5,710,323           5,289,797
                                                                                ---------------    ----------------
                                                                                $   255,718,536    $    241,282,589
                                                                                ===============    ================

Liabilities and Stockholders' Equity

Liabilities
Demand deposits                                                                 $    25,756,970    $     22,950,583
Interest-bearing demand deposits                                                     19,224,939          18,079,169
Savings deposits                                                                     44,243,200          37,822,606
Large denomination time deposits                                                     35,798,324          35,232,988
Other time deposits                                                                  94,015,367          92,823,178
                                                                                ---------------    ----------------
     Total deposits                                                                 219,038,800         206,908,524

FHLB Advances                                                                        10,000,000          10,000,000

Accrued interest payable                                                                722,775             328,975
Other liabilities                                                                       972,750             815,573
                                                                                ---------------    ----------------
                                                                                    230,734,325         218,053,072
                                                                                ---------------    ----------------

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 2003 and 2002                                                       2,148,710           2,148,710
Surplus                                                                                 521,625             521,625
Retained earnings                                                                    22,007,401          19,967,611
Accumulated other comprehensive income                                                  306,475             591,571
                                                                                ---------------    ----------------
                                                                                     24,984,211          23,229,517
                                                                                ---------------    ----------------
                                                                                $   255,718,536    $    241,282,589
                                                                                ===============    ================
</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, 2003 and 2002
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                         Nine Months Ended
                                                                                            September 30,
                                                                                        2003              2002
                                                                                    -------------    --------------
Interest income:                                                                     (Unaudited)      (Unaudited)
<S>                                                                                 <C>              <C>
   Loans and fees on loans                                                          $   8,709,969    $    8,925,294
   Federal funds sold                                                                     209,948           175,994
   Investment securities:
     Taxable                                                                            1,190,450         1,349,497
     Exempt from federal income tax                                                       335,368           321,355
   Deposits with banks                                                                          -                 -
                                                                                    -------------    --------------
                                                                                       10,445,735        10,772,140
                                                                                    -------------    --------------

Interest expense:
   Deposits                                                                             4,003,272         4,686,115
   Interest on borrowings                                                                 392,824           326,568
                                                                                    -------------    --------------
                                                                                        4,396,096         5,012,683
                                                                                    -------------    --------------
         Net interest income                                                            6,049,639         5,759,457

Provision for loan losses                                                                 290,000           315,000
                                                                                    -------------    --------------
   Net interest income after
     provision for loan losses                                                          5,759,639         5,444,457
                                                                                    -------------    --------------

Noninterest income:
   Service charges on deposit accounts                                                    313,171           253,107
   Other income                                                                         1,895,785           310,477
                                                                                    -------------    --------------
                                                                                        2,208,956           563,584
                                                                                    -------------    --------------

Noninterest expense:
   Salaries and employee benefits                                                       2,725,329         2,207,522
   Occupancy expense                                                                      111,880            90,912
   Equipment expense                                                                      352,911           321,456
   Other expense                                                                        1,072,857           897,981
                                                                                    -------------    --------------
                                                                                        4,262,977         3,517,871
                                                                                    -------------    --------------
         Income before income taxes                                                     3,705,618         2,490,170

Income tax expense                                                                      1,047,000           666,000
                                                                                    -------------    --------------
         Net income                                                                 $   2,658,618    $    1,824,170
                                                                                    =============    ==============

Basic earnings per share                                                            $        1.55    $         1.06
                                                                                    =============    ==============
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, 2003 and 2002
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                         Three Months Ended
                                                                                             September 30,
                                                                                        2003              2002
                                                                                    -------------    --------------
Interest income:                                                                     (Unaudited)       (Unaudited)
<S>                                                                                 <C>              <C>
   Loans and fees on loans                                                          $   2,979,226    $    3,058,723
   Federal funds sold                                                                      69,266            59,390
   Investment securities:
     Taxable                                                                              328,186           507,887
     Exempt from federal income tax                                                       114,459            72,044
   Deposits with banks                                                                          -                 -
                                                                                    -------------    --------------
                                                                                        3,491,137         3,698,044
                                                                                    -------------    --------------

Interest expense:
   Deposits                                                                             1,232,479         1,542,586
   Interest on borrowings                                                                 148,973           116,534
                                                                                    -------------    --------------
                                                                                        1,381,452         1,659,120
                                                                                    -------------    --------------
         Net interest income                                                            2,109,685         2,038,924

Provision for loan losses                                                                 110,000           105,000
                                                                                    -------------    --------------
   Net interest income after
     provision for loan losses                                                          1,999,685         1,933,924
                                                                                    -------------    --------------

Noninterest income:
   Service charges on deposit accounts                                                    111,879            92,121
   Other income                                                                           699,374           126,401
                                                                                    -------------    --------------
                                                                                          811,253           218,522
                                                                                    -------------    --------------

Noninterest expense:
   Salaries and employee benefits                                                         962,172           760,286
   Occupancy expense                                                                       41,077            31,928
   Equipment expense                                                                      142,606           114,296
   Other expense                                                                          408,098           318,084
                                                                                    -------------    --------------
                                                                                        1,553,953         1,224,594
                                                                                    -------------    --------------
         Income before income taxes                                                     1,256,985           927,852

Income tax expense                                                                        357,000           249,000
                                                                                    -------------    --------------
         Net income                                                                 $     899,985    $      678,852
                                                                                    =============    ==============

Basic earnings per share                                                            $         .52    $          .39
                                                                                    =============    ==============
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, 2003 (unaudited)
                and the Year ended December 31, 2002 (audited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

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

<S>                               <C>        <C>           <C>         <C>            <C>            <C>
Balance, December 31, 2001        1,718,968  $ 2,148,710   $  521,625  $  18,221,877  $     193,561  $   21,085,773

   Comprehensive income
   Net income                             -            -            -      2,536,459              -       2,536,459
   Net change in unrealized
     appreciation on investment
     securities available for
     sale, net of taxes of $202,495       -            -            -              -        398,010         398,010
                                                                                                     --------------
     Total comprehensive income                                                                           2,934,469

   Dividends paid
     ($.46 per share)                     -            -            -       (790,725)             -        (790,725)

                                  ---------   ----------   ---------   -------------  -------------  --------------
Balance, December 31, 2002        1,718,968    2,148,710      521,625     19,967,611        591,571      23,229,517

   Comprehensive income
   Net income                             -            -            -      2,658,618              -       2,658,618
   Net change in unrealized
     appreciation on investment
     securities available for
     sale, net of taxes of $(146,868)     -            -            -              -       (285,096)       (285,096)
                                                                                                     --------------
     Total comprehensive income                                                                           2,373,522

   Dividends paid
       ($.36 per share)                   -            -            -       (618,828)             -        (618,828)
                                  ---------   ----------   ---------   -------------  -------------  --------------
Balance, September 30, 2003       1,718,968   $2,148,710   $ 521,625   $  22,007,401  $     306,475  $   24,984,211
                                 ==========   ==========   ==========  =============  =============  ==============
</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, 2003 and 2002
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                            Nine Months Ended
                                                                                              September 30,
                                                                                        2003              2002
                                                                                    -------------    --------------
                                                                                     (Unaudited)       (Unaudited)
<S>                                                                                 <C>              <C>
Cash flows from operating activities:
   Net income                                                                       $   2,658,618    $    1,824,170
   Adjustments to reconcile net income
     to net cash provided by operations:
       Depreciation and amortization                                                      285,000           277,500
       Provision for loan losses                                                          290,000           315,000
       Deferred income taxes                                                               (4,000)          (52,000)
       Net realized gains on securities                                                  (905,810)           (1,750)
       Accretion of discount on securities, net of
         amortization of premiums                                                         181,545            84,946
       Deferred compensation                                                                7,891             4,318
       Changes in assets and liabilities:
         Accrued income                                                                  (337,607)         (232,558)
         Other assets                                                                    (269,658)         (156,638)
         Accrued interest payable                                                         393,800           484,382
         Other liabilities                                                                149,286          (174,747)
                                                                                    -------------    --------------
           Net cash provided by operating activities                                    2,449,065         2,372,623
                                                                                    -------------    --------------

Cash flows from investing activities:
   (Increase) decrease in interest-bearing deposits with banks                                  -                 -
   Net (increase) decrease in federal funds sold                                        4,606,705          (513,354)
   Purchases of investment securities                                                 (22,817,973)      (16,561,165)
   Sales of investment securities                                                      11,449,464                 -
   Maturities of investment securities                                                  8,493,934         5,682,453
   Purchases of restricted equity securities                                             (236,300)          (19,700)
   Net increase in loans                                                              (16,938,246)      (12,560,104)
   Purchases of bank-owned life insurance                                                       -        (4,000,000)
   Purchases of property and equipment, net of sales                                   (1,900,001)         (979,353)
                                                                                    -------------    --------------
           Net cash used in investing activities                                      (17,342,417)      (28,951,223)
                                                                                    -------------    --------------

Cash flows from financing activities:
   Net increase (decrease) in demand,
     savings and NOW deposits                                                          10,372,751         9,204,290
   Net increase in time deposits                                                        1,757,525        10,047,716
   Dividends paid                                                                        (618,828)         (378,173)
   Net increase (decrease) in other borrowings                                                  -        10,000,000
                                                                                    -------------    --------------
           Net cash provided by financing activities                                   11,511,448        28,873,833
                                                                                    -------------    --------------
           Net increase (decrease) in cash and cash equivalents                        (3,381,904)        2,295,233

Cash and cash equivalents, beginning                                                   11,265,444         8,715,457
                                                                                    -------------    --------------
Cash and cash equivalents, ending                                                   $   7,883,540    $   11,010,690
                                                                                    =============    ==============

Supplemental disclosure of cash flow information:
   Interest paid                                                                    $   4,002,296    $    4,528,301
                                                                                    =============    ==============
   Taxes paid                                                                       $   1,129,001    $      731,219
                                                                                    =============    ==============
</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 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  September  30, 2003 and for the
periods ended September 30, 2003 and 2002 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,  2002,  included  in the
Company's Form 10-K for the fiscal year ended December 31, 2002.

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, 2003 and 2002.

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

Balance, beginning                      $   2,189,028    $    1,821,966
Provision charged to expense                  290,000           315,000
Recoveries of amounts charged off              38,300           175,610
Amounts charged off                          (231,437)         (228,370)
                                        -------------    --------------
Balance, ending                         $   2,285,891    $    2,084,206
                                        =============    ==============

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, 2003 and 2002 follows:

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

Tax at statutory federal rate           $   1,259,910    $      846,658
Tax exempt interest income                   (139,328)         (109,261)
Other tax exempt income                       (96,900)          (54,400)
Other                                          23,318           (16,997)
                                        -------------    --------------
                                        $   1,047,000    $      666,000
                                        =============    ==============

                                       8
<PAGE>
                     Grayson Bankshares, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements

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

Note 4.  Commitments and Contingencies

Financial Instruments with Off-Balance-Sheet Risk

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

The Bank's exposure to credit loss in the event of  nonperformance  by the other
party to the financial  instrument for  commitments to extend credit and standby
letters of credit is represented by the contractual amount of those instruments.
The Bank uses the same credit  policies in making  commitments  and  conditional
obligations  as for  on-balance-sheet  instruments.  A  summary  of  the  Bank's
commitments at September 30, 2003 and 2002 is as follows:

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

Commitments to extend credit            $   9,209,224    $    6,222,286
Standby letters of credit                           -                 -
                                        -------------    --------------
                                        $   9,209,224    $    6,222,286
                                        =============    ==============

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.

                                       9
<PAGE>
                          Part I: Financial Information

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

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

General

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

Results of Operations

Total interest income  decreased by $206,907 for the quarter ended September 30,
2003 compared to the quarter ended  September 30, 2002, and interest  expense on
deposits and other borrowings  decreased by $277,668 over the same period.  This
resulted  in an  increase  in net  interest  income of  $70,761  or  3.47%.  The
decreases  in both  interest  income and expense came as a result of the general
decreases in interest  rates which have  occurred  over the past year.  Interest
income on  investment  securities  also  decreased  as a result of  management's
strategy to shorten the overall duration of the investment  portfolio during the
current low-rate environment.

Other income was up $572,973 in the third  quarter of 2003 compared to the third
quarter of 2002.  This is a result of  increases  in mortgage  origination  fees
generated  by the recent  refinancing  volume,  alone  with a  one-time  gain of
approximately  $500,000 on the  termination  of a  pay-fixed,  receive-floating,
interest rate swap agreement.

The provision for credit losses was $110,000 for the quarter ended September 30,
2003 and $105,000 for the quarter ended September 30, 2002.  Management believes
the provision and the resulting allowance for loan losses are adequate.

Total other  expenses  increased  by $329,359,  or 26.90% for the quarter  ended
September 30, 2003 compared to the quarter ended September 30, 2002. This is due
primarily to increases in personnel costs, as well as other expenses  associated
with the opening of a new branch banking facility during the quarter.

The increases in net interest income and other income combined with the increase
in  other  expense,  resulted  in an  increase  in net  income  before  taxes of
$329,133,  or 35.47% for the quarter ended  September 30, 2003,  compared to the
same quarter in 2002. Income tax expense increased to $357,000,  resulting in an
increase in net income of $221,133,  or 32.57% to $899,985 for the third quarter
of 2003 compared to $678,852 for the third quarter of 2002.

For the nine months ended September 30, 2003, total interest income decreased by
$326,405  compared to the  nine-month  period ended  September  30, 2002,  while
interest expense decreased by $616,587 over the same period. This resulted in an
increase in net interest  income of $290,182,  or 5.04%.  As stated  above,  the
decreases  in both  interest  income  and  expense  came as a result of  general
decreases in interest rates.

Other income was up $1,585,308  for the  nine-month  period ended  September 30,
2003 compared to the same period in 2002.  The majority of this increase came in
the form of securities  gains resulting from the  restructuring  of a leveraging
strategy that was  implemented  in the first quarter of 2002.  Securities  gains
from this  transaction  totaled  approximately  $870,000.  Other income was also
impacted by a one-time gain of  approximately  $500,000 on the termination of an
interest rate swap agreement,  as discussed above in the quarterly  comparisons.
The  remaining  increase  came as a result  of  increases  in the cash  value of
bank-owned  life  insurance  policies,  which were purchased in 2002, as well as
increases in mortgage-origination fees.

Normal cost  increases,  combined  with the  aforementioned  costs of  salaries,
benefits,  and branching  activities,  resulted in an overall  increase in other
expenses  of $745,106  for the first nine  months of 2003  compared to the first
nine months of 2002.  Net income for the nine-month  period ended  September 30,
2003 increased by $834,448,  or 45.74%  compared to the nine-month  period ended
September 30, 2002. The significant  increase in net income was due primarily to
the  securities  gains and other items noted  above in the  discussion  of other
income.

                                       10
<PAGE>

Financial Condition

Total  assets  increased  by  $14,435,947,  or 5.98% from  December  31, 2002 to
September 30, 2003. Net loans increased by $16,648,246 and investment securities
increased by $3,166,876.

Total  deposits  increased by  $12,130,276,  or 5.86% from  December 31, 2002 to
September 30, 2003.  Federal Home Loan Bank advances were unchanged at September
30,  2003,  compared to December  31, 2002 as new  advances  taken in the second
quarter  of 2003 were  repaid  in the  third  quarter  in  conjunction  with the
termination of an underlying interest rate swap agreement.

Shareholders'  equity  totaled  $24,984,211  at September  30, 2003  compared to
$23,229,517  at December 31,  2002.  The  $1,754,694  increase was the result of
earnings for the nine months less  decreases  in the market value of  securities
that are  classified  as  available  for sale and the  payment of  dividends  of
$618,828.

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.

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 $601,747,  or 6.65%,  while a similar decrease in rates would
result in an increase in net interest  income of $510,165,  or 5.64%.  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

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


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 the  Company's  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 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 its 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.


                                       13
<PAGE>

                           Part II: Other Information

                     Grayson Bankshares, Inc. and Subsidiary

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

Item 1.  Legal Proceedings

There are no  matters  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

                    31.1   Rule 13a-14(a) Certification of President and Chief
                           Executive Officer.

                    31.2   Rule 13a-14(a) Certification of Chief Financial
                           Officer.

                    32.1   Certification of Chief Executive Officer and Chief
                           Financial Officer Pursuant to 18 U.S.C. Section 1350.

         (b)      Reports on 8-K
                  None

                                       14
<PAGE>

                                   SIGNATURES


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


                                        GRAYSON BANKSHARES, INC.



Date:  November 14, 2003          By:    /s/ Jacky K. Anderson
                                        ----------------------------------------
                                           Jacky K. Anderson
                                           President and Chief Executive Officer




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


<PAGE>
                                  EXHIBIT INDEX


Exhibit No.     Description

    31.1        Rule 13a-14(a) Certification  of President  and Chief  Executive
                Officer.

    31.2        Rule 13a-14(a) Certification of Chief Financial Officer.

    32.1        Certification  of Chief  Executive  Officer and  Chief Financial
                Officer Pursuant to 18 U.S.C. Section 1350.