SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                  For the quarterly period ended June 30, 2000

              [ ] 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  (540) 773-2811


         Indicate  by check  mark  whether  the  registrant:  (1) has  filed all
reports  required to be filed by Section 13 or 15(d) of the  Exchange Act during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                                         Yes  __X__    No  _____

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of June 30, 2000.

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



<PAGE>

                            GRAYSON BANKSHARES, INC.

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                          Page No.
<S>                                                                                                         <C>
Part I.       Financial Information

         Item 1.  Financial Statements

                  Consolidated Balance Sheets
                  June 30, 2000 and December 31, 1999........................................................3

                  Consolidated Statements of Income
                  For the Six Months Ended June 30, 2000 and 1999 and
                  For the Three Months Ended June 30, 2000 and 1999..........................................4

                  Consolidated Statements of Stockholders' Equity
                  For the Six Months Ended June 30, 2000 and
                  the Year Ended December 31, 1999...........................................................6

                  Consolidated Statements of Cash Flows
                  For the Six Months Ended June 30, 2000 and 1999............................................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................................11


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

</TABLE>




                                       2
<PAGE>

                          Part I: Financial Information

Item 1:  Financial Statements
<TABLE>
<CAPTION>
==================================================================================================================
                     Grayson Bankshares, Inc. and Subsidiary
                           Consolidated Balance Sheets
                       June 30, 2000 and December 31, 1999
------------------------------------------------------------------------------------------------------------------

                                                                                   June 30,          December 31,
Assets                                                                               2000                1999
                                                                                ---------------    ---------------
                                                                                  (Unaudited)         (Audited)
<S>                                                                             <C>                <C>
Cash and due from banks                                                         $     4,530,453    $     7,773,049
Interest-bearing deposits with banks                                                          -                  -
Federal funds sold                                                                    3,909,324          6,871,535
Investment securities available for sale                                             17,645,847         16,643,344
Investment securities held to maturity                                               11,316,605         12,786,424
Loans, net of allowance for loan losses of $1,837,773
  at June 30, 2000 and $1,731,096 at December 31, 1999                              131,722,695        121,498,141
Property and equipment, net                                                           2,410,514          2,119,422
Accrued income                                                                        1,682,359          1,412,088
Other assets                                                                          1,332,012          1,230,853
                                                                                ---------------    ---------------
                                                                                $   174,549,809    $   170,334,856
                                                                                ===============    ===============

Liabilities and Stockholders' Equity

Liabilities
Demand deposits                                                                 $    18,835,608    $    18,755,128
Interest-bearing demand deposits                                                     12,792,631         13,446,904
Savings deposits                                                                     31,179,587         30,575,219
Large denomination time deposits                                                     24,462,973         24,082,169
Other time deposits                                                                  67,791,215         64,760,605
                                                                                ---------------    ---------------
     Total deposits                                                                 155,062,014        151,620,025

Accrued interest payable                                                                236,457            239,061
Other liabilities                                                                       624,473            585,698
                                                                                ---------------    ---------------
                                                                                    155,922,944        152,444,784

Commitments and contingencies

Stockholders' equity
Preferred stock, $25 par value; 500,000
   shares authorized; none issued                                                             -                  -
Common stock, $1.25 par value; 2,000,000 shares
   authorized; 1,718,968 shares issued and
   outstanding in 2000 and 1999                                                       2,148,710          2,148,710
Surplus                                                                                 521,625            521,625
Retained earnings                                                                    16,351,181         15,559,063
Unrealized appreciation (depreciation) on investment
   securities available for sale, net of income taxes                                  (394,651)          (339,326)
                                                                                ---------------    ----------------
                                                                                     18,626,865         17,890,072
                                                                                ---------------    ---------------
                                                                                $   174,549,809    $   170,334,856
                                                                                ===============    ===============
</TABLE>






See Notes to Consolidated Financial Statements

                                       3
<PAGE>

================================================================================
                     Grayson Bankshares, Inc. and Subsidiary
                        Consolidated Statements of Income
                 For the Six Months ended June 30, 2000 and 1999
--------------------------------------------------------------------------------

                                                         Six Months Ended
                                                             June 30,
                                                      2000              1999
                                                  -------------    -------------
Interest income:                                   (Unaudited)      (Unaudited)
   Loans and fees on loans                        $   5,345,927    $   4,503,851
   Federal funds sold                                   229,458          284,605
   Investment securities:
     Taxable                                            502,660          491,607
     Exempt from federal income tax                     330,529          376,245
   Deposits with banks                                        -                -
                                                  -------------    -------------
                                                      6,408,574        5,656,308

Interest expense:
   Deposits                                           3,206,152        2,920,349
   Interest on borrowings                                     -                -
                                                  -------------    -------------
                                                      3,206,152        2,920,349
         Net interest income                          3,202,422        2,735,959

Provision for loan losses                               120,000          155,000
                                                  -------------    -------------
   Net interest income after
     provision for loan losses                        3,082,422        2,580,959
                                                  -------------    -------------

Noninterest income:
   Service charges on deposit accounts                   78,059           74,203
   Other income                                          49,128           49,016
                                                  -------------    -------------
                                                        127,187          123,219
                                                  -------------    -------------

Noninterest expense:
   Salaries and employee benefits                     1,214,847        1,068,436
   Occupancy expense                                     52,442           40,388
   Equipment expense                                    135,962           96,618
   Other expense                                        397,826          400,210
                                                  -------------    -------------
                                                      1,801,077        1,605,652
         Income before income taxes                   1,408,532        1,098,526

Income tax expense                                      307,000          236,000
                                                  -------------    -------------
         Net income                               $   1,101,532    $     862,526
                                                  =============    =============

Basic earnings per share                          $         .64    $         .50
                                                  =============    =============
Weighted average shares outstanding                   1,718,968        1,718,968
                                                  =============    =============













See Notes to Consolidated Financial Statements

                                       4
<PAGE>

================================================================================
                     Grayson Bankshares, Inc. and Subsidiary
                        Consolidated Statements of Income
                For the Three Months ended June 30, 2000 and 1999
--------------------------------------------------------------------------------

                                                        Three Months Ended
                                                             June 30,
                                                      2000              1999
                                                  -------------    -------------
Interest income:                                   (Unaudited)      (Unaudited)
   Loans and fees on loans                        $   2,757,187    $   2,304,837
   Federal funds sold                                   114,911          135,993
   Investment securities:
     Taxable                                            257,036          245,116
     Exempt from federal income tax                     156,319          182,230
   Deposits with banks                                        -                -
                                                  -------------    -------------
                                                      3,285,453        2,868,176

Interest expense:
   Deposits                                           1,629,137        1,471,661
   Interest on borrowings                                     -                -
                                                  -------------    -------------
                                                      1,629,137        1,471,661
         Net interest income                          1,656,316        1,396,515

Provision for loan losses                                60,000           75,000
                                                  -------------    -------------
   Net interest income after
     provision for loan losses                        1,596,316        1,321,515
                                                  -------------    -------------

Noninterest income:
   Service charges on deposit accounts                   44,235           39,545
   Other income                                          25,676           30,377
                                                  -------------    -------------
                                                         69,911           69,922
                                                  -------------    -------------

Noninterest expense:
   Salaries and employee benefits                       625,253          521,333
   Occupancy expense                                     27,206           16,213
   Equipment expense                                     68,926           46,537
   Other expense                                        210,788          196,664
                                                  -------------    -------------
                                                        932,173          780,747
                                                  -------------    -------------
         Income before income taxes                     734,054          610,690

Income tax expense                                      197,000          150,000
                                                  -------------    -------------
         Net income                               $     537,054    $     460,690
                                                  =============    =============

Basic earnings per share                          $         .31    $         .27
                                                  =============    =============
Weighted average shares outstanding                   1,718,968        1,718,968
                                                  =============    =============












See Notes to Consolidated Financial Statements

                                       5
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
                     Grayson Bankshares, Inc. and Subsidiary
                 Consolidated Statements of Stockholders' Equity
               For the Six Months ended June 30, 2000 (unaudited)
                 and the Year ended December 31, 1999 (audited)
-----------------------------------------------------------------------------------------------------------------------------------



                                                                                                       Accumulated
                                                   Common Stock                                           Other
                                           ---------------------------                    Retained    Comprehensive
                                              Shares         Amount         Surplus       Earnings     Income (Loss)       Total
                                           ------------   ------------   ------------   ------------   ------------    ------------
<S>                                           <C>         <C>            <C>            <C>            <C>             <C>
Balance, December 31, 1998                      859,484   $ 1,074,355    $  521,625     $ 15,256,525   $    175,695    $ 17,028,200

   Comprehensive income
   Net income                                         -             -             -        1,944,153              -       1,944,153
   Net change in unrealized
     depreciation on investment
     securities available for
     sale, net of taxes of $(265,314)                 -             -             -                -       (515,021)       (515,021)
                                                                                                                       ------------
     Total comprehensive income                                                                                           1,429,132

   Dividends paid
     ($.33 per share)                                 -             -             -         (567,260)             -        (567,260)

   Stock split, effected in the
     form of a dividend                         859,484     1,074,355             -       (1,074,355)             -               -
                                              ---------   -----------    ----------     ------------   ------------    ------------
Balance, December 31, 1999                    1,718,968     2,148,710       521,625       15,559,063       (339,326)     17,890,072

   Comprehensive income
   Net income                                         -             -             -        1,101,532              -       1,101,532
   Net change in unrealized
     depreciation on investment
     securities available for
     sale, net of taxes of $(28,501)                  -             -             -                -        (55,325)        (55,325)
                                                                                                                       ------------
   Total comprehensive income                                                                                             1,046,207

   Dividends paid
     ($.18 per share)                                 -            -              -        (309,414)              -        (309,414)
                                              ---------   ----------     ----------     -----------    ------------    ------------
Balance, June 30, 2000                        1,718,968   $2,148,710     $  521,625     $16,351,181    $   (394,651)   $ 18,626,865
                                              =========   ==========     ==========     ===========    ============    ============

</TABLE>












See Notes to Consolidated Financial Statements

                                       6
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================
                     Grayson Bankshares, Inc. and Subsidiary
                      Consolidated Statements of Cash Flows
                 For the Six Months ended June 30, 2000 and 1999
-------------------------------------------------------------------------------------------------------------------

                                                                                           Six Months Ended
                                                                                               June 30,
                                                                                        2000              1999
                                                                                    -------------    -------------
                                                                                     (Unaudited)       (Unaudited)
<S>                                                                                 <C>              <C>
Cash flows from operating activities:
   Net income                                                                       $   1,101,532    $     862,526
   Adjustments to reconcile net income
     to net cash provided by operations:
       Depreciation and amortization                                                      111,600           90,000
       Provision for loan losses                                                          120,000          155,000
       Deferred income taxes                                                              (38,000)          82,000
       Net realized gains on securities                                                    (4,738)               -
       Accretion of discount on securities, net of
         amortization of premiums                                                           5,739            6,453
       Deferred compensation                                                               30,281           27,137
       Changes in assets and liabilities:
         Accrued income                                                                  (270,271)         (53,999)
         Other assets                                                                     (34,658)         (38,810)
         Accrued interest payable                                                          (2,604)          (7,109)
         Other liabilities                                                                  8,494          (41,494)
                                                                                    -------------    -------------
           Net cash provided by operating activities                                    1,027,375        1,081,704
                                                                                    -------------    -------------

Cash flows from investing activities:
   (Increase) decrease in interest-bearing deposits with banks                                  -                -
   Net (increase) decrease in federal funds sold                                        2,962,211        1,786,531
   Purchases of investment securities                                                  (1,444,547)      (2,844,269)
   Sales of investment securities                                                         380,500        2,429,500
   Maturities of investment securities                                                  1,446,536        1,749,900
   Net increase in loans                                                              (10,344,554)      (7,910,715)
   Purchases of property and equipment, net of sales                                     (402,692)        (192,641)
                                                                                    -------------    -------------
           Net cash used in investing activities                                       (7,402,546)      (4,981,694)
                                                                                    -------------    -------------

Cash flows from financing activities:
   Net increase (decrease) in demand,
     savings and NOW deposits                                                              30,575          738,919
   Net increase in time deposits                                                        3,411,414        2,316,245
   Dividends paid                                                                        (309,414)        (275,036)
   Net increase (decrease) in short-term debt                                                   -                -
                                                                                    -------------    -------------
           Net cash provided by financing activities                                    3,132,575        2,780,128
                                                                                    -------------    -------------
           Net increase (decrease) in cash and cash equivalents                        (3,242,596)      (1,119,862)

Cash and cash equivalents, beginning                                                    7,773,049        5,017,069
                                                                                    -------------    -------------
Cash and cash equivalents, ending                                                   $   4,530,453    $   3,897,207
                                                                                    =============    =============

Supplemental disclosure of cash flow information:
   Interest paid                                                                    $   3,208,756    $   2,927,458
                                                                                    =============    =============
   Taxes paid                                                                       $     289,000    $     154,000
                                                                                    =============    =============

</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 five banking
offices. As an FDIC insured,  National Banking Association,  the Bank is subject
to regulation by the  Comptroller  of the Currency.  The Company is regulated by
the Federal Reserve.

The  consolidated  financial  statements as of June 30, 2000 and for the periods
ended June 30, 2000 and 1999 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, 1999, included in the Company's annual report for the
fiscal year ended December 31, 1999.

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

Principles of Consolidation

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

Note 2.  Allowance for Loan Losses

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

                                                     2000             1999
                                                 -------------    -------------

Balance, beginning                               $   1,731,096    $   1,677,171
Provision charged to expense                           120,000          155,000
Recoveries of amounts charged off                       35,631           38,765
Amounts charged off                                    (48,954)        (359,050)
                                                 -------------    -------------
Balance, ending                                  $   1,837,773    $   1,511,886
                                                 =============    =============

Note 3.  Income Taxes

A reconciliation  of income tax expense computed at the statutory federal income
tax rate to income tax expense  included in the statements of income for the six
months ended June 30, 2000 and 1999 follows:

                                                     2000             1999
                                                 -------------    -------------

Tax at statutory federal rate                    $     478,901    $     373,499
Tax exempt interest income                            (112,380)        (127,923)
Alternative minimum tax credit                         (77,064)         (29,836)
Other                                                   17,543           20,260
                                                 -------------    -------------
                                                 $     307,000    $     236,000
                                                 =============    =============



                                       8
<PAGE>

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

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

Note 4.  Commitments and Contingencies

Financial Instruments with Off-Balance-Sheet Risk

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

The Bank's exposure to credit loss in the event of  nonperformance  by the other
party to the financial  instrument for  commitments to extend credit and standby
letters of credit is represented by the contractual amount of those instruments.
The Bank uses the same credit  policies in making  commitments  and  conditional
obligations  as for  on-balance-sheet  instruments.  A  summary  of  the  Bank's
commitments at June 30, 2000 and 1999 is as follows:

                                                      2000             1999
                                                  -------------    -------------

Commitments to extend credit                      $   4,153,486    $   3,766,296
Standby letters of credit                                     -                -
                                                  -------------    -------------
                                                  $   4,153,486    $   3,766,296
                                                  =============    =============

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

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











                                       9
<PAGE>

================================================================================
                          Part I: Financial Information

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

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

General

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

Results of Operations

Net income for the  quarter  ended  June 30,  2000,  was  $537,054  compared  to
$460,690  for the  quarter  ended June 30,  1999,  representing  an  increase of
16.58%.  Net interest income increased by $259,801 to $1,656,316 for the quarter
ended June 30, 2000 compared to $1,396,515  for the quarter ended June 30, 1999.
The  increase  in net income and net  interest  income was due to an increase in
loans of over  $18.3  million  from  June 30,  1999 to 2000,  accompanied  by an
overall increase in yields on average earning assets.

Interest expense for the quarter ended June 30, 2000 was $1,629,137, up $157,476
from  $1,471,661for  the quarter ended June 30, 1999. The increase was due to an
increase in total interest bearing deposits

The  provision for credit losses was $60,000 for the quarter ended June 30, 2000
and $75,000 for the quarter  ended June 30, 1999.  The allowance for loan losses
decreased in the second  quarter of 1999,  due to the charge-off of a commercial
loan of  approximately  $275,000.  As of June 30, 2000,  the  allowance for loan
losses  represented  1.38% of  total  loans.  Management  believes  the  current
provision and the resulting allowance for loan losses are adequate.

Net income for the six months ended June 30, 2000,  was  $1,101,532  compared to
$862,526  for the six months ended June 30,  1999,  representing  an increase of
27.71%.  Net interest  income  increased by $466,463 to  $3,202,422  for the six
months ended June 30, 2000 compared to $2,735,959  for the six months ended June
30, 1999. The increase in net income and net interest income was again due to an
increase  in loans  accompanied  by an  overall  increase  in yields on  average
earning assets.

Interest  expense  for the six months  ended June 30,  2000 was  $3,206,152,  up
$285,803 from  $2,920,349  for the six months ended June 30, 1999.  The increase
was due to an increase in total interest bearing deposits as well as an increase
in the percentage of higher yielding time deposits.

Financial Condition

Total assets  increased by  $4,214,953  from December 31, 1999 to June 30, 2000.
Net loans increased by  $10,224,554.  Cash and balances due from banks decreased
by $3,242,596  during the six-month  period as excess cash  reserves,  which had
been accumulated due to Y2K concerns, were eliminated.

Federal funds sold  decreased by $6,404,145  from June 30, 1999 to June 30, 2000
as excess balances were used to fund increased loan demand.  Management believes
however,  that liquidity remains sufficient to meet financial commitments and to
fund  additional  loan demand or  withdrawal  of existing  deposits.  The Bank's
primary sources of liquidity include  remaining  balances in Federal Funds sold,
investment securities classified as "available for sale" as well as unused lines
of credit with correspondent banks.

Shareholders'   equity  totaled   $18,626,865  at  June  30,  2000  compared  to
$17,890,072  at December  31,  1999.  The  $736,793  increase  was the result of
earnings  for the three  months  offset by a  decrease  in the  market  value of
securities  that  are  classified  as  available  for sale  and the  payment  of
dividends totaling $309,414.



                                       10
<PAGE>

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>

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 insure 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  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  and
present value equity from gradual  changes in rates of up to 400 basis points up
or down  over a  12-month  period.  The  following  table  presents  the  Bank's
forecasts  for  changes in net income and market  value of equity as of June 30,
2000.
















                                       12
<PAGE>

Table:  Interest Rate Risk (dollars in thousands)
<TABLE>
<CAPTION>

        Rate Change            -400bp     -300bp     -200bp     -100bp       0bp      +100bp     +200bp     +300bp     +400bp
                               ------     ------     ------     ------       ---      ------     ------     ------     ------
<S>                           <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Interest Income:
Federal funds sold            $    223   $    228   $    233   $    239   $    244   $    250   $    255   $    261   $    266
Investments                      1,831      1,842      1,853      1,864      1,875      1,886      1,897      1,908      1,919
Loans                           10,203     10,509     10,820     11,126     11,406     11,669     11,927     12,182     12,437
                              ------------------------------------------------------------------------------------------------
  Total interest income         12,257     12,579     12,906     13,229     13,525     13,805     14,079     14,351     14,622

Interest Expense:
Deposits                         5,728      5,943      6,157      6,372      6,586      6,782      6,978      7,173      7,369
Federal funds purchased              -          -          -          -          -          -          -          -          -
Other borrowings                     -          -          -          -          -          -          -          -          -
                              ------------------------------------------------------------------------------------------------
  Total interest expense         5,728      5,943      6,157      6,372      6,586      6,782      6,978      7,173      7,369

Interest Margin               $  6,529   $  6,636   $  6,749   $  6,857   $  6,939   $  7,023   $  7,101   $  7,178   $  7,253
Actual Dollars at Risk        $    410   $    303   $    190   $     82   $      -   $      -   $      -   $      -   $      -


Market value of assets        $178,894   $177,271   $175,663   $173,991   $172,173   $170,313   $168,483   $166,655   $164,858
Market value of liabilities    164,961    163,663    162,364    161,066    159,767    158,468    157,170    155,871    154,573
                              ------------------------------------------------------------------------------------------------

Market Value of Equity        $ 13,933   $ 13,608   $ 13,299   $ 12,925   $ 12,406   $ 11,845   $ 11,313   $ 10,784   $ 10,285

</TABLE>













                                       13
<PAGE>

================================================================================
                     Grayson Bankshares, Inc. and Subsidiary
                           Part II: Other Information

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

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

         At the Company's Annual Meeting of Shareholders held on April 11, 2000,
         the  shareholders of the Company voted upon the following  matters with
         the following results:

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

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

               Charles T. Sturgill           1,233,110                   25
               Jim J. Todd                   1,225,635                7,500
               Jack E. Guynn, Jr.            1,232,535                  600

         (2)   A motion by  management  to amend the  By-Laws  and  Articles  of
               Incorporation  to  increase  the number of  authorized  shares of
               common stock from 2,000,000 to 5,000,000 shares.

                                             Votes For            Votes Against
                                             ---------            -------------

                                             1,177,787                55,348


Item 5.  Other Information

         None

Item 6.  Exhibits and Reports on Form 8-K

         (a)   Exhibits
               27. Financial Data Schedule (filed electronically only)
         (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: July 31, 2000                       By:   /s/Jacky K. Anderson
                                                President and CEO


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




















                                       15