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 June 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__

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

             There were 1,718,968 shares of Common Stock, par value
               $1.25 per share, outstanding as of August 11, 2003

<PAGE>


                            GRAYSON BANKSHARES, INC.

                                      INDEX

<TABLE>
<CAPTION>

PART I     FINANCIAL INFORMATION

Item 1.  Financial Statements
<C>                                                                                                            <S>
         Consolidated Balance Sheets--June 30, 2003 and December 31, 2002                                       3

         Consolidated Statements of Income--Six Months Ended June 30, 2003 and
         June 30, 2002                                                                                          4

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

         Consolidated Statements of Stockholders' Equity--Six Months Ended June 30,
         2003 and Year Ended December 31, 2002                                                                  6

         Consolidated Statements of Cash Flows--Six Months Ended June 30, 2003
         and June 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                                                                                                     15

</TABLE>

                                       2

<PAGE>
                          Part I. Financial Information

Item 1.  Financial Statements


                     Grayson Bankshares, Inc. and Subsidiary
                           Consolidated Balance Sheets
                       June 30, 2003 and December 31, 2002
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                    June 30,           December 31,
Assets                                                                               2003                 2002
                                                                                -----------------  -------------------
                                                                                   (Unaudited)            (Audited)
<S>                                                                             <C>                <C>
Cash and due from banks                                                         $     7,883,468    $     11,265,444
Interest-bearing deposits with banks                                                          -                   -
Federal funds sold                                                                   31,452,704          19,740,228
Investment securities available for sale                                             43,082,695          40,120,124
Investment securities held to maturity                                                2,478,388           3,906,401
Restricted equity securities                                                          1,081,750             845,450
Loans, net of allowance for loan losses of $2,185,010
  at June 30, 2003 and $2,189,028 at December 31, 2002                              160,261,408         154,190,005
Property and equipment, net                                                           5,384,014           4,126,234
Accrued income                                                                        2,158,936           1,798,906
Other assets                                                                          5,347,009           5,289,797
                                                                                ---------------    ----------------
                                                                                $   259,130,372    $    241,282,589
                                                                                ===============    ================

Liabilities and Stockholders' Equity

Liabilities
Demand deposits                                                                 $    23,464,041    $     22,950,583
Interest-bearing demand deposits                                                     18,014,577          18,079,169
Savings deposits                                                                     40,976,650          37,822,606
Large denomination time deposits                                                     35,324,131          35,232,988
Other time deposits                                                                  95,673,017          92,823,178
                                                                                ---------------    ----------------
     Total deposits                                                                 213,452,416         206,908,524

FHLB Advances                                                                        20,000,000          10,000,000

Accrued interest payable                                                                329,478             328,975
Other liabilities                                                                       479,968             815,573
                                                                                ---------------    ----------------
                                                                                    234,261,862         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                                                                    21,313,692          19,967,611
Accumulated other comprehensive income (loss)                                           884,483             591,571
                                                                                ---------------    ----------------
                                                                                     24,868,510          23,229,517
                                                                                ---------------    ----------------
                                                                                $   259,130,372    $    241,282,589
                                                                                ===============    ================
</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, 2003 and 2002
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>



                                                                                          Six Months Ended
                                                                                              June 30,
                                                                                        2003              2002
                                                                                    -------------    --------------
Interest income:                                                                     (Unaudited)       (Unaudited)
<S>                                                                                 <C>              <C>
   Loans and fees on loans                                                          $   5,730,743    $    5,866,571
   Federal funds sold                                                                     140,682           116,604
   Investment securities:
     Taxable                                                                              862,264           841,610
     Exempt from federal income tax                                                       220,909           249,311
   Deposits with banks                                                                          -                 -
                                                                                    -------------    --------------
                                                                                        6,954,598         7,074,096

Interest expense:
   Deposits                                                                             2,770,793         3,143,529
   Interest on borrowings                                                                 243,851           210,034
                                                                                    -------------    --------------
                                                                                        3,014,644         3,353,563
         Net interest income                                                            3,939,954         3,720,533

Provision for loan losses                                                                 180,000           210,000
                                                                                    -------------    --------------
   Net interest income after
     provision for loan losses                                                          3,759,954         3,510,533
                                                                                    -------------    --------------

Noninterest income:
   Service charges on deposit accounts                                                    201,292           160,986
   Other income                                                                         1,196,411           184,076
                                                                                    -------------    --------------
                                                                                        1,397,703           345,062
                                                                                    -------------    --------------

Noninterest expense:
   Salaries and employee benefits                                                       1,763,157         1,447,236
   Occupancy expense                                                                       70,803            58,984
   Equipment expense                                                                      210,305           207,160
   Other expense                                                                          664,759           579,897
                                                                                    -------------    --------------
                                                                                        2,709,024         2,293,277
         Income before income taxes                                                     2,448,633         1,562,318

Income tax expense                                                                        690,000           417,000
                                                                                    -------------    --------------
         Net income                                                                 $   1,758,633    $    1,145,318
                                                                                    =============    ==============

Basic earnings per share                                                            $        1.02    $          .67
                                                                                    =============    ==============
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 June 30, 2003 and 2002
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>


                                                                                         Three Months Ended
                                                                                              June 30,
                                                                                        2003              2002
                                                                                    -------------    --------------
Interest income:                                                                    (Unaudited)       (Unaudited)
<S>                                                                                 <C>              <C>
   Loans and fees on loans                                                          $   2,915,509    $    2,926,605
   Federal funds sold                                                                      70,603            54,733
   Investment securities:
     Taxable                                                                              392,594           448,960
     Exempt from federal income tax                                                       106,112           142,672
   Deposits with banks                                                                          -                 -
                                                                                    -------------    --------------
                                                                                        3,484,818         3,572,970

Interest expense:
   Deposits                                                                             1,354,616         1,555,526
   Interest on borrowings                                                                 129,850           115,267
                                                                                    -------------    --------------
                                                                                        1,484,466         1,670,793
         Net interest income                                                            2,000,352         1,902,177

Provision for loan losses                                                                  90,000           105,000
                                                                                    -------------    --------------
   Net interest income after
     provision for loan losses                                                          1,910,352         1,797,177
                                                                                    -------------    --------------

Noninterest income:
   Service charges on deposit accounts                                                    110,262            89,606
   Other income                                                                           183,106           110,319
                                                                                    -------------    --------------
                                                                                          293,368           199,925
                                                                                    -------------    --------------

Noninterest expense:
   Salaries and employee benefits                                                         922,715           758,429
   Occupancy expense                                                                       35,634            29,068
   Equipment expense                                                                      102,864           103,020
   Other expense                                                                          327,290           301,675
                                                                                    -------------    --------------
                                                                                        1,388,503         1,192,192
         Income before income taxes                                                       815,217           804,910

Income tax expense                                                                        203,000           218,000
                                                                                    -------------    --------------
         Net income                                                                 $     612,217    $      586,910
                                                                                    =============    ==============

Basic earnings per share                                                            $         .36    $          .34
                                                                                    =============    ==============
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 Six Months Ended June 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                             -                 -            -              1,758,633                 -       1,758,633
   Net change in unrealized
     appreciation on investment
     securities available for
     sale, net of taxes of $(94,480)      -                 -            -                      -           183,402         183,402
   Unrealized gain on interest
     rate swap agreement
     net of taxes of (56,415)              -                 -            -                      -           109,510         109,510
                                                                                                                      --------------
     Total comprehensive income                                                                                           2,051,545

   Dividends paid
       ($.24 per share)                   -                 -            -               (412,552)                -        (412,552)

Balance, June 30, 2003            1,718,968       $ 2,148,710   $  521,625          $  21,313,692     $     884,483   $  24,868,510
                                  =========       ===========   ==========          =============     =============   =============
</TABLE>


See Notes to Consolidated Financial Statements

                                       6
<PAGE>

                     Grayson Bankshares, Inc. and Subsidiary
                      Consolidated Statements of Cash Flows
                 For the Six Months Ended June 30, 2003 and 2002
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                            Six Months Ended
                                                                                                June 30,
                                                                                        2003              2002
                                                                                    -------------    --------------
                                                                                     (Unaudited)      (Unaudited)
<S>                                                                                 <C>              <C>
Cash flows from operating activities:
   Net income                                                                       $   1,758,633    $    1,145,318
   Adjustments to reconcile net income
     to net cash provided by operations:
       Depreciation and amortization                                                      180,000           177,000
       Provision for loan losses                                                          180,000           210,000
       Deferred income taxes                                                               69,000            26,000
       Net realized gains on securities                                                  (905,810)           (1,750)
       Accretion of discount on securities, net of
         amortization of premiums                                                         107,797            51,590
       Deferred compensation                                                                5,738             3,356
       Changes in assets and liabilities:
         Accrued income                                                                  (360,030)         (267,157)
         Other assets                                                                    (111,182)         (115,646)
         Accrued interest payable                                                             503            85,553
         Other liabilities                                                               (341,343)         (199,761)
                                                                                    -------------    --------------
           Net cash provided by operating activities                                      583,306         1,114,503
                                                                                    -------------    --------------

Cash flows from investing activities:
   (Increase) decrease in interest-bearing deposits with banks                                  -                 -
   Net (increase) decrease in federal funds sold                                      (11,712,476)         (912,299)
   Purchases of investment securities                                                 (18,365,453)      (14,151,619)
   Sales of investment securities                                                      11,449,464                 -
   Maturities of investment securities                                                  6,457,326         3,137,772
   Purchases of restricted equity securities                                             (236,300)          (19,700)
   Net increase in loans                                                               (6,251,403)       (7,428,855)
   Purchases of bank-owned life insurance                                                       -        (4,000,000)
   Purchases of property and equipment, net of sales                                   (1,437,780)         (686,179)
                                                                                    -------------    --------------
           Net cash used in investing activities                                      (20,096,622)      (24,060,880)
                                                                                    -------------    --------------

Cash flows from financing activities:
   Net increase (decrease) in demand,
     savings and NOW deposits                                                           3,602,910         5,665,593
   Net increase in time deposits                                                        2,940,982         5,188,238
   Dividends paid                                                                        (412,552)         (378,173)
   Net increase (decrease) in other borrowings                                         10,000,000        10,000,000
                                                                                    -------------    --------------
           Net cash provided by financing activities                                   16,131,340        20,475,658
                                                                                    -------------    --------------
           Net increase (decrease) in cash and cash equivalents                        (3,381,976)       (2,470,719)

Cash and cash equivalents, beginning                                                   11,265,444         8,715,457
                                                                                    -------------    --------------
Cash and cash equivalents, ending                                                   $   7,883,468    $    6,244,738
                                                                                    =============    ==============

Supplemental disclosure of cash flow information:
   Interest paid                                                                    $   3,014,141    $    3,268,010
                                                                                    =============    ==============
   Taxes paid                                                                       $     748,001    $      410,930
                                                                                    =============    ==============
</TABLE>


See Notes to Consolidated Financial Statements

                                       7
<PAGE>

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

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

Note 1.  Organization and Summary of Significant Accounting Policies

Organization

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

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

The  consolidated  financial  statements as of June 30, 2003 and for the periods
ended June 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 Annual Report on Form
10-K for the fiscal year ended  December 31, 2002. The results of operations for
the  three-month  and  six-month  periods  ended June 30,  2003 and 2002 are not
necessarily indicative of the results to be expected for the full year.

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

Principles of Consolidation

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

Note 2.  Allowance for Loan Losses

The following is an analysis of the allowance for loan losses for the six months
ended June 30, 2003 and 2002.

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

Balance, beginning                             $   2,189,028    $    1,821,966
Provision charged to expense                         180,000           210,000
Recoveries of amounts charged off                     25,390            97,439
Amounts charged off                                 (209,408)         (188,593)
                                               -------------    --------------
Balance, ending                                $   2,185,010    $    1,940,812
                                               =============    ==============

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, 2003 and 2002 follows:

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

Tax at statutory federal rate                  $     832,535    $      531,188
Tax exempt interest income                           (92,379)          (86,806)
Other tax exempt income                              (61,200)          (36,720)
Other                                                 11,044             9,338
                                               -------------    --------------
                                               $     690,000    $      417,000
                                               =============    ==============

                                       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, 2003 and 2002 is as follows:

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

Commitments to extend credit                   $   7,724,747    $    5,942,424
Standby letters of credit                                  -                 -
                                               -------------    --------------
                                               $   7,724,747    $    5,942,424
                                               =============    ==============

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

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

                                       9
<PAGE>



                          Part I. Financial Information

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

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

General

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

Results of Operations

Total interest  income  decreased by $88,152 for the quarter ended June 30, 2003
compared to the quarter  ended June 30, 2002,  and interest  expense on deposits
and other borrowings  decreased by $186,327 over the same period.  This resulted
in an increase in net interest income of $98,175 or 5.16%. 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.

Other income was up $93,443 in the second quarter of 2003 compared to the second
quarter of 2002.  This is a result of  increases  in mortgage  origination  fees
generated by the recent refinancing volume.

The  provision for credit losses was $90,000 for the quarter ended June 30, 2003
and  $105,000  for the quarter  ended June 30,  2002.  Management  believes  the
provision and the resulting allowance for loan losses are adequate.

Total other expenses increased by $196,311, or 16.47% for the quarter ended June
30, 2003 compared to the quarter  ended June 30, 2002.  This is due primarily to
increases in salaries and employee  benefits  which  resulted from the hiring of
additional  personnel  accompanied by increases in medical  benefits and pension
costs.

The  increases  in net  interest  income  and other  income,  combined  with the
increase in other  expenses,  resulted in an increase in net income before taxes
of $10,307,  or 1.28% for the quarter ended June 30, 2003,  compared to the same
quarter in 2002.  Income tax expense  decreased  slightly  due to an increase in
tax-exempt  investments.  As a result, net income increased by $25,307, or 4.31%
to $612,217 for the second  quarter of 2003  compared to $586,910 for the second
quarter of 2002.

For the six months  ended June 30,  2003,  total  interest  income  decreased by
$119,498  compared to the six-month  period ended June 30, 2002,  while interest
expense decreased by $338,919 over the same period. This resulted in an increase
in net interest income of $219,421,  or 5.90%. 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  $1,052,641  for the  six-month  period ended June 30, 2003
compared to the same period in 2002.  This is 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 and 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.

Normal cost increases,  combined with the  aforementioned  costs of salaries and
benefits,  resulted in an overall increase in other expenses of $415,747 for the
first six months of 2003  compared  to the first six months of 2002.  Net income
for the six-month  period ended June 30, 2003  increased by $613,315,  or 53.55%
compared to the six-month  period ended June 30, 2002. The significant  increase
in net income was due  primarily  to the  securities  gains  noted  above in the
discussion of other income.

                                       10
<PAGE>




Financial Condition

Total assets  increased by $17,847,783,  or 7.40% from December 31, 2002 to June
30, 2003. Net loans increased by $6,071,403 and investment  securities increased
by $2,508,133.

Total deposits increased by $6,543,892,  or 3.16% from December 31, 2002 to June
30, 2003. Federal Home Loan Bank advances increased by $10,000,000 over the same
period as the Bank  capitalized  on the  opportunity  to lock in long-term,  low
fixed-rate borrowings.  The Bank borrowed from the FHLB at a floating rate based
on LIBOR and subsequently entered into a pay-fixed,  receive-floating,  interest
rate swap agreement with a correspondent  to fix the borrowing rate at 3.75% for
ten years.

Shareholders'   equity  totaled   $24,868,510  at  June  30,  2003  compared  to
$23,229,517  at December 31,  2002.  The  $1,638,993  increase was the result of
earnings for the six months  combined  with  increases  in the market  values of
securities  that are  classified  as available  for sale and interest  rate swap
areements, less the payment of dividends of $412,552.

 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 $558,000,  or 6.21%,  while a similar decrease in rates would
result in an increase in net interest  income of $470,000,  or 5.22%.  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 our  disclosure  controls and  procedures  pursuant to Exchange Act
Rule 13a-15.  Based upon that  evaluation,  the  Company's  President  and Chief
Executive  Officer along with the Chief  Financial  Officer  concluded  that our
disclosure  controls and  procedures  are  effective in timely  alerting them to
material  information  relating  to  the  Company  (including  its  consolidated
subsidiaries) required to be included in our periodic SEC filings.

There have been no  significant  changes in our  internal  controls  or in other
factors that could  materially  affect,  or are reasonably  likely to materially
affect, internal controls subsequent to the date we carried out this evaluation.



                                       13
<PAGE>


                           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 8, 2003,
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
                           ----                 ---------        --------------

                  Dennis B. Gambill             1,430,945                 5,792
                  Jack E. Guynn, Jr.            1,430,677                 6,060
                  Charles T. Sturgill           1,430,777                 5,960

Item 5.  Other Information

         None

Item 6.  Exhibits and Reports on Form 8-K

         (a)     Exhibits

                    31.1 Certification  of Chief Executive  Officer  Pursuant to
                         Rule 13a-14(a) of the Securities Exchange Act of 1934.

                    31.2 Certification  of Chief Financial  Officer  Pursuant to
                         Rule 13a-14(a) of the Securities Exchange Act of 1934.

                    32   Statement   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:  August 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


                                       15
<PAGE>

                                  EXHIBIT INDEX


Exhibit No.                Description
-----------                -----------

   31.1      Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)
             of the Securities Exchange Act of 1934.

   31.2      Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)
             of the Securities Exchange Act of 1934.

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