SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                For the quarterly period ended September 30, 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 September 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
                  September 30, 2000 and December 31, 1999.....................................3

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

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

                  Consolidated Statements of Cash Flows
                  For the Nine Months Ended September 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..................12


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

================================================================================
                     Grayson Bankshares, Inc. and Subsidiary
                           Consolidated Balance Sheets
                    September 30, 2000 and December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                       September 30,     December 31,
                                                                           2000              1999
Assets                                                                 -------------    -------------
                                                                        (Unaudited)        (Audited)
<S>                                                                    <C>              <C>
Cash and due from banks                                                $   5,597,889    $   7,773,049
Interest-bearing deposits with banks                                               -                -
Federal funds sold                                                         3,329,783        6,871,535
Investment securities available for sale                                  17,474,380       16,643,344
Investment securities held to maturity                                    10,905,303       12,786,424
Loans, net of allowance for loan losses of $1,872,751
  at September 30, 2000 and $1,731,096 at December 31, 1999              134,861,177      121,498,141
Property and equipment, net                                                2,657,102        2,119,422
Accrued income                                                             1,883,011        1,412,088
Other assets                                                               1,301,602        1,230,853
                                                                       -------------    -------------
                                                                       $ 178,010,247    $ 170,334,856
                                                                       =============    =============

Liabilities and Stockholders' Equity

Liabilities
Demand deposits                                                        $  18,929,967    $  18,755,128
Interest-bearing demand deposits                                          13,031,690       13,446,904
Savings deposits                                                          30,668,013       30,575,219
Large denomination time deposits                                          25,631,491       24,082,169
Other time deposits                                                       69,130,539       64,760,605
                                                                       -------------    -------------
     Total deposits                                                      157,391,700      151,620,025

Accrued interest payable                                                     680,620          239,061
Other liabilities                                                            612,537          585,698
                                                                       -------------    -------------
                                                                         158,684,857      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                                                         16,901,618       15,559,063
Unrealized appreciation (depreciation) on investment
   securities available for sale, net of income taxes                       (246,563)        (339,326)
                                                                       -------------    -------------
                                                                          19,325,390       17,890,072
                                                                       -------------    -------------
                                                                       $ 178,010,247    $ 170,334,856
                                                                       =============    =============
</TABLE>

See Notes to Consolidated Financial Statements


                                       3
<PAGE>

================================================================================
                     Grayson Bankshares, Inc. and Subsidiary
                        Consolidated Statements of Income
              For the Nine Months ended September 30, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                  Nine Months Ended
                                                                    September 30,
                                                              2000                1999
                                                          -------------      -------------
                                                           (Unaudited)        (Unaudited)
<S>                                                       <C>                <C>
Interest income:
   Loans and fees on loans                                $   8,283,122      $   6,975,471
   Federal funds sold                                           297,698            406,153
   Investment securities:
     Taxable                                                    756,486            742,837
     Exempt from federal income tax                             479,940            554,249
   Deposits with banks                                                -                  -
                                                          -------------      -------------
                                                              9,817,246          8,678,710

Interest expense:
   Deposits                                                   4,953,432          4,397,432
   Interest on borrowings                                             -                  -
                                                          -------------      -------------
                                                              4,953,432          4,397,432
         Net interest income                                  4,863,814          4,281,278

Provision for loan losses                                       200,000            220,000
                                                          -------------      -------------
   Net interest income after
     provision for loan losses                                4,663,814          4,061,278
                                                          -------------      -------------

Noninterest income:
   Service charges on deposit accounts                          138,750            117,314
   Other income                                                  76,214             72,946
                                                          -------------      -------------
                                                                214,964            190,260
                                                          -------------      -------------

Noninterest expense:
   Salaries and employee benefits                             1,814,290          1,651,618
   Occupancy expense                                             79,133             61,001
   Equipment expense                                            195,256            145,614
   Other expense                                                617,130            639,040
                                                          -------------      -------------
                                                              2,705,809          2,497,273
         Income before income taxes                           2,172,969          1,754,265

Income tax expense                                              521,000            346,000
                                                          -------------      -------------
         Net income                                       $   1,651,969      $   1,408,265
                                                          =============      =============

Basic earnings per share                                  $         .96      $         .82
                                                          =============      =============
Weighted average shares outstanding                           1,718,968          1,718,968
                                                          =============      =============

</TABLE>




See Notes to Consolidated Financial Statements


                                       4
<PAGE>

================================================================================
                     Grayson Bankshares, Inc. and Subsidiary
                        Consolidated Statements of Income
             For the Three Months ended September 30, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                 Three Months Ended
                                                                    September 30,
                                                              2000                1999
                                                          -------------      -------------
                                                           (Unaudited)        (Unaudited)
<S>                                                       <C>                <C>
Interest income:
   Loans and fees on loans                                $   2,937,195      $   2,471,620
   Federal funds sold                                            68,240            121,548
   Investment securities:
     Taxable                                                    253,826            242,629
     Exempt from federal income tax                             149,411            186,605
   Deposits with banks                                                -                  -
                                                          -------------      -------------
                                                              3,408,672          3,022,402

Interest expense:
   Deposits                                                   1,747,280          1,477,083
   Interest on borrowings                                             -                  -
                                                          -------------      -------------
                                                              1,747,280          1,477,083
         Net interest income                                  1,661,392          1,545,319

Provision for loan losses                                        80,000             65,000
                                                          -------------      -------------
   Net interest income after
     provision for loan losses                                1,581,392          1,480,319
                                                          -------------      -------------

Noninterest income:
   Service charges on deposit accounts                           60,691             43,111
   Other income                                                  27,086             23,930
                                                          -------------      -------------
                                                                 87,777             67,041
                                                          -------------      -------------

Noninterest expense:
   Salaries and employee benefits                               599,443            583,182
   Occupancy expense                                             26,691             20,613
   Equipment expense                                             59,294             48,996
   Other expense                                                219,304            238,830
                                                          -------------      -------------
                                                                904,732            891,621
                                                          -------------      -------------
         Income before income taxes                             764,437            655,739

Income tax expense                                              214,000            110,000
                                                          -------------      -------------
         Net income                                       $     550,437      $     545,739
                                                          =============      =============

Basic earnings per share                                  $         .32      $         .32
                                                          =============      =============
Weighted average shares outstanding                           1,718,968          1,718,968
                                                          =============      =============
</TABLE>





See Notes to Consolidated Financial Statements


                                       5
<PAGE>

================================================================================
                     Grayson Bankshares, Inc. and Subsidiary
                 Consolidated Statements of Stockholders' Equity
            For the Nine Months ended September 30, 2000 (unaudited)
                 and the Year ended December 31, 1999 (audited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                Accumulated
                                                                                                   Other
                                               Common Stock                         Retained   Comprehensive
                                          Shares         Amount       Surplus       Earnings    Income (Loss)      Total
                                        -----------   -----------   -----------   -----------    -----------    -----------
<S>                                       <C>         <C>           <C>           <C>            <C>            <C>
Balance, December 31, 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                                     -             -             -     1,651,969              -      1,651,969
   Net change in unrealized
     depreciation on investment
     securities available for
     sale, net of taxes of $47,787                -             -             -             -         92,763         92,763
                                                                                                                -----------
   Total comprehensive income                                                                                     1,744,732

   Dividends paid
     ($.18 per share)                             -             -             -      (309,414)             -       (309,414)
                                        -----------   -----------   -----------   -----------    -----------    -----------
Balance, September 30, 2000               1,718,968   $ 2,148,710   $   521,625   $16,901,618    $  (246,563)   $19,325,390
                                        ===========   ===========   ===========   ===========    ===========    ===========
</TABLE>






See Notes to Consolidated Financial Statements


                                       6
<PAGE>

================================================================================
                     Grayson Bankshares, Inc. and Subsidiary
                      Consolidated Statements of Cash Flows
              For the Nine Months ended September 30, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                              Nine Months Ended
                                                                                 September 30,
                                                                             2000              1999
                                                                         ------------      ------------
                                                                          (Unaudited)       (Unaudited)
<S>                                                                      <C>               <C>
Cash flows from operating activities:
   Net income                                                            $  1,651,969      $  1,408,265
   Adjustments to reconcile net income
     to net cash provided by operations:
       Depreciation and amortization                                          170,400           135,000
       Provision for loan losses                                              200,000           220,000
       Deferred income taxes                                                  (67,000)           (4,000)
       Net realized gains on securities                                        (4,738)                -
       Accretion of discount on securities, net of
         amortization of premiums                                               7,086            10,319
       Deferred compensation                                                   44,848            41,705
       Changes in assets and liabilities:
         Accrued income                                                      (470,923)         (144,706)
         Other assets                                                         (51,536)          (34,784)
         Accrued interest payable                                             441,559           397,889
         Other liabilities                                                    (18,009)           59,876
                                                                         ------------      ------------
           Net cash provided by operating activities                        1,903,656         2,089,564
                                                                         ------------      ------------

Cash flows from investing activities:
   (Increase) decrease in interest-bearing deposits with banks                      -                 -
   Net (increase) decrease in federal funds sold                            3,541,752         3,419,644
   Purchases of investment securities                                      (1,904,605)       (3,764,163)
   Sales of investment securities                                             380,500         2,674,500
   Maturities of investment securities                                      2,712,392         1,940,837
   Net increase in loans                                                  (13,563,036)      (11,580,681)
   Purchases of property and equipment, net of sales                         (708,080)         (345,563)
                                                                         ------------      ------------
           Net cash used in investing activities                           (9,541,077)       (7,655,426)
                                                                         ------------      ------------

Cash flows from financing activities:
   Net increase (decrease) in demand,
     savings and NOW deposits                                                (147,581)        2,468,638
   Net increase in time deposits                                            5,919,256         3,277,777
   Dividends paid                                                            (309,414)         (275,036)
   Net increase (decrease) in short-term debt                                       -                 -
                                                                         ------------      ------------
           Net cash provided by financing activities                        5,462,261         5,471,379
                                                                         ------------      ------------
           Net increase (decrease) in cash and cash equivalents            (2,175,160)          (94,483)

Cash and cash equivalents, beginning                                        7,773,049         5,017,069
                                                                         ------------      ------------
Cash and cash equivalents, ending                                        $  5,597,889      $  4,922,586
                                                                         ============      ============

Supplemental disclosure of cash flow information:
   Interest paid                                                         $  4,511,873      $  3,999,543
                                                                         ============      ============
   Taxes paid                                                            $    580,500      $    350,000
                                                                         ============      ============
</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 six banking
offices. As an FDIC insured,  National Banking Association,  the Bank is subject
to regulation by the  Comptroller  of the Currency.  The Company is regulated by
the Federal Reserve.

The  consolidated  financial  statements  as of  September  30, 2000 and for the
periods ended  September 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 to shareholders  for the fiscal year ended December 31,
1999 and the  Company's  registration  statement  on Form 10, as filed  with the
Securities and Exchange Commission.

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

Principles of Consolidation

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

Note 2.  Allowance for Loan Losses

The  following  is an  analysis  of the  allowance  for loan losses for the nine
months ended September 30.

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

Balance, beginning                               $   1,731,096    $   1,677,171
Provision charged to expense                           200,000          220,000
Recoveries of amounts charged off                       43,402          138,002
Amounts charged off                                   (101,747)        (378,121)
                                                 -------------    -------------
Balance, ending                                  $   1,872,751    $   1,657,052
                                                 =============    =============







                                       8
<PAGE>

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

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

Note 3.  Income Taxes

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

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

Tax at statutory federal rate                    $     738,809    $     596,450
Tax exempt interest income                            (163,180)        (188,445)
Alternative minimum tax credit                         (77,064)         (86,154)
Other                                                   22,435           24,149
                                                 -------------    -------------
                                                 $     521,000    $     346,000
                                                 =============    =============


Note 4.  Commitments and Contingencies

Financial Instruments with Off-Balance-Sheet Risk

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

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

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

Commitments to extend credit                     $   3,930,983    $   5,431,726
Standby letters of credit                                    -                -
                                                 -------------    -------------
                                                 $   3,930,983    $   5,431,726
                                                 =============    =============

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  September 30, 2000,  was $550,437  compared to
$545,739 for the quarter ended  September 30, 1999.  Net income before taxes for
the third  quarter was up  $108,698,  or 16.58% over the same quarter last year.
Income tax expense  increased by $104,000 compared to the same quarter last year
as alternative minimum tax credits, which were available in 1999, were exhausted
in the first  quarter of 2000.  Net  interest  income  increased  by $116,073 to
$1,661,392  for the quarter ended  September 30, 2000 compared to $1,545,319 for
the  quarter  ended  September  30,  1999.  The  increase  in net income and net
interest  income  was due to an  increase  in loans of over $17.7  million  from
September 30, 1999 to September 30, 2000,  accompanied by an overall increase in
yields on average earning assets.

Interest  expense for the quarter ended  September 30, 2000 was  $1,747,280,  up
$270,197 from  $1,477,083 for the quarter ended September 30, 1999. The increase
was  due to an  increase  in  total  interest  bearing  deposits,  primarily  in
higher-yielding time deposits.

The provision for credit losses was $80,000 for the quarter ended  September 30,
2000 and $65,000 for the quarter  ended  September 30, 1999. As of September 30,
2000, the allowance for loan losses represented 1.37% of total loans. Management
believes that the current provision and the resulting  allowance for loan losses
are adequate.

Net income for the nine months ended September 30, 2000, was $1,651,969 compared
to  $1,408,265  for the nine months ended  September 30, 1999,  representing  an
increase of 17.31%.  Net interest income increased by $582,536 to $4,863,814 for
the nine months ended  September 30, 2000  compared to  $4,281,278  for the nine
months ended  September  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 nine months ended September 30, 2000 was $4,953,432, up
$556,000  from  $4,397,432  for the nine months ended  September  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  $7,675,391  from  December 31, 1999 to September 30,
2000.  Net loans  increased  by  $13,363,036.  Cash and  balances due from banks
decreased by $2,175,160  during the  nine-month  period as excess cash reserves,
which had been accumulated due to Y2K concerns, were eliminated.

Federal funds sold  decreased by $3,541,752  from December 31, 1999 to September
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.



                                       10
<PAGE>

Shareholders'  equity  totaled  $19,325,390  at September  30, 2000  compared to
$17,890,072  at December 31,  1999.  The  $1,435,318  increase was the result of
earnings for the nine months and an increase in the market  value of  securities
that are  classified  as  available  for sale,  less the  payment  of  dividends
totaling $309,414.

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 September
30, 2000.













                                       12
<PAGE>

Table:  Interest Rate Risk (dollars in thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                  Rate Shocked Interest Margin and Market Value of Equity
------------------------------------------------------------------------------------------------------------------------------

       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            $    171   $    189   $    207   $    225   $    244   $    262   $    280   $    298   $    316
Investments                      1,784      1,796      1,808      1,820      1,832      1,844      1,855      1,867      1,879
Loans                           10,669     10,968     11,267     11,565     11,841     12,108     12,372     12,637     12,898
                              ------------------------------------------------------------------------------------------------
  Total interest income         12,624     12,953     13,282     13,610     13,917     14,214     14,507     14,802     15,093

Interest Expense:
Deposits                         6,283      6,477      6,671      6,865      7,060      7,250      7,441      7,632      7,823
Federal funds purchased              -          -          -          -          -          -          -          -          -
Other borrowings                     -          -          -          -          -          -          -          -          -
                              ------------------------------------------------------------------------------------------------
  Total interest expense         6,283      6,477      6,671      6,865      7,060      7,250      7,441      7,632      7,823

Interest Margin               $  6,341   $  6,476   $  6,611   $  6,745   $  6,857   $  6,964   $  7,066   $  7,170   $  7,270
Actual Dollars at Risk        $    516   $    381   $    246   $    112        $ -        $ -        $ -        $ -        $ -


Market value of assets        $183,131   $181,397   $179,677   $177,942   $176,103   $174,240   $172,400   $170,595   $168,787
Market value of liabilities    168,818    167,247    165,675    164,104    162,533    160,962    159,391    157,819    156,248
                              ------------------------------------------------------------------------------------------------

Market Value of Equity        $ 14,313   $ 14,150   $ 14,002   $ 13,838   $ 13,570   $ 13,278   $ 13,009   $ 12,776   $ 12,539

</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

         None

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:  November 6, 2000                     By:   /s/Jacky K. Anderson
                                                  President and CEO


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
















                                       15