| Virginia(State or other jurisdiction ofincorporation or organization)                    | 54-1647596(I.R.S. EmployerIdentification No.) |
|------------------------------------------------------------------------------------------|-----------------------------------------------|
|  113 West Main StreetIndependence, Virginia(Address of principal executive offices) |   24348(Zip Code)                   |

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| PART I     | FINANCIAL INFORMATION                                                               |   |
|------------|-------------------------------------------------------------------------------------|--------|
|       |                                                                                |   |
| Item 1.    | Financial Statements                                                                |   |
|       |                                                                                |   |
|       | Consolidated Balance Sheets—March 31, 2010 (Unaudited)                        |   |
|       | and December 31, 2009 (Audited)                                                     | 3      |
|       |                                                                                |   |
|       | Unaudited Consolidated Statements of Income—Three Months Ended                |   |
|       | March 31, 2010 and March 31, 2009                                                   | 4      |
|       |                                                                                |   |
|       | Consolidated Statements of Changes in Stockholders’ Equity—Three Months |   |
|       | Ended March 31, 2010 (Unaudited) and Year Ended December 31, 2009 (Audited)         | 5      |
|       |                                                                                |   |
|       | Unaudited Consolidated Statements of Cash Flows—Three Months Ended            |   |
|       | March 31, 2010 and March 31, 2009                                                   | 6      |
|       |                                                                                |   |
|       | Notes to Consolidated Financial Statements                                          | 7      |
|       |                                                                                |   |
| Item 2.    | Management’s Discussion and Analysis of Financial Condition                   |   |
|       | and Results of Operations                                                           | 17     |
|       |                                                                                |   |
| Item 3.    | Quantitative and Qualitative Disclosures about Market Risk                          | 20     |
|       |                                                                                |   |
| Item 4.    | Controls and Procedures                                                             | 21     |
|       |                                                                                |   |
| PART II    | OTHER INFORMATION                                                                   |   |
|       |                                                                                |   |
| Item 1.    | Legal Proceedings                                                                   | 22     |
|       |                                                                                |   |
| Item 1A.   | Risk Factors                                                                        | 22     |
|       |                                                                                |   |
| Item 2.    | Unregistered Sales of Equity Securities and Use of Proceeds                         | 22     |
|       |                                                                                |   |
| Item 3.    | Defaults Upon Senior Securities                                                     | 22     |
|       |                                                                                |   |
| Item 4.    | Removed and Reserved                                                                | 22     |
|       |                                                                                |   |
| Item 5.    | Other Information                                                                   | 22     |
|       |                                                                                |   |
| Item 6.    | Exhibits                                                                            | 22     |
|       |                                                                                |   |
| Signatures |                                                                                | 23     |

----

|                                                     |   | March 31,   |        |   | December 31, |   |
|----------------------------------------------------------|--------|-------------|-------------|--------|--------------|--------|
|                                                     |   | 2010        |        |   | 2009         |   |
| Assets                                                   |   | (Unaudited) |        |   | (Audited)    |   |
|                                                     |   |        |        |   |         |   |
| Cash and due from banks                                  |   | $           | 9,469,485   |   |         | $      | 8,637,123 |   |
| Interest-bearing deposits with banks                     |   |        | 300,188     |   |         |   | 300,000 |   |
| Federal funds sold                                       |   |        | 21,299,796  |   |         |   | 19,356,999 |   |
| Investment securities available for sale                 |   |        | 40,728,939  |   |         |   | 39,859,119 |   |
| Investment securities held to maturity                   |   |        |        |   |         |   |   |   |
| (fair value approximately $2,297,321 at March 31, 2010,  |   |        |        |   |         |   |   |   |
| and $2,254,196 at December 31,  2009)          |   |        | 2,186,446   |   |         |   | 2,174,882 |   |
| Restricted equity securities                             |   |        | 1,783,700   |   |         |   | 1,783,700 |   |
| Loans, net of allowance for loan losses of $3,744,934 at |   |        |        |   |         |   |   |   |
| March 31, 2010 and $3,555,273 at December 31, 2009       |   |        | 262,850,283 |   |         |   | 266,628,050 |   |
| Cash value of life insurance                             |   |        | 8,173,134   |   |         |   | 8,098,134 |   |
| Foreclosed assets                                        |   |        | 2,786,385   |   |         |   | 2,808,885 |   |
| Property and equipment, net                              |   |        | 11,034,756  |   |         |   | 11,133,834 |   |
| Accrued interest receivable                              |   |        | 2,294,589   |   |         |   | 2,626,164 |   |
| Other assets                                             |   |        | 6,071,150   |   |         |   | 6,195,031 |   |
|                                                     |   | $           | 368,978,851 |   |         | $      | 369,601,921 |   |
| Liabilities and Stockholders’ Equity               |   |        |        |   |         |   |   |   |
|                                                     |   |        |        |   |         |   |   |   |
| Liabilities                                              |   |        |        |   |         |   |   |   |
| Deposits                                                 |   |        |        |   |         |   |   |   |
| Noninterest-bearing                                      |   | $           | 43,309,657  |   |         | $      | 44,924,699 |   |
| Interest-bearing                                         |   |        | 268,405,679 |   |         |   | 268,558,517 |   |
| Total deposits                                           |   |        | 311,715,336 |   |         |   | 313,483,216 |   |
|                                                     |   |        |        |   |         |   |   |   |
| Long-term debt                                           |   |        | 25,000,000  |   |         |   | 25,000,000 |   |
| Accrued interest payable                                 |   |        | 782,944     |   |         |   | 382,653 |   |
| Other liabilities                                        |   |        | 543,387     |   |         |   | 196,107 |   |
|                                                     |   |        | 338,041,667 |   |         |   | 339,061,976 |   |
|                                                     |   |        |        |   |         |   |   |   |
| 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                      |   |        |        |   |         |   |   |   |
| in 2010 and 2009, respectively                           |   |        | 2,148,710   |   |         |   | 2,148,710 |   |
| Surplus                                                  |   |        | 521,625     |   |         |   | 521,625 |   |
| Retained earnings                                        |   |        | 28,734,401  |   |         |   | 28,497,214 |   |
| Accumulated other comprehensive income (loss)            |   |        | (467,552    | )      |         |   | (627,604 | ) |
|                                                     |   |        | 30,937,184  |   |         |   | 30,539,945 |   |
|                                                     |   | $           | 368,978,851 |   |         | $      | 369,601,921 |   |

----

|                                      |   | Three Months Ended |      |
|-------------------------------------------|--------|--------------------|-----------|
|                                      |   | March 31,          |      |
|                                      |   | 2010               |      |   | 2009 |   |
|                                      |   | (Unaudited)        |      |   | (Unaudited) |   |
| Interest income                           |   |               |      |   |   |   |
| Loans and fees on loans                   |   | $                  | 4,305,442 |   |   | $ | 4,574,039 |   |
| Interest-bearing deposits in banks        |   |               | 210       |   |   |   | - |   |
| Federal funds sold                        |   |               | 9,291     |   |   |   | 10,633 |   |
| Investment securities:                    |   |               |      |   |   |   |   |   |
| Taxable                                   |   |               | 336,277   |   |   |   | 435,022 |   |
| Exempt from federal income tax            |   |               | 93,740    |   |   |   | 111,079 |   |
|                                      |   |               | 4,744,960 |   |   |   | 5,130,773 |   |
|                                      |   |               |      |   |   |   |   |   |
| Interest expense                          |   |               |      |   |   |   |   |   |
| Deposits                                  |   |               | 1,467,909 |   |   |   | 2,027,201 |   |
| Interest on borrowings                    |   |               | 260,463   |   |   |   | 310,899 |   |
|                                      |   |               | 1,728,372 |   |   |   | 2,338,100 |   |
| Net interest income                       |   |               | 3,016,588 |   |   |   | 2,792,673 |   |
|                                      |   |               |      |   |   |   |   |   |
| Provision for loan losses                 |   |               | 286,508   |   |   |   | 134,834 |   |
| Net interest income after                 |   |               |      |   |   |   |   |   |
| provision for loan losses                 |   |               | 2,730,080 |   |   |   | 2,657,839 |   |
|                                      |   |               |      |   |   |   |   |   |
| Noninterest income (loss)                 |   |               |      |   |   |   |   |   |
| Service charges on deposit accounts       |   |               | 232,738   |   |   |   | 209,150 |   |
| Increase in cash value of life insurance  |   |               | 75,000    |   |   |   | 78,000 |   |
| Net realized gains (losses) on securities |   |               | 35,957    |   |   |   | 25,467 |   |
| Other income                              |   |               | 164,969   |   |   |   | 160,815 |   |
|                                      |   |               | 508,664   |   |   |   | 473,432 |   |
|                                      |   |               |      |   |   |   |   |   |
| Noninterest expense                       |   |               |      |   |   |   |   |   |
| Salaries and employee benefits            |   |               | 1,565,785 |   |   |   | 1,641,713 |   |
| Occupancy expense                         |   |               | 136,128   |   |   |   | 120,215 |   |
| Equipment expense                         |   |               | 195,738   |   |   |   | 206,937 |   |
| Other expense                             |   |               | 813,009   |   |   |   | 531,988 |   |
|                                      |   |               | 2,710,660 |   |   |   | 2,500,853 |   |
| Income before income taxes                |   |               | 528,084   |   |   |   | 630,418 |   |
|                                      |   |               |      |   |   |   |   |   |
| Income tax expense                        |   |               | 119,000   |   |   |   | 167,000 |   |
| Net income                                |   | $                  | 409,084   |   |   | $ | 463,418 |   |
|                                      |   |               |      |   |   |   |   |   |
| Basic earnings  per share       |   | $                  | 0.24      |   |   | $ | 0.27 |   |
| Weighted average shares outstanding       |   |               | 1,718,968 |   |   |   | 1,718,968 |   |
| Dividends declared per share              |   | $                  | 0.10      |   |   | $ | 0.10 |   |

----

|                                     |   |         |      |   |   |   |      |     |   |   |          |   |   | Accumulated   |       |   |   |   |
|------------------------------------------|--------|--------------|-----------|--------|--------|--------|-----------|----------|--------|--------|---------------|--------|--------|---------------|------------|--------|--------|--------|
|                                     |   |         |      |   |   |   |      |     |   |   |          |   |   | Other         |       |   |   |   |
|                                     |   | Common Stock |      |   |   |   |      | Retained |   |   | Comprehensive |   |   |          |       |
|                                     |   | Shares       |      |   | Amount |   |      | Surplus  |   |   | Earnings      |   |   | Income (Loss) |       |   | Total  |   |
|                                     |   |         |      |   |   |   |      |     |   |   |          |   |   |          |       |   |   |   |
| Balance, December 31, 2008               |   |         | 1,718,968 |   |   | $      | 2,148,710 |     |   | $      | 521,625       |   |   | $             | 28,302,082 |   |   | $      | (1,955,722 | ) |   | $ | 29,016,695 |   |
|                                     |   |         |      |   |   |   |      |     |   |   |          |   |   |          |       |   |   |   |   |   |   |   |   |   |
| Comprehensive income                     |   |         |      |   |   |   |      |     |   |   |          |   |   |          |       |   |   |   |   |   |   |   |   |   |
| Net income                               |   |         | -         |   |   |   | -         |     |   |   | -             |   |   |          | 882,719    |   |   |   | - |   |   |   | 882,719 |   |
| Net change in pension reserve            |   |         |      |   |   |   |      |     |   |   |          |   |   |          |       |   |   |   | - |   |   |   |   |   |
| net of income taxes of $555,893          |   |         | -         |   |   |   | -         |     |   |   | -             |   |   |          | -          |   |   |   | 1,079,087 |   |   |   | 1,079,087 |   |
| Net change in unrealized                 |   |         |      |   |   |   |      |     |   |   |          |   |   |          |       |   |   |   |   |   |   |   |   |   |
| gain on investment                       |   |         |      |   |   |   |      |     |   |   |          |   |   |          |       |   |   |   |   |   |   |   |   |   |
| securities available for                 |   |         |      |   |   |   |      |     |   |   |          |   |   |          |       |   |   |   |   |   |   |   |   |   |
| sale, net of taxes of $203,119           |   |         | -         |   |   |   | -         |     |   |   | -             |   |   |          | -          |   |   |   | 394,290 |   |   |   | 394,290 |   |
| Reclassification adjustment,             |   |         |      |   |   |   |      |     |   |   |          |   |   |          |       |   |   |   |   |   |   |   |   |   |
| net of income taxes of ($74,830)-        |   |         | -         |   |   |   | -         |     |   |   | -             |   |   |          | -          |   |   |   | (145,259 | ) |   |   | (145,259 | ) |
| Total comprehensive income               |   |         |      |   |   |   |      |     |   |   |          |   |   |          |       |   |   |   |   |   |   |   | 2,210,837 |   |
|                                     |   |         |      |   |   |   |      |     |   |   |          |   |   |          |       |   |   |   |   |   |   |   |   |   |
| Dividends paid                           |   |         |      |   |   |   |      |     |   |   |          |   |   |          |       |   |   |   |   |   |   |   |   |   |
| ($.40 per share)                         |   |         | -         |   |   |   | -         |     |   |   | -             |   |   |          | (687,587   | )      |   |   | - |   |   |   | (687,587 | ) |
| Balance, December 31, 2009               |   |         | 1,718,968 |   |   | $      | 2,148,710 |     |   | $      | 521,625       |   |   | $             | 28,497,214 |   |   | $      | (627,604 | ) |   | $ | 30,539,945 |   |
|                                     |   |         |      |   |   |   |      |     |   |   |          |   |   |          |       |   |   |   |   |   |   |   |   |   |
| Comprehensive income                     |   |         |      |   |   |   |      |     |   |   |          |   |   |          |       |   |   |   |   |   |   |   |   |   |
| Net income                               |   |         | -         |   |   |   | -         |     |   |   | -             |   |   |          | 409,084    |   |   |   | - |   |   |   | 409,084 |   |
| Net change in unrealized                 |   |         |      |   |   |   |      |     |   |   |          |   |   |          |       |   |   |   |   |   |   |   |   |   |
| loss on investment                       |   |         |      |   |   |   |      |     |   |   |          |   |   |          |       |   |   |   |   |   |   |   |   |   |
| securities available for                 |   |         |      |   |   |   |      |     |   |   |          |   |   |          |       |   |   |   |   |   |   |   |   |   |
| sale, net of taxes of  $94,677 |   |         | -         |   |   |   | -         |     |   |   | -             |   |   |          | -          |   |   |   | 183,784 |   |   |   | 183,784 |   |
| Reclassification adjustment,             |   |         |      |   |   |   |      |     |   |   |          |   |   |          |       |   |   |   |   |   |   |   |   |   |
| net of income taxes of ($12,226)-        |   |         | -         |   |   |   | -         |     |   |   | -             |   |   |          | -          |   |   |   | (23,732 | ) |   |   | (23,732 | ) |
| Total comprehensive income               |   |         |      |   |   |   |      |     |   |   |          |   |   |          |       |   |   |   |   |   |   |   | 569,136 |   |
|                                     |   |         |      |   |   |   |      |     |   |   |          |   |   |          |       |   |   |   |   |   |   |   |   |   |
| Dividends paid                           |   |         |      |   |   |   |      |     |   |   |          |   |   |          |       |   |   |   |   |   |   |   |   |   |
| ($.10 per share)                         |   |         | -         |   |   |   | -         |     |   |   | -             |   |   |          | (171,897   | )      |   |   | - |   |   |   | (171,897 | ) |
| Balance, March 31, 2010                  |   |         | 1,718,968 |   |   | $      | 2,148,710 |     |   | $      | 521,625       |   |   | $             | 28,734,401 |   |   | $      | (467,552 | ) |   | $ | 30,937,184 |   |

----

|                                                                  |   | Three Months Ended |        |
|-----------------------------------------------------------------------|--------|--------------------|-------------|
|                                                                  |   | March 31,          |        |
|                                                                  |   | 2010               |        |   | 2009 |   |
|                                                                  |   | (Unaudited)        |        |   | (Unaudited) |   |
| Cash flows from operating activities                                  |   |               |        |   |   |   |
| Net income                                                            |   | $                  | 409,084     |   |   | $ | 463,418 |   |
| Adjustments to reconcile net income                                   |   |               |        |   |   |   |   |   |
| to net cash provided by operations:                                   |   |               |        |   |   |   |   |   |
| Depreciation and amortization                                         |   |               | 190,500     |   |   |   | 205,500 |   |
| Provision for loan losses                                             |   |               | 286,508     |   |   |   | 134,834 |   |
| Deferred income taxes                                                 |   |               | (82,000     | ) |   |   | (48,000 | ) |
| Net realized gains on securities                                      |   |               | (35,957     | ) |   |   | (25,467 | ) |
| Accretion of discount on securities, net of                           |   |               |        |   |   |   |   |   |
| amortization of premiums                                              |   |               | 51,933      |   |   |   | 15,297 |   |
| Deferred compensation                                                 |   |               | (8,512      | ) |   |   | (2,845 | ) |
| Net realized loss on foreclosed assets                                |   |               | 275         |   |   |   | - |   |
| Changes in assets and liabilities:                                    |   |               |        |   |   |   |   |   |
| Cash value of life insurance                                          |   |               | (75,000     | ) |   |   | (78,000 | ) |
| Accrued income                                                        |   |               | 331,575     |   |   |   | 466,657 |   |
| Other assets                                                          |   |               | 123,430     |   |   |   | (22,213 | ) |
| Accrued interest payable                                              |   |               | 400,291     |   |   |   | 433,381 |   |
| Other liabilities                                                     |   |               | 355,792     |   |   |   | 114,494 |   |
| Net cash provided by operating activities                             |   |               | 1,947,919   |   |   |   | 1,657,056 |   |
|                                                                  |   |               |        |   |   |   |   |   |
| Cash flows from investing activities                                  |   |               |        |   |   |   |   |   |
| Net increase in interest-bearing deposits                             |   |               | (188        | ) |   |   | - |   |
| Net increase in federal funds sold                                    |   |               | (1,942,797  | ) |   |   | (9,899,232 | ) |
| Purchases of available-for-sale investment securities                 |   |               | (15,417,695 | ) |   |   | (11,048,603 | ) |
| Sales of available-for-sale investment securities                     |   |               | 1,056,563   |   |   |   | 2,877,961 |   |
| Maturities/calls/paydowns of available-for-sale investment securities |   |               | 13,706,276  |   |   |   | 10,270,704 |   |
| Net decrease in loans                                                 |   |               | 3,491,259   |   |   |   | 3,318,014 |   |
| Proceeds from the sale of foreclosed assets                           |   |               | 22,224      |   |   |   | - |   |
| Purchases of property and equipment, net of sales                     |   |               | (91,422     | ) |   |   | (276,497 | ) |
| Net cash provided by (used in) investing activities                   |   |               | 824,220     |   |   |   | (4,757,653 | ) |
|                                                                  |   |               |        |   |   |   |   |   |
| Cash flows from financing activities                                  |   |               |        |   |   |   |   |   |
| Net increase (decrease) in deposits                                   |   |               | (1,767,880  | ) |   |   | 5,082,856 |   |
| Dividends paid                                                        |   |               | (171,897    | ) |   |   | (171,897 | ) |
| Net cash (used in) provided by financing activities                   |   |               | (1,939,777  | ) |   |   | 4,910,959 |   |
| Net increase in cash and cash equivalents                             |   |               | 832,362     |   |   |   | 1,810,362 |   |
|                                                                  |   |               |        |   |   |   |   |   |
| Cash and cash equivalents, beginning                                  |   |               | 8,637,123   |   |   |   | 9,536,772 |   |
| Cash and cash equivalents, ending                                     |   | $                  | 9,469,485   |   |   | $ | 11,347,134 |   |
|                                                                  |   |               |        |   |   |   |   |   |
| Supplemental disclosure of cash flow information                      |   |               |        |   |   |   |   |   |
| Interest paid                                                         |   | $                  | 1,328,081   |   |   | $ | 1,904,719 |   |
| Taxes paid                                                            |   | $                  | -           |   |   | $ | 190,000 |   |
| Transfers of loans to foreclosed properties                           |   | $                  | -           |   |   | $ | 87,388 |   |

----

----

|                              |   | Amortized |       |   | Unrealized |   |      | Unrealized |   |   | Fair    |   |
|-----------------------------------|--------|-----------|------------|--------|------------|--------|-----------|------------|--------|--------|---------|--------|
|                              |   | Cost      |       |   | Gains      |   |      | Losses     |   |   | Value   |   |
| March 31, 2010                    |   |      |       |   |       |   |      |       |   |   |    |   |
| Available for sale:               |   |      |       |   |       |   |      |       |   |   |    |   |
| U.S. Government agency securities |   | $         | 1,515,190  |   |       | $      | 82,471    |       |   | $      | -       |   |   | $ | 1,597,661 |   |
| Government sponsored enterprises  |   |      | 13,951,859 |   |       |   | 44,037    |       |   |   | 178,231 |   |   |   | 13,817,665 |   |
| Mortgage-backed securities        |   |      | 17,159,843 |   |       |   | 680,450   |       |   |   | -       |   |   |   | 17,840,293 |   |
| State and municipal securities    |   |      | 7,279,931  |   |       |   | 232,142   |       |   |   | 38,753  |   |   |   | 7,473,320 |   |
|                              |   | $         | 39,906,823 |   |       | $      | 1,039,100 |       |   | $      | 216,984 |   |   | $ | 40,728,939 |   |
| Held to maturity:                 |   |      |       |   |       |   |      |       |   |   |    |   |   |   |   |   |
| State and municipal securities    |   | $         | 2,186,446  |   |       | $      | 112,784   |       |   | $      | 1,909   |   |   | $ | 2,297,321 |   |
|                              |   |      |       |   |       |   |      |       |   |   |    |   |   |   |   |   |
| December 31, 2009                 |   |      |       |   |       |   |      |       |   |   |    |   |   |   |   |   |
| Available for sale:               |   |      |       |   |       |   |      |       |   |   |    |   |   |   |   |   |
| U.S. Government agency securities |   | $         | 1,629,026  |   |       | $      | 81,689    |       |   | $      | -       |   |   | $ | 1,710,715 |   |
| Government sponsored enterprises  |   |      | 13,067,890 |   |       |   | 38,375    |       |   |   | 204,195 |   |   |   | 12,902,070 |   |
| Mortgage-backed securities        |   |      | 17,295,436 |   |       |   | 560,310   |       |   |   | -       |   |   |   | 17,855,746 |   |
| State and municipal securities    |   |      | 7,287,155  |   |       |   | 162,768   |       |   |   | 59,335  |   |   |   | 7,390,588 |   |
|                              |   | $         | 39,279,507 |   |       | $      | 843,142   |       |   | $      | 263,530 |   |   | $ | 39,859,119 |   |
| Held to maturity:                 |   |      |       |   |       |   |      |       |   |   |    |   |   |   |   |   |
| State and municipal securities    |   | $         | 2,174,882  |   |       | $      | 86,889    |       |   | $      | 7,575   |   |   | $ | 2,254,196 |   |

----

|                                |   | Less Than 12 Months |      |   | 12 Months or More |   |    | Total  |   |
|-------------------------------------|--------|---------------------|-----------|--------|-------------------|--------|---------|--------|--------|
|                                |   | Fair                |      |   | Unrealized        |   |    | Fair   |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                                |   | Value               |      |   | Losses            |   |    | Value  |   |   | Losses |   |   | Value |   |   | Losses |   |
| March 31, 2010                      |   |                |      |   |              |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Available for sale                  |   |                |      |   |              |   |    |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Government agency securities   |   | $                   | -         |   |              | $      | -       |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Government sponsored enterprises    |   |                | 8,382,891 |   |              |   | 118,890 |   |   |   | 1,978,120 |   |   |   | 59,341 |   |   |   | 10,361,011 |   |   |   | 178,231 |   |
| Mortgage-backed securities          |   |                | -         |   |              |   | -       |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| State and municipal securities      |   |                | -         |   |              |   | -       |   |   |   | 720,802 |   |   |   | 38,753 |   |   |   | 720,802 |   |   |   | 38,753 |   |
| Total securities available for sale |   | $                   | 8,382,891 |   |              | $      | 118,890 |   |   | $ | 2,698,922 |   |   | $ | 98,094 |   |   | $ | 11,081,813 |   |   | $ | 216,984 |   |
|                                |   |                |      |   |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Held to maturity                    |   |                |      |   |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| State and municipal securities      |   | $                   | -         |   |              | $      | -       |   |   | $ | 225,747 |   |   | $ | 1,909 |   |   | $ | 225,747 |   |   | $ | 1,909 |   |
|                                |   |                |      |   |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2009                   |   |                |      |   |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Available for sale                  |   |                |      |   |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Government agency securities   |   | $                   | -         |   |              | $      | -       |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Government sponsored enterprises    |   |                | 5,454,054 |   |              |   | 204,195 |   |   |   | - |   |   |   | - |   |   |   | 5,454,054 |   |   |   | 204,195 |   |
| Mortgage-backed securities          |   |                | -         |   |              |   |    |   |   |   | - |   |   |   |   |   |   |   | - |   |   |   | - |   |
| State and municipal securities      |   |                | 1,006,692 |   |              |   | 8,439   |   |   |   | 708,900 |   |   |   | 50,896 |   |   |   | 1,715,592 |   |   |   | 59,335 |   |
| Total securities available for sale |   | $                   | 6,460,746 |   |              | $      | 212,634 |   |   | $ | 708,900 |   |   | $ | 50,896 |   |   | $ | 7,169,646 |   |   | $ | 263,530 |   |
|                                |   |                |      |   |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Held to maturity                    |   |                |      |   |              |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| State and municipal securities      |   | $                   | -         |   |              | $      | -       |   |   | $ | 220,031 |   |   | $ | 7,575 |   |   | $ | 220,031 |   |   | $ | 7,575 |   |

----

|            |   | 2010   |   |   | 2009   |   |
|-----------------|--------|--------|--------|--------|--------|--------|
|            |   |   |   |   |   |   |
| Realized gains  |   | $      | 35,957 |   |   |   | 82,992 |   |
| Realized losses |   |   | -      |   |   |   | (57,525 | ) |
|            |   | $      | 35,957 |   |   | $      | 25,467 |   |

|                                   |   | Available for Sale |       |   | Held to Maturity |   |
|----------------------------------------|--------|--------------------|------------|--------|------------------|--------|
|                                   |   | Amortized          |       |   | Fair             |   |   | Amortized |   |   | Fair |   |
|                                   |   | Cost               |       |   | Value            |   |   | Cost |   |   | Value |   |
| Due in one year or less                |   | $                  | 340,259    |   |             | $      | 343,913 |   |   | $ | - |   |   | $ | - |   |
| Due after one year through five years  |   |               | 2,163,854  |   |             |   | 2,261,726 |   |   |   | 1,479,077 |   |   |   | 1,562,799 |   |
| Due after five years through ten years |   |               | 11,635,459 |   |             |   | 12,102,633 |   |   |   | - |   |   |   | - |   |
| Due after ten years                    |   |               | 25,767,251 |   |             |   | 26,020,667 |   |   |   | 707,369 |   |   |   | 734,522 |   |
|                                   |   | $                  | 39,906,823 |   |             | $      | 40,728,939 |   |   | $ | 2,186,446 |   |   | $ | 2,297,321 |   |

|                              |   | 2010   |      |   | 2009   |   |
|-----------------------------------|--------|--------|-----------|--------|--------|--------|
|                              |   |   |      |   |   |   |
| Balance, beginning                |   | $      | 3,555,273 |   |   | $      | 3,359,946 |   |
| Provision charged to expense      |   |   | 286,508   |   |   |   | 134,834 |   |
| Recoveries of amounts charged off |   |   | 39,101    |   |   |   | 7,546 |   |
| Amounts charged off               |   |   | (135,948  | )      |   |   | (135,766 | ) |
| Balance, ending                   |   | $      | 3,744,934 |   |   | $      | 3,366,560 |   |

|                          |   | 2010   |    |   | 2009   |   |
|-------------------------------|--------|--------|---------|--------|--------|--------|
|                          |   |   |    |   |   |   |
| Tax at statutory federal rate |   | $      | 179,549 |   |   | $      | 214,342 |   |
| Tax exempt interest income    |   |   | (41,690 | )      |   |   | (39,625 | ) |
| Other tax exempt income       |   |   | (25,500 | )      |   |   | (26,520 | ) |
| Other                         |   |   | 6,641   |   |   |   | 18,803 |   |
|                          |   | $      | 119,000 |   |   | $      | 167,000 |   |

----

|                                         |   | March 31, |     |
|----------------------------------------------|--------|-----------|----------|
|                                         |   | 2010      |     |   | 2009 |   |
|                                         |   |      |     |   |   |   |
| Service cost                                 |   | $         | 102,960  |   |   |   | 97,769 |   |
| Interest cost                                |   |      | 104,258  |   |   |   | 95,369 |   |
| Expected return on plan assets               |   |      | (165,071 | ) |   |   | (89,534 | ) |
| Amortization of net obligation at transition |   |      | -        |   |   |   | (5 | ) |
| Amortization of prior service cost           |   |      | 808      |   |   |   | 2,695 |   |
| Amortization of net (gain) or loss           |   |      | 9,699    |   |   |   | 36,101 |   |
| Net periodic benefit cost                    |   | $         | 52,654   |   |   | $ | 142,395 |   |

|                         |   | 2010   |       |   | 2009   |   |
|------------------------------|--------|--------|------------|--------|--------|--------|
|                         |   |   |       |   |   |   |
| Commitments to extend credit |   | $      | 17,090,964 |   |   | $      | 18,771,928 |   |
| Standby letters of credit    |   |   | -          |   |   |   | - |   |
|                         |   | $      | 17,090,964 |   |   | $      | 18,771,928 |   |

----

----

|                                    |   | March 31, 2010 |    |   | December 31, 2009 |   |
|-----------------------------------------|--------|----------------|---------|--------|-------------------|--------|
|                                    |   | Carrying       |    |   | Fair              |   |   | Carrying |   |   | Fair |   |
|                                    |   | Amount         |    |   | Value             |   |   | Amount |   |   | Value |   |
|                                    |   |           |    |   |              |   |   |   |   |   |   |   |
| Financial assets                        |   |           |    |   |              |   |   |   |   |   |   |   |
| Cash and due from banks                 |   | $              | 9,469   |   |              | $      | 9,469 |   |   | $ | 8,637 |   |   | $ | 8,637 |   |
| Interest bearing deposits with banks    |   |           | 300     |   |              |   | 300 |   |   |   | 300 |   |   |   | 300 |   |
| Federal funds sold                      |   |           | 21,300  |   |              |   | 21,300 |   |   |   | 19,357 |   |   |   | 19,357 |   |
| Securities, available for sale          |   |           | 40,729  |   |              |   | 40,729 |   |   |   | 39,859 |   |   |   | 39,859 |   |
| Securities, held to maturity            |   |           | 2,186   |   |              |   | 2,297 |   |   |   | 2,175 |   |   |   | 2,254 |   |
| Restricted equity securities            |   |           | 1,784   |   |              |   | 1,784 |   |   |   | 1,784 |   |   |   | 1,784 |   |
| Loans, net of allowance for loan losses |   |           | 262,850 |   |              |   | 264,248 |   |   |   | 266,628 |   |   |   | 269,442 |   |
| Cash value of life insurance            |   |           | 8,173   |   |              |   | 8,173 |   |   |   | 8,098 |   |   |   | 8,098 |   |
| Accrued interest receivable             |   |           | 2,295   |   |              |   | 2,295 |   |   |   | 2,626 |   |   |   | 2,626 |   |
|                                    |   |           |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities                   |   |           |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                |   |           | 311,715 |   |              |   | 314,080 |   |   |   | 313,483 |   |   |   | 315,789 |   |
| Long-term debt                          |   |           | 25,000  |   |              |   | 26,566 |   |   |   | 25,000 |   |   |   | 27,511 |   |
| Accrued interest payable                |   |           | 783     |   |              |   | 783 |   |   |   | 383 |   |   |   | 383 |   |

|   | Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.                                                                                                                                                                                                                                                                                                                        |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market.  These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability.  Valuation techniques may include the use of option pricing models, discounted cash flow models and similar techniques. |

----

----

| March 31, 2010                                 |   | Total  |       |   | Level 1 |   |   | Level 2 |   |   | Level 3    |   |
|------------------------------------------------|--------|--------|------------|--------|---------|--------|--------|---------|--------|--------|------------|--------|
|                                           |   |   |       |   |    |   |   |    |   |   |       |   |
| Investment securities available for sale       |   |   |       |   |    |   |   |    |   |   |       |   |
| U.S. Government agency securities              |   | $      | 1,597,661  |   |    | $      | -      |    |   | $      | 1,597,661  |   |   | $ | - |   |
| Government sponsored enterprises               |   |   | 13,817,665 |   |    |   | -      |    |   |   | 13,817,665 |   |   |   | - |   |
| Mortgage-backed securities                     |   |   | 17,840,293 |   |    |   | -      |    |   |   | 17,840,293 |   |   |   | - |   |
| State and municipal securities                 |   |   | 7,473,320  |   |    |   | -      |    |   |   | 7,473,320  |   |   |   | - |   |
| Total investment securities available for sale |   | $      | 40,728,939 |   |    | $      | -      |    |   | $      | 40,728,939 |   |   | $ | - |   |
| Total assets at fair value                     |   | $      | 40,728,939 |   |    | $      | -      |    |   | $      | 40,728,939 |   |   | $ | - |   |
|                                           |   |   |       |   |    |   |   |    |   |   |       |   |   |   |   |   |
| Total liabilities at fair value                |   | $      | -          |   |    | $      | -      |    |   | $      | -          |   |   | $ | - |   |
|                                           |   |   |       |   |    |   |   |    |   |   |       |   |   |   |   |   |
| December 31, 2009                              |   | Total  |       |   | Level 1 |   |   | Level 2 |   |   | Level 3    |   |
|                                           |   |   |       |   |    |   |   |    |   |   |       |   |   |   |   |   |
| Investment securities available for sale       |   |   |       |   |    |   |   |    |   |   |       |   |   |   |   |   |
| U.S. Government agency securities              |   | $      | 1,710,715  |   |    | $      | -      |    |   | $      | 1,710,715  |   |   | $ | - |   |
| Government sponsored enterprises               |   |   | 12,902,070 |   |    |   | -      |    |   |   | 12,902,070 |   |   |   | - |   |
| Mortgage-backed securities                     |   |   | 17,855,746 |   |    |   | -      |    |   |   | 17,855,746 |   |   |   | - |   |
| State and municipal securities                 |   |   | 7,390,588  |   |    |   | -      |    |   |   | 7,390,588  |   |   |   | - |   |
| Total investment securities available for sale |   | $      | 39,859,119 |   |    | $      | -      |    |   | $      | 39,859,119 |   |   | $ | - |   |
| Total assets at fair value                     |   | $      | 39,859,119 |   |    | $      | -      |    |   | $      | 39,859,119 |   |   | $ | - |   |
|                                           |   |   |       |   |    |   |   |    |   |   |       |   |   |   |   |   |
| Total liabilities at fair value                |   | $      | -          |   |    | $      | -      |    |   | $      | -          |   |   | $ | - |   |

| March 31, 2010                  |   | Total  |      |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
|---------------------------------|--------|--------|-----------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
|                            |   |   |      |   |    |   |   |    |   |   |    |   |
| Loans                           |   | $      | 1,532,034 |   |    | $      | -      |    |   | $      | 701,148 |   |   | $ | 830,886 |   |
| Foreclosed assets               |   |   | 308,659   |   |    |   | -      |    |   |   | 67,159  |   |   |   | 241,500 |   |
| Total assets at fair value      |   | $      | 1,840,693 |   |    | $      | -      |    |   | $      | 768,307 |   |   | $ | 1,072,386 |   |
|                            |   |   |      |   |    |   |   |    |   |   |    |   |   |   |   |   |
| Total liabilities at fair value |   | $      | -         |   |    | $      | -      |    |   | $      | -       |   |   | $ | - |   |

----

| December 31, 2009               |   | Total  |      |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
|---------------------------------|--------|--------|-----------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
|                            |   |   |      |   |    |   |   |    |   |   |    |   |
| Loans                           |   | $      | 1,365,896 |   |    | $      | -      |    |   | $      | 637,004 |   |   | $ | 728,892 |   |
| Foreclosed assets               |   |   | 331,159   |   |    |   | -      |    |   |   | 67,159  |   |   |   | 264,000 |   |
| Total assets at fair value      |   | $      | 1,697,055 |   |    | $      | -      |    |   | $      | 704,163 |   |   | $ | 992,892 |   |
|                            |   |   |      |   |    |   |   |    |   |   |    |   |   |   |   |   |
| Total liabilities at fair value |   | $      | -         |   |    | $      | -      |    |   | $      | -       |   |   | $ | - |   |

----

| Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|--------|---------------------------------------------------------------------------------------------|

----

| Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|--------|---------------------------------------------------------------------------------------------|

----

| Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|--------|---------------------------------------------------------------------------------------------|

----

----

----

|   | 31.1   | Rule 13(a)-14(a) Certification of Chief Executive Officer.                             |
|--------|--------|----------------------------------------------------------------------------------------|
|   |   |                                                                                   |
|   | 31.2   | Rule 13(a)-14(a) Certification of Chief Financial Officer.                             |
|   |   |                                                                                   |
|   | 32.1   | Statement of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. |
|   |   | Section 1350.                                                                          |

----

|               |   | GRAYSON BANKSHARES, INC.              |
|--------------------|--------|---------------------------------------|
|               |   |                                  |   |
|               |   |                                  |   |
| Date: May 14, 2010 | By:    | /s/ Jacky K. Anderson                 |   |
|               |   | Jacky K. Anderson                     |   |
|               |   | President and Chief Executive Officer |   |
|               |   |                                  |   |
|               |   |                                  |   |
|               | By:    | /s/ Blake M. Edwards                  |   |
|               |   | Blake M. Edwards                      |   |
|               |   | Chief Financial Officer               |   |
|               |   |                                  |   |

----

|   |        |                                                                                                 |
|--------|-------------|------------------------------------------------------------------------------------------------------|
|   | Exhibit No. | Description                                                                                          |
|   |        |                                                                                                 |
|   | 31.1        | Rule 13(a)-14(a) Certification of Chief Executive Officer.                                           |
|   |        |                                                                                                 |
|   | 31.2        | Rule 13(a)-14(a) Certification of Chief Financial Officer.                                           |
|   |        |                                                                                                 |
|   | 32.1        | Statement of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350. |

----