Grayson Bankshares (GSON) 8-K Results of Operations and Financial Condition

Exhibit 99.1

Grayson BankShares, Inc.
Financial Report June 30, 2010
113 West Main Street Ÿ Post Office Box 186 Independence, Virginia 24348 (276) 773-2811
	East Independence	(276) 773-2811
	Elk Creek	(276) 655-4011
	Galax	(276) 238-2411
	Troutdale	(276) 677-3722
	Sparta	(336) 372-2811
	Carroll	(276) 238-8112
	Hillsville	(276) 728-2810
	Whitetop	(276) 388-3811
	Wytheville	(276) 228-6050

Message to Shareholders

Dear Fellow Shareholders,

It is our pleasure to present our 2nd Quarter, 2010 Financial Report to you.

Our total assets are $367,507,376, down $2,094,545, or 0.57% for the year.  Net loans have decreased by $4,221,515, or 1.58%, while deposits decreased by $3,047,252, or 0.97% during the last six months.   Management has not sought to aggressively grow deposits due to continued weakness in loan demand.

Stockholders’ equity increased by $658,589, or 2.16% for the six-month period ended June 30, 2010.  The increase was the result of earnings for the period combined with an increase in the market value of investment securities of $449,659, offset by the payment of dividends of $343,794.  Total stockholders’ equity at June 30, 2010 was $31,198,534, which represents a book value of $18.15 per share.  Dividends of 10 cents per share were declared and paid in June, for a total of 20 cents per share for the first six months of 2010.

The Company recorded net income of $143,640 for the quarter ended June 30, 2010 compared to net income of $22,237 for the same quarter in 2009.  Earnings continue to be negatively impacted by deterioration in general economic conditions.  Increases in charge-offs and nonperforming assets led to an increase in loan loss provisions of $116,448 over the second quarter of 2009.   Other income decreased due to gains on the sale of securities in 2009 that did not recur in 2010.  Total other expenses decreased for both the three-month and six-month periods ended June 30, 2010 compared to the same periods in 2009.

As always, we appreciate your support, welcome your comments and the opportunity to serve you.

Sincerely,

Jacky K. Anderson

President and CEO

Condensed Consolidated Balance Sheets

	June 30,			December 31,
	2010			2009
Assets
Cash and due from banks	$	10,014,653		$	8,637,123
Interest-bearing deposits in banks		300,307			300,000
Federal funds sold		19,283,671			19,356,999
Investment securities		44,409,042			43,817,701
Loans		266,297,563			270,183,323
Less allowance for loan losses		3,891,028			3,555,273
Net loans		262,406,535			266,628,050
Cash Value of Life Insurance		8,248,134			8,098,134
Foreclosed Assets		3,092,726			2,808,885
Properties and equipment		10,901,106			11,133,834
Accrued interest receivable		2,443,533			2,626,164
Other assets		6,407,669			6,195,031
Total assets	$	367,507,376		$	369,601,921
Liabilities
Deposits
Noninterest-bearing	$	42,584,738		$	44,924,699
Interest-bearing		267,851,226			268,558,517
Total deposits		310,435,964			313,483,216
FHLB Advances		15,000,000			15,000,000
Other Borrowings		10,000,000			10,000,000
Accrued interest payable		344,261			382,653
Other liabilities		528,617			196,107
Total liabilities		336,308,842			339,061,976
Stockholders’ equity
Preferred stock, $25 par value; 500,000
shares authorized; none outstanding		-			-
Common stock, $1.25 par value; 2,000,000
shares authorized; 1,718,968 shares
issued and outstanding		2,148,710			2,148,710
Surplus		521,625			521,625
Retained earnings		28,706,144			28,497,214
Accumulated other comprehensive income (loss)		(177,945	)		(627,604	)
Total stockholders’ equity		31,198,534			30,539,945
Total liabilities and stockholders’ equity	$	367,507,376		$	369,601,921

Officers
Julian L. Givens	Chairman of the Board
Jacky K. Anderson	President & CEO
Dennis B. Gambill	Vice President
Brenda C. Smith	Secretary
Blake M. Edwards	Chief Financial Officer

 Condensed Consolidated Statements of Operations

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010		2009
Interest income
Loans and fees on loans	$	4,170,528		$	4,365,826		$	8,475,970	$	8,939,865
Interest on securities		438,038			531,061			868,055		1,077,162
Federal funds sold		10,787			8,123			20,288		18,756
Total interest income		4,619,353			4,905,010			9,364,313		10,035,783
Interest expense
Deposits		1,409,173			1,874,450			2,877,082		3,901,651
FHLB Advances		141,520			178,509			281,484		368,909
Other Borrowings		121,837			121,837			242,336		242,336
Total interest expense		1,672,530			2,174,796			3,400,902		4,512,896
Net interest income		2,946,823			2,730,214			5,963,411		5,522,887
Provision for loan losses		563,251			446,803			849,759		581,637
Net interest income after provision
for loan losses		2,383,572			2,283,411			5,113,652		4,941,250
Other income
Service charges on deposit accounts		272,044			252,176			504,782		461,326
Other income (loss)		221,222			376,982			497,148		641,264
Total other income (loss)		493,266			629,158			1,001,930		1,102,590
Other expenses
Salaries and employee benefits		1,589,044			1,649,014			3,154,829		3,290,727
Occupancy expense		108,646			117,890			244,774		238,105
Equipment expense		200,253			214,995			395,991		421,932
Other expense		849,255			1,002,433			1,662,264		1,534,421
Total other expense		2,747,198			2,984,332			5,457,858		5,485,185
Net income before income taxes		129,640			(71,763	)		657,724		558,655
Income taxes		(14,000	)		(94,000	)		105,000		73,000
Net income	$	143,640		$	22,237		$	552,724	$	485,655
Net income per share	$	.08		$	.01		$	.32	$	.28
Weighted average shares outstanding		1,718,968			1,718,968			1,718,968		1,718,968

	Board of Directors
	Julian L. Givens	Retired Physician
	Carl J. Richardson	Retired
	Jacky K. Anderson	Grayson BankShares, Inc. and The Grayson National Bank
	Jean W. Lindsey	Walters’ Drug, Inc.
	Dennis B. Gambill	Grayson BankShares, Inc. and The Grayson National Bank
	Jack E. Guynn, Jr.	Guynn Enterprises, Inc.
	Charles T. Sturgill	Retired Grayson County Clerk of Court
	J. David Vaughan	Vaughan Furniture
	Thomas M. Jackson, Jr.	Attorney
	Bryan L. Edwards	Sparta Town Manager
	Hayden H. Horney	Wythe County Clerk of Court
Member Federal Deposit Insurance Corporation