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

Exhibit 99.1

Grayson

BankShares, Inc.

Financial Report

December 31, 2010

113 West Main Street s 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 4th Quarter, 2010 Financial Report to you.

Our total assets are $368,217,088, down $1,384,833, or 0.37% for the year.  Net loans have decreased by $18,115,092, or 6.79% as economic conditions continue to negatively impact loan demand.  Deposits decreased by $1,666,358, or 0.53% for the year   as management has not sought to aggressively grow deposits given the continued weakness in loan demand.

Total stockholders’ equity decreased by $130,175 or 0.43% in 2010 due primarily to a decrease in the market value of available-for-sale investment securities.  Retained earnings increased by $478,274 or 1.68% for the year.  The increase in retained earnings was the result of net income of $1,165,861 less the payment of dividends totaling $687,587.  Total stockholders’ equity at December 31, 2010 was $30,409,770, which represents a book value of $17.69 per share.  Dividends of 10 cents per share were declared and paid in December, for a total of 40 cents per share in 2010.

The Company recorded net income of $164,972 for the quarter ended December 31, 2010 compared to net income of $50,941 for the same quarter in 2009.  Our total 2010 net income increased by $283,142 or 32.08% over 2009 despite an annual increase in loan loss provisions of $1,018,721.  Total other expenses decreased for both the forth quarter and the year as management continued efforts to contain and reduce operating costs as we continue to navigate a weak economy.

Despite the challenges of a deep recession we are pleased by the fact that your bank has continued to generate positive earnings throughout the economic downturn.  Even though some challenges remain, we are confident that our strong capital position will allow us to take full advantage of the opportunities that arise when economic conditions begin to improve.

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

	December 31,			December 31,
	2010			2009
Assets
Cash and due from banks	$	9,200,552		$	8,637,123
Interest-bearing deposits in banks		3,305,724			300,000
Federal funds sold		27,745,592			19,356,999
Investment securities		49,309,137			43,817,701
Loans		253,055,378			270,183,323
Less allowance for loan losses		4,542,420			3,555,273
Net loans		248,512,958			266,628,050
Cash Value of Life Insurance		8,433,596			8,098,134
Foreclosed Assets		3,256,725			2,808,885
Properties and equipment		10,575,133			11,133,834
Accrued interest receivable		2,131,943			2,626,164
Other assets		5,745,728			6,195,031
Total assets	$	368,217,088		$	369,601,921
Liabilities
Deposits
Noninterest-bearing	$	42,487,778		$	44,924,699
Interest-bearing		269,329,080			268,558,517
Total deposits		311,816,858			313,483,216
FHLB Advances		15,000,000			15,000,000
Other Borrowings		10,000,000			10,000,000
Accrued interest payable		311,647			382,653
Other liabilities		678,813			196,107
Total liabilities		337,807,318			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		28,975,488			28,497,214
Accumulated other comprehensive income (loss)		(1,236,053	)		(627,604	)
Total stockholders’ equity		30,409,770			30,539,945
Total liabilities and stockholders’ equity	$	368,217,088		$	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 December 31,					Year Ended December 31,
	2010		2009			2010		2009
Interest income
Loans and fees on loans	$	3,987,362	$	4,395,694		$	16,648,016	$	17,813,275
Interest on securities		350,549		480,764			1,654,677		2,066,558
Federal funds sold		18,292		9,807			49,383		37,187
Interest-bearing deposits		3,190		-			6,826		-
Total interest income		4,359,393		4,886,265			18,358,902		19,917,020
Interest expense
Deposits		1,209,499		1,614,323			5,450,236		7,271,248
FHLB Advances		144,347		145,519			568,906		657,503
Other Borrowings		123,182		123,182			488,694		488,694
Total interest expense		1,477,028		1,883,024			6,507,836		8,417,445
Net interest income		2,882,365		3,003,241			11,851,066		11,499,575
Provision for loan losses		946,836		628,517			2,509,569		1,490,848
Net interest income after provision
for loan losses		1,935,529		2,374,724			9,341,497		10,008,727
Other income
Service charges on deposit accounts		299,581		295,183			1,098,135		1,031,306
Other income (loss)		708,925		350,348			1,863,477		1,211,539
Total other income (loss)		1,008,506		645,531			2,961,612		2,242,845
Other expenses
Salaries and employee benefits		1,586,322		1,630,262			6,280,437		6,553,441
Occupancy expense		136,978		135,257			485,097		494,863
Equipment expense		176,079		199,112			760,313		830,877
Other expense		864,164		1,064,382			3,344,881		3,389,371
Total other expense		2,763,543		3,029,013			10,870,728		11,268,552
Net income before income taxes		180,492		(8,758	)		1,432,381		983,020
Income taxes		15,520		(59,699	)		266,520		100,301
Net income	$	164,972	$	50,941		$	1,165,861	$	882,719
Net income per share	$	.10	$	.03		$	.68	$	.51
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