GRAYSON
BANKSHARES, INC.
March 19, 2012
Dear Fellow Shareholders,
Once again, we are reporting to you on the last quarter's developments at Grayson National Bank. We axe proud to be serving this community and grateful for the support we have enjoyed over the past 111 years.
The pace of economic recovery is frustratingly slow, and the Great Recession seems to have no clear-cut ending. And although we have recently seen several announcements concerning new jobs, unemployment levels remain high, local real estate values are continuing to decline, new loan demand is weak, and overall credit conditions remain very challenging.
Our results for the fourth quarter of 2011, and in the full year, reflect these difficult economic and credit conditions. We did have fewer credit-related losses in the fourth quarter than we did in the third quarter, but the most significant part of our GNB story for the fourth quarter, and for 2011, will be our efforts to manage through significant challenges in loan quality. An important first step in recovering from these challenges will be to have a quarter where non-performing assets stabilize or decrease from prior quarter levels. Past-due loan indicators did show improvement in the quarter, with loans past due for more than 30 days coming down from $7.4 million to $5.4 million.
We've made progress on a number of initiatives that will strengthen both our financial stability and earnings potential. To summarize:
| · | Our credit quality issues are being addressed. We have completed a very thorough loan review and are working diligently with borrowers who have credit-related challenges. We are utiliArt a number of strategies to reduce the number of problem loans, and have deployed significant resources toward this effort. |
| · | We have begun construction on our new Wytheville branch. The official groundbreaking is slated for early spring, and we're looking forward to opening the branch in the fall. During a period of very low loan demand in our home counties, we need the growth available to us in this new market. |
| · | We are continuing to look for ways to increase revenues and decrease expenses. Given an environment of low loan demand, we have identified several revenue enhancements for 2012, and a number of cost savings measures for 2012 as well. |
| · | Our strategic marketing plan is on track. You may have already noticed that we have embarked on a new effort to promote our services, including radio spots and print ads. We are also enhancing our online banking services and upgrading our website to communicate better with our existing customers and position ourselves to compete as members of the 21st-century banking community. |
As stewards of your investment and as members of a dose-knit community we take our responsibilities very seriously. We consider our shareholder and customer community to be our family, and families stick together during challenging times.
While we are not expecting a complete turnaround in the immediate future, we are confident that we are taking the most responsible and effective actions now to ensure that. month by month, our fundamentals will continue to gain in strength..
As always, we appreciate the opportunity to serve you. We invite you to review the following financial report, which will fill in the details in our ongoing story. You will see that even in these challenging times, we remain a healthy, forward-looking institution. We invite your questions, observations or cocerns.
Sincerely,
| /s/ Jacky K. Anderson | /s/ Thomas M. Jackson, Jr. | ||
| Jacky K. Anderson | Thomas M. Jackson, Jr. | ||
| President and CEO | Chairman of the Board | ||
 | Condensed Consolidated Balance Sheets | |||||
GRAYSON BANKSHARES, INC. | December 31, 2011 | December 31, 2010 | ||||
| Officers | Assets | |||||
| Cash and due from banks | $ | 8,241,875 | $ | 9,200,552 | ||
Thomas M. Jackson, Jr. Chairman of the Board | Interest-bearing deposits in banks | 3,316,338 | 3,305,724 | |||
Jack E. Guynn, Jr. | Federal funds sold | 39,013,090 | 27,745,592 | |||
| Vice Chairman | Investment securities | 50,888,070 | 49,309,137 | |||
Jacky K. Anderson | Loans | 219,168,445 | 253,055,378 | |||
| President & CEO | Less allowance for loan losses | 4,941,645 | 4,542,420 | |||
Brenda C. Smith | Net loans | 214,226,800 | 248,512,958 | |||
| Secretary | Cash Value of Life Insurance | 8,772,039 | 8,433,596 | |||
Blake M. Edwards | Foreclosed Assets | 3,351,861 | 3,256,725 | |||
Chief Financial Officer | Properties and equipment | 11,181,700 | 10,575,133 | |||
| Board of Directors | Accrued interest receivable | 1,514,734 | 2,131,943 | |||
Jacky K. Anderson | Other assets | 5,876,556 | 5,745,728 | |||
Grayson BankShares, Inc. and The Grayson National Bank | Total assets | $ | 346,383,063 | $ | 368,217,088 | |
Bryan L Edwards | Liabilities | |||||
| Sparta Town Manager | Deposits | |||||
Jack E. Guynn, Jr. | Noninterest-bearing | $ | 50,180,058 | $ | 42,487,778 | |
Guynn Enterprises, Inc. | Interest-bearing | 247,071,718 | 269,329,080 | |||
Hayden H. Horney Wythe County Clerk of Court | Total deposits | 297,251,776 | 311,816,858 | |||
| FHLB Advances | 10,000,000 | 15,000,000 | ||||
Thomas M. Jackson, Jr. Attorney | Other Borrowings | 10,000,000 | 10,000,000 | |||
| Accrued interest payable | 230,723 | 311,647 | ||||
Theresa S. Lazo Community Activist | Other liabilities | 560,658 | 678,813 | |||
| Total liabilities | 318,043,157 | 337,807,318 | ||||
Carl J. Richardson Retired | Stockholder's equity | |||||
Charles T. Sturgill Retired Grayson County Clerk of Court | Preferred stock, $25 par value; 500,000 shares authorized; none outstanding | |||||
J. David Vaughan Vaughan Furniture | 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 | 27,157,751 | 28,975,488 | ||||
| Accumulated other comprehensive income (loss) | (1,488,180) | (1,236,053) | ||||
| Total stockholder' equity | 28,339,906 | 30,409,770 | ||||
| Total liabilities and stockholder' equity | $ | 346,383,063 | $ | 368,217,088 | ||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
| Three Months Ended Dec 31, | Year Ended Dec 31, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Interest income | ||||||||||||||||
| Loans and fees on loans | $ | 3,216,232 | $ | 3,987,362 | $ | 13,866,149 | $ | 16,648,016 | ||||||||
| Interest on securities | 340,335 | 350,549 | 1,442,079 | 1,654,677 | ||||||||||||
| Federal funds sold | 24,362 | 18,292 | 72,813 | 49,383 | ||||||||||||
| Interest-bearing deposits | 142 | 3,190 | 7,264 | 6,826 | ||||||||||||
| Total interest income | 3,581,071 | 4,359,393 | 15,388,305 | 18,358,902 | ||||||||||||
| Interest expense | ||||||||||||||||
| Deposits | 810,487 | 1,209,499 | 3,766,114 | 5,450,236 | ||||||||||||
| Interest on borrowings | 220,138 | 267,529 | 1,101,041 | 1,057,600 | ||||||||||||
| Total interest expense | 1,030,625 | 1,477,028 | 4,867,155 | 6,507,836 | ||||||||||||
| Net interest income | 2,550,446 | 2,882,365 | 10,521,150 | 11,851,066 | ||||||||||||
| Provision for loan losses | 645,319 | 946,836 | 4,784,889 | 2,509,569 | ||||||||||||
| Net interest income after provision for loan losses | 1,905,127 | 1,935,529 | 5,736,261 | 9,341,497 | ||||||||||||
| Other income | ||||||||||||||||
| Service charges on deposit accounts | 284,395 | 299,581 | 1,116,208 | 1,098,135 | ||||||||||||
| Other income (loss) | 400,506 | 708,925 | 1,700,308 | 1,836,477 | ||||||||||||
| Total other income (loss) | 684,901 | 1,008,506 | 2,816,516 | 2,961,612 | ||||||||||||
| Other expenses | ||||||||||||||||
| Salaries and employee benefits | 1,661,108 | 1,586,322 | 6,337,182 | 6,280,437 | ||||||||||||
| Occupancy expense | 115,445 | 136,978 | 473,014 | 485,097 | ||||||||||||
| Equipment expense | 148,987 | 176,079 | 634,934 | 760,313 | ||||||||||||
| Foreclosed asset expense, net | 93,462 | 37,569 | 744,540 | 104,413 | ||||||||||||
| Other expense | 904,398 | 826,595 | 3,223,226 | 3,240,468 | ||||||||||||
| Total other expense | 2,923,400 | 2,763,543 | 11,412,896 | 10,870,728 | ||||||||||||
| Net income before income taxes | (333,372 | ) | 180,492 | (2,860,119 | ) | 1,432,381 | ||||||||||
| Income taxes | (161,279 | ) | 15,520 | (1,214,279 | ) | 266,520 | ||||||||||
| Net income | $ | (172,093 | ) | $ | 164,972 | $ | (1,645,840 | ) | $ | 1,165,861 | ||||||
| Net income per share | $ | (.10 | ) | $ | 10 | $ | (.96 | ) | $ | .68 | ||||||
| Weighted average shares outstanding | 1,718,968 | 1,718,968 | 1,718,968 | 1,718,968 | ||||||||||||
Member Federal Deposit Insurance Corporation
|
GRAYSON BANKSHARES, INC. |
Carroll} P.O. Box 1185, Galax, VA 24333 P}476/238.8112
Elk Creek} P.O. Box 17, Elk Creek, VA 2432.6 P}276/655.4011
Galex} P.O. Box 795, Galax, VA 24333 11276/238.2411
Hillsville} P.O. Box 1177, Hillsville, VA 24343 P}276/728.2810
Independence} P.O. Box 186, Independence, VA 24348 P}276/773.2821
Sparta} P.O. Box 1900, Sparta, NC 28675 P}336/372.2811
Troutdale} P.O. Box 26, Troutdale, VA 24378 P}1276/677.3722
Whitetop} P.O. Box 88, Whitetop, VA 24292 P}276/388.3811
Wytheville} P.O. Box 557, Wytheville, VA 24382 P}276/228.6050