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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-30535
GRAYSON BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1647596
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
113 West Main Street
Independence, Virginia 24348
(Address of principal executive offices) (Zip Code)
(276) 773-2811
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Securities Name of Exchange on Which Registered
------------------- ------------------------------------
None n/a
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.25 per share
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 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 past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes ___ No _X_
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common
equity, as of the last business day of the registrant's most recently completed
second fiscal quarter. $40,127,751
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. 1,718,968 shares of
Common Stock
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 2002 Annual Report to Shareholders are incorporated by
reference into Part II hereof, and portions of the definitive proxy statement
for the 2003 Annual Meeting of Shareholders are incorporated by reference into
Part III hereof.
2
TABLE OF CONTENTS
PART I
Page
----
ITEM 1. BUSINESS..............................................................4
ITEM 2. PROPERTIES...........................................................10
ITEM 3. LEGAL PROCEEDINGS....................................................10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS.....................................11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS............................11
ITEM 6. SELECTED FINANCIAL DATA..............................................12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.....................13
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.......................................13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE..................13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................13
ITEM 11. EXECUTIVE COMPENSATION...............................................13
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.....................................14
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................14
ITEM 14 CONTROLS AND PROCEDURES..............................................14
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.....................................15
3
PART I
Item 1. Business
General
Grayson Bankshares, Inc. (the Company) was incorporated as a Virginia
corporation on February 3, 1992 to acquire 100% of the stock of The Grayson
National Bank (the Bank). The Bank was acquired by the Company on July 1, 1992.
The Grayson National Bank was founded in 1900 and currently serves Grayson
County and surrounding areas through six banking offices located in the town of
Independence, the localities of Elk Creek and Troutdale and the City of Galax,
Virginia, and the Town of Sparta, North Carolina.
The Bank operates for the primary purpose of meeting the banking needs
of individuals and small to medium sized businesses in the Bank's service area,
while developing personal, hometown associations with these customers. The Bank
offers a wide range of banking services including checking and savings accounts;
commercial, installment, mortgage and personal loans; safe deposit boxes; and
other associated services. The Bank's primary sources of revenue are interest
income from its lending activities, and, to a lesser extent, from its investment
portfolio. The Bank also earns fees from lending and deposit activities. The
major expenses of the Bank are interest on deposit accounts and general and
administrative expenses, such as salaries, occupancy and related expenses.
Lending Activities
The Bank's lending services include real estate, commercial,
agricultural and consumer loans. The loan portfolio constituted 70.76% of the
earning assets of the Bank at December 31, 2002 and has historically produced
the highest interest rate spread above the cost of funds. The Bank's loan
personnel have the authority to extend credit under guidelines established and
approved by the Board of Directors. Any aggregate credit which exceeds the
authority of the loan officer is forwarded to the loan committee for approval.
The loan committee is composed of the Bank President and all loan officers. All
aggregate credits that exceed the loan committee's lending authority are
presented to the full Board of Directors for ultimate approval or denial. The
loan committee not only acts as an approval body to ensure consistent
application of the Bank's loan policy but also provides valuable insight through
communication and pooling of knowledge, judgment and experience of its members.
The Bank has in the past and intends to continue to make most types of
real estate loans, including but not limited to, single and multi-family
housing, farm loans, residential and commercial construction loans and loans for
commercial real estate. At the end of 2002 the Bank had 46.86% of the loan
portfolio in single and multi-family housing, 23.39% in non-farm,
non-residential loans, 4.83% in farm related real estate loans and 3.86% in real
estate construction loans.
The Bank's loan portfolio includes commercial and agricultural
production loans totaling 12.13% of the portfolio at year-end 2002. Consumer
loans make up approximately 9.43% of the total loan portfolio. Consumer loans
include loans for household expenditures, car loans and other loans to
individuals. While this category has experienced a greater percentage of
charge-offs than the other classifications, the Bank is committed to continue to
make this type of loan to fill the needs of the Bank's customer base.
All loans in the Bank's portfolio are subject to risk from the state of
the economy in the Bank's area and also that of the nation. The Bank has used
and continues to use conservative loan-to-value ratios and thorough credit
evaluation to lessen the risk on all types of loans. The use of conservative
appraisals
4
has also reduced exposure on real estate loans. Thorough credit checks and
evaluation of past internal credit history has helped to reduce the amount of
risk related to consumer loans. Government guarantees of loans are used when
appropriate, but apply to a minimal percentage of the portfolio. Commercial
loans are evaluated by collateral value and ability to service debt. Businesses
seeking loans must have a good product line and sales, responsible management,
manageable debt load and a product that is not adversely affected by downturns
in the economy.
Investments
The Bank invests a portion of its assets in U.S. Treasury and U.S.
Government corporation and agency obligations, state, county and municipal
obligations, and equity securities. The Bank's investments are managed in
relation to loan demand and deposit growth, and are generally used to provide
for the investment of excess funds at reduced yields and risks relative to
increases in loan demand or to offset fluctuations in deposits. The Bank does
not engage in any hedging activities. For additional information relating to
investments, see "Financial Information."
Deposit Activities
Deposits are the major source of funds for lending and other investment
activities. Grayson National Bank considers the majority of its regular savings,
demand, NOW and money market deposits and small denomination certificates of
deposit, to be core deposits. These accounts comprised approximately 83.0% of
the Bank's total deposits at December 31, 2002. Certificates of deposit in
denominations of $100,000 or more represented the remaining 17.0% of deposits at
year-end.
Competition
The Company encounters strong competition both in making loans and in
attracting deposits. The deregulation of the banking industry and the widespread
enactment of state laws which permit multi-bank holding companies as well as an
increasing level of interstate banking have created a highly competitive
environment for commercial banking. In one or more aspects of its business, the
Company competes with other commercial banks, savings and loan associations,
credit unions, finance companies, mutual funds, insurance companies, brokerage
and investment banking companies, and other financial intermediaries. Many of
these competitors have substantially greater resources and lending limits and
may offer certain services that we do not currently provide. In addition, many
of Grayson Bankshares, Inc.'s competitors are not subject to the same extensive
federal regulations that govern bank holding companies and federally insured
banks. Recent federal and state legislation has heightened the competitive
environment in which financial institutions must conduct their business, and the
potential for competition among financial institutions of all types has
increased significantly.
To compete, the Company relies upon specialized services, responsive
handling of customer needs, and personal contacts by its officers, directors,
and staff. Large multi-branch banking competitors tend to compete primarily by
rate and the number and location of branches while smaller, independent
financial institutions tend to compete primarily by rate and personal service.
Currently, in Grayson County the Company competes with only two other
commercial banks, which operate a total of three branch banking facilities. As
of June 30, 2002, Grayson Bankshares, Inc. held 83.54% of the deposits in
Grayson County. In the City of Galax the Company competes with six other
commercial banks. Since opening in May of 1996 we have captured a market share
of 15.42% of deposits to become the third largest holder of deposits in the
market. Mountain National Bank leads the market with 32.94% of deposits as of
June 30, 2002.
5
Employees
At December 31, 2002, the Company had 73 full time equivalent
employees, none of which are represented by a union or covered by a collective
bargaining agreement. Management considers employee relations to be good.
Government Supervision and Regulation
The following discussion is a summary of the principal laws and
regulations that comprise the regulatory framework applicable to the Company and
the Bank. Other laws and regulations that govern various aspects of the
operations of banks and bank holding companies are not described herein,
although violations of such laws and regulations could result in supervisory
enforcement action against the Company or the Bank. The following descriptions,
as well as descriptions of laws and regulations contained elsewhere in this
filing, summarize the material terms of the principal laws and regulations and
are qualified in their entirety by reference to applicable laws and regulations.
As a bank holding company, the Company is subject to regulation under
the Bank Holding Company Act of 1956 (as amended, the "BHCA") and the
examination and reporting requirements of the Federal Reserve. Under the BHCA, a
bank holding company may not directly or indirectly acquire ownership or control
of more than 5% of the voting shares or substantially all of the assets of any
additional bank or merge or consolidate with another bank holding company
without the prior approval of the Federal Reserve. The BHCA also generally
limits the activities of a bank holding company to that of banking, managing or
controlling banks, or any other activity which is determined to be so closely
related to banking or to managing or controlling banks that an exception is
allowed for those activities.
As a national bank, The Grayson National Bank is subject to regulation,
supervision and examination by the Office of the Comptroller of the Currency
("OCC"). The Bank is also subject to regulation, supervision and examination by
the FDIC. Federal law also governs the activities in which the Bank may engage,
the investments it may make and limits the aggregate amount of loans that may be
granted to one borrower to 15% of the bank's capital and surplus. Various
consumer and compliance laws and regulations also affect the Bank's operations.
The earnings of the Bank, and therefore the earnings of the Company,
are affected by general economic conditions, management policies and the
legislative and governmental actions of various regulatory authorities,
including those referred to above.
The OCC will conduct regular examinations of the Bank, reviewing such
matters as the adequacy of loan loss reserves, quality of loans and investments,
management practices, compliance with laws, and other aspects of its operations.
In addition to these regular examinations, the Bank must furnish the OCC with
periodic reports containing a full and accurate statement of its affairs.
Supervision, regulation and examination of banks by these agencies are intended
primarily for the protection of depositors rather than shareholders.
Insurance of Accounts, Assessments and Regulation by the FDIC. The
deposits of The Grayson National Bank are insured by the FDIC up to the limits
set forth under applicable law. The deposits of the Bank are also subject to the
deposit insurance assessments of the Bank Insurance Fund ("BIF") of the FDIC.
The FDIC has implemented a risk-based deposit insurance assessment
system under which the assessment rate for an insured institution may vary
according to regulatory capital levels of the institution and other factors
(including supervisory evaluations). Under this system, depository institutions
are
6
charged anywhere from zero to $.27 for every $100 in insured domestic deposits,
based on such institutions' capital levels and supervisory subgroup assignment.
These rate schedules are subject to future adjustments by the FDIC. In addition,
the FDIC has authority to impose special assessments from time to time. The BIF
reached its required 1.25 reserve ratio in 1995, and in response the FDIC
reduced deposit insurance assessment rates on BIF-insured deposits to historic
low levels. However, due to legislation enacted in 1996 which requires that both
Savings Association Insurance Fund ("SAIF")-insured deposits and BIF-insured
deposits pay a pro rata portion of the interest due on the obligations issued by
the Financing Corporation ("FICO"), the FDIC has imposed additional assessments
on BIF-insured deposits.
The FDIC is authorized to prohibit any BIF-insured institution from
engaging in any activity that the FDIC determines by regulation or order to pose
a serious threat to the respective insurance fund. Also, the FDIC may initiate
enforcement actions against banks, after first giving the institution's primary
regulatory authority an opportunity to take such action. The FDIC may terminate
the deposit insurance of any depository institution if it determines, after a
hearing, that the institution has engaged or is engaging in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations, or has
violated any applicable law, regulation, order or any condition imposed in
writing by the FDIC. It also may suspend deposit insurance temporarily during
the hearing process for the permanent termination of insurance, if the
institution has no tangible capital. If deposit insurance is terminated, the
deposits at the institution at the time of termination, less subsequent
withdrawals, shall continue to be insured for a period from six months to two
years, as determined by the FDIC. Management is aware of no existing
circumstances that could result in termination of The Grayson National Bank's
deposit insurance.
Capital. The OCC and the Federal Reserve have issued risk-based and
leverage capital guidelines applicable to banking organizations they supervise.
Under the risk-based capital requirements, the Company and the Bank are each
generally required to maintain a minimum ratio of total capital to risk-weighted
assets (including certain off-balance sheet activities, such as standby letters
of credit) of 8%. At least half of the total capital is to be composed of common
equity, retained earnings and qualifying perpetual preferred stock, less certain
intangibles ("Tier 1 capital"). The remainder may consist of certain
subordinated debt, certain hybrid capital instruments and other qualifying
preferred stock and a limited amount of the loan loss allowance ("Tier 2
capital" and, together with Tier 1 capital, "total capital").
In addition, each of the Federal banking regulatory agencies has
established minimum leverage capital ratio requirements for banking
organizations. These requirements provide for a minimum leverage ratio of Tier 1
capital to adjusted average quarterly assets equal to 3% for bank holding
companies that are rated a composite "1" and 4% for all other bank holding
companies. Bank holding companies are expected to maintain higher than minimum
capital ratios if they have supervisory, financial, operational or managerial
weaknesses, or if they are anticipating or experiencing significant growth.
The risk-based capital standards of the OCC and the Federal Reserve
explicitly identify concentrations of credit risk and the risk arising from
non-traditional activities, as well as an institution's ability to manage these
risks, as important factors to be taken into account by the agency in assessing
an institution's overall capital adequacy. The capital guidelines also provide
that an institution's exposure to a decline in the economic value of its capital
due to changes in interest rates be considered by the agency as a factor in
evaluating a bank's capital adequacy. The OCC and the Federal Reserve also have
recently issued additional capital guidelines for bank holding companies that
engage in certain trading activities.
Other Safety and Soundness Regulations. There are a number of
obligations and restrictions imposed on bank holding companies and their
depository institution subsidiaries by Federal law and regulatory policy that
are designed to reduce potential loss exposure to the depositors of such
depository
7
institutions and to the FDIC insurance funds in the event the depository
institution becomes in danger of default or is in default. For example, under a
policy of the Federal Reserve with respect to bank holding company operations, a
bank holding company is required to serve as a source of financial strength to
its subsidiary depository institutions and to commit resources to support such
institutions in circumstances where it might not do so otherwise. In addition,
the "cross-guarantee" provisions of Federal law require insured depository
institutions under common control to reimburse the FDIC for any loss suffered or
reasonably anticipated by the BIF as a result of the default of a commonly
controlled insured depository institution or for any assistance provided by the
FDIC to a commonly controlled insured depository institution in danger of
default. The FDIC may decline to enforce the cross-guarantee provision if it
determines that a waiver is in the best interests of the BIF. The FDIC's claim
for reimbursement is superior to claims of shareholders of the insured
depository institution or its holding company but is subordinate to claims of
depositors, secured creditors and holders of subordinated debt (other than
affiliates) of the commonly controlled insured depository institution.
The Federal banking agencies also have broad powers under current
Federal law to take prompt corrective action to resolve problems of insured
depository institutions. The Federal Deposit Insurance Act requires that the
federal banking agencies establish five capital levels for insured depository
institutions - "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized." It also
requires or permits such agencies to take certain supervisory actions should an
insured institution's capital level fall. For example, an "adequately
capitalized" institution is restricted from accepting brokered deposits. An
"undercapitalized" or "significantly undercapitalized" institution must develop
a capital restoration plan and is subject to a number of mandatory and
discretionary supervisory actions. These powers and authorities are in addition
to the traditional powers of the Federal banking agencies to deal with
undercapitalized institutions.
Federal regulatory authorities also have broad enforcement powers over
the Company and the Bank, including the power to impose fines and other civil
and criminal penalties, and to appoint a receiver in order to conserve the
assets of any such institution for the benefit of depositors and other
creditors.
Payment of Dividends. The Company is a legal entity separate and
distinct from the Bank. Virtually all of the revenues of the Company results
from dividends paid to the Company by the Bank. Under OCC regulations a national
bank may not declare a dividend in excess of its undivided profits.
Additionally, a national bank may not declare a dividend if the total amount of
all dividends, including the proposed dividend, declared by the national bank in
any calendar year exceeds the total of the national bank's retained net income
of that year to date, combined with its retained net income of the two preceding
years, unless the dividend is approved by the OCC. A national bank may not
declare or pay any dividend if, after making the dividend, the national bank
would be "undercapitalized," as defined in regulations of the OCC. The Company
is subject to state laws that limit the amount of dividends it can pay. In
addition, the Company is subject to various general regulatory policies relating
to the payment of dividends, including requirements to maintain adequate capital
above regulatory minimums. The Federal Reserve has indicated that banking
organizations should generally pay dividends only if, (1) the organization's net
income available to common shareholders over the past year has been sufficient
to fully fund the dividends, and (2) the prospective rate of earnings retention
appears consistent with the organization's capital needs, asset quality and
overall financial condition.
Community Reinvestment. The requirements of the Community Reinvestment
Act ("CRA") are applicable to the Bank. The CRA imposes on financial
institutions an affirmative and ongoing obligation to meet the credit needs of
their local communities, including low and moderate income neighborhoods,
consistent with the safe and sound operation of those institutions. A financial
institution's efforts in meeting community credit needs currently are evaluated
as part of the examination process pursuant to
8
twelve assessment factors. These factors also are considered in evaluating
mergers, acquisitions and applications to open a branch or facility.
Interstate Banking and Branching. Current Federal law authorizes
interstate acquisitions of banks and bank holding companies without geographic
limitation. Effective June 1, 1997, a bank headquartered in one state is able to
merge with a bank headquartered in another state, as long as neither of the
states has opted out of such interstate merger authority prior to such date.
States are authorized to enact laws permitting such interstate bank merger
transactions prior to June 1, 1997, as well as authorizing a bank to establish
"de novo" interstate branches. Virginia enacted early "opt in" laws, permitting
interstate bank merger transactions. Once a bank has established branches in a
state through an interstate merger transaction, the bank may establish and
acquire additional branches at any location in the state where a bank
headquartered in that state could have established or acquired branches under
applicable Federal or state law.
Economic and Monetary Polices. The operations of the Company are
affected not only by general economic conditions, but also by the economic and
monetary policies of various regulatory authorities. In particular, the Federal
Reserve regulates money, credit and interest rates in order to influence general
economic conditions. These policies have a significant influence on overall
growth and distribution of loans, investments and deposits and affect interest
rates charged on loans or paid for time and savings deposits. Federal Reserve
monetary policies have had a significant effect on the operating results of
commercial banks in the past and are expected to continue to do so in the
future.
9
Item 2. Properties
Grayson Bankshares, Inc. and The Grayson National Bank are
headquartered in the Main Office at 113 West Main Street, Independence,
Virginia. The Bank owns and operates branches at the following locations:
BANKING
LOCATION/ FUNCTIONS
NAME OF OFFICE TELEPHONE NUMBER OFFERED
Main Office 113 West Main Street Full Service
Independence, Virginia 24348
(276) 773-2811
East Independence Office 558 East Main Street Full Service
Independence, Virginia 24348 24 Hour Teller
(276) 773-2811
Elk Creek Office 60 Comers Rock Road Full Service
Elk Creek, Virginia 24326
(276) 655-4011
Troutdale Office 101 Ripshin Road. Full Service
Troutdale, Virginia 24378
(276) 677-3722
Galax Office 209 West Grayson Street Full Service
Galax, Virginia 24333 24 Hour Teller
(276) 238-2411
Sparta Office 98 South Grayson Street Full Service
Sparta, North Carolina 28675 24 Hour Teller
(336) 372-2811
The Bank currently has two full-service branch banking facilities under
construction. One is located at 802 East Main Street, Independence, Virginia.
When completed, the East Independence Office listed above will be relocated to
this facility. The second facility is located at 8417 Carrollton Pike, Galax,
Virginia. Located in Carroll County, just outside the City of Galax, this office
will provide additional convenience to our Galax customers and allow us to serve
new customers in the western districts of Carroll County. The Company
anticipates completion of these facilities in April 2003 and September 2003,
respectively. The Bank also owns a vacant lot near the main office in
Independence, Virginia. This property is being held as a potential building site
for an operations center
Item 3. Legal Proceedings
In the ordinary course of operations, the Company and the Bank expect
to be parties to various legal proceedings. At present, there are no pending or
threatened proceedings against the Company or the Bank which, if determined
adversely, would have a material effect on the business, results of operations,
or financial position of the Company or the Bank.
10
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of 2002.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Shares of the Company's Common Stock is neither listed on any stock
exchange nor quoted on the any market and trades infrequently. Shares of Common
Stock have periodically been sold in a limited number of privately negotiated
transactions. Based on information available to it, the Company believes that
from January 1, 2001 to December 31, 2002, the selling price of shares of Common
Stock ranged from $22.00 to $71.00. There may, however, have been other
transactions at other prices not known to the Company.
Market Price and Dividends
Sales Price ($) (1) Dividends ($)
------------------- -------------
High Low
---- ---
2001:
1st quarter................................... 32.00 32.00 .00
2nd quarter................................... 32.00 30.00 .20
3rd quarter................................... 71.00 22.00 .00
4th quarter................................... 30.00 29.00 .21
2002:
1st quarter................................... 29.00 26.00 .00
2nd quarter................................... 27.00 24.00 .22
3rd quarter................................... 32.00 29.00 .00
4th quarter................................... 32.00 27.00 .24
As of December 31, 2002, there were approximately 650 record holders of
Common Stock.
11
Item 6. Selected Financial Data
2002 2001 2000 1999 1998
----------- ----------- ----------- ----------- -----------
Summary of Operations
Interest income $ 14,280 $ 13,717 $ 13,153 $ 11,655 $ 11,010
Interest expense 6,640 7,204 6,785 5,921 5,786
----------- ----------- ----------- ----------- -----------
Net interest income 7,640 6,513 6,368 5,734 5,224
Provision for credit losses 441 280 280 300 319
Other income 1,021 589 435 347 375
Other expense 4,720 4,092 3,772 3,371 2,986
Income taxes 964 790 687 466 397
----------- ----------- ----------- ----------- -----------
Net income $ 2,536 $ 1,940 $ 2,064 $ 1,944 $ 1,897
=========== =========== =========== =========== ===========
Per Share Data2
Net income $ 1.48 $ 1.13 $ 1.20 $ 1.13 $ 1.10
Cash dividends declared .46 .41 .37 .33 .30
Book value 13.51 12.27 11.42 10.41 9.90
Estimated market value3 32.00 29.00 32.00 32.00 27.50
Year-end Balance Sheet Summary
Loans, net $ 154,190 $ 140,898 $ 133,072 $ 121,498 $ 105,924
Investment securities 44,872 33,452 28,766 29,430 32,510
Total assets 241,283 201,469 180,318 170,335 159,745
Deposits 206,909 179,323 159,590 151,620 141,803
Stockholders' equity 23,230 21,086 19,638 17,890 17,028
Selected Ratios
Return on average assets 1.13% 1.02% 1.18% 1.18% 1.24%
Return on average equity 11.40% 9.44% 10.95% 11.05% 11.54%
Average equity to average assets 9.88% 10.85% 10.75% 10.69% 10.73%
- ---------
1 In thousands of dollars, except per share data.
2 Adjusted for the effects of a two for one stock split in 1999.
3 Provided at the trade date nearest year end.
12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Pursuant to General Instruction G(2) of Form 10-K, the information
contained under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's 2002 Annual Report to
Shareholders is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Pursuant to General Instruction G(2) of Form 10-K, the information
contained under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's 2002 Annual Report to
Shareholders is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
Pursuant to General Instruction G(2) of Form 10-K, the following
financial statements in the Company's 2002 Annual Report to Shareholders are
incorporated herein by reference.
Independent Auditor's Report
Consolidated Balance Sheets as of December 31, 2002 and 2001
Consolidated Statements of Income for the Years Ended December 31,
2002, 2001, and 2000
Consolidated Statements of Changes in Shareholders' Equity for
the Years Ended December 31, 2002, 2001, and 2000
Consolidated Statements of Cash Flows for the Years Ended December
31, 2002, 2001, and 2000
Notes to Consolidated Financial Statements
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Pursuant to General Instruction G(3) of Form 10-K, the information
contained under the headings "Election of Directors," "Executive Officers Who
Are Not Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance"
in the Company's Proxy Statement for the 2003 Annual Meeting of Shareholders is
incorporated herein by reference.
Item 11. Executive Compensation
Pursuant to General Instruction G(3) of Form 10-K, the information
contained under the heading "Compensation and Related Transactions" in the
Company's Proxy Statement for the 2003 Annual Meeting of Shareholders is
incorporated herein by reference.
13
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
Pursuant to General Instruction G(3) of Form 10-K, the information
contained under the headings "Security Ownership of Management" and "Security
Ownership of Certain Beneficial Owners" in the Company's Proxy Statement for the
2003 Annual Meeting of Shareholders is incorporated herein by reference.
The Company does not have compensation plans or other arrangements
under which equity securities are authorized for issuance.
Item 13. Certain Relationships and Related Transactions
Pursuant to General Instruction G(3) of Form 10-K, the information
contained under the heading "Transactions with Management" in the Company's
Proxy Statement for the 2003 Annual Meeting of Shareholders is incorporated
herein by reference.
Item 14. Controls and Procedures
Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's President and Chief Executive
Officer along with the Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures
pursuant to Rule 13a-14, under the Securities Exchange Act of 1934, as amended.
Based upon that evaluation, the Company's President and Chief Executive Officer
along with the Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company (including its consolidated subsidiaries)
required to be included in our periodic filings with the Securities and Exchange
Commission.
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal controls
subsequent to the date that the Company carried out this evaluation.
14
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form
8-K
(a) Financial statements, financial statement schedules and
reports included in this Annual Report on Form 10-K
(1) Financial Statements
The response to this portion of Item 15 is set forth
in Item 8 above.
(2) Financial Statement Schedules
No financial statement schedules, other than those
schedules included in the Company's financial
statements, are required or applicable.
(3) The exhibits that are required to be filed or
incorporated by reference herein are as follows:
Exhibit No. Document
----------- --------
3.1 Articles of Incorporation, incorporated by
reference to Exhibit 3.1 of the Company's
Registration Statement on Form 10, File No.
0-30535 (the "Form 10").
3.2 Bylaws, incorporated by reference to Exhibit
3.2 of the Form 10.
13.1 2002 Annual Report to Shareholders.*
21 Subsidiary of the Company.*
99.1 Statement of Chief Executive Officer and
Chief Financial Officer Pursuant to 18
U.S.C. ss. 1350.*
---------
* Filed herewith
(b) Reports on Form 8-K.
None.
(c) Exhibits
The response to this portion of Item 15 is set forth in Item
15(a)(3) above.
(d) Financial Statement Schedules
No financial statement schedules, other than those schedules
included in the Company's financial statements, are required
or applicable.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
GRAYSON BANKSHARES, INC.
Date: March 28, 2003 By: /s/ Jacky K. Anderson
---------------------------------------
Jacky K. Anderson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Jacky K. Anderson President and Chief Executive March 28, 2003
- ------------------------------------------- Officer and Director
Jacky K. Anderson (Principal Executive Officer)
/s/ Blake M. Edwards, Jr. Chief Financial Officer March 28, 2003
- ------------------------------------------- (Principal Financial
Blake M. Edwards, Jr. and Accounting Officer)
/s/ Dennis B. Gambill Director March 28, 2003
- -------------------------------------------
Dennis B. Gambill
/s/ Julian L. Givens Director March 28, 2003
- -------------------------------------------
Julian L. Givens
Director March __, 2003
- -------------------------------------------
Jack E. Guynn, Jr.
/s/ Thomas M. Jackson, Jr. Director March 28, 2003
- -------------------------------------------
Thomas M. Jackson, Jr.
/s/ Fred B. Jones Director March 28, 2003
- -------------------------------------------
Fred B. Jones
Director March __, 2003
- -------------------------------------------
Jean W. Lindsey
Director March __, 2003
- -------------------------------------------
Carl J. Richardson
/s/ Charles T. Sturgill Director March 28, 2003
- -------------------------------------------
Charles T. Sturgill
Director March __, 2003
- -------------------------------------------
J. David Vaughan
CERTIFICATIONS
I, Jacky K. Anderson certify that:
1. I have reviewed this annual report on Form 10-K of Grayson
Bankshares, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing
the equivalent functions):
a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated
in this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 28, 2003 /s/ Jacky K. Anderson
---------------------------------------
Jacky K. Anderson
President and Chief Executive Officer
CERTIFICATIONS
I, Blake M. Edwards certify that:
1. I have reviewed this annual report on Form 10-K of Grayson
Bankshares, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing
the equivalent functions):
a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated
in this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 28, 2003 /s/ Blake M. Edwards
------------------------------------
Blake M. Edwards
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Document
----------- --------
3.1 Articles of Incorporation, incorporated by reference to
Exhibit 3.1 of the Company's Registration Statement on Form
10, File No. 0-30535 (the "Form 10").
3.2 Bylaws, incorporated by reference to Exhibit 3.2 of the Form
10.
13.1 2002 Annual Report to Shareholders.*
21 Subsidiary of the Company.*
99.1 Statement of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. ss. 1350.*
- ---------
* Filed herewith