##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



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FORM 10-QSB



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|x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------



For Quarterly Period Ended September 30, 2004



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
|- | --------------------------------------------------------------------------



Commission File No. 0-30541



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PIONEER BANKSHARES, INC.

(Exact name of small business issuer as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Virginia                                                       |  | 54-1278721                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



263 East Main Street

P. O. Box 10

Stanley, Virginia 22851

(Address of principal executive offices)



(540) 778-2294

(Issuers telephone number)



---



Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 the past 90
days.    Yes  x    No ̈



State the number of shares outstanding of each of the issuers classes
of common equity, as of the latest practicable date.



|                                |  |                                 
|------------------------------- |  | --------------------------------
|Class                           |  | Outstanding at November 10, 2004
|Common Stock, par value - $0.50 |  | 1,073,650 shares                



Transitional Small
Business Disclosure Format (check one)    YES ̈NO  x



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##### Table of Contents

PIONEER BANKSHARES, INC.



INDEX



|         |  |                                                                                                             |  |     
|-------- |  | ----------------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                             |  | Page
|PART I   |  | FINANCIAL INFORMATION                                                                                       |  | 3   
|         |  |                                                                                                            
|Item 1.  |  | Financial Statements                                                                                        |  |     
|         |  |                                                                                                            
|         |  | Consolidated Statements of Income - Three Months Ended September 30, 2004 and 2003                          |  | 3   
|         |  |                                                                                                            
|         |  | Consolidated Statements of Income - Nine Months Ended September 30, 2004 and 2003                           |  | 4   
|         |  |                                                                                                            
|         |  | Consolidated Balance Sheets - September 30, 2004 and December 31, 2003                                      |  | 5   
|         |  |                                                                                                            
|         |  | Consolidated Statements of Changes in Stockholders Equity - Three Months Ended September 30, 2004 and 2003 |  | 6   
|         |  |                                                                                                            
|         |  | Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2004 and 2003                       |  | 7   
|         |  |                                                                                                            
|         |  | Notes to Consolidated Financial Statements                                                                  |  | 8   
|         |  |                                                                                                            
|Item 2.  |  | Managements Discussion and Analysis or Plan of Operation                                                   |  | 11  
|         |  |                                                                                                            
|Item 3.  |  | Controls and Procedures                                                                                     |  | 22  
|         |  |                                                                                                            
|PART II  |  | OTHER INFORMATION                                                                                           |  | 22  
|         |  |                                                                                                            
|Item 1.  |  | Legal Proceedings                                                                                           |  | 22  
|         |  |                                                                                                            
|Item 2.  |  | Changes in Securities, and Small Business Issuers Purchases of Equity Securities                           |  | 22  
|         |  |                                                                                                            
|Item 3.  |  | Defaults Upon Senior Securities                                                                             |  | 22  
|         |  |                                                                                                            
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                         |  | 22  
|         |  |                                                                                                            
|Item 5.  |  | Other Information                                                                                           |  | 22  
|         |  |                                                                                                            
|Item 5a. |  | Required 8-K Disclosures                                                                                    |  | 23  
|         |  |                                                                                                            
|Item 5b. |  | Changes in Procedures for Director Nominations by Security Holders                                          |  | 23  
|         |  |                                                                                                            
|Item 6.  |  | Exhibits                                                                                                    |  | 23  
|         |  |                                                                                                            
|         |  | SIGNATURES                                                                                                  |  | 24  



2



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##### Table of Contents

Part I - Financial Information

Item 1. Financial Statements



PIONEER BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands of Dollars, except Per Share Data)

(UNAUDITED)



|                                                    |  |                                 |           |   |      |   |          
|--------------------------------------------------- |  | ------------------------------- | --------- | - | ---- | - | ---------
|                                                    |  | Three Months EndedSeptember 30,
|                                                    |  | 2004                            |           |   | 2003
|Interest and Dividend Income:                       |  |                                 |           |   |      |   |          
|Loans including fees                                |  | $                               | 1,847     |   |      | $ | 1,846    
|Interest on securities - taxable                    |  |                                 | 89        |   |      |   | 67       
|Interest on securities - nontaxable                 |  |                                 | 1         |   |      |   | 17       
|Interest on deposits and federal funds sold         |  |                                 | 45        |   |      |   | 40       
|Dividends                                           |  |                                 | 15        |   |      |   | 15       
|                                                    |  |                                 |           |   |      |   |          
|Total Interest and Dividend Income                  |  |                                 | 1,997     |   |      |   | 1,985    
|                                                    |  |                                 |           |   |      |   |          
|Interest Expense:                                   |  |                                 |           |   |      |   |          
|Deposits                                            |  |                                 | 318       |   |      |   | 423      
|Long term debt                                      |  |                                 | 109       |   |      |   | 71       
|                                                    |  |                                 |           |   |      |   |          
|Total Interest Expense                              |  |                                 | 427       |   |      |   | 494      
|                                                    |  |                                 |           |   |      |   |          
|Net Interest Income                                 |  |                                 | 1,570     |   |      |   | 1,491    
|Provision for loan losses                           |  |                                 | 16        |   |      |   | 344      
|                                                    |  |                                 |           |   |      |   |          
|Net interest income after provision for loan losses |  |                                 | 1,554     |   |      |   | 1,147    
|                                                    |  |                                 |           |   |      |   |          
|Noninterest Income:                                 |  |                                 |           |   |      |   |          
|Service charges and fees                            |  |                                 | 195       |   |      |   | 187      
|Other income                                        |  |                                 | 10        |   |      |   | 73       
|Gain (loss) on securities transactions              |  |                                 | (5        | ) |      |   | 174      
|                                                    |  |                                 |           |   |      |   |          
|Total Noninterest Income                            |  |                                 | 200       |   |      |   | 434      
|                                                    |  |                                 |           |   |      |   |          
|Noninterest Expense:                                |  |                                 |           |   |      |   |          
|Salaries and benefits                               |  |                                 | 534       |   |      |   | 540      
|Occupancy expenses                                  |  |                                 | 69        |   |      |   | 64       
|Equipment expenses                                  |  |                                 | 198       |   |      |   | 200      
|Other expenses                                      |  |                                 | 331       |   |      |   | 355      
|                                                    |  |                                 |           |   |      |   |          
|Total Noninterest Expenses                          |  |                                 | 1,132     |   |      |   | 1,159    
|                                                    |  |                                 |           |   |      |   |          
|Income before Income Taxes                          |  |                                 | 622       |   |      |   | 422      
|Income Tax Expense                                  |  |                                 | 209       |   |      |   | 139      
|                                                    |  |                                 |           |   |      |   |          
|Net Income                                          |  |                                 | 413       |   |      |   | 283      
|                                                    |  |                                 |           |   |      |   |          
|Per Share Data                                      |  |                                 |           |   |      |   |          
|Net income, basic and diluted                       |  | $                               | 0.38      |   |      | $ | 0.26     
|                                                    |  |                                 |           |   |      |   |          
|Dividends                                           |  | $                               | 0.12      |   |      | $ | 0.11     
|                                                    |  |                                 |           |   |      |   |          
|Weighted Average Shares Outstanding, Basic          |  |                                 | 1,073,650 |   |      |   | 1,092,410
|                                                    |  |                                 |           |   |      |   |          
|Weighted Average Shares Outstanding, Diluted        |  |                                 | 1,074,798 |   |      |   | 1,092,410
|                                                    |  |                                 |           |   |      |   |          



See Notes to
Consolidated Financial Statements



3



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##### Table of Contents

PIONEER BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands of Dollars, except Per Share Data)

(UNAUDITED)



|                                                    |  |                                |           |      |   |          
|--------------------------------------------------- |  | ------------------------------ | --------- | ---- | - | ---------
|                                                    |  | Nine Months EndedSeptember 30,
|                                                    |  | 2004                           |           | 2003
|Interest and Dividend Income:                       |  |                                |           |      |   |          
|Loans including fees                                |  | $                              | 5,376     |      | $ | 5,776    
|Interest on securities - taxable                    |  |                                | 244       |      |   | 241      
|Interest on securities - nontaxable                 |  |                                | 18        |      |   | 58       
|Interest on deposits and federal funds sold         |  |                                | 148       |      |   | 128      
|Dividends                                           |  |                                | 43        |      |   | 62       
|                                                    |  |                                |           |      |   |          
|Total Interest and Dividend Income                  |  |                                | 5,829     |      |   | 6,265    
|                                                    |  |                                |           |      |   |          
|Interest Expense:                                   |  |                                |           |      |   |          
|Deposits                                            |  |                                | 1,009     |      |   | 1,364    
|Long term debt                                      |  |                                | 330       |      |   | 216      
|                                                    |  |                                |           |      |   |          
|Total Interest Expense                              |  |                                | 1,339     |      |   | 1,580    
|                                                    |  |                                |           |      |   |          
|Net Interest Income                                 |  |                                | 4,490     |      |   | 4,685    
|Provision for loan losses                           |  |                                | 62        |      |   | 829      
|                                                    |  |                                |           |      |   |          
|Net interest income after provision for loan losses |  |                                | 4,428     |      |   | 3,856    
|                                                    |  |                                |           |      |   |          
|Noninterest Income:                                 |  |                                |           |      |   |          
|Service charges and fees                            |  |                                | 611       |      |   | 642      
|Other income                                        |  |                                | 44        |      |   | 190      
|Gain on securities transactions                     |  |                                | 226       |      |   | 302      
|                                                    |  |                                |           |      |   |          
|Total Noninterest Income                            |  |                                | 881       |      |   | 1,134    
|                                                    |  |                                |           |      |   |          
|Noninterest Expense:                                |  |                                |           |      |   |          
|Salaries and benefits                               |  |                                | 1,642     |      |   | 1,584    
|Occupancy expenses                                  |  |                                | 223       |      |   | 194      
|Equipment expenses                                  |  |                                | 599       |      |   | 544      
|Other expenses                                      |  |                                | 1,009     |      |   | 1,042    
|                                                    |  |                                |           |      |   |          
|Total Noninterest Expenses                          |  |                                | 3,473     |      |   | 3,364    
|                                                    |  |                                |           |      |   |          
|Income before Income Taxes                          |  |                                | 1,836     |      |   | 1,626    
|Income Tax Expense                                  |  |                                | 615       |      |   | 528      
|                                                    |  |                                |           |      |   |          
|Net Income                                          |  |                                | 1,221     |      |   | 1,098    
|                                                    |  |                                |           |      |   |          
|Per Share Data                                      |  |                                |           |      |   |          
|Net income, basic and diluted                       |  | $                              | 1.14      |      | $ | 1.01     
|                                                    |  |                                |           |      |   |          
|Dividends                                           |  | $                              | 0.36      |      | $ | 0.33     
|                                                    |  |                                |           |      |   |          
|Weighted Average Shares Outstanding, Basic          |  |                                | 1,073,650 |      |   | 1,092,410
|                                                    |  |                                |           |      |   |          
|Weighted Average Shares Outstanding, Diluted        |  |                                | 1,074,705 |      |   | 1,092,410
|                                                    |  |                                |           |      |   |          



See Notes to
Consolidated Financial Statements



4



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##### Table of Contents

PIONEER BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands of Dollars)



|                                                                                     |  |                   |         |                 |   |        
|------------------------------------------------------------------------------------ |  | ----------------- | ------- | --------------- | - | -------
|                                                                                     |  | September 30,2004 |         | December 312003
|                                                                                     |  | (Unaudited)       |         | (Audited)      
|ASSETS                                                                               |  |                   |         |                 |   |        
|                                                                                     |  |                  
|Cash and due from banks                                                              |  | $                 | 5,776   |                 | $ | 7,579  
|Federal funds sold                                                                   |  |                   | 800     |                 |   | 2,500  
|Interest bearing deposits in other banks                                             |  |                   | 6,549   |                 |   | 5,212  
|Securities available for sale, at fair value                                         |  |                   | 13,470  |                 |   | 18,348 
|Securities held to maturity                                                          |  |                   | 35      |                 |   | 31     
|Restricted securities                                                                |  |                   | 788     |                 |   | 557    
|Loans receivable, net of allowance for loan losses of $1,464 and $1,433 respectively |  |                   | 92,670  |                 |   | 80,781 
|Premises and equipment, net                                                          |  |                   | 4,042   |                 |   | 4,115  
|Accrued interest receivable                                                          |  |                   | 515     |                 |   | 497    
|Other assets                                                                         |  |                   | 1,534   |                 |   | 1,301  
|                                                                                     |  |                   |         |                 |   |        
|Total Assets                                                                         |  | $                 | 126,179 |                 | $ | 120,921
|                                                                                     |  |                   |         |                 |   |        
|LIABILITIES                                                                          |  |                   |         |                 |   |        
|                                                                                     |  |                  
|Deposits                                                                             |  |                   |         |                 |   |        
|Noninterest bearing demand                                                           |  | $                 | 24,284  |                 |   | 21,181 
|Interest bearing                                                                     |  |                   |         |                 |   |        
|Demand                                                                               |  |                   | 14,747  |                 |   | 14,155 
|Savings                                                                              |  |                   | 13,535  |                 |   | 12,888 
|Time deposits over $100,000                                                          |  |                   | 8,008   |                 |   | 8,219  
|Other time deposits                                                                  |  |                   | 36,731  |                 |   | 43,148 
|                                                                                     |  |                   |         |                 |   |        
|Total Deposits                                                                       |  |                   | 97,305  |                 |   | 99,591 
|                                                                                     |  |                  
|Accrued expenses and other liabilities                                               |  |                   | 717     |                 |   | 740    
|Long term debt                                                                       |  |                   | 14,237  |                 |   | 7,425  
|                                                                                     |  |                   |         |                 |   |        
|Total Liabilities                                                                    |  |                   | 112,259 |                 |   | 107,756
|                                                                                     |  |                   |         |                 |   |        
|STOCKHOLDERS EQUITY                                                                 |  |                   |         |                 |   |        
|                                                                                     |  |                  
|Common stock; $.50 par value, authorized 5,000,000, outstanding 1,073,650            |  |                   | 537     |                 |   | 537    
|Retained earnings                                                                    |  |                   | 13,298  |                 |   | 12,464 
|Accumulated other comprehensive income, net                                          |  |                   | 85      |                 |   | 164    
|                                                                                     |  |                   |         |                 |   |        
|Total Stockholders Equity                                                           |  |                   | 13,920  |                 |   | 13,165 
|                                                                                     |  |                   |         |                 |   |        
|Total Liabilities and Stockholders Equity                                           |  | $                 | 126,179 |                 | $ | 120,921
|                                                                                     |  |                   |         |                 |   |        



See Notes to
Consolidated Financial Statements



5



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##### Table of Contents

PIONEER BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

(In Thousands)

(UNAUDITED)



|                                                                                          |  |             |     |                  |   |        |                                     |  |   |       |   |  |   |        |  
|----------------------------------------------------------------------------------------- |  | ----------- | --- | ---------------- | - | ------ | ----------------------------------- |  | - | ----- | - |  | - | ------ | -
|                                                                                          |  | CommonStock |     | RetainedEarnings |   |        | AccumulatedOtherComprehensiveIncome |  |   | Total |  
|BALANCE DECEMBER 31, 2002                                                                 |  | $           | 546 |                  | $ | 11,913 |                                     |  | $ | 216   |   |  | $ | 12,675 |  
|                                                                                          |  |             |     |                 
|Comprehensive Income                                                                      |  |             |     |                  |   |        |                                     |  |   |       |   |  |   |        |  
|Net Income                                                                                |  |             |     |                  |   | 1,098  |                                     |  |   |       |   |  |   | 1,098  |  
|Changes in unrealized gains on securities, net of taxes                                   |  |             |     |                  |   |        |                                     |  |   |       |   |  |   |        |  
|Unrealized holding gains arising during the period (net of tax effect $25)                |  |             |     |                  |   |        |                                     |  |   | 50    |   |  |   |        |  
|Reclassification adjustment for losses included in net income (net of tax effect of $103) |  |             |     |                  |   |        |                                     |  |   | (199  | ) |  |   | (149   | )
|                                                                                          |  |             |     |                  |   |        |                                     |  |   |       |   |  |   |        |  
|Total Comprehensive Income                                                                |  |             |     |                  |   |        |                                     |  |   |       |   |  |   | 949    |  
|                                                                                          |  |             |     |                 
|Cash Dividends                                                                            |  |             |     |                  |   | (360   | )                                   |  |   |       |   |  |   | (360   | )
|Retirement of common stock                                                                |  |             |    |                  |   |       |                                     |  |   |      |   |  |   |       |  
|                                                                                          |  |             |     |                  |   |        |                                     |  |   |       |   |  |   |        |  
|BALANCE SEPTEMBER 30, 2003                                                                |  |             | 546 |                  |   | 12,651 |                                     |  |   | 67    |   |  |   | 13,264 |  
|                                                                                          |  |             |     |                  |   |        |                                     |  |   |       |   |  |   |        |  
|BALANCE DECEMBER 31, 2003                                                                 |  |             | 537 |                  |   | 12,464 |                                     |  |   | 164   |   |  |   | 13,165 |  
|                                                                                          |  |             |     |                 
|Comprehensive Income                                                                      |  |             |     |                  |   |        |                                     |  |   |       |   |  |   |        |  
|Net Income                                                                                |  |             |     |                  |   | 1,221  |                                     |  |   |       |   |  |   | 1,221  |  
|Changes in unrealized gains (losses) on securities, net of taxes                          |  |             |     |                  |   |        |                                     |  |   |       |   |  |   |        |  
|Unrealized holding gains arising during the period (net of tax effect of $37)             |  |             |     |                  |   |        |                                     |  |   | 70    |   |  |   |        |  
|Reclassification adjustment for gains included in net income (net of tax effect of $77)   |  |             |     |                  |   |        |                                     |  |   | (149  | ) |  |   | (79    | )
|                                                                                          |  |             |     |                  |   |        |                                     |  |   |       |   |  |   |        |  
|Total Comprehensive Income                                                                |  |             |     |                  |   |        |                                     |  |   |       |   |  |   | 1,142  |  
|                                                                                          |  |             |     |                 
|Cash Dividends                                                                            |  |             |     |                  |   | (387   | )                                   |  |   |       |   |  |   | (387   | )
|Retirement of common stock                                                                |  |             |    |                  |   |       |                                     |  |   |      |   |  |   |       |  
|                                                                                          |  |             |     |                  |   |        |                                     |  |   |       |   |  |   |        |  
|BALANCE SEPTEMBER 30, 2004                                                                |  | $           | 537 |                  | $ | 13,298 |                                     |  | $ | 85    |   |  | $ | 13,920 |  
|                                                                                          |  |             |     |                  |   |        |                                     |  |   |       |   |  |   |        |  



See Notes to
Consolidated Financial Statements



6



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##### Table of Contents

PIONEER BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of Dollars)

(UNAUDITED)



|                                                                                  |  |                                |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Nine Months EndedSeptember 30, |        
|                                                                                  |  | 2004                           |         |   | 2003 |  
|Cash Flows from Operating Activities:                                             |  |                                |         |   |      |   |         |  
|Net income                                                                        |  | $                              | 1,221   |   |      | $ | 1,098   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                |         |   |      |   |         |  
|Provision for loan losses                                                         |  |                                | 62      |   |      |   | 829     |  
|Depreciation and amortization                                                     |  |                                | 807     |   |      |   | 384     |  
|Gain on sale of securities                                                        |  |                                | (226    | ) |      |   | (302    | )
|Income on insurance policies                                                      |  |                                |        |   |      |   | (36     | )
|Net change in:                                                                    |  |                                |         |   |      |   |         |  
|Accrued interest receivable                                                       |  |                                | (18     | ) |      |   | 79      |  
|Other assets                                                                      |  |                                | (207    | ) |      |   | (18     | )
|Accrued expense and other liabilities                                             |  |                                | (23     | ) |      |   | (169    | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Net Cash Provided by Operating Activities                                         |  |                                | 1,616   |   |      |   | 1,865   |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Cash Flows from Investing Activities:                                             |  |                                |         |   |      |   |         |  
|Net change in federal funds sold                                                  |  |                                | 1,700   |   |      |   | (1,600  | )
|Net change in interest bearing deposits                                           |  |                                | (1,337  | ) |      |   | (625    | )
|Net change in restricted securities                                               |  |                                | (231    | ) |      |   |        |  
|Proceeds from maturities and sales of securities available for sale               |  |                                | 16,683  |   |      |   | 25,498  |  
|Proceeds from maturities and calls of securities held to maturity                 |  |                                | 12      |   |      |   | 28      |  
|Purchase of securities available for sale                                         |  |                                | (11,700 | ) |      |   | (23,823 | )
|Net (increase) decrease in loans                                                  |  |                                | (11,951 | ) |      |   | 5,913   |  
|Purchase of bank premises and equipment                                           |  |                                | (734    | ) |      |   | (750    | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Net Cash Provided by (Used in) Investing Activities                               |  |                                | (7,558  | ) |      |   | 4,641   |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Cash Flows from Financing Activities:                                             |  |                                |         |   |      |   |         |  
|Net change in:                                                                    |  |                                |         |   |      |   |         |  
|Demand and savings deposits                                                       |  |                                | 4,342   |   |      |   | 977     |  
|Time deposits                                                                     |  |                                | (6,628  | ) |      |   | (7,231  | )
|Proceeds from borrowings                                                          |  |                                | 8,000   |   |      |   |        |  
|Curtailments of borrowings                                                        |  |                                | (1,188  | ) |      |   | (487    | )
|Dividends paid                                                                    |  |                                | (387    | ) |      |   | (360    | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Net Cash (Used in) Provided by Financing Activities                               |  |                                | 4,139   |   |      |   | (7,101  | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Cash and Cash Equivalents                                                         |  |                                |         |   |      |   |         |  
|Net (decrease) in cash and cash equivalents                                       |  |                                | (1,803  | ) |      |   | (595    | )
|Cash and Cash Equivalents, beginning of year                                      |  |                                | 7,579   |   |      |   | 7,680   |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Cash and Cash Equivalents, End of Period                                          |  | $                              | 5,776   |   |      | $ | 7,085   |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Supplemental Disclosure of Cash Paid                                              |  |                                |         |   |      |   |         |  
|During the Period for:                                                            |  |                                |         |   |      |   |         |  
|Interest                                                                          |  | $                              | 1,674   |   |      | $ | 1,831   |  
|Income taxes                                                                      |  | $                              | 406     |   |      | $ | 513     |  



See Notes to
Consolidated Financial Statements



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PIONEER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 ACCOUNTING PRINCIPLES:



The consolidated financial statements conform to accounting principles generally accepted in
the United States of America and to general industry practices. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present
fairly the financial position as of September 30, 2004 and the results of operations for the three-month periods and year to date periods ended September 30, 2004 and September 30, 2003. The notes included herein should be read in conjunction with
the notes to consolidated financial statements included in the 2003 annual report to stockholders of Pioneer Bankshares, Inc. (The Company) and its Form 10-KSB for the year ended December 31, 2003, as filed with the Securities and
Exchange Commission.



|Reclassifications | - Certain reclassifications have been made to prior period balances to conform to the current year presentation.
|----------------- | ----------------------------------------------------------------------------------------------------------------



Stock Compensation Plans - The Company accounts for the plan under the recognition and
measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based compensation cost is reflected in net income, as all options granted under the plan
have an exercise price equal to the market value of the underlying common stock on the date of the grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition
provisions of the Financial Account Standards Boards Statement No. 123, Accounting for Stock-Based Compensation, to stock-based compensation:



(dollars in thousands except per share amounts):



|                                                                                                 |  |                                        |       |   |      |   |       |  
|------------------------------------------------------------------------------------------------ |  | -------------------------------------- | ----- | - | ---- | - | ----- | -
|                                                                                                 |  | For the Nine Months EndedSeptember 30, |      
|                                                                                                 |  | 2004                                   |       |   | 2003 |  
|Net Income, as reported                                                                          |  | $                                      | 1,221 |   |      | $ | 1,098 |  
|Total stock-based compensation expenses determined under fair value based method for all rewards |  |                                        | (1    | ) |      |   | (2    | )
|                                                                                                 |  |                                        |       |   |      |   |       |  
|Pro forma net income                                                                             |  | $                                      | 1,220 |   |      | $ | 1,096 |  
|                                                                                                 |  |                                        |       |   |      |   |       |  
|Basic earnings per share                                                                         |  |                                        |       |   |      |   |       |  
|As reported                                                                                      |  | $                                      | 1.14  |   |      | $ | 1.01  |  
|                                                                                                 |  |                                        |       |   |      |   |       |  
|Pro forma                                                                                        |  | $                                      | 1.14  |   |      | $ | 1.01  |  
|                                                                                                 |  |                                        |       |   |      |   |       |  
|Diluted earnings per share                                                                       |  |                                        |       |   |      |   |       |  
|As reported                                                                                      |  | $                                      | 1.14  |   |      | $ | 1.01  |  
|                                                                                                 |  |                                        |       |   |      |   |       |  
|Pro forma                                                                                        |  | $                                      | 1.14  |   |      | $ | 1.01  |  
|                                                                                                 |  |                                        |       |   |      |   |       |  



The fair value of each grant is
estimated at the grant date using the Black-Scholes option-pricing model. The estimates were calculated using the following weighted-average assumptions for grants in 2004 and 2003: Dividend rate of 3.43% and 3.75%, price volatility of 19.94% and
17.58%, risk-free interest rate of 4.81% and 3.34%, and expected lives of 10 years.



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##### Table of Contents

NOTE 2 INVESTMENT SECURITIES:



The amounts at which investment securities are carried in the consolidated balance sheets and their approximate market values at September
30, 2004 and December 31, 2003 follows:



|                                     |  |                    |        |                   |   |               |  |             |        |  |   |       
|------------------------------------ |  | ------------------ | ------ | ----------------- | - | ------------- |  | ----------- | ------ |  | - | ------
|                                     |  | (In Thousands)    
|                                     |  | September 30, 2004 |        | December 31, 2003
|                                     |  | CarryingValue      |        | MarketValue       |   | CarryingValue |  | MarketValue
|Securities held to maturity:         |  |                    |        |                   |   |               |  |             |        |  |   |       
|Mortgage-backed securities           |  | $                  | 35     |                   | $ | 19            |  | $           | 31     |  | $ | 33    
|                                     |  |                    |        |                   |   |               |  |             |        |  |   |       
|Total                                |  | $                  | 35     |                   | $ | 19            |  | $           | 31     |  | $ | 33    
|                                     |  |                    |        |                   |   |               |  |             |        |  |   |       
|Securities available for sale:       |  |                    |        |                   |   |               |  |             |        |  |   |       
|U.S. Treasury and agency obligations |  | $                  | 11,264 |                   | $ | 11,256        |  | $           | 14,836 |  | $ | 14,832
|Municipal securities                 |  |                    | 213    |                   |   | 231           |  |             | 1,710  |  |   | 1,827 
|Equity securities                    |  |                    | 1,856  |                   |   | 1,983         |  |             | 1,546  |  |   | 1,689 
|                                     |  |                    |        |                   |   |               |  |             |        |  |   |       
|Total                                |  | $                  | 13,333 |                   | $ | 13,470        |  | $           | 18,092 |  | $ | 18,348
|                                     |  |                    |        |                   |   |               |  |             |        |  |   |       



There were no investment securities as
of September 30, 2004, which have been at a loss position for more than 12 consecutive months. It is managements intent and demonstrated ability to hold securities to the scheduled maturity or call date, and therefore any current market value
losses are considered temporary.



NOTE 3 LOANS:



Loans outstanding are summarized as follows:



(In Thousands)



|                                 |  |                   |        |   |                  |   |        |  
|-------------------------------- |  | ----------------- | ------ | - | ---------------- | - | ------ | -
|                                 |  | September 30,2004 |        |   | December 31,2003 |  
|Mortgage loans on real estate    |  |                   |        |   |                  |   |        |  
|Construction loans               |  | $                 | 8,835  |   |                  | $ | 5,929  |  
|Agricultural                     |  |                   | 4,649  |   |                  |   | 4,809  |  
|Equity lines of credit           |  |                   | 1,970  |   |                  |   | 1,853  |  
|Residential 1-4 family           |  |                   | 40,446 |   |                  |   | 37,930 |  
|Second Mortgages                 |  |                   | 3,194  |   |                  |   | 2,726  |  
|Multifamily                      |  |                   | 1,871  |   |                  |   | 517    |  
|Commercial                       |  |                   | 16,991 |   |                  |   | 10,712 |  
|                                 |  |                   |        |   |                  |   |        |  
|Total real estate loans          |  |                   | 77,956 |   |                  |   | 64,476 |  
|                                 |  |                  
|Commercial and industrial loans  |  |                   | 3,543  |   |                  |   | 3,912  |  
|Consumer installment loans       |  |                   |        |   |                  |   |        |  
|Personal                         |  |                   | 13,092 |   |                  |   | 14,416 |  
|Credit cards                     |  |                   | 694    |   |                  |   | 803    |  
|                                 |  |                   |        |   |                  |   |        |  
|Total consumer installment loans |  |                   | 13,786 |   |                  |   | 15,219 |  
|All other loans                  |  |                   | 206    |   |                  |   | 142    |  
|                                 |  |                   |        |   |                  |   |        |  
|Gross Loans                      |  |                   | 95,491 |   |                  |   | 83,749 |  
|                                 |  |                  
|Less unearned income on loans    |  |                   | (1,357 | ) |                  |   | (1,535 | )
|                                 |  |                   |        |   |                  |   |        |  
|Loans, less unearned discount    |  |                   | 94,134 |   |                  |   | 82,214 |  
|Less allowance for loan losses   |  |                   | (1,464 | ) |                  |   | (1,433 | )
|                                 |  |                   |        |   |                  |   |        |  
|Net Loans Receivable             |  | $                 | 92,670 |   |                  | $ | 80,781 |  
|                                 |  |                   |        |   |                  |   |        |  



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NOTE 4 ALLOWANCE FOR LOAN LOSSES:



A summary of transactions in the allowance for loan losses for the nine months ended September 30, 2004 and 2003 follows:



|                                        |  |                |       |   |      |   |        |  
|--------------------------------------- |  | -------------- | ----- | - | ---- | - | ------ | -
|                                        |  | (In Thousands) |      
|                                        |  | 2004           |       |   | 2003 |  
|Balance, beginning of period            |  | $              | 1,433 |   |      | $ | 1,448  |  
|Provision charged to operating expenses |  |                | 62    |   |      |   | 829    |  
|Recoveries of loans charged off         |  |                | 381   |   |      |   | 523    |  
|Loans charged off                       |  |                | (412  | ) |      |   | (1,318 | )
|                                        |  |                |       |   |      |   |        |  
|Balance, End of Period                  |  | $              | 1,464 |   |      | $ | 1,482  |  
|                                        |  |                |       |   |      |   |        |  



NOTE 5 EARNINGS PER SHARE:



The following shows the weighted average number of shares as of September
30, 2004 and 2003, used in computing earnings per share and the effect on weighted average number of shares diluted potential common stock. Potential dilutive common stock had no effect on income available to common shareholders.



|                               |  |                    |  |                    |      |        |           |                 |   |     
|------------------------------ |  | ------------------ |  | ------------------ | ---- | ------ | --------- | --------------- | - | ----
|                               |  | September 30, 2004 |  | September 30, 2003
|                               |  | Shares             |  | Per ShareAmount    |      | Shares |           | Per ShareAmount
|Basic earnings per share       |  | 1,073,650          |  | $                  | 1.14 |        | 1,092,410 |                 | $ | 1.01
|                               |  |                    |  |                    |      |        |           |                 |   |     
|Effect of dilutive securities: |  |                    |  |                    |      |        |           |                 |   |     
|Stock Options                  |  | 1,055              |  |                    |      |        |          |                 |   |     
|                               |  |                    |  |                    |      |        |           |                 |   |     
|Diluted earnings per share     |  | 1,074,705          |  | $                  | 1.14 |        | 1,092,410 |                 | $ | 1.01
|                               |  |                    |  |                    |      |        |           |                 |   |     



As of September 30, 2004, stock
options representing 1,500 shares were not included in computing diluted EPS because their effects were anti-dilutive.



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NOTE 6 OTHER EXPENSES:



Other expenses in the consolidated statement of income include the following components:



|                      |  |                |       |      |   |      
|--------------------- |  | -------------- | ----- | ---- | - | -----
|                      |  | September 30, 
|                      |  | 2003           |       | 2002
|                      |  | (In Thousands)
|Supplies and Printing |  | $              | 104   |      | $ | 94   
|Directors Fees        |  |                | 124   |      |   | 109  
|Postage Expense       |  |                | 47    |      |   | 77   
|Telephone Expense     |  |                | 89    |      |   | 92   
|Other                 |  |                | 645   |      |   | 670  
|                      |  |                |       |      |   |      
|Total                 |  | $              | 1,009 |      | $ | 1,042
|                      |  |                |       |      |   |      



Item 2. Managements Discussion and Analysis or Plan of Operation



The discussion covers the consolidated financial condition and operations of Pioneer Bankshares, Inc. (Company) and its subsidiary Pioneer Bank (Bank).



Forward-Looking Statements



This quarterly report on Form 10-QSB contains forward-looking statements with respect to the
Companys and the Banks financial condition, results of operations and business. These forward-looking statements involve certain risks and uncertainties. When used in this quarterly report or future regulatory filings, in press releases
or other public shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases will likely result, are expected to, will continue, is
anticipated, estimate, project, believe, or similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We
caution the readers and users of this information not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and advise readers that various factors including regional and national economic conditions,
changes in the levels of market rates of interest, credit risk and lending activities, and competitive and regulatory factors could affect the financial performance of the Company and the Bank and could cause actual results for future periods to
differ materially from those anticipated or projected.



The Company and the
Bank do not undertake and specifically disclaim any obligation to publicly release the result of any revisions, which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances
after the date of such statements.



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Critical Accounting Policies



General



The Companys consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America
(GAAP). The financial information contained within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of
factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset, or relieving a liability. We use historical loss factors as one factor in determining the inherent loss that may be
present in our loan portfolio. Actual losses could differ significantly from the historical factors. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the
same, the timing of events that would impact our transactions could change.



Allowance for Loan Losses



The allowance for loan losses is an
estimate of the losses that may be sustained in our loan portfolio. The allowance is based on two basis principles of accounting: 1) Statement of Financial Accounting Standard (SFAS) 5, Accounting for Contingencies, which requires that
losses be accrued when they are probable of occurring and estimatable and 2) SFAS 114, Accounting by Creditors for Impairment of a Loan, which requires that losses be accrued based on the differences between the value of collateral, present value of
future cash flows or values that are observable in the market and the loan balance.



Management evaluates the loan portfolio in light of national and local economic trends, changes in the nature and value of the portfolio and industry standards. Specific factors considered by management in determining the adequacy of the
level of the allowance include internally generated loan review reports, past due reports, historical loan loss experience and individual borrowers financial condition. This review also considers concentrations of loans in terms of geography,
business type or level of risk. Management evaluates the risk elements involved in loans relative to their collateral value and maintains the allowance for loan losses at a level which is adequate to absorb credit losses inherent in the loan
portfolio. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based on their judgment about
information available to them at the time of their examination.



The
methodology used to calculate the allowance for loan losses and the provision for loan losses is a significant accounting principle, which is based on estimates that are particularly susceptible to significant changes in the economic environment and
market conditions.



Goodwill



Goodwill is evaluated on an annual basis for impairments in value and adjusted accordingly.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. Additionally, it further clarifies the criteria for the initial recognition and measurement of intangible assets separate from goodwill. SFAS No. 142 is effective for fiscal years beginning after December
15, 2001 and prescribes the accounting for goodwill and intangible assets subsequent to initial recognition. The provisions of SFAS No. 142 discontinue the amortization of goodwill and intangible asses with indefinite lives. Instead, these assets
will be subject to at least an annual impairment review, and more frequently if certain impairment indicators are in evidence. SFAS No. 142 also requires that reporting units be identified for the purpose of assessing potential future impairments of
goodwill.



Goodwill is included in other assets and totaled $360,000 at
September 30, 2004 and December 31, 2003. The goodwill is no longer amortized, but instead is tested for impairment at least annually.



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##### Table of Contents

Overview



In the first nine months of 2004, net income including securities transactions was $1,221,000 ($1.14 per share) compared with $1,098,000 ($1.01) for the first nine months
of 2003. This represents an increase of 11.20%. The major factors contributing to this increase in income are gains on securities transactions and decreased expenses relating to the funding of the allowance for loan losses.



Total assets for the Company as of September 30, 2004 were $126,179,000 compared to
$120,921,000 at year-end 2003. This is an increase of $5,258,000 or 4.35%. Total net loans have increased from $80,781,000 as of December 31, 2003 to $92,670,000 as of September 30, 2004. This represents an increase of $11,889,000 or 14.72%. The
majority of this increase has been in commercial and consumer real estate lending.



Total liabilities for the Company as of September 30, 2004 were $112,259,000 compared to $107,756,000 at year-end 2003. This is an increase of 4,503,000 or 4.18%. The primary basis for this increase is related to additional long term
borrowings from the Federal Home Loan Bank of Atlanta. The Company has utilized these borrowings as a source of operating funds to fund the substantial loan growth.



The Companys total capital position remains strong and exceeds regulatory guidelines. As of September 30, 2004, total capital was
$13,920,000.



Management is not aware of any trends, events, or other
uncertainties that would have a material effect on the Companys liquidity, capital resources, or operational activities.



In summary, the Company continues to focus on loan growth, branch expansion, and building shareholder value for its investors.



Results of Operations



Net Interest Income



Total interest income decreased $436,000 or -6.96% in the first nine months of 2004 compared to the first nine months of 2003. Total
interest expense decreased $241,000 or -15.25% in the first nine months of 2004 compared to the same period of 2003. These decreases in interest income and interest expense resulted in a total decrease in net interest income of $195,000 or -4.16%
for the period ending September 30, 2004 compared to the period ending September 30, 2003.



The net interest margin decreased from 5.77% for the first nine months of 2003 to 5.32% for the first nine months of 2004. The net interest margin for the three month period ending September 30, 2004 was 5.43% in
comparison to 5.61% for the same period in 2003. These decreases in net interest margin are mainly due to a decline in market interest rates in comparison to market rates one year ago. The average yield on earning assets for the first nine months of
2004 has decreased from 7.69%. to 6.90%.



The average interest rate being paid
on time deposits has decreased from 3.01% as of September 30, 2003 to 2.52% as of September 30, 2004. This decrease is also attributed to time deposits re-pricing at lower market interest rates during the past year.



The Company plans to invest in additional securities and to continue expanding its commercial
loan and consumer real estate portfolios during the remainder of 2004. The Company will also continue to offer consumer installment loans to its customer base. The primary source of funding for these investments and loans will be from customer
deposits. Management may also utilize the banks credit line with Federal Home Loan Bank of Atlanta in cases where loan pools can be adequately matched to borrowings to maximize the net interest spread.



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##### Table of Contents

Noninterest Income



In the first nine months of 2004, the total decrease in noninterest income was $253,000 when compared to the same period last year. Total gains on security transactions
were $226,000 as of September 30, 2004 in comparison to $302,000 as of September 30, 2003. Service charge income decreased by $31,000 and other income decreased by $146,000. The decrease in service charge income is attributed to managements
proactive approach to reducing overdrafts, which has affected the fee income generated from bounce protection on checking accounts. The decrease in other income is mainly due to a reduced amount of activity from the investment subsidiary, Pioneer
Financial Service, LLC. The income from this subsidiary consists primarily of commissions on sales of insurance and investment instruments through Virginia Bankers Association. Management plans to implement a new profitability strategy for the
investment subsidiary in the coming year.



Noninterest Expense



For the nine months of 2004, noninterest expense increased $109,000
(3.24%) in comparison to the first nine months of 2003. Salaries and benefits increased by $58,000 due to regular payroll adjustments and cost of living increases. Occupancy expenses increased $29,000 and equipment expense increased $55,000
primarily due to increased depreciation on asset purchases for technology upgrades and new office facilities. Other expenses decreased by $33,000 as a result of managements proactive efforts to control spending.



Financial Condition



Securities



The Companys securities portfolio is held to assist the Company in liquidity and asset liability management as well as capital
appreciation. The securities portfolio consists of securities held to maturity and securities available for sale. Securities are classified as held to maturity when management has the intent and ability to hold the securities to maturity. These
securities are carried at amortized cost. Securities available for sale include securities that may be sold in response to general market fluctuations, general liquidity needs and other similar factors. Securities available for sale are recorded at
market value. Unrealized holding gains and losses of available for sale securities are excluded from earnings and reported (net of deferred income taxes) as a separate component of stockholders equity.



As of September 30, 2004, the total market value of all securities available for sale
exceeded the total amortized cost by 137,000. Management has traditionally held debt securities until maturity and thus it does not expect any minor fluctuation in the value of these securities to have a direct impact on earnings.



Investments in securities, including those which were restricted, decreased by 24.52% in the
first nine months of 2004. The Company generally invests in securities with a relatively short-term maturity due to uncertainty in the direction of interest rates. Of the investments in securities available for sale, 14.72% (based on market value)
are invested in equities, some of which are dividend producing and subject to the corporate dividend exclusion for taxation purposes. The Company believes these investments offer adequate returns and/or have the potential for increases in value.



Loan Portfolio



The Company operates in a service area in the western portion of Virginia in the counties of
Page, Greene, Rockingham, and the City of Harrisonburg, and has recently expanded its service area to include Albermarle County and the City of Charlottesville, Virginia. The Company does not make a significant number of loans to borrowers outside
its primary service area. The Company is active in local residential construction mortgages and consumer lending. Commercial lending includes loans to small and medium sized businesses within its service area.



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##### Table of Contents

An inherent risk in the lending of money is that the borrower will not be able to repay the loan under the terms of the
original agreement. The allowance for loan losses (see subsequent section) provides for this risk and is reviewed periodically for adequacy. The risk associated with real estate and installment loans to individuals is based upon employment, the
local and national economies, and consumer confidence. All of these affect the ability of borrowers to repay indebtedness. The risk associated with commercial lending is substantially based on the strength of the local and national economies in
addition to the financial strength of the borrower.



While lending is
geographically diversified within the service area, the Company does have loan concentrations in residential real estate loans and consumer auto loans. A significant percentage of residential real estate loans and consumer installment loans are made
to borrowers employed by businesses outside the service area.



In the first
nine months of 2004, the net loan portfolio increased $11,889,000 or 14.72%, as a result of managements proactive efforts to add volume in the commercial and residential real estate sectors of the lending portfolio. The Company has taken
measures to reduce the risk exposure related to consumer and automobile financing during the past two years and continues to monitor its progress in this area. A schedule of loans by type is shown in a note to the consolidated financial statements
included in this report.



The risk elements in lending activities include
non-accrual loans, loans 90 days or more past due and restructured loans. Non-accrual loans are loans on which interest accruals have been suspended or discontinued permanently. Restructured loans are loans on which the original interest rate or
repayment terms have changed due to financial hardship. Non-accrual loans and loans 90 days or more past due totaled $673,000 at September 30, 2004 compared to $1,042,000 at September 30, 2003. This decrease is attributed to managements
proactive collection efforts. Although the potential exists for additional losses, management believes the bank is generally well secured and continues to actively work with these customers to effect payment.



Problem loans (serious doubt loans) are loans whereby information known by management
indicates that the borrower may not be able to comply with present payment terms. Management was not aware of any problem loans at September 30, 2004 that are not included in the past due or non-accrual loans referred to above.



Allowance for Loan Losses



Management evaluates the loan portfolio in light of national and local economic trends,
changes in the nature and value of the portfolio and industry standards. Specific factors considered by management in determining the adequacy of the level of the allowance include internally generated loan review reports, past due reports,
historical loan loss experience and individual borrowers financial condition. This review also considers concentrations of loans in terms of geography, business type or level of risk. Management evaluates the risk elements involved in loans
relative to their collateral value and maintains the allowance for loan losses at a level which is adequate to absorb credit losses inherent in the loan portfolio. In addition, regulatory agencies, as an integral part of their examination process,
periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses and set aside additional reserves based on their judgment about information available to them at the time of their examination.



The methodology used to calculate the allowance for loan losses and the
provision for loan losses is a significant accounting principle which is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions.



The provision for loan losses and changes in the allowance for loan losses are shown in the
notes to financial statements included in this report.



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##### Table of Contents

The allowance for loan losses of $1,464,000 at September 30, 2004 increased $31,000 from its level at December 31, 2003.
The significant loan growth is a contributor to this increase in allowance for loan loss funding. Managements formula for calculating the reserve for loan losses includes a minimal allocation for all loans whether or not they are delinquent.
Management has made concentrated collection efforts during the past two years, which have greatly reduced past due loan balances, non-performing loans, and charge offs. The total allowance for loan loss reserve was equal to 1.56% and 1.74% of total
loans at September 30, 2004 and December 31, 2003, respectively.



Premises and Equipment



The Company is presently in the
process of making renovations to the Jenkins building, which is located next to the main office in Stanley, Virginia. The Company plans to convert the upper floor of this building to a new data processing and bookkeeping area. The total cost of
these renovations is estimated to be approximately $1,000,000.



The Company has
also established a new lease contract for an office facility in the Charlottesville area. Management expects the new Charlottesville branch to be operational by year-end 2004. The annual lease amount for this new facility is expected to be
approximately $20,000 and office renovations are not expected to exceed $50,000. Managements decision to expand into the Charlottesville and Albermarle County area of Virginia is based primarily on potential loan growth opportunities.



Additionally, the Company may be required to purchase additional processing
equipment in conjunction with the implementation of the Check Truncation Act of the 21stCentury (Check
21), which became effective October 28, 2004. This Act is expected to have an impact on all financial institutions in the coming months by creating an electronic means of clearing checks. The estimated costs of equipment and check processing
software related to Check 21 are expected to be approximately $35,000.



Deposits



The Companys main source of funds for
operating purposes is customer deposits received from individuals, governmental entities and businesses located within the Companys service area. Deposit accounts include demand deposits, savings, money market and certificates of deposit. The
Companys total deposit portfolio has remained relatively stable historically. Total deposits decreased by $2,286,000 or 2.30% during the first nine months of 2004. This decrease was mainly in the area of certificates of deposits and is a
result of the Companys proactive funds management practices in order to reduce interest expense.



Long Term Debt



The
Companys subsidiary has a line of credit with the Federal Home Loan Bank (FHLB) of Atlanta upon which credit advances can be made up to 40% of total assets, subject to certain eligibility requirements. As of September 30, 2004, total
borrowings were $14,237,500 compared to $7,425,000 at December 31, 2003. This represents an increase of $6,812,500. The additional borrowings have been matched with loan maturities over the next five years and are being used to fund large dollar
commercial and real estate loans. Managements decision to fund certain loans through low interest borrowings provides adequate interest income margins and enables the bank to maintain a profitable interest spread on these funds.



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##### Table of Contents

Capital



The Company maintains a strong capital base to expand facilities, promote public confidence, support operations and grow at a manageable level. As of September 30, 2004
and December 31, 2003, the Companys total capital- to- total asset ratios were 11.03% and 10.89%, respectively. The capital ratios exceed regulatory minimums. Earnings have been sufficient to allow for dividends to be declared on a quarterly
basis and management has no reason to believe this payment schedule will not continue.



Liquidity



Liquidity is the ability to meet present and
future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest bearing deposits with banks, federal funds sold,
investments and loans maturing within one year. The Companys ability to obtain deposits and purchase funds at favorable rates determines its liquidity exposure. As a result of the Companys management of liquid assets and the ability to
generate liquidity through borrowings, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors requirements and meet its customers credit needs.



Additional sources of liquidity available to the Company include, but are not limited to,
loan repayments, deposits obtained through the adjustment of interest rates, purchases of federal funds and borrowings. To further meet its liquidity needs, the Company also maintains lines of credit with the Federal Home Loan Bank of Atlanta and
correspondent banks.



There are no off-balance sheet items that should impair
future liquidity.



Liquidity as of September 30, 2004 remains adequate and
within policy guidelines.



Interest Rate Sensitivity



The Company historically has had a stable core deposit base and, therefore, does not have
to rely on volatile funding sources. Because of the stable core deposit base, changes in interest rates should not have a significant effect on liquidity. The Company also uses loan repayments and maturing investments to meet its liquidity needs.
The Banks membership in the Federal Home Loan Bank System provides additional liquidity. The matching of long-term receivables and liabilities helps the Company reduce its sensitivity to interest rate changes.



The Company reviews its interest rate gap periodically and makes adjustments as needed.



Table II contains an analysis, which shows the re-pricing opportunities of
earning assets and interest bearing liabilities as of September 30, 2004.



As
of September 30, 2004, the Company had a cumulative Gap Rate Sensitivity Ratio of (31.52%) for the one year repricing period, compared with (33.35%) at December 31, 2003. This negative gap position generally indicates that earnings would improve in
a declining interest rate environment as liabilities reprice more quickly than assets. Conversely, earnings would probably decrease in periods during which interest rates are increasing. However, in actual practice, this may not be the case as
deposits may not reprice concurrently with changes in rates within the general economy. Management constantly monitors the Companys interest rate sensitivity position and has decided the current position is acceptable for a well-capitalized
community bank operating in a rural environment.



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##### Table of Contents

Recent Accounting Pronouncements



On March 9, 2004, the SEC Staff issued Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan
Commitments (SAB 105). SAB 105 clarifies existing accounting practices relating to the valuation of issued loan commitments, including interest rate lock commitments (IRLC), subject to SFAS No. 149 and Derivative
Implementation Group Issue C13, Scope Exceptions: When a Loan Commitment is included in the Scope of Statement 133. Furthermore, SAB 105 disallows the inclusion of the values of a servicing component and other internally developed
intangible assets in the initial and subsequent IRLC valuation. The provisions of SAB 105 were effective for loan commitments entered into after March 31, 2004. The Company has adopted the provisions of SAB 105. Since the provisions of SAB 105
affect only the timing of the recognition of mortgage banking income, management does not anticipate that this guidance will have a material adverse effect on either the Companys consolidated financial position or consolidated results of
operations.



Emerging Issues Task Force Issue No. (EITF) 03-1 The Meaning
of Other-Than-Temporary Impairment and Its Application to Certain Investments was issued and is effective March 31, 2004. The EITF 03-1 provides guidance for determining the meaning of other than-temporarily impaired and its
application to certain debt and equity securities within the scope of Statement of Financial Accounting Standards No. 115 Accounting for Certain Investments in Debt and Equity Securities (SFAS No. 115) and investments
accounted for under the cost method. The guidance requires that investments which have declined in value due to credit concerns or solely due to changes in interest rates must be recorded as other-than-temporarily impaired unless the Company can
assert and demonstrate its intention to hold the security for a period of time sufficient to allow for a recovery of fair value up to or beyond the cost of the investment which might mean maturity. This issue also requires disclosures assessing the
ability and intent to hold investments in instances in which an investor determines that an investment with a fair value less than cost is not other-than-temporarily impaired. On September 30, 2004, the Financial Accounting Standards Board decided
to delay the effective date for the measurement and recognition guidance contained in Issue 03-1. This delay does not suspend the requirement to recognize other-than-temporary impairments as required by existing authoritative literature. The
disclosure guidance in Issue 03-1 was not delayed.



EITF No. 03-16,
Accounting for Investments in Limited Liability Companies was ratified by the Board and is effective for reporting periods beginning after June 15, 2004. APB Opinion No. 18, The Equity Method of Accounting Investments in Common
Stock, prescribes the accounting for investments in common stock of corporations that are not consolidated. AICPA Accounting Interpretation 2, Investments in Partnerships Ventures, of Opinion 18, indicates that many of the
provisions of the Opinion would be appropriate in accounting for partnerships. In EITF Abstracts, Topic No. D-46, Accounting for Limited Partnership Investments, the SEC staff clarified its view that investments of more than 3 to 5
percent are considered to be more than minor and, therefore, should be accounted for using the equity method. Limited liability companies (LLCs) have characteristics of both corporations and partnerships, but are dissimilar from both in certain
respects. Due to those similarities and differences, diversity in practice exists with respect to accounting for non-controlling investments in LLCs. The consensus reached was that an LLC should be viewed as similar to a corporation or similar to a
partnership for purposes of determining whether a non-controlling investment should be accounted for using the cost method or the equity method of accounting.



The Company does not believe that any newly issued but as yet unapplied accounting standards will have a material impact on the Companys financial position or
operations.



Securities and Exchange Commission Web Site



The Securities and Exchange Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including Pioneer Bankshares, Inc.



18



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##### Table of Contents

TABLE I



PIONEER BANKSHARES, INC.

NET
INTEREST MARGIN ANALYSIS

(On a Fully Tax Equivalent Basis)

(Dollar Amounts in Thousands)



|                                   |  |                                      |         |                |                                      |       |  |       |                |  |                |         |       |   |       |  |       |  
|---------------------------------- |  | ------------------------------------ | ------- | -------------- | ------------------------------------ | ----- |  | ----- | -------------- |  | -------------- | ------- | ----- | - | ----- |  | ----- | -
|                                   |  | Nine Months Ended September 30, 2004 |         |                | Nine Months Ended September 30, 2003 |      
|                                   |  | AverageBalance4                      |         | Income/Expense |                                      | Rates |  |       | AverageBalance |  | Income/Expense |         | Rates |  
|Interest Income                    |  |                                      |         |                |                                      |       |  |       |                |  |                |         |       |   |       |  |       |  
|Loans2                             |  |                                      |         |                |                                      |       |  |       |                |  |                |         |       |   |       |  |       |  
|Commercial                         |  | $                                    | 2,909   |                | $                                    | 165   |  | 7.56  | %              |  | $              | 2,952   |       | $ | 186   |  | 8.40  | %
|Real estate                        |  |                                      | 70,465  |                |                                      | 3,741 |  | 7.08  | %              |  |                | 64,114  |       |   | 3,603 |  | 7.49  | %
|Installment                        |  |                                      | 12,968  |                |                                      | 1,355 |  | 13.93 | %              |  |                | 16,606  |       |   | 1,859 |  | 14.93 | %
|Credit Card                        |  |                                      | 718     |                |                                      | 115   |  | 21.36 | %              |  |                | 819     |       |   | 128   |  | 20.84 | %
|Federal funds sold                 |  |                                      | 3,063   |                |                                      | 22    |  | 0.96  | %              |  |                | 5,437   |       |   | 42    |  | 1.03  | %
|Interest Bearing                   |  |                                      |         |                |                                      |       |  |       |                |  |                |         |       |   |       |  |       |  
|Deposits                           |  |                                      | 7,724   |                |                                      | 126   |  | 2.18  | %              |  |                | 5,691   |       |   | 87    |  | 2.04  | %
|Investments                        |  |                                      |         |                |                                      |       |  |       |                |  |                |         |       |   |       |  |       |  
|Taxable                            |  |                                      | 12,574  |                |                                      | 262   |  | 2.78  | %              |  |                | 10,363  |       |   | 259   |  | 3.33  | %
|Nontaxable1                        |  |                                      | 2,585   |                |                                      | 64    |  | 3.30  | %              |  |                | 3,446   |       |   | 151   |  | 5.84  | %
|                                   |  |                                      |         |                |                                      |       |  |       |                |  |                |         |       |   |       |  |       |  
|Total earning assets               |  |                                      | 113,006 |                |                                      | 5,850 |  | 6.90  | %              |  |                | 109,428 |       |   | 6,315 |  | 7.69  | %
|                                   |  |                                      |         |                |                                      |       |  |       |                |  |                |         |       |   |       |  |       |  
|Interest Expense                   |  |                                      |         |                |                                      |       |  |       |                |  |                |         |       |   |       |  |       |  
|Demand deposits                    |  |                                      | 14,173  |                |                                      | 40    |  | 0.38  | %              |  |                | 13,184  |       |   | 56    |  | 0.57  | %
|Savings                            |  |                                      | 13,706  |                |                                      | 58    |  | 0.56  | %              |  |                | 12,673  |       |   | 75    |  | 0.79  | %
|Time deposits                      |  |                                      | 48,250  |                |                                      | 911   |  | 2.52  | %              |  |                | 54,699  |       |   | 1,233 |  | 3.01  | %
|Borrowings                         |  |                                      | 10,737  |                |                                      | 330   |  | 4.10  | %              |  |                | 4,903   |       |   | 216   |  | 5.87  | %
|                                   |  |                                      |         |                |                                      |       |  |       |                |  |                |         |       |   |       |  |       |  
|Total Interest Bearing Liabilities |  | $                                    | 86,866  |                | $                                    | 1,339 |  | 2.06  | %              |  | $              | 85,459  |       | $ | 1,580 |  | 2.47  | %
|                                   |  |                                      |         |                |                                      |       |  |       |                |  |                |         |       |   |       |  |       |  
|Net Interest Income1               |  |                                      |         |                |                                      | 4,511 |  |       |                |  |                |         |       |   | 4,735 |  |       |  
|                                   |  |                                      |         |                |                                      |       |  |       |                |  |                |         |       |   |       |  |       |  
|Net Interest Margin                |  |                                      |         |                |                                      |       |  | 5.32  | %              |  |                |         |       |   |       |  | 5.77  | %
|                                   |  |                                      |         |                |                                      |       |  |       |                |  |                |         |       |   |       |  |       |  

---

|1 | An incremental tax rate of 34% and 70% dividend exclusion was usedto calculate the tax equivalent income
|- | --------------------------------------------------------------------------------------------------------

|2 | Average balances include non-accruing loans
|- | -------------------------------------------



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##### Table of Contents

PIONEER BANKSHARES, INC.

NET INTEREST MARGIN ANALYSIS

(On a Fully Tax Equivalent Basis)

(Dollar Amounts in Thousands)



|                                   |  |                                       |         |                |                                       |       |  |       |                |  |                |         |       |   |       |  |       |  
|---------------------------------- |  | ------------------------------------- | ------- | -------------- | ------------------------------------- | ----- |  | ----- | -------------- |  | -------------- | ------- | ----- | - | ----- |  | ----- | -
|                                   |  | Three Months Ended September 30, 2004 |         |                | Three Months Ended September 30, 2003 |      
|                                   |  | AverageBalance                        |         | Income/Expense |                                       | Rates |  |       | AverageBalance |  | Income/Expense |         | Rates |  
|Interest Income                    |  |                                       |         |                |                                       |       |  |       |                |  |                |         |       |   |       |  |       |  
|Loans2                             |  |                                       |         |                |                                       |       |  |       |                |  |                |         |       |   |       |  |       |  
|Commercial                         |  | $                                     | 2,898   |                | $                                     | 57    |  | 7.87  | %              |  | $              | 2,862   |       | $ | 60    |  | 8.39  | %
|Real estate                        |  |                                       | 74,994  |                |                                       | 1,312 |  | 7.00  | %              |  |                | 64,148  |       |   | 1,185 |  | 7.39  | %
|Installment                        |  |                                       | 13,450  |                |                                       | 441   |  | 13.12 | %              |  |                | 14,999  |       |   | 560   |  | 14.93 | %
|Credit card                        |  |                                       | 689     |                |                                       | 37    |  | 21.48 | %              |  |                | 797     |       |   | 41    |  | 20.58 | %
|                                   |  |                                       |         |                |                                       |       |  |       |                |  |                |         |       |   |       |  |       |  
|Total Loans                        |  |                                       | 92,031  |                |                                       | 1,847 |  | 8.03  | %              |  |                | 82,806  |       |   | 1,846 |  | 8.92  | %
|                                   |  |                                       |         |                |                                       |      
|Federal funds sold                 |  |                                       | 1,449   |                |                                       | 4     |  | 1.10  | %              |  |                | 5,131   |       |   | 11    |  | 0.86  | %
|Interest Bearing                   |  |                                       |         |                |                                       |       |  |       |                |  |                |         |       |   |       |  |       |  
|Deposits                           |  |                                       | 7,351   |                |                                       | 41    |  | 2.23  | %              |  |                | 5,799   |       |   | 30    |  | 2.07  | %
|Securities                         |  |                                       |         |                |                                       |       |  |       |                |  |                |         |       |   |       |  |       |  
|Taxable                            |  |                                       | 12,574  |                |                                       | 96    |  | 3.05  | %              |  |                | 11,004  |       |   | 72    |  | 2.62  | %
|Nontaxable1                        |  |                                       | 2,585   |                |                                       | 14    |  | 2.17  | %              |  |                | 2,656   |       |   | 41    |  | 6.17  | %
|                                   |  |                                       |         |                |                                       |       |  |       |                |  |                |         |       |   |       |  |       |  
|Total earning assets               |  |                                       | 115,990 |                |                                       | 2,002 |  | 6.91  | %              |  |                | 107,396 |       |   | 2,000 |  | 7.45  | %
|                                   |  |                                       |         |                |                                       |       |  |       |                |  |                |         |       |   |       |  |       |  
|Interest Expense                   |  |                                       |         |                |                                       |       |  |       |                |  |                |         |       |   |       |  |       |  
|Demand deposits                    |  |                                       | 14,559  |                |                                       | 14    |  | 0.38  | %              |  |                | 13,245  |       |   | 16    |  | 0.48  | %
|Savings                            |  |                                       | 14,276  |                |                                       | 23    |  | 0.64  | %              |  |                | 12,637  |       |   | 23    |  | 0.73  | %
|Time deposits                      |  |                                       | 46,200  |                |                                       | 281   |  | 2.44  | %              |  |                | 53,777  |       |   | 384   |  | 2.86  | %
|Borrowings                         |  |                                       | 10,811  |                |                                       | 109   |  | 4.03  | %              |  |                | 4,748   |       |   | 71    |  | 5.98  | %
|                                   |  |                                       |         |                |                                       |       |  |       |                |  |                |         |       |   |       |  |       |  
|Total Interest Bearing Liabilities |  | $                                     | 85,846  |                | $                                     | 427   |  | 1.99  | %              |  | $              | 84,407  |       | $ | 494   |  | 2.34  | %
|                                   |  |                                       |         |                |                                       |       |  |       |                |  |                |         |       |   |       |  |       |  
|Net Interest Income1               |  |                                       |         |                | $                                     | 1,575 |  |       |                |  |                |         |       | $ | 1,506 |  |       |  
|                                   |  |                                       |         |                |                                       |       |  |       |                |  |                |         |       |   |       |  |       |  
|Net Interest Margin                |  |                                       |         |                |                                       |       |  | 5.43  | %              |  |                |         |       |   |       |  | 5.61  | %
|                                   |  |                                       |         |                |                                       |       |  |       |                |  |                |         |       |   |       |  |       |  

---

|1 | An incremental tax rate of 34% and 70% dividend exclusion was used to calculate the tax equivalent income
|- | ---------------------------------------------------------------------------------------------------------

|2 | Average balances include non-accruing loans
|- | -------------------------------------------



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##### Table of Contents

TABLE II



PIONEER BANKSHARES, INC.

INTEREST
SENSITIVITY ANALYSIS

SEPTEMBER 30, 2004

(Dollar Amounts in Thousands)



|                                          |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|----------------------------------------- |  | --------- | ------- | - | ---------- | - | ------- | --------- |  | - | ----------- | - |  | ------------- | ------ | - | ----- | - | ------ | - |  | - | -------
|                                          |  | 0-3Months |         |   | 4-12Months |   |         | 1-5 Years |  |   | Over 5Years |   |  | NotClassified |        |   | Total
|Uses of Funds:                            |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|                                          |  |           |         |   |            |  
|Loans1                                    |  | $         | 10,046  |   |            | $ | 6,293   |           |  | $ | 33,246      |   |  | $             | 44,549 |   |       | $ |       |   |  | $ | 94,134 
|Interest bearing bank deposits            |  |           | 3,254   |   |            |   | 1,700   |           |  |   | 1,595       |   |  |               |       |   |       |   |       |   |  |   | 6,549  
|Investment securities2                    |  |           |        |   |            |   | 498     |           |  |   | 10,792      |   |  |               | 231    |   |       |   | 1,984  |   |  |   | 13,505 
|Restricted stock                          |  |           |        |   |            |   |        |           |  |   |            |   |  |               |       |   |       |   | 788    |   |  |   | 788    
|Federal funds sold                        |  |           | 800     |   |            |   |        |           |  |   |            |   |  |               |       |   |       |   |       |   |  |   | 800    
|                                          |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|Total                                     |  |           | 14,100  |   |            |   | 8,491   |           |  |   | 45,633      |   |  |               | 44,780 |   |       |   | 2,772  |   |  |   | 115,776
|                                          |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|Sources of Funds:                         |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|                                          |  |           |         |   |            |  
|Interest bearing demand deposits          |  |           | 14,747  |   |            |   |        |           |  |   |            |   |  |               |       |   |       |   |       |   |  |   | 14,747 
|Regular savings                           |  |           | 13,535  |   |            |   |        |           |  |   |            |   |  |               |       |   |       |   |       |   |  |   | 13,535 
|Certificates of deposit $100,000 and over |  |           | 922     |   |            |   | 4,111   |           |  |   | 1,945       |   |  |               | 1,030  |   |       |   |       |   |  |   | 8,008  
|Other certificates of deposit             |  |           | 6,742   |   |            |   | 12,978  |           |  |   | 12,508      |   |  |               | 4,503  |   |       |   |       |   |  |   | 36,731 
|Borrowings                                |  |           | 4,163   |   |            |   | 1,887   |           |  |   | 7,399       |   |  |               | 788    |   |       |   |       |   |  |   | 14,237 
|                                          |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|Total                                     |  |           | 40,109  |   |            |   | 18,976  |           |  |   | 21,852      |   |  |               | 6,321  |   |       |   | 0      |   |  |   | 87,258 
|                                          |  |           |         |   |            |  
|Discrete Gap                              |  |           | (26,009 | ) |            |   | (10,485 | )         |  |   | 23,781      |   |  |               | 38,459 |   |       |   | 2,772  |   |  |   | 28,518 
|                                          |  |           |         |   |            |  
|Cumulative Gap                            |  |           | (26,009 | ) |            |   | (36,494 | )         |  |   | (12,713     | ) |  |               | 25,746 |   |       |   | 28,518 |   |  |   |        
|                                          |  |           |         |   |            |  
|Ratio of Cumulative                       |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|Gap To Total                              |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|Earning Assets at                         |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|June 30, 2004                             |  |           | -22.46  | % |            |   | -31.52  | %         |  |   | -10.98      | % |  |               | 22.25  | % |       |   | 24.63  | % |  |   |        
|                                          |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|Ratio of Cumulative                       |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|Gap To Total                              |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|Earning Assets at                         |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|December 31, 2003                         |  |           | -28.45  | % |            |   | -33.35  | %         |  |   | 3.54        | % |  |               | 19.19  | % |       |   | 20.75  | % |  |   |        
|                                          |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        

---

|1 | Nonaccrual loans are included in the loan totals.
|- | -------------------------------------------------

|2 | Investment securities are reflected at book value.
|- | --------------------------------------------------



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Item 3. Controls and Procedures



As a result of
the enactment of the Sarbanes-Oxley Act of 2002, issuers such as Pioneer Bankshares, Inc. that file periodic reports under the Securities Exchange Act of 1934 (the Act) are required to include in those reports certain information
concerning the issuers controls and procedures for complying with the disclosure requirements of the federal securities laws. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by an issuer in the reports it files or submits under the Act, is communicated to the issuers management, including its principal executive officer or officers and principal financial officer or officers,
or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.



We have established disclosure controls and procedures to ensure that material information related to Pioneer Bankshares, Inc. is made known to our principal executive
officers and principal financial officer on a regular basis, in particular during the periods in which our quarterly and annual reports are being prepared. As required, we evaluate the effectiveness of these disclosure controls and procedures on a
quarterly basis, and have done so as of the end of the period covered by this report. Based on this evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and
procedures are adequate and effective. There were no changes in the Companys internal control over financial reporting during the nine months ended September 30, 2004, that has materially affected, or is reasonably likely to materially affect,
the Companys internal control over financial reporting.



Changes in
Internal Controls



There were no significant changes in Pioneer
Bankshares internal controls pertaining to its financial reporting and control of its assets or in other factors that could significantly affect these controls since the date of their evaluation.



Part II - Other Information



Item 1. Legal Proceedings -



There are no
material legal proceedings to which the Company or any of its subsidiaries, directors, or officers is a party or by which they, or any of them are threatened. Any legal proceedings pending or threatened against Pioneer Bankshares, Inc or its
subsidiary, Pioneer Bank are either not material in respect to the amount in controversy or fully covered by insurance.



Item 2. Changes in Securities and Small Business Issuers Purchases of Equity Securities-



The Company has a stock repurchase program, which was authorized in September 2002. There are 5,000 authorized shares remaining available for repurchase under this plan.
There have been no repurchase transactions during 2004.



Item 3. Defaults Upon Senior Securities - Not Applicable



Item 4. Submission of Matters to a Vote of Security Holders - Not Applicable



Item 5. Other Information - Not Applicable



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##### Table of Contents

Item 5a. Required 8-K Disclosures    None



Item 5b. Changes in Procedures for Director Nominations by Security Holders



There have been no material changes to the Companys procedures by which the security holders may recommend nominees to the registrants board of directors during this reporting period.



Item 6. Exhibits



|     |  |                                                                                                                                                                                                 
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith).                                                                                                           
|     | 
|31.2 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith).                                                                                                           
|     | 
|32   |  | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).



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##### Table of Contents

SIGNATURES



In accordance with the
requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



PIONEER BANKSHARES, INC./s/ THOMAS R. ROSAZZAThomas R. RosazzaPresident and Chief Executive Officer/s/ LORI G. HASSETTLori G. HassettVice President and Chief Financial Officer




Date: November 10, 2004



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