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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549





FORM 10-Q







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

For the Quarterly Period Ended March 31, 2008



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission File Number: 0-30541





PIONEER BANKSHARES, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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) (Zip code)

(540) 778-2294

(Registrants telephone number, including area code)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule
12b-2 of the Exchange Act.



|                                              |  |                             
|--------------------------------------------- |  | ----------------------------
|Large accelerated filer   ̈                    |  | Accelerated filer   ̈        
|                                              | 
|Non-accelerated filer   ̈                      |  | Smaller reporting company  x
|(Do not check if a smaller reporting company) |  |                             

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    YES   ̈     NO  x

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: Common shares outstanding as of May 6, 2008 were 1,014,458.









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PIONEER BANKSHARES, INC.

INDEX



|         |  |                                                                                                         |  |     
|-------- |  | ------------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                         |  | Page
|PART I   |  | FINANCIAL INFORMATION                                                                                   |  | 3   
|         |  |                                                                                                        
|Item 1.  |  | Financial Statements.                                                                                   |  |     
|         |  |                                                                                                        
|         |  | Consolidated Balance Sheets  March 31, 2008 and December 31, 2007                                      |  | 3   
|         |  |                                                                                                        
|         |  | Consolidated Statements of Income  Three Months Ended March 31, 2008 and 2007                          |  | 4   
|         |  |                                                                                                        
|         |  | Consolidated Statements of Changes in Stockholders Equity  Three Months Ended March 31, 2008 and 2007 |  | 5   
|         |  |                                                                                                        
|         |  | Consolidated Statements of Cash Flows  Three Months Ended March 31, 2008 and 2007                      |  | 6   
|         |  |                                                                                                        
|         |  | Notes to Consolidated Financial Statements                                                              |  | 7   
|         |  |                                                                                                        
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations.                  |  | 12  
|         |  |                                                                                                        
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                              |  | 22  
|         |  |                                                                                                        
|Item 4.  |  | Controls and Procedures.                                                                                |  | 22  
|         |  |                                                                                                        
|PART II  |  | OTHER INFORMATION                                                                                       |  | 22  
|         |  |                                                                                                        
|Item 1.  |  | Legal Proceedings.                                                                                      |  | 22  
|         |  |                                                                                                        
|Item 1A. |  | Risk Factors                                                                                            |  | 22  
|         |  |                                                                                                        
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds.                                            |  | 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 6.  |  | Exhibits.                                                                                               |  | 23  
|         |  |                                                                                                        
|         |  | SIGNATURES                                                                                              |  | 24  



2



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Part I - Financial Information



|Item 1. | Financial Statements
|------- | --------------------

PIONEER BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands of Dollars)



|                                                                                                     |  |               |         |   |                 |   |         |  
|---------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | --------------- | - | ------- | -
|                                                                                                     |  | March 31,2008 |         |   | December 312007 |  
|                                                                                                     |  | (Unaudited)   |         |   | (Audited)       |  
|ASSETS                                                                                               |  |               |         |   |                 |   |         |  
|Cash and due from banks                                                                              |  | $             | 6,220   |   |                 | $ | 6,106   |  
|Interest bearing deposits in banks                                                                   |  |               | 9,756   |   |                 |   | 1,600   |  
|Federal funds sold                                                                                   |  |               | 400     |   |                 |   | 300     |  
|Securities available for sale, at fair value                                                         |  |               | 18,418  |   |                 |   | 11,069  |  
|Restricted securities                                                                                |  |               | 1,134   |   |                 |   | 680     |  
|Loans receivable, net of allowance for loan losses of $1,636 and $1,573 respectively                 |  |               | 123,571 |   |                 |   | 125,611 |  
|Premises and equipment, net                                                                          |  |               | 3,926   |   |                 |   | 4,056   |  
|Accrued interest receivable                                                                          |  |               | 741     |   |                 |   | 758     |  
|Other assets                                                                                         |  |               | 1,612   |   |                 |   | 1,645   |  
|                                                                                                     |  |               |         |   |                 |   |         |  
|Total Assets                                                                                         |  | $             | 165,778 |   |                 | $ | 151,825 |  
|                                                                                                     |  |               |         |   |                 |   |         |  
|                                                                                                     |  |              
|LIABILITIES                                                                                          |  |               |         |   |                 |   |         |  
|Deposits                                                                                             |  |               |         |   |                 |   |         |  
|Noninterest bearing demand                                                                           |  | $             | 30,888  |   |                 | $ | 33,423  |  
|Interest bearing                                                                                     |  |               |         |   |                 |   |         |  
|Demand                                                                                               |  |               | 10,553  |   |                 |   | 10,238  |  
|Savings                                                                                              |  |               | 13,804  |   |                 |   | 13,367  |  
|Time deposits over $100,000                                                                          |  |               | 17,805  |   |                 |   | 15,822  |  
|Other time deposits                                                                                  |  |               | 57,330  |   |                 |   | 54,505  |  
|                                                                                                     |  |               |         |   |                 |   |         |  
|Total Deposits                                                                                       |  |               | 130,380 |   |                 |   | 127,355 |  
|Accrued expenses and other liabilities                                                               |  |               | 1,265   |   |                 |   | 1,295   |  
|Long term debt                                                                                       |  |               | 17,600  |   |                 |   | 6,900   |  
|                                                                                                     |  |               |         |   |                 |   |         |  
|Total Liabilities                                                                                    |  |               | 149,245 |   |                 |   | 135,550 |  
|                                                                                                     |  |               |         |   |                 |   |         |  
|                                                                                                     |  |              
|STOCKHOLDERS EQUITY                                                                                 |  |               |         |   |                 |   |         |  
|Common stock; $.50 par value, authorized 5,000,000, outstanding 1,013,758 and 1,011,481 respectively |  |               | 506     |   |                 |   | 506     |  
|Retained earnings                                                                                    |  |               | 16,143  |   |                 |   | 15,805  |  
|Accumulated other comprehensive loss, net                                                            |  |               | (116    | ) |                 |   | (36     | )
|                                                                                                     |  |               |         |   |                 |   |         |  
|Total Stockholders Equity                                                                           |  |               | 16,533  |   |                 |   | 16,275  |  
|                                                                                                     |  |               |         |   |                 |   |         |  
|Total Liabilities and Stockholders Equity                                                           |  | $             | 165,778 |   |                 | $ | 151,825 |  
|                                                                                                     |  |               |         |   |                 |   |         |  

See Notes to Consolidated Financial Statements



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PIONEER BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands of Dollars, except share and per share data)

(UNAUDITED)



|                                                    |      |                             |           |  |   |          
|--------------------------------------------------- | ---- | --------------------------- | --------- |  | - | ---------
|                                                    |      | Three Months EndedMarch 31,
|                                                    | 2008 |                             | 2007     
|Interest and Dividend Income:                       |      |                             |           |  |   |          
|Loans including fees                                |      | $                           | 2,411     |  | $ | 2,345    
|Interest on securities - taxable                    |      |                             | 115       |  |   | 103      
|Interest on securities - nontaxable                 |      |                             | 2         |  |   | 3        
|Interest on deposits and federal funds sold         |      |                             | 108       |  |   | 111      
|Dividends                                           |      |                             | 17        |  |   | 31       
|                                                    |      |                             |           |  |   |          
|Total Interest and Dividend Income                  |      |                             | 2,653     |  |   | 2,593    
|                                                    |      |                             |           |  |   |          
|                                                    |      |                            
|Interest Expense:                                   |      |                             |           |  |   |          
|Deposits                                            |      |                             | 881       |  |   | 816      
|Long term debt                                      |      |                             | 114       |  |   | 87       
|                                                    |      |                             |           |  |   |          
|Total Interest Expense                              |      |                             | 995       |  |   | 903      
|                                                    |      |                             |           |  |   |          
|Net Interest Income                                 |      |                             | 1,658     |  |   | 1,690    
|Provision for loan losses                           |      |                             | 105       |  |   | 45       
|                                                    |      |                             |           |  |   |          
|Net interest income after provision for loan losses |      |                             | 1,553     |  |   | 1,645    
|                                                    |      |                             |           |  |   |          
|                                                    |      |                            
|Noninterest Income:                                 |      |                             |           |  |   |          
|Service charges and fees                            |      |                             | 201       |  |   | 188      
|Other income                                        |      |                             | 69        |  |   | 68       
|Gain on security transactions                       |      |                             | 151       |  |   | 26       
|                                                    |      |                             |           |  |   |          
|Total Noninterest Income                            |      |                             | 421       |  |   | 282      
|                                                    |      |                             |           |  |   |          
|                                                    |      |                            
|Noninterest Expense:                                |      |                             |           |  |   |          
|Salaries and benefits                               |      |                             | 639       |  |   | 639      
|Occupancy expenses                                  |      |                             | 92        |  |   | 98       
|Equipment expenses                                  |      |                             | 175       |  |   | 180      
|Other expenses                                      |      |                             | 420       |  |   | 356      
|                                                    |      |                             |           |  |   |          
|Total Noninterest Expenses                          |      |                             | 1,326     |  |   | 1,273    
|                                                    |      |                             |           |  |   |          
|Income before Income Taxes                          |      |                             | 648       |  |   | 654      
|Income Tax Expense                                  |      |                             | 216       |  |   | 220      
|                                                    |      |                             |           |  |   |          
|Net Income                                          |      | $                           | 432       |  | $ | 434      
|                                                    |      |                             |           |  |   |          
|Per Share Data                                      |      |                             |           |  |   |          
|Net income, basic and diluted                       |      | $                           | 0.43      |  | $ | 0.43     
|                                                    |      |                             |           |  |   |          
|Dividends                                           |      | $                           | 0.15      |  | $ | 0.14     
|                                                    |      |                             |           |  |   |          
|Weighted Average Shares Outstanding, Basic          |      |                             | 1,012,324 |  |   | 1,011,481
|                                                    |      |                             |           |  |   |          
|Weighted Average Shares Outstanding, Diluted        |      |                             | 1,013,088 |  |   | 1,013,643
|                                                    |      |                             |           |  |   |          

See Notes to Consolidated Financial Statements



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PIONEER BANKSHARES, INC

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

(In Thousands)

(UNAUDITED)



|                                                                                        |  |             |     |                  |   |        |                                            |  |   |       |   |  |   |        |  
|--------------------------------------------------------------------------------------- |  | ----------- | --- | ---------------- | - | ------ | ------------------------------------------ |  | - | ----- | - |  | - | ------ | -
|                                                                                        |  | CommonStock |     | RetainedEarnings |   |        | AccumulatedOtherComprehensiveIncome (Loss) |  |   | Total |  
|BALANCE DECEMBER 31, 2006                                                               |  | $           | 506 |                  | $ | 14,615 |                                            |  | $ | 97    |   |  | $ | 15,218 |  
|Comprehensive Income                                                                    |  |             |     |                  |   |        |                                            |  |   |       |   |  |   |        |  
|Net Income                                                                              |  |             |     |                  |   | 434    |                                            |  |   |       |   |  |   | 434    |  
|Changes in unrealized gains (losses) on securities, net of taxes                        |  |             |     |                  |   |        |                                            |  |   |       |   |  |   |        |  
|Unrealized holding gains arising during the period (net of tax effect of $5)            |  |             |     |                  |   |        |                                            |  |   | 10    |   |  |   |        |  
|Reclassification adjustment for gains included in net income (net of tax effect of $10) |  |             |     |                  |   |        |                                            |  |   | (16   | ) |  |   | (6     | )
|                                                                                        |  |             |     |                  |   |        |                                            |  |   |       |   |  |   |        |  
|Total Comprehensive Income                                                              |  |             |     |                  |   |        |                                            |  |   |       |   |  |   | 428    |  
|Cash Dividends                                                                          |  |             |    |                  |   | (141   | )                                          |  |   |      |   |  |   | (141   | )
|                                                                                        |  |             |     |                  |   |        |                                            |  |   |       |   |  |   |        |  
|BALANCE MARCH 31, 2007                                                                  |  | $           | 506 |                  | $ | 14,908 |                                            |  | $ | 91    |   |  | $ | 15,505 |  
|                                                                                        |  |             |     |                  |   |        |                                            |  |   |       |   |  |   |        |  
|                                                                                        |  |             |     |                 
|BALANCE DECEMBER 31, 2007                                                               |  | $           | 506 |                  | $ | 15,805 |                                            |  | $ | (36   | ) |  | $ | 16,275 |  
|Comprehensive Income                                                                    |  |             |     |                  |   |        |                                            |  |   |       |   |  |   |        |  
|Net Income                                                                              |  |             |     |                  |   | 432    |                                            |  |   |       |   |  |   | 432    |  
|Changes in unrealized gains (losses) on securities, net of taxes                        |  |             |     |                  |   |        |                                            |  |   |       |   |  |   |        |  
|Unrealized holding gains arising during the period (net of tax effect of $9)            |  |             |     |                  |   |        |                                            |  |   | 18    |   |  |   |        |  
|Reclassification adjustment for gains included in net income (net of tax effect of $53) |  |             |     |                  |   |        |                                            |  |   | (98   | ) |  |   | (80    | )
|                                                                                        |  |             |     |                  |   |        |                                            |  |   |       |   |  |   |        |  
|Total Comprehensive Income                                                              |  |             |     |                  |   |        |                                            |  |   |       |   |  |   | 352    |  
|Stock issued for compensation                                                           |  |             |     |                  |   | 58     |                                            |  |   |       |   |  |   | 58     |  
|Cash Dividends                                                                          |  |             |    |                  |   | (152   | )                                          |  |   |      |   |  |   | (152   | )
|                                                                                        |  |             |     |                  |   |        |                                            |  |   |       |   |  |   |        |  
|BALANCE MARCH 31, 2008                                                                  |  | $           | 506 |                  | $ | 16,143 |                                            |  | $ | (116  | ) |  | $ | 16,533 |  
|                                                                                        |  |             |     |                  |   |        |                                            |  |   |       |   |  |   |        |  

See Notes to Consolidated Financial Statements



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PIONEER BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of Dollars)

(UNAUDITED)



|                                                                                  |      |                             |         |      |  |   |        |  
|--------------------------------------------------------------------------------- | ---- | --------------------------- | ------- | ---- |  | - | ------ | -
|                                                                                  |      | Three Months EndedMarch 31, |        
|                                                                                  | 2008 |                             |         | 2007 | 
|Cash Flows from Operating Activities:                                             |      |                             |         |      |  |   |        |  
|Net income                                                                        |      | $                           | 432     |      |  | $ | 434    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |      |                             |         |      |  |   |        |  
|Provision for loan losses                                                         |      |                             | 105     |      |  |   | 45     |  
|Depreciation and amortization                                                     |      |                             | 130     |      |  |   | 137    |  
|Gain on sale of securities                                                        |      |                             | (151    | )    |  |   | (26    | )
|Net amortization on securities                                                    |      |                             | 6       |      |  |   | (2     | )
|Stock issued for compensation                                                     |      |                             | 58      |      |  |   |       |  
|Net change in:                                                                    |      |                             |         |      |  |   |        |  
|Accrued interest receivable                                                       |      |                             | 17      |      |  |   | (38    | )
|Other assets                                                                      |      |                             | 84      |      |  |   | 110    |  
|Accrued expense and other liabilities                                             |      |                             | (30     | )    |  |   | 334    |  
|                                                                                  |      |                             |         |      |  |   |        |  
|Net Cash Provided by Operating Activities                                         |      |                             | 651     |      |  |   | 994    |  
|                                                                                  |      |                             |         |      |  |   |        |  
|                                                                                  |      |                            
|Cash Flows from Investing Activities:                                             |      |                             |         |      |  |   |        |  
|Net change in federal funds sold                                                  |      |                             | (100    | )    |  |   | 500    |  
|Net change in interest bearing deposits                                           |      |                             | (8,156  | )    |  |   | 564    |  
|Net change in restricted securities                                               |      |                             | (454    | )    |  |   | 13     |  
|Proceeds from maturities and sales of securities available for sale               |      |                             | 3,002   |      |  |   | 5,708  |  
|Purchase of securities available for sale                                         |      |                             | (10,337 | )    |  |   | (5,944 | )
|Net increase in loans                                                             |      |                             | 1,935   |      |  |   | (1,403 | )
|Purchase of bank premises and equipment                                           |      |                             |        |      |  |   | (34    | )
|                                                                                  |      |                             |         |      |  |   |        |  
|Net Cash Used in Investing Activities                                             |      |                             | (14,110 | )    |  |   | (596   | )
|                                                                                  |      |                             |         |      |  |   |        |  
|                                                                                  |      |                            
|Cash Flows from Financing Activities:                                             |      |                             |         |      |  |   |        |  
|Net change in:                                                                    |      |                             |         |      |  |   |        |  
|Demand and savings deposits                                                       |      |                             | (1,783  | )    |  |   | 834    |  
|Time deposits                                                                     |      |                             | 4,808   |      |  |   | 233    |  
|Proceeds from borrowings                                                          |      |                             | 12,000  |      |  |   |       |  
|Curtailments of borrowings                                                        |      |                             | (1,300  | )    |  |   | (1,300 | )
|Dividends paid                                                                    |      |                             | (152    | )    |  |   | (141   | )
|                                                                                  |      |                             |         |      |  |   |        |  
|Net Cash Provided by (Used in) Financing Activities                               |      |                             | 13,573  |      |  |   | (374   | )
|                                                                                  |      |                             |         |      |  |   |        |  
|                                                                                  |      |                            
|Cash and Cash Equivalents:                                                        |      |                             |         |      |  |   |        |  
|Net increase in cash and cash equivalents                                         |      |                             | 114     |      |  |   | 24     |  
|Cash and Cash Equivalents, beginning of year                                      |      |                             | 6,106   |      |  |   | 5,197  |  
|                                                                                  |      |                             |         |      |  |   |        |  
|Cash and Cash Equivalents, End of Period                                          |      | $                           | 6,220   |      |  | $ | 5,221  |  
|                                                                                  |      |                             |         |      |  |   |        |  
|Supplemental Disclosure of Cash Paid                                              |      |                             |         |      |  |   |        |  
|During the Period for:                                                            |      |                             |         |      |  |   |        |  
|Interest                                                                          |      | $                           | 1,074   |      |  | $ | 819    |  
|Supplemental Disclosure of non-cash activity:                                     |      |                             |         |      |  |   |        |  
|Unrealized gain (loss) on securities available for sale                           |      | $                           | (131    | )    |  | $ | (10    | )

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 generally accepted accounting principles 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 March 31, 2008 and the results of operations for the three-month periods ended March 31, 2008 and March 31, 2007. The notes
included herein should be read in conjunction with the notes to financial statements included in the 2007 annual report to stockholders of Pioneer Bankshares, Inc. (the Company) and its Form 10-KSB for the year ended December 31,
2007, as filed with the Securities and Exchange Commission.

Fair Value Measurements -SFAS No. 157, Fair Value Measurements, defines fair
value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon
the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follow:



|                 |  |                                                                                                                                                                                                                                                                       
|---------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        Level 1 |  | inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.                                                                                                                                             
|                 | 
|        Level 2 |  | inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or
indirectly, for substantially the full term of the financial instrument.
|                 | 
|        Level 3 |  | inputs to the valuation methodology are unobservable and significant to the fair value measurement.                                                                                                                                                                   

Following is a description of the valuation methodologies used for instruments measured at fair value, as well as
the general classification of such instruments pursuant to the valuation hierarchy:

Securities

Where quoted prices are available in an active market, securities are classified within level 1 of the valuation hierarchy. Level 1 securities would include highly liquid
government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow.
Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity
or less transparency around inputs to the valuation, securities are classified within level 3 of the valuation hierarchy. Currently, all of the Companys securities are considered to be Level 2 securities.

Impaired loans

SFAS No. 157 applies to loans measured for
impairment using the practical expedients permitted by SFAS No. 114, Accounting by Creditors for Impairment of a Loan, including impaired loans measured at an observable market price (if available), or at the fair value of the
loans collateral (if the loan is collateral dependent). Fair value of the loans collateral, when the loan is dependent on collateral, is determined by appraisals or independent valuation which is then adjusted for the cost related to
liquidation of the collateral.

Other Real Estate Owned

Certain assets such as other real estate owned (OREO) are measured at fair value less cost to sell. We believe that the fair value component in its valuation follows the provisions of SFAS No. 157. As of March 31, 2008 there was
no outstanding balance in Other Real Estate Owned.



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

Stock Compensation Plans - The Company previously accounted for its stock option plan under the recognition and measurement
principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Effective January 1, 2006, the Financial Accounting Standards Board (FASB)
Statement No. 123R (Revised 2004), Share-Based Payment (SFAS No. 123R), replaces and supersedes APB Opinion No. 25. This revised accounting principle now requires that costs resulting from all share-based plans be expensed
and recognized in the financial statements over the vesting period of each specific stock option granted. The Company adopted SFAS No. 123R and does not expect this change in accounting principle to have a material impact on its financial
condition or future results of operations.

The expense relating to previously issued stock options, as of March 31, 2008, is approximately $2,057
compared to $1,500 for March 31, 2007. The expense related to stock option compensation is generally recognized over a vesting period of one year for each option granted. There were no additional stock options granted or exercised during the
first quarter of 2008.

The following summarizes the stock options outstanding as of March 31, 2008:



|                              |  |        |  |                              |       |                                          |     |                                                                |   |   
|----------------------------- |  | ------ |  | ---------------------------- | ----- | ---------------------------------------- | --- | -------------------------------------------------------------- | - | --
|                              |  | Shares |  | WeightedAverageExercisePrice |       | WeightedAverageRemainingContractual Term |     | Intrinsic Valueof UnexercisedIn-the-MoneyOptions(In Thousands)
|Options outstanding, 12/31/07 |  | 7,900  |  | $                            | 16.32 |                                          | 5.1 |                                                                |   |   
|New Options Granted           |  |       |  |                              |      |                                          |     |                                                                |   |   
|Options Exercised             |  |       |  |                              |      |                                          |     |                                                                |   |   
|Options Forfeited             |  |       |  |                              |      |                                          |     |                                                                |   |   
|Options outstanding, 3/31/08  |  | 7,900  |  | $                            | 16.32 |                                          | 4.9 |                                                                |   |   
|Options exercisable, 3/31/08  |  | 7,100  |  | $                            | 15.48 |                                          | 4.6 |                                                                | $ | 75



|(1) | The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying
stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on December 31, 2007. This amount changes based on changes in the market value of the
Companys stock. The fair value (present value of the estimated future benefit to the option holder) of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 2        INVESTMENT SECURITIES:

The amounts at which investment securities are carried in the consolidated balance sheets and their approximate market values at March 31, 2008 and December 31, 2007 follows:



|                                     |                |                |                   |  |               |        |             |   |        |  |   |       
|------------------------------------ | -------------- | -------------- | ----------------- |  | ------------- | ------ | ----------- | - | ------ |  | - | ------
|                                     |                | (In Thousands)
|                                     | March 31, 2008 |                | December 31, 2007
|                                     | CarryingValue  |                | MarketValue       |  | CarryingValue |        | MarketValue
|Securities available for sale:       |                |                |                   |  |               |        |             |   |        |  |   |       
|U.S. Treasury and agency obligations |                | $              | 7,492             |  | $             | 7,626  |             | $ | 5,962  |  | $ | 6,088 
|Mortgage-backed                      |                |                | 7,957             |  |               | 7,987  |             |   | 1,999  |  |   | 2,007 
|Municipal securities                 |                |                | 214               |  |               | 218    |             |   | 215    |  |   | 218   
|Equity securities                    |                |                | 2,953             |  |               | 2,587  |             |   | 2,961  |  |   | 2,756 
|                                     |                |                |                   |  |               |        |             |   |        |  |   |       
|Total                                |                | $              | 18,616            |  | $             | 18,418 |             | $ | 11,137 |  | $ | 11,069
|                                     |                |                |                   |  |               |        |             |   |        |  |   |       

There were no securities classified as held-to-maturity as of March 31, 2008 or December 31, 2007.



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NOTE 2        INVESTMENT SECURITIES: (continued)



As of March 31, 2008, there were 2 investment securities that had been in a loss
position for more than 12 consecutive months and 9 additional securities that had been in a loss position for less than one year.

In analyzing an
issuers financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts reports and overall credit
quality. No impairment has been recognized on any of the securities in a loss position because of managements intent and demonstrated ability to hold securities to scheduled maturity, call dates or until they recover in value.
Managements conclusion for this reporting period is that the temporary losses are the result of current economic conditions and market interest rate changes. The temporary losses are not considered to be related to credit quality.

The schedule of losses on the securities as of March 31, 2008, is as follows:

LOSSES



|                    |  |                   |  |                               |   |                           |   |                  |  |   |       |   |  |   |       |  
|------------------- |  | ----------------- |  | ----------------------------- | - | ------------------------- | - | ---------------- |  | - | ----- | - |  | - | ----- | -
|                    |  | (In Thousands)    |  | US GovernmentAgencySecurities |   | Mortgage-BackedSecurities |   | EquitySecurities |  |   | Total |  
|Less than 12 Months |  | Fair Value        |  | $                             |  |                           | $ |                 |  | $ | 1,906 |   |  | $ | 1,906 |  
|                    |  | Unrealized Losses |  |                               |  |                           |   |                 |  |   | (316  | ) |  |   | (316  | )
|                    |  |                   |  |                               |  
|More than 12 Months |  | Fair Value        |  |                               |  |                           |   |                 |  |   | 177   |   |  |   | 177   |  
|                    |  | Unrealized Losses |  |                               |  |                           |   |                 |  |   | (53   | ) |  |   | (53   | )
|                    |  |                   |  |                               |   |                           |   |                  |  |   |       |   |  |   |       |  
|Total               |  | Fair Value        |  | $                             |  |                           | $ |                 |  | $ | 2,083 |   |  | $ | 2,083 |  
|                    |  | Unrealized Losses |  |                               |  |                           |   |                 |  |   | (369  | ) |  |   | (369  | )
|                    |  |                   |  |                               |   |                           |   |                  |  |   |       |   |  |   |       |  

As of December 31, 2007, there were 21 securities in the portfolio that have unrealized losses, which are
considered to be temporary. The schedule of unrealized losses on these securities is as follows:

LOSSES



|                    |  |                   |  |                           |     |   |                  |   |       |       |  |   |       |  
|------------------- |  | ----------------- |  | ------------------------- | --- | - | ---------------- | - | ----- | ----- |  | - | ----- | -
|                    |  |                   |  | Mortgage-BackedSecurities |     |   | EquitySecurities |   |       | Total | 
|                    |  |                   |  | (In Thousands)            |     |   |                  |   |       |       | 
|Less than 12 Months |  | Fair Value        |  | $                         |    |   |                  | $ | 2,756 |       |  | $ | 2,756 |  
|                    |  | Unrealized Losses |  |                           |    |   |                  |   | (205  | )     |  |   | (205  | )
|                    |  |                   |  |                          
|More than 12 Months |  | Fair Value        |  |                           | 273 |   |                  |   |      |       |  |   | 273   |  
|                    |  | Unrealized Losses |  |                           | (5  | ) |                  |   |      |       |  |   | (5    | )
|                    |  |                   |  |                          
|Total               |  | Fair Value        |  |                           | 273 |   |                  |   | 2,756 |       |  |   | 3,029 |  
|                    |  | Unrealized Losses |  |                           | (5  | ) |                  |   | (205  | )     |  |   | (210  | )



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NOTE 3        LOANS:

Loans outstanding are summarized as follows:



|                                 |  |                |         |   |                  |   |         |  
|-------------------------------- |  | -------------- | ------- | - | ---------------- | - | ------- | -
|                                 |  | (In Thousands) |        
|                                 |  | March 31,2008  |         |   | December 31,2007 |  
|Mortgage loans on real estate    |  |                |         |   |                  |   |         |  
|Construction loans               |  | $              | 10,729  |   |                  | $ | 12,979  |  
|Agricultural                     |  |                | 4,461   |   |                  |   | 4,573   |  
|Equity lines of credit           |  |                | 1,894   |   |                  |   | 2,431   |  
|Residential 1-4 family           |  |                | 40,725  |   |                  |   | 41,579  |  
|Second Mortgages                 |  |                | 4,808   |   |                  |   | 5,055   |  
|Multifamily                      |  |                | 3,808   |   |                  |   | 3,946   |  
|Commercial                       |  |                | 36,006  |   |                  |   | 32,332  |  
|                                 |  |                |         |   |                  |   |         |  
|Total real estate loans          |  |                | 102,431 |   |                  |   | 102,895 |  
|                                 |  |               
|Commercial and industrial loans  |  |                | 6,387   |   |                  |   | 7,204   |  
|Consumer installment loans       |  |                |         |   |                  |   |         |  
|Personal                         |  |                | 16,467  |   |                  |   | 17,165  |  
|Credit cards                     |  |                | 541     |   |                  |   | 587     |  
|                                 |  |                |         |   |                  |   |         |  
|Total consumer installment loans |  |                | 17,008  |   |                  |   | 17,752  |  
|All other loans                  |  |                | 254     |   |                  |   | 323     |  
|                                 |  |                |         |   |                  |   |         |  
|Gross Loans                      |  |                | 126,080 |   |                  |   | 128,174 |  
|Less unearned income on loans    |  |                | (873    | ) |                  |   | (990    | )
|                                 |  |                |         |   |                  |   |         |  
|Loans, less unearned discount    |  |                | 125,207 |   |                  |   | 127,184 |  
|Less allowance for loan losses   |  |                | (1,636  | ) |                  |   | (1,573  | )
|                                 |  |                |         |   |                  |   |         |  
|Net Loans Receivable             |  | $              | 123,571 |   |                  | $ | 125,611 |  
|                                 |  |                |         |   |                  |   |         |  

Pioneer Banks loan portfolio is concentrated in real estate loans, including those secured by residential
consumer properties and small business commercial properties. Management has established specific lending criteria relating to real estate lending and considers the risk of loss in these loan categories to be relatively low.

NOTE 4        ALLOWANCE FOR LOAN LOSSES:

A summary of transactions in the allowance for loan losses for the three months ended March 31, 2008 and the year ending December 31, 2007 is as follows:



|                                        |                |               |       |           |                  |   |       |  
|--------------------------------------- | -------------- | ------------- | ----- | --------- | ---------------- | - | ----- | -
|                                        |                | March 31,2008 |       |           | December 31,2007 |  
|                                        | (Unaudited)    |               |       | (Audited) |                 
|                                        | (In Thousands) |              
|Balance, beginning of period            |                | $             | 1,573 |           |                  | $ | 1,476 |  
|Provision charged to operating expenses |                |               | 105   |           |                  |   | 309   |  
|Recoveries of loans charged off         |                |               | 43    |           |                  |   | 262   |  
|Loans charged off                       |                |               | (85   | )         |                  |   | (474  | )
|                                        |                |               |       |           |                  |   |       |  
|Balance, end of period                  |                | $             | 1,636 |           |                  | $ | 1,573 |  
|                                        |                |               |       |           |                  |   |       |  

The total amount of impaired loans as of March 31, 2008 was $2.2 million compared to $785,000 at
December 31, 2007. Specific valuation allowances have been made as a precautionary measure to cover these potential losses.



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NOTE 5        EARNINGS PER SHARE:

The following shows the weighted average number of shares as of March 31, 2008 and 2007, 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.



|                               |        |                |                 |                |        |  |                 |  |   |     
|------------------------------ | ------ | -------------- | --------------- | -------------- | ------ |  | --------------- |  | - | ----
|                               |        | March 31, 2008 |                 | March 31, 2007
|                               | Shares |                | Per ShareAmount |                | Shares |  | Per ShareAmount
|Basic earnings per share       |        | 1,012,324      |                 | $              | 0.43   |  | 1,011,481       |  | $ | 0.43
|                               |        |                |                 |                |        |  |                 |  |   |     
|Effect of dilutive securities: |        |                |                 |                |        |  |                 |  |   |     
|Stock Options                  |        | 764            |                 |                |        |  | 2,162           |  |   |     
|                               |        |                |                 |                |        |  |                 |  |   |     
|Diluted earnings per share     |        | 1,013,088      |                 | $              | 0.43   |  | 1,013,643       |  | $ | 0.43
|                               |        |                |                 |                |        |  |                 |  |   |     

Stock options representing 3,900 shares were not included in computing diluted EPS because their effects were
anti-dilutive for the reporting periods ending March 31, 2008. There were no anti-dilutive shares for the period ending March 31, 2007.

NOTE
6        LONG TERM DEBT:

The Bank has a line of credit with the Federal Home Loan Bank of Atlanta (the
FHLB) upon which credit advances can be made up to 40% of total assets, subject to certain eligibility requirements. FHLB advances bear interest at a fixed or floating rate depending on the terms and maturity of each advance and numerous
renewal options are available. These advances are secured by 1-4 family residential mortgages. On some fixed rate advances, the FHLB may convert the advance to an indexed floating rate at some set point in time for the remainder of the term. If the
advance converts to a floating rate, the Bank may pay back all or part of the advance without a prepayment penalty.

Approximately $10.7 million in fixed
low-rate borrowings were obtained from the FHLB during the first quarter of 2008. These borrowings were initiated primarily for investment purposes with funds generally being placed in matching term investment instruments. The investment instruments
were placed at a rate of interest higher than the borrowing rate in an effort to increase the banks overall net interest spread.

As of
March 31, 2008, the total outstanding borrowings with FHLB were $17.6 million. which mature through January 18, 2011. The interest rates on these fixed-rate notes payable range from 2.47% to 3.92%. The maturities of FHLB advances as of
March 31, 2008 are shown in TABLE II of this report.

NOTE 7        OTHER EXPENSES:

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



|                      |                |           |      |  |   |    
|--------------------- | -------------- | --------- | ---- |  | - | ---
|                      |                | March 31,
|                      | 2008           |           | 2007
|                      | (In Thousands)
|Director Fees         |                | $         | 35   |  | $ | 42 
|Legal Fees            |                |           | 53   |  |   | 9  
|Professional Fees     |                |           | 51   |  |   | 32 
|Insurance Expense     |                |           | 16   |  |   | 19 
|Supplies and Printing |                |           | 42   |  |   | 27 
|Telephone Expense     |                |           | 25   |  |   | 39 
|Other                 |                |           | 198  |  |   | 188
|                      |                |           |      |  |   |    
|Total                 |                | $         | 420  |  | $ | 356
|                      |                |           |      |  |   |    



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations.
|------- | --------------------------------------------------------------------------------------

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-Q
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.

Overview

The Company reported
relatively stable net earnings of $432,000 for the first quarter of 2008, as compared to $434,000 for the first quarter of 2007. Earnings per share for the quarter ended March 31, 2008 were $0.43 and remained the same as compared to the first
quarter of 2007.

The Company had asset growth of approximately $14.0 million during the first quarter of 2008, which was primarily the result of
additional borrowings and investment activities. Approximately $10.7 million in fixed low-rate borrowings were obtained from the Federal Home Loan Bank of Atlanta. These borrowings were initiated primarily for investment purposes with funds
generally being placed in matching term investment instruments. Total investments in securities available for sale increased by $7.3 million for the period ending March 31, 2008, as compared to total securities at December 31, 2007.
Investments in interest bearing deposits increased by approximately $8.2 million for the period ending March 31, 2008, as compared to December 31, 2007. These investment instruments were placed at a rate of interest higher than the
borrowing rate in an effort to increase the Banks overall net interest spread.

The Companys loan portfolio decreased by approximately $2.0
million or 1.62% as of March 31, 2008, and is primarily attributed to residential real estate loan payoffs and refinance activities. The deposit portfolio increased by $3.0 million or 2.38% during the same period, with the majority of this
growth being in time deposits. The Companys capital position as of March 31, 2008 was $16.5 million, or 9.97% as a percentage of total assets.

The Companys book value as of March 31, 2008 was $16.31 per share, as compared to a book value of $16.09 per share as of December 31, 2007. This represents an increase of 1.37%. Additionally, shareholder dividend payments
for the first quarter of 2008 were increased by 7.14%, as compared to the same period last year.

Management recognizes that prevailing economic conditions
have the potential to adversely impact the Companys operational results, including future earnings, liquidity, and capital resources. Management continually monitors economic factors in an effort to promptly identify specific trends that could
have a direct material effect on the Company.



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##### Table of Contents

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.

The Company uses 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 basic principles of accounting: 1) Statement of Financial Accounting Standard (SFAS)
No. 5, Accounting for Contingencies, which requires that losses be accrued when they are probable of occurring and estimatable, and 2) SFAS No. 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 (FASB) 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 assets 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 March 31, 2008 and
December 31, 2007. The goodwill is no longer amortized, but instead is tested for impairment at least annually.



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##### Table of Contents

Results of Operations

Net Interest Income

Total interest income increased $60,000 or 2.31% during the first quarter of 2008 as compared to the same period for
2007. Total interest expense increased $92,000 or 10.19% in the first quarter of 2008 compared to the same period of 2007. The increases in interest income and interest expense resulted in a net interest income decrease of $32,000 or 1.89% for the
period ending March 31, 2008 compared to the period ending March 31, 2007. This net decrease is primarily attributed to increased time deposit interest expense of $65,000 as compared to the same period last year. A large portion of the
time deposit portfolio are at fixed interest rates and re-pricing maturity terms of 12 -18 months. The interest rates on these accounts were established during a higher interest rate market and will be subject to current rates as they mature. The
average interest rate being paid on time deposits increased from 4.38% as of March 31, 2007 to 4.63% as of March 31, 2008.

The net interest
margin decreased from 4.80% for the first quarter of 2007 to 4.39% for the first quarter of 2008, and is primarily related to the time deposit pricing discussed above. Additionally, the average yield on loans decreased from 7.76% for the first
quarter of 2007 to 7.54% for the first quarter of 2008. This is primarily the result of loan refinancing and re-pricing activities in a lower interest rate environment, as well as, managements continued efforts with a dealer loan program for
auto financing, which offers lower interest rates to well qualified buyers. The overall average yield on earning assets decreased from 7.36% as of March 31, 2007 to 7.03% as of March 31, 2008, as a result of the previously mentioned
factors.

Noninterest Income

During the first quarter
of 2008, non-interest income increased by $139,000 when compared to the same period last year. This increase can be accounted for primarily in the category of gains on securities transactions. Securities gains during the first quarter of 2008
increased by $125,000 as compared to the prior year and were the result of strategic restructuring of the Banks investment portfolio in the current economic environment. Additionally, service charge income increased by $13,000 or 6.91% and is
primarily the result of nominal fee increases.

Noninterest Expense

During the first quarter of 2008, non-interest expense increased by $53,000 or 4.16% in comparison to the first quarter of 2007. The primary factor contributing to this overall increase is legal fee expenses incurred
primarily relating to continuing shareholder and proxy litigation. Salary and benefit expenses remain stable for the reporting periods presented.

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 shareholders equity.

As of March 31, 2008, the net amortized cost of
securities available for sale was approximately $198,000 more than the stated market value as shown in note 2 of the financial statements included in this report. Management has traditionally held debt securities until maturity and thus it does not
expect the fluctuation in the value of these securities to have a material impact on earnings.

Investments in securities, including those which were
restricted, increased by approximately $7.8 million during the first quarter of 2008. 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, 14.05% (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.



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##### Table of Contents

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 expanded its service area to include Albemarle 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.

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 commercial and residential real estate loans, as well as, consumer auto loans. A significant percentage of these loans are made to borrowers who are employed by businesses outside the service area.

During the first quarter of 2008, net loans decreased by approximately $2.0 million or 1.62%, which is primarily attributed to residential real estate
loan payoffs and refinance activities. 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 $816,000 at March 31, 2008 compared to $386,000 at December 31,
2007. This represents an increase of $424,000 and is mainly attributed to one specific real estate account in which foreclosure proceedings are in process. Management has evaluated the value of collateral related to this account and has made a
specific allocations to the allowance for loan loss account for the potential loss amount of approximately $70,000.

Management continually monitors past
due and non-accrual accounts and takes necessary collection actions on a consistent basis to minimize losses in the portfolio. Management monitors all non-performing assets in order to promptly identify any loss allocations that should be made.
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.

Impaired loans are those loans which have been identified by management as problem credits due to various circumstances concerning the borrowers financial condition and frequent delinquency status. These loans
may not be delinquent to the extent that would warrant a non-accrual classification, however, management has classified these accounts as impaired and is monitoring the circumstances and payment status closely. In most cases, a specific allocation
to the Banks allowance for loan loss is made for an impaired loan. The total amount of impaired loans as of March 31, 2008 was $2.2 million compared to $785,000 at December 31, 2007. This represents an increase of approximately $1.4
million and is primarily the result of managements proactive efforts to promptly identify potential additional problem credits. Based on current collateral values, management has identified potential losses relating to these credits of
approximately $330,000 as of March 31, 2008. Specific valuation allowances have been made as a precautionary measure to cover these potential losses.

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 March 31, 2008
that are not included in the past due or non-accrual loans referred to above.



15



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##### Table of Contents

Allowance for Loan Losses

Managements analysis process for evaluating the adequacy of the allowance for loan loss is a continual process, which is monitored at least quarterly, or more frequently, as needed. The evaluation process
consists of regular periodic reviews of the loans outstanding by loan type. Specific reviews and allocations are made for loans that have been identified as potential loss, in which the borrowers financial condition has substantially weakened
or habitual past due payment activity has occurred. Specific reviews and allocations are also made for various sectors of the loan portfolio that have been identified as higher risk categories. Historical loss ratios are applied to the remaining
loan portfolio by loan type, based on the most recent loss trends. Management takes into consideration expected recoveries from prior charge offs as part of its allowance and funding calculation.

Management also evaluates the loan portfolio in light of national and local economic trends, changes in the nature and value of the portfolio and industry standards.
Allocation factors relating to identified loan concentrations and loan growth trends are included in the calculation of the adequacy of the loan loss reserve. The periodic review of the allowance for loan loss and funding provision considers
concentrations of loans in terms of geography, business type or level of risk. Management evaluates the risk elements involved in loans relative to collateral values and maintains the allowance for loan losses at a level which is adequate to absorb
credit losses considered to be inherent in the loan portfolio. Management engages the services of an outside loan review firm periodically to evaluate the loan portfolio, provide an independent analysis of significant borrowers, and to assist in
identifying potential problem credits. The independent loan review report is used by management as an additional tool for monitoring and minimizing risks that may be inherent in the loan portfolio. Management has also implemented an internal loan
review process for the purpose of identifying and monitoring possible loan losses in the portfolio. Other factors considered in managements evaluation process are changes in lending policies, procedures and underwriting criteria; changes in
the nature and volume of the loan portfolio; the experience, ability, and depth of lending management or other lending personnel; the volume and severity of past dues, non-accruals, and classified loans; and other external or regulatory
requirements. 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.

The provision for loan losses and changes in the allowance for loan losses are shown in note 4 of the financial statements included in this report.

The allowance for loan loss balance of $1.636 million at March 31, 2008, increased by approximately $63,000 from its level at December 31, 2007. The increase in the allowance balance is primarily attributed
to specific allocations related to impaired loans, as well as, an increased percentage of non-performing assets, including nonaccruals, past dues, and classified loans. The increase in non-performing assets is partially attributed to a declining
economic environment. Management has made additional allocations based on the declining economic trends and increases in non-performing assets, as a means of providing sufficient funding for possible losses. The increased allowance allocations noted
above have contributed to an overall increase in the cumulative funding as a percentage of total loans. The cumulative balance in the allowance for loan loss account was equal to 1.31% and 1.24% of total loans at March 31, 2008 and
December 31, 2007, respectively. The increase in the allowance for loan loss as a percentage of total loans is directionally consistent with the changes and trends that have been identified within the loan portfolio as of March 31, 2008.

The allowance is deemed to be within an acceptable range based on managements evaluation of the losses inherent in the loan portfolio at the end of
this reporting period. The evaluation of the allowance for loan loss account as of March 31, 2008 included specific allocations for certain borrowers, in which the payment performance and collateral value assessment indicates possible future
losses. Management exercises the utmost caution and due diligence in allocating for possible loan losses, and follows a conservative methodology in order to protect its investors and to minimize the potential for large fluctuations in future
provision expenses. Managements practice of funding the allowance for loan loss account is to make necessary adjustments on a quarterly basis for the foreseeable period in an attempt to effectively match expenses to loan losses as they are
occurring. Large fluctuations or variances outside of the acceptable range as calculated for the necessary allowance for loan loss reserves are recorded directly to income or expense in the reporting period.



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##### Table of Contents

The provision expense related to the allowance for loan loss as of March 31, 2008 was $105,000 as compared to
$45,000 for the first quarter of 2007. This increase is directly related to the increased loan portfolio allocations previously discussed.

Managements evaluation of the allowance for loan losses as of March 31, 2008 and December 31, 2007 concluded that the reserved amount was adequate to cover potential estimated losses. The allowance for loan loss account is
monitored closely by management on an on-going basis, and is periodically adjusted to ensure that an adequate level of loss coverage is maintained.

Premises, Equipment and Software

The Company continually monitors technological upgrades in the banking industry, and may
periodically, in order to achieve higher levels of internal operational efficiency, purchase new or additional equipment relating to such technologies. The Companys management sets specific budget allowances on an annual basis, which are
deemed to be adequate to cover expenditures that may arise throughout the year relating to technological upgrades or enhancements.

There were no purchases
related to premises, equipment or other fixed assets during the first quarter of 2008.

Deposits

The Companys main source of funds 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 historically remained relatively stable. During the first quarter of 2008, total deposits have
increased by approximately $3.0 million or 2.38%. This increase was mainly in the category of time deposits. The Company monitors its deposits carefully on an on-going basis in order to provide adequate funding for investments and loan growth
opportunities.

Borrowings

The Bank has a line
of credit with the Federal Home Loan Bank (the FHLB) of Atlanta upon which credit advances can be made up to 40% of total assets, subject to certain eligibility requirements. As of March 31, 2008, total borrowings were $17.6 million
compared to $6.9 million at December 31, 2007. This represents an increase of approximately $10.7 million, which were obtained at fixed low interest rates. These borrowings were initiated primarily for investment purposes with funds generally
being placed in matching term investment instruments. The investment instruments were placed at a rate of interest higher than the borrowing rate in an effort to increase the Banks overall net interest spread as discussed in Note 6 to the
financial statements included in this report.

Capital

The adequacy of the Companys capital is reviewed by management on an ongoing basis with reference to its size, composition, quality of assets and liability levels, and consistency with regulatory requirements and industry standards.
Management seeks to maintain a capital structure that will assure an adequate level to support anticipated asset growth, future expansion, shareholder dividends, and ongoing operational needs.

As of March 31, 2008 and December 31, 2007, the Companys total capital-to-asset ratios were 9.97% and 10.72%, respectively. The Companys 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.



17



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##### Table of Contents

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 FHLB and certain correspondent banks.

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

Liquidity as of March 31, 2008 remains
adequate.

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 additionally 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 March 31, 2008.

As of March 31, 2008, the Company had a negative cumulative Gap Rate Sensitivity Ratio of 38.75% for the one year re-pricing period, compared with a
negative cumulative Gap Rate Sensitivity of 39.65% at December 31, 2007. This negative gap position generally indicates that earnings would improve in a declining interest rate environment as liabilities re-price 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 re-price concurrently with changes in rates within the general economy.
Management constantly monitors the Companys interest rate risk and has decided the current position is acceptable for a well-capitalized community bank operating in a rural environment.

Recent Accounting Pronouncements

In December 2007, the
Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141(R), Business Combinations (SFAS 141(R)). The Standard will significantly change the financial accounting
and reporting of business combination transactions. SFAS 141(R) establishes the criteria for how an acquiring entity in a business combination recognizes the assets acquired and liabilities assumed in the transaction; establishes the acquisition
date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial
effect of the business combination. Acquisition related costs including finders fees, advisory, legal, accounting valuation and other professional and consulting fees are required to be expensed as incurred. SFAS 141(R) is effective for fiscal
years beginning after December 15, 2008 and early implementation is not permitted. The Company does not expect the implementation to have a material impact on its consolidated financial statements at this time.

In December 2007, the FASB issued Statement of Financial Accounting Standards No.160, Noncontrolling Interests in Consolidated Financial Statements
(SFAS 160). SFAS 160 requires the Company to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This Statement is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company does not expect the implementation of SFAS 160 to have a material impact on its consolidated financial statements at
this time.



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##### Table of Contents

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about
Derivative Instruments and Hedging Activities  an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to
provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entitys financial position, financial performance and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early
application permitted. The Company does not expect the implementation of SFAS 161 to have a material impact on its consolidated financial statements at this time.

Effect of Proposed Accounting Standards

The Company does not believe that any newly issued but as yet unapplied or recent accounting
pronouncements 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.



19



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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)



|                                   |                |                                  |                |  |                                  |       |  |                |   |                |   |         |  |   |       |  |       |  
|---------------------------------- | -------------- | -------------------------------- | -------------- |  | -------------------------------- | ----- |  | -------------- | - | -------------- | - | ------- |  | - | ----- |  | ----- | -
|                                   |                | Three Months EndedMarch 31, 2008 |                |  | Three Months EndedMarch 31, 2007 |      
|                                   | AverageBalance |                                  | Income/Expense |  | Rates                            |       |  | AverageBalance |   | Income/Expense |   | Rates   | 
|Interest Income                    |                |                                  |                |  |                                  |       |  |                |   |                |   |         |  |   |       |  |       |  
|Loans1                             |                |                                  |                |  |                                  |       |  |                |   |                |   |         |  |   |       |  |       |  
|Commercial                         |                | $                                | 8,333          |  | $                                | 172   |  | 8.26           | % |                | $ | 7,518   |  | $ | 167   |  | 8.89  | %
|Real estate                        |                |                                  | 100,224        |  |                                  | 1,759 |  | 7.02           | % |                |   | 97,968  |  |   | 1,726 |  | 7.05  | %
|Installment                        |                |                                  | 18,848         |  |                                  | 452   |  | 9.59           | % |                |   | 14,892  |  |   | 420   |  | 11.28 | %
|Credit card                        |                |                                  | 534            |  |                                  | 28    |  | 20.97          | % |                |   | 573     |  |   | 32    |  | 22.34 | %
|                                   |                |                                  |                |  |                                  |       |  |                |   |                |   |         |  |   |       |  |       |  
|Total Loans                        |                |                                  | 127,939        |  |                                  | 2,411 |  | 7.54           | % |                |   | 120,951 |  |   | 2,345 |  | 7.76  | %
|Federal funds sold                 |                |                                  | 3,391          |  |                                  | 26    |  | 3.07           | % |                |   | 3,401   |  |   | 43    |  | 5.06  | %
|Interest Bearing                   |                |                                  |                |  |                                  |       |  |                |   |                |   |         |  |   |       |  |       |  
|Deposits                           |                |                                  | 7,880          |  |                                  | 82    |  | 4.16           | % |                |   | 4,887   |  |   | 68    |  | 5.57  | %
|Securities                         |                |                                  |                |  |                                  |       |  |                |   |                |   |         |  |   |       |  |       |  
|Taxable                            |                |                                  | 9,145          |  |                                  | 128   |  | 5.60           | % |                |   | 9,415   |  |   | 123   |  | 5.23  | %
|Nontaxable2                        |                |                                  | 2,863          |  |                                  | 9     |  | 1.26           | % |                |   | 2,566   |  |   | 19    |  | 2.96  | %
|                                   |                |                                  |                |  |                                  |       |  |                |   |                |   |         |  |   |       |  |       |  
|Total earning assets               |                |                                  | 151,218        |  |                                  | 2,656 |  | 7.03           | % |                |   | 141,220 |  |   | 2,598 |  | 7.36  | %
|                                   |                |                                  |                |  |                                  |       |  |                |   |                |   |         |  |   |       |  |       |  
|Interest Expense                   |                |                                  |                |  |                                  |       |  |                |   |                |   |         |  |   |       |  |       |  
|Demand deposits                    |                |                                  | 10,293         |  |                                  | 13    |  | 0.51           | % |                |   | 11,898  |  |   | 13    |  | 0.44  | %
|Savings                            |                |                                  | 13,535         |  |                                  | 35    |  | 1.03           | % |                |   | 12,192  |  |   | 19    |  | 0.62  | %
|Time deposits                      |                |                                  | 72,040         |  |                                  | 833   |  | 4.63           | % |                |   | 71,539  |  |   | 784   |  | 4.38  | %
|Borrowings                         |                |                                  | 13,360         |  |                                  | 114   |  | 3.41           | % |                |   | 10,220  |  |   | 87    |  | 3.41  | %
|                                   |                |                                  |                |  |                                  |       |  |                |   |                |   |         |  |   |       |  |       |  
|Total Interest Bearing Liabilities |                | $                                | 109,228        |  | $                                | 995   |  | 3.64           | % |                | $ | 105,849 |  | $ | 903   |  | 3.41  | %
|                                   |                |                                  |                |  |                                  |       |  |                |   |                |   |         |  |   |       |  |       |  
|Net Interest Income                |                |                                  |                |  | $                                | 1,661 |  |                |   |                |   |         |  | $ | 1,695 |  |       |  
|                                   |                |                                  |                |  |                                  |       |  |                |   |                |   |         |  |   |       |  |       |  
|Net Interest Margin                |                |                                  |                |  |                                  |       |  | 4.39           | % |                |   |         |  |   |       |  | 4.80  | %
|                                   |                |                                  |                |  |                                  |       |  |                |   |                |   |         |  |   |       |  |       |  



|1 | Nonaccrual loans are included in computing the average balances.
|- | ----------------------------------------------------------------

|2 | An incremental tax rate of 34% and a 70% dividend exclusion was used to calculate the tax equivalent income.
|- | ------------------------------------------------------------------------------------------------------------



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##### Table of Contents

TABLE II

PIONEER BANKSHARES, INC.

INTEREST SENSITIVITY ANALYSIS

MARCH 31, 2008

(Dollar Amounts in
Thousands)



|                                                 |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|------------------------------------------------ |  | --------- | ------- | - | ---------- | - | ------- | --------- |  | - | ----------- | - |  | ------------- | ------ | - | ----- | - | ------ | - |  | - | -------
|                                                 |  | 0-3Months |         |   | 4-12Months |   |         | 1-5 Years |  |   | Over 5Years |   |  | NotClassified |        |   | Total
|Uses of Funds:                                   |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|Loans1                                           |  | $         | 13,501  |   |            | $ | 11,717  |           |  | $ | 55,579      |   |  | $             | 44,410 |   |       | $ |       |   |  | $ | 125,207
|Interest bearing bank deposits                   |  |           | 756     |   |            |   | 5,500   |           |  |   | 3,500       |   |  |               |       |   |       |   |       |   |  |   | 9,756  
|Investment securities2                           |  |           | 3,500   |   |            |   | 1,761   |           |  |   | 2,288       |   |  |               | 8,282  |   |       |   | 2,587  |   |  |   | 18,418 
|Restricted stock                                 |  |           |        |   |            |   |        |           |  |   |            |   |  |               |       |   |       |   | 1,134  |   |  |   | 1,134  
|Federal funds sold                               |  |           | 400     |   |            |   |        |           |  |   |            |   |  |               |       |   |       |   |       |   |  |   | 400    
|                                                 |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|Total                                            |  |           | 18,157  |   |            |   | 18,978  |           |  |   | 61,367      |   |  |               | 52,692 |   |       |   | 3,721  |   |  |   | 154,915
|                                                 |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|                                                 |  |           |         |   |            |  
|Sources of Funds:                                |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|Interest bearing demand deposits                 |  |           | 10,553  |   |            |   |        |           |  |   |            |   |  |               |       |   |       |   |       |   |  |   | 10,553 
|Regular savings                                  |  |           | 13,804  |   |            |   |        |           |  |   |            |   |  |               |       |   |       |   |       |   |  |   | 13,804 
|Certificates of deposit $100,000 and over        |  |           | 3,349   |   |            |   | 12,979  |           |  |   | 1,477       |   |  |               |       |   |       |   |       |   |  |   | 17,805 
|Other certificates of deposit                    |  |           | 11,210  |   |            |   | 36,531  |           |  |   | 9,589       |   |  |               |       |   |       |   |       |   |  |   | 57,330 
|Borrowings                                       |  |           | 600     |   |            |   | 6,700   |           |  |   | 10,300      |   |  |               |       |   |       |   |       |   |  |   | 17,600 
|                                                 |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|Total                                            |  | $         | 39,516  |   |            | $ | 56,210  |           |  | $ | 21,366      |   |  | $             |       |   |       | $ |       |   |  | $ | 117,092
|                                                 |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|Discrete Gap                                     |  | $         | (21,359 | ) |            | $ | (37,232 | )         |  | $ | 40,001      |   |  | $             | 52,692 |   |       | $ | 3,721  |   |  | $ | 37,823 
|Cumulative Gap                                   |  | $         | (21,359 | ) |            | $ | (58,591 | )         |  | $ | (18,590     | ) |  | $             | 34,102 |   |       | $ | 37,823 |   |  |   |        
|                                                 |  |           |         |   |            |  
|Ratio of Cumulative                              |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|Gap To Total Earning Assets at March 31, 2008    |  |           | -14.13  | % |            |   | -38.75  | %         |  |   | -12.29      | % |  |               | 22.55  | % |       |   | 25.01  | % |  |   |        
|                                                 |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|Ratio of Cumulative                              |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|Gap To Total Earning Assets at December 31, 2007 |  |           | -13.11  | % |            |   | -39.65  | %         |  |   | -7.82       | % |  |               | 25.96  | % |       |   | 28.40  | % |  |   |        
|                                                 |  |           |         |   |            |   |         |           |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        



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

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



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##### Table of Contents

|Item 3. | Quantitative and Qualitative Disclosures about Market Risk.
|------- | -----------------------------------------------------------

Not
Applicable



|Item 4. | 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.

The Company has 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, the Company evaluates the effectiveness of these disclosure controls and procedures on a quarterly basis, and has 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 quarter ended March 31, 2008, that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.

Part II - Other Information



|Item 1. | Legal Proceedings
|------- | -----------------

In the ordinary course of its operations, the
Company and its subsidiaries are parties to various legal proceedings. Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings, in the aggregate, will
not have a material adverse effect on the business or the financial condition or results of operations of the Company.



|Item 1A. | Risk Factors
|-------- | ------------

Not Applicable



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

The
Company has a stock repurchase program authorized with 5,000 shares remaining available for repurchase. There have been no repurchase transactions during 2008.



|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 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

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.



|                   |  |                          |  |                                           
|------------------ |  | ------------------------ |  | ------------------------------------------
|                   |  | PIONEER BANKSHARES, INC.
|                   |  |                         
|                   |  | By:                      |  | /s/ THOMAS R. ROSAZZA                     
|Date: May 14, 2008 |  |                          |  | Thomas R. Rosazza                         
|                   |  |                          |  | President and Chief Executive Officer     
|                   |  |                         
|Date: May 14, 2008 |  | By:                      |  | /s/ LORI G. HASSETT                       
|                   |  |                          |  | Lori G. Hassett                           
|                   |  |                          |  | Vice President and Chief Financial Officer



24