##### Table of Contents

---

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



---



FORM 10-QSB



---



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



For Quarterly Period Ended March 31, 2004



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



Commission File No. 0-30541



---



PIONEER BANKSHARES, INC.

(Exact name of small business issuer 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)



(540) 778-2294

(Issuers telephone number)



---



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



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



|                                |  |                            
|------------------------------- |  | ---------------------------
|Class                           |  | Outstanding at May 12, 2004
|Common Stock, par value - $0.50 |  | 1,073,650 shares           



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



---



---

##### Table of Contents

PIONEER BANKSHARES, INC.



INDEX



|        |  |                                                                                                         |  |     
|------- |  | ------------------------------------------------------------------------------------------------------- |  | ----
|        |  |                                                                                                         |  | Page
|        |  |                                                                                                        
|PART I  |  | FINANCIAL INFORMATION                                                                                   |  | 3   
|        |  |                                                                                                        
|Item 1. |  | Financial Statements                                                                                    |  | 3   
|        |  |                                                                                                        
|        |  | Consolidated Statements of Income - Three Months Ended March 31, 2004 and 2003                          |  | 3   
|        |  |                                                                                                        
|        |  | Consolidated Balance Sheets  March 31, 2004 and December 31, 2003                                      |  | 4   
|        |  |                                                                                                        
|        |  | Consolidated Statements of Changes in Stockholders Equity  Three Months Ended March 31, 2004 and 2003 |  | 5   
|        |  |                                                                                                        
|        |  | Consolidated Statements of Cash Flows  Three Months Ended March 31, 2004 and 2003                      |  | 6   
|        |  |                                                                                                        
|        |  | Notes to Consolidated Financial Statements                                                              |  | 7   
|        |  |                                                                                                        
|Item 2. |  | Managements Discussion and Analysis or Plan of Operation                                               |  | 10  
|        |  |                                                                                                        
|Item 3. |  | Controls and Procedures                                                                                 |  | 18  
|        |  |                                                                                                        
|PART II |  | OTHER INFORMATION                                                                                       |  | 18  
|        |  |                                                                                                        
|Item 1. |  | Legal Proceedings                                                                                       |  | 18  
|        |  |                                                                                                        
|Item 2. |  | Changes in Securities, and Small Business Issuers Purchases of Equity Securities                       |  | 18  
|        |  |                                                                                                        
|Item 3. |  | Defaults Upon Senior Securities                                                                         |  | 18  
|        |  |                                                                                                        
|Item 4. |  | Submission of Matters to a Vote of Security Holders                                                     |  | 18  
|        |  |                                                                                                        
|Item 5. |  | Other Information                                                                                       |  | 18  
|        |  |                                                                                                        
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                        |  | 19  
|        |  |                                                                                                        
|        |  | SIGNATURES                                                                                              |  | 20  



2



---

##### Table of Contents

Part I - Financial Information

Item 1. Financial Statements



PIONEER BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands of Dollars)

(UNAUDITED)



|                                                                  |  |                              |           |   |      |   |           |  
|----------------------------------------------------------------- |  | ---------------------------- | --------- | - | ---- | - | --------- | -
|                                                                  |  | Three Months Ended March 31, |          
|                                                                  |  | 2004                         |           |   | 2003 |  
|Interest and Dividend Income:                                     |  |                              |           |   |      |   |           |  
|Loans including fees                                              |  | $                            | 1,758     |   |      | $ | 2,006     |  
|Interest on securities - taxable                                  |  |                              | 91        |   |      |   | 83        |  
|Interest on securities - nontaxable                               |  |                              | 14        |   |      |   | 21        |  
|Interest on deposits and federal funds sold                       |  |                              | 56        |   |      |   | 51        |  
|Dividends                                                         |  |                              | 14        |   |      |   | 24        |  
|                                                                  |  |                              |           |   |      |   |           |  
|Total Interest and Dividend Income                                |  |                              | 1,933     |   |      |   | 2,185     |  
|                                                                  |  |                              |           |   |      |   |           |  
|Interest Expense:                                                 |  |                              |           |   |      |   |           |  
|Deposits                                                          |  |                              | 355       |   |      |   | 508       |  
|Long term debt                                                    |  |                              | 111       |   |      |   | 74        |  
|                                                                  |  |                              |           |   |      |   |           |  
|Total Interest Expense                                            |  |                              | 466       |   |      |   | 582       |  
|                                                                  |  |                              |           |   |      |   |           |  
|Net Interest Income                                               |  |                              | 1,467     |   |      |   | 1,603     |  
|Provision for loan losses (recovery of)                           |  |                              | (9        | ) |      |   | 317       |  
|                                                                  |  |                              |           |   |      |   |           |  
|Net interest income after provision for loan losses (recovery of) |  |                              | 1,476     |   |      |   | 1,286     |  
|                                                                  |  |                              |           |   |      |   |           |  
|Noninterest Income:                                               |  |                              |           |   |      |   |           |  
|Service charges and fees                                          |  |                              | 198       |   |      |   | 212       |  
|Other income                                                      |  |                              | 35        |   |      |   | 77        |  
|Gain (loss) on security transactions                              |  |                              | 249       |   |      |   | (4        | )
|                                                                  |  |                              |           |   |      |   |           |  
|Total Noninterest Income                                          |  |                              | 482       |   |      |   | 285       |  
|                                                                  |  |                              |           |   |      |   |           |  
|Noninterest Expense:                                              |  |                              |           |   |      |   |           |  
|Salaries and benefits                                             |  |                              | 557       |   |      |   | 507       |  
|Occupancy expenses                                                |  |                              | 75        |   |      |   | 63        |  
|Equipment expenses                                                |  |                              | 200       |   |      |   | 171       |  
|Other expenses                                                    |  |                              | 326       |   |      |   | 346       |  
|                                                                  |  |                              |           |   |      |   |           |  
|Total Noninterest Expenses                                        |  |                              | 1,158     |   |      |   | 1,087     |  
|                                                                  |  |                              |           |   |      |   |           |  
|Income before Income Taxes                                        |  |                              | 800       |   |      |   | 484       |  
|Income Tax Expense                                                |  |                              | 270       |   |      |   | 160       |  
|                                                                  |  |                              |           |   |      |   |           |  
|Net Income                                                        |  |                              | 530       |   |      |   | 324       |  
|                                                                  |  |                              |           |   |      |   |           |  
|Per Share Data, basic and diluted                                 |  |                              |           |   |      |   |           |  
|Net income                                                        |  | $                            | 0.49      |   |      | $ | 0.30      |  
|                                                                  |  |                              |           |   |      |   |           |  
|Dividends                                                         |  | $                            | 0.12      |   |      | $ | 0.11      |  
|                                                                  |  |                              |           |   |      |   |           |  
|Weighted Average Shares Outstanding, Basic                        |  |                              | 1,073,650 |   |      |   | 1,092,410 |  
|                                                                  |  |                              |           |   |      |   |           |  
|Weighted Average Shares Outstanding, Diluted                      |  |                              | 1,074,637 |   |      |   | 1,092,410 |  
|                                                                  |  |                              |           |   |      |   |           |  



See Notes to
Consolidated Financial Statements



3



---

##### Table of Contents

PIONEER BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands of Dollars)



|                                                                                     |  |               |         |                 |   |        
|------------------------------------------------------------------------------------ |  | ------------- | ------- | --------------- | - | -------
|                                                                                     |  | March 31,2004 |         | December 312003
|                                                                                     |  | (Unaudited)   |         | (Audited)      
|ASSETS                                                                               |  |               |         |                 |   |        
|                                                                                     |  |              
|Cash and due from banks                                                              |  | $             | 8,356   |                 | $ | 7,579  
|Federal funds sold                                                                   |  |               | 1,250   |                 |   | 2,500  
|Interest bearing deposits in banks                                                   |  |               | 8,112   |                 |   | 5,212  
|Securities available for sale, at fair value                                         |  |               | 17,395  |                 |   | 18,348 
|Securities held to maturity                                                          |  |               | 23      |                 |   | 31     
|Restricted securities                                                                |  |               | 647     |                 |   | 557    
|Loans receivable, net of allowance for loan losses of $1,356 and $1,433 respectively |  |               | 83,329  |                 |   | 80,781 
|Premises and equipment, net                                                          |  |               | 4,044   |                 |   | 4,115  
|Accrued interest receivable                                                          |  |               | 469     |                 |   | 497    
|Other assets                                                                         |  |               | 1,290   |                 |   | 1,301  
|                                                                                     |  |               |         |                 |   |        
|Total Assets                                                                         |  | $             | 124,915 |                 | $ | 120,921
|                                                                                     |  |               |         |                 |   |        
|LIABILITIES                                                                          |  |               |         |                 |   |        
|Deposits                                                                             |  |               |         |                 |   |        
|Noninterest bearing demand                                                           |  | $             | 22,887  |                 |   | 21,181 
|Interest bearing                                                                     |  |               |         |                 |   |        
|Demand                                                                               |  |               | 14,007  |                 |   | 14,155 
|Savings                                                                              |  |               | 13,515  |                 |   | 12,888 
|Time deposits over $100,000                                                          |  |               | 8,354   |                 |   | 8,219  
|Other time deposits                                                                  |  |               | 40,749  |                 |   | 43,148 
|                                                                                     |  |               |         |                 |   |        
|Total Deposits                                                                       |  |               | 99,512  |                 |   | 99,591 
|                                                                                     |  |              
|Accrued expenses and other liabilities                                               |  |               | 663     |                 |   | 740    
|Long term debt                                                                       |  |               | 11,262  |                 |   | 7,425  
|                                                                                     |  |               |         |                 |   |        
|Total Liabilities                                                                    |  |               | 111,437 |                 |   | 107,756
|                                                                                     |  |               |         |                 |   |        
|STOCKHOLDERS EQUITY                                                                 |  |               |         |                 |   |        
|Common stock; $.50 par value, authorized 5,000,000, outstanding 1,073,650            |  |               | 537     |                 |   | 537    
|Retained earnings                                                                    |  |               | 12,865  |                 |   | 12,464 
|Accumulated other comprehensive income, net                                          |  |               | 76      |                 |   | 164    
|                                                                                     |  |               |         |                 |   |        
|Total Stockholders Equity                                                           |  |               | 13,478  |                 |   | 13,165 
|                                                                                     |  |               |         |                 |   |        
|Total Liabilities and Stockholders Equity                                           |  | $             | 124,915 |                 | $ | 120,921
|                                                                                     |  |               |         |                 |   |        



See Notes to
Consolidated Financial Statements



4



---

##### Table of Contents

PIONEER BANKSHARES, INC

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

(In Thousands)

(UNAUDITED)



|                                                                                        |  |             |     |                  |   |        |                                     |  |   |       |   |  |   |        |  
|--------------------------------------------------------------------------------------- |  | ----------- | --- | ---------------- | - | ------ | ----------------------------------- |  | - | ----- | - |  | - | ------ | -
|                                                                                        |  | CommonStock |     | RetainedEarnings |   |        | AccumulatedOtherComprehensiveIncome |  |   | Total |  
|BALANCE DECEMBER 31, 2002                                                               |  | $           | 546 |                  | $ | 11,913 |                                     |  | $ | 216   |   |  | $ | 12,675 |  
|                                                                                        |  |             |     |                 
|Comprehensive Income                                                                    |  |             |     |                  |   |        |                                     |  |   |       |   |  |   |        |  
|Net Income                                                                              |  |             |     |                  |   | 324    |                                     |  |   |       |   |  |   | 324    |  
|Changes in unrealized gains on securities, net of taxes                                 |  |             |     |                  |   |        |                                     |  |   |       |   |  |   |        |  
|Unrealized holding gains arising during the period (net of tax effect $3)               |  |             |     |                  |   |        |                                     |  |   | 5     |   |  |   |        |  
|Reclassification adjustment for losses included in net income (net of tax effect of $1) |  |             |     |                  |   |        |                                     |  |   | 3     |   |  |   | 8      |  
|                                                                                        |  |             |     |                  |   |        |                                     |  |   |       |   |  |   |        |  
|Total Comprehensive Income                                                              |  |             |     |                  |   |        |                                     |  |   |       |   |  |   | 332    |  
|                                                                                        |  |             |     |                 
|Cash Dividends                                                                          |  |             |     |                  |   | (119   | )                                   |  |   |       |   |  |   | (119   | )
|Retirement of common stock                                                              |  |             |    |                  |   |       |                                     |  |   |      |   |  |   |       |  
|                                                                                        |  |             |     |                  |   |        |                                     |  |   |       |   |  |   |        |  
|BALANCE MARCH 31, 2003                                                                  |  |             | 546 |                  |   | 12,118 |                                     |  |   | 224   |   |  |   | 12,888 |  
|                                                                                        |  |             |     |                  |   |        |                                     |  |   |       |   |  |   |        |  
|BALANCE DECEMBER 31, 2003                                                               |  |             | 537 |                  |   | 12,464 |                                     |  |   | 164   |   |  |   | 13,165 |  
|                                                                                        |  |             |     |                 
|Comprehensive Income                                                                    |  |             |     |                  |   |        |                                     |  |   |       |   |  |   |        |  
|Net Income                                                                              |  |             |     |                  |   | 530    |                                     |  |   |       |   |  |   | 530    |  
|Changes in unrealized gains (losses) on securities, net of taxes                        |  |             |     |                  |   |        |                                     |  |   |       |   |  |   |        |  
|Unrealized holding gains arising during the period (net of tax effect of $39)           |  |             |     |                  |   |        |                                     |  |   | 76    |   |  |   |        |  
|Reclassification adjustment for gains included in net income (net of tax effect of $85) |  |             |     |                  |   |        |                                     |  |   | (164  | ) |  |   | (88    | )
|                                                                                        |  |             |     |                  |   |        |                                     |  |   |       |   |  |   |        |  
|Total Comprehensive Income                                                              |  |             |     |                  |   |        |                                     |  |   |       |   |  |   | 442    |  
|                                                                                        |  |             |     |                 
|Cash Dividends                                                                          |  |             |     |                  |   | (129   | )                                   |  |   |       |   |  |   | (129   | )
|Retirement of common stock                                                              |  |             |    |                  |   |       |                                     |  |   |      |   |  |   |       |  
|                                                                                        |  |             |     |                  |   |        |                                     |  |   |       |   |  |   |        |  
|BALANCE MARCH 31, 2004                                                                  |  | $           | 537 |                  | $ | 12,865 |                                     |  | $ | 76    |   |  | $ | 13,478 |  
|                                                                                        |  |             |     |                  |   |        |                                     |  |   |       |   |  |   |        |  



See Notes to
Consolidated Financial Statements



5



---

##### Table of Contents

PIONEER BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of Dollars)

(UNAUDITED)



|                                                                                  |  |                             |        |   |      |   |        |  
|--------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                  |  | Three Months EndedMarch 31, |       
|                                                                                  |  | 2004                        |        |   | 2003 |  
|Cash Flows from Operating Activities:                                             |  |                             |        |   |      |   |        |  
|Net income                                                                        |  | $                           | 530    |   |      | $ | 324    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                             |        |   |      |   |        |  
|Provision for loan losses                                                         |  |                             | (9     | ) |      |   | 317    |  
|Depreciation and amortization                                                     |  |                             | 135    |   |      |   | 124    |  
|Loss (gain) on sale of securities                                                 |  |                             | (249   | ) |      |   | 4      |  
|Income on insurance policies                                                      |  |                             |       |   |      |   | (12    | )
|Net change in:                                                                    |  |                             |        |   |      |   |        |  
|Accrued interest receivable                                                       |  |                             | 28     |   |      |   |       |  
|Other assets                                                                      |  |                             | 62     |   |      |   | 78     |  
|Accrued expense and other liabilities                                             |  |                             | (77    | ) |      |   | (81    | )
|                                                                                  |  |                             |        |   |      |   |        |  
|Net Cash Provided by Operating Activities                                         |  |                             | 420    |   |      |   | 754    |  
|                                                                                  |  |                             |        |   |      |   |        |  
|Cash Flows from Investing Activities:                                             |  |                             |        |   |      |   |        |  
|Net change in federal funds sold                                                  |  |                             | 1,250  |   |      |   | (350   | )
|Net change in interest bearing deposits                                           |  |                             | (2,900 | ) |      |   | (1,275 | )
|Net change in restricted securities                                               |  |                             | (90    | ) |      |   |       |  
|Proceeds from maturities and sales of securities available for sale               |  |                             | 7,274  |   |      |   | 9,069  |  
|Proceeds from maturities and calls of securities held to maturity                 |  |                             | 8      |   |      |   | 8      |  
|Purchase of securities available for sale                                         |  |                             | (6,211 | ) |      |   | (6,517 | )
|Net (increase) decrease in loans                                                  |  |                             | (2,539 | ) |      |   | 2,899  |  
|Purchase of bank premises and equipment                                           |  |                             | (64    | ) |      |   | (379   | )
|                                                                                  |  |                             |        |   |      |   |        |  
|Net Cash Provided by (Used in) Investing Activities                               |  |                             | (3,272 | ) |      |   | 3,455  |  
|                                                                                  |  |                             |        |   |      |   |        |  
|Cash Flows from Financing Activities:                                             |  |                             |        |   |      |   |        |  
|Net change in:                                                                    |  |                             |        |   |      |   |        |  
|Demand and savings deposits                                                       |  |                             | 2,185  |   |      |   | (136   | )
|Time deposits                                                                     |  |                             | (2,264 | ) |      |   | (6,425 | )
|Proceeds from borrowings                                                          |  |                             | 4,000  |   |      |   |       |  
|Proceeds from curtailments of borrowings                                          |  |                             | (163   | ) |      |   | (162   | )
|Dividends paid                                                                    |  |                             | (129   | ) |      |   | (119   | )
|                                                                                  |  |                             |        |   |      |   |        |  
|Net Cash (Used in) Provided by Financing Activities                               |  |                             | 3,629  |   |      |   | (6,842 | )
|                                                                                  |  |                             |        |   |      |   |        |  
|Cash and Cash Equivalents                                                         |  |                             |        |   |      |   |        |  
|Net (decrease) increase in cash and cash equivalents                              |  |                             | 777    |   |      |   | (2,633 | )
|Cash and Cash Equivalents, beginning of year                                      |  |                             | 7,579  |   |      |   | 7,680  |  
|                                                                                  |  |                             |        |   |      |   |        |  
|Cash and Cash Equivalents, End of Period                                          |  | $                           | 8,356  |   |      | $ | 5,047  |  
|                                                                                  |  |                             |        |   |      |   |        |  
|Supplemental Disclosure of Cash Paid During the Period for:                       |  |                             |        |   |      |   |        |  
|Interest                                                                          |  | $                           | 496    |   |      | $ | 734    |  
|Income taxes                                                                      |  | $                           | 2      |   |      | $ | 33     |  



See Notes to
Consolidated Financial Statements



6



---

##### Table of Contents

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, 2004 and the results of operations for the three- month periods and year to date periods ended March 31, 2004 and March 31, 2003. The notes included herein should be read in conjunction with the notes to financial statements included
in the 2003 annual report to stockholders of Pioneer Bankshares, Inc. and its form 10-KSB for the year ended December 31, 2003, as filed with the Securities and Exchange Commission.



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



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



|                                                                                                 |  |                |      |      |   |      |  
|------------------------------------------------------------------------------------------------ |  | -------------- | ---- | ---- | - | ---- | -
|                                                                                                 |  | March 31,      |     
|                                                                                                 |  | 2004           |      | 2003 |  
|                                                                                                 |  | (In Thousands) |     
|Net Income, as reported                                                                          |  | $              | 530  |      | $ | 324  |  
|Total stock-based compensation expenses determined under fair value based method for all rewards |  |                |     |      |   | (1   | )
|                                                                                                 |  |                |      |      |   |      |  
|Pro forma net income                                                                             |  | $              | 530  |      | $ | 323  |  
|                                                                                                 |  |                |      |      |   |      |  
|Basic earnings per share                                                                         |  |                |      |      |   |      |  
|As reported                                                                                      |  | $              | 0.49 |      | $ | 0.30 |  
|                                                                                                 |  |                |      |      |   |      |  
|Pro forma                                                                                        |  | $              | 0.49 |      | $ | 0.30 |  
|                                                                                                 |  |                |      |      |   |      |  
|Diluted earnings per share                                                                       |  |                |      |      |   |      |  
|As reported                                                                                      |  | $              | 0.49 |      | $ | 0.30 |  
|                                                                                                 |  |                |      |      |   |      |  
|Pro forma                                                                                        |  | $              | 0.49 |      | $ | 0.30 |  
|                                                                                                 |  |                |      |      |   |      |  



The fair value of each grant is
estimated at the grant date using the Black-Scholes option-pricing model. The estimates were calculated using the following weighted-average assumptions for grants in 2003: Dividend rate of 3.75%, price volatility of 17.58%, risk-free interest rate
of 3.34%, and expected lives of 10 years. No additional stock options have been granted for 2004, as of the date of this report.



7



---

##### Table of Contents

NOTE 2 INVESTMENT SECURITIES:



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



|                                     |  |                |        |                   |   |               |  |             |        |  |   |       
|------------------------------------ |  | -------------- | ------ | ----------------- | - | ------------- |  | ----------- | ------ |  | - | ------
|                                     |  | March 31, 2004 |        | December 31, 2003
|                                     |  | CarryingValue  |        | MarketValue       |   | CarryingValue |  | MarketValue
|Securities held to maturity:         |  |                |        |                   |   |               |  |             |        |  |   |       
|Mortgage-backed securities           |  | $              | 23     |                   | $ | 24            |  | $           | 31     |  | $ | 33    
|                                     |  |                |        |                   |   |               |  |             |        |  |   |       
|Total                                |  | $              | 23     |                   | $ | 24            |  | $           | 31     |  | $ | 33    
|                                     |  |                |        |                   |   |               |  |             |        |  |   |       
|Securities available for sale:       |  |                |        |                   |   |               |  |             |        |  |   |       
|U.S. Treasury and agency obligations |  | $              | 15,173 |                   | $ | 15,217        |  | $           | 14,836 |  | $ | 14,832
|Municipal securities                 |  |                | 214    |                   |   | 234           |  |             | 1,710  |  |   | 1,827 
|Equity securities                    |  |                | 1,889  |                   |   | 1,944         |  |             | 1,546  |  |   | 1,689 
|                                     |  |                |        |                   |   |               |  |             |        |  |   |       
|Total                                |  | $              | 17,276 |                   | $ | 17,395        |  | $           | 18,092 |  | $ | 18,348
|                                     |  |                |        |                   |   |               |  |             |        |  |   |       



NOTE 3 LOANS:



Loans outstanding are summarized as follows:



|                                 |  |               |        |   |                  |   |        |  
|-------------------------------- |  | ------------- | ------ | - | ---------------- | - | ------ | -
|                                 |  | March 31,2004 |        |   | December 31,2003 |  
|Mortgage loans on real estate    |  |               |        |   |                  |   |        |  
|Construction loans               |  | $             | 6,104  |   |                  | $ | 5,929  |  
|Agricultural                     |  |               | 4,917  |   |                  |   | 4,809  |  
|Equity lines of credit           |  |               | 1,855  |   |                  |   | 1,853  |  
|Residential 1-4 family           |  |               | 38,101 |   |                  |   | 37,930 |  
|Second Mortgages                 |  |               | 2,535  |   |                  |   | 2,726  |  
|Multifamily                      |  |               | 929    |   |                  |   | 517    |  
|Commercial                       |  |               | 13,522 |   |                  |   | 10,712 |  
|                                 |  |               |        |   |                  |   |        |  
|Total real estate loans          |  |               | 67,963 |   |                  |   | 64,476 |  
|                                 |  |              
|Commercial and industrial loans  |  |               | 3,849  |   |                  |   | 3,912  |  
|                                 |  |              
|Consumer installment loans       |  |               |        |   |                  |   |        |  
|Personal                         |  |               | 13,472 |   |                  |   | 14,416 |  
|Credit cards                     |  |               | 713    |   |                  |   | 803    |  
|                                 |  |               |        |   |                  |   |        |  
|Total consumer installment loans |  |               | 14,185 |   |                  |   | 15,219 |  
|                                 |  |              
|All other loans                  |  |               | 107    |   |                  |   | 142    |  
|                                 |  |               |        |   |                  |   |        |  
|Gross Loans                      |  |               | 86,104 |   |                  |   | 83,749 |  
|                                 |  |              
|Less unearned income on loans    |  |               | (1,419 | ) |                  |   | (1,535 | )
|                                 |  |               |        |   |                  |   |        |  
|Loans, less unearned discount    |  |               | 84,685 |   |                  |   | 82,214 |  
|                                 |  |              
|Less allowance for loan losses   |  |               | (1,356 | ) |                  |   | (1,433 | )
|                                 |  |               |        |   |                  |   |        |  
|Net Loans Receivable             |  | $             | 83,329 |   |                  | $ | 80,781 |  
|                                 |  |               |        |   |                  |   |        |  



8



---

##### Table of Contents

NOTE 4 ALLOWANCE FOR LOAN LOSSES:



A summary of transactions in the allowance for loan losses for the three months ended March 31, 2004 and 2003 follows:



|                                        |  |      |       |   |      |   |       |  
|--------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|                                        |  | 2004 |       |   | 2003 |  
|Balance, beginning of period            |  | $    | 1,433 |   |      | $ | 1,448 |  
|Provision charged to operating expenses |  |      | (9    | ) |      |   | 317   |  
|Recoveries of loans charged off         |  |      | 121   |   |      |   | 127   |  
|Loans charged off                       |  |      | (189  | ) |      |   | (311  | )
|                                        |  |      |       |   |      |   |       |  
|Balance, End of Period                  |  | $    | 1,356 |   |      | $ | 1,581 |  
|                                        |  |      |       |   |      |   |       |  



NOTE 5 EARNINGS PER SHARE



The following shows the weighted average number of shares as of March 31,
2004 and 2003, used in computing earnings per share and the effect on weighted average number of shares diluted potential common stock. Potential dilutive common stock had no effect on income available to common shareholders.



|                               |  |                 |  |                 |      |        |           |                 |   |     
|------------------------------ |  | --------------- |  | --------------- | ---- | ------ | --------- | --------------- | - | ----
|                               |  | March, 31, 2004 |  | March 31, 2003 
|                               |  | Shares          |  | Per ShareAmount |      | Shares |           | Per ShareAmount
|Basic earnings per share       |  | 1,073,650       |  | $               | 0.49 |        | 1,092,410 |                 | $ | 0.30
|                               |  |                 |  |                 |      |        |           |                 |   |     
|Effect of dilutive securities: |  |                 |  |                 |      |        |           |                 |   |     
|Stock Options                  |  | 987             |  |                 |      |        |          |                 |   |     
|                               |  |                 |  |                 |      |        |           |                 |   |     
|Diluted earnings per share     |  | 1,074,637       |  | $               | 0.49 |        | 1,092,410 |                 | $ | 0.30
|                               |  |                 |  |                 |      |        |           |                 |   |     



As of March 31, 2004, stock options
representing 700 shares were not included in computing diluted EPS because their effects were anti-dilutive.



9



---

##### Table of Contents

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



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



Forward-Looking Statements



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



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



Overview



In the first three months of 2004, net income including securities transactions was $530,000
($0.49 per share) compared with $324,000 ($0.30) for the first three months of 2003. This represents an increase of 63.58%. This increase in net income is attributed to significant gains on securities transactions and a reduction in necessary
funding of the allowance for loan losses.



Total assets for the Company as of
March 31, 2004 were 124,915,000 compared to $120,921,000 at year-end 2003. This is an increase of $3,994,000 or 3.30%. Total net loans have increased from $80,781,000 as of December 31, 2003 to $83,329,000 as of March 31, 2004. This represents an
increase of $2,548,000 or 3.15%. The majority of this increase in loans has been in the area of commercial real estate properties.



Total liabilities for the Company as of March 31, 2004 were $111,437,000 compared to $107,756,000 at year-end 2003. This is an increase of $3,681,000 or 3.42%. The
primary basis for this increase is related to additional long term borrowings from the Federal Home Loan Bank of Atlanta.



The Companys total capital position remains strong and exceeds regulatory guidelines. As of March 31, 2004, total capital was $13,478,000.



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



10



---

##### Table of Contents

Results of Operations



Net Interest Income



Total interest income decreased $252,000 or 11.53% in the first three months of 2004 compared to the first three months of 2003. Total
interest expense decreased $116,000 or 19.93% in the first three months of 2004 compared to the same period of 2003. These decreases in interest income and interest expense resulted in a total decrease in net interest income of $136,000 or 8.48% for
the period ending March 31, 2004 compared to the period ending March 31, 2003. The net interest margin decreased from 5.73% for the first three months of 2003 to 5.30% for the first three months of 2004. This was mainly due to a decline in market
interest rates in comparison to market rates one year ago. The average yield on earning assets has decreased from 7.79% as of March 31, 2003 to 6.97% as of March 31, 2004.



The average interest rate being paid on time deposits has decreased from 3.21% as of March 31, 2003 to 2.58% as of March 31, 2004. This
decrease is also attributed to the decline in market interest rates during the past year.



The Company plans to invest in additional securities and to expand its commercial loan and consumer real estate portfolios during the remainder of 2004. The Company will also continue to offer consumer installment
loans to its customer base.



Noninterest
Income



In the first three months of 2004, the net increase in
non-interest income was $197,000 when compared to the same period last year. Total gains on security transactions were $249,000 as of March 31, 2004, in comparison to a $4,000 loss as of March 31, 2003. Service charge income decreased by $14,000 and
other income decreased by $42,000. The decrease in service charge income is attributed to managements proactive approach to reducing overdrafts, which has affected the fee income generated from bounce protection on checking accounts. The
decrease in other income is mainly due to a reduced amount of activity from the investment subsidiary, Pioneer Financial Service, LLC. Management plans to implement a new profitability strategy for the investment subsidiary in the near future.



Noninterest Expense



For the three months of 2004, noninterest expense increased $71,000 (6.53%) in comparison to
the first three months of 2003. Salaries and benefits increased by $50,000 due to regular payroll adjustments and cost of living increases. Occupancy expenses increased $12,000 and equipment expense increased $29,000 primarily due to increased
depreciation on asset purchases for technology upgrades and the new Harrisonburg branch office. Additionally, other expenses decreased by $20,000 as a result of managements efforts to control spending.



Financial Condition



Securities



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



11



---

##### Table of Contents

As of March 31, 2004, the market value of all securities available for sale exceeded their amortized cost by $119,000
($76,000 after the consideration of income taxes). Management has traditionally held debt securities until maturity and thus it does not expect the minor fluctuation in the value of these securities to have a direct impact on earnings.



Investments in securities, including those which were restricted, decreased by 4.60% in
the first three months of 2004. The Company generally invests in securities with a relatively short-term maturity due to uncertainty in the direction of interest rates. Of the investments in securities available for sale, 11.17% (based on market
value) are invested in equities, some of which are dividend producing and subject to the corporate dividend exclusion for taxation purposes. The Company believes these investments offer adequate returns and/or have the potential for increases in
value.



Loan Portfolio



The Company operates in a service area in the western portion of Virginia, which includes
the counties of Page, Greene, Rockingham and the City of Harrisonburg. 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 residential real estate loans and consumer auto loans. A significant percentage of residential real estate loans and consumer installment loans are made to borrowers employed by businesses outside the service
area.



In the first three months of 2004, the loan portfolio increased
$2,471,000 or 3.01%, as a result of a managements proactive efforts to add volume in the commercial and residential real estate sectors of the lending portfolio. The Company has taken measures to reduce the risk exposure related to consumer
and automobile financing during the past two years and continues to monitor its progress in this area. A schedule of loans by type is shown in a note to the consolidated financial statements included in this report.



The risk elements in lending activities include non-accrual loans, loans 90 days or more past
due and restructured loans. Non-accrual loans are loans on which interest accruals have been suspended or discontinued permanently. Restructured loans are loans on which the original interest rate or repayment terms have changed due to financial
hardship. Non-accrual loans and loans 90 days or more past due totaled $231,000 at March 31, 2004 compared to $743,000 at March 31, 2003. This decrease is attributed to managements proactive collection efforts. Although the potential exists
for additional losses, management believes the bank is generally well secured and continues to actively work with these customers to effect payment.



Problem loans (serious doubt loans) are loans whereby information known by management indicates that the borrower may not be able to comply with present payment terms.
Management was not aware of any problem loans at March 31, 2004 that are not included in the past due or non-accrual loans referred to above.



12



---

##### Table of Contents

Allowance for Loan Losses



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



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



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



The allowance for loan losses of $1,356,000 at March 31, 2004 decreased $77,000 from its level at December 31, 2003. This decrease is a
direct result of managements concentrated collection efforts, which has reduced past due loan balances and charge off totals. This decrease is also partly attributed to the tightening of lending criteria during the past two years specifically
in the area of consumer lending related to auto financing. The allowance was equal to 1.60% and 1.74% of total loans at March 31, 2004 and December 31, 2003, respectively.



Premises and Equipment



The Company is presently in the planning stages for renovations to the Jenkins building, which is located next to the main office in Stanley, Virginia. The Company plans
to convert the upper floor of this building to a new data processing and bookkeeping area. The cost of these renovations are estimated to be approximately $1,000,000. The Company also has outstanding contracts with its core software vendor for the
implementation of document imaging, which may require the purchase of additional equipment. The estimated cost of the new document imaging software and related equipment expenditures are not expected to exceed $200,000.



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 remained relatively stable historically. Total deposits decreased by $79,000
or 0.08% during the first three months of 2004. This decrease was mainly in the area of certificates of deposits and is a result of the Companys proactive funds management practices in order to reduce interest expense.



13



---

##### Table of Contents

Long Term Debt



The Companys subsidiary has a line of credit with the Federal Home Loan Bank (FHLB) of Atlanta upon which credit advances can be made up to 40% of total assets. As
of March 31, 2004, total borrowings were $11,262,000 compared to $7,425,000 at December 31, 2003. This represents an increase of $3,837,000 or 51.68%. The additional borrowings have been matched with loan maturities over the next five years and are
being used to fund large dollar commercial and real estate loans. Managements decision to fund certain loans through low interest borrowings provides adequate interest income margins and enables the bank to maintain a profitable interest
spread on these funds.



Capital



The Company maintains a strong capital base to expand facilities, promote public confidence,
support operations and grow at a manageable level. As of March 31, 2004 and December 31, 2003, the Companys total capital-to-total asset ratios were 10.79% and 10.89%, respectively. The capital ratios exceed regulatory minimums. Earnings have
been sufficient to allow for dividends to be declared on a quarterly basis and management has no reason to believe this payment schedule will not continue.



Liquidity



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



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



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



Liquidity as of
March 31, 2004 remains adequate and within policy guidelines.



Interest
Rate Sensitivity



The Company historically has had a stable core
deposit base and, therefore, does not have to rely on volatile funding sources. Because of the stable core deposit base, changes in interest rates should not have a significant effect on liquidity. The Company also uses loan repayments and maturing
investments to meet its liquidity needs. The Banks membership in the Federal Home Loan Bank System provides 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, 2004.



14



---

##### Table of Contents

As of March 31, 2004, the Company had a cumulative Gap Rate Sensitivity Ratio of (25.08%) for the one year repricing
period, compared with (33.35%) at December 31, 2003. This negative gap position generally indicates that earnings would improve in a declining interest rate environment as liabilities reprice more quickly than assets. Conversely, earnings would
probably decrease in periods during which interest rates are increasing. However, in actual practice, this may not be the case as deposits may not reprice concurrently with changes in rates within the general economy. Management constantly monitors
the Companys interest rate risk and has decided the current position is acceptable for a well-capitalized community bank operating in a rural environment.



Effect of Proposed Accounting Standards



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



Securities and Exchange Commission Web Site



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



15



---

##### Table of Contents

TABLE I



PIONEER BANKSHARES, INC.

NET
INTEREST MARGIN ANALYSIS

(On a Fully Tax Equivalent Basis)

(Dollar Amounts in Thousands)



|                                   |  |                                   |         |                |                                   |       |  |       |                |  |                |         |       |   |       |  |       |  
|---------------------------------- |  | --------------------------------- | ------- | -------------- | --------------------------------- | ----- |  | ----- | -------------- |  | -------------- | ------- | ----- | - | ----- |  | ----- | -
|                                   |  | Three Months Ended March 31, 2004 |         |                | Three Months Ended March 31, 2003 |      
|                                   |  | AverageBalance                    |         | Income/Expense |                                   | Rates |  |       | AverageBalance |  | Income/Expense |         | Rates |  
|Interest Income Loans3             |  |                                   |         |                |                                   |       |  |       |                |  |                |         |       |   |       |  |       |  
|Commercial                         |  | $                                 | 2,846   |                | $                                 | 54    |  | 7.59  | %              |  | $              | 2,928   |       | $ | 62    |  | 8.47  | %
|Real estate                        |  |                                   | 66,334  |                |                                   | 1,196 |  | 7.21  | %              |  |                | 64,138  |       |   | 1,217 |  | 7.59  | %
|Installment                        |  |                                   | 12,956  |                |                                   | 468   |  | 14.45 | %              |  |                | 18,185  |       |   | 683   |  | 15.02 | %
|Credit card                        |  |                                   | 764     |                |                                   | 40    |  | 20.94 | %              |  |                | 851     |       |   | 44    |  | 20.68 | %
|                                   |  |                                   |         |                |                                   |       |  |       |                |  |                |         |       |   |       |  |       |  
|Total Loans                        |  |                                   | 82,900  |                |                                   | 1,758 |  | 8.48  | %              |  |                | 86,102  |       |   | 2,006 |  | 9.32  | %
|                                   |  |                                   |         |                |                                   |      
|Federal funds sold                 |  |                                   | 2,808   |                |                                   | 6     |  | 0.85  | %              |  |                | 8,486   |       |   | 24    |  | 1.13  | %
|Interest Bearing Deposits          |  |                                   | 7,735   |                |                                   | 50    |  | 2.59  | %              |  |                | 5,218   |       |   | 27    |  | 2.07  | %
|Securities                         |  |                                   |         |                |                                   |       |  |       |                |  |                |         |       |   |       |  |       |  
|Taxable2                           |  |                                   | 14,658  |                |                                   | 96    |  | 2.62  | %              |  |                | 9,277   |       |   | 90    |  | 3.88  | %
|Nontaxable1                        |  |                                   | 3,490   |                |                                   | 34    |  | 3.90  | %              |  |                | 3,913   |       |   | 55    |  | 5.62  | %
|                                   |  |                                   |         |                |                                   |       |  |       |                |  |                |         |       |   |       |  |       |  
|Total earning assets               |  |                                   | 111,591 |                |                                   | 1,944 |  | 6.97  | %              |  |                | 112,996 |       |   | 2,202 |  | 7.79  | %
|                                   |  |                                   |         |                |                                   |       |  |       |                |  |                |         |       |   |       |  |       |  
|Interest Expense                   |  |                                   |         |                |                                   |       |  |       |                |  |                |         |       |   |       |  |       |  
|Demand deposits                    |  |                                   | 13,931  |                |                                   | 13    |  | 0.37  | %              |  |                | 13,027  |       |   | 19    |  | 0.58  | %
|Savings                            |  |                                   | 13,093  |                |                                   | 16    |  | 0.49  | %              |  |                | 12,882  |       |   | 27    |  | 0.84  | %
|Time deposits                      |  |                                   | 50,514  |                |                                   | 326   |  | 2.58  | %              |  |                | 57,538  |       |   | 462   |  | 3.21  | %
|Borrowings                         |  |                                   | 10,145  |                |                                   | 111   |  | 4.38  | %              |  |                | 5,053   |       |   | 74    |  | 5.86  | %
|                                   |  |                                   |         |                |                                   |       |  |       |                |  |                |         |       |   |       |  |       |  
|Total Interest Bearing Liabilities |  | $                                 | 87,683  |                | $                                 | 466   |  | 2.13  | %              |  | $              | 88,500  |       | $ | 582   |  | 2.63  | %
|                                   |  |                                   |         |                |                                   |       |  |       |                |  |                |         |       |   |       |  |       |  
|Net Interest Income1               |  |                                   |         |                | $                                 | 1,478 |  |       |                |  |                |         |       | $ | 1,620 |  |       |  
|                                   |  |                                   |         |                |                                   |       |  |       |                |  |                |         |       |   |       |  |       |  
|Net Interest Margin                |  |                                   |         |                |                                   |       |  | 5.30  | %              |  |                |         |       |   |       |  | 5.73  | %
|                                   |  |                                   |         |                |                                   |       |  |       |                |  |                |         |       |   |       |  |       |  

---

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

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

|3 | Average balances include non-accruing loans
|- | -------------------------------------------



16



---

##### Table of Contents

TABLE II



PIONEER BANKSHARES, INC.

INTEREST
SENSITIVITY ANALYSIS

MARCH 31, 2004

(Dollar Amounts in Thousands)



|                                                 |  |           |         |   |            |   |         |          |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|------------------------------------------------ |  | --------- | ------- | - | ---------- | - | ------- | -------- |  | - | ----------- | - |  | ------------- | ------ | - | ----- | - | ------ | - |  | - | -------
|                                                 |  | 0-3Months |         |   | 4-12Months |   |         | 1-5Years |  |   | Over 5Years |   |  | NotClassified |        |   | Total
|Uses of Funds:                                   |  |           |         |   |            |   |         |          |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|                                                 |  |           |         |   |            |  
|Loans                                            |  | $         | 7,450   |   |            | $ | 9,093   |          |  | $ | 48,612      |   |  | $             | 19,530 |   |       | $ |       |   |  | $ | 84,685 
|Interest bearing bank deposits                   |  |           | 3,912   |   |            |   | 2,700   |          |  |   | 1,500       |   |  |               |       |   |       |   |       |   |  |   | 8,112  
|Investment securities                            |  |           | 5,000   |   |            |   |        |          |  |   | 10,240      |   |  |               | 235    |   |       |   | 1,943  |   |  |   | 17,418 
|Restricted stock                                 |  |           |        |   |            |   |        |          |  |   |            |   |  |               |       |   |       |   | 647    |   |  |   | 647    
|Federal funds sold                               |  |           | 1,250   |   |            |   |        |          |  |   |            |   |  |               |       |   |       |   |       |   |  |   | 1,250  
|                                                 |  |           |         |   |            |   |         |          |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|Total                                            |  |           | 17,612  |   |            |   | 11,793  |          |  |   | 60,352      |   |  |               | 19,765 |   |       |   | 2,590  |   |  |   | 112,112
|                                                 |  |           |         |   |            |   |         |          |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|Sources of Funds:                                |  |           |         |   |            |   |         |          |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|                                                 |  |           |         |   |            |  
|Interest bearing demand deposits                 |  |           | 14,007  |   |            |   |        |          |  |   |            |   |  |               |       |   |       |   |       |   |  |   | 14,007 
|Regular savings                                  |  |           | 13,515  |   |            |   |        |          |  |   |            |   |  |               |       |   |       |   |       |   |  |   | 13,515 
|Certificates of deposit $100,000 and over        |  |           | 8,242   |   |            |   | 14,787  |          |  |   | 17,720      |   |  |               |       |   |       |   |       |   |  |   | 40,749 
|Other certificates of deposit                    |  |           | 878     |   |            |   | 3,916   |          |  |   | 3,560       |   |  |               |       |   |       |   |       |   |  |   | 8,354  
|Borrowings                                       |  |           | 162     |   |            |   | 1,888   |          |  |   | 8,200       |   |  |               | 1,012  |   |       |   |       |   |  |   | 11,262 
|                                                 |  |           |         |   |            |   |         |          |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|Total                                            |  |           | 36,804  |   |            |   | 20,591  |          |  |   | 29,480      |   |  |               | 1,012  |   |       |   |       |   |  |   | 87,887 
|                                                 |  |           |         |   |            |  
|Discrete Gap                                     |  |           | (19,192 | ) |            |   | (8,798  | )        |  |   | 30,872      |   |  |               | 18,753 |   |       |   | 2,590  |   |  |   | 24,225 
|                                                 |  |           |         |   |            |  
|Cumulative Gap                                   |  |           | (19,192 | ) |            |   | (27,990 | )        |  |   | 2,882       |   |  |               | 21,635 |   |       |   | 24,225 |   |  |   |        
|                                                 |  |           |         |   |            |  
|Ratio of Cumulative                              |  |           |         |   |            |   |         |          |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|Gap To Total Earning Assets at March 31, 2004    |  |           | -17.20  | % |            |   | -25.08  | %        |  |   | 2.58        | % |  |               | 19.39  | % |       |   | 21.71  | % |  |   |        
|                                                 |  |           |         |   |            |   |         |          |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|Ratio of Cumulative                              |  |           |         |   |            |   |         |          |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        
|Gap To Total Earning Assets at December 31, 2003 |  |           | -28.45  | % |            |   | -33.35  | %        |  |   | 3.54        | % |  |               | 19.19  | % |       |   | 20.75  | % |  |   |        
|                                                 |  |           |         |   |            |   |         |          |  |   |             |   |  |               |        |   |       |   |        |   |  |   |        



17



---

##### Table of Contents

Item 3. Controls and Procedures



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



We have established disclosure controls and procedures to ensure that material information related to Pioneer Bankshares, Inc. is made known to our principal executive
officers and principal financial officer on a regular basis, in particular during the periods in which our quarterly and annual reports are being prepared. As required, we evaluate the effectiveness of these disclosure controls and procedures on a
quarterly basis, and have done so as of the end of the period covered by this report. Based on this evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and
procedures are adequate and effective. There were no changes in the Companys internal control over financial reporting during the three months ended March 31, 2004, that has materially affected, or is reasonably likely to materially affect,
the Companys internal control over financial reporting.



Changes in
Internal Controls



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



Part II - Other Information



|        |  |                                                                                  |  |               
|------- |  | -------------------------------------------------------------------------------- |  | --------------
|Item 1. |  | Legal Proceedings -                                                              |  | Not Applicable
|        |  |                                                                                 
|Item 2. |  | Changes in Securities and Small Business Issuers Purchases of Equity Securities |  | Not Applicable
|        |  |                                                                                 
|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



18



---

##### Table of Contents

Item 6. Exhibits and Reports on 8-K



| | (a) | Exhibits
| | --- | --------



|     |  |                                                                                                                                                                                                 
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Articles of Incorporation of Pioneer Bankshares, Inc. (incorporated by reference to Exhibit 3.1 of Pioneer Bankshares, Inc.s Form 10-SB filed May 2, 2000).                                    
|     | 
|3.2  |  | Bylaws, as amended, of Pioneer Bankshares, Inc. (filed herewith).                                                                                                                               
|     | 
|10   |  | Pioneer Bankshares, Inc. (Formerly Page Bankshares, Inc.), 1998 Stock Incentive Plan (incorporated by reference to Exhibit 10 of Pioneer Bankshares, Inc.s Form 10-QSB filed August 12,
2002). 
|     | 
|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).



| | (b) | Reports on Form 8-K
| | --- | -------------------



The Company did not file any reports on Form 8-K for the quarter ending March 31, 2004.



19



---

##### Table of Contents

SIGNATURES



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



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




Date: May 12, 2004



20