UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549


                                   FORM 10-QSB



                  Quarterly Report Under Section 13 or 15(d)
                    of the Securities Exchange Act of 1934


 For Quarter Ended                           Commission File Number: 0-30541
                                                                     -------
September 30, 2001


                            Pioneer Bankshares, Inc.

Virginia                                                      54-1278721
--------------------------                              ---------------------
(State or Other Jurisdiction of                            (I.R.S. Employer
Incorporation or Organization)                            Identification No.)


                              263 East Main Street
                                 P. O. Box 10
                             Stanley, Virginia 22851

                                (540) 778-2294
                          -------------------------
             (Registrant's Telephone Number, Including Area Code)


Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 requirement 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 September 30, 2001
-------------------------                   ---------------------------------
Common Stock, par value - $.50                         1,111,109 shares

Transitional Small Business Disclosure Format (check one):  Yes        No  X
                                                               -----      ----


<PAGE> 1

                            PIONEER BANKSHARES, INC.

                                      INDEX

                                                                      Page

PART I     FINANCIAL INFORMATION                                        2

Item 1.    Financial Statements

           Consolidated Statements of Income - Three Months
           Ended September 30, 2001 and 2000                            2

           Consolidated Statements of Income - Nine Months
           Ended September 30, 2001 and 2000                            3

           Consolidated Balance Sheets - September 30, 2001 and
           December 31, 2000                                            4

           Consolidated Statements of Changes in Stockholders'
           Equity - Nine Months Ended September 30, 2001 and 2000       5

           Consolidated Statements of Cash Flows - Nine Months
           Ended September 30, 2001 and 2000                            6

           Notes to Consolidated Financial Statements                   7

Item 2.    Management's Discussion and Analysis of
           Financial Condition and Results of Operations                9


PART II    OTHER INFORMATION                                           16

Item 1.    Legal Proceedings                                           16

Item 2.    Changes in Securities                                       16

Item 3.    Defaults upon Senior Securities                             16

Item 4.    Submission of Matters to a Vote of Security Holders         16

Item 5.    Other Information                                           16

Item 6.    Exhibit and Reports on Form 8K                              16


           SIGNATURES                                                  17

<PAGE> 2


Part I  Financial Information
Item 1  Financial Statements

                            PIONEER BANKSHARES, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                            (In Thousands of Dollars)
                                                         Three Months Ended
                                                            September 30,
                                                          2001        2000
Interest and Dividend Income:
   Loans, including fees                              $   2,205   $   1,837
   Debt securities - taxable                                111         200
   Debt securities - nontaxable                              28          33
   Deposits and federal funds sold                           72          17
   Equity securities                                         40           3
                                                       --------    --------

Total Interest and Dividend Income                        2,456       2,090
                                                       --------    --------

Interest Expense:
   Deposits                                                 863         771
   Borrowings                                               132          32
                                                       --------    --------

Total Interest Expense                                      995         803
                                                       --------    --------

Net Interest Income                                       1,461       1,287
Provision for loan losses                                   229          15
                                                       --------    --------

Net interest income after provision
   for loan losses                                        1,232       1,272
                                                       --------    --------

Noninterest Income:
   Service charges on deposit accounts                      158         137
   Other income                                              56          41
   Gain (loss) on security transactions                     (48)         38
                                                       --------    --------

Total Noninterest Income                                    166         216
                                                       --------    --------

Noninterest Expense:
   Salaries and benefits                                    527         448
   Occupancy expenses                                        74          54
   Equipment expenses                                       136         101
   Other expenses                                           399         382
                                                       --------    --------

Total Noninterest Expenses                                1,136         985
                                                       --------    --------

Income before Income Taxes                                  262         503
Income Tax Expense                                           81         157
                                                       --------    --------

Net Income                                           $      181  $      346
                                                       ========    ========

Per Share Information
   Net income                                        $     0.16  $     0.31
                                                       =========   =========
   Dividends                                         $     0.10  $     0.10
                                                      =========   =========

Weighted Average Shares Outstanding                   1,114,044   1,117,559
                                                      =========   =========


<PAGE> 3

                            PIONEER BANKSHARES, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                            (In Thousands of Dollars)


                                                          Nine Months Ended
                                                            September 30,
                                                          2001        2000
Interest and Dividend Income:
   Loans, including fees                              $   6,464   $   5,339
   Debt securities - taxable                                398         598
   Debt securities - nontaxable                              89         103
   Deposits and federal funds sold                          186          96
   Equity securities                                         45          22
                                                       --------    --------

Total Interest and Dividend Income                        7,182       6,158
                                                       --------    --------

Interest Expense:
   Deposits                                               2,550       2,260
   Borrowings                                               256         135
                                                       --------    --------

   Total Interest Expense                                 2,806       2,395
                                                       --------    --------

Net Interest Income                                       4,376       3,763
Provision for loan losses                                   506          45
                                                       --------    --------

Net interest income after provision
   for loan losses                                        3,870       3,718
                                                       --------    --------

Noninterest Income:
   Service charges on deposit accounts                      463         403
   Other income                                             168         309
   Gain on security transactions                            294         374
                                                       --------    --------

   Total Noninterest Income                                 925       1,086
                                                       --------    --------

Noninterest Expense:
   Salaries and benefits                                  1,550       1,316
   Occupancy expenses                                       209         165
   Equipment expenses                                       360         302
   Other expenses                                         1,181       1,140
                                                       --------    --------

   Total Noninterest Expenses                             3,300       2,923
                                                       --------    --------

Income before Income Taxes                                1,495       1,881
Income Tax Expense                                          496         616
                                                       --------    --------

   Net Income                                        $      999  $    1,265
                                                       ========    ========

Per Share Information
   Net income                                        $     0.90  $     1.13
                                                      =========   =========
   Dividends                                         $     0.30  $     0.50
                                                      =========   =========

   Weighted Average Shares Outstanding                1,115,415   1,117,559
                                                      =========   =========

<PAGE> 4

                            PIONEER BANKSHARES, INC.
                           CONSOLIDATED BALANCE SHEETS
                            (In Thousands of Dollars)

                                                     September 30,  December 31,
                                                         2001          2000
ASSETS

Cash and due from banks                               $   8,442   $   4,643
Federal funds sold                                        6,470         110
Interest bearing deposits in banks                        4,476          47
Investment securities
   Held to maturity                                         951       1,984
   Available for sale                                     7,796      11,277
Loans receivable, net of allowance for loan
   losses of $1,074 and $992, respectively               84,134      76,942
Premises and equipment                                    3,318       2,810
Other assets                                              2,567       2,386
Goodwill                                                    378         399
                                                       --------    --------

   Total assets                                       $ 118,532   $ 100,598
                                                       ========    ========

LIABILITIES

Deposits
   Noninterest bearing demand                         $  21,222   $  13,778
   Interest bearing
      Demand                                             10,385       9,879
      Savings                                            10,604       9,275
      Time deposits over $100,000                         8,180       6,997
      Other time deposits                                48,506      43,886
                                                       --------    --------

   Total Deposits                                        98,897      83,815

Accrued expenses and other liabilities                    1,624       1,593
Borrowings                                                5,888       3,437
                                                       --------    --------

   Total Liabilities                                    106,409      88,845
                                                       --------    --------

STOCKHOLDERS' EQUITY

Common stock; $.50 par value, shares
   outstanding of 1,111,109 and 1,116,112
   for the current period and prior year,
   respectively                                             555         558
Retained earnings                                        11,515      10,903
Accumulated other comprehensive income                       53         292
                                                       --------    --------

   Total Stockholders' Equity                            12,123      11,753
                                                       --------    --------

   Total Liabilities and Stockholders' Equity         $ 118,532   $ 100,598
                                                       ========    ========


<PAGE> 5

                            PIONEER BANKSHARES, INC.
          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                            (In Thousands of Dollars)


                                                        Nine Months Ended
                                                          September 30,
                                                        2001         2000

Balance, beginning of period                          $  11,753   $  10,830
                                                       ========    ========

Comprehensive Income:

   Net income for period                              $     999   $   1,265
   Net change in unrealized gains
      on securities available for sale,
      net of income taxes                                  (239)         39
                                                       --------    --------

   Total Comprehensive Income                               760       1,304

Dividends declared                                         (334)       (560)
Retirement of common stock                                  (56)        (94)
                                                       --------    --------

Balance, end of period                                $  12,123   $  11,480
                                                       ========    ========


<PAGE> 6

                            PIONEER BANKSHARES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In Thousands of Dollars)
                                                         Nine Months Ended
                                                           September 30,
                                                         2001         2000
Cash Flows from Operating Activities:
   Net income                                         $     999   $   1,265
   Adjustments to reconcile net income to net
      cash provided by operating activities:
   Provision for loan losses                                506          45
   Depreciation                                             229         213
   Net accretion/amortization of securities                  19          33
   Gain on sale of securities                              (294)       (374)
   Net change in:
      Accrued income                                          5        (154)
      Other assets                                         (117)       (266)
      Accrued expense and other liabilities                  78         217
                                                       --------    --------

   Net Cash Provided by Operating Activities              1,425         979
                                                       --------    --------

Cash Flows from Investing Activities:
   Net change in federal funds sold                      (6,360)      1,975
   Net change in interest bearing deposits
      in banks                                           (4,429)      4,468
   Proceeds from maturities and sales
      of securities available for sale                    6,323       2,650
   Proceeds from maturities and calls
      of securities held to maturity                      1,037         394
   Purchase of securities available for sale             (2,968)     (2,527)
   Net increase in loans                                 (7,698)     (4,352)
   Purchase of bank premises and equipment                 (758)        (84)
   Investment in life insurance policies                    (27)        (27)
                                                       --------    --------

   Net Cash Provided by (Used in) Investing
      Activities                                        (14,880)      2,497
                                                       --------    --------

Cash Flows from Financing Activities:
   Net change in:
      Demand and savings deposits                         9,279       1,158
      Time deposits                                       5,803        (327)
      Proceeds from borrowings                            4,500       2,700
      Curtailments of borrowings                         (2,049)     (7,250)
      Purchase and subsequent retirement of
         common stock                                       (56)        (94)
      Dividends paid                                       (223)       (618)
                                                       --------    --------

   Net Cash Provided by (Used in) Financing
      Activities                                         17,254      (4,431)
                                                       --------    --------

Cash and Cash Equivalents
   Net change in cash and cash equivalents                3,799        (955)
   Cash and Cash Equivalents, beginning of period         4,643       5,199
                                                       --------    --------

   Cash and Cash Equivalents, End of Period           $   8,442   $   4,244
                                                       ========    ========


Supplemental Disclosure of Cash Paid During
  the Year for:
   Interest                                           $   2,733   $   2,144
   Income taxes                                       $     605   $     384


<PAGE> 7

                            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
         September 30, 2001 and the results of operations for the three month
         periods and year to date periods ended September 30, 2001 and September
         30, 2000. The notes included herein should be read in conjunction with
         the notes to financial statements included in the 2000 annual report to
         stockholders of Pioneer Bankshares, Inc.


NOTE 2   INVESTMENT SECURITIES:

         The amounts at which investment securities are carried in the
         consolidated balance sheets and their approximate market values at
         September 30, 2001 and December 31, 2000 follows:

                                           2001                  2000
                                   Carrying    Market     Carrying   Market
                                     Value      Value       Value     Value
                                                 (In Thousands)
Securities held to maturity:
   U.S. Treasury and agency
      obligations                  $   250   $    252    $    752   $   754
   State and municipal
      securities                       522        524         956       973
   Mortgage-backed securities          179        185         276       278
                                    ------    -------     -------    ------

   Total                           $   951   $    961    $  1,984   $ 2,005
                                    ======    =======     =======    ======

Securities available for sale:
   U.S. Treasury and agency
      obligations                  $ 5,143   $  5,250    $  8,311   $ 8,297
   Municipal securities              1,816      1,835       1,655     1,623
   Equity securities                   760        711         838     1,357
                                    ------    -------     -------    ------

     Total                         $ 7,719   $  7,796    $ 10,804   $11,277
                                    ======    =======     =======    ======


<PAGE> 8

                            PIONEER BANKSHARES, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 3   LOANS:

         Loans outstanding are summarized as follows:

                                                    September 30,   December 31,
                                                        2001           2000
                                                          (In Thousands)

Real estate loans                                     $ 57,966    $ 55,316
Commercial and industrial loans                          4,918       4,437
Loans to individuals, primarily
   collateralized by autos                              24,495      19,361
All other loans                                          1,014       1,143
                                                       -------     -------

   Total Loans                                          88,393      80,257

Less unearned discount                                  (3,185)     (2,323)
                                                       -------     -------

Loans, less unearned discount                           85,208      77,934

Less allowance for loan losses                          (1,074)       (992)
                                                       -------     -------

   Net Loans Receivable                               $ 84,134    $ 76,942
                                                       =======     =======


NOTE 4   ALLOWANCE FOR LOAN LOSSES:

         A summary of transactions in the allowance for loan losses for the nine
months ended September 30, 2001 and 2000 follows:

                                                        2001        2000
                                                          (In Thousands)

Balance, beginning of period                          $    992    $    779
Provision charged to operating expenses                    506          45
Recoveries of loans charged off                            181          71
Loans charged off                                          605         266
                                                       -------     -------

Balance, End of Period                                $  1,074    $    629
                                                       =======     =======


<PAGE> 9


Item 2   Management's Discussion and Analysis of Financial
         Condition and Results of Operations


Overview

In the first nine months of 2001,  net income including securities
transactions decreased $266,000 (21.03%) when compared with the first nine
months of 2000. This resulted in a decrease in earnings per share of $.23 per
share. Significant changes in the balance sheet included growth in consumer
loans and increased borrowings from the Federal Home Loan Bank.

Results of Operations

The dollar amount of the tax equivalent net interest margin increased $590,000
or 15.34% in the first nine months of 2001 compared to the first nine months of
2000. The increase in net interest income is primarily attributable to an
increase in installment loan volume and an increase in the yield on installment
loans of 2%. During the later part of 2000, the Bank purchased Valley Finance
Service (a small loan company) that charges higher rates due to the higher risk
in their loans.

Total interest expense amounted to $2,806,000 in the first nine months of 2001
compared to $2,395,000 in the first nine months of 2000. Interest expense on
time deposits increased in 2001 due to an increase in deposit volume. The rate
paid on borrowings increased in 2001 due to bonds outstanding at the
Company's small loan subsidiary. These bonds were repaid in June 2001.
Additionally, the Bank increased its borrowings at the Federal Home Loan Bank in
the second quarter of 2001. A detailed Net Interest Margin Analysis is presented
as Table I, showing average balances and rates.

The provision for loan losses increased $461,000 in the first nine months of
2001 compared to the first nine months of 2000. Of the current provision,
$161,000 related to Valley Finance Service. Due to the nature of a finance
company, there is higher risk associated with the loan portfolio and a larger
provision for losses is necessary. The additional increase of $300,000 was
necessary to cover recent charge-offs at the Bank and maintain an adequate
allowance for loan losses on a larger loan portfolio.

In the nine month periods, recurring noninterest income exclusive of security
gains, increased 18.83% from $531,000 in 2000 to $631,000 in 2001. The above
represented .78 % of average assets for 2001 compared with .73% for 2000.
Realized gains on security transactions decreased from $374,000 in 2000 to
$294,000 in 2001.

Total noninterest income decreased due to $181,000 of non-recurring income in
2000 from the following unusual items: an adjustment of $58,000 relating to the
bank's deferred compensation liabilities and the cash value of insurance
policies held to provide funds to meet these liabilities, an expense
reimbursement of $103,000 from the company's former president and an adjustment
to eliminate an unused accrual for Y2K expenses in the amount of $20,000.

Noninterest expense increased $377,000 (12.90%). Increases in salaries and
benefits accounted for $234,000 of this total. This increase resulted from the
addition of new employees to staff Valley Finance Service and the Bank's new
branch office. Occupancy and equipment expense increased due to
increased repairs and maintenance and depreciation of the new Stanardsville
branch and new computer equipment. Noninterest expense increased from 3.99% of
average assets to 4.08%.


<PAGE> 10


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
September 30, 2001, the market value of all securities available for sale was
above their amortized cost by $77,000 ($51,000 after the consideration of income
taxes). This is mainly the result of an increase in the value of the bond
portfolio held by the subsidiary bank. Management has traditionally held debt
securities (regardless of classification) 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 decreased 34.04% in the first nine months of 2001 due
to the call of several bonds and the sale of equity securities. 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, 9.12% (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 significant increases in value.
Due to the uncertainty in the stock market, the Company substantially reduced
its investment in equity securities and generated realized net gains of
$294,000.

Loan Portfolio

The Company operates in an agriculturally dominated area which includes the
counties of Page, Greene, and Rockingham and the City of Harrisonburg in the
western portion of Virginia. The new branch in Stanardsville will extend the
Company's market area to include Greene County. The Company does not make a
significant number of loans to borrowers outside its primary service area. The
Company is very active in local residential construction mortgages. Commercial
lending includes loans to small and medium sized business 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
notes 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 some concentration in residential real estate loans. A significant
percentage of residential real estate loans and consumer installment loans
are made to borrowers employed in the agricultural sector of the economy or
employed by businesses outside our service area.


<PAGE> 11


Loan Portfolio (Continued)

The first nine months of 2001 resulted in a $7,274,000 increase in the loan
portfolio. Loan demand has continued to be good during 2001, however, several
large commercial and real estate loans were paid off at the end of the first
quarter. The information detailing loans is shown in a note to the
consolidated financial statement.

The risk elements in lending activities include nonaccrual loans, loans 90 days
or more past due and restructured loans. Nonaccrual loans are loans on which
interest accruals have been suspended or discontinued permanently. Restructured
loans are loans, which have changed the original interest rate or repayment
terms due to financial hardship. Nonaccrual loans and loans 90 days or more past
due totaled $1,379,000 at September 30, 2001 compared to $389,000 at December
31, 2000. The increase is due to a commercial borrower declaring Chapter 7
bankruptcy. A majority of the past due loans are secured by real estate.
Although the potential exists for some loan losses, management believes the bank
is generally well secured and continues to actively work with these customers to
effect payment.

Problem loans (serious doubt loans) are loans whereby information known by
management indicates that the borrower may not be able to comply with present
payment terms. Management was not aware of any problem loans at September 30,
2001 not included in the past due or nonaccrual status.

As of September 30, 2001 the Company did not hold any real estate that was
acquired through foreclosure.


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 makes the
appropriate adjustments to the allowance when needed.

The provision for loan losses and changes in the allowance for loan losses are
shown in Note 4 to the financial statements.

The allowance for loan losses of $1,074,000 at September 30, 2001 increased
$82,000 from its level at December 31, 2000. The allowance was equal to 1.26%
and 1.27% of net loans at September 30, 2001 and December 31, 2000,
respectively. Of the total provision for loan losses of $1,074,000, $337,000
related to loans of the small loan subsidiary. In the opinion of management, the
allowance, when taken as a whole, is adequate to absorb estimated losses
inherent in the Company's portfolio.


Premises and Equipment

During the third quarter of 2001, the Bank purchased new computer equipment and
software totaling $472,000. The upgrade included new check imaging equipment,
new computers and peripheral equipment and software enhancements. During the
third quarter, the Bank also implemented Bounce Checking which provides
overdraft protection for deposit customers.


<PAGE> 12


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 realized annualized deposit
growth of 23.99% in the first nine months of 2001. This increase was mainly in
the area of noninterest bearing demand deposits and certificates of deposits. At
the end of September 2001, a customer deposited into his commercial checking
account $2.5 million, which is expected to be a short-term deposit.

Borrowings

During the second quarter of 2001, the Company borrowed $4,500,000 from the
FHLB. The borrowing has a fixed rate of 5.85% and is due in quarterly payments.
The Company used the proceeds for capital renovations and to replenish funds
expended in the purchase of Valley Finance. As of September 30, 2001, $4,387,500
was outstanding.

Additionally, the Company has $1,500,000 outstanding on a FHLB note with an
interest rate of 6.03%. The Company used this money to redeem the bonds
outstanding at Valley Finance Service in June 2001.

Capital

The Bank maintains a strong capital base to expand facilities, promote public
confidence, support operations and grow at a manageable level. As of September
30, 2001, the Bank's total risk based capital and total capital to total assets
ratios were 12.53% and 11.28%, respectively. Both ratios are in excess of
regulatory minimums. On a consolidated basis, the Company's total capital to
total assets ratio was 10.23%. 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. In the past, growth in
deposits and proceeds from the maturity of investment securities have been
sufficient to fund most of the net increase in loans and investment securities.


<PAGE> 13


Interest Rate Sensitivity

Liquidity as of September 30, 2001 remains adequate. The Bank 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. During 2001, the Bank
has used maturing investments and deposit growth to meet its liquidity needs.
The Bank's membership in the Federal Home Loan Bank System also provides
liquidity. The matching of the long-term receivables and liabilities helps the
Bank reduce its sensitivity to interest rate changes.

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

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

Table II contains an analysis, which shows the repricing opportunities of
earning assets and interest bearing liabilities as of September 30, 2001.

As of September 30, 2001, the Company had a cumulative Gap Rate Sensitivity
Ratio of (32.71%) for the one year repricing period. This 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.

Stock Repurchase

On March 31, 2000, the Company purchased 5,416 shares of stock for $94,780
($17.50 per share) from its former president as part of an agreement entered
into with the former president. The repurchased shares have been retired.

In the third quarter of 2001, the Company purchased 5,000 shares of stock for
$55,250 ($11.00 per share). The repurchased shares were retired.

Effect of Proposed Accounting Standards

Other assets contains $378,000 of goodwill attributable to the purchase of the
Bank's small loan subsidiary, which is being amortized over fifteen years. The
Financial Accounting Standards Board ("FASB") has issued SFAS #142 Goodwill and
Other Intangible Assets. The new statement prohibits the amortization of
goodwill, however, goodwill must be tested for impairment on an annual basis and
a goodwill impairment loss recognized (if any). Management anticipates that
the goodwill related to the above purchase would be valued before December 31,
2001 and adjusted if appropriate.

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.


<PAGE> 14


Table 1
                             PIONEER BANKSHARES, INC.
                           NET INTEREST MARGIN ANALYSIS
                        (on a fully tax equivalent basis)
                          (Dollar Amounts in Thousands)

                      Nine Months Ended           Nine Months Ended
                     September 30, 2001          September 30, 2000

                  Average  Income/           Average   Income/
                  Balance  Expense  Rates    Balance   Expense   Rates

Interest Income
   Loans 1
     Commercial   $ 3,707  $  344   12.37%  $ 4,114   $  329   10.66%
     Real estate   56,113   3,691    8.77%   54,570    3,563    8.71%
     Installment   19,103   2,275   15.88%   12,374    1,293   13.93%
     Credit Card      981     154   20.93%      996      154   20.62%
Federal funds
   sold             6,048     186    4.10%    2,132       96    6.00%
Interest bearing
   deposits         1,757      45    3.41%      572       22    5.13%
Investments
   Taxable 3        7,937     412    6.92%   13,121      628    6.38%
   Nontaxable 2     2,423     135    7.42%    2,684      156    7.75%
                   ------   -----   ----      -----     -----   ----

Total earning
   assets          98,069   7,242    9.85%   90,563    6,241    9.19%
                   ------   -----   ----     ------   -----     ----

Interest Expense
   Demand deposits 10,260     128    1.66%   10,290      128    1.66%
   Savings          9,584     127    1.77%   10,126      142    1.87%
   Time deposits   54,414   2,295    5.62%   49,494    1,990    5.36%
   Borrowings       3,727     256    9.16%    2,348      135    7.67%
                   ------   -----    ----   -------    -----    -----

   Total Interest
     Bearing
     Liabilities  $77,985  $2,806    4.80%  $72,258  $ 2,395    4.42%
                   ======   =====   ====    ======    =====     ====

   Net Interest
     Margin 1               4,436                      3,846
                            =====                      =====

Net interest yield
   on interest
   earning assets                    6.03%                      5.66%
                                     ====                       ====


1 Interest on loans includes loan fees
2 An incremental income tax rate of 34% was used to calculate the tax equivalent
  income
3 An incremental tax rate of 34% and 70% dividend exclusion was used to
  calculate the tax equivalent income


<PAGE> 14

Table 1
(CONTINUED)
                            PIONEER BANKSHARES, INC.
                          NET INTEREST MARGIN ANALYSIS
                        (on a fully tax equivalent basis)
                          (Dollar Amounts in Thousands)

                     Three Months Ended       Three Months Ended
                     September 30, 2001       September 30, 2000
                  Average  Income/          Average  Income/
                  Balance  Expense  Rates   Balance  Expense   Rates

Interest Income
   Loans 1
     Commercial   $ 3,612  $  127  14.06%   $ 4,401   $  118    10.72%
     Real estate   56,494   1,224   8.67%    55,497    1,222     8.81%
     Installment   20,965     804  15.34%    12,890      446    13.84%
     Credit Card      960      50  20.83%       992       51    20.56%
Federal funds
   sold             8,197      72   3.51%     1,047       17     6.49%
Interest bearing
   deposits         4,648      40   3.44%       210        3     5.71%
Investments
   Taxable 3        6,725     116   6.90%    13,192      205     6.22%
   Nontaxable 2     2,241      42   7.57%     2,655       50     7.53%
                   ------   -----  ----       -----    -----    ------

Total earning
   assets         103,842   2,475   9.54%    90,884    2,112     9.30%
                   -------  -----  ----      ------    -----    ------

Interest Expense
   Demand deposits 10,373      42   1.62%     9,900       42     1.70%
   Savings          9,987      42   1.68%    10,020       47     1.88%
   Time deposits   56,137     779   5.55%    49,035      682     5.56%
   Borrowings       6,037     132   8.75%     2,048       32     6.25%
                   ------   -----  ----      -----     -----    ------

   Total Interest
     Bearing
     Liabilities  $82,534  $  995   4.82%   $71,003   $  803     4.52%
                   ======   =====  ====     ======     =====    ======

   Net Interest
     Margin 1               1,480                      1,309
                            =====                  =========

Net interest yield
   on interest
   earning assets                   5.70%                        5.76%
                                   ====                        ======


1 Interest on loans includes loan fees
2 An incremental income tax rate of 34% was used to calculate the tax equivalent
  income
3 An incremental tax rate of 34% and 70% dividend exclusion was used to
  calculate the tax equivalent income


<PAGE> 15


TABLE 2
                            Pioneer Bankshares, Inc.
                          Interest Sensitivity Analysis
                               September 30, 2001
                          (dollar amounts in thousands)

                          0-3     4-12      1-5    Over 5     Not
                        Months   Months    Years    Years Classified  Total
Uses of Funds:
   (1)

Loans:
Commercial             $ 1,350  $ 1,406  $   463  $   172  $        $ 3,391
Installment                331      829   21,273    1,818            24,251
Real estate              2,316    4,105   14,287   39,110            59,818
Credit Card                                  933                        933
Interest bearing
   bank deposits         4,476                                        4,476
Investment securities      500             2,182    5,354      711    8,747
Federal funds sold       6,470                                        6,470
                        ------   ------   ------   ------   ------   ------

Total                   15,443    6,340   39,138   46,454      711   108,086
                        ------   ------   ------   ------   ------   -------

Sources of Funds:

Interest bearing
   demand deposits      10,385                                       10,385
Regular savings         10,604                                       10,604
Certificates of
   deposit $100,000
   and over              1,390    4,659    2,131                      8,180
Other certificates
   of deposits           7,502   21,942   19,062                     48,506
Borrowings                 163      488    2,600    2,637             5,888
                        ------   ------   ------   ------   ------   ------

Total                   30,044   27,089   23,793    2,637            83,563
                        ------   ------   ------   ------   ------   ------

Discrete Gap           (14,601) (20,749)  15,345   43,817      711   24,523

Cumulative Gap         (14,601) (35,350) (20,005)  23,812   24,523

Ratio of Cumulative Gap
   to Total Earning
   Assets               (13.51)% (32.71)% (18.51)%  22.03%   22.69%

(1)   Loan balances are not reduced by unearned discounts.



<PAGE> 16



Part II Other Information

Item 1. Legal Proceedings -                 Not Applicable

Item 2.  Changes in 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

Item 6.  Exhibits and Reports on 8-K

         (a)  Exhibits

              3  i   Articles of  Incorporation  of Pioneer  Bankshares,  Inc.
                     are  incorporated  by  reference  to  Exhibits to Pioneer
                     Bankshares, Inc. Form 10SB filed May 1, 2000.

              3  ii  Bylaws of Pioneer  Bankshares,  Inc. are  incorporated by
                     reference to Exhibits to Pioneer  Bankshares,  Inc.  Form
                     10SB filed May 1, 2000.

         (b)  Reports on Form 8-K

              The Company did not file any reports on Form 8-K for the quarter
              ending September 30, 2001.


<PAGE> 17


                                    Signature


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.



                                 THOMAS R. ROSAZZA
                                 ---------------------------------
                                 Thomas R. Rosazza
                                 President



                                 BRENDA KITE
                                 ---------------------------------
                                 Brenda Kite
                                 Vice President and Chief Financial Officer



Date:  October 25, 2001