U.S. Securities and Exchange Commission

                             Washington, D.C. 20549

                                   Form 10-KSB

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

 For fiscal year ended December 31, 2000     Commission file number: 0-30541

                            Pioneer Bankshares, Inc.

                         (Name of Issuer in Its Charter)

              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
                   (Address of principal executive office)

                  Issuer's telephone number: (540) 778-2294

            Securities registered under Section 12(b) of the Act:

                                      None

             Securities registered under Section 12(g) of the Act
                          Common Stock - $.50 Par Value

    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
 ....

    Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form,  and no disclosure  will be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [ ]

    Issuer's revenues for its most recent fiscal year were $9,731,280

    The aggregate market value of the voting stock held by non-affiliates, based
on the last  reported  sales prices of $8.06 per share on February 8, 2001,  was
$8,179,755.

    The number of shares  outstanding  of the  registrant's  common  stock,  was
1,116,116 as of March 23, 2001.

                      DOCUMENTS INCORPORATED BY REFERENCE:

                                      None

                            LOCATION OF EXHIBIT INDEX

    The index of exhibits is contained in Part IV herein on page 27.

    TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT  YES         NO   X


<PAGE> 2

                   U. S. Securities and Exchange Commission

                             Washington, D.C. 20549

                                   Form 10-KSB

                                TABLE OF CONTENTS

                                                                        Page

PART I

     Item 1.  Description of Business                                     3

     Item 2.  Description of Property                                     7

     Item 3.  Legal Proceedings                                           7

     Item 4.  Submission of Matters to a Vote of Security Holders         8

PART II

     Item 5.  Market Price of and Dividends on the Registrant's
              Common and Other Shareholder Matters                        8

     Item 6.  Management's Discussion and Analysis of
              Financial Condition and Results of Operations               9

     Item 7.  Financial Statements                                       22

     Item 8.  Changes in and Disagreements with Accountants              41

PART III

     Item 9.  Directors, Executive Officers, Promoters and
              Control Persons: Section 16(a) Beneficial
              Ownership Reporting Compliance                             41

     Item 10. Executive Compensation                                     42

     Item 11. Security Ownership of Certain Beneficial Owners
              and Management                                             42

     Item 12. Certain Relationships and Related Transactions             43

PART IV

     Item 13. Exhibits and Reports on Form 8-K                           44

SIGNATURES                                                               45


<PAGE> 3

PART I

Item 1. Description of Business

OVERVIEW

     Pioneer Bankshares, Inc., (the "Holding Company") a Virginia one bank
holding company,  headquartered in Stanley,  Virginia was incorporated under
the laws of the  Commonwealth  of  Virginia  on  November  4, 1983.
The  Holding  Company's wholly-owned  subsidiary,  Pioneer Bank, Inc. (the
"Bank") was incorporated  under the laws  of the  Commonwealth  of  Virginia
on  November 9,  1993  and  commenced commercial operations as a state charted
bank on February 17, 1994.

     In October of 2000 the Bank acquired Valley Finance Service,  Inc. ("VFS"),
a small loan company located in Harrisonburg, VA.

     The primary  holdings of the Holding Company consist of all of the stock of
the Bank,  real estate  holdings  leased to the Bank or intended for future Bank
use and a portfolio of equity investment securities.

     The Bank is engaged in the general commercial  banking business,  primarily
serving  Page  and part of  Rockingham  Counties  in the  Shenandoah  Valley  of
Virginia. In addition,  the close proximity and mobile nature of individuals and
businesses in adjoining Virginia counties and nearby cities places these markets
within the Bank's  targeted trade area. The Bank also  anticipates  serving some
individuals and businesses from other areas,  including the counties surrounding
Page  County.  The Bank  offers a full range of banking  and  related  financial
services focused  primarily  towards serving  individuals,  small to medium size
businesses,  and the  professional  community.  The Bank  strives  to serve  the
banking needs of its customers while developing personal, hometown relationships
with them. The Bank's Directors believe that the marketing of customized banking
services will enable the Bank to continue its position in the financial services
marketplace in this market area.

     The Bank  provides  individuals,  professionals  and small and medium  size
businesses  in its market  area with  responsive  and  technologically  advanced
banking  services.  These services include  competitively  priced loans that are
based on deposit relationships,  easy access to the Bank's decision- makers, and
quick and innovative  action  necessary to meet a customer's  banking needs. The
Bank's  capitalization  and lending limit enables it to satisfy the credit needs
of a large  portion  of the  targeted  market  segment.  In the event  there are
customers whose loan requirements exceed the Bank's lending limit, the Bank will
seek to  arrange  such  loans on a  participation  basis  with  other  financial
institutions.  The Board of Directors believes the Bank's present capitalization
will support substantial growth in deposits and loans.

Location and Market Area

     The Bank operates full service  branches in Stanley,  Luray and Shenandoah,
Virginia  and in 1999  opened a full  service  branch and small loan  company in
Harrisonburg,  Virginia.  The Bank will open a branch  in  Stanardsville,  VA in
April of 2001.  Management  will  continue to  investigate  and  consider  other
possible sites that would enable the Bank to profitably  serve its chosen market
area.

     The  opening of any  additional  banking  offices by the Bank will  require
prior  regulatory  approval,  which  takes  into  account a number  of  factors,
including,  among others, a determination that the Bank has capital in an amount
deemed  necessary to warrant  additional  expansion and a finding that the pubic
interest will be served. While the Bank plans to seek regulatory approval at the
appropriate time to establish additional banking offices in various parts of our
market  area,  there  can be no  assurance  when or if the Bank  will be able to
undertake such expansion plans.


<PAGE> 4

Banking Services

     The Bank accepts  deposits,  makes  consumer and commercial  loans,  issues
drafts, and provides other services  customarily offered by a commercial banking
institution,  such as business  and  personal  checking  and  savings  accounts,
walk-up tellers,  drive-in windows,  and 24-hour automated teller machines.  The
Bank is a member of the Federal  Reserve  System and deposits are insured  under
the Federal Deposit Insurance Act to the limits provided thereunder.

     The  Bank  offers a full  range  of  short-to-medium  term  commercial  and
personal  loans.  Commercial  loans include both secured and unsecured loans for
working  capital  (including  inventory  and  receivables),  business  expansion
(including  acquisition  of  real  estate  and  improvements)  and  purchase  of
equipment and machinery.  Consumer loans may include secured and unsecured loans
for   financing   automobiles,   home   improvements,   education  and  personal
investments.

     The Bank's  lending  activities  are subject to a variety of lending limits
imposed by state law.  While  differing  limits  apply in certain  circumstances
based  on the  type  of  loan  or the  nature  of the  borrower  (including  the
borrower's  relationship  to the  Bank),  in  general  the Bank is  subject to a
loan-to-one  borrower  limit of an amount equal to 15% of the Bank's capital and
surplus in the case of loans which are not fully  secured by readily  marketable
or other  permissible  types of collateral.  The Bank  voluntarily may choose to
impose a policy limit on loans to a single  borrower that is less than the legal
lending limit. The Bank may establish  relationships with correspondent banks to
sell  interests or  participations  in loans when loan amounts exceed the Bank's
legal limitations or internal lending policies.

     Other bank  services  include  safe  deposit  boxes,  issuance of cashier's
checks,  certain cash management services,  traveler's checks, direct deposit of
payroll and social  security checks and automatic  drafts for various  accounts.
The Bank  currently  offers ATM card services that can be used by Bank customers
throughout Virginia and other regions.  The Bank also offers MasterCard and VISA
credit card services.

     The Bank's  subsidiary,  VFS, makes direct  consumer loans up to $6,000 and
accepts sales finance contracts up to $12,000.

     The Bank  does not  have  trust  powers  and the Bank  does not  anticipate
obtaining trust powers.  If the Bank determined to establish a trust  department
in the  future,  the  Bank  cannot  do so  without  the  prior  approval  of the
Commission.  In the interim,  the Bank may  contract for the  provision of trust
services to its customers through outside vendors.

Competition

     The  banking  business  is  highly  competitive.  The  Bank  competes  as a
financial   intermediary   with  other  commercial   banks,   savings  and  loan
associations, credit unions, mortgage banking firms, consumer finance companies,
securities brokerage firms,  insurance companies,  money market mutual funds and
other financial  institutions  operating in the western Virginia market area and
elsewhere.

     The Bank's market area is a highly  competitive,  highly  branched  banking
market.  Competition  in the  market  area for  loans to  small to  medium  size
businesses and individuals, the Bank's target market, is intense, and pricing is
important.  Most of the Bank's competitors have substantially  greater resources
and lending limits than the Bank and offer certain  services,  such as extensive
and  established  branch  networks,  that the Bank does not expect to provide or
will not provide in the near future. Moreover,  larger institutions operating in
the western  Virginia  market area have access to borrowed funds at a lower cost
than are available to the Bank.  Deposit  competition among  institutions in the
market area also is strong.  While the Bank is not presently paying above-market
rates to attract deposits, it may have to do so in the future.


<PAGE> 5

Employees

     As of December  31,  2000,  the Bank had 63  employees,  with 60  full-time
equivalent  employees.  None of its employees are  represented by any collective
bargaining agreements and relations with employees are considered excellent.

Supervision and Regulation

     The  Bank is  subject  to  various  state  and  federal  banking  laws  and
regulations that impose specific requirements or restrictions on and provide for
general   regulatory   oversight  with  respect  to  virtually  all  aspects  of
operations.  The  following  is a brief  summary of the material  provisions  of
certain  statutes,  rules and regulations that affects the Bank. This summary is
qualified  in  its  entirety  by  reference  to  the  particular  statutory  and
regulatory provisions referred to below.

     The Bank operates under the  supervision  of, and subject to regulation and
examination by, the Virginia State Corporation Commission ("Commission") and the
Board of Governors of the Federal Reserve System ("Federal  Reserve").  The Bank
will be  subject to  various  statutes  and  regulations  administered  by these
agencies that govern, among other things, required reserves, investments, loans,
lending  limits,  acquisitions  of  fixed  assets,  interest  rates  payable  on
deposits,  transactions among affiliates and the Bank, the payment of dividends,
mergers and consolidations, and the establishment of branch offices. Federal and
state bank  regulatory  agencies  also have the general  authority  to eliminate
dividends  paid by  insured  banks if such  payment is deemed to  constitute  an
unsafe and unsound  practice.  As its  primary  federal  regulator,  the Federal
Reserve  will  have the  authority  to  impose  penalties,  initiate  civil  and
administrative actions and take other steps to prevent the Bank from engaging in
unsafe and unsound practices.

     Under recently enacted federal  legislation,  the existing  restrictions on
interstate bank  acquisitions were abolished  effective  September 29, 1995, and
thereafter bank holding  companies from any state were able to acquire banks and
bank holding companies  located in any other state.  Effective June 1, 1997, and
thereafter, the law allows banks to merge across state lines, subject to earlier
"opt-in"  or  "opt-out"  action  by  individual  states.  The  law  also  allows
interstate  branch  acquisitions  and de novo branching if permitted by the host
state.  Virginia has recently adopted early "opt-in" legislation that will allow
interstate bank mergers.  Virginia also permits  interstate branch  acquisitions
and de novo branching if reciprocal  treatment is accorded Virginia banks in the
state of the acquirer.

     Since the number of shareholders of record, of the Bank exceeded 500 during
1999,  the  Holding  Company  is  now  subject  to  the  registration,  periodic
reporting,  insider  reporting and trading  restrictions and proxy  solicitation
regulations promulgated by the Board of Governors of the Federal Reserve System.

     The amount of  dividends  payable by the Bank will depend upon its earnings
and capital position,  and is limited by the federal and state law,  regulations
and policy. In addition, Virginia law imposes restrictions on the ability of all
banks chartered under Virginia law to pay dividends. No dividend may be declared
or paid that would impair a bank's paid-in  capital.  Each of the Commission and
the Federal  Reserve has the general  authority to limit  dividends  paid by the
Bank if such payments are deemed to constitute an unsafe and unsound practice.

     Under current supervisory  practice,  prior approval of the Federal Reserve
is required if cash dividends declared in any given year exceed the total of its
net profits for such year,  plus its retained net profits for the  preceding two
years.  Also,  the Bank may not pay a  dividend  in an amount  greater  than its
undivided profits then on hand after deducting current losses and bad debts. For
this purpose, bad debts are generally defined to include the principal amount of
all loans which are in arrears  with  respect to interest by six months or more,
unless such loans are fully  secured and in the process of  collection.  Federal
law further provides that no issued depository  institution may make any capital
distribution  (which  would  include  a cash  dividend)  if,  after  making  the
distribution,  the  institution  would not  satisfy  one or more of its  minimum
capital requirements.


<PAGE> 6

Capital Resources

     The  various  federal  bank  regulatory  agencies,  including  the  Federal
Reserve, have adopted risk-based capital requirements for assessing bank capital
adequacy.  Virginia  chartered banks must also satisfy the capital  requirements
adopted by the  Commission.  The federal  capital  standards  define capital and
establish  minimum  capital  requirements  in relation to assets and off-balance
sheet exposure,  as adjusted for credit risk. The risk-based  capital  standards
currently in effect are designed to make regulatory  capital  requirements  more
sensitive to differences in risk profile among bank holding companies and banks,
to account for  off-balance  sheet  exposure and to minimize  disincentives  for
holding liquid assets.  Assets and off-balance sheet items are assigned to broad
risk  categories,  each with  appropriate  risk weights.  The resulting  capital
ratios  represent  capital as a  percentage  of total  risk-weighted  assets and
off-balance sheet items.

     The  minimum  standard  for the ratio of  capital to  risk-weighted  assets
(including  certain  off-balance sheet  obligations,  such as standby letters of
credit) is 8.0%. At least half of the risk-based  capital must consist of common
equity,  retained  earnings  and  qualifying  perpetual  preferred  stock,  less
deductions  for goodwill and various  other  tangibles  ("Tier I capital").  The
remainder  ("Tier 2 capital")  may consist of a limited  amount of  subordinated
debt,  certain hybrid capital  instruments and other debt securities,  preferred
stock and a limited amount of the general  valuation  allowance for loan losses.
The sum of Tier 1 capital and Tier 2 capital is "total risk-based capital."

     The Federal  Reserve  also has adopted  regulations  which  supplement  the
risk-based  guidelines to include a minimum  leverage ratio of Tier 1 capital to
quarterly  average  assets  ("Leverage  ratio") of 3%. The  Federal  Reserve has
emphasized  that the  foregoing  standards are  supervisory  minimums and that a
banking  organization  will be  permitted  to maintain  such  minimum  levels of
capital  only if it receives  the highest  rating  under the  regulatory  rating
system  and  the  banking  organization  is  not  experiencing  or  anticipating
significant  growth. All other banking  organizations are required to maintain a
Leverage  ratio of at least 4.0% to 5.0% of Tier 1 capital.  These rules further
provide  that  banking  organizations  experiencing  internal  growth  or making
acquisitions will be expected to maintain capital positions  substantially above
the  minimum   supervisory   levels  and  comparable  to  peer  group  averages,
significant  reliance on intangible  assets.  The Federal  Reserve  continues to
consider  a  "tangible  Tier I  leverage  ratio"  in  evaluating  proposals  for
expansion or new  activities.  The tangible  Tier 1 leverage  ratio is the ratio
banking  organization's Tier capital,  less deductions for intangibles otherwise
inculpable in Tier 1 capital,  to tangible  assets.  The Bank's  capital  ratios
significantly exceed all requirements at December 31, 2000.

Deposit Insurance

     As an  institution  with deposits to be insured by the Bank  Insurance Fund
("BIF") of the FDIC, the Bank also is subject to insurance  assessments  imposed
by the FDIC. In 1995, the FDIC's Board of Directors voted to revise the range of
assessment  premiums  applicable  to  BIF-insured  deposits.  Under the  revised
risk-based  assess-rate schedule for BIF-insured deposits,  the best-rated banks
will pay an annual fee of $2,000, but no percent-of deposits,  while other banks
pay  according to their  capital  position and other  factors,  with the weakest
paying as much as 0.31% of deposits. The new rate schedule is already in effect.

     The actual  assessment paid is based on the  institution's  assessment risk
classification,  which  is  determined  based  on  whether  the  institution  is
considered "well capitalized,"  "adequately  capitalized" or "undercapitalized,"
as such terms have been defined in applicable federal  regulations,  and whether
such institution is considered by its supervisory agency to be financially sound
or to have supervisory concerns.


<PAGE> 7

Effect of Governmental Monetary Policies

     The  operations  of the Bank will be affected not only by general  economic
conditions,  but also by the  policies  of various  regulatory  authorities.  In
particular,  the Federal Reserve Board regulates  money,  credit  conditions and
interest rates in order to influence general economic conditions. These policies
have a significant  influence on overall growth and  distribution of bank loans,
investments and deposits, and affect interest rates charged on loans or paid for
time and savings  deposits.  Federal Reserve Board monetary  policies have had a
significant  effect on the operating results of commercial banks in the past and
are expected to do so in the future.

Item 2. Description of Property

     The Holding Company's office is located in Stanley Virginia and is directly
across the street from the Bank's main office. The building was originally built
as a residence. It was purchased in 1989 and fully renovated for it's commercial
use. The building contains approximately 3,252 square feet.

     The Bank's main  office in  Stanley,  Virginia,  was  constructed  in 1984,
contains 12,876 square feet on three floors and is situated on approximately two
acres. The building contains a full service branch,  administration  operations,
bookkeeping and credit  departments,  three  drive-through lanes and an ATM. The
office is an attractive brick building with adequate room for future expansion.

     The Branch at Luray, Virginia is a brick building containing  approximately
3,797  square feet and  situated on a 200 x 150 lot. It contains a full  service
branch with two drive-through lanes and an ATM. This branch is located next to a
shopping center and was built in 1989 and is owned by the Bank.

     The Branch at Shenandoah is a brick building containing approximately 3,400
square feet and situated on a 300 x 150 lot. It contains a full  service  branch
with two  drive-through  lanes and an ATM.  This branch was built in 1995 and is
owned by the Holding Company.

     The Branch in  Harrisonburg,  Virginia is leased on a  short-term  lease at
$1,842.55  per  month.  This  Branch  is in a small  shopping  center  and fully
remodeled upon occupancy in August,  1999.  This branch is a full service branch
with two drive-through lanes and is equipped with an ATM.

     The Jenkins  Building is a building  adjacent to the bank's main office and
is used as a warehouse facility. It has approximately 25,760 square feet and was
purchased in September 8, 1970.

     The Jefferson  Building is a building  located in Stanley and was purchased
for  future  expansion.  This  building  was  purchased  in  1998  and  contains
approximately 1,728 square feet.

     Valley Finance Service, Inc. is located at 120 S. Main Street,
Harrisonburg, VA.  The facility is adequate for current operations and is
leased on a month to month basis at $675.00 per month


Item 3. Legal Proceedings

     A previously  described  lawsuit  filed in the Circuit Court for the City
of  Harrisonburg,  Virginia  as  Waters  v.  Pioneer  Bank,  et al.  has  been
withdrawn.


<PAGE> 8

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

     Not Applicable

PART II

Item 5. Market  Price of and  Dividends on the  Registrant's  Common and Other
        Shareholder
        Matters

     The Common  Stock of the  Holding  Company is not  currently  traded on any
established  market. The Common Stock is listed on the Over the Counter Bulletin
Board using the symbol PNBI. The Bank's  transfer agent is Registar and Transfer
Company, 10 Commerce Drive, Cranford Drive, Cranford, New Jersey, 07016-3572.

     The  following  table  shows  actual  trade  prices  (without  commissions)
reported to Scott and Stringfellow.  Other  transactions may have occurred which
were not included in the table. Information for prior years is not available.

                                     TABLE I
                            COMMON STOCK TRADE PRICES
                                FOR THE YEAR 2000

                                            High               Low

     First Quarter                        $ 12.50           $ 10.00
     Second Quarter                         13.50              9.00
     Third Quarter                          10.00              8.00
     Fourth Quarter                          9.50              8.56

     As of March 23,  2001,  there were  approximately  600 holders of record of
Common Stock.

     The Holding Company has declared dividends on its Common Stock as follows:

    Declared            Record         Payment      Per Share Amount
     Date                Date           Date

     1/14/99           1/15/99         2/5/99            $  .30 (1)
     6/10/99           6/30/99        7/15/99            $  .10
    12/13/99           1/19/00         2/2/00            $  .15
                                                          -----

         Total for 1999                                  $  .55
                                                          =====

     1/13/00           1/19/00         2/2/00            $  .20
      3/9/00           3/31/00        4/14/00            $  .10
     6/13/00           6/30/00        7/17/00            $  .10
     9/14/00           9/30/00       10/16/00            $  .10
    12/14/00          12/15/00       12/29/00            $  .10
                                                          -----

         Total for 2000                                  $  .60
                                                          =====

(1)  Adjusted for 2 for 1 stock split on April 1, 1999.

     The  Holding  Company is subject  to  certain  restrictions  imposed by the
reserve and capital  requirements of federal and Virginia  banking  statutes and
regulations.  Additionally,  the Holding  Company  intends to follow a policy of
retained  earnings  sufficient  for the  purpose  of  maintaining  net worth and
reserves of the Bank at adequate levels and to provide for the Holding Company's
growth and ability to compete in its market area.


<PAGE> 9

Item 6. Management's  Discussion  and  Analysis of  Financial  Conditions  and
        Results of Operations

     In October of 1998,  the  Directors  of Page  Bankshares,  Inc.,  adopted a
Strategic  Plan  developed  to guide the bank and holding  company into the 21st
century.  The plan looked ten years into the future with annual  reviews of both
the  strategic  and  tactical  plan goals.  It also  articulated  our  corporate
mission,  our corporate  strengths and  weaknesses as well as our specific goals
for the future. The document is forward looking,  dynamic and serves as our road
map for our future successes.

     To prepare the Bank and Holding Company for the 21st century, the Directors
felt it was necessary to change both the names of the Bank and Holding  Company.
The Directors felt that the new names were not geographically limiting and would
enable  the Bank to  expand  Effective  April 1,  1999,  after  almost 90 years,
Farmers  &  Merchants  Bank  of  Stanley  changed  its  name  to  Pioneer  Bank.
Thereafter, on June 8, 1999, the shareholders approved a resolution changing the
name of the holding company from Page  Bankshares,  Inc. to Pioneer  Bankshares,
Inc.

     The following is  management's  discussion  of the financial  condition and
results of operations on a  consolidated  basis for the two years ended December
31, 2000 and 1999,  respectively,  for the  Holding  Company.  The  consolidated
financial  statements of the Holding Company include the accounts of the Holding
Company,  the Bank and Valley Finance  Company,  Inc. This discussion  should be
read in conjunction with the consolidated financial statements and related notes
of the Holding Company presented elsewhere herein.

     On November 22, 2000, the State Corporation  Commission approved the Bank's
application for a branch in  Stanardsville,  Virginia.  The Bank has leased land
and has  constructed a modular branch  building.  The total cost of the building
and furniture  and  equipment is estimated to be between  $250,000 and $300,000.
Five new employees will staff the branch, which is expected to open in the month
of April 2001.

OPERATIONS ANALYSIS - 2000 - Compared to 1999

Overview

     The Holding Company's net income for 2000 decreased  $149,558 or 9.70%. Net
Income per share  decreased from $1.32 in 1999 to $1.25 in 2000. The decrease in
earnings was due to a combination of factors summarized below.

     Total   comprehensive   income  for  the  Holding  Company  increased  from
$1,422,357 in 1999 to $1,690,785 in 2000. The principal  reason for the increase
was the increase in fair value of the available for sale ("AFS") securities. The
net  unrealized  gain on AFS  securities  in 2000 were  $297,924,  after the tax
effect, compared to a net unrealized loss of $120,066,  after the tax effect, in
1999.  The change in the  unrealized  gain on AFS  securities  is shown in other
comprehensive  income in the Consolidated  Statements of Changes in Stockholders
Equity.

Net Interest Margins

     The net  weighted  interest  margin on earning  assets on a tax  equivalent
basis  increased from 5.53% in 1999 to 5.80% in 2000,  which is in line with its
peer group. The changes in yields and average balances are shown in Table II.

     Yields on loans  increased  from 9.85% in 1999 to 10.11% in 2000. The yield
on commercial  loans  decreased 45 basis points while the yields on  installment
loans increased 103 basis points due to the purchase of Valley Finance  Company,
Inc. in the fourth  quarter of 2000.  VFS loans of $3,646,000 at year-end had an
average  yield of  approximately  24%. The yield on credit cards  increased  268
basis points because the promotional rates were still in effect during the first
part of 1999.


<PAGE> 10

     The yield on taxable investments  increased from 5.70 % in 1999 to 6.20% in
2000 due to the  investment  of sales and maturity  proceeds in higher  yielding
investments.  The tax  equivalent  yield  on  nontaxable  investments  increased
slightly  from 8.34% in 1999 to 8.47% in 2000 due to the maturing of older lower
yielding securities.

     The  cost of  deposits  increased  from  4.15%  in 1999 to 4.39% in 2000 as
customers  transferred  deposits from interest  bearing  demand and savings into
higher  paying time  deposits.  The rates paid on time deposits  increased  from
5.14% in 1999 to 5.45% in 2000.

     The average amount borrowed increased from $1,914,000 in 1999 to $2,742,000
in 2000. In 1999 the Bank borrowed  $2,000,000 at a fixed rate of 6.09% from the
Federal Home Loan Bank in order to balance its interest  rate risk on fixed rate
loans. In addition the Company assumed  subordinated debt of $2,312,000 with the
purchase of VFS. The debt has a variable  interest rate,  which  fluctuates with
prime. At December 31, 2000 the VFS debt was $1,087,000 which matures on June 1,
2001.  Management  anticipates  that the debt will be  replaced  with lower cost
deposits or debt when it matures.  The rates paid on borrowings  increased  from
4.75% in 1999 to 7.73% in 2000 reflecting the higher cost of borrowed funds.

Noninterest Income

     Noninterest Income increased from $1,081,854 in 1999 to $1,273,794 in 2000.
The  largest  contributing  factor was in increase  in net  security  gains from
$19,054 in 1999 to $331,117.  Other income for 2000 includes $103,000 of expense
reimbursement  from the Bank's former President compared with $239,000 for 1999.
Other income for 2000 also included the  following  two 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, and
an adjustment  to eliminate an unused  accrual for Y2K expenses in the amount of
$20,000.  Other income for 1999 included a gain of $148,000  resulting  from the
demutualization of a life insurance company.

Noninterest Expense

     Noninterest expense increased $506,863 (14.54%) from 1999 to 2000. Salaries
and benefits  accounted  for $353,614 of the  increase.  The increase was due to
normal salary  increases and the increase in the number of full time  equivalent
employees from 44 at the end to 1999 to 60 at the end of 2000.  Employees of VFS
accounted for 5 of the  increase.  Management  anticipates  that 5 new employees
will be needed to staff the new branch at Stanardsville,  Va. Occupancy expenses
increased due to the new branch in Harrisonburg opened in August of 1999 and the
acquisition  of VFS in  October of 2000.  Equipment  expenses  increased  due to
increased  depreciation,  repairs and  maintenance.  Other  expense was affected
primarily  by,  increases in  directors  fees of $30,000,  professional  fees of
$63,000  and a decrease in Y2K related  expenses.  See Note 12 to the  financial
statements for a comparison of other expenses.

OPERATIONS ANALYSIS - 1999 Compared to 1998

Overview

     The Holding Company's net income for 1999 increased  $306,196 or 26.9% from
1998  earnings.  Net  income per share  increased  from $.92 in 1998 to $1.23 in
1999.  The Holding  Company's  improved  earnings were due to a  combination  of
factors summarized below.

Net Interest Margins

     The net  weighted  interest  margin on earning  assets on a tax  equivalent
basis  increased from 5.41% in 1998 to 5.53% in 1999. The Holding  Company's net
yield on average earning assets of 5.53% is in line with its peer group.


<PAGE> 11

     Yields on loans  decreased from 9.94% in 1998 to 9.85% in 1999. Real estate
loan rates decreased  fourteen basis points,  while  installment loans decreased
twelve basis points.  Both  declines  were due to a general  decline in rates of
interest in the market. Commercial loan yields increased as a result of offering
a new commercial loan product.  This product was introduced in the later part of
1998 and was more  fully  utilized  in 1999.  The  product  provides  funding to
customers based on their inventory or  receivables.  Additionally,  this type of
commercial loan carries a higher rate of interest than the remaining  portion of
the commercial  loan  portfolio.  Credit card loan rates  increased in 1999 as a
result of the ending of most  promotional  rates in the beginning of 1999. These
promotional rates were offered in earlier periods in an effort to attract credit
card customers.

     To balance its interest  rate risk on fixed rate loans,  the Bank  borrowed
from the  Federal  Home Loan Bank at fixed rates that are  determined  by market
conditions. This program has helped the Bank meet the needs of its customers who
might otherwise have gone to another  financial  institution  seeking fixed rate
loans.

     Tax equivalent  yields on securities  decreased to 5.70% in 1999 from 5.85%
in 1998.  This  decrease was  primarily a result of a decline in market rates on
all types of debt instruments.  This decline in general market rates resulted in
increased  call  activity in the bond  portfolio  in 1999.  Average  investments
increased  8.91% from the previous  year.  The Holding  Company's  philosophy of
investing only in securities with short to intermediate  maturities allows it to
be responsive to interest rate movements within the market place.

     The rates paid on interest bearing deposits decreased to 4.15% in 1999 from
4.50% in 1998.  Average  rates  decreased  on all  deposit  types as a result of
declines in general market rates. Rates on interest bearing demand,  savings and
time  deposits  decreased  twelve,  forty  six  and  thirty  one  basis  points,
respectively. The improvement in the net interest margin was positively affected
by an increase in the mix of interest  bearing deposit  liabilities that are low
rate obligations (i.e. demand deposits and savings).

     Long term borrowings through the FHLB are incurred only to balance the rate
exposure  on  fixed  rate  loans  and are used to fund  loans  with  fixed  rate
features.  Short-term  borrowings  from the FHLB were  incurred for possible Y2K
concerns and have been paid off in the year 2000.

     Table II  contains a  complete  yield  analysis  for the last two years and
Table III contains the rate/volume changes in these years.

Noninterest Income

     The  Holding  Company  realized  gains  of  $19,054  in 1999 on the sale of
corporate stocks compared with gains of $39,019 in 1998.

     During 1999, the Bank entered into an agreement  with its former  President
whereby this individual  reimbursed the Bank for certain prior bank expenditures
and certain costs associated therewith. In this agreement,  the former President
also  agreed to forego  certain  deferred  compensation.  In 1999,  these  items
resulted in $239,000 of other income.

     Service  charges on  deposit  accounts  increased  34.60% in 1999 from 1998
levels.  The increase is attributed to an increase in service charges on deposit
accounts.


<PAGE> 12

Noninterest Expenses

     Noninterest  expense increased  $249,551 or 7.71% in 1999 over 1998 levels.
Salaries and employee  benefits  decreased 4.51% due to;  retirement of a senior
officer the prior year,  the  presidents  position being vacant for part of 1999
and 1998 having a one time charge of $150,000 to accrue a retirement benefit for
a retiring senior officer,  offset by increased staffing,  including a full time
training  director,   normal  salary  increases,  and  higher  health  insurance
premiums.  Occupancy  and  equipment  expense  combined  increased by $85,872 or
18.21%  primarily  due to the  opening of a new branch  office in  Harrisonburg,
Virginia,  installing  of two new stand  alone  ATMs,  the  commencing  of check
imaging, and general equipment. Other noninterest expenses increased $237,397 or
20.19%.   Approximately   half  of  this  increase  was  primarily   related  to
professional  fees,  advertising  and  supplies  related  to the  opening of the
Harrisonburg,  Virginia  branch  and  changes  in the  names of the Bank and the
Holding Company.  The remaining  increases were spread over a variety of expense
categories, with no single area increasing significantly.  The Company's overall
cost of operations relative to asset size is comparable to its peer group.

UNCERTAINTIES AND TRENDS

General

     Management is of the opinion that loans classified for regulatory  purposes
as loss,  doubtful,  substandard,  or special  mention do not (i)  represent  or
result from trends or uncertainties  which are reasonably expected to materially
impact  future  operating  results,  liquidity,  or capital  resources,  or (ii)
represent material credits which any available information causes serious doubts
as to the ability of such borrowers to comply with the loan repayment terms.

     Management is not aware of any known trends,  events or uncertainties  that
will have or that are reasonably likely to have a material effect on the issuers
liquidity,  capital  resources  or  operations  of  the  issuers.  Additionally,
management  is  not  aware  of any  current  recommendations  by the  regulatory
authorities which, if they were to be implemented, would have such an effect.

BALANCE SHEET

Investment Securities

     Average  balances  in  investment  securities  increased  8.91% in 1999 and
decreased  2.79% in 2000.  The Holding  Company  maintains an adequate  level of
investment  securities  to provide  for  liquidity  and as  security  for public
indebtedness.  A schedule  of  investment  securities  is shown in a note to the
consolidated financial statements.

     The Holding Company  accounts for investments  under Statement of Financial
Accounting  Standard No. 115,  "Accounting  for Certain  Investments in Debt and
Equity  Securities." This statement  requires all securities to be classified at
the point of  purchase  as  trading  securities,  available  for sale or held to
maturity.  See the notes to the  financial  statements  for a discussion  of the
accounting  policies  for  investments.  The  Holding  Company  values  its debt
securities based on information supplied by its correspondent banks for actively
traded  obligations  and by  market  comparison  with  similar  obligations  for
non-rated investments. Investments in common stocks are based on the last trades
as provided by the Holding Company's investment holder.

Yields and Maturities

     The  yields on taxable  and  nontaxable  investments  for 1999 and 1998 are
shown in the yield  analysis  in Table II. The  carrying  amount  and  estimated
market value of debt securities at December 31, 2000 by contractual maturity are
included in a note to the consolidated financial statements.

     Management's philosophy is to keep the maturities of investments relatively
short which allows the Holding  Company to better match deposit  maturities with
investment maturities and thus react more quickly to interest rate changes.


<PAGE> 13

Equity Investments

     At  December  31, 2000 the Holding  Company has  investments  in common and
preferred  stock  with a cost of  $838,000  and an  estimated  market  value  of
$1,357,000.  The investments  include common stocks purchased with the objective
of realizing  capital gains. The market value of these  investments is sensitive
to general trends in the stock market.

RISK ELEMENTS IN THE LOAN PORTFOLIO

The Bank's policy has been to make  conservative  loans that are held for future
interest  income.  Collateral  required  by  the  Company  is  determined  on an
individual  basis  depending  on the  purpose  of the  loan  and  the  financial
condition of the borrower.

     The Bank's real estate mortgage loans  increased 4.80% from  $52,780,000 to
$55,315,000  at December 31, 1999.  Residential  real estate loans are generally
made for a period not to exceed 30 years and are secured by first deed of trust,
which do not  exceed  80% of the  appraised  value.  If the loan to value  ratio
exceeds 80%, the Company  requires  additional  collateral or guarantees.  For a
majority of the real estate loans,  interest is  adjustable  after each three or
five year period. Fixed rate loans are generally made for a fifteen-year period.
See Table IV for a  maturity  schedule  of fixed and  variable  rate  loans.  In
addition, the Bank makes home equity loans secured by second deeds of trust with
total  indebtedness not to exceed 80% of the appraised value.  Home equity loans
are made on a 10-year revolving line of credit basis.

     The Bank's consumer loans increased  $6,100,000  (42.48%) to $20,459,000 at
December 31, 2000.  Of the  increase,  $3,646,000 is attributed to loans made by
VFS,  the Bank's  small loan  subsidiary.  VFS  provides  financing  to marginal
borrowers, and incurs a higher level of risk than the Bank. The average yield on
VFS  loans is  approximately  24%.  Consumer  loans  are made for a  variety  of
reasons, however, vehicles secure a majority of the loans.

     The majority of commercial  loans are made to agri  business,  small retail
and service businesses.

     See Table IV for a schedule of loan maturities.

NONACCRUAL AND PAST DUE LOANS

     See Table V for schedule of nonaccrual and past due loans.

     Interest  accruals  are  continued  on past due,  secured  loans  until the
principal  and  accrued  interest  equal  the  value  of the  collateral  and on
unsecured  loans until the financial  condition of the creditor  deteriorates to
the  point  that  any  further  accrued  interest  would  be  determined  to  be
uncorrectable.  At December 31, 2000 and 1999,  there were no restructured  real
estate or commercial  loans on which  interest was accruing at a reduced rate or
on which payments had been extended.

LOAN CONCENTRATIONS

     At December 31, 2000,  no industry  category  exceeded ten percent of total
loans.


<PAGE> 14

LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES

     For each  period  presented,  the  provision  for loan  losses  charged  to
operations is based on management's judgment after taking into consideration all
factors connected with the collectibility of the existing portfolio.  Management
evaluates  the loan  portfolio in light of economic  conditions,  changes in the
nature  and  value of the  portfolio,  industry  standards  and  other  relevant
factors.  Specific  factors  considered by management in determining the amounts
charged to operations include internally generated loan review reports, past due
reports  and  historical  loan  loss  experience.  This  review  also  considers
concentrations  of loans in terms of geography,  business type or level of risk.
Management evaluates  nonperforming loans relative to their collateral value and
makes appropriate adjustments to the allowance for loan losses when needed.

     The allowance for loan losses  increased from $779,000 at December 31, 1999
to $992,000 at December 31, 2000.  Net charge offs  increased  from  $177,000 in
1999 to $619,000 for 2000,  including  net charge offs of $407,000 for VFS since
the date of  acquisition.  The charge  offs were  necessary  to comply with more
rigid standards  observed by the banking industry.  Management will aggressively
pursue  recoveries of the charge offs during 2001.  Because of the nature of the
loans made by VFS, it is  anticipated  that loan losses will be higher for those
loans than charge offs  experienced  by the Bank in the past.  The provision for
loan losses  increased  $241,000  for 2000,  of which  $204,000  related to VFS.
Management  expects  that higher loan losses for VFS will be more than offset by
higher loan yields.  Based on historical  losses,  delinquency rates, a thorough
review of the loan portfolio and after considering the elements of the preceding
paragraph,  management  is of the opinion that the  allowance for loan losses is
adequate to absorb future losses in the current portfolio.

     See Table V for a summary of the activity in the allowance for loan losses.

     The Bank has allocated  the allowance  according to the amount deemed to be
reasonably  necessary to provide for the  possibility  of losses being  incurred
within each of the categories of loans. The allocation of the allowance as shown
in Table V should not be interpreted as an indication that loan losses in future
years will occur in the same proportions or that the allocation indicates future
loan loss trends.  Furthermore,  the portion  allocated to each loan category is
not the total amount  available  for future  losses that might occur within such
categories  since the total allowance is a general  allowance  applicable to the
entire portfolio.

     Table V shows the balance and  percentage of the Bank's  allowance for loan
losses allocated to each major category of loans.

DEPOSITS

     The Bank has  traditionally  avoided brokered and large deposits  believing
that they were  unstable  and thus not  desirable.  This has proven to be a good
strategy as the local deposit base is considered very stable and small increases
in rates above the competition have resulted in deposit gains in past years.

     Certificates of deposit over $100,000 are shown in Table VI.


<PAGE> 15

STOCKHOLDERS' EQUITY

     Banking  regulators  have  established  a  uniform  system to  address  the
adequacy  of capital  for  financial  institutions.  The rules  require  minimum
capital  levels based on risk adjusted  assets.  Simply  stated,  the riskier an
entity's investment,  the more capital it is required to maintain.  The Bank, as
well as the Holding  Company,  is required to  maintain  these  minimum  capital
levels. See the notes to the consolidated  financial statements for calculations
of actual and minimum  capital  requirements.  The Bank has  maintained  capital
levels far above the minimum  requirements  throughout the year. In the unlikely
event that such capital levels are not met, regulatory agencies are empowered to
require  the  Holding  Company to raise  additional  capital  and/or  reallocate
present capital.

BORROWINGS

     At December 31, 1999 the Company had borrowed  $4,500,000  from the FHLB to
provide  liquidity in the event of a Y2K crisis.  The loan was repaid in January
of 2000.

     The  information   concerning   borrowings  is  shown  in  a  note  to  the
consolidated financial statements.

LIQUIDITY AND INTEREST SENSITIVITY

     Liquidity as of December 31, 2000 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. The Bank was a
seller of federal funds for most of 1999 and 2000. The Bank's  membership in the
Federal Home Loan Bank System also  provides  liquidity,  as the Bank can borrow
money that is repaid over a ten-year  period and can use the money to make fixed
rate loans.  The matching of the long-term loans and liabilities  helps the Bank
reduce its  sensitivity to interest rate changes.  The Bank reviews its interest
rate gap periodically and makes adjustments as needed.

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

     At December 31, 2000,  the Holding  Company had a negative  cumulative  Gap
Rate Sensitivity Ratio of 37.03% for the one year repricing period compared with
46.20% at December  31, 1999.  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.  Management  constantly monitors the
Holding  Company's  interest rate risk and has decided that the current position
is an  acceptable  risk  for a  growing  community  bank  operating  in a  rural
environment.

     Table IV contains an analysis,  which shows the repricing  opportunities of
earning assets and interest bearing liabilities.


<PAGE> 16
Table I

                            PIONEER BANKSHARES, INC.
                        SELECTED OPERATING INFORMATION
               (In thousands, except for per share information)


Condensed Statement of Income                             2000        1999

Interest and dividend income                            $ 8,457     $ 7,734
Interest expense                                          3,271       2,949
                                                         ------      ------

Net interest income                                       5,186       4,785
Provision for loan losses                                   423         183
                                                         ------      ------

Net interest income after provision
   for loan losses                                        4,763       4,602

Noninterest income                                        1,274       1,086
Noninterest expense                                       3,994       3,487
                                                         ------      ------

Income before income taxes                                2,043       2,201
Income tax expense                                          650         659
                                                         ------      ------

Net Income                                              $ 1,393     $ 1,542
                                                         ======      ======

Total Assets at Year End                                $100,600    $101,045
                                                         =======     =======

Per Share Information

   Net income per share                                 $   1.25    $   1.32
   Dividends per share                                      0.60        0.55
   Book value per share                                    10.53        9.15

Financial Statement Ratios

   Return on average assets 1                               1.39%       1.62%
   Return on average equity 1                              11.94%      13.97%
   Dividend payout ratio                                   48.16%      44.51%
   Average equity to average asset 1                       11.62%      11.57%


1  Ratios are based primarily on daily average balances


<PAGE> 17
Table II

                                PIONEER BANKSHARES, INC.
                              NET INTEREST MARGIN ANALYSIS
                          (ON A FULLY TAXABLE EQUIVALENT BASIS)
                                     (In thousands)

                                2000                        1999
                                ----                        ----
                                       Average                       Average
                                        Rates                         Rates
ASSETS                        Income/  Earned/              Income/  Earned/
                     Average  Expense   Paid       Average  Expense   Paid
Loans: 1
   Commercial        $4,115   $  437   10.62%      $3,758   $  416   11.07%
   Real estate       54,897    4,795    8.73%      50,109    4,363    8.71%
   Installment       13,120    1,955   14.90%      11,357    1,594   14.04%
   Credit card          997      206   20.66%         890      136   15.28%
                      -----    -----   -----        -----    -----   -----

   Total Loans       73,129    7,393   10.11%      66,114    6,509    9.85%

Federal funds sold    1,858      112    6.03%       5,396      266    4.93%
Interest bearing
   deposits             445       23    5.17%         965       54    5.60%
   Taxable 3         13,193      818    6.20%      12,318      702    5.70%
   Nontaxable 2       2,396      203    8.47%       3,687      308    8.34%
                      -----    -----   -----        -----    -----   -----

   Total Earning

     Assets          91,021    8,549    9.39%       88,480  $7,839    8.86%
                               -----   -----                 -----   -----

Allowance for

   loan losses         (763)                         (762)
Nonearning assets     8,588                         7,658
                      -----                         -----

   Total Assets     $98,846                       $95,376
                     ======                        ======


LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
   Interest bearing
   demand deposits  $10,203   $  173    1.70%      $10,765  $  195    1.81%
   Savings            9,986      184    1.84%       11,602     270    2.33%
   Timedeposits      49,563    2,702    5.45%       46,524   2,393    5.14%
                     ------    -----   -----        ------   -----   -----

   Total Deposits    69,752    3,059    4.39%       68,891  2,858     4.15%

Borrowings            2,742      212    7.73%       1,914      91     4.75%
                      -----    -----   -----        ------   -----   -----

   Total Interest Bearing

     Liabilities     72,494    3,271    4.51%       70,805  $2,949    4.16%
                              ------   -----                 -----   -----

Noninterest bearing

   deposits          13,750                         12,375
Other liabilities     1,578                          1,160
                      -----                         ------

   Total Liabilities  87,822                        84,340

Stockholders' equity  11,024                        11,036
                     -------                       -------

   Total Liabilities
     and Stockholders'
     Equity         $ 98,846                      $ 95,376
                     =======                       =======

   Net Interest Earnings       $5,278                       $4,890
                                =====                        =====

   Net Interest Yield on Interest

     Earning Assets                     5.80%                         5.53%
                                       =====                         =====

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> 18
TABLE III

                            PIONEER BANKSHARES, INC.
             EFFECT OF RATE-VOLUME CHANGE ON NET INTEREST INCOME
                        (On a fully tax equivalent basis)
                            (In thousands of dollars)

                      2000 Compared to 1999          1999 Compared to 1998
                       Increase (Decrease)            Increase (Decrease)
                    Volume    Rate     Total       Volume    Rate     Total

Interest Income
Loans

   Commercial       $   40   $  (19)  $   21       $   31   $   17   $   48
   Real estate         417       16      433          288      (74)     214
   Installment         244      136      380          102      (15)      87
   Credit Card          19       27       46           (3)      14       11
                     -----    -----    -----        -----    -----    -----

   Total Loans         720      160      880          418      (58)     360
                     -----    -----    -----        -----    -----    -----

Federal funds sold    (173)      21     (152)        (137)     (26)    (163)
                     -----    -----    -----        -----    -----    -----
Interest bearing

   deposits in banks   (29)      (2)     (31)           0       54       54
                     -----    -----    -----        -----    -----    -----
Investments

   Taxable              37       54       91          112      (18)      94
   Nontaxable          (94)     (11)    (105)         (58)     (41)     (99)
                     -----    -----    -----        -----    -----    -----

   Total Securities    (57)      43      (14)          54      (59)      (5)
                     -----    -----    -----        -----    -----    -----

   Total Earning

     Assets         $  461   $  222   $  683       $  335   $  (89)  $  246
                     =====    =====    =====        =====    =====    =====


Interest Expense

   Demand deposits  $    6   $  (28)  $  (22)      $   11   $  (13)  $   (2)
   Savings             (38)     (48)     (86)          26      (53)     (27)
   Time deposits       156      153      309           14     (145)    (131)
                     -----    -----    -----        -----    -----    -----

   Total Deposits      124       77      201           51     (211)    (160)

Borrowings              25       96      121                    91       91
                     -----    -----    -----        -----    -----    -----

   Total Liabilities   149      173      322           51     (120)     (69)
                     -----    -----    -----        -----    -----    -----

   Net Interest

     Earnings       $  312   $   49   $  361       $  284   $   31   $  315
                     =====    =====    =====        =====    =====    =====



Note: Volume  changes  have been  determined  by  multiplying  the prior  years'
      average  rate by the  change in  average  balances  outstanding.  The rate
      change is the difference between the total change and the volume change.


<PAGE> 19
TABLE IV

                            PIONEER BANKSHARES, INC.
                INTEREST SENSITIVITY ANALYSIS - LOAN RATE RISK
                            (In thousands of dollars)
                                DECEMBER 31, 2000

                         1 - 90  91 - 365 1 to 5   Over 5     Not
                          Days     Days    Years    Years Classified  Total

Uses of Funds:

Loans:
   Commercial           $   893  $ 1,819  $   312  $   133  $       $ 3,157
   Real estate            1,397    4,035   14,939   35,995           56,366
   Installment            1,045    2,415   15,829      349           19,638
   Credit card                              1,096                     1,096
                         ------   ------   ------   ------   -----   ------

   Total Loans            3,335    8,269   32,176   36,477           80,257

Federal funds sold          110                                         110
Interest bearing
   bank deposit              47                                          47
Investment securities                502    6,360    5,042   1,357   13,261
                         ------   ------   ------   ------   -----   ------

   Total                  3,492    8,771   38,536   41,519   1,357   93,675
                         ------   ------   ------   ------   -----   ------

Sources of Funds:

Demand Deposits

   Interest bearing       9,879                                       9,879
Savings accounts          9,275                                       9,275
Time Deposits:
   Under $100,000         5,933   16,007   21,946                    43,886
   Over $100,000          2,166    1,706    3,125                     6,997
                         ------   ------   ------   ------   -----   ------

   Total deposits        27,253   17,713   25,071                    70,037

Borrowings                  750    1,237      800      650            3,437
                         ------   ------   ------   ------   -----   ------

   Total                 28,003   18,950   25,871      650           73,474
                         ------   ------   ------   ------   -----   ------

Discrete Gap            (24,511) (10,179)  12,665   40,869   1,357   20,201
Cumulative Gap          (24,511) (34,690) (22,025)  18,844  20,201

Ratio   of Cumulative
   Gap to Total Earning

   Assets                (26.27)% (37.03)% (23.51) % 20.12%  21.56%
                        =======   ======   ======    =====  ======

Rate Risk:

Loans with predetermined

   rates                $ 2,854  $ 6,449  $31,595  $ 8,704          $49,602

Loans with variable/
   adjusted rates           481    1,820      581   27,773           30,655
                         ------   ------   ------   ------   -----   ------

                        $ 3,335  $ 8,269  $32,176  $36,477  $       $80,257
                         ======   ======   ======   ======   =====   ======


<PAGE> 20
TABLE V

                            PIONEER BANKSHARES, INC.
                         LOAN LOSS ALLOWANCE ACTIVITY -
                         NON ACCRUAL AND PAST DUE LOANS
                            (In thousands of dollars)

                               2000     1999
Activity

Beginning balance             $  779   $  773

Provision charged to expense     424      183

Loan losses:
   Commercial                      5       15
   Installment                   676      137
   Real estate                    44       64
   Credit card                    30        5
                               -----    -----

Total Loan Losses                755      221
                               -----    -----

Recoveries:
   Commercial                      0        0
   Installment                    94       33
   Real estate                    37        6
   Credit card                     5        5
                               -----    -----

   Total Loan Recoveries         136       44
                               -----    -----

   Net Loan Losses               619      177
                               -----    -----

Adjustment - Purchase of
   Valley Finance                408
                               -----

   Balance at End of Period   $  992   $  779
                               =====    =====

Net Loan Losses as a Percent
   of Average loans              .85%     .27%

                          December 31, 2000           December 31, 1999
                                     Percent of                     Percent of
                            Percent of Average           Percent of  Average
                      Amount Allowance  Loans      Amount Allowance   Loans

Analysis of Ending Balance

   Commercial        $  277   27.92%    5.63%      $  326   41.85%    5.68%
   Installment          407   41.04%   75.07%         330   42.36%   75.79%
   Real estate           65    6.55%   17.94%         118   15.15%   17.18%
   Credit card            5    0.50%    1.36%           5    0.64%    1.35%
   Unspecified          238   23.99%        %                    %        %
                      -----   -----    -----        -----   -----    -----

   Total             $  992   100.00% 100.00%      $  779   100.00% 100.00%
                      =====   ======  ======        =====   ======  ======

Allowance for loan losses
   as a percent of year end
   loans                        1.27%    1.11%

Nonaccrual and Past Due Loans:

Principal:
   Nonaccruing loans          $   67   $
   Loans past due 90
     days or more                179      229
   Other problem loans             0        0
                               -----    -----

   Total                      $  246   $  229
                               =====    =====

Percent of total loans          0.32%    0.35%

Interest on  nonaccrual  loans did not have a  significant  impact on income for
2000.


<PAGE> 21
TABLE VI

                            PIONEER BANKSHARES, INC.
                    TIME DEPOSIT MATURITIES - OVER $100,000
                                DECEMBER 31, 2000
                            (In thousands of dollars)

Maturity

Less than 3 months                                                $2,166
3 to 12 months                                                     1,706
1 to 3 years                                                       2,795
Over 3 years                                                         330
                                                                   -----

   Total                                                          $6,997
                                                                   =====


<PAGE> 22

Item 7. Financial Statements

                          Index to Financial Statements

                                                                        Page

Independent Auditors' Report                                             23

Consolidated Balance Sheets as of December 31, 2000 and 1999             24

Consolidated Statements of Income for the Years ended
   December 31, 2000 and 1999                                            25

Consolidated Statements of Changes in Stockholders' Equity
   for the years ended December 31, 2000 and 1999                        26

Consolidated Statements of Cash Flows for the years ended
   December 31, 2000 and 1999                                            27

Notes to Financial Statements                                            28


<PAGE> 23

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
  of Pioneer Bankshares, Inc.


We have audited the consolidated balance sheets of Pioneer Bankshares,  Inc. and
subsidiaries  as of  December  31, 2000 and 1999,  and the related  consolidated
statements  of income,  changes in  stockholders'  equity and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these consolidated financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Pioneer Bankshares,
Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and cash flows for the years then ended in conformity  with generally
accepted accounting principles.

                                    S. B. Hoover & Company, L.L.P.



February 2, 2001


<PAGE> 24

PIONEER BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999

ASSETS                                                 2000          1999

Cash and due from banks (Note 3)                  $  4,643,433   $  5,198,869
Federal funds sold                                     110,000      2,215,000
Interest-bearing deposits in banks                      46,632      4,536,011
Investment securities
   Available for sale (Note 5)                      11,277,383     11,628,002
   Held to maturity (fair value was $2,004,000
     and $3,541,000 in 2000 and 1999,
     respectively) (Note 5)                          1,983,461      3,556,585
Loans receivable (Note 6), net of allowance
   for loan losses of $992,000 in 2000 and
   $779,000 in 1999 (Note 7)                        76,941,563     69,252,023
Bank premises and equipment, net (Note 8)            2,810,432      2,909,495
Accrued interest receivable                            640,972        559,994
Other assets                                         2,145,731      1,189,019
                                                   -----------    -----------

   Total Assets                                   $100,599,607   $101,044,998
                                                   ===========    ===========

LIABILITIES

Deposits
   Noninterest bearing                            $ 13,706,103   $ 12,246,396
   Interest bearing
     Demand                                          9,880,339     10,516,300
     Savings                                         9,138,637     10,411,914
     Time deposits over $100,000 (Note 9)            6,996,923      5,064,680
     Other time deposits (Note 9)                   44,022,588     44,199,879
                                                   -----------    -----------

   Total Deposits                                   83,744,590     82,439,169

Treasury tax and loan deposit note                      60,467         76,904
Accrued expenses and other liabilities               1,604,588      1,349,382
Borrowings (Note 10)                                 3,437,000      6,350,000
                                                   -----------    -----------

   Total Liabilities                                88,846,645     90,215,455
                                                   -----------    -----------

STOCKHOLDERS' EQUITY

Common stock; $.50 par value, authorized
   5,000,000 shares; outstanding - 1,116,116
   shares in 2000; 1,121,670 shares  in 1999           558,058        560,835
Retained earnings (Note 14)                         10,903,051     10,274,779
Accumulated other comprehensive income (loss)          291,853         (6,071)
                                                   -----------    -----------

   Total Stockholders' Equity                       11,752,962     10,829,543
                                                   -----------    -----------

   Total Liabilities and Stockholders' Equity     $100,599,607   $101,044,998
                                                   ===========    ===========


        The accompanying notes are an integral part of this statement.


<PAGE> 25

PIONEER BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000 AND 1999

                                                       2000         1999
INTEREST AND DIVIDEND INCOME:
   Loans including fees                            $7,394,713    $6,512,534
   Debt securities - taxable                          713,990       655,184
   Debt securities - nontaxable                       133,666       202,749
   Deposits and federal funds sold                    152,356       319,958
   Equity securities                                   62,761        47,142
                                                    ---------     ---------

   Total Interest and Dividend Income               8,457,486     7,737,567
                                                    ---------     ---------

INTEREST EXPENSE:
   Deposits                                         3,059,209     2,857,557
   Borrowings                                         211,808        91,017
                                                    ---------     ---------

   Total Interest Expense                           3,271,017     2,948,574
                                                    ---------     ---------

NET INTEREST INCOME                                 5,186,469     4,788,993

PROVISION FOR LOAN LOSSES (Note 7)                    423,604       182,500
                                                    ---------     ---------

NET INTEREST INCOME AFTER PROVISION FOR
   LOAN LOSSES                                      4,762,865     4,606,493
                                                    ---------     ---------

NONINTEREST INCOME:
   Service charges on deposit accounts                549,936       526,700
   Other income                                       392,741       536,100
   Gain on security transactions (Note 5)             331,117        19,054
                                                    ---------     ---------

   Total Noninterest Income                         1,273,794     1,081,854
                                                    ---------     ---------

NONINTEREST EXPENSES:
   Salaries and benefits                            1,802,176     1,516,146
   Occupancy expenses                                 308,957       241,373
   Equipment expenses                                 405,079       315,938
   Other expenses (Note 12)                         1,477,475     1,413,367
                                                    ---------     ---------

   Total Noninterest Expenses                       3,993,687     3,486,824
                                                    ---------     ---------

INCOME BEFORE INCOME TAXES                          2,042,972     2,201,523

INCOME TAX EXPENSE (Note 13)                          650,111       659,104
                                                    ---------     ---------
   NET INCOME                                      $1,392,861    $1,542,419
                                                    =========     =========

EARNINGS PER SHARE
   Net income                                      $     1.25    $     1.32
                                                    =========     =========

  Weighted Average Shares Outstanding               1,117,574     1,172,935
                                                    =========     =========

        The accompanying notes are an integral part of this statement.


<PAGE> 26

PIONEER BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000 AND 1999

                                                                 Accumulated
                                                                    Other
                                          Common      Retained  Comprehensive
                                Total     Stock (1)   Earnings     Income
BALANCES,
  DECEMBER 31, 1998         $11,059,715  $  593,905  $10,351,815 $  113,995

Comprehensive Income

  Net income                  1,542,419                           1,542,419
  Net change in unrealized
   gains on securities
   available for sale, net
   of income taxes of
   ($74,000)                   (120,066)                           (120,066)
                             ----------
  Total Comprehensive Income  1,422,353

Dividends declared             (643,064)               (643,064)
Retirement of common stock   (1,009,052)    (33,010)   (976,042)
Other                              (409)        (60)       (349)
                             ----------   ---------   ---------    --------

BALANCES,
  DECEMBER 31, 1999          10,829,543     560,835  10,274,779      (6,071)

Comprehensive Income

  Net income                  1,392,861               1,392,861
  Net change in unrealized
   gains on securities
   available for sale, net
   of income taxes of
   $183,000                     297,924                             297,924
                             ----------
  Total Comprehensive Income  1,690,785

Dividends declared             (670,835)               (670,835)
Retirement of common stock      (96,531)     (2,777)    (93,754)
                             ----------   ---------   ---------   ---------

BALANCES,
  DECEMBER 31, 2000         $11,752,962  $  558,058  $10,903,051 $  291,853
                             ==========   =========   ==========  =========


      (1) The par value of common stock was reduced from $1.00 per share to $.50
per share on April 1, 1999 resulting in a 2 for 1 stock split.

        The accompanying notes are an integral part of this statement.


<PAGE> 27

PIONEER BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 1999

                                                       2000         1999
CASH FLOWS FROM OPERATING ACTIVITIES:

  Net income                                       $ 1,392,861   $1,542,419
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Provision for loan losses                        423,604      182,500
      Demutualization stock gain                                   (148,120)
      Depreciation                                     284,838      239,898
      Net change in:
         Accrued income                                (63,978)      (9,459)
         Other assets                                 (352,658)     (23,983)
         Accrued expense and other liabilities         (28,737)     207,725
                                                    ----------    ---------

  Net Cash Provided by Operating Activities          1,655,930    1,990,980
                                                    ----------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES:

  Net change in federal funds sold                   2,105,000    4,405,000
  Net decrease (increase) in interest bearing
    deposits                                         4,489,379   (4,536,011)
  Proceeds from maturities and sales of
    securities available for sale                    3,775,635    2,125,885
  Proceeds from maturities and calls of
    securities held to maturity                      1,573,124    3,962,586
  Purchase of securities available for sale         (2,940,181)  (7,426,089)
  Purchase of securities held to maturity                           (15,995)
  Net increase in loans                             (4,565,230)  (7,146,495)
  Purchase of bank premises and equipment             (182,074)    (466,504)
  Investment in life insurance policies                (16,746)     (63,098)
  Acquisition of Valley Finance Service             (1,297,291)
                                                    ----------   ----------

  Net Cash Provided by (Used in)
    Investing Activities                             2,941,616   (9,160,721)
                                                    ----------   ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net change in:

    Demand and savings deposits                       (449,531)     681,534
    Time deposits                                    1,754,952    2,546,418
    Short-term borrowings                              (16,437)      43,680
  Proceeds from borrowings                                        6,500,000
  Curtailments of borrowings                        (5,674,600)    (150,000)
  Purchase and subsequent retirement of
    common stock                                       (96,531)  (1,009,461)
  Dividends paid                                      (670,835)    (643,064)
                                                    ----------    ---------

  Net Cash Provided by (Used in)
    Financing Activities                            (5,152,982)   7,969,107
                                                    ----------    ---------

CASH AND CASH EQUIVALENTS
  Net increase (decrease) in cash and
    cash equivalents                                  (555,436)     799,366
  Cash and cash equivalents, beginning of year       5,198,869    4,399,503
                                                    ----------    ---------

  Cash and Cash Equivalents, End of Year           $ 4,643,433   $5,198,869
                                                    ==========    =========

        The accompanying notes are an integral part of this statement.


<PAGE> 28

PIONEER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1    NATURE OF OPERATIONS:

Pioneer  Bankshares,  Inc.  ("Company"),  through its  subsidiary  Pioneer  Bank
("Bank"),  operates under a charter issued by the  Commonwealth  of Virginia and
provides  commercial  banking  services.  As a state chartered bank, the Bank is
subject to regulation by the Virginia Bureau of Financial  Institutions  and the
Federal Reserve Bank. The Bank provides  services at four separate  locations to
customers located primarily in Page and Rockingham Counties of Virginia.

On October 23, 2000, the Bank purchased Valley Finance Service,  Inc.,  ("Valley
Finance") a finance company  licensed under the Virginia  Consumer  Finance Act.
Valley  Finance  makes loans for consumer and  personal  reasons to  individuals
located primarily in Harrisonburg and Rockingham County, Virginia.

NOTE 2    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The accounting and reporting  policies of the Bank conform to generally accepted
accounting  principles and to accepted practice within the banking  industry.  A
summary of significant accounting policies is as follows:

Consolidation  Policy - The  consolidated  financial  statements  of the Company
include the Bank and Valley  Finance which are  wholly-owned  subsidiaries.  All
significant intercompany balances and transactions have been eliminated.

Use of  Estimates -  Management  uses  estimates  and  assumptions  in preparing
financial  statements;  actual  results  could differ  significantly  from those
estimates. These estimates and assumptions affect the reported amounts of assets
and  liabilities,  the disclosure of contingent  assets and  liabilities and the
reported revenue and expenses.

Investment  Securities  - Investment  securities  which the Bank intends to hold
until  maturity  or until  called  are  classified  as Held to  Maturity.  These
investment  securities are carried at cost, adjusted for amortization of premium
and accretion of discounts.

Investment  securities which the Bank intends to hold for indefinite  periods of
time, including investment securities used as part of the Bank's asset/liability
management  strategy,  are  classified as available for sale.  These  investment
securities are carried at fair value.  Net unrealized  gains and losses,  net of
deferred  income  taxes,  are excluded  from earnings and reported as a separate
component of stockholders' equity until realized.

Gains and losses on the sale of investment  securities are determined  using the
specific identification method.

Loans  Receivable - Loans  receivable are intended to be held until maturity and
are shown on the statements of financial  condition net of unearned interest and
the allowance for loan losses.  Interest is computed by methods which  generally
result in level rates of return on  principal.  Interest on past due and problem
loans is accrued  until  serious  doubt arises as to the  collectibility  of the
interest.


<PAGE> 29

PIONEER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

Allowance  for Loan Losses - The  allowance  for a loan losses is  increased  by
charges  to  income  and  decreased  by  charge-offs  (net of  recoveries).  The
provision  for loan  losses  charged  to  income is based on  management's  best
estimate  after  taking  into  consideration  all  factors  connected  with  the
collectability  of  the  existing  portfolio.   Management  evaluates  the  loan
portfolio  in light of economic  conditions,  changes in the nature and value of
the loan  portfolio,  industry  standards and other relevant  factors.  Specific
factors  considered by management in  determining  the amount  charged to income
include;  internally generated loan review and loan evaluation reports, past due
reports, watch lists, and historical loan loss experience. Consideration is also
given to loan  concentrations  involving  geography,  business  type or level of
risk.  Nonperforming  loans  are  evaluated  by  management  relative  to  their
collateral value.

Bank  Premises and  Equipment - Bank  premises and  equipment are stated at cost
less  accumulated  depreciation.  Depreciation  is  charged  to income  over the
estimated  useful  lives of the assets on a  combination  of  straight-line  and
accelerated methods.

Goodwill - Goodwill is being  amortized over fifteen years on the  straight-line
method.

Income  Taxes - Amounts  provided  for  income tax  expense  are based on income
reported for financial  statement purposes rather than amounts currently payable
under income tax laws.  Deferred  tax assets and  liabilities  are  reflected at
currently  enacted  income  tax  rates  applicable  to the  period  in which the
deferred tax assets or  liabilities  are expected to be realized or settled.  As
changes in tax laws or rates are enacted,  deferred  tax assets and  liabilities
are adjusted through the provision for income taxes.

Financial Instruments - In the ordinary course of business, the Bank has entered
into off-balance-sheet financial instruments consisting of commitments to extend
credit,  commitments  under  credit-card  arrangements,  commercial  letters  of
credit, and standby letters of credit.  Such financial  instruments are recorded
in the financial statements when they are funded or related fees are incurred or
received.

The Bank uses the same  credit  policies  in making  commitments  as it does for
other loans. Commitments to extend credit are generally made for a period of one
year or less and  interest  rates  are  determined  when  funds  are  disbursed.
Collateral  and other  security for the loans are  determined on a  case-by-case
basis.  Since some of the commitments are expected to expire without being drawn
upon, the contract or notional amounts do not necessarily  represent future cash
requirements.

Cash and Cash Equivalents - Cash and cash  equivalents  include cash on hand and
deposits at other financial  institutions  whose initial maturity is ninety days
or less.

Earnings Per Share - Earnings per share are based on the weighted average number
of shares  outstanding.  Prior period per share  amounts  have been  restated to
reflect the 1999 stock split.


<PAGE> 30

PIONEER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3    CASH AND DUE FROM BANKS:

The Bank is required to maintain  average reserve balances based on a percentage
of  deposits.  The  average  balance of cash,  which the  Federal  Reserve  Bank
requires  to be on  reserve,  was $ 714,000  and  $683,000  for the years  ended
December 31, 2000 and 1999, respectively.

NOTE 4    DEPOSITS IN AND FEDERAL FUNDS SOLD TO BANKS:

The Bank has cash  deposited in and federal  funds sold to other banks,  most of
which exceed  federally  insured limits,  totaling  $2,927,000 and $9,155,000 at
December 31, 2000 and 1999, respectively.

NOTE 5    INVESTMENT SECURITIES:

The amortized cost and fair value of investment securities are as follows:

                                          Gross                    Gross
                         Amortized     Unrealized   Unrealized      Fair
                            Cost         Gains        Losses        Value

     December 31, 2000

Available for sale
  U.S. government and
   agency securities    $  9,966,000  $    42,000  $     88,000  $ 9,920,000
  Equity securities          838,000      563,000        44,000    1,357,000
                         -----------   ----------   -----------   ----------

                        $ 10,804,000  $   605,000  $    132,000  $11,277,000
                         ===========   ==========   ===========   ==========

Held to Maturity
  U.S. government and
   agency securities    $    752,000  $     2,000  $             $   754,000
  State and municipals       956,000       17,000                    973,000
  Mortgage-backed            275,000        3,000         1,000      277,000
                         -----------   ----------   -----------   ----------

                        $  1,983,000  $    22,000  $      1,000  $ 2,004,000
                         ===========   ==========   ===========   ==========

     December 31, 1999

Available for sale
  U.S. government and
   agency securities    $ 10,563,000  $     1,000  $    407,000  $10,157,000
  Equity securities        1,049,000      436,000        14,000    1,471,000
                         -----------   ----------   -----------   ----------

                        $ 11,612,000  $   437,000  $    421,000  $11,628,000
                         ===========   ==========   ===========   ==========

Held to Maturity
  U.S. government and
   agency securities    $  1,759,000  $     2,000  $     24,000  $ 1,737,000
  State and municipals     1,253,000       29,000                  1,282,000
  Mortgage-backed            545,000                     23,000      522,000
                         -----------   ----------   -----------   ----------

                        $  3,557,000  $    31,000  $     47,000  $ 3,541,000
                         ===========   ==========   ===========   ==========


<PAGE> 31

PIONEER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5    INVESTMENT SECURITIES (CONTINUED):

The amortized cost and fair value of investment securities at December 31, 2000,
by  contractual  maturity,  are  shown  in  the  following  schedule.   Expected
maturities will differ from contractual  maturities  because  borrowers may have
the right to call or  prepay  obligations  with or  without  call or  prepayment
penalties.

                             Securities Available         Securities Held
                                   for Sale                 to Maturity
                              Amortized     Fair     Amortized        Fair
                                Cost        Value      Cost           Value

Due in one year or less    $            $            $1,002,000  $ 1,007,000
Due after one year through
   five years                 3,479,000   3,479,000     506,000      516,000
Due five years through
   ten years                  5,587,000   5,581,000     200,000      204,000
Due after ten years             900,000     860,000
                            -----------  ----------   ---------    ---------

                              9,966,000   9,920,000   1,708,000    1,727,000

Mortgage-backed                                         275,000      277,000
Equity securities               838,000   1,357,000
                            -----------  ----------   ---------   ----------

                           $ 10,804,000 $11,277,000  $1,983,000  $ 2,004,000
                            ===========  ==========   =========   ==========

Realized  gains and losses on  marketable  equity  transactions  are  summarized
below:

                                             2000        1999

Gains                                     $ 474,234   $ 197,000
Losses                                      143,117     178,000
                                           --------    --------

   Net Gains                              $ 331,117   $  19,000
                                           ========    ========

Investment securities with a book value of $715,000 and $818,000 at December 31,
2000 and 1999,  respectively,  were  pledged to secure  public  deposits and for
other purposes required by law.

NOTE 6    LOANS:

Loans  are  stated at their  face  amount,  net of  unearned  discount,  and are
classified as follows at December 31:

                                                       2000         1999

Real estate loans                                  $55,315,000  $52,780,000
Commercial and industrial loans                      4,058,000    4,007,000
Loans to individuals, primarily collateralized
   by autos                                         20,459,000   14,359,000
All other loans                                        425,000      364,000
                                                    ----------   ----------

   Total Loans                                      80,257,000   71,510,000

Less unearned discount                               2,323,000    1,479,000
                                                    ----------   ----------

Loans, less unearned discount                       77,934,000   70,031,000

Less allowance for loan losses                         992,000      779,000
                                                    ----------   ----------

   Net Loans Receivable                            $76,942,000  $69,252,000
                                                    ==========   ==========


<PAGE> 32

PIONEER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6    LOANS (CONTINUED):

The Bank grants  commercial,  real estate and consumer  installment loans to its
customers.  Collateral  requirements  for loans are determined on a loan by loan
basis depending upon the purpose of the loan and the financial  condition of the
borrower.

The Company has a blanket lien against their one to four person  mortgage  loans
as collateral for borrowings with the Federal Home Loan Bank of Atlanta.

NOTE 7    ALLOWANCE FOR LOAN LOSSES:

A summary of transactions in the allowance for loan losses is as follows:

                                                      2000          1999

Balance, beginning of year                         $  779,000    $  773,000
Provision acquired with purchase of
   Valley Finance Service                             408,000
Provision charged to operating expenses               424,000       183,000
Recoveries of loans charged off                       136,000        45,000
Loans charged off                                    (755,000)     (222,000)
                                                    ---------     ---------

   Balance, End of Year                            $  992,000    $  779,000
                                                    =========     =========


NOTE 8    BANK PREMISES AND EQUIPMENT:

Bank premises and equipment included in the financial statements at December 31,
are as follows:

                                                       2000          1999

Land                                               $  342,000    $  342,000
Land improvements and buildings                     2,651,000     2,580,000
Furniture and equipment                             3,035,000     2,832,000
                                                    ---------     ---------

                                                    6,028,000     5,754,000
Less accumulated depreciation                       3,218,000     2,845,000
                                                    ---------     ---------

   Net                                             $2,810,000    $2,909,000
                                                    =========     =========


NOTE 9    DEPOSITS:

At December 31, 2000, the scheduled maturities of time deposits are as follows:

                      2001                        $ 25,949,000
                      2002                          16,688,000
                      2003                           5,273,000
                      2004                           1,966,000
                      2005                           1,144,000
                                                   -----------

                      Total                       $ 51,020,000
                                                   ===========


<PAGE> 33

PIONEER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10   BORROWINGS:

Borrowings consist of the following at December 31:

                                                       2000         1999
Federal Home Loan Bank of Atlanta,
   fixed rate of 6.09%, $50,000 quarterly
   curtainment                                     $1,650,000     $1,850,000

Federal Home Loan Bank of Atlanta,
   line of credit, variable rates ranging
   from 5.9% to 6.87%                                 700,000     4,500,000

Subordinated Bonds of Valley Finance,
   due June 1, 2001, variable interest
   at prime plus one percent                        1,087,000
                                                    ---------      ---------

   Total Borrowings                                $3,437,000     $6,350,000
                                                    =========      =========

The maturities of debt as of December 31, 2000 are as follows:

                      2001                         $1,987,000
                      2002                            200,000
                      2003                            200,000
                      2004                            200,000
                      2005                            200,000
                      Thereafter                      650,000
                                                    ---------

                      Total                        $3,437,000
                                                    =========


NOTE 11   OTHER INCOME:

During  1999,  the Bank  entered  into an  agreement  with its former  President
whereby this individual  reimbursed the Bank for certain prior bank expenditures
and certain costs associated  therewith.  The prior bank expenditures  relate to
direct  purchases  and credit card charges that were not found to have  adequate
documentation to support the business  purpose of the  expenditure.  These items
total  $96,000  and  $155,000  for the years ended  December  31, 2000 and 1999,
respectively.  The former  President also  reimbursed  legal and accounting fees
incurred  by the Bank in  regards  to these  matters in the amount of $9,000 and
$34,000  for  the  years  ended  December  31,  2000  and  1999,   respectively.
Additionally,   the  former  President  agreed  to  forego  deferred   incentive
compensation  amounting to $78,000,  this amount being reflected in Other Income
in 1999.

During  1999,   the  Bank  received   equity   securities   resulting  from  the
demutualization  of a life  insurance  company.  This resulted in the securities
being  recognized  at fair  value  on date of  receipt.  Other  income  includes
$148,000 to reflect this gain.

NOTE 12   OTHER EXPENSES:

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

                                                       2000          1999

Supplies and printing                              $  159,000    $  209,000
Directors fees                                        131,000       101,000
Professional fees                                     196,000       133,000
Life insurance                                        100,000        95,000
Other                                                 891,000       875,000
                                                    ---------     ---------

   Total                                           $1,477,000    $1,413,000
                                                    =========     =========


<PAGE> 34

PIONEER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13   INCOME TAXES:

The components of income tax expense are as follows:

                                                        2000         1999

Current income tax expense                         $  596,000     $ 583,000
Deferred income taxes                                  54,000        76,000
                                                    ---------      --------

   Income Tax Expense                              $  650,000     $ 659,000
                                                    =========      ========

The  reasons  for the  differences  between  income tax  expense  and the amount
computed by applying the statutory federal income tax rate are as follows:

                                                       2000          1999
Income taxes computed at the applicable
   federal income tax rate                         $  695,000     $ 685,000
Increase (decrease) resulting from:
   Tax-exempt municipal income                        (48,000)      (71,000)
   Other                                                3,000        45,000
                                                    ---------      --------

   Income Tax Expense                              $  650,000     $ 659,000
                                                    =========      ========

At December 31, the net deferred tax asset was made up of the following:

                                                        2000         1999
Deferred Tax Assets:
   Provision for loan losses                       $  271,000     $ 109,000
   Deferred compensation                              123,000       105,000
   Securities available for sale                       16,000         5,000
                                                    ---------      --------

   Total                                              410,000       219,000
                                                    ---------      --------

Deferred Tax Liabilities:
   Depreciation                                       134,000       130,000
   Cash surrender value of life insurance              50,000        38,000
   Securities available for sale                      254,000        20,000
   Other                                                7,000         7,000
                                                    ---------      --------

   Total                                              445,000       195,000
                                                    ---------      --------

   Net Deferred Tax Asset (Liability)              $  (35,000)    $  24,000
                                                    =========      ========

The deferred tax effects of temporary differences are as follows:

                                                        2000         1999

   Provision for loan losses                       $ (162,000)    $  (2,000)
   Deferred compensation                              (18,000)       50,000
   Securities available for sale                      223,000        14,000
   Depreciation                                         4,000        15,000
   Cash surrender value of life insurance              12,000        10,000
   Other                                                            (11,000)
                                                    ---------      --------

   Deferred Income Taxes                           $   59,000     $  76,000
                                                    =========      ========


<PAGE> 35

PIONEER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14    DIVIDEND LIMITATION ON SUBSIDIARY BANK:

The principal  source of funds of the Company is dividends paid by the Bank. The
amount of dividends the Bank may pay is regulated by the Federal Reserve.  As of
January 1, 2001,  maximum amount of dividends the Bank can pay to the Company is
$499,000, without requesting permission from the Federal Reserve Bank.

NOTE 15    REGULATORY MATTERS:

The Bank is subject to various regulatory capital  requirements  administered by
the federal banking agencies.  Failure to meet minimum capital  requirements can
initiate certain mandatory - and possibly additional  discretionary - actions by
regulators  that,  if  undertaken,  could have a direct  material  effect on the
Bank's  financial   statements.   Under  capital  adequacy  guidelines  and  the
regulatory  framework for prompt corrective  action, the Bank must meet specific
capital  guidelines  that involve  quantitative  measures of the Bank's  assets,
liabilities,  and certain off-balance sheet items as calculated under regulatory
accounting  practices.  The Bank's capital amounts and  classification  are also
subject to  qualitative  judgements by the  regulators  about  components,  risk
weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain  minimum amounts and ratios (set forth in the table
below)  of  total  and  Tier  I  capital  (as  defined  in the  regulations)  to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 2000, that the Bank
meets all capital adequacy requirements to which it is subject.

As of September 30, 2000, the most recent  notification  from the  institution's
primary regulator  categorized the Bank as well capitalized under the regulatory
framework for prompt  corrective  action.  To be categorized as well capitalized
the Bank must maintain  minimum  total  risk-based,  Tier I  risk-based,  Tier I
leverage  ratios as set forth in the table.  There are no  conditions  or events
since that notification that management  believes have changed the institution's
category.

The Bank's actual  capital  amounts and ratios are also presented  below:  (in
thousands)
<TABLE>
<CAPTION>

                                                    For Capital         To Be Well
                                    Actual       Adequacy  Purposes      Capitalized
                              Amount    Ratio     Amount    Ratio      Amount    Ratio

<S>                           <C>      <C>        <C>       <C>        <C>      <C>

As of December 31, 2000:
   Total Capital (to Risk
     Weighted Assets)         $ 8,992   13.5%     $ 5,345   => 8.0%    $ 6,681  =>10.0%
   Tier I Capital (to Risk
     Weighted Assets)           8,155   12.2%       2,672   => 4.0%      4,008  => 6.0%
   Tier I Capital (to Average
     Assets)                    8,155    8.4%       2,902   => 3.0%      4,837  => 5.0%

As of December 31, 1999:
   Total Capital (to Risk
     Weighted Assets)         $ 9,160   14.9%     $ 4,932   => 8.0%    $ 6,165  =>10.0%
   Tier I Capital (to Risk
     Weighted Assets)           8,391   13.7%       2,457   => 4.0%      3,686  => 6.0%
   Tier I Capital (to Average
     Assets)                    8,391    9.0%       2,827   => 3.0%      4,712  => 5.0%
</TABLE>


<PAGE> 36

PIONEER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16    LENDING COMMITMENTS:

The contract or notional amount of financial  instruments with off-balance sheet
risk are as follows:

                                                       2000         1999

Lines of Credit (commercial and personal)          $ 2,670,000   $2,731,000
Loan commitments and letters of credit
   (commercial and personal)                           543,000      845,000
Credit card unused credit limits                     2,716,000    2,128,000


NOTE 17    TRANSACTIONS WITH RELATED PARTIES:

During the year, officers and directors (and companies  controlled by them) were
customers  of and had  transactions  with the  Company in the  normal  course of
business.  These transactions were made on substantially the same terms as those
prevailing for other customers and did not involve any abnormal risk.

Loan transactions to such related parties are shown in the following schedule:

                                                        2000         1999

Total loans, beginning of year                       $ 526,000   $  331,000
New loans                                               20,000      265,000
Payments                                              (139,000)     (70,000)
                                                      --------    ---------

   Total Loans, End of Year                          $ 407,000   $  526,000
                                                      ========    =========


NOTE 18    SUPPLMENTAL CASH FLOW DISCLOSURES:

In conjunction with the acquisition of Valley Finance,  the following assets and
liabilities were assumed:

Loans, net                                         $ 3,548,000
Goodwill                                               403,000
Other assets                                           210,000
Long-term debt                                      (2,312,000)
Short-term debt                                       (450,000)
Accrued expenses                                      (102,000)
                                                    ----------

   Cash Paid to Acquire Valley Finance             $ 1,297,000
                                                    ==========

Interest  paid  during  2000 and 1999  amounted to  $3,192,000  and  $2,910,000,
respectively.

Income  taxes  paid  amounted  to  $761,000  and  $634,000  for 2000  and  1999,
respectively.


<PAGE> 37

PIONEER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19    DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:

Statement  of Financial  Accounting  Standards  No. 107 (SFAS 107)  "Disclosures
About  the Fair  Value of  Financial  Statements"  defines  the fair  value of a
financial  instrument  as the amount at which a  financial  instrument  could be
exchanged in a current  transaction  between  willing  parties,  other than in a
forced  liquidation  sale. As the majority of the Bank's  financial  instruments
lack an available trading market, significant estimates, assumptions and present
value calculations are required to determine estimated fair value.

Estimated fair value and the carrying value of financial instruments at December
31, 2000 and 1999 are as follows (in thousands):

                                        2000                  1999
                                        ----                  ----
                                Estimated   Carrying    Estimated  Carrying
                               Fair Value    Value     Fair Value    Value

Financial Assets

   Cash                        $   4,643  $   4,643   $   5,199  $    5,199
   Federal funds sold                110        110       2,215       2,215
   Interest bearing deposits          47         47       4,536       4,536
   Securities available
     for sale                     11,277     11,277      11,628      11,628

   Securities held to maturity     2,004      1,983       3,541       3,557
   Loans                          73,966     76,942      64,166      69,252
   Accrued interest receivable       641        641         560         560

Financial Liabilities
   Demand Deposits:
     Non-interest bearing         13,706     13,706      12,246      12,246
     Interest bearing              9,880      9,880      10,516      10,516
   Savings deposits                9,139      9,139      10,412      10,412
   Time deposits                  51,457     51,020      49,398      49,265
   Treasury tax and loan
     account                          60         60          77          77

   Borrowings                      3,423      3,437       6,253       6,350


The carrying value of cash and cash  equivalents,  other  investments,  deposits
with  no  stated  maturities,   short-term  borrowings,   and  accrued  interest
approximates  fair value.  The fair value of securities was calculated using the
most recent transaction price or a pricing model, which takes into consideration
maturity,  yields and quality.  The remaining financial  instruments were valued
based on the present value of estimated future cash flows, discounted at various
rates in effect for similar  instruments  during the month of December  2000 and
1999.


<PAGE> 38

PIONEER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20    PARENT CORPORATION ONLY FINANCIAL STATEMENTS:

                                 BALANCE SHEETS

ASSETS                                               2000           1999

   Cash and cash equivalents                     $   979,440    $   415,744
   Investment in subsidiary                        8,523,736      8,024,770
   Securities available for sale                   1,357,295      1,471,359
   Due from subsidiaries                                            206,485
   Bank premises and equipment, net                1,069,827      1,095,785
   Income tax refund                                 192,308         14,850
                                                  ----------     ----------

     Total Assets                                $12,122,606    $11,228,993
                                                  ==========     ==========

LIABILITIES

   Dividends payable                             $              $   169,791
   Deferred income taxes                             273,650        229,178
   Due to subsidiaries                                95,573
   Other liabilities                                     421            481
                                                  ----------     ----------

     Total Liabilities                               369,644        399,450
                                                  ----------     ----------

STOCKHOLDERS' EQUITY

   Common stock                                      558,058        560,835
   Retained earnings                              10,903,051     10,274,779
   Accumulated other comprehensive income            291,853         (6,071)
                                                  ----------     ----------

   Total Stockholders' Equity                     11,752,962     10,829,543
                                                  ----------     ----------

   Total Liabilities and Stockholders' Equity    $12,122,606    $11,228,993
                                                  ==========     ==========


<PAGE> 39

PIONEER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20    PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED):

                STATEMENTS OF NET INCOME AND RETAINED EARNINGS

INCOME                                               2000           1999

   Dividends from affiliate                      $   935,863    $ 1,500,178
   Interest income                                    17,556          1,827
   Dividend income                                    23,774         18,478
   Security gains                                    327,412          3,768
   Rent income                                        82,874         82,874
   Other income                                        8,969        150,384
                                                  ----------     ----------

   Total Income                                    1,396,448      1,757,509
                                                  ----------     ----------

EXPENSES

   Occupancy expenses                                 39,972         39,911
   Furniture and equipment expenses                   16,607          9,112
   Other operating expenses                           97,934         54,651
                                                  ----------     ----------

   Total Expenses                                    154,513        103,674
                                                  ----------     ----------

Net income before income tax expense and
   increase (decrease) in undistributed
   equity of affiliates                            1,241,935      1,653,835

INCOME TAX EXPENSE                                  (110,000)       (47,361)
                                                  ----------     ----------

Net income before increase (decrease)
   in undistributed income of affiliates           1,131,935      1,606,474

Increase (decrease) in undistributed
   income of affiliates                              260,926        (64,055)
                                                  ----------     ----------

   NET INCOME                                      1,392,861      1,542,419

Retained earnings, beginning of year              10,274,779     10,351,815
Dividends on common stock                           (670,835)      (643,064)
Retirement of common stock                           (93,754)      (976,042)
Other                                                                  (349)
                                                  ----------     ----------

Retained Earnings, End of Year                   $10,903,051    $10,274,779
                                                  ==========     ==========


<PAGE> 40

PIONEER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20    PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED):

                            STATEMENTS OF CASH FLOWS

                                                      2000          1999

CASH FLOWS FROM OPERATING ACTIVITIES:

   Net income                                      $1,392,861    $1,542,419
   Adjustments to reconcile net income to net cash
     provided by operating activities:
       Undistributed subsidiary income               (261,280)       64,055
       Gain on sale of securities                    (327,412)       (3,768)
       Depreciation                                    39,971        39,912
       Decrease (increase) in due from subsidiary     302,058      (206,485)
       Increase in other receivables                 (177,458)       (7,621)
       Increase (decrease) in accrued expenses          7,842          (333)
                                                    ---------     ---------

   Net Cash Provided by Operating Activities          976,582     1,428,179
                                                    ---------     ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from sales of securities available
     for sale                                       2,300,635       970,807
   Purchase of securities available for sale       (1,762,002)     (832,879)
   Purchase of fixed assets                           (14,013)       (1,566)
                                                    ---------     ---------

   Net Cash Provided by Investing Activities          524,620       136,362
                                                    ---------     ---------

CASH FLOWS FROM FINANCING ACTIVITIES:

   Purchase of common stock                           (96,531)   (1,009,112)
   Dividends paid in cash                            (840,975)     (474,207)
                                                    ---------     ---------

   Net Cash Used in Financing Activities             (937,506)   (1,483,319)
                                                    ---------    ----------

Net Increase in Cash and Cash Equivalents             563,696        81,222

Cash and Cash Equivalents, Beginning of Year          415,744       334,522
                                                    ---------     ---------

Cash and Cash Equivalents, End of Year             $  979,440    $  415,744
                                                    =========     =========


<PAGE> 41

Item 8.  Changes in and Disagreements with Accountants

     None

Part III

Item 9. Directors, Executive Officers, Promoters and Control Persons:
        Section 16(a) Beneficial Ownership Reporting Compliance

     The following  table sets forth  information  with respect to the directors
and executive officers of the Holding Company.

                                  Term            Principal Occupation
  Directors            Age       Expires         During Past Five Years

Robert E. Long         70         2003          Real  estate  agent.  Director
                                                since  1989  and of  the  Bank
                                                since 1989.

Kyle Miller            66         2003          Retired   State   Police   and
                                                Business Manager.  Director
                                                since 1986 and of the Bank
                                                since 1986.

Patricia G. Baker      58         2003          Retired     bank      officer.
                                                Director  since  1989  and  of
                                                the Bank since 1989.

Thomas R. Rosazza      59         2001          President,   Holding   Company
                                                and Bank  Director  since 1984
                                                and of the Bank since 1973.

David N. Slye          48         2001          Insurance   agent.    Director
                                                since  1996  and of  the  Bank
                                                since 1996.

Harry F. Louderback    60         2001          Farmer/retired    from    FBI.
                                                Director  since  1998  and  of
                                                the Bank since 1998.

Louis L. Bosley        69         2002          Businessman  -  auto  service.
                                                Director  since  1984  and  of
                                                the Bank since 1976.

Mark N. Reed           43         2002          Attorney   at  Law.   Director
                                                since  1994  and of  the  Bank
                                                since 1994.

E. Powell Markowitz    49         2002          Businessman-Hotel/Restaurant
                                                Director  since  1999  and  of
                                                the Bank since 1999.

Other Executive
  Directors            Age

Ronald R. Diehl        54                       Senior     Vice     President/
                                                Commercial  Lending,   Pioneer
                                                Bank.

Brenda B. Kite         53                       Senior   Vice   President/CFO,
                                                Pioneer Bank.


Betty J. Purdham       52                       Senior     Vice     President/
                                                Operations-Consumer   Lending,
                                                Pioneer Bank.

     The   Board  of   Directors   has   five   standing   committees,   namely;
Personnel/Compensation,    Merger/Acquisition,   Audit/Compliance,   Shareholder
Relations and Strategic Planning.


<PAGE> 42

Section 16(a)  Beneficial Ownership Reporting Compliance

     Based on a review of report of changes in  beneficial  ownership  of Common
Stock and written  representations  furnished to the Bank, the Bank believes its
officers and directors filed on a timely basis the reports  required to be filed
under  Section  16(a) of the  Securities  Exchange Act of 1934 during the fiscal
year ended December 31, 2000, except for one late report for Mrs. Baker.

Item 10. Executive Compensation

Summary

     The following table sets forth a summary of certain information  concerning
the compensation  paid by the Holding Company and the Bank for services rendered
in all capacities  during the year to the President and Chief Executive  Officer
of the Bank. No other  executive  officer of the Holding Company and/or Bank had
total compensation during the fiscal year which exceeded $100,000.

Summary Compensation Table

                                                 Annual Compensation (1)
Name and Principal Position      Year         Salary     Bonus      Other

Thomas R. Rosazza, President     2000        $ 89,042   $45,000   $   None
                                 1999          77,917    30,000       None

(1)  Does not include  certain  perquisites  and other  personal  benefits,  the
     amount  of  which  are not  shown  because  the  aggregate  amount  of such
     compensation during the year did not exceed the lesser of $50,000 or 10% of
     total salary and bonus reported for such executive officer.

     Directors of the Holding  Company receive a fee of $150 for each meeting of
the Board of  Directors  they attend and $150 for each Board  committee  meeting
they attend.

Item 11.Security Ownership of Certain Beneficial Owners and Management

     The following table sets forth, as of March 24, 2001,  certain  information
with respect to the beneficial  ownership of the Holding Company's common stock,
par value $.50 per share ("Common Stock"),  held by each director of the Holding
Company,  the executive officers and by the directors and all executive officers
as a group.

     As of March 24, 2001,  the Holding  Company is not aware of any  beneficial
owners  of 5% or more of the  Holding  Company's  common  stock  except  for the
Pioneer Bankshares, Inc. Employee Stock Ownership Plan ("ESOP"). As of March 24,
2001, the ESOP held 83,717 (7.50%) shares of common stock. Employees have voting
rights for the shares of common stock allocated to them by the ESOP.

                              Amount and Nature of
     Directors               Beneficial Ownership (1)       Percent of Class

Patricia G. Baker                     15,956                       1.43%
108 Running Pine Road
Stanley, VA  22851

Louis L. Bosley                       22,850                       2.05%
135 S. Bosley Drive
P.O. Box 190
Stanley, VA  22851


<PAGE> 43

                              Amount and Nature of
     Directors               Beneficial Ownership (1)       Percent of Class

Robert E. Long, Chairman              11,710                       1.05
123 Valley Drive
Luray, VA  22835

Harry F. Louderback                   17,710                       1.59%
1001 Old Farm Road
Shenandoah, VA  22849

E.Powell Markowitz                     1,430                       *
270 Circle View Road
Luray, VA  22835

Kyle L. Miller                        10,130                       *
1394 Aylor Grubbs Avenue
Stanley, VA  22851

Mark N. Reed                           3,680                       *
P.O. Box 766
Luray, VA  22835

Thomas R. Rosazza, President          16,562                       1.48%
P.O. Box 96
Shenandoah, VA  22849

David N. Slye                          1,230                       *
1908 Bixler Ferry Road
Luray, VA  22835


All Directors and Executive
    Officers as a Group              101,258                       9.07%

                                                         Less than 1%*

(1) For purposes of this table,  beneficial  ownership  has been  determined  in
    accordance with the provisions of Rule 13d-3 of the Securities  Exchange Act
    of 1934 under  which,  in general,  a person is deemed to be the  beneficial
    owner of a  security  if he has or shares  the  power to vote or direct  the
    voting of the security or the power to dispose of or direct the  disposition
    of the security,  or if he has the right to acquire beneficial  ownership of
    the security within sixty days.  Shares of Common Stock which are subject to
    stock options are deemed to be outstanding  for the purpose of computing the
    percentage of outstanding Common Stock owned by such person or group but not
    deemed  outstanding  for the purpose of computing  the  percentage of Common
    Stock owned by any other person or group.

Item 12.    Certain Relationships and Related Transactions

     During 2000, the Bank extended credit to its directors. All such loans were
made in the ordinary  course of business,  were made on  substantially  the same
terms, including interest rates and collateral,  as those prevailing at the time
for comparable credits on terms that do not involve more than the normal risk or
collectibility or present other unfavorable features.


<PAGE> 44

Item 13. 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.

              21     List of Subsidiaries of the Small Business Issuer.

              23     Consent of Certified Public Accountant attached.

         (b)  Reports on Form 8-K

              On October  3, 2000,  Pioneer  Bankshares,  Inc.  filed Form 8K to
              announce  that on September  26,  2000, a wholly owned  subsidiary
              [Pioneer Financial Services, LLC] had entered into an agreement to
              purchase all the outstanding stock of Valley Finance service, Inc.
              The purchase  price will be paid in cash and is  anticipated to be
              between $1,000,000 and $1,500,000 with the final purchase price to
              be determined  after an audit of Valley Financial  Services,  Inc.
              Pioneer Financial  Services,  LLC will assume operations of Valley
              Financial Services, Inc. on October 23, 2000.



<PAGE> 45

                                    SIGNATURE

     In accordance  with Section 12 of the Securities  Exchange Act of 1934, the
registrant causes this registration  statement to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                         Pioneer Bankshares, Inc.



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



                                By:  BRENDA KITE
                                     ------------------------------------------
                                     Brenda Kite
                                     Vice President and Chief Executive Officer

Date: March 30, 2001