<PAGE>

                           POTOMAC BANCSHARES, INC.
                          Charles Town, West Virginia

--------------------------------------------------------------------------------
               NOTICE OF REGULAR ANNUAL MEETING OF SHAREHOLDERS
                           To be held April 25, 2000
--------------------------------------------------------------------------------

To the Shareholders:

  The Regular Annual Meeting of Shareholders of Potomac Bancshares, Inc.
("Potomac"), will be held at Bavarian Inn, Shepherdstown, West Virginia, at
10:30 a.m. on April 25, 2000, for the purposes of considering and voting upon
proposals:

     1.  To elect a class of Directors for a term of three years.

     2.  To ratify the selection by the Board of Directors of Yount, Hyde &
Barbour, P.C., as independent Certified Public Accountants for the year 2000.

     3.  Any other business which may properly be brought before the meeting or
any adjournment thereof.

     Only those shareholders of record at the close of business on March 17,
2000, shall be entitled to notice of the meeting and to vote at the meeting.

                                   By Order of the Board of Directors
                                   Charles W. LeMaster, President


PLEASE SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. IF YOU DO ATTEND THE MEETING, YOU
HAVE THE OPTION TO WITHDRAW YOUR PROXY.

March 29, 2000
<PAGE>

                           POTOMAC BANCSHARES, INC.
                          111 EAST WASHINGTON STREET
                                 P.O. BOX 906
                          CHARLES TOWN, WEST VIRGINIA
                                (304) 725-8431


                                PROXY STATEMENT
                ANNUAL MEETING OF SHAREHOLDERS - April 25, 2000

     This statement is furnished in connection with the solicitation of proxies
for use at the Annual Meeting of Shareholders of Potomac Bancshares, Inc.
("Potomac") to be held on April 25, 2000, at the time and for the purposes set
forth in the accompanying Notice of Regular Annual Meeting of Shareholders.

Solicitation of Proxies

     The solicitation of proxies is made by management at the direction of the
Board of Directors of Potomac. These proxies enable shareholders to vote on all
matters which are scheduled to come before the meeting. If the enclosed proxy is
signed and returned, it will be voted as directed; or if not directed, the proxy
will be voted "FOR" all of the various proposals to be submitted to the vote of
shareholders described in the enclosed Notice of Regular Annual Meeting and this
Proxy Statement. A shareholder executing the proxy may revoke it at any time
before it is voted: (a) by notifying Potomac in person, (b) by giving written
notice to Potomac of the revocation of the proxy, (c) by submitting to Potomac a
subsequently-dated proxy, or (d) by attending the meeting and withdrawing the
proxy before it is voted at the meeting.

     The expenses of the solicitation of proxies will be paid by Potomac.  In
addition to this solicitation by mail, officers and regular employees of Potomac
and Bank of Charles Town may, to a limited extent, solicit proxies personally or
by telephone or telegraph, although no person will be engaged specifically for
that purpose.

Eligibility of Stock for Voting Purposes

     Pursuant to the Bylaws of Potomac, the Board of Directors has fixed March
17, 2000, as the record date for the purpose of determining the shareholders
entitled to notice of, and to vote at, the meeting or any adjournment thereof,
and only shareholders of record at the close of business on that date are
entitled to such notice and to vote at such meeting or any adjournment thereof.

     As of the record date for the Annual Meeting, 600,000 shares of the capital
stock of Potomac were issued and outstanding and entitled to vote.  The
principal holders of Potomac Common Stock are discussed under the section of
this Proxy Statement entitled, "Principal Holders of Voting Securities".  As of
the record date, Potomac had a total of approximately 825 shareholders.

                                       1
<PAGE>

                              PURPOSES OF MEETING

     1.  ELECTION OF DIRECTORS

General

     The Bylaws of Potomac currently provide for a classified Board of
Directors. There are three classes with each being elected for a three year
term. There are presently 12 Directors on the Board, four of whom are nominees
for election at the 2000 Annual Meeting. Three of the four nominees are non-
employee Directors.

     The Bylaws of Potomac provide that in the election of Directors of Potomac
each shareholder will have the right to vote the number of shares owned by that
shareholder for as many persons as there are Directors to be elected, or to
cumulate such shares and give one candidate as many votes as the number of
Directors multiplied by the number of shares owned shall equal, or to distribute
them on the same principle among as many candidates as the shareholder sees fit.
For all other purposes, each share is entitled to one vote.  If any shares are
voted cumulatively for the election of Directors, the Proxies, unless otherwise
directed, shall have full discretion and authority to cumulate their votes and
vote for less than all such nominees.

     The Bylaws of Potomac provide that nominations for election to the Board of
Directors, other than those made by or on behalf of the existing management of
Potomac, must be made by a shareholder in writing delivered or mailed to the
President not less than 14 days nor more than 50 days prior to the meeting
called for the election of Directors; provided, however, that if less than 21
days' notice of the meeting is given to shareholders, the nominations must be
mailed or delivered to the President not later than the close of business on the
7th day following the day on which the notice of meeting was mailed.  The notice
of nomination must contain the following information, to the extent known:  (a)
name and address of proposed nominee(s); (b) principal occupation of nominee(s);
(c) total shares to be voted for each nominee; (d) name and address of notifying
shareholder; and (e) number of shares owned by notifying shareholder.
Nominations not made in accordance with these requirements may be disregarded by
the Chairman of the meeting and in such case the votes cast for each such
nominee will likewise be disregarded.

     The table set forth on pages 4 and 5 of this Proxy Statement contains
background information on each director nominee.

Committees of the Board

     The Board of Directors of Potomac, as such, has no standing committees, and
the functions of Board committees have been carried out by the Board of
Directors as a whole or through committees of the Board of Directors of Bank of
Charles Town.  While there is no such requirement, the Board of Directors of the
Bank and Potomac are, and have at all times been, identical.

     The Bank has a standing Asset/Liability Management Committee, Audit
Committee, Building/Site Committee, Community Reinvestment Act/Fair Lending
Committee, Investment Committee, Salary and Personnel Committee, Steering
Committee, Trust Committee and Trust Investment Review Committee. A Year 2000
Committee was appointed in 1998 and will continue to serve as long as necessary
to meet Year 2000 challenges.

                                       2
<PAGE>

     The Asset/Liability Management Committee consists of eight members:  Donna
J. Burns, Thomas F. Chambers, Thomas C.G. Coyle, William R. Harner, E. William
Johnson, Gayle Marshall Johnson, Charles W. LeMaster and Donald S. Smith.  This
Committee is comprised of Board members and senior officers whose
responsibilities are to manage the balance sheet of the Bank to maximize and
maintain the spread between interest earned and interest paid while assuming
acceptable business risks and ensuring adequate liquidity.  This Committee held
one meeting during 1999.

     The Audit Committee consists of five members:  Guy Gareth Chicchirichi,
Francis M. Frye, E. William Johnson, Minnie R. Mentzer and Donald S. Smith.  The
purpose of the Audit Committee is to meet with the internal auditor to discuss
and review audit procedures and results.  The auditing department consists of
one full-time employee with the responsibility to administer internal audit
procedures on a regular basis.  During 1999 the Audit Committee held one
meeting.

     The Building/Site Committee consists of eight members:  John P. Burns, Jr.,
Robert W. Butler, Thomas C.G. Coyle, Francis M. Frye, William R. Harner, Charles
W. LeMaster, John C. Skinner, Jr. and Donald S. Smith.  The Building/Site
Committee is charged with making recommendations and decisions regarding proper
repair and maintenance of the Bank's real property.  The Committee held no
meetings in 1999.

     The Community Reinvestment Act (CRA)/Fair Lending Committee consists of
eight members: Donna J. Burns, John P. Burns, Jr., Thomas F. Chambers, William
H. Chesley, Jr., Guy Gareth Chicchirichi, William R. Harner, E. William Johnson
and Charles W. LeMaster.  The CRA/Fair Lending Committee is responsible for
recommending to the Board of Directors policies that address fair lending
concerns and the requirements of the CRA. Fair lending concerns are directed at
preventing lending practices that discriminate either overtly or that have the
effect of discrimination.  The Community Reinvestment Act requires that banks
meet the credit needs of their communities, including those of low and moderate
income borrowers.  This Committee held no meetings in 1999.

     The Investment Committee consists of seven members:  John P. Burns, Jr.,
Guy Gareth Chicchirichi, William R. Harner, E. William Johnson, Charles W.
LeMaster, Minnie R. Mentzer and Donald S. Smith.  The Investment Committee
recommends investment policies to the Board and reviews investments as
necessary.  On most occasions the entire Board acts as the Committee.  The
Investment Committee held no meetings in 1999.

     The Salary and Personnel Committee consists of six members:  Guy Gareth
Chicchirichi, Thomas C.G. Coyle, Francis M. Frye, William R. Harner, Charles W.
LeMaster and Donald S. Smith.  The Salary and Personnel Committee's
responsibilities include evaluating staff performance and requirements,
reviewing salaries, and making necessary recommendations to the Board regarding
these responsibilities.  The Committee held four meetings in 1999.  Neither of
the executive officers who serve on this Committee makes recommendations or
participates in meetings relating to his own salary.  See "Salary and Personnel
Committee Report on Executive Compensation."

     The Steering Committee consists of twelve members: Donna J. Burns, John P.
Burns, Jr., Robert W. Butler, Thomas F. Chambers, Francis M. Frye, William R.
Harner, Robert L. Hersey, Gayle Marshall Johnson, Charles W. LeMaster, Minnie R.
Mentzer, John C. Skinner, Jr. and Donald S. Smith. The Steering Committee held
no meetings in 1999. This Committee reviews and evaluates operating procedures,
interest rates charged on loans and interest rates being paid on deposits.

                                       3
<PAGE>

     The Trust Committee consists of six members: John P. Burns, Jr., Robert W.
Butler, Thomas C.G. Coyle, Robert L. Hersey, Charles W. LeMaster, and John C.
Skinner, Jr. The Trust Committee is responsible for the general supervision of
the fiduciary activities performed by the Trust and Financial Services Division
in order to ensure proper administration of all aspects of the Bank's fiduciary
business. It sets forth prudent policies and guidelines under which the
department can fulfill its fiduciary responsibilities in a timely and efficient
manner and meet state and federal regulatory requirements. The Committee makes
periodic reports to the Board of Directors and oversees the activities of the
Trust Investment Review Committee. The Trust Committee held nineteen regular
meetings in 1999.

     The Trust Investment Review Committee, consisting of two trust officers and
one director (Robert L. Hersey, David S. Smith and Robert W. Butler), meets
regularly to review investments in trust accounts and to determine that these
investments remain within the guidelines of the account.  This Committee held
ten meetings during 1999.

     The Year 2000 Committee consists of fourteen members: Donna J. Burns, John
P. Burns, Jr., Thomas F. Chambers, Thomas C.G. Coyle, Richard Crea, William R.
Harner, Robert L. Hersey, Gayle Marshall Johnson, Doris Loudan, Tammy Miller,
Susan Myers, Kenny Nicewarner, Carolyn O'Brien and Wayne C. Welty.  The Year
2000 Committee was appointed by the Board in January 1998 to coordinate and
guide the Bank in its preparation to meet the challenge of Year 2000 by ensuring
that all equipment is appropriately date sensitive to the four digit date of
2000 and beyond. This Committee held eleven meetings in 1999.

     Neither Potomac nor the Bank has a nominating committee.  Rather, the Board
of Directors of each selects nominees to fill vacancies on the Board.

     The Board of Directors of Potomac met for four regular quarterly meetings
in 1999. The Board of Directors of the Bank holds regular weekly meetings each
Tuesday and special meetings from time to time as required.  During 1999, the
Bank Board held 52 regular meetings.  During the year, each of the Directors
attended at least 75% of all meetings of the Boards of Potomac and the Bank and
all Committees of the Board of the Bank on which they served.

Management Nominees to the Board of Potomac

     The management nominees for the Board of Directors are:
<TABLE>
<CAPTION>
                                   Served As      Family
                                   Director      Relation-      Year
                                      of         ship With    in Which
                                    Potomac        Other        Term       Principal Occupation or
Nominees                    Age      Since       Nominees     Expires      Employment Last Five Years
<S>                         <C>    <C>           <C>          <C>          <C>
William R. Harner            59         1994     None             2000     Employed at Bank since 1967; Sr. Vice President & Cashier
                                                                           since 1988; Sr. Vice President and Secretary of Potomac
                                                                           since 1994.

E. William Johnson           55         1994     None             2000     Chair - Division of Business and Social Sciences and
                                                                           Professor - Shepherd College, Jefferson County, West
                                                                           Virginia; Director - Jefferson Memorial Hospital.
</TABLE>

                                       4
<PAGE>

<TABLE>
<CAPTION>
                                   Served As      Family
                                   Director      Relation-      Year
                                      of         ship With    in Which
Nominees                            Potomac        Other        Term       Principal Occupation or
(Continued)                 Age      Since       Nominees     Expires      Employment Last Five Years
<S>                         <C>    <C>           <C>          <C>          <C>
John C. Skinner, Jr.         58         1994     None             2000     Attorney, owner of Nichols & Skinner, L.C., Jefferson
                                                                           County, West Virginia; Bank attorney since 1986; Potomac
                                                                           attorney since 1994.

Donald S. Smith              71         1994     None             2000     Employed at Bank 1947 to 1991; President 1978 to 1991
                                                                           (retired); Vice President and Assistant Secretary of
                                                                           Potomac since 1994.
</TABLE>

Directors Continuing to Serve Unexpired Terms
<TABLE>
<CAPTION>
                                   Served As       Family
                                   Director      Relation-      Year
                                     of          ship With    in Which
                                   Potomac         Other        Term       Principal Occupation or
Directors                   Age     Since        Nominees     Expires      Employment Last Five Years
<S>                         <C>    <C>           <C>          <C>          <C>
J. Scott Boyd                43         1999     None             2001     Pharmacist and President of Jefferson Pharmacy, Inc.
                                                                           in Jefferson County, West Virginia since 1982;
                                                                           President and Chairman of Board of Directors of In
                                                                           Home Medications West Virginia, Inc.

John P. Burns, Jr.           58         1994     None             2001     Owner/operator of a beef & grain farm in Jefferson
                                                                           County, West Virginia; President - Jefferson County Fair
                                                                           Association; Director - Valley Farm Credit.

Robert W. Butler             76         1994     None             2002     Owner of Warm Spring Farm & Orchard, Jefferson County,
                                                                           West Virginia; retired from Stauffer Chemical Company.

Guy Gareth Chicchirichi      58         1994     None             2002     Executive Manager; Secretary/Treasurer - Guy's Buick-
                                                                           Pontiac-Oldsmobile-GMC Truck, Inc., Jefferson County,
                                                                           West Virginia; charter member of Charles Town Rotary
                                                                           Club.

Thomas C.G. Coyle            71         1994     None             2002     Retired owner/operator of Riddleberger's Store, Jefferson
                                                                           County, West Virginia; Trustee and Elder - Charles Town
                                                                           Presbyterian Church; Director - Edge Hill Cemetery.

Francis M. Frye              73         1994     None             2002     Retired owner/operator of Ranson Real Estate Company,
                                                                           Jefferson County, West Virginia; past president of
                                                                           Chamber of Commerce, Lions Club, JEDECO, Inc.; past
                                                                           secretary of Jefferson Memorial Hospital Board; co-
                                                                           founder of Mountain Heritage Arts and Crafts Festival .

Charles W. LeMaster          58         1994     None             2001     Employed at Bank since 1983; President & CEO since 1991;
                                                                           former member of Jefferson County Board of Education;
                                                                           President and CEO of Potomac since 1994.

Minnie R. Mentzer            83         1994     None             2001    Retired owner of Myers Coal Company; President - Jefferson
                                                                          County Youth Board; former member of Citizens Advisory
                                                                          Committee for Jefferson County, West Virginia.
</TABLE>

                                       5
<PAGE>

Principal Holders of Voting Securities

     The following shareholder beneficially owns more than 5% of Potomac Common
Stock as of March 1, 2000:
<TABLE>
<CAPTION>
    Name Of                    Amount and Nature of
 Beneficial Owner              Beneficial Ownership    Percent of Common Stock
<S>                            <C>                     <C>
Virginia F. Burns              44,480 shares; Direct            7.4133
Rt 2 Box 132
Charles Town WV  25414-9632
</TABLE>

Ownership of Securities by Nominees, Directors and Officers

     The following table shows the amount of Potomac's outstanding Common Stock
beneficially owned by nominees, directors and principal officers of Potomac
individually and as a group.  The information is furnished as of March 1, 2000,
on which date 600,000 shares were outstanding.
<TABLE>
<CAPTION>
                                   Amount and Nature of
Nominees                           Beneficial Ownership      Percent of Common Stock
<S>                                <C>                       <C>
William R. Harner                      50 shares (1,3)*              .0083
141 Tuscawilla Hills                1,350 shares (2,4)*              .2250
Charles Town WV  25414-3535

E. William Johnson                    325 shares (1,3)*              .0542
869 Deer Mountain Estates              75 shares (2,4)*              .0125
Harpers Ferry WV  25425

John C. Skinner, Jr.                  936 shares (1,3)*              .1560
PO Box 133                          1,946 shares (2,4)*              .3243
Charles Town WV  25414-0133         1,014 shares   (5)*              .1690

Donald S. Smith                     2,400 shares (1,3)*              .4000
PO Box 264                          3,500 shares   (5)*              .5833
Charles Town WV  25414-0264

<CAPTION>
                                   Amount and Nature of
Directors (Non-Nominees)           Beneficial Ownership      Percent of Common Stock
<S>                                <C>                       <C>
J. Scott Boyd                          50 shares (1,3)*              .0083
201 S. Preston Street
Ranson WV  25438

Robert W. Butler                    2,330 shares (1,3)*              .3883
635 S Samuel Street                    96 shares (2,4)*              .0160
Charles Town WV  25414-1141         1,416 shares   (5)*              .2360
</TABLE>

                                       6
<PAGE>

<TABLE>
<CAPTION>
                                         Amount and Nature of
Directors (Non-Nominees)                 Beneficial Ownership        Percent of Common Stock
<S>                                      <C>                         <C>
John P. Burns, Jr.                          100 shares (1,3)*                .0167
Rt 1 Box 296                              1,645 shares (2,4)*                .2742
Charles Town WV  25414-9769                  12 shares   (5)*                .0020

Guy Gareth Chicchirichi                   1,550 shares (1,3)*                .2583
Rt 1 Box 38
Charles Town WV  25414-9704

Thomas C.G. Coyle                           784 shares (1,3)*                .1307
808 High Street                           1,641 shares   (5)*                .2735
Charles Town WV  25414

Francis M. Frye                           1,000 shares (1,3)*                .1667
400 Forrest Avenue                        1,873 shares (2,4)*                .3122
Charles Town WV  25414-1408

Charles W. LeMaster                       3,805 shares (1,3)*                .6342
PO Box 207                                1,000 shares (2,4)*                .1667
Shepherdstown WV  25443-0207

Minnie R. Mentzer                         4,326 shares (1,3)*                .7210
PO Box 84
Harpers Ferry WV  25425-0084

<CAPTION>
                                         Amount and Nature of
Officers (Non-Nominees)                  Beneficial Ownership         Percent of Common Stock
<S>                                      <C>                         <C>
Gayle Marshall Johnson                      408 shares (1,3)*                 .0680
PO Box 1028                                 100 shares (2,4)*                 .0167
Charles Town WV  25414-7028

<CAPTION>
                                         Amount and Nature of
                                         Beneficial Ownership        Percent of Common Stock
<S>                                      <C>                         <C>
All nominees, Directors & principal       18,064 shares (1,3)*              3.0107
officers as a group                        8,085 shares (2,4)*              1.3475
(13 persons)                               7,583 shares   (5)*              1.2638
                                          -------------                     ------
Total                                     33,732 shares                     5.6220
                                          =============                     ======
</TABLE>

-------------------------------------------------------------------------------
* (1) indicates sole voting power, (2) indicates shared voting power, (3)
  indicates sole investment power, (4) indicates shared investment power, (5)
  indicates indirect ownership by spouse or minor child.

                                       7
<PAGE>

Executive Compensation

     Potomac's officers did not receive compensation as such during 1999.  The
following table sets forth the annual and long-term compensation for services in
all capacities to the Bank for the fiscal years ended December 31, 1999, 1998
and 1997 of the chief executive officer.  No officer had total annual salary and
bonus exceeding $100,000.  Neither Potomac nor the Bank has any stock option
plans, employee stock ownership plans or other employee benefit plans except for
the pension plan described in this Proxy Statement.

                          SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                         Long-Term Compensation
                                                                 --------------------------------------

                                      Annual Compensation                  Awards               Payouts
                                -----------------------------    --------------------------     -------
                                                     Other                       Securities                 All
                                                     Annual      Restricted        Under-                  Other
                                                     Compen-       Stock           lying         LTIP      Compen-
Name and                        Salary    Bonus      sation       Award(s)        Options/      Payouts    sation
Principal Position       Year    ($)       ($)        ($)           (S)           SARs (#)        ($)       ($)
-------------------------------------------------------------------------------------------------------------------
<S>                      <C>    <C>       <C>        <C>          <C>             <C>           <C>        <C>
Charles W. LeMaster      1999   85,551    N/A          0            N/A              N/A           N/A        0
President and CEO
                         1998   84,282    N/A          0            N/A              N/A           N/A        0

                         1997   79,822    N/A          0            N/A              N/A           N/A        0
</TABLE>

                                       8
<PAGE>

                                 PENSION PLAN TABLE


<TABLE>
<CAPTION>
                                      Years of Service
                  --------------------------------------------------------
Remuneration         5        10        15        20        25        30
--------------------------------------------------------------------------
<S>               <C>      <C>       <C>       <C>       <C>       <C>
  $10,000         $  760   $ 1,520   $ 2,280   $ 3,040   $ 3,800   $ 3,800
   15,000          1,260     2,520     3,780     5,040     6,300     6,300
   20,000          1,760     3,520     5,280     7,040     8,800     8,800
   25,000          2,260     4,520     6,780     9,040    11,300    11,300
   30,000          2,760     5,520     8,280    11,040    13,800    13,800
   40,000          3,760     7,520    11,280    15,040    18,800    18,800
   50,000          4,760     9,520    14,280    19,040    23,800    23,800
   60,000          5,760    11,520    17,280    23,040    28,800    28,800
   70,000          6,760    13,520    20,280    27,040    33,800    33,800
   80,000          7,760    15,520    23,280    31,040    38,800    38,800
</TABLE>

    The Bank's retirement plan is The West Virginia Bankers' Association
Retirement Plan for Employees of Member Banks.  This is a defined benefit plan
under which benefits are determined based on an employee's average annual
compensation for any five consecutive full calendar years of service which
produce the highest average.  An employee is any person (but not including a
person acting only as a director) who is regularly employed on a full-time
basis.  An employee becomes eligible to participate in the plan upon completion
of at least one year of service and attainment of age 21.

    Normal retirement is at age 65 with the accrued monthly benefit determined
on actual date of retirement.  An employee may take early retirement from age 60
and the accrued monthly benefit as of the normal retirement date is actuarially
reduced.  There is no reduction if an employee is 62 years of age and has 30
years service.

    Compensation covered by the pension plan is based upon total pay.  Effective
for plan years beginning after December 31, 1993, the Internal Revenue Code (the
Code) prohibits compensation in excess of $150,000 (as indexed) to be taken into
account in determining one's pension benefit.

    As of December 31, 1999, the current credited years of service and projected
estimated annual benefit under the pension plan (assuming that he continues
employment, the plan is not terminated or amended, current compensation
increases under the plan's assumptions and that the maximum compensation allowed
under the Code does not exceed $150,000) for the following officer is:

     Name                Current Service      Projected Annual Pension

Charles W. LeMaster          24 years                  $35,628

                                       9
<PAGE>

Salary and Personnel Committee Report on Executive Compensation

     The Salary and Personnel Committee is comprised of six members:  Guy Gareth
Chicchirichi, Thomas C.G. Coyle, Francis M. Frye, William R. Harner, Charles W.
LeMaster and Donald S. Smith.  The Salary and Personnel Committee reviews and
recommends to the board changes to the compensation levels of all executive
officers of the Bank.  The Committee seeks to attract and retain highly capable
and well-qualified executives and to compensate executives at levels
commensurate with their amount of service to the Bank.  The Committee met once
to review and approve the Bank's 1999 compensation levels.  The Bank's Chief
Executive Officer and the Senior Vice President review each executive officer's
compensation and make recommendations to the Committee.  The Committee reviews
these recommendations and independently evaluates each executive's job
performance and contribution to the Bank.  The Committee also considers the
inflation rate and the compensation levels of executive officers holding similar
positions with the Bank's competitors.  For instance, the Committee compares the
compensation levels of its executive officers with the levels, when known, of
such institutions as United National Bank, F&M Blakeley, Jefferson Security
Bank, City National Bank and One Valley Bank of Martinsburg.  Compensation
levels for executives of the Bank are competitive when compared to these
institutions.

     Compensation for the Chief Executive Officer and the Senior Vice President
is determined in essentially the same way as for other executives.  Although the
Chief Executive Officer's compensation is not tied to any performance goals of
the Bank, the Committee does consider the Bank's profitability for the prior
fiscal years.  Charles W. LeMaster serves on the Committee and is the Bank's
Chief Executive Officer; however, he does not make any recommendations relating
to his salary and is not present at Committee meetings when his compensation is
being discussed.

     The Senior Vice President's compensation also is not tied to any
performance goals of the Bank. William R. Harner serves on the Committee and is
Senior Vice President of the Bank; however, he does not make any recommendations
relating to his salary and is not present at Committee meetings when his
compensation is being discussed.

     Neither Potomac nor Bank of Charles Town currently has any employment
agreements with any employees.

     The Internal Revenue Code disallows deductions of compensation exceeding
$1,000,000 for certain executive compensation.  The Committee has not adopted a
policy in this regard because none of the Bank's executives received
compensation approaching the $1,000,000 level.

     This report should not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing under
the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that Potomac specifically incorporates this report by reference, and
shall not otherwise be filed under such Acts.  This report is submitted by:

                         Guy Gareth Chicchirichi
                         Thomas C.G. Coyle
                         Francis M. Frye
                         William R. Harner
                         Charles W. LeMaster
                         Donald S. Smith

                                      10
<PAGE>

Performance Graph

     The following graph compares the yearly percentage change in Potomac's (and
prior to Potomac's formation, the Bank's) cumulative total shareholder return on
Common Stock for the five-year period ending December 31, 1999, with the
cumulative total return of the Media General Index (SIC Code Index 6712 - Bank
Holding Companies).  Shareholders may obtain a copy of the index by calling
Media General Financial Services, Inc. at telephone number (800) 446-7922.
There is no assurance that Potomac's stock performance will continue in the
future with the same or similar trends as depicted in the graph.

     The information used to determine Potomac's cumulative total shareholder
return on its Common Stock is based upon information furnished to Potomac or the
Bank by one or more parties involved in purchases or sales of Potomac's (and
prior to its formation, the Bank's) Common Stock.  NO ATTEMPT WAS MADE BY
POTOMAC OR THE BANK TO VERIFY OR DETERMINE THE ACCURACY OF THE REPRESENTATIONS
MADE TO POTOMAC OR THE BANK.

     The graph shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing under
the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that Potomac specifically incorporates this graph by reference, and shall
not otherwise be filed under such Acts.

COMPARISON OF CUMULATIVE TOTAL RETURN OF ONE OR MORE
COMPANIES, PEER GROUPS, INDUSTRY INDEXES AND/OR BROAD MARKETS
<TABLE>
<CAPTION>
                                                              FISCAL YEAR ENDING
                             -------------------------------------------------------------------------------------
<S>                          <C>            <C>            <C>            <C>            <C>            <C>
COMPANY / INDEX / MARKET     12/30/1994     12/29/1995     12/31/1996     12/31/1997     12/31/1998     12/31/1999

POTOMAC BANCSHARES, INC.       100.00         104.05         100.39         119.00         156.80         130.39

Bank Holding Companies         100.00         148.75         214.99         300.53         392.53         472.68

Media General Index            100.00         129.66         156.58         203.33         248.56         303.21
</TABLE>

                                      11
<PAGE>

Compensation of Directors

     Directors of Potomac were not compensated as such during 1999.  Directors
of the Bank are compensated at the rate of $150 for each regular and special
board meeting attended.  They are additionally compensated $85 for each
committee meeting attended.  Directors who are operating officers of the Bank
are not compensated for Committee meetings attended.

Certain Transactions with Directors, Officers and Their Associates

     Potomac and the Bank have had, and expect to have in the future,
transactions in the ordinary course of business with Directors, officers,
principal shareholders and their associates.  All of these transactions remain
on substantially the same terms, including interest rates, collateral and
repayment terms on the extension of credit, as those prevailing at the same time
for comparable transactions with unaffiliated persons, and in the opinion of
management of Potomac and the Bank, did not involve more than the normal risk of
collectibility or present other unfavorable features.

     Nichols and Skinner, L.C., a law firm in which Director John C. Skinner,
Jr. is a shareholder, performed legal services for the Bank and Potomac in 1999
and will perform similar services in 2000.  On the basis of information provided
by Mr. Skinner, it is believed that less than five percent of the gross revenues
of this law firm in 1999 resulted from payment for legal services by Potomac and
the Bank.  In the opinion of Potomac and the Bank, the transactions with Nichols
and Skinner, L.C., were on terms as favorable to Potomac and the Bank as they
would have been with third parties not otherwise affiliated with Potomac or the
Bank.

     J. Scott Boyd, a Director of the Bank and Potomac, has been indebted to the
Bank during 1999 in an amount in excess of $60,000.  In the opinion of Potomac
and the Bank, these 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 transactions with other persons,
and do not involve more than the normal risk of collectability or present other
unfavorable features.

     2.  RATIFICATION OF SELECTION OF AUDITORS

     The Board of Directors has selected the firm of Yount, Hyde & Barbour, P.C.
to serve as independent auditors for Potomac for the calendar year 2000.
Although the selection of auditors does not require shareholder ratification,
the Board of Directors has directed that the appointment of Yount, Hyde &
Barbour, P.C. be submitted to the shareholders for ratification.  If the
shareholders do not ratify the appointment of Yount, Hyde & Barbour, P.C., the
Board will consider the appointment of other auditors.  Potomac is advised that
no member of this accounting firm has any direct or indirect material interest
in Potomac, or any of its subsidiaries.

     A representative of Yount, Hyde & Barbour, P.C., will be present at the
Annual Meeting to respond to appropriate questions and to make a statement if he
so desires.  The enclosed proxy will be voted "FOR" the ratification of the
selection of Yount, Hyde & Barbour, P.C., unless otherwise directed.  The
affirmative vote of a majority of the shares of Potomac's Common Stock
represented at the Annual Meeting of Shareholders is required to ratify the
appointment of Yount, Hyde & Barbour, P.C.

                                      12
<PAGE>

                           FORM 10-KSB ANNUAL REPORT
                   TO THE SECURITIES AND EXCHANGE COMMISSION

     Upon written request by any shareholder to Gayle Marshall Johnson, Vice
President and Chief Financial Officer, Potomac Bancshares, Inc., 111 East
Washington Street, PO Box 906, Charles Town, West Virginia 25414-0906, a copy of
Potomac's 1999 Annual Report on Form 10-KSB will be provided without charge.

            SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934 requires Potomac's
Directors and executive officers, and persons who own more than ten percent of a
registered class of Potomac's equity securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of Potomac.  Officers,
Directors and shareholders owning more than ten percent are required by SEC
regulation to furnish Potomac with copies of all Section 16(a) forms which they
file.

     To Potomac's knowledge, based solely upon review of the copies of such
reports furnished to Potomac and written representations that no other reports
were required, during the two fiscal years ended December 31, 1999, all Section
16(a) filing requirements applicable to its officers, Directors and persons
owning more than ten percent were complied with.

                                 OTHER MATTERS

     If any of the nominees for election as Directors should be unable to serve
as Directors by reason of death or other unexpected occurrence, a proxy will be
voted for a substitute nominee or nominees designated by the Board of Potomac
unless the Board of Directors adopts a resolution pursuant to the Bylaws
reducing the number of Directors.

     The Board of Directors is unaware of any other matters to be considered at
the meeting but, if any other matters properly come before the meeting, persons
named in the proxy will vote such proxy in accordance with their judgment on
such matters.

Shareholder Proposals for 2001

     Any shareholder who wishes to have a proposal placed before the next Annual
Meeting of Shareholders must submit the proposal to William R. Harner, Senior
Vice President and Secretary of Potomac, at its executive offices, no later than
November 29, 2000, to have it considered for inclusion in the proxy statement of
the Annual Meeting in 2001.

                                         Charles W. LeMaster
                                         President

Charles Town, West Virginia
March 29, 2000

                                      13