POTOMAC BANCSHARES, INC.
                           Charles Town, West Virginia


                ------------------------------------------------
                NOTICE OF REGULAR ANNUAL MEETING OF SHAREHOLDERS

                            TO BE HELD APRIL 27, 1999
                ------------------------------------------------


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 27, 1999, 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 1999.

        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 19,
1999, 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 30, 1999
<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 27, 1999

        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 27, 1999, 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: (i) by notifying Potomac in person, (ii) by
giving written notice to Potomac of the revocation of the proxy, (iii) by
submitting to Potomac a subsequently-dated proxy, or (iv) 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 19, 1999, 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 830 shareholders.
<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 twelve Directors on the Board, four of whom are
nominees for election at the 1999 Annual Meeting. All 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 the
Bank. 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
three meetings during 1998.

        The Audit Committee consists of five members: Guy Gary 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 1998, the Audit Committee held three
meetings.

        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 two
meetings in 1998.

        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 Gary 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 1998.

        The Investment Committee consists of seven members: John P. Burns, Jr.,
Guy Gary 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 1998.

        The Salary and Personnel Committee consists of seven members: Guy Gary
Chicchirichi, Thomas C.G. Coyle, Francis M. Frye, William R. Harner, Charles W.
LeMaster, Minnie R. Mentzer 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 ten meetings in 1998.
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 thirteen 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, James E. Senseney, John C. Skinner, Jr. and Donald
S. Smith. The Steering Committee held no meetings in 1998. 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: Robert W. Butler, Thomas
C.G. Coyle, Robert L. Hersey, Charles W. LeMaster, James E. Senseney 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 fifteen regular
meetings in 1998.

        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 1998.

        The Year 2000 Committee consists of fifteen members: Donna J. Burns,
John P. Burns, Jr., Thomas F. Chambers, Thomas C.G. Coyle, Richard Crea, Judy
Edwards, William R. Harner, Robert L. Hersey, Gayle Marshall Johnson, Doris
Loudan, 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 fourteen meetings in 1998.

        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 1998. The Board of Directors of the Bank holds regular weekly
meetings each Tuesday and special meetings from time to time as required. During
1998, the Bank Board held 52 regular meetings and one special meeting. During
the year, each of the Directors, except Guy Gary Chicchirichi and John C.
Skinner, Jr., 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>
Robert W. Butler         75     1994        None        2002        Owner of Warm Spring Farm & Orchard,
                                                                    Jefferson County, West Virginia; retired
                                                                    from Stauffer Chemical Company

Guy Gary Chicchirichi    57     1994        None        2002        Secretary/Treasurer - Guy's Buick-Pontiac-
                                                                    Oldsmobile-GMC Truck, Inc., Jefferson
                                                                    County, West Virginia; charter member of
                                                                    Charles Town Rotary Club
</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>
Thomas C.G. Coyle    70     1994        None        2002        Retired owner/operator of Riddleberger's Store,
                                                                Jefferson County, West Virginia; Trustee and
                                                                active Elder - Charles Town Presbyterian
                                                                Church; Director - Edge Hill Cemetery.

Francis M. Frye      72     1994        None        2002        Retired owner/operator of Ranson Real Estate
                                                                Company, Jefferson County, West Virginia.

DIRECTORS CONTINUING TO SERVE UNEXPIRED TERMS

                          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

John P. Burns, Jr.   57     1994        None        2001        Owner/operator of a beef & grain farm in
                                                                Jefferson County, West Virginia; President -
                                                                Jefferson County Fair Association; Director -
                                                                Valley Farm Credit.

William R. Harner    58     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   54     1994        None        2000        Chair - Division of Business and Social
                                                                Sciences and Professor - Shepherd College,
                                                                Jefferson County, West Virginia; Director -
                                                                Jefferson Memorial Hospital.

Charles W. LeMaster  57     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    82     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.

James E. Senseney    85     1994        None        2001        Retired from J.E. Senseney & Sons, Inc.
                                                                (Western Auto Franchisee), Jefferson County,
                                                                West Virginia.

John C. Skinner, Jr. 57     1994        None        2000        Attorney, owner of Nichols & Skinner, L.C.,
                                                                Jefferson County, West Virginia; Bank attorney
                                                                since 1986; Potomac attorney since 1994.
</TABLE>

                                       5
<PAGE>
<TABLE>
<CAPTION>

                          SERVED AS    FAMILY
                          DIRECTOR    RELATION-       YEAR
                            OF        SHIP WITH     IN WHICH
DIRECTORS                 POTOMAC      OTHER          TERM       PRINCIPAL OCCUPATION OR
(CONTINUED)         AGE    SINCE       NOMINEES     EXPIRES      EMPLOYMENT LAST FIVE YEARS
<S>                  <C>    <C>                     <C>                           <C>     <C>
Donald S. Smith      70     1994        None        2000         Employed at Bank 1947 to 1991; President
                                                                 1978 to 1991 (retired); Vice President and
                                                                 Assistant Secretary of Potomac since 1994.

PRINCIPAL HOLDERS OF VOTING SECURITIES

        The following shareholder beneficially owns more than 5% of Potomac
Common Stock as of March 1, 1999:

        NAME OF                       AMOUNT AND NATURE OF
   BENEFICIAL OWNER                    BENEFICIAL OWNERSHIP         PERCENT OF COMMON STOCK

Virginia F. Burns
Rt 2 Box 132
Charles Town WV  25414-9632           44,480 shares; Direct                7.4133

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,
1999, on which date 600,000 shares were outstanding.

                                       AMOUNT AND NATURE OF
     NOMINEES                          BENEFICIAL OWNERSHIP         PERCENT OF COMMON STOCK

Robert W. Butler                        2,310 shares(1,3)*                    .3850
635 S Samuel Street                        96 shares(2,4)*                    .0160
Charles Town WV  25414-1141             1,416 shares  (5)*                    .2360

Guy Gary 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
Rt 3 Box 252                            1,641 shares  (5)*                    .2735
Kearneysville WV  25430-9439

Francis M. Frye                         1,000 shares(1,3)*                    .1667
400 Forrest Avenue                      1,873 shares(2,4)*                    .3122
Charles Town WV  25414-1408
</TABLE>
                                       6
<PAGE>
<TABLE>
<CAPTION>
                                       AMOUNT AND NATURE OF
  DIRECTORS (NON-NOMINEES)             BENEFICIAL OWNERSHIP         PERCENT OF COMMON STOCK
<S>                                       <C>       <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

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                  50 shares(2,4)*                    .0083
Harpers Ferry WV  25425

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

James E. Senseney                       8,000 shares(1,3)*                   1.3333
117 Eastland Drive                      1,720 shares(2,4)*                    .2867
Charles Town WV  25414-9718                96 shares  (5)*                    .0160

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

                                        AMOUNT AND NATURE OF
 OFFICERS (NON-NOMINEES)                BENEFICIAL OWNERSHIP         PERCENT OF COMMON STOCK

Gayle Marshall Johnson                    408 shares(1,3)*                    .0680
PO Box 1028                               100 shares(2,4)*                    .0167
Charles Town WV  25414-7028
</TABLE>

                                       7
<PAGE>
<TABLE>
<CAPTION>
                                        AMOUNT AND NATURE OF
                                        BENEFICIAL OWNERSHIP         PERCENT OF COMMON STOCK
<S>                                    <C>          <C>                      <C>
All nominees, Directors & principal    25,994 shares(1,3)*                   4.3324
officers as a group                     9,780 shares(2,4)*                   1.6300
(13 persons)                            7,679 shares  (5)*                   1.2798
                                       -------------                         ------
Total                                  43,453 shares                         7.2422
                                       =============                         ======
</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.

EXECUTIVE COMPENSATION

        Potomac's officers did not receive compensation as such during 1998. 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, 1998, 1997
and 1996 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     ($)     ($)      ($)          ($)        SARS (#)         ($)         ($)
<S>                      <C>     <C>                <C>                                                 <C>
Charles W. LeMaster      1998    84,282   N/A       0           N/A           N/A           N/A         0
President and CEO
                         1997    79,822   N/A       0           N/A           N/A           N/A         0

                         1996    76,366   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, 1998, 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              23 years                       $33,480


                                       9
<PAGE>

SALARY AND PERSONNEL COMMITTEE REPORT ON EXECUTIVE COMPENSATION

        The Salary and Personnel Committee is comprised of seven members: Guy
Gary Chicchirichi, Thomas C.G. Coyle, Francis M. Frye, William R. Harner,
Charles W. LeMaster, Minnie R. Mentzer 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 1998 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, Blue Ridge 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 Gary Chicchirichi
                                    Thomas C.G. Coyle
                                    Francis M. Frye
                                    William R. Harner
                                    Charles W. LeMaster
                                    Minnie R. Mentzer
                                    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, 1998, 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.

                              [graph appears here]

                     COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
                        AMONG POTOMAC BANCSHARES, INC.,
                     MEDIA GENERAL INDEX AND SIC CODE INDEX

<TABLE>
<CAPTION>
                                                     FISCAL YEAR ENDING
                         ---------------------------------------------------------------------------
COMPANY/INDEX/MARKET     12/31/1993   12/30/1994   12/29/1995   12/31/1996   12/31/1997   12/31/1998
--------------------     ----------   ----------   ----------   ----------   ----------   ----------
<S>                         <C>         <C>           <C>         <C>          <C>          <C>   
POTOMAC BANCSHARES, INC.    100.00      129.66        134.91      130.17       154.30       203.30
Bank Holding Companies      100.00      108.84        161.89      233.99       327.08       427.22
Media General Index         100.00       99.17        128.58      155.28       201.64       246.49
</TABLE>

                     ASSUMES $100 INVESTED ON JAN. 01, 1994
                          ASSUMES DIVIDEND REINVESTED
                        FISCAL YEAR ENDING DEC. 31, 1998

                                       11
<PAGE>

COMPENSATION OF DIRECTORS

        Directors of Potomac were not compensated as such during 1998. 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 1998
and will perform similar services in 1999. 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 1998 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.

        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 1999.
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.


                            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 1998 Annual Report on Form 10-KSB will be provided without charge.


                                       12
<PAGE>

             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, 1998, all Section
16(a) filing requirements applicable to its officers, Directors and persons
owning more than ten percent were complied with.


                                OTHER INFORMATION

        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 PROPOSAL FOR 2000

        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 30, 1999, to have it considered for inclusion in the proxy
statement of the Annual Meeting in 2000.

                                                          Charles W. LeMaster
                                                          President

Charles Town, West Virginia
March 30, 1999

<PAGE>

POTOMAC BANCSHARES, INC.
111 EAST WASHINGTON STREET, PO BOX 906, CHARLES TOWN WV 25414-0906

PROXY FOR ANNUAL MEETING OF SHAREHOLDERS

April 27, 1999

         KNOW ALL PERSONS BY THESE PRESENTS, That the undersigned shareholder(s)
of Potomac Bancshares, Inc. ("Potomac"), Charles Town, West Virginia, does (do)
hereby nominate, constitute and appoint Donald S. Smith and Thomas C.G. Coyle,
or any one of them, with full power to act alone as my (our) true and lawful
attorney(s) will full power of substitution for me (us) in my (our) name, place
and stead to vote all the Common Stock of Potomac, standing in my (our) name on
its books at the close of business on March 19, 1999, at the Annual Meeting of
Shareholders of Potomac Bancshares, Inc., called for and to be held at the
Bavarian Inn and Lodge, Shepherdstown, West Virginia, on April 27, 1999, at
10:30 a.m., and at any and all adjournments of said meeting, with all the powers
the undersigned would possess if personally present, as follows:

     1.   Election of Directors. For the election of the four persons listed
          below for a three year term:

               Robert W. Butler         Thomas C. G. Coyle
               Guy Gary Chicchirichi    Francis M. Frye

          [ ]  FOR ALL OF THE ABOVE LISTED NOMINEES

          [ ]  DO NOT VOTE FOR ANY OF THE ABOVE LISTED NOMINEES

          [ ]  FOR ALL OF THE NOMINEES LISTED ABOVE EXCEPT THOSE FOR WHOM
               I CHOSE TO WITHHOLD TO VOTE FOR AS LISTED BELOW:

               ------------------------------------------------------------

     2.   A proposal to ratify the appointment by the Board of Directors of
          Yount, Hyde & Barbour, P.C., as independent Certified Public
          Accountants for the year 1998.

          [ ] FOR        [ ] AGAINST         [ ] ABSTAIN

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

         Unless otherwise specified on this Proxy, the shares represented by
this Proxy will be voted "FOR" the propositions listed above the described more
fully in this Proxy Statement of Potomac Bancshares, Inc., distributed in
connection with this Annual Meeting. 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. If any other business is presented at said meeting, this Proxy
shall be voted in accordance with recommendations of management.

         The Board of Directors recommends a vote "FOR" the listed propositions.

         THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE
REVOKED PRIOR TO ITS EXERCISE.

                                        Dated: ________________________________

                                        _______________________________________

                                        _______________________________________
                                            (Signature(s) of Shareholder(s))


When signing as attorney, executor, administrator, trustee or guardian, please
give full title. If more than one trustee, all should sign. All joint owners
must sign.