<PAGE>

                                                                               1

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

                                  FORM 10-KSB

(Mark one)

XXX  Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
---
     1934

     For the fiscal year ended December 31, 2000

___  Transition report under Section 13 or 15(d) of the Securities Exchange Act
     of 1934

     For the transition period from ______ to ______

     Commission File No. 0-24958

                           Potomac Bancshares, Inc.
                (Name of Small Business Issuer in Its Charter)

West Virginia                                          55-0732247
(State or Other Jurisdiction of                        (I.R.S. Employer
Incorporation or Organization)                         Identification No.)

111 East Washington Street
PO Box 906, Charles Town WV                            25414-0906
(Address of Principal Executive Offices)               (Zip Code)

                                 304-725-8431
               (Issuer's Telephone Number, Including Area Code)

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


                                                        Name of Each Exchange
  Title of Each Class                                   on  Which Registered
  -------------------                                   --------------------

NONE                                         _______________________________
-------------------------

_________________________                    _______________________________


        Securities registered under Section 12(g) of the Exchange Act:

                         Common Stock, $1.00 Par Value
                               (Title of Class)

Check whether the issuer: (l) 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 past 90 days.

Yes   XXX     No _________
    ---------
<PAGE>

                                                                               2

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not 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.   XX
                                       ----

State issuer's revenues for its most recent fiscal year.
                                                           $11,476,524
                                                           -----------

State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days.  $16,526,535
       -----------

                  ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                          DURING THE PAST FIVE YEARS

Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.

Yes ________  No ________   Not Applicable   XXX
                                           -------

                   APPLICABLE ONLY TO CORPORATE REGISTRANTS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.  600,000
                                            -------

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

                      DOCUMENTS INCORPORATED BY REFERENCE

The following lists the documents which are incorporated by reference in the
Form 10-KSB Annual Report, and the Parts and Items of the Form 10-KSB into which
the documents are incorporated.

<TABLE>
<CAPTION>
                                                                      Part of the Form 10-KSB Into Which
                Document                                                 the Document is Incorporated
                --------                                              -----------------------------------
<S>                                                                   <C>
Portions of Potomac Bancshares, Inc.'s 2000 Annual                    Part II, Items 6 and 7
Report to Shareholders for the year ended December 31, 2000

Portions of Potomac Bancshares, Inc.'s Proxy Statement for            Part III, Items 9, 10, 11 and 12
the 2001 Annual Meeting of Shareholders
</TABLE>

PART I

Item  1.  Description of Business.

History and Operations
----------------------

     The Board of Directors of Bank of Charles Town (the "Bank") caused Potomac
Bancshares, Inc. ("Bancshares") to be formed on March 2, 1994, as a single-bank
holding company. To date, Bancshares' only activities have involved the
acquisition of the Bank. Bancshares acquired all of the shares of common stock
of the Bank on July 29, 1994.
<PAGE>

                                                                               3

     Bank of Charles Town is a West Virginia state-chartered bank which formed
and opened for business in 1871. The Bank's deposits are insured by the Federal
Deposit Insurance Corporation. Engaged in general banking business with the
primary market area being Jefferson County, West Virginia, the Bank also
provides services to Washington County and Frederick County, Maryland; Loudoun
County and Clarke County, Virginia; and Berkeley County, West Virginia. The main
office is in Charles Town at 111 East Washington Street, with branch offices in
Harpers Ferry, West Virginia and Kearneysville, West Virginia.

     The Bank provides consumers, businesses, and governments with a broad range
of banking services including lines of credit, home equity lines of credit,
commercial, agricultural, real estate, and installment loans, checking, savings,
NOW, and money market accounts, certificates of deposit, and individual
retirement accounts. Automated teller machines located at each of the three
offices and Touchline 24, an interactive voice response system available at 1-
304-728-2424, provide certain services to customers on a twenty-four hour basis.
Bill paying and certain other banking services are available online through any
touch tone telephone and/or the World Wide Web. The trust and financial services
department provides financial management, investment and trust services.

     Lending Activities. The Bank offers installment, term, and real estate
loans for consumer, business and commercial purposes. These loans can be
unsecured or secured by collateral being purchased or other collateral.

     Underwriting standards covering all lending include sound credit analysis,
proper documentation according to the Bank's loan documentation checklist,
promotion of profitable customer relationships with cross-selling of bank
services, avoidance of loan concentrations to a single industry or with a single
class of collateral, and diligent maintenance of past due and nonaccrual loans
at a minimum.

     The Bank's loan policy designates particular loan-to-value limits for real
estate loans in accordance with recommendations in Section 304 of the Federal
Deposit Insurance Corporation Improvement Act of 1991.

     As stated in the loan policy, there may be certain lending situations not
subject to these loan-to-value limits and from time to time the Board of
Directors may permit exceptions to the established limits. Any exceptions are
sufficiently documented.

     Loans secured by real estate are made to individuals and businesses for the
purchase of raw land, for land development, for commercial, multi-family and
other non-residential construction, to purchase improved property, and to
purchase owner occupied one to four family residential property. Lines of credit
and home equity loans are available.

     Approximately 71% of the Bank's loans are secured by real estate. These
loans had an average delinquency rate of 1.05% and no losses during 2000. The
average delinquency is based on a comparison to 2000 average total loans.

     As of December 31, 2000, aggregate dollar amounts in loan categories
secured by real estate are as follows:


          Construction and land development            $    14,000
          Secured by farmland                            2,762,776
          Secured by 1-4 family residential             45,055,946
          Other                                         12,150,047
                                                       -----------
                                                       $59,982,769
                                                       ===========


     Loans to individuals for personal expenditures are approximately 26% of the
Bank's total loans at December 31, 2000. The aggregate balance of these loans
was $22,022,827 at December 31, 2000. The majority of these are installment
loans with the remainder made as term loans.
<PAGE>

                                                                               4

     The Bank's loan policy states that evaluation of applications for
installment loans will consider place and length of residence, place and length
of employment, and credit history. Although these are considered, verification
of employment is usually not done, since it is recognized that unless immediate
decisions on applications can be made, a lender may be unable to secure a fair
share of loan business since instant credit is available from many sources in
the market place. This may make installment lending more risky than real estate
lending; however, installment loans had an average delinquency rate of .28% and
a loss rate of .12% in 2000 (based on comparisons to 2000 average total loans).
This delinquency rate for installment loans is lower than the comparable rate
for real estate loans.

     The Bank's policy for evaluating term loans involves consideration of
credit history and current financial statements if the loan is of a certain
amount and is unsecured. If loans are not paid at original scheduled maturity,
information must be reviewed by a loan officer for a renewal. The average
delinquency rate was .18% and the loss rate was .01% compared to average total
loans in 2000.

     The remaining aggregate dollar amount of the Bank's loans is $2,441,239 at
December 31, 2000.  The amount includes:

<TABLE>
<S>                                                                                  <C>
     (1)  Dealer wholesale loans with generally no delinquencies or losses           $1,006,731

     (2)  Term loans for business and commercial purposes                             1,020,557

     (3)  Industrial revenue bond loans secured by real estate                           66,730

     (4)  Term loans for agricultural purposes                                          208,688

     (5)  Other loans                                                                   138,533
</TABLE>

     Investment Activities. The Bank's investment activities are governed by its
investment policy.

     The policy states that excess daily funds are to be invested in securities
purchased under agreements to resell.  The daily funds are used to cover deposit
draw downs by customers, to fund loan commitments, and to help maintain the
Bank's asset/liability mix.

     According to the policy, funds in excess of those invested in securities
purchased under agreements to resell are to be invested in U.S. Treasury bills,
notes or bonds, obligations of U.S. Government agencies, obligations of
political subdivisions of the State of West Virginia with a rating of not less
than AAA and, with prior approval of the Board of Directors, bank qualified
local industrial revenue bonds to be carried in the Bank's loan portfolio.

     The policy governs various other factors including maturities, the
closeness of purchase price to par, amounts that may be purchased, and
percentages of the various types of investments that may be held.

     Deposit Activities. The Bank offers noninterest bearing checking accounts
and interest bearing NOW accounts and money market accounts. Passbook and
statement savings accounts and Christmas Club accounts are available.
Certificates of deposit are offered in various terms from 91 days to four years
and may be automatically renewed if the depositor wishes. Individual retirement
accounts in the form of certificates of deposit are also available.

     Prior to opening any deposit account particular requirements must be met by
the depositor including presentation of valid identification and social security
number, must not be on record with Chex Systems (credit reporting agency), must
be a U.S. citizen or possess evidence of legal alien status, and must be at
least 18 years of age or share account with a person at least 18 years of age.
<PAGE>

                                                                               5

Competition
-----------

     As of March 9, 2001, there were 56 bank holding companies (including multi-
bank and one bank holding companies) operating in the State of West Virginia.
These holding companies are headquartered in various West Virginia cities and
control banks throughout the State of West Virginia, including banks which
compete with the Bank in its market area.

     The Bank's market area is generally defined as Jefferson County, West
Virginia. As of June 30, 2000, there were six banks in Jefferson County with 14
banking offices. The total deposits of those commercial banks as of June, 2000,
were $457,258,000 and the Bank ranked number one with $124,965,000 or 27.3% of
the total deposits in the market.

     For most of the services which the Bank performs, there is also competition
from financial institutions other than commercial banks. For instance, credit
unions and issuers of commercial paper and money market funds actively compete
for funds and for various types of loans. In addition, personal and corporate
trust and investment counseling services are offered by insurance companies,
investment counseling firms and other business firms and individuals. Due to the
geographic location of the Bank's primary market area, the existence of larger
financial institutions in Maryland, Virginia and Washington, D.C. influences the
competition in the market area. In addition larger regional and national
corporations continue to be increasingly visible in offering a broad range of
financial services to all types of commercial and consumer customers. The
principal competitive factors in the markets for deposits and loans are interest
rates, either paid or charged. The chartering of numerous new banks in West
Virginia and the opening of numerous federally chartered savings and loan
associations have increased competition for the Bank. The 1986 legislation
passed by the West Virginia Legislature allowing state-wide branch banking
provided increased opportunities for the Bank, but it also increased competition
for the Bank in its service area. With the beginning of reciprocal interstate
banking in 1988, bank holding companies (such as Potomac Bancshares, Inc.) also
face additional competition in efforts to acquire other subsidiaries throughout
West Virginia.

     In 1994, Congress passed the Riegle-Neal Interstate Banking and Branching
Efficiency Act. Under this Act, bank holding companies are permitted to acquire
banks located in states other than the bank holding company's home state without
regard to whether the transaction is permitted under state law. Commencing on
June 1, 1997, the Act allows national banks and state banks with different home
states to merge across state lines, unless the home state of a participating
bank enacted legislation prior to May 31, 1997, that expressly prohibits
interstate mergers. Additionally, the Act allows banks to branch across state
lines, unless the state where the new branch will be located enacted legislation
restricting or prohibiting de novo interstate branching on or before May 31,
                           -- ----
1997. West Virginia adopted legislation, effective May 31, 1997, that allows for
interstate branch banking by merger across state lines and allows for de novo
                                                                      -- ----
branching and branching by purchase and assumption on a reciprocal basis with
the home state of the bank in question. The effect of this legislation has been
increased competition for West Virginia banks, including the Bank.

Employees
---------

     Bancshares currently has no employees.

     As of March 22, 2001, the Bank had 81 full-time employees and 15 part-time
     employees.

Supervision and Regulation
--------------------------

     Introduction. Bancshares is a bank holding company within the provisions of
the Bank Holding Company Act of 1956, is registered as such, and is subject to
supervision by the Board of Governors of the Federal Reserve System ("Board of
Governors"). The Bank Holding Company Act requires Bancshares to secure the
prior approval of the Board of Governors before Bancshares acquires ownership or
control of more than five percent (5%) of the voting shares or substantially all
of the assets of any institution, including another bank.
<PAGE>

                                                                               6

     As a bank holding company, Bancshares is required to file with the Board of
Governors annual reports and such additional information as the Board of
Governors may require pursuant to the Bank Holding Company Act. The Board of
Governors may also make examinations of Bancshares and its banking subsidiaries.
Furthermore, under Section 106 of the 1970 Amendments to the Bank Holding
Company Act and the regulations of the Board of Governors, a bank holding
company and its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit or any provision of
credit, sale or lease of property or furnishing of services.

     Bancshares' depository institution subsidiaries are subject to affiliate
transaction restrictions under federal law which limit the transfer of funds by
the subsidiary banks to their respective parents and any nonbanking
subsidiaries, whether in the form of loans, extensions of credit, investments or
asset purchases. Such transfers by any subsidiary bank to its parent corporation
or any nonbanking subsidiary are limited in an amount to 10% of the
institution's capital and surplus and, with respect to such parent and all such
nonbanking subsidiaries, to an aggregate of 20% of any such institution's
capital and surplus.

     Bancshares is required to register annually with the Commissioner of
Banking of West Virginia ("Commissioner") and to pay a registration fee to the
Commissioner based on the total amount of bank deposits in banks with respect to
which it is a bank holding company. Although legislation allows the Commissioner
to prescribe the registration fee, it limits the fee to ten dollars per million
dollars of deposits rounded off to the nearest million dollars. Bancshares is
also subject to regulation and supervision by the Commissioner.

     Bancshares is required to secure the approval of the West Virginia Board of
Banking before acquiring ownership or control of more than five percent of the
voting shares or substantially all of the assets of any institution, including
another bank. West Virginia banking law prohibits any West Virginia or non-West
Virginia bank or bank holding company from acquiring shares of a bank if the
acquisition would cause the combined deposits of all banks in the State of West
Virginia, with respect to which it is a bank holding company, to exceed 25% of
the total deposits of all depository institutions in the State of West Virginia.

     Depository Institution Subsidiaries. Bank is subject to FDIC deposit
insurance assessments. As of January 1, 2001, FDIC set the Financing Corporation
(FICO) Bank Insurance Fund (BIF) premium for the Bank at the annual rate of
1.960 basis points or .0001960 times the total deposits of the Bank. This
premium is not tied to the Bank's risk classification. The rate of the premium
based on the Bank's risk classification is at 0.00%. It is possible that BIF
insurance assessments will be changed, and it is also possible that there may be
a special additional assessment. A large special assessment could have an
adverse impact on Bancshares' results of operations.

     Capital Requirements. The Federal Reserve Board has issued risk-based
capital guidelines for bank holding companies, such as Bancshares. The
guidelines establish a systematic analytical framework that makes regulatory
capital requirements more sensitive to differences in risk profiles among
banking organizations, takes off-balance sheet exposures into explicit account
in assessing capital adequacy, and minimizes disincentives to holding liquid,
low-risk assets. Under the guidelines and related policies, bank holding
companies must maintain capital sufficient to meet both a risk-based asset ratio
test and leverage ratio test on a consolidated basis. The risk-based ratio is
determined by allocating assets and specified off-balance sheet commitments into
four weighted categories, with higher levels of capital being required for
categories perceived as representing greater risk. The leverage ratio is
determined by relating core capital (as described below) to total assets
adjusted as specified in the guidelines. Bank is subject to substantially
similar capital requirements adopted by applicable regulatory agencies.

     Generally, under the applicable guidelines, the financial institution's
capital is divided into two tiers. "Tier 1", or core capital, includes common
equity, noncumulative perpetual preferred stock (excluding auction rate issues)
and minority interests in equity accounts or consolidated subsidiaries, less
goodwill. Bank holding companies, however, may include cumulative perpetual
preferred stock in their Tier 1 capital, up to a limit of 25% of such Tier 1
capital. "Tier 2", or supplementary capital, includes, among other things,
cumulative and limited-life preferred stock, hybrid capital instruments,
mandatory convertible securities, qualifying subordinated debt, and the
allowance for loan losses, subject to certain limitations, less required
deductions. "Total capital" is the sum of Tier 1 and Tier 2 capital.
<PAGE>

                                                                               7

     Financial institutions are required to maintain a risk-based ratio of 8%,
of which 4% must be Tier 1 capital. The appropriate regulatory authority may set
higher capital requirements when an institution's particular circumstances
warrant.

     Financial institutions that meet certain specified criteria, including
excellent asset quality, high liquidity, low interest rate exposure and the
highest regulatory rating, are required to maintain a minimum leverage ratio of
3%. Financial institutions not meeting these criteria are required to maintain a
leverage ratio which exceeds 3% by a cushion of at least 100 to 200 basis
points, and, therefore, the ratio of Tier 1 capital to total assets should not
be less than 4%.

     The guidelines also provide that financial institutions experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels, without
significant reliance on intangible assets. Furthermore, the Federal Reserve
Board's guidelines indicate that the Federal Reserve Board will continue to
consider a "tangible Tier 1 leverage ratio" in evaluating proposals for
expansion or new activities. The tangible Tier 1 leverage is the ratio of an
institution's Tier 1 capital, less all intangibles, to total assets, less all
intangibles.

     Failure to meet applicable capital guidelines could subject the financial
institution to a variety of enforcement remedies available to the federal
regulatory authorities, including limitations on the ability to pay dividends,
the issuance by the regulatory authority of a capital directive to increase
capital and the termination of deposit insurance by the FDIC, as well as to the
measures described in the "Federal Deposit Insurance Corporation Improvement Act
of 1991" as applicable to undercapitalized institutions.

     The Federal Reserve Board, as well as the FDIC, has adopted changes to
their risk-based and leverage ratio requirements that require that all
intangible assets, with certain exceptions, be deducted from Tier 1 capital.
Under the Federal Reserve Board's rules, the only types of intangible assets
that may be included in (i.e., not deducted from) a bank holding company's
capital are readily marketable purchased mortgage servicing rights ("PMSRs") and
purchased credit card relationships ("PCCRs"), provided that, in the aggregate,
that total amount of PMSRs and PCCRs included in capital does not exceed 50% of
Tier 1 capital. PCCRs are subject to a separate limit of 25% of Tier 1 capital.
The amount of PMSRs and PCCRs that a bank holding company may include in its
capital is limited to the lesser of (i) 90% of such assets' fair market value
(as determined under the guidelines), or (ii) 100% of such assets' book value,
each determined quarterly. Identifiable intangible assets (i.e., intangible
assets other than goodwill) other than PMSRs and PCCRs, including core deposit
intangibles, acquired on or before February 19, 1992 (the date the Federal
Reserve Board issued its original proposal for public comment), generally will
not be deducted from capital for supervisory purposes, although they will
continue to be deducted for purposes of evaluating applications filed by bank
holding companies.

As of December 31, 2000, Bancshares had capital in excess of all applicable
requirements as shown below:


                                        Actual      Required     Excess
                                     ------------  ----------  -----------
  Tier 1 capital:
    Common stock                     $    600,000
    Surplus                             5,400,000
    Retained earnings                  12,008,205
                                     ------------
  Total tier 1 capital               $ 18,008,205  $3,173,910  $14,834,295
  Tier 2 capital:
    Allowance for loan losses (1)         995,259
                                     ------------

  Total risk-based capital           $ 19,003,464  $6,347,821  $12,655,643
                                     ============  ==========  ===========

  Risk-weighted assets               $ 79,347,762
                                     ============

  Tier 1 capital                     $ 18,008,205  $4,386,869  $13,621,336
                                     ============  ==========  ===========

  Average total assets               $146,228,972
                                     ============

<PAGE>

                                                                               8

                                        Actual   Required   Excess
                                        ------   --------   ------

  Capital ratios:
    Tier 1 risk-based capital ratio     22.70%      4.00%   18.70%
    Total risk-based capital ratio      23.95%      8.00%   15.95%
    Tier 1 capital to average total
      assets (leverage)                 12.32%      4.00%    8.32%

    (1) Limited to 1.25% of gross risk-weighted assets.

     Gramm-Leach-Bliley Act of 1999. On November 4, 1999, Congress adopted the
Gramm-Leach-Bliley Act of 1999. This Act, also known as the Financial
Modernization Law, repealed a number of federal limitations on the powers of
banks and bank holding companies originally adopted in the 1930's. Under the
Act, banks, insurance companies, securities firms and other service providers
may now affiliate. In addition to broadening the powers of banks, the Act
created a new form of entity, called a financial holding company, which may
engage in any activity that is financial in nature or incidental or
complimentary to financial activities.

     The Federal Reserve Board provides the principal regulatory supervision of
financial services permitted under the Act. However, the Securities and Exchange
Commission and state insurance and securities regulators also assume substantial
supervisory powers and responsibilities.

     The Act addresses a variety of other matters, including customer privacy
issues. The obtaining of certain types of information by false or fraudulent
pretenses is a crime. Banks and other financial institutions must notify their
customers about their policies on sharing information with certain third
parties. In some instances, customers may refuse to permit their information to
be shared. The Act also requires disclosures of certain automatic teller machine
fees and contains certain amendments to the federal Community Reinvestment Act.

     Permitted Non-Banking Activities. Under the Gramm-Leach-Bliley Act, bank
holding companies may become financial holding companies and engage in certain
non-banking activities. Bancshares has not yet filed to become a financial
holding company and presently does not engage in, nor does it have any immediate
plans to engage in, any such non-banking activities.

     A notice of proposed non-banking activities must be furnished to the
Federal Reserve and the Banking Board before Bancshares engages in such
activities, and an application must be made to the Federal Reserve and Banking
Board concerning acquisitions by Bancshares of corporations engaging in those
activities. In addition, the Federal Reserve may, by order issued on a case-by-
case basis, approve additional non-banking activities.

     The Bank. The Bank is a state-chartered bank which is not a member of the
Federal Reserve system and is subject to regulation and supervision by the FDIC
and the Commissioner.

     Compliance with Environmental Laws. The costs and effects of compliance
with federal, state and local environmental laws will not have a material effect
or impact on Bancshares or the Bank.

Item  2.  Description of Property.

          Bancshares currently has no property.

          The Bank owns the land and buildings of the main office and two branch
office facilities.
<PAGE>

                                                                               9

Main office property is located at 111 East Washington Street, Charles Town,
West Virginia. This property consists of two separate two story buildings
located side by side with adjoining corridors. During 2000 the construction of
the newer of these two buildings was completed. The first floor of the new
building houses the Trust and Financial Services Division. The second floor of
the new building houses certain administrative and loan offices. Both of these
floors open into the older Bank premises. The basement of the new building is
used for record storage.

     The older premises, constructed in 1967, was renovated at the same time the
new building was constructed. The renovation includes all new lighting, new
ceilings, new floor and wall coverings as well as some minor structural changes
for more efficient operations.

     One branch office is located at 1318 Washington Street, Bolivar, West
Virginia. The office is a one story brick building constructed in 1975. On this
property is another building which existed at the time of the Bank's purchase.
This is rented to others by the Bank.

     In addition, the Bank owns property in Kearneysville, West Virginia, on
which a second branch facility was erected in 1985. This one story brick
building opened for business in April of 1985. During 1993, an addition was
constructed, doubling the size of this facility.

     There are no encumbrances on any of these properties. In the opinion of
management, these properties are adequately covered by insurance.

Item  3.  Legal Proceedings.

          Currently Bancshares is involved in no legal proceedings.

          The Bank is involved in various legal proceedings arising in the
normal course of business, and in the opinion of the Bank, the ultimate
resolution of these proceedings will not have a material effect on the financial
position or operations of the Bank.

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

          Not Applicable.

PART II

Item  5.  Market for Common Equity and Related Stockholder Matters.

          The following information reflects comparative per share data for the
periods indicated for Bancshares Common Stock for (a) trading values, and (b)
dividends. As of March 16, 2001, there were approximately 825 shareholders.
<PAGE>

                                                                              10

     Bancshares Common Stock is not traded on any stock exchange or over the
counter. Bancshares (symbol PTBS) is now on the Bulletin Board, a network
available to brokers. Scott and Stringfellow, a regional securities firm with an
office in Winchester, Virginia, is a market maker for Bancshares Common Stock. A
market maker is one who makes a market for a particular stock. Information about
sales (but not necessarily all sales) of Bancshares Common Stock is available on
the Internet through many of the stock information services using Bancshares's
symbol. Shares of Bancshares Common Stock are occasionally bought and sold by
private individuals, firms or corporations, and, in many instances, Bancshares
does not have knowledge of the purchase price or the terms of the purchase. The
trading values for 1999 and 2000 are based on information available as a result
of our participation on the Bulletin Board described above and information
gathered on the Internet. NO ATTEMPT WAS MADE BY BANCSHARES TO VERIFY OR
DETERMINE THE ACCURACY OF THE REPRESENTATIONS MADE TO BANCSHARES OR GATHERED ON
THE INTERNET.

<TABLE>
<CAPTION>
                                                            Price Range                Cash Dividends *
                                                      High               Low           Paid per Share
<S>                                                <C>                <C>              <C>
               1999     First Quarter              $ 40.375           $ 38.500            $  N/A
                        Second Quarter               39.000             36.125               .50
                        Third Quarter                38.000             35.250               N/A
                        Fourth Quarter               37.000             33.000               .65

               2000     First Quarter              $ 33.500           $ 28.250            $  N/A
                        Second Quarter               30.000             26.125               .50
                        Third Quarter                28.500             24.000               N/A
                        Fourth Quarter               28.000             22.000               .75
</TABLE>

* Dividends have been declared traditionally by Bancshares on a semi-annual
basis.

     The primary source of funds for dividends paid by Bancshares is the
dividend income received from the Bank. The Bank's ability to pay dividends is
subject to restrictions under federal and state law, and under certain cases,
approval by the FDIC and Commissioner could be required. Management of
Bancshares anticipates that the dividends paid by Bancshares will likely be
similar to those paid in the past, but dividends will only be paid when and as
declared by the Board of Directors.

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

     The information contained on pages 4-11 of the Annual Report to
Shareholders for the year ended December 31, 2000, is incorporated herein by
reference.

Item 7. Financial Statements.

     The information contained on pages 13-30 of the Annual Report to
Shareholders for the year ended December 31, 2000, is incorporated herein by
reference.

Item 8. Changes In and Disagreements with Accountants on Accounting and
        Financial Disclosure.

     Not Applicable.

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        with Section 16(a) of the Exchange Act.

        The information contained on pages 4-5 and 13 of the Proxy Statement
dated March 30, 2001, for the April 24, 2001 Annual Meeting under the captions
"Management Nominees to the Board of Potomac," "Directors Continuing to Serve
Unexpired Terms," and "Section 16(a) Beneficial Ownership Reporting Compliance"
is incorporated herein by reference.
<PAGE>

                                                                              11

         The Executive Officers are as follows:

<TABLE>
<CAPTION>
         Name                  Position Since          Age             Principal Occupation
-------------------        ----------------------     -----            --------------------
<S>                        <C>                        <C>              <C>
Robert F. Baronner, Jr.    President & CEO            42               Employed by Bank as of 1/1/01 as President
                           2001                                        & CEO; former Executive Vice President One Valley Bank East
                                                                       September 1997 - April 2000; former Senior Credit Officer
                                                                       BB&T Northern West Virginia May 2000 - December 2000; Senior
                                                                       Vice President Commercial Lending Division One Valley Bank
                                                                       East April 1994 - September 1997.

William R. Harner           Sr. Vice President,       60               Employed at Bank since 1967; Sr. Vice
                            Secretary & Treasurer                      President & Cashier since 1988.
                            1994

Gayle Marshall Johnson     Vice President & Chief     51               Employed with the Bank 1977-1985 as
                           Financial Officer                           as internal auditor.  Rejoined Bank in 1988
                           1994                                        as Financial Officer.  Vice President &
                                                                       Financial Officer of Bank since 1990.

Donald S. Smith            Vice President &           72               Employed at Bank 1947 to 1991; President
                           Assistant Secretary                         1979 to 1991 (retired).
                           1994
</TABLE>

Item 10. Executive Compensation.

     The information contained on pages 8-9 and 12 of the Proxy Statement dated
March 30, 2001, for the April 24, 2001 Annual Meeting under the captions
"Executive Compensation," "Proposed Employment Agreement," and "Compensation of
Directors" is incorporated herein by reference.

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

     The information contained on pages 6-7 of the Proxy Statement dated March
30, 2001, for the April 24, 2001 Annual Meeting under the captions "Principal
Holders of Voting Securities" and "Ownership of Securities by Nominees,
Directors and Officers" is incorporated herein by reference.

Item 12. Certain Relationships and Related Transactions.

     The information contained on page 12 of the Proxy Statement dated March 30,
2001, for the April 24, 2001 Annual Meeting under the caption "Certain
Transactions with Directors, Officers and Their Associates" is incorporated
herein by reference.

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

     (a)  2.1 Agreement and Plan of Merger dated March 8, 1994, by and between
Potomac Bancshares, Inc., and Bank of Charles Town filed with and incorporated
by reference from the Registration on Form S-4 filed with the Securities and
Exchange Commission on June 10, 1994: Registration no. 33-80092.

          3.1 Articles of Incorporation of Potomac Bancshares, Inc. filed with
and incorporated by reference from the Registration on Form S-4 filed with the
Securities and Exchange Commission on June 10, 1994: Registration no. 33-80092.
<PAGE>

                                                                              12

     3.2  Amendments to Articles of Incorporation of Potomac Bancshares, Inc.
adopted by shareholders on April 25, 1995 and filed with the West Virginia
Secretary of State on May 23, 1995, and incorporated by reference from Potomac's
Form 10-KSB for the year ended December 31, 1995 and filed with the Securities
and Exchange Commission, file no. 0-24958.

     3.3  Bylaws of Potomac Bancshares, Inc. filed with and incorporated by
reference from the Registration on Form S-4 filed with the Securities and
Exchange Commission on June 10, 1994: Registration no. 33-80092.

     3.4  Amended and Restated Bylaws of Potomac Bancshares, Inc. adopted by
shareholders April 25, 1995 and incorporated by reference from Potomac's
Form 10-KSB for the year ended December 31, 1995 and filed with the Securities
and Exchange Commission, file no. 0-24958.

     13   2000 Annual Report to Shareholders

     21   Subsidiaries of the Registrant

     27   Financial Data Schedule

     99   Proxy Statement for the 2001 Annual Meeting for Potomac

     (b)  No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
<PAGE>

                                                                              13

                                  SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

POTOMAC BANCSHARES, INC.



By /s/ Robert F. Baronner, Jr.                            March 27, 2001
   -------------------------------------------                  --
   Robert F. Baronner, Jr.
   President & Chief Executive Officer



By  /s/ L. Gayle Marshall Johnson                         March 27, 2001
   -------------------------------------------                  --
   L. Gayle Marshall Johnson
   Vice President & Chief Financial Officer
   & Chief Accounting Officer

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

Signature & Title                                         Date
-----------------                                         ----

By /s/ J. Scott Boyd                                      March 27, 2001
   -------------------------------------------                  --
   J. Scott Boyd, Director

By /s/ John P. Burns, Jr.                                 March 27, 2001
   -------------------------------------------                  --
   John P. Burns, Jr., Director

By /s/ Robert W. Butler                                   March 27, 2001
   -------------------------------------------                  --
   Robert W. Butler, Director

By /s/ Guy Gareth Chicchirichi                            March 27, 2001
   -------------------------------------------                  --
   Guy Gareth Chicchirichi, Director

By                                                        March   , 2001
   -------------------------------------------                  --
   Thomas C. G. Coyle, Director
<PAGE>

                                                                              14

Signature & Title                                             Date
-----------------                                             ----

By /s/ William R. Harner
   -------------------------------------------            March 27, 2001
   William R. Harner, Director,                                 --
   Sr. Vice President, Secretary & Treasurer

By                                                        March   , 2001
   -------------------------------------------                  --
   E. William Johnson, Director

By                                                        March   , 2001
   -------------------------------------------                  --
   John C. Skinner, Jr., Director

By /s/ Donald S. Smith                                    March 27, 2001
   -------------------------------------------                  --
   Donald S. Smith, Director