<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 (Fee required)

     For the fiscal year ended December 31, 1999

____ Transition report under Section 13 or 15(d) of the Securities Exchange Act
     of 1934 (No fee required)

     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.
                                                          $11,178,662
                                                          -----------

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.  $17,271,174
       -----------

                  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.

                                            Part of the Form 10-KSB Into Which
              Document                        the Document is Incorporated
              --------                      ----------------------------------

Portions of Potomac Bancshares, Inc.'s         Part II, Items 6 and 7
1999 Annual Report to Shareholders for
the year ended December 31, 1999

Portions of Potomac Bancshares, Inc.'s         Part III, Items 9, 10, 11 and 12
Proxy Statement for the 2000 Annual
Meeting of Shareholders

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 a
personal computer and/or the World Wide Web.  These same bill paying and banking
services are also available using a special telephone.  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 74% of the Bank's loans are secured by real estate.  These loans
had an average delinquency rate of 1.94% and a loss rate of .03% during 1999.
These rates are based on comparisons to 1999 average total loans.

As of December 31, 1999, aggregate dollar amounts in loan categories secured by
real estate are as follows:

Construction and land development    $    31,000
Secured by farmland                    2,604,920
Secured by 1-4 family residential     43,798,037
Other                                 11,859,376
                                     -----------
                                     $58,293,333
                                     ===========

  Loans to individuals for personal expenditures are approximately 22% of the
Bank's total loans at December 31, 1999.  The aggregate balance of these loans
was $16,879,468 at December 31, 1999.  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 1.15% and
a loss rate of .06% in 1999 (based on comparisons to 1999 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 .28% and the loss rate was .02% compared to average total loans in 1999.

  The remaining aggregate dollar amount of the Bank's loans is $3,157,251 at
December 31, 1999.  The amount includes:

<TABLE>
<CAPTION>

<S>                                                                            <C>
  (1)  Dealer wholesale loans with generally  no delinquencies or losses    $1,083,242

  (2)  Term loans for business and commercial purposes                       1,351,454

  (3)  Industrial revenue bond loans secured by real estate                     76,475

  (4)  Term loans for agricultural purposes                                    280,000

  (5)  Other loans                                                             366,080
</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 16, 2000, there were 54 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, 1999, there were six banks in Jefferson County with 16
banking offices.  The total deposits of those commercial banks as of June, 1999,
were $459,952,000 and the Bank ranked number one with $130,581,000 or 28.4% 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 January 31, 2000, the Bank had 78 full-time employees and 8 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 20% 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, 1999, FDIC set the Financing
Corporation (FICO) Bank Insurance Fund (BIF) premium for the Bank at the annual
rate of 2.100 basis points or .0002100 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 still 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, 1999, 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                  10,943,890
                                     ------------
  Total tier 1 capital               $ 16,943,890  $2,922,318  $14,021,572
  Tier 2 capital:
    Allowance for loan losses (1)         916,986
                                     ------------

  Total risk-based capital           $ 17,860,876  $5,844,636  $12,016,240
                                     ============  ==========  ===========

  Risk-weighted assets               $ 73,057,953
                                     ============

  Tier 1 capital                     $ 16,943,890  $4,402,298  $12,541,592
                                     ============  ==========  ===========

  Average total assets               $146,743,279
                                     ============

<PAGE>

                                                                               8

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

  Capital ratios:
    Tier 1 risk-based capital ratio     23.19%      4.00%   19.19%
    Total risk-based capital ratio      24.45%      8.00%   16.45%
    Tier 1 capital to average total
      assets (leverage)                 11.55%      4.00%    7.55%


         (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 know 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. The Act becomes effective 120 days after its passage.

         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.

         Main office property is located at 111 East Washington Street, Charles
Town, West Virginia.  This property previously consisted of two separate two
story buildings located side by side with an adjoining corridor.  During 1999
the older of these two buildings, which was used by the Trust and Financial
Services Division and for storage, was demolished and a new building is being
built.  The first floor of the new building will house the Trust and Financial
Services Division.  The second floor will house certain administrative and loan
offices.  Both of these floors will open into the currently standing Bank
premises. The basement of the new building will be used for record storage.
During the construction, the Trust Division is in temporary quarters on
Washington Street in Charles Town several blocks from the Bank.

         The currently standing premises, constructed in 1967, is being
renovated at the same time the new building is being 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.

         The estimated cost of the new construction and renovation is
$2,038,000. Completion of the total project is expected in June 2000.

         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.
<PAGE>

                                                                               9

          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 17, 2000, there were approximately 825 shareholders.

          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 1998 and 1999 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>          <C>

        1998                   First Quarter   $38.000      $34.875  $ N/A
                               Second Quarter   42.000       32.500    .50
                               Third Quarter    46.000       41.000    N/A
                               Fourth Quarter   41.000       40.000    .65

        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
</TABLE>

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

                                                                              10

          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, 1999, 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, 1999, 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 29, 2000, for the April 25, 2000 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.

     The Executive Officers are as follows:

<TABLE>
<CAPTION>
                                                                   Principal
Name                           Position Since          Age         Occupation
---------------------------  -------------------  -------------- -------------------------------------------------------------

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

Charles W. LeMaster          President & CEO           58          Employed at  Bank since 1983; President & CEO since 1991.
                             1994

William R. Harner            Sr. Vice President,       59          Employed at Bank since 1967; Sr. Vice President &
                             Secretary & Treasurer                 Cashier since 1988.
                             1994

Gayle Marshall Johnson       Vice President & Chief    50          Employed with the Bank 1977-1985 as internal auditor.
                             Financial Officer                     Rejoined Bank in 1988 as Financial Officer. Vice
                             1994                                  President & Financial Officer of Bank since 1990.

Donald S. Smith              Vice President            71          Employed at Bank 1947 to 1991; President 1979 to 1991
                             & Assistant Secretary                 (retired).
                             1994
</TABLE>

Item 10.  Executive Compensation.

     The information contained on pages 8-9 and 12 of the Proxy Statement dated
March 29, 2000, for the April 25, 2000 Annual Meeting under the captions
"Executive Compensation" and "Compensation of Directors" is incorporated herein
by reference.
<PAGE>

                                                                              11

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

          The information contained on pages 6-7 of the Proxy Statement dated
March 29, 2000, for the April 25, 2000 Annual Meeting under the captions
"Principal Holders of Voting Securities" and "Ownership of Securities by
Nominees, Directors and Officer" is incorporated herein by reference.

Item 12.  Certain Relationships and Related Transactions.

          The information contained on page 12 of the Proxy Statement dated
March 29, 2000, for the April 25, 2000 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.

              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   1999 Annual Report to Shareholders

              21   Subsidiaries of the Registrant

              27   Financial Data Schedule

              99  Proxy Statement for the 2000 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>

                                                                              12
                                 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/ Charles W. LeMaster                     March  29, 2000
   ---------------------------------------
   Charles W. LeMaster
   President & Chief Executive Officer


By  /s/ L. Gayle Marshall Johnson              March  29, 2000
   ----------------------------------------
   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                                             March    , 2000
   ---------------------------------
   J. Scott Boyd, Director


By /s/ John P. Burns, Jr.                      March  29, 2000
   ---------------------------------
   John P. Burns, Jr., Director


By /s/ Robert W. Butler                        March  29, 2000
   ---------------------------------
   Robert W. Butler, Director


By  /s/ Guy Gareth Chicchirichi                March  29, 2000
   ---------------------------------
   Guy Gareth Chicchirichi, Director


By  /s/ Thomas C. G. Coyle                     March  29, 2000
   ---------------------------------
   Thomas C. G. Coyle, Director
<PAGE>

                                                                              13

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


By /s/ Francis M. Frye                                March  29, 2000
   -----------------------------------------
   Francis M. Frye, Director


By /s/ William R. Harner                              March  29, 2000
   -----------------------------------------
   William R. Harner, Director,
   Sr. Vice President, Secretary & Treasurer


By  /s/ E. William Johnson                            March  29, 2000
   -----------------------------------------
  E. William Johnson, Director


By  /s/ Charles W. LeMaster                           March  29, 2000
   -----------------------------------------
   Charles W. LeMaster, Director,
   President, Chief Executive Officer


By  /s/ Minnie R. Mentzer                             March  29, 2000
   -----------------------------------------
   Minnie R. Mentzer, Director


By  /s/ John C. Skinner, Jr.                          March  29, 2000
   ------------------------------------------
   John C. Skinner, Jr., Director


By  /s/ Donald S. Smith                               March  29, 2000
   ------------------------------------------
   Donald S. Smith, Director