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Item 1.01  Entry into a Material Definitive Agreement

     On October 10, 2006, Sandy Spring Bancorp, Inc., a Maryland corporation (“Bancorp”), Sandy Spring Bank, a Maryland bank and trust company and a wholly-owned subsidiary of Bancorp (“Sandy Spring Bank”) and Potomac Bank of Virginia, a Virginia bank (“Potomac”) entered into an Agreement and Plan of Merger (the “Merger Agreement”), whereby Bancorp agreed to acquire Potomac by way of a merger of Potomac with and into Sandy Spring Bank, with Sandy Spring Bank surviving as a wholly-owned subsidiary of Bancorp (the “Merger”). In connection with the Merger Agreement, certain Potomac shareholders entered into a Voting Agreement with Bancorp, whereby they have agreed to vote their shares in favor of the Merger, and the President and Chief Executive Officer of Potomac signed an employment agreement with Sandy Spring Bank, which is contingent upon the completion of the Merger.

The Merger Agreement

     Pursuant to the Merger Agreement, at the effective time of the Merger, each outstanding share of Potomac’s common stock will be converted into the right to receive either (i) $21.75 in cash (the “Cash Election Price”), or (ii) .6143 of a share of Bancorp’s common stock (the “Exchange Ratio” and, together with the Cash Election Price, the “Merger Consideration”). Each shareholder of Potomac will be entitled to elect the number of its shares of Potomac common stock to be exchanged for the Cash Election Price and/or shares of Bancorp’s common stock pursuant to the Exchange Ratio, subject to a proration which will provide that 50% of the outstanding shares of Potomac common stock will receive cash and 50% of the outstanding shares of Potomac common stock will receive shares of Bancorp common stock. The Merger is intended to be a tax free reorganization as to the portion of the Merger Consideration received as Bancorp common stock. Holders of outstanding Potomac stock options (including outstanding rights to acquire shares of Potomac common stock under Potomac’s employee stock purchase plan) will be entitled to receive, at the election of Bancorp, either (A) cash in an amount equal to the difference between the Cash Election Price and the applicable option exercise price or (B) an option to purchase Bancorp common stock, adjusted to reflect the Exchange Ratio.

     The Merger Agreement contains customary representations, warranties and covenants, including, among others, covenants by Potomac that (i) Potomac will not (A) solicit proposals relating to alternative business combination transactions involving Potomac or its assets or (B) subject to certain exceptions, enter into discussions regarding, or provide material non-public information in connection with, an alternative business combination transaction involving Potomac or its assets, (ii) Potomac will hold a shareholders meeting to consider the approval of the Merger and the adoption of the Merger Agreement, and (iii) Potomac’s board of directors will recommend that Potomac’s shareholders adopt and approve the Merger Agreement.

     The Merger Agreement provides that the closing of the Merger is subject to customary conditions which include the adoption and approval of the Merger and the Merger Agreement by the shareholders of Potomac and the receipt of all required regulatory approvals. The Merger Agreement also provides for termination rights of both Bancorp and Potomac under certain circumstances, and further provides that, upon termination of the Merger Agreement under specified circumstances, Potomac is required to pay Bancorp a termination fee of $2,520,000.

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