<PAGE>

                                                                    EXHIBIT 99.1

                          INDEPENDENT AUDITOR'S REPORT







To the Board of Directors
Marathon Financial Corporation
Winchester, Virginia


         We  have  audited  the  accompanying  consolidated  balance  sheets  of
Marathon Financial Corporation and subsidiary, as of December 31, 1999 and 1998,
and the related  consolidated  statements  of income,  changes in  shareholders'
equity,  and cash flows for the years ended  December 31,  1999,  1998 and 1997.
These  financial   statements  are  the   responsibility  of  the  Corporation's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.


         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.


         In our opinion, the consolidated financial statements referred to above
present fairly,  in all material  respects,  the financial  position of Marathon
Financial Corporation and subsidiary,  as of December 31, 1999 and 1998, and the
results of their  operations  and their cash flows for the years ended  December
31, 1999,  1998 and 1997,  in  conformity  with  generally  accepted  accounting
principles.

                                            /s/ YOUNG, HYDE $ BARBOUR, P.C.
Winchester, Virginia
January 14, 2000
<PAGE>

<TABLE>
<CAPTION>

                              MARATHON FINANCIAL CORPORATION

                               Consolidated Balance Sheets
                                December 31, 1999 and 1998
               Assets                                                                                 1999                 1998
                                                                                                  -----------          -----------
<S>                                                                                             <C>                   <C>

 Cash and due from banks                                                                       $    8,011,673         $  4,533,428
 Federal funds sold                                                                                 6,616,000            8,281,000
 Securities available for sale                                                                      5,080,757            4,961,573
 Securities held to maturity (fair value approximates $5,483,459 and
   $5,040,801 at December 31, 1999 and 1998, respectively)                                          5,646,791            5,000,077
 Loans held for sale                                                                                       --              401,671
 Loans, net of allowance for loan losses of $769,410 in 1999
   and $754,597 in 1998                                                                            74,526,925           65,065,268
 Bank premises and equipment, net                                                                   2,591,033            2,615,175
 Accrued interest receivable                                                                          534,911              478,820
 Other real estate                                                                                    183,218               18,123
 Other assets                                                                                         493,870              496,534
                                                                                              ---------------        --------------
                                                                                               $  103,685,178         $ 91,851,669
                                                                                              ===============        ==============
 Liabilities and Shareholders' Equity
 Liabilities
      Deposits:
          Noninterest-bearing demand deposits                                                  $ 12,940,831           $ 10,680,285
          Savings and interest-bearing demand deposits                                           30,002,843             24,127,903
          Time deposits                                                                          50,398,868             47,486,855
                                                                                               ------------           -------------
               Total deposits                                                                  $ 93,342,542           $ 82,295,043
 Interest expense payable                                                                           147,164                140,899
 Accounts payable and accrued expenses                                                              532,255                401,395
 Capital lease payable                                                                              218,036                224,219
 Commitments and contingent liabilities                                                                  --                     --
                                                                                               ------------           -------------
               Total liabilities                                                               $ 94,239,997           $ 83,061,556
                                                                                               ------------           -------------

 Shareholders' Equity
     Preferred stock, Series A, 5% noncumulative, no par
       value; 1,000,000 shares authorized and unissued                                         $        --            $         --
     Common stock, $1 par value; 20,000,000 shares authorized;
       1999, 2,046,441 shares issued and outstanding;
       1998, 2,063,186 shares issued and outstanding                                              2,046,441              2,063,186
     Capital surplus                                                                              7,750,987              7,849,522
     Retained earnings (deficit)                                                                   (222,155)            (1,149,567)
     Accumulated other comprehensive income (loss)                                                 (130,092)                26,972
                                                                                               ------------           -------------
          Total shareholders' equity                                                           $  9,445,181           $  8,790,113
                                                                                               ------------           -------------

                                                                                               $103,685,178           $ 91,851,669
                                                                                               ============           =============
</TABLE>


 See Notes to Consolidated Financial Statements.
<PAGE>

                         MARATHON FINANCIAL CORPORATION

                        Consolidated Statements of Income
                  Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>



                                                                             1999                 1998                 1997
                                                                        ---------------      -------------        -------------
<S>                                                                     <C>                  <C>                  <C>


 Interest and dividend income:
     Interest and fees on loans                                           $ 7,252,043          $ 6,063,709          $ 4,559,365
     Interest on investment securities:
          Nontaxable                                                           13,875                   --                   --
          Taxable                                                             261,059              184,289               93,379
     Interest and dividends on securities
       available for sale:
               Nontaxable                                                      16,364                   --                   --
               Taxable                                                        245,517              169,675               78,588
               Dividends                                                       34,865               27,367               21,478
 Interest on federal funds sold                                               491,769              430,995              129,844
                                                                          -----------          ------------         ------------
                    Total interest and dividend income                    $ 8,315,492          $ 6,876,035          $ 4,882,654
                                                                          -----------          ------------         ------------
 Interest expense:
     Interest on deposits                                                 $ 3,464,415          $ 2,938,214          $ 1,918,099
     Interest on capital lease obligations                                     17,808               20,341               24,637
     Interest on federal funds purchased                                           --                   --                  673
                                                                          -----------          -----------          ------------
     Total interest expense                                               $ 3,482,223          $ 2,958,555          $ 1,943,409
                                                                          -----------          -----------          ------------

     Net interest income                                                  $ 4,833,269          $ 3,917,480          $ 2,939,245


 Provision for loan losses                                                    260,000              285,000              133,000
                                                                          -----------          ------------         ------------

     Net interest income after
       provision for loan losses                                          $ 4,573,269          $ 3,632,480          $ 2,806,245
                                                                          -----------          ------------          -----------

 Other income:
     Service charges on deposit accounts                                  $   779,285          $   734,243          $   459,695
     Commissions and fees                                                      23,373              111,048              102,234
     Loss on sale of other real estate                                         (2,119)             (54,249)                  --
     Other                                                                     59,010               27,600               25,250
                                                                          -----------          ------------          -----------
          Total other income                                              $   859,549          $   818,642          $   587,179
                                                                          -----------          ------------         ------------
</TABLE>


 See Notes to Consolidated Financial Statements.
<PAGE>

                    MARATHON FINANCIAL CORPORATION

                   Consolidated Statements of Income
                              (Continued)
             Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>



                                                                        1999                 1998                 1997
                                                                    -------------        -------------        ------------
<S>                                                                 <C>                   <C>                 <C>


 Other expenses:
      Salaries and employee benefits                                 $ 1,887,748          $ 1,532,069          $ 1,213,499
      Net occupancy expense of premises                                  225,697              262,686              211,293
      Furniture and equipment                                            360,089              382,340              263,105
      Other                                                            1,284,016            1,016,120              894,899
                                                                     -----------          -----------          ------------
          Total other expenses                                       $ 3,757,550          $ 3,193,215          $ 2,582,796
                                                                     -----------          -----------          ------------

          Income before income taxes                                 $ 1,675,268          $ 1,257,907          $   810,628


 Provision for income tax (benefit)                                      563,676               77,596             (187,734)
                                                                     -----------          -----------          ------------

           Net income                                                $ 1,111,592          $ 1,180,311          $   998,362
                                                                     ===========          ===========          ============

 Earnings per share, basic                                           $      0.54          $      0.57          $      0.51
                                                                     ===========          ===========          ============

 Earnings per share, assuming dilution                               $      0.53          $      0.56          $      0.50
                                                                     ===========          ===========          ============
</TABLE>

 See Notes to Consolidated Financial Statements.
<PAGE>

                         MARATHON FINANCIAL CORPORATION

           Consolidated Statements of Changes in Shareholders' Equity
                  Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>

                                                                                       Accumulated
                                                                         Retained          Other                           Total
                                           Common         Capital       Earnings      Comprehensive  Comprehensive    Shareholders'
                                            Stock         Surplus       (Deficit)     Income (Loss)     Income            Equity
                                          -----------    -----------   ------------   -------------  --------------   -------------
<S>                                       <C>           <C>           <C>              <C>           <C>              <C>


 Balance, December 31, 1996               $ 1,863,495    $ 7,045,502   $ (3,019,267)   $      507                      $ 5,890,237
   Comprehensive income:
     Net income                                    --             --        998,362            --     $   998,362      $    998,362
     Other comprehensive income,
        unrealized gain on securities
        available for sale                         --             --             --         4,295           4,295             4,295
                                                                                                      -----------
     Total comprehensive income                    --             --             --            --     $ 1,002,657                --
                                                                                                      ===========
   Dividends declared ($.07 per share)             --             --       (143,920)           --                          (143,920)
   Issuance of common stock
     warrants (192,488 shares)                192,488        769,952             --            --                           962,440
                                          -----------    -----------   -------------   -----------                     -------------
 Balance, December 31, 1997               $ 2,055,983    $ 7,815,454   $ (2,164,825)   $    4,802                      $  7,711,414
   Comprehensive income:
     Net income                                    --             --      1,180,311            --     $ 1,180,311         1,180,311
     Other comprehensive income,
        unrealized gain on securities
        available for sale (net of tax,
        $13,894)                                   --             --             --        22,170          22,170            22,170
                                                                                                      ------------
     Total comprehensive income                    --             --             --            --     $ 1,202,481                --
                                                                                                      ============
   Dividends declared ($.08 per share)             --             --       (165,053)           --                          (165,053)
   Issuance of common stock
     exercise of stock options
     (7,203 shares)                             7,203         34,068             --            --                            41,271
                                          -----------    -----------   -------------    -----------                    -------------
 Balance, December 31, 1998               $ 2,063,186    $ 7,849,522   $ (1,149,567)   $   26,972                      $  8,790,113
   Comprehensive income:
     Net income                                    --             --      1,111,592            --     $ 1,111,592         1,111,592
     Other comprehensive income,
        unrealized loss on securities
         available for sale (net of tax,
        $80,912)                                   --             --             --      (157,064)       (157,064)         (157,064)
                                                                                                       ------------
     Total comprehensive income                    --             --             --            --     $   954,528                 -
                                                                                                       ============
   Dividends declared ($.09 per share)             --             --       (184,180)           --                          (184,180)
   Issuance of common stock
     exercise of stock options
     (500 shares)                                 500          2,000             --            --                             2,500
   Acquisition of common stock
     (17,245 shares)                          (17,245)      (100,535)            --            --                          (117,780)
                                           -----------    -----------    -----------    ------------                   -------------
 Balance, December 31, 1999              $  2,046,441    $ 7,750,987    $  (222,155)   $ (130,092)                     $  9,445,181
                                         =============   ============    ===========   =============                   =============
</TABLE>

 See Notes to Consolidated Financial Statements.
<PAGE>

                         MARATHON FINANCIAL CORPORATION

                      Consolidated Statements of Cash Flows
                  Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>


                                                                                 1999                 1998                  1997
                                                                             ------------         ------------         -------------
<S>                                                                          <C>                  <C>                  <C>

 Cash Flows from Operating Activities
     Net income                                                              $ 1,111,592          $ 1,180,311          $   998,362
     Adjustments to reconcile net income to net cash
       provided by (used in) operating activities:
          Amortization                                                            52,252               52,878               41,846
          Depreciation                                                           302,705              302,869              198,156
          Provision for loan losses                                              260,000              285,000              133,000
          Deferred tax expense (benefit)                                          93,628               72,346             (200,000)
          Loss on sale of other real estate                                        2,119               54,249
          Loss on sale of bank premises and equipment                                344
          Net amortization and (accretion) on securities                          11,111                4,316              (13,317)
          Origination of loans held for sale                                  (7,473,222)          (7,520,722)          (5,992,149)
          Proceeds from sale of loans held for sale                            7,874,893            8,621,489            4,773,003
          Changes in assets and liabilities:
               (Increase) in other assets                                        (62,303)             (77,806)            (125,826)
               (Increase) in accrued interest receivable                         (56,091)            (192,983)             (73,748)
               Increase (decrease) in accounts payable
                 and accrued expenses                                            111,733               84,741              (10,491)
               Increase in interest expense payable                                6,265               36,146               22,989
                                                                             -----------          -----------          ------------
                    Net cash provided by (used in) operating activities      $ 2,235,026          $ 2,902,834          $  (248,175)
                                                                             -----------          -----------          ------------

 Cash Flows from Investing Activities
     Proceeds from maturities, calls and principal
       payments of investment securities                                     $ 1,100,000          $   403,000          $ 1,107,991
     Proceeds from maturities, calls and principal
       payments of securities available for sale                                 305,169              361,404              503,397
     Purchase of investment securities                                        (1,750,335)          (3,698,262)          (1,152,890)
     Purchase of securities available for sale                                  (669,820)          (3,505,333)            (600,386)
     Net (increase) in loans                                                 (10,022,090)         (16,335,635)         (12,451,882)
     Purchase of bank premises and equipment                                    (302,024)            (438,969)          (1,137,155)
     Proceeds from sale of bank premises and equipment                            23,117                   --                   --
     Proceeds from sale of other real estate                                     133,219              375,751                   --
                                                                            -------------        -------------        -------------
          Net cash (used in) investing activities                           $(11,182,764)        $(22,838,044)        $(13,730,925)
                                                                            -------------        -------------        -------------

 Cash Flows from Financing Activities
     Net increase in demand deposits, NOW accounts
       and savings accounts                                                 $  8,135,486         $ 10,654,122         $  6,889,140
     Net increase in certificates of deposit                                   2,912,013           15,205,700            8,820,794
     Net proceeds from issuance of common stock                                    2,500               41,271              962,440
     Acquisition of common stock                                                (117,780)                  --                   --
     Principal payments on capital lease obligations                              (6,183)             (54,917)             (36,516)
     Payment of dividends                                                       (165,053)            (143,920)            (111,810)
                                                                            ------------         -------------        -------------
          Net cash provided by financing activities                         $ 10,760,983         $ 25,702,256         $ 16,524,048
                                                                            ------------         -------------        -------------
</TABLE>

See Notes to Consolidated Financial Statements.
<PAGE>

                         MARATHON FINANCIAL CORPORATION

                      Consolidated Statements of Cash Flows
                                   (Continued)
                  Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>


                                                                                  1999                1998                 1997
                                                                            -------------        -------------        -------------
<S>                                                                         <C>                  <C>                   <C>

               Increase in cash and cash equivalents                        $  1,813,245         $  5,767,046          $ 2,544,948
 Cash and Cash Equivalents
     Beginning                                                                12,814,428            7,047,382            4,502,434
                                                                            -------------        ------------          ------------

     Ending                                                                 $ 14,627,673         $ 12,814,428          $ 7,047,382
                                                                            =============        ============          ============
 Supplemental Disclosures of Cash Flow Information
      Cash payments for:
          Interest                                                          $  3,475,958         $  2,922,409          $ 1,920,420
                                                                            =============        ============          ============
          Income taxes                                                      $    437,516         $     17,595          $    12,179
                                                                            =============        ============          ============

 Supplemental Schedule of Noncash Investing and
   Financing Activities:
     Other real estate acquired in settlement of loans                      $    300,433         $         --          $   430,000
                                                                            =============        ============          ============

     Unrealized gain (loss) on securities available for sale                $   (237,976)        $     36,064          $     4,295
                                                                            =============        ============          ============
</TABLE>


 See Notes to Consolidated Financial Statements.
<PAGE>

                         MARATHON FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements


Note 1.       Nature of Banking Activities and Significant Accounting Policies

              Marathon   Financial   Corporation   (the   Corporation)  and  its
              subsidiary,  the  Marathon  Bank,  grant  commercial,   financial,
              agricultural,  residential  and  consumer  loans to  customers  in
              Virginia.  The loans are  expected  to be repaid from cash flow or
              proceeds from the sale of selected assets of the borrowers.

              The accounting and reporting  policies of the Corporation  conform
              to  generally  accepted  accounting   principles  and  to  general
              practices within the banking industry.  The following is a summary
              of the more significant policies.

                 Principles of Consolidation

                    The  consolidated   financial  statements  of  the  Marathon
                    Financial  Corporation  and  its  subsidiary,   include  the
                    accounts  of  all  companies.   All  material   intercompany
                    balances and transactions have been eliminated.

                 Securities

                    Debt  securities that management has the positive intent and
                    ability  to hold to  maturity  are  classified  as  "held to
                    maturity"  and recorded at amortized  cost.  Securities  not
                    classified as held to maturity,  including equity securities
                    with readily  determinable  fair values,  are  classified as
                    "available  for  sale"  and  recorded  at fair  value,  with
                    unrealized  gains and  losses  excluded  from  earnings  and
                    reported in other comprehensive income.

                    Purchase  premiums and discounts are  recognized in interest
                    income  using  the  interest  method  over the  terms of the
                    securities. Declines in the fair value of available for sale
                    securities below their cost that are deemed to be other than
                    temporary  are  reflected  in earnings  as realized  losses.
                    Gains and losses on the sale of  securities  are recorded on
                    the  trade  date  and  are  determined  using  the  specific
                    identification method.

                 Loans

                    The  Corporation  grants  mortgage,  commercial and consumer
                    loans  to  customers.  A  substantial  portion  of the  loan
                    portfolio is represented  by mortgage  loans  throughout the
                    Frederick County,  Warren County and Shenandoah County areas
                    of  Virginia.  The ability of the  Corporation's  debtors to
                    honor their  contracts is dependent upon the real estate and
                    general economic conditions in this area.

                    Loans that management has the intent and ability to hold for
                    the   foreseeable   future  or  until  maturity  or  payoff
                    generally are reported at their outstanding unpaid principal
                    balances less the allowance for loan losses. Interest income
                    is accrued on the unpaid  principal  balance.  Nonrefundable
                    loan fees and direct loan  origination  costs are recognized
                    in operations when received and incurred,  respectively. The
                    impact of this  methodology is not  significantly  different
                    from  recognizing  the net of these  fees and costs over the
                    contractual life of the related loan.
<PAGE>

                    The accrual of interest on mortgage and commercial  loans is
                    discontinued  at the  time  the  loan is 90 days  delinquent
                    unless  the  credit  is  wellsecured   and  in  process  of
                    collection.  Loans are  placed on  nonaccrual  at an earlier
                    date or charged off if  collection  of principal or interest
                    is considered doubtful.

                    All interest  accrued but not  collected  for loans that are
                    placed on  nonaccrual  or charged  off is  reversed  against
                    interest  income.  The  interest on these loans is accounted
                    for  on  the  cashbasis  or  costrecovery   method,  until
                    qualifying  for return to  accrual.  Loans are  returned  to
                    accrual  status when all the principal and interest  amounts
                    contractually  due are brought  current and future  payments
                    are reasonably assured.

                 Loans Held for Sale

                    Loans  originated  and  intended  for sale in the  secondary
                    market are  carried at the lower of cost or  estimated  fair
                    value in the aggregate.  Net unrealized  losses, if any, are
                    recognized  through a  valuation  allowance  by  charges  to
                    income.

                 Allowance for Loan Losses

                    The allowance for loan losses is  established  as losses are
                    estimated  to have  occurred  through a  provision  for loan
                    losses charged to earnings.  Loan losses are charged against
                    the allowance when management believes the  uncollectibility
                    of a loan balance is confirmed.  Subsequent  recoveries,  if
                    any, are credited to the allowance.

                    The  allowance  for loan  losses is  evaluated  on a regular
                    basis by management and is based upon management's  periodic
                    review  of the  collectibility  of the  loans  in  light  of
                    historical  experience,  the  nature  and volume of the loan
                    portfolio, adverse situations that may affect the borrower's
                    ability  to  repay,   estimated   value  of  any  underlying
                    collateral  and   prevailing   economic   conditions.   This
                    evaluation is inherently subjective as it requires estimates
                    that  are  susceptible  to  significant   revision  as  more
                    information becomes available.

                    The impairment of loans that have been separately identified
                    for  evaluation  is measured  based on the present  value of
                    expected future cash flows or, alternatively, the observable
                    market  price  of  the  loans  or  the  fair  value  of  the
                    collateral.  However,  for those  loans that are  collateral
                    dependent  (that is, if repayment of those loans is expected
                    to be provided solely by the underlying  collateral) and for
                    which management has determined foreclosure is probable, the
                    measure of  impairment  of those loans is to be based on the
                    fair  value  of the  collateral.  Large  groups  of  smaller
                    balance  homogeneous  loans are  collectively  evaluated for
                    impairment. Accordingly, the Corporation does not separately
                    identify  individual  consumer  and  residential  loans  for
                    impairment disclosures.

         Classifications of Amortization on Assets Acquired Under Capital Leases

                    The  amortization  expense on assets  acquired under capital
                    leases is included with the depreciation expense.
<PAGE>

                 Earnings Per Share

                   Basic  earnings  per share  represents  income  available  to
                   common shareholders divided by the weightedaverage number of
                   common shares outstanding during the period. Diluted earnings
                   per share reflects  additional  common shares that would have
                   been outstanding if dilutive potential common shares had been
                   issued, as well as any adjustment to income that would result
                   from the assumed  issuance.  Potential common shares that may
                   be issued by the  Corporation  relate  solely to  outstanding
                   stock options,  and are  determined  using the treasury stock
                   method.

                 Income Taxes

                   Deferred  taxes are  provided on a liability  method  whereby
                   deferred tax assets are recognized  for deductible  temporary
                   differences,  operating  loss  carryforwards,  and tax credit
                   carryforwards.  Deferred tax  liabilities  are recognized for
                   taxable temporary differences.  Temporary differences are the
                   differences  between  the  reported  amounts  of  assets  and
                   liabilities  and their tax  bases.  Deferred  tax  assets are
                   reduced by a  valuation  allowance  when,  in the  opinion of
                   management,  it is more likely than not that some  portion or
                   all of the deferred tax assets will not be realized. Deferred
                   tax assets and  liabilities  are  adjusted for the effects of
                   changes in tax laws and rates on the date of enactment.

                 Cash and Cash Equivalents

                   For  purposes  of  reporting   cash  flows,   cash  and  cash
                   equivalents  include cash on hand, amounts due from banks and
                   federal  funds sold.  Generally,  federal funds are purchased
                   and sold for oneday periods.

                 Bank Premises and Equipment

                   Bank   premises  and   equipment  are  stated  at  cost  less
                   accumulated depreciation. Depreciation is computed using both
                   straightline  and  accelerated   methods  over  the  assets'
                   estimated useful lives.  Estimated useful lives range from 10
                   to 39 years for  buildings  and 3 to 7 years  for  furniture,
                   fixtures and equipment.

                 Other Real Estate Owned

                   Foreclosed  properties  are  recorded  at  the  lower  of the
                   outstanding  loan balance at the time of  foreclosure  or the
                   estimated  fair  value  less  estimated  costs  to  sell.  At
                   foreclosure any excess of loan balance over the fair value of
                   the  property is charged to the  allowance  for loan  losses.
                   Such carrying value is  periodically  reevaluated and written
                   down if there is an indicated decline in fair value. Costs to
                   bring a property to salable  condition are  capitalized up to
                   the fair  value of the  property  while  costs to  maintain a
                   property in salable condition are expensed as incurred.

                 Advertising Costs

                   The Corporation follows the policy of charging the production
                   costs of advertising to expense as incurred.
<PAGE>

                 Use of Estimates

                    In preparing consolidated financial statements in conformity
                    with generally accepted accounting principles, management is
                    required to make estimates and  assumptions  that affect the
                    reported amounts of assets and liabilities as of the date of
                    the  balance  sheet and  reported  amounts of  revenues  and
                    expenses during the reporting  period.  Actual results could
                    differ from those  estimates.  Material  estimates  that are
                    particularly  susceptible to significant  change in the near
                    term relate to the  determination  of the allowance for loan
                    losses, the valuation of foreclosed real estate and deferred
                    tax assets.


Note 2.       Securities

              The amortized cost and fair value of the securities  available for
              sale as of December 31, 1999 and 1998, are as follows:

<TABLE>
<CAPTION>

                                                             Gross               Gross
                                         Amortized          Unrealized          Unrealized            Fair
                                            Cost              Gains              (Losses)            Value
                                        ----------         -----------        -------------       -----------
                                                                       1999
                                        ----------------------------------------------------------------------
<S>                                     <C>                 <C>                 <C>               <C>

     U.S. Government and
          federal agencies              $ 4,115,468         $       --          $ (170,958)        $3,944,510
     Obligations of state and
          political subdivisions            567,007                 --             (26,875)           540,132
     Mortgagebacked securities               15,042                723                  --             15,765
     Other                                  580,350                 --                  --            580,350
                                        -----------         ----------         ------------        -----------
                                        $ 5,277,867         $      723          $ (197,833)        $5,080,757
                                        ===========         ==========         ============        ===========
</TABLE>

<TABLE>
<CAPTION>

                                                                          1998
                                        ------------------------------------------------------------------------
<S>                                     <C>                   <C>                 <C>             <C>
 U.S. Government and
    federal agencies                     $4,420,515           $ 41,769            $ (2,066)      $ 4,460,218
 Mortgagebacked securities                   20,392              1,163                                21,555
 Other                                      479,800                                                  479,800
                                        -----------           --------            ------------   -----------
                                         $4,920,707           $ 42,932            $ (2,066)      $ 4,961,573
                                        ===========           ========            ============   ===========
</TABLE>
<PAGE>

              The amortized cost and fair value of the securities  available for
              sale as of December 31, 1999, by contractual  maturity,  are shown
              below. Expected maturities may differ from contractual  maturities
              because mortgages underlying the mortgagebacked securities may be
              called  or  prepaid  without  any  penalties.   Therefore,   these
              securities  are not  included in the  maturity  categories  in the
              maturity summary.

<TABLE>
<CAPTION>

                                                             Amortized            Fair
                                                                Cost             Value
                                                             ----------       ----------
<S>                                                        <C>               <C>


 Due in one year or less                                   $   200,167       $   199,314
 Due after one year through five years                       4,166,897         3,988,194
 Due after five years through ten years                        265,168           250,369
 Due over ten years                                             50,243            46,765
 Mortgagebacked securities                                      15,042            15,765
 Other                                                         580,350           580,350
                                                           -----------       -----------
                                                           $ 5,277,867       $ 5,080,757
                                                           ===========       ============
</TABLE>


              The  amortized  cost and fair  value of  securities  being held to
              maturity as of December 31, 1999 and 1998, are as follows:

<TABLE>
<CAPTION>

                                                                 Gross              Gross
                                           Amortized          Unrealized         Unrealized             Fair
                                              Cost               Gains             (Losses)             Value
                                          -----------         ----------         -----------         -----------
                                                                           1999
                                          ----------------------------------------------------------------------
<S>                                        <C>                  <C>             <C>                <C>
U.S. Government and
federal agencies                           $ 4,687,181           $ 164          $ (146,282)        $ 4,541,063
Obligations of state and
political subdivisions                         959,610                             (17,214)            942,396
                                           -----------         ---------        -----------        -----------
                                           $ 5,646,791           $ 164          $ (163,496)        $ 5,483,459
                                           ============        =========        ============       ============
</TABLE>

<TABLE>
<CAPTION>


                                                                            1998
                                         -----------------------------------------------------------------------
<S>     <C>                               <C>                    <C>                <C>            <C>
 U.S. Government and
    federal agencies                     $ 4,899,237            $ 39,376           $ (2,074)      $ 4,936,539
 Obligations of state and
    political subdivisions                   100,840               3,422                 --           104,262
                                         ------------           --------           ---------      -----------
                                         $ 5,000,077            $ 42,798           $ (2,074)      $ 5,040,801
                                         ============           ========           ==========     ============
</TABLE>
<PAGE>

              The amortized cost and fair value of the securities  being held to
              maturity as of December 31, 1999,  by  contractual  maturity,  are
              shown below.


                                              Amortized             Fair
                                                Cost                Value
                                             ----------          ----------
 Due in one year or less                     $  251,014          $  248,985
 Due after one year through five years        5,264,348           5,106,168
 Due after five years through ten years         131,429             128,306
                                             ----------          ----------
                                             $5,646,791          $5,483,459
                                             ==========          ==========




              For the years ended December 31, 1999,  1998 and 1997,  there were
              no sales of securities available for sale.

              Securities  having a book  value of  $2,639,891  and  $847,910  at
              December 31, 1999 and 1998 were pledged to secure public  deposits
              and for other purposes required by law.


Note 3.       Loans and Related Party Transactions

              The composition of the net loans is as follows:

<TABLE>
<CAPTION>

                                                                                                December 31,
                                                                                   ---------------------------------
                                                                                          1999               1998
                                                                                   --------------     --------------
                                                                                             (in thousands)
<S>                                                                                <C>                <C>

 Loans secured by real estate:
     Construction and land development                                                  $ 10,649            $ 8,900
     Secured by farmland                                                                     744                733
     Secured by 14 family residential                                                     16,717             13,773
     Multifamily residential                                                               2,349              1,379
     Nonfarm, nonresidential loans                                                        12,038              5,168
 Loans to farmers (except those secured by real estate)                                      220                218
 Commercial and industrial loans (except those secured by real estate)                    19,041             21,126
 Loans to individuals (except those secured by real estate)                               13,311             15,468
 All other loans                                                                             557                100
                                                                                        $ 75,626           $ 66,865
                                                                                       ----------         ----------
 Less:
     Unearned income                                                                         330              1,045
     Allowance for loan losses                                                               769                755
                                                                                       ---------          ---------
                                                                                        $ 74,527           $ 65,065
                                                                                       =========          =========
</TABLE>
<PAGE>

              The  Corporation  has  had,  and  may be  expected  to have in the
              future,  banking  transactions  in the ordinary course of business
              with directors,  executive officers,  their immediate families and
              affiliated  companies  in which  they are  principal  shareholders
              (commonly  referred  to as related  parties),  on the same  terms,
              including  interest rates and collateral,  as those  prevailing at
              the time for comparable  transactions  with others.  These persons
              and  firms  (exclusive  of loans to any such  person  which in the
              aggregate did not exceed $60,000) were indebted to the Corporation
              for loans totaling  $2,743,082 and $2,090,201 at December 31, 1999
              and 1998,  respectively.  During 1999,  total principal  additions
              were $1,484,378 and total principal payments were $831,497.


Note 4.       Allowance for Loan Losses

              Changes in the allowance for loan losses are as follows:

<TABLE>
<CAPTION>

                                                                                 December 31,
                                                                -------------------------------------------------
                                                                   1999               1998               1997
                                                                ------------       -----------       ------------
<S>                                                            <C>                  <C>               <C>

 Balance, beginning                                              $ 754,597          $ 576,497          $ 503,014
   Provision for loan losses                                       260,000            285,000            133,000
   Recoveries                                                       27,505             44,211             27,823
   Loan losses charged to
     the allowance                                                (272,692)          (151,111)           (87,340)
                                                                ------------       ------------       ------------
 Balance, ending                                                 $ 769,410          $ 754,597          $ 576,497
                                                                ============       ============       ============
</TABLE>

              Nonaccrual loans excluded from impaired loan disclosure under FASB
              114  amounted  to $40,541 and  $233,200  at December  31, 1999 and
              1998,  respectively.  If interest on these loans had been accrued,
              such income  would have  approximated  $2,934 and $15,681 for 1999
              and 1998, respectively.

Note 5.       Bank Premises and Equipment, Net

              Bank premises and equipment as of December 31, 1999 and 1998
              consists of the following:
<TABLE>
<CAPTION>

                                                                  1999                1998
                                                              -------------      -------------
<S>                                                          <C>                <C>

 Bank premises                                                 $ 2,196,723        $ 2,127,824
 Furniture and equipment                                         1,603,245          1,522,678
 Capital leases  property and equipment                            256,561            255,604
 Bank premises and equipment in process                            104,342                 --
                                                               ------------      ------------
                                                               $ 4,160,871        $ 3,906,106
 Less accumulated depreciation                                   1,569,838          1,290,931
                                                               ------------      ------------
                                                               $ 2,591,033        $ 2,615,175
                                                               ============      ============
</TABLE>
<PAGE>

              Depreciation  and amortization  included in operating  expense for
              1999,   1998  and  1997  was  $302,705,   $323,168  and  $228,365,
              respectively.


Note 6.       Deposits

              The aggregate amount of time deposits in denominations of $100,000
              or  more  at  December  31,  1999  and  1998  was  $9,393,027  and
              $9,320,255, respectively.

              At December 31, 1999,  the  scheduled  maturities of time deposits
              are as follows:


     Years Ending December 31:

               2000              $ 30,829,450
               2001                10,439,380
               2002                 2,657,044
               2003                 4,549,994
               2004                 1,923,000
                                 ------------
                                 $ 50,398,868
                                 ============

Note 7.       Income Taxes

              Net deferred tax assets consist of the following components as of
              December 31, 1999 and 1998:

<TABLE>
<CAPTION>

                                                          1999                 1998
                                                       ----------           ----------
<S>                                                    <C>                   <C>

 Deferred tax assets:
   Net operating loss carryforward                     $       --           $ 187,705
   Writedown of other real estate                           2,720               2,720
   Other real estate expenditures                           2,641                 192
   Nonaccrual interest                                      1,187               5,545
   Allowance for loan losses                              159,363              70,963
   Alternative minimum tax credits                             --              21,856
   Deferred benefit plans                                  21,798                  --
   Securities available for sale                           67,017                  --
                                                       ----------           ----------
                                                       $ 254,726            $ 288,981
                                                       ----------           ----------

 Deferred tax liabilities:
   Depreciation                                        $   3,683            $  11,327
   Securities available for sale                              --               13,894
                                                       ----------           ---------
                                                       $   3,683            $  25,221
                                                       ----------          ----------

                                                       $ 251,043            $ 263,760
                                                       ==========          ==========
</TABLE>
<PAGE>

              The provision for income taxes (benefit) charged to operations for
              the years ended December 31, 1999, 1998 and 1997,  consists of the
              following:

<TABLE>
<CAPTION>

                                                            1999               1998                1997
                                                        ------------       -----------        ------------
<S>                                                      <C>                <C>                 <C>
 Current tax expense                                     $ 470,048         $    5,250           $   12,266
 Deferred tax expense                                       93,628            411,235              278,740
 Change in valuation allowance                                  --           (338,889)            (478,740)
                                                         -----------       -----------         ------------
                                                         $ 563,676         $   77,596           $ (187,734)
                                                         ===========       ===========         ============
</TABLE>


              The income  tax  provision  differs  from the amount of income tax
              determined by applying the U.S.  federal income tax rate to pretax
              income for the years ended  December 31, 1999,  1998 and 1997, due
              to the following:

<TABLE>
<CAPTION>


                                                            1999               1998                1997
                                                         -----------       -----------        ------------
<S>                                                      <C>                 <C>                 <C>
 Computed "expected" tax expense                         $ 569,591          $ 427,688           $ 275,614
 Increase (decrease) in income taxes
   resulting from:
     Reduction of valuation allowance                           --           (338,889)           (478,740)
     Other                                                  (5,915)           (11,203)             15,392
                                                         ----------        ------------        -----------
                                                         $ 563,676          $  77,596           $(187,734)
                                                         ==========        ============        ===========
</TABLE>


Note 8.       Leases

              Capital Leases

                 The  Corporation  has a lease  agreement on a branch  facility,
                 located  on  land  leased  from  a  partnership  of  which  the
                 Corporation's  president is a partner. The liability is payable
                 in monthly  installments  of $1,991  through May 31, 2016 at an
                 interest  rate of 8%. The capital lease payable at December 31,
                 1999 in the amount of $218,036  represents the present value of
                 the balance due in future years for lease rentals discounted at
                 the respective  interest rates.  Since the term of the lease is
                 approximately  the  same as the  estimated  useful  life of the
                 assets,  and the  present  value of the  future  minimum  lease
                 payments at the  beginning of the lease  approximated  the fair
                 value  of  the  leased  assets  at  that  date,  the  lease  is
                 considered to be a capital lease and has been so recorded.
<PAGE>

                 The  following  is a schedule  by years of the  future  minimum
                 lease  payments  under  the  capital  lease  together  with the
                 present value of the net minimum lease  payments as of December
                 31, 1999:

Lease Commitments and Total Rental Expense

 Years ending December 31:

   2000                                                      $  23,898
   2001                                                         23,898
   2002                                                         23,898
   2003                                                         23,898
   2004                                                         23,898
   Later years                                                 272,834
                                                             ---------
        Total minimum lease payments                         $ 392,324
   Less the amount representing interest                       174,288
                                                             ---------
        Present value of net minimum
          lease payments                                     $ 218,036
                                                             =========


                 The Corporation entered into a twentyyear operating lease with
                 a partnership of which the Corporation's president is a partner
                 for the rental of a branch location and improvements. The lease
                 expires on May 31, 2016 and has two fiveyear  renewal options.
                 The lease provides that the Corporation pay all property taxes,
                 insurance  and  maintenance  costs  plus an  annual  rental  of
                 $22,256 for the initial lease beginning July 1, 1996. The total
                 minimum lease  commitment at December 31, 1999 under this lease
                 is $367,224.

                 The Corporation leases a branch location.  The lease expires on
                 March 30, 2000 and has two fiveyear renewal options. The lease
                 provides that the Corporation pay all property taxes, insurance
                 and  maintenance  plus an  annual  rental  of  $12,000  for the
                 initial  lease period  commencing  on April 1, 1995.  The total
                 minimum lease commitments at December 31, 1999 under this lease
                 is $3,000.

                 The Corporation entered into a tenyear operating lease for the
                 rental of a branch location.  The lease expires on December 31,
                 2006 and has two fiveyear renewal options.  The lease provides
                 that the  Corporation  pay all property  taxes,  insurance  and
                 maintenance  plus rental  payments for the initial lease period
                 commencing  on  January  13,  1997.  The  total  minimum  lease
                 commitments at December 31, 1999 under this lease is $221,631.

                 The  Corporation  entered into a fiveyear  operating lease for
                 the rental of a branch  location.  The lease  expires on August
                 31,  2002 and has two  fiveyear  renewal  options.  The  lease
                 provides that the Corporation pay all property taxes, insurance
                 and  maintenance  plus rental  payments  for the initial  lease
                 period commencing on September 1, 1997. The total minimum lease
                 commitments at December 31, 1999 under this lease is $29,200.
<PAGE>

The total minimum lease  commitment for these operating  leases is due as
follows:

 2000                                              $  65,256
 2001                                                 63,456
 2002                                                 61,006
 2003                                                 53,774
 2004                                                 54,563
 Later years                                         321,150
                                                   ----------
                                                   $ 619,205
                                                   ==========

                 Total rental  expense was $86,594,  $68,556 and $56,933 for the
                 years ended December 31, 1999, 1998 and 1997, respectively.

              Fixed Equipment on Land Leased with Related Parties

                 Fixed equipment with a depreciated cost at December 31, 1999 of
                 $16,160 is located on land leased from a  partnership  of which
                 the Corporation's  president is a partner. The lease expires on
                 May 31, 2016.


Note 9.       Commitments and Contingent Liabilities

              In the  normal  course of  business,  there are other  outstanding
              commitments and contingent  liabilities which are not reflected in
              the accompanying financial statements. See Note 12 with respect to
              financial instruments with offbalancesheet risk.

              As members of the  Federal  Reserve  System,  the  Corporation  is
              required to maintain  certain  average reserve  balances.  For the
              final weekly reporting period in the years ended December 31, 1999
              and 1998, the aggregate amounts of daily average required balances
              were approximately $495,000 and $394,000, respectively.

              The Corporation is required to maintain  certain  required reserve
              balances with its correspondent bank. Those required balances were
              $900,000 and $950,000 for 1999 and 1998, respectively.


Note 10.      Dividend Restrictions

              Federal and state  regulations limit the amount of dividends which
              the  Corporation  can pay without  obtaining  prior  approval and,
              additionally,  federal  regulations  require that the  Corporation
              maintain  minimum capital  requirements.  As of December 31, 1999,
              the  Corporation  was  required  to obtain  prior  approval on any
              dividend declared.
<PAGE>

              The  Corporation  did obtain  approval from the State  Corporation
              Commission to pay dividends in 1999,  1998 and 1997. On January 7,
              1998, the Board of Directors  declared a cash dividend of $.07 per
              share payable  January 26, 1998 to  shareholders of record January
              17, 1998. On December 15, 1998, the Board of Directors  declared a
              cash  dividend  of $.08 per  share  payable  January  29,  1999 to
              shareholders  of record  December 31, 1998.  On December 21, 1999,
              the Board of Directors  declared a cash dividend of $.09 per share
              payable  January 31, 2000 to  shareholders  of record December 31,
              1999.

              Transfers  of funds  from the  banking  subsidiary  to the  parent
              corporation in the form of loans,  advances and cash dividends are
              restricted  by federal  and state  regulatory  authorities.  As of
              December 31, 1999 no unrestricted  funds could be transferred from
              the banking  subsidiary to the parent  corporation,  without prior
              regulatory approval.


Note 11.      Other Expenses

              The principal components of "Other expenses" in the Consolidated
              Statements of Income are:
<TABLE>
<CAPTION>


                                                               1999                1998                1997
                                                          -------------      -------------       -------------
<S>                                                       <C>                <C>                  <C>

 Telephone                                                 $    96,841         $    84,232           $ 48,709
 Advertising                                                    27,351              39,952             75,870
 Stationery and supplies                                       171,893             102,716             73,722
 Postage                                                       119,678              92,296             59,392
 Directors fees                                                 89,300              83,250             69,315
 ATM expense                                                   165,613              87,525             56,800
 Forgery loss                                                       --                  --             59,870
 Other (includes no items in excess
 of 1% of total revenue)                                       613,340             526,149            451,221
                                                           -----------        -------------        -----------
                                                           $ 1,284,016         $ 1,016,120          $ 894,899
                                                           ===========        =============        ===========
</TABLE>

Note 12.      Financial Instruments With OffBalanceSheet Risk

              The   Corporation   is  party  to   financial   instruments   with
              offbalancesheet  risk in the normal  course of  business to meet
              the financing needs of its customers.  These financial instruments
              include commitments to extend credit and standby letters of credit
              and commercial  lines of credit.  Those  instruments  involve,  to
              varying  degrees,  elements  of credit and  interest  rate risk in
              excess  of  the  amount  recognized  in the  consolidated  balance
              sheets.

              The  Corporation's  exposure to credit loss is  represented by the
              contractual amount of these commitments.  The Corporation  follows
              the same  credit  policies  in making  commitments  as it does for
              onbalancesheet instruments.
<PAGE>

              At December 31, 1999 and 1998, the following financial instruments
              were outstanding whose contract amounts represent credit risk:


                                                        Contract Amount
                                                 ------------------------------
                                                     1999               1998
                                                 -----------       ------------
                                                         (Thousands)

      Commitments to grant loans                   $   608            $ 4,415
      Standby letters of credit                      1,432                851
      Unfunded commitments under lines
          of credit                                 12,859              4,494

              Commitments  to extend credit are agreements to lend to a customer
              as long as there is no violation of any condition  established  in
              the contract. Commitments generally have fixed expiration dates or
              other termination  clauses and may require payment of a fee. Since
              many of the commitments are expected to expire without being drawn
              upon, the total  commitment  amounts do not necessarily  represent
              future  cash   requirements.   The   Corporation   evaluates  each
              customer's credit  worthiness on a casebycase  basis. The amount
              of  collateral  obtained,   if  it  is  deemed  necessary  by  the
              Corporation,  is based on  management's  credit  evaluation of the
              counterparty.

              Unfunded  commitments under commercial lines of credit,  revolving
              credit lines and overdraft  protection  agreements are commitments
              for possible  future  extensions of credit to existing  customers.
              These  lines of credit  are  uncollateralized  and  usually do not
              contain a specified maturity date and may not be drawn upon to the
              total extent to which the Corporation is committed.

              Commercial   and  standby   letters  of  credit  are   conditional
              commitments issued by the Corporation to guarantee the performance
              of a  customer  to a third  party.  Those  letters  of credit  are
              primarily   issued  to  support   public  and  private   borrowing
              arrangements.  Essentially  all  letters  of  credit  issued  have
              expiration  dates  within one year.  The credit  risk  involved in
              issuing letters of credit is essentially the same as that involved
              in  extending  loan  facilities  to  customers.   The  Corporation
              generally holds collateral  supporting those commitments for which
              collateral is deemed necessary.

              The Corporation has cash accounts in other  commercial  banks. The
              amount on  deposit  at two of these  banks at  December  31,  1999
              exceeded the  insurance  limits of the Federal  Deposit  Insurance
              Corporation by approximately $1,091,544.


Note 13.      Defined Contribution Retirement Plan

              The   Corporation  has  a  401(k)  Profit  Sharing  Plan  covering
              employees who have  completed six months of service and who are at
              least 21 years of age.  Employees may  contribute up to 20 percent
              of their  compensation  subject to certain limits based on federal
              tax   laws.   The   Corporation   makes   discretionary   matching
              contributions  equal to 50 percent of an  employee's  compensation
              contributed  to  the  Plan  up  to 3  percent  of  the  employee's
              compensation. Additional amounts may be contributed, at the option
              of  the  Corporation's   Board  of  Directors.   These  additional
              contributions generally amount to 2 percent of eligible employee's
              compensation.  Employer  contributions vest to the employee over a
              sixyear  period.  For the years ended December 31, 1999, 1998 and
              1997,  expense  attributable  to the  Plan  amounted  to  $43,100,
              $40,494 and $31,361, respectively.
<PAGE>

Note 14.      Disclosures About Fair Value of Financial Instruments

              The following  methods and  assumptions  were used to estimate the
              fair value of each class of financial  instruments for which it is
              practicable to estimate that value:

                 Cash and ShortTerm Investments

                    For those shortterm  instruments,  the carrying amount is a
                    reasonable estimate of fair value.

                 Securities

                    For  securities,  fair  values  are based on  quoted  market
                    prices or dealer quotes.

                 Loans Held for Sale

                    Fair  values  are based on quoted  market  prices of similar
                    loans sold on the secondary market.

                 Loan Receivables

                    For certain  homogeneous  categories of loans,  such as some
                    residential mortgages,  and other consumer loans, fair value
                    is estimated  using the quoted market prices for  securities
                    backed by similar  loans,  adjusted for  differences in loan
                    characteristics.  The fair value of other  types of loans is
                    estimated  by  discounting  the future  cash flows using the
                    current  rates  at  which  similar  loans  would  be made to
                    borrowers  with  similar  credit  ratings  and for the  same
                    remaining maturities.

                 Deposit Liabilities

                    The fair value of demand  deposits,  savings  accounts,  and
                    certain  money  market  deposits  is the  amount  payable on
                    demand   at  the   reporting   date.   The  fair   value  of
                    fixedmaturity  certificates  of deposit is estimated  using
                    the  rates   currently   offered  for  deposits  of  similar
                    remaining maturities.

                 Accrued Interest

                    The carrying  amounts of accrued  interest  approximate fair
                    value.

                 Capital Lease Payable

                    The fair values of the  Corporation's  longterm  borrowings
                    (other than deposits) are estimated  using  discounted  cash
                    flow   analyses,   based   on  the   Corporation's   current
                    incremental  borrowing  rates for similar types of borrowing
                    arrangements.

                 Off-BalanceSheet Financial Instruments

                    The fair value of  commitments to extend credit is estimated
                    using  the  fees   currently   charged   to  enter   similar
                    agreements,  taking into account the remaining  terms of the
                    agreements  and  the  present   credit   worthiness  of  the
                    counterparties.  For fixedrate loan commitments, fair value
                    also  considers the  difference  between  current  levels of
                    interest rates and the committed rates.
<PAGE>

                    The fair  value of  standby  letters  of credit is based on
                    fees  currently  charged  for similar  agreements  or on the
                    estimated  cost to terminate  them or  otherwise  settle the
                    obligations with the counterparties at the reporting date.

                    At December 31, 1999 and 1998,  the  difference  between the
                    carrying  amounts  and fair values of loan  commitments  and
                    standby letters of credit were immaterial.

<TABLE>
<CAPTION>


                                                                 1999                                   1998
                                                    ---------------------------------    ---------------------------------
                                                      Carrying             Fair              Carrying             Fair
                                                       Amount              Value              Amount              Value
                                                    -------------       -------------    ---------------      ------------
                                                               (Thousands)                            (Thousands)
<S>                                                 <C>                    <C>            <C>                    <C>

 Financial assets:
     Cash and shortterm
       investments                                     $ 14,628           $ 14,628            $ 12,814           $ 12,814
     Securities                                          10,727             10,564               9,962             10,002
     Loans held for sale                                     --                 --                 402                402
     Loans                                               74,527             75,915              65,065             68,265
     Accrued interest receivable                            535                535                 479                479


 Financial liabilities:
     Deposits                                          $ 93,343           $ 93,384            $ 82,295           $ 83,935
     Longterm debt                                          218                218                 224                247
     Accrued interest payable                               147                147                 141                141
</TABLE>


Note 15.      Minimum Regulatory Capital Requirements

              The Corporation (on a consolidated basis) and the Bank are subject
              to various  regulatory  capital  requirements  administered by the
              federal  banking   agencies.   Failure  to  meet  minimum  capital
              requirements   can  initiate   certain   mandatory   and  possibly
              additional   discretionary   actions  by   regulators   that,   if
              undertaken,   could   have  a  direct   material   effect  on  the
              Corporation's  and  Bank's  financial  statements.  Under  capital
              adequacy  guidelines  and  the  regulatory  framework  for  prompt
              corrective action, the Corporation and the Bank must meet specific
              capital  guidelines  that involve  quantitative  measures of their
              assets,   liabilities  and  certain   offbalancesheet  items  as
              calculated  under  regulatory  accounting  practices.  The capital
              amounts  and   classification  are  also  subject  to  qualitative
              judgments by the regulators about components, risk weightings, and
              other  factors.   Prompt  correction  action  provisions  are  not
              applicable to bank holding companies.

              Quantitative  measures established by regulation to ensure capital
              adequacy  require the Corporation and the Bank to maintain minimum
              amounts  and ratios  (set  forth in the table  below) of total and
              Tier 1 capital (as defined in the  regulations)  to  riskweighted
              assets (as  defined) and of Tier 1 capital (as defined) to average
              assets (as defined).  Management believes, as of December 31, 1999
              and  1998,  that the  Corporation  and the  Bank  met all  capital
              adequacy requirements to which they are subject.
<PAGE>

              As of December 31,  1999,  the most recent  notification  from the
              Federal  Reserve  Bank  categorized  the Bank as well  capitalized
              under the regulatory framework for prompt corrective action. To be
              categorized  as well  capitalized,  an  institution  must maintain
              minimum total  riskbased,  Tier 1 riskbased  and Tier 1 leverage
              ratios as set forth in the table below.

              There are no conditions or events since the notification that
              management believes have changed the Bank's category. The
              Corporation's and the Bank's capital amounts and ratios as of
              December 31, 1999 and 1998 are also presented in the table.

<TABLE>
<CAPTION>

                                                                                     Minimum Capital
                                Actual                                                Requirement
                         ------------------                             -----------------------------------------
                           Amount    Ratio                               Amount                            Ratio
                         --------- ---------                            ----------                        -------
                                                                                   (Amount in Thousands)
<S>                       <C>       <C>      <C>                        <C>    <C>                        <C>
As of December 31, 1999:
  Total Capital to Risk
    Weighted Assets:
      Consolidated        $10,344   13.30%  (greater than or equal to)  $6,221 (greater than or equal to)  8.00%
      Marathon Bank       $ 9,900   12.75%  (greater than or equal to)  $6,210 (greater than or equal to)  8.00%
  Tier 1 Capital to Risk
    Weighted Assets:
      Consolidated        $ 9,575   12.31%  (greater than or equal to)  $3,110 (greater than or equal to)  4.00%
      Marathon Bank       $ 9,131   11.76%  (greater than or equal to)  $3,105 (greater than or equal to)  4.00%
  Tier 1 Capital to
    Average Assets:
      Consolidated        $ 9,575    8.90%  (greater than or equal to)  $4,305 (greater than or equal to)  4.00%
      Marathon Bank       $ 9,131    8.52%  (greater than or equal to)  $4,284 (greater than or equal to)  4.00%


As of December 31, 1998:
  Total Capital to Risk
    Weighted Assets:
      Consolidated        $ 9,518   13.89%  (greater than or equal to)  $5,481 (greater than or equal to)  8.00%
      Marathon Bank       $ 8,787   12.84%  (greater than or equal to)  $5,476 (greater than or equal to)  8.00%
  Tier 1 Capital to Risk
    Weighted Assets:
      Consolidated        $ 8,763   12.79%  (greater than or equal to)  $2,740 (greater than or equal to)  4.00%
      Marathon Bank       $ 8,032   11.73%  (greater than or equal to)  $2,738 (greater than or equal to)  4.00%
  Tier 1 Capital to
    Average Assets:
      Consolidated        $ 8,763    9.63%  (greater than or equal to)  $3,640 (greater than or equal to)  4.00%
      Marathon Bank       $ 8,032    8.90%  (greater than or equal to)  $3,610 (greater than or equal to)  4.00%
</TABLE>

<TABLE>
<CAPTION>
                                                                           Minimum
                                                                          To Be Well
                                                                      Capitalized Under
                                                                      Prompt Corrective
                                                                      Action Provisions
                                                         --------------------------------------------
                                                          Amount                               Ratio
                                                         ---------                            --------

<S>                           <C>                         <C>      <C>                         <C>
As of December 31, 1999:
  Total Capital to Risk
    Weighted Assets:
      Consolidated                                                              N/A
      Marathon Bank            (greater than or equal to)  $7,763  (greater than or equal to)   10.00%
  Tier 1 Capital to Risk
    Weighted Assets:
      Consolidated                                                             N/A
      Marathon Bank                                        $4,658  (greater than or equal to)    6.00%
  Tier 1 Capital to
    Average Assets:
      Consolidated                                                             N/A
      Marathon Bank            (greater than or equal to)  $5,356  (greater than or equal to)    5.00%


As of December 31, 1998:
  Total Capital to Risk
    Weighted Assets:
      Consolidated                                                             N/A
      Marathon Bank            (greater than or equal to)  $6,845  (greater than or equal to)   10.00%
  Tier 1 Capital to Risk
    Weighted Assets:
      Consolidated                                                             N/A
      Marathon Bank            (greater than or equal to)  $4,107  (greater than or equal to)    6.00%
  Tier 1 Capital to
    Average Assets:
      Consolidated                                                             N/A
      Marathon Bank            (greater than or equal to)  $4,512  (greater than or equal to)    5.00%
</TABLE>
<PAGE>

Note 16.      Stock Option Plans

              The LongTerm  Incentive  Plan allows for incentive  stock options
              and  nonqualified  stock  options to be granted  with an  exercise
              price to be not less  than  100% of the Fair  Market  Value of the
              Stock on the day the stock  option is granted.  350,000  shares of
              the Corporation's Common Stock have been reserved for the issuance
              of stock options under the Incentive  Plan. All options expire ten
              years from the grant date.

              The fair value of each employeerelated  grant is estimated at the
              grant  date  using the  BlackScholes  optionpricing  model.  The
              estimates  were  calculated  using the following  weightedaverage
              assumptions for grants in 1998 and 1997: Dividend rate of .12% and
              .16%,  price volatility of 20.65% and 35.00%,  riskfree  interest
              rate of 4.50% and 5.00%,  respectively,  and  expected  lives of 5
              years. There were no options granted in 1999.

              The Corporation applies APB Opinion 25 in accounting for its stock
              option  plans.  Accordingly,  no  compensation  expense  has  been
              recognized  for 1999,  1998 or 1997.  Had  compensation  cost been
              determined on the basis of fair value  pursuant to FASB  Statement
              No.  123,  net income and  earnings  per share  would have been as
              follows:

<TABLE>
<CAPTION>

                                      1999               1998                 1997
                                   -----------        -----------          ---------
<S>                               <C>                <C>                   <C>

 Net income
   As reported                     $ 1,111,592        $ 1,180,311          $ 998,362
                                   ===========        ===========         ==========
   Proforma                        $ 1,103,762        $ 1,166,453          $ 970,561
                                   ===========        ===========         ==========
 Basic earnings per share
   As reported                     $      0.54        $      0.57          $    0.51
                                   ===========        ===========         ==========
   Proforma                        $      0.54        $      0.57          $    0.50
                                   ===========        ===========         ==========

 Diluted earnings per share
   As reported                     $      0.53        $      0.56          $    0.50
                                   ===========        ===========         ==========
   Proforma                        $      0.53        $      0.55          $    0.48
                                   ===========        ===========         ==========
</TABLE>
<PAGE>

              Changes in the stock options  outstanding related to the LongTerm
              Incentive Plan for employees is summarized as follows:

<TABLE>
<CAPTION>

                                                  1999                     1998                       1997
                                        ----------------------     --------------------        --------------------
                                                      Weighted                 Weighted                   Weighted
                                          Number       Average       Number    Average          Number     Average
                                            of        Exercise         of      Exercise           of      Exercise
                                          Shares        Price        Shares     Price           Shares      Price
                                        ---------   ----------     ----------  --------        ---------  ---------
<S>                                     <C>         <C>            <C>          <C>             <C>       <C>
Outstanding at beginning of year         44,875     $   5.25         42,078    $   5.12             --      $  --
Granted                                      --           --          5,000        7.25         42,078        5.12
Exercised                                  (500)        5.00         (2,203)       7.39             --          --
Forfeited                                    --           --             --          --             --          --
                                        --------                   --------                   --------
Outstanding at end of year               44,375     $   5.25         44,875    $   5.25         42,078      $ 5.12
                                        ========                   ========                   ========
Options execisable at yearend            26,625     $   5.25         20,875    $   5.22         14,721      $ 5.12
Weightedaverage fair value of
   options granted during the year      $    --                    $   2.02                    $  1.97
</TABLE>






              Changes in the stock options outstanding related to the Long-Term
              Incentive Plan for directors is summarized as follows:

<TABLE>
<CAPTION>


                                                  1999                     1998                       1997
                                        ----------------------     --------------------        --------------------
                                                      Weighted                 Weighted                   Weighted
                                          Number       Average       Number    Average          Number     Average
                                            of        Exercise         of      Exercise           of      Exercise
                                          Shares        Price        Shares     Price           Shares      Price
                                        ---------   ----------     ----------  --------        ---------  ---------
<S>                                     <C>         <C>            <C>          <C>             <C>       <C>
Outstanding at beginning of year           90,000    $   5.00       100,000   $   5.00               --  $     --
Granted                                        --          --            --         --          100,000      5.00
Exercised                                      --          --        (5,000)      5.00               --        --
Forfeited                                      --          --        (5,000)      5.00               --        --
                                        ---------   ----------     ---------   --------        ---------  ---------
Outstanding at end of year                 90,000    $   5.00        90,000   $   5.00          100,000  $   5.00
                                        =========                  =========                   ---------
Options execisable at yearend              63,000    $   5.00        54,000   $   5.00           50,000  $   5.00
 Weightedaverage fair value of
    options granted during the year      $     --                  $     --                              $   1.94

</TABLE>
<PAGE>

              Information pertaining to options outstanding at December 31, 1999
              is as follows:
<TABLE>
<CAPTION>

                                     Options Outstanding                    Options Exercisable
                           -----------------------------------------     -------------------------
                                            Weighted
                                            Average        Weighted                     Weighted
                                           Remaining        Average                      Average
      Exercise                Number      Contractual      Exercise        Number       Exercise
       Price               Outstanding       Life            Price       Exercisable      Price
------------------         -----------    ------------     ---------     -----------    ----------
<S>                        <C>            <C>             <C>            <C>           <C>
    $      5.00             129,375        6.75 years       $ 5.00         86,625        $ 5.00
           7.25               5,000        8.75 years         7.25          3,000          7.25
                           -----------
 Outstanding at
   end of year              134,375        6.82 years       $ 5.08         89,625        $ 5.08
                           ===========                                   ===========
</TABLE>




Note 17.      Earnings Per Share

              The following shows the weighted  average number of shares used in
              computing  earnings  per share and the effect on weighted  average
              number of shares of  diluted  potential  common  stock.  Potential
              dilutive common stock had no effect on income  available to common
              shareholders.

<TABLE>
<CAPTION>


                              1999                       1998                    1997
                        ---------------------     ------------------     ---------------------
                                       Per                     Per                      Per
                                      Share                   Share                    Share
                         Shares       Amount        Shares    Amount       Shares      Amount
                        --------    ---------     ---------  -------     ----------   --------
<S>                    <C>           <C>           <C>       <C>           <C>        <C>
Basic earnings
  per share             2,054,748   $   0.54      2,058,932  $ 0.57       1,951,172   $  0.51
                                    ========                 =======                  ========
Effect of dilutive
  securities:
     Stock options         34,655                    53,077                  45,421
     Warrants                  --                        --                  19,560
                        ----------                ---------               ---------
Diluted earnings
  per share             2,089,403   $   0.53      2,112,009  $ 0.56       2,016,153   $  0.50
                        ==========  ========      =========  =======      =========   ========
</TABLE>





Options of 5,000 were not  included in  computing  diluted EPS for 1999  because
their effects were antidilutive.
<PAGE>

Note 18.  Parent Corporation Only Financial Statements


                            MARATHON FINANCIAL CORPORATION
                              (Parent Corporation Only)

                                    Balance Sheets
                              December 31, 1999 and 1998



<TABLE>
<CAPTION>


                                                          1999               1998
                                                      -----------       -----------
<S>                                                   <C>              <C>

 Assets
   Cash on deposit with subsidiary bank               $   127,156       $   130,241
   Securities                                             495,728           761,344
   Accrued interest receivable                              7,168            14,545
   Investment in capital stock of subsidiary            9,004,126         8,052,263
   Other assets                                             1,805                --
                                                      -----------       -----------
      Total assets                                    $ 9,635,983       $ 8,958,393
                                                      ===========       ===========
Liabilities
   Income taxes payable                               $     6,622       $     3,225
   Dividends payable                                      184,180           165,055
                                                      -----------       -----------
                                                      $   190,802       $   168,280
                                                      -----------       -----------
 Shareholders' Equity
   Preferred stock                                    $        --       $       --
   Common stock                                         2,046,441         2,063,186
   Capital surplus                                      7,750,987         7,849,522
   Retained earnings (deficit)                           (222,155)       (1,149,567)
   Accumulated other comprehensive income (loss)         (130,092)           26,972
                                                      -----------       -----------
      Total shareholders' equity                      $ 9,445,181       $ 8,790,113
                                                      -----------       -----------
      Total liabilities and shareholders' equity      $ 9,635,983       $ 8,958,393
                                                      ===========       ===========
</TABLE>
<PAGE>

                   MARATHON FINANCIAL CORPORATION
                     (Parent Corporation Only)


                        Statements of Income
            Years Ended December 31, 1999, 1998 and 1997




<TABLE>
<CAPTION>




                                                              1999           1998            1997
                                                           ----------      ----------      ----------
<S>                                                        <C>             <C>            <C>

Income
   Interest on investment securities, taxable              $   31,514      $   14,447      $    5,945
   Interest on securities available for sale, taxable             606          31,647           8,625
                                                           ----------      ----------      ----------
     Total income                                          $   32,120      $   46,094      $   14,570
                                                           ----------      ----------      ----------

Expenses, other                                            $   13,069          18,607      $   11,927
                                                           ----------      ----------      ----------

   Income before income taxes and
    undistributed income of subsidiary                     $   19,051      $   27,487      $    2,643

Provision for income tax                                        6,622              --              --
                                                           ----------      ----------      ----------
   Income before undistributed
     income of subsidiary                                  $   12,429      $   27,487      $    2,643

Undistributed income of subsidiary                          1,099,163       1,152,824         995,719
                                                           ----------      ----------      ----------
   Net income                                              $1,111,592      $1,180,311      $  998,362
                                                           ==========      ==========      ==========
</TABLE>
<PAGE>

                    MARATHON FINANCIAL CORPORATION
                       (Parent Corporation Only)



                       Statements of Cash Flows
             Years Ended December 31, 1999, 1998 and 1997






<TABLE>
<CAPTION>


                                                             1999               1998              1997
                                                          -----------       -----------       -----------
<S>                                                       <C>               <C>               <C>

Cash Flows from Operating Activities
  Net income                                              $ 1,111,592       $ 1,180,311       $   998,362
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
  Amortization of securities discounts, net                       820             2,195              --
  Undistributed income of subsidiary                       (1,099,163)       (1,152,824)         (995,719)
  Decrease in prepaid expenses                                   --                --                 283
  (Increase) decrease in accrued interest receivable            7,377                 1           (14,545)
  Increase (decrease) in accounts payable                       6,622              --              (1,363)
                                                          -----------       -----------       -----------
     Net cash provided by (used in)
      operating activities                                $    27,248       $    29,683       $   (12,982)
                                                          -----------       -----------       -----------

Cash Flows from Investing Activities
  Proceeds from maturities of investment securities       $   250,000       $   150,000       $        --
  Purchase of investment securities                                --                --          (401,490)
  Purchase of securities available for sale                        --                --          (502,561)
                                                          -----------       -----------       -----------
     Net cash provided by (used in)
       investing activities                               $   250,000       $   150,000       $  (904,051)
                                                          -----------       -----------       -----------

Cash Flows from Financing Activities
  Net proceeds from issuance of common stock              $     2,500       $    41,271       $   962,440
  Acquisition of common stock                                (117,780)             --                --
  Payment of dividends                                       (165,053)         (143,920)         (111,810)
                                                          -----------       -----------       -----------
     Net cash provided by (used in)
      financing activities                                $  (280,333)      $  (102,649)      $   850,630
                                                          -----------       -----------       -----------

     Increase (decrease) in cash
      and cash equivalents                                $    (3,085)      $    77,034       $   (66,403)


Cash and Cash Equivalents
  Beginning                                                   130,241            53,207           119,610
                                                          -----------       -----------       -----------


  Ending                                                  $   127,156       $   130,241       $    53,207
                                                          ===========       ===========       ===========

Supplemental Schedule of Noncash
  Investing and Financing Activities,
  unrealized gain (loss) on securities
  available for sale                                      $  (237,976)      $    36,064       $     4,295
                                                          ===========       ===========       ===========
</TABLE>