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

                                   FORM 10-KSB

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

For the fiscal year ended                   December 31, 1997
                          ------------------------------------------------------

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transitions periods from ____________________ to _______________________

Commission file number :                    0-18868
                        --------------------------------------------------------
                         Marathon Financial Corporation
                 (Name of small business issuer in its charter)

              Virginia                                54-1560968
--------------------------------------   ---------------------------------------
   State or other jurisdiction of          (I.R.S. Employer Identification No.)
   incorporation or organization

                  4095 Valley Pike, Winchester, Virginia 22602
--------------------------------------------------------------------------------
               (Address of principal executive offices) (Zip code)

Issuer's telephone number, including area code                    (540) 869-6600
                                               ---------------------------------

Securities registered under Section 12(b) of the Act:  None

                Securities registered under section 12(g) of the
                      Exchange Act Common Stock, Par Value
                                 $1.00 per share
--------------------------------------------------------------------------------
                                (Title of class)

     Check whether the issuer (1) has filed all reports  required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter  period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
                                 [x] Yes [ ] No

    Check  if  disclosure  of  delinquent  filers  in  response  to Item  405 of
Regulation  S-B is not contained in this form and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB [ ]

   Total revenues for the year ended  December 31, 1997 were $5,469,833.

   The aggregate market value of the voting stock held by  non-affiliates of the
registrant was $14,079,843 as of March 13, 1998. The aggregate  market value was
computed by using a market price of $9.00 per share.

   As of March 13, 1998, the number of shares  outstanding  of the  registrant's
common stock was 2,055,983.


DOCUMENTS INCORPORATED BY REFERENCE
Portions  of the Proxy  Statement  for the 1998 Annual  Meeting of  Stockholders
("1998 Proxy  Statement") are incorporated by reference in Part III of this Form
10-KSB.


<PAGE>


     In addition to historical  information,  the following  discussion contains
forward  looking  statements  that are subject to risks and  uncertainties  that
could cause the  Corporation's  actual results to differ  materially  from those
anticipated in these forward  looking  statements.  Readers are cautioned not to
place  undue  reliance  on  these  forward  looking  statements,  which  reflect
management's analysis only as of the date hereof.

                                     Part I

Item 1.  Description of Business

General

     Marathon  Financial  Corporation  ("the  Corporation")  is a  bank  holding
company that was incorporated  under the laws of the Commonwealth of Virginia in
June  1989.  The  Corporation  owns  all of the  outstanding  stock  of its sole
subsidiary,  The Marathon Bank ("the Bank"),  which was  incorporated  in August
1987 and acquired by the  Corporation  in October 1990,  in accordance  with the
Plan of Exchange  approved  by the  shareholders  of the Bank in June 1990.  The
Corporation is headquartered  in Frederick  County,  Virginia,  operating in the
Bank's offices in the Marathon Financial Center,  4095 Valley Pike,  Winchester,
Virginia.  On August 12, 1993, The Marathon Bank opened a branch location at 300
Warren Avenue,  Post Office Plaza,  Front Royal in Warren County,  Virginia.  On
February 13, 1995, The Marathon Bank opened a branch located at 1041  Berryville
Avenue, Winchester, Virginia. During 1997, The Marathon Bank opened two offices.
A branch located at 1447 North Frederick Pike,  Winchester,  Virginia was opened
on June 18,  1997 and a branch  located at 1014 South  Main  Street,  Woodstock,
Virginia was opened on September 22, 1997. The  Corporation is a holding company
for the Bank and is not directly engaged in the operation of any other business.

     The  Bank,  which  is  chartered  under  the  laws of the  Commonwealth  of
Virginia,  conducts a general banking business  through its offices.  The Bank's
deposits are insured under the Federal  Deposit  Insurance Act and the Bank is a
member of the Federal Reserve System. As of December 31, 1997, the Bank employed
52 persons on a full-time basis.

     The Bank is engaged in the  business  of offering  banking  services to the
general public.  It offers  checking  accounts,  savings and time deposits,  and
commercial,  real estate,  personal,  home  improvement,  automobile,  and other
installment  and term loans.  It also offers  travelers  checks,  safe  deposit,
collection,  notary public and other  customary bank services  (other than trust
services) to its customers.  The three principal types of loans made by the Bank
are: (1) commercial and industrial  loans;  (2) real estate loans; and (3) loans
to individuals by household, family, and other consumer expenditures. The Bank's
premises  include  drive-up  facilities.  There are ATM's located at each of our
offices and an additional five off-premise ATM's.

     The  banking  business  in the area  served  by the Bank (the  counties  of
Frederick,  Clarke, Shenandoah, and Warren, Virginia) is highly competitive with
respect to both loans and deposits.  In the Bank's primary  service area,  there
are  approximately  six commercial  banks  (including four large,  Virginia-wide
banks with multiple  offices)  offering  services ranging from deposits and real
estate  loans to full  service  banking.  The Bank is the  newest  and  smallest
commercial  bank in its service area.  Certain of the  commercial  banks in this
service area have higher  lending  limits than the Bank and may provide  various
services  for their  customers  that are not offered by the Bank.  In  addition,
there can be no assurance that other financial institutions, with substantially
greater resources than the Corporation and the Bank, will not establish
operations in the Bank's service area.


<PAGE>


Recent Developments

    In December,  1997, the bank had virtually  completed an addition consisting
of approximately  3,600 square feet to the main office.  The addition  increased
the size of the  building by 50 percent  enabling  the bank to better  serve the
needs of a growing customer base.

     In June 1992, the  Corporation  issued one stock purchase  warrant for each
share of preferred  stock  purchased in a private  offering.  A total of 200,688
warrants were issued, entitling the holder to purchase one share of common stock
for each warrant at a price of $5.00 per share until June 30, 1997. During 1997,
192,488  warrants were  exercised and 8,200 warrants  expired.  The stock is now
listed on the NASDAQ Small Cap Market under the symbol MFCV.

Supervision and Regulation

     The  Corporation is a registered bank holding company subject to regulation
and  examination  by the Federal  Reserve under the Bank Holding  Company Act of
1956 (the "Bank Holding  Company  Act.") It is required to file with the Federal
Reserve  periodic  reports and any  additional  information  that it may require
under the Bank Holding  Company Act. The Bank Holding  Company Act also requires
every bank holding  company to obtain the prior approval of the Federal  Reserve
before acquiring substantially all of the assets of direct or indirect ownership
or control of more than 5% of the voting shares of any bank which is not already
majority  owned.  The Bank  Holding  Company Act also  prohibits a bank  holding
company, with certain exceptions, from itself engaging in or acquiring direct or
indirect  control of more than 5% of the voting shares of any company engaged in
non-banking  activities.  One of the principal exceptions to these provisions is
for acquiring  shares of a company  engaged in  activities  found by the Federal
Reserve to be so closely  related to banking or managing banks as to be a proper
incident thereto.

     The Bank,  a state  member  bank of the  Federal  Reserve,  is  subject  to
supervision,  regulation,  and examination by the Federal Reserve,  the Virginia
State Corporation  Commission and the Federal Deposit Insurance Corporation (the
"FDIC").  Deposits,  reserves,   investment,  loans,  consumer  law  compliance,
issuance of securities, payment of dividends, establishment of branches, mergers
and consolidations,  changes in control,  electronic funds transfer,  management
practices,  and other  aspects of  operations  are subject to  regulation by the
appropriate federal and state supervisory authorities.


<PAGE>


Statistical Information

     The  following  statistical   information  is  furnished  pursuant  to  the
requirements  of Guide 3  (Statistical  Disclosure  by Bank  Holding  Companies)
promulgated under the Securities Act of 1933.

                            INDEX                                         Page
Table  1  Consolidated Financial Data                                          5
Table  2  Average Balance Sheets, Net Interest Income and Rates          6 and 7
Table  3  Changes in Net Interest Income Attributable to Rate
          and Volume                                                           8
Table  4  Types of Investment Securities                                       9
Table  5  Securities Maturity Analysis                                        10
Table  6  Composition of the Loan Portfolio                                   11
Table  7  Maturity Schedule of Selected Loans                                 12
Table  8  Summary of Risk Elements                                            13
Table  9  Summary of Loan Loss Experience                                     14
Table 10  Allocation of the Reserve for Loan Losses                           15
Table 11  Deposits and Rates                                                  16
Table 12  Maturities of CDs in Excess of $100,000                             17
Table 13  Analysis of Liquid Assets                                           18
Table 14  Minimum Capital Requirements                                        19
Table 15  Financial Ratios                                                    20
Table 16  Short-Term Borrowings                                               21
Table 17  Interest Sensitivity Analysis                                       22


<PAGE>


                      Table 1 - Consolidated Financial Data

     The  following  selected  consolidated  financial  data is  based  upon the
Corporation's  audited financial statements and related notes and should be read
in conjunction with such financial statements and notes.

<TABLE>
<CAPTION>

                                                                      For the Years Ended December 31,
                                                 ----------------------------------------------------------------------------
                                                          1997           1996            1995           1994         1993
                                                          ----           ----            ----           ----         ---
                                                                   (in thousands except per share data)
<S> <C>

At Period End:
Loans-net of unearned income
   and allowance for loan losses                          $ 50 517       $ 37 409        $ 28 774       $ 22 618    $  18 149
Allowance for loan losses                                      576            503             393            299          225
Total assets                                                64 826         47 287          36 070         27 682       22 379
Deposits                                                    56 435         40 725          32 622         24 604       19 606
Stockholders' equity                                         7 711          5 890           2 678          2 244        1 934

Income Summary:
Interest income                                              4 882          3 789           2 940          2 251        1 625
Interest expense                                             1 943          1 614           1 252            849          717
                                                          --------       --------        --------       --------    ---------
   Net interest income                                    $  2 939       $  2 175        $  1 688       $  1 402    $     908
Provision for (recovery of)
    loan losses                                                133            165             113            151           12
                                                          --------       --------        --------       --------    ---------

Net interest income after
   provision for (recovery of)
   loan losses                                            $  2 806       $  2 010        $  1 575       $  1 251    $     896
Other income                                                   587            430             281            242           93
Other expenses                                               2 583          1 746           1 435          1 175          909
                                                          --------       --------        --------       --------     --------
Income before income taxes                               $     810       $    694        $    421       $    318    $      80
Income taxes (benefits)                                       (188)          (145)            - -            - -          - -
                                                         ---------       --------        --------       --------     --------

   Net income                                            $     998       $    839        $    421       $    318    $      80
                                                         =========      =========       =========       =========    ========

Per Share Data:   *
Book value at period ended                                   $3.75          $3.16           $2.05          $1.75        $1.52
Net income , basic                                             .51            .58             .35            .30          .08
Net income, assuming dilution                                  .50            .58             .35            .30          .08
Cash dividends declared                                    143 920        111 810             - -            - -          - -
Average common shares outstanding                        1 951 172      1 445 601       1 205 443      1 082 615    1 055 466

</TABLE>


* Changed to reflect stock dividend in 1996.

<PAGE>


        Table 2 - Average Balance Sheets, Net Interest Income and Rates

     Table 2  illustrates  average  balances of total  earning  assets and total
interest-bearing   liabilities   for  1997  and  1996  and  shows  the   average
distribution  of assets,  liabilities,  stockholder's  equity,  and the  related
income,  expense,  and  corresponding  weighted  average  yields and costs.  The
average  balances  used for the  purpose  of this  table and  other  statistical
disclosures were calculated by using the daily average balances.

<TABLE>
<CAPTION>


                                                              December 31, 1997                      December 31, 1996
                                                 ---------------------------------------------  -----------------------------------
                                                    Average       Earnings/        Yield/         Average        Earnings/   Yield/
      Assets                                      Balances (1)     Expense          Rate         Balances (1)     Expense    Rate
      ------
                                                 -----------------------------  --------------  --------------------------------

<S> <C>

Interest Earning Assets:
  Loans, net of unearned discounts(2)           $ 42 875 769      $ 4 559 365        10.6%       $ 33 282 661   $ 3 554 808   10.7%
  Securities                                       2 996 467          193 445         6.5%          2 092 113       131 013    6.3%
  Federal funds sold                               2 428 532          129 844         5.3%          1 951 410       103 606    5.3%
                                                ------------      -----------                    ------------   -----------
Total interest earning assets                   $ 48 300 768      $ 4 882 654        10.1%       $ 37 326 184   $ 3 789 427   10.2%
                                                                  -----------                                   -----------


Non-Interest Earning Assets:
  Cash and due from banks                          3 139 921                                        2 643 922
  Bank premises and equipment                      2 051 763                                        1 411 295
  Intangible assets                                        0                                                0
  Other assets                                       672 261                                          585 713
  Allowance for loan losses                         (569 367)                                        (452 202)
                                                ------------                                      -----------

Total assets                                    $ 53 595 346                                     $ 41 514 912
                                                ============                                     ============


</TABLE>



<PAGE>


<TABLE>
<CAPTION>

                                                         December 31, 1997                      December 31, 1996
                                            ---------------------------------------------  ---------------------------------------
                                               Average       Earnings/        Yield/         Average        Earnings/      Yield/
Liabilities and Stockholders' Equity         Balances (1)     Expense          Rate         Balances (1)     Expense        Rate
------------------------------------        -----------------------------  --------------  ---------------------------------------
<S> <C>


Liabilities:
  Interest-bearing deposits                $ 39 478 773    $ 1 918 099           4.9%      $ 31 654 328     $ 1 566 223     4.9%
  Federal funds purchased                        13 340            673           5.0%             5 361             155     2.9%
  Notes payable                                 298 727         24 637           8.2%           473 195          48 275    10.2%
                                            -----------     ----------                     ------------     -----------

Total interest-bearing liabilities         $ 39 790 840    $ 1 943 409           4.9%      $ 32 132 884     $ 1 614 653     5.0%
                                                            ----------                     ------------

  Non-Interest-Bearing Liabilities:
   Liabilities:
      Demand deposits                         6 945 771                                       5 588 802
      Other liabilities                         199 905                                         174 211
                                            -----------                                    ------------
  Total liabilities                        $ 46 936 516                                    $ 37 895 897
   Stockholders' equity                       6 658 830                                       3 619 015
                                            -----------                                    ------------

Total liabilities and stockholders' equity $ 53 595 346                                    $ 41 514 912
                                            ===========                                    ============

Net Interest Earnings                                      $ 2 939 245                                      $ 2 174 774
                                                            ==========                                     ============

Net Interest Yield on Earnings Assets                                            6.1%                                       5.8%
                                                                              =======                                      =====
</TABLE>


(1) Average  balances are  calculated  using daily balances for each category in
    1996 & 1997.

(2) Non-accrual loans are included in the average balance of this category.

                                       7
<PAGE>


     Table 3 - Changes in Net Interest Income Attributable to Rate & Volume

<TABLE>
<CAPTION>
                                                                 December 31,                           December 31,
                                                                1997 vs. 1996                          1996 vs. 1995
                                                 ---------------------------------------------  ---------------------------
                                                               Due to Change In                      Due to Change In
                                                    Volume           Rate           Total         Volume         Rate       Total
                                                    ------           -----         -----         ------         -----      ------
<S> <C>
Loans                                             $1 038 221      $(33 664)    $1 004 557    $  742 058     $   26 676    $ 768 734
Securities                                            58 161         4 271         62 432        35 840          7 766       43 606
Federal funds sold                                    26 238                       26 238        41 190         (4 413)      36 777
                                                  ----------      ---------    -----------    ----------    -----------    --------

Total interest earned on interest
       bearing assets                             $1 122 620      $(29 393)    $1 093 227    $  819 088     $   30 029    $ 849,117
                                                  ----------      ---------    -----------    ----------    -----------    --------

Interest-bearing deposits                         $  351 876             0     $  351 876    $  363 080              0    $ 363 080
Federal funds purchased                                  348           170            518          (828)          (553)      (1 381)
Notes payable                                        (15 431)       (8 207)       (23 638)       (1 865)         2 581          716
                                                  ----------      ---------    -----------    ----------    -----------    --------

Total interest paid on interest-bearing
        liabilities                               $  336 793      $ (8 037)    $  328 756    $  360 387     $    2 028    $ 362 415
                                                  ----------      ---------    -----------    ----------    -----------    --------

Net interest income                               $  785 827      $(21 356)    $  764 471    $  458 701     $   28 001    $ 486 702
                                                  ==========      =========    ===========    ==========    ===========   =========
</TABLE>

                                       8

<PAGE>


                    Table 4 - Types of Investment Securities

    Table 4  summarizes  the book value of  securities  for the two years ending
December 31, 1997 and 1996.

             Table 4 - Book Value of Securities Available for Sale
             -----------------------------------------------------

                                                     For the Years Ended
                                                         December 31,
                                                 -----------------------------
                                                     1997            1996
                                                     ----            ----
U.S. Treasury securities and obligations
       of U.S. government agencies and
       corporations                                $ 1 383 775    $ 1 346 663
Obligations of state & political
      subdivisions                                           0              0
Other securities                                       395 200        332 780
                                                 --------------  -------------
                                                    $1 778 975    $ 1 679 443
                                                 ==============  =============

              Table 4 - Book Value of Securities Held to Maturity
              ---------------------------------------------------

                                                     For the Years Ended
                                                         December 31,
                                                 -----------------------------
                                                     1997            1996
                                                     ----            ----
U.S. Treasury securities and obligations
       of U.S. government agencies and
       corporations                                $1 452 899     $1 292 094
Obligations of state and political
    subdivisions                                      254 033        251 227
Other securities                                            0        107 938
                                                 --------------  -------------
                                                   $1 706 932     $1 651 259
                                                 ==============  =============

     At December 31, 1997,  the  securities  book value was  $3,485,907  and the
market value was $3,506,666,  compared to December 31, 1996 values of $3,330,702
and $3,337,690, respectively. As of December 31, 1997, there were no obligations
by any one issuer in the investment  portfolio,  exclusive of obligations of the
U.S.  Government  or U.S.  Agencies  and  Corporations,  which in the  aggregate
exceeded 10% of stockholders' equity.

<PAGE>


                     Table 5 - Securities Maturity Analysis

     Table 5 sets forth the maturity of distribution and weighted average yields
of the securities  portfolio at December 31, 1997.  The weighted average yields
are calculated on the book value of the portfolio and on securities interest
income adjusted for amortization of premium and accretion of discount.

<TABLE>
<CAPTION>

                                                                      December 31, 1997
                                                 ------------------------------------------------------------
                                                                                       After One But
                                                       Within One Year               Within Five Years
                                                 -----------------------------  -----------------------------
                                                    Amount          Yield          Amount          Yield
                                                 --------------  -------------  --------------  -------------
<S> <C>

U.S. Treasury securities and obligations
    of U.S. government agencies and
    corporations                                  $399 808          5.22%          $1 651 793      6.04%
Obligations of State & political subdivisions      153 000         10.00%
Other securities
                                                 --------------                 --------------
    Total                                         $552 808          6.92%          $1 651 793      6.04%
                                                 ==============                 ==============


                                                                      December 31, 1997
                                                 ------------------------------------------------------------
                                                        After Five But
                                                        Within Ten Years              After Ten Years
                                                 ------------------------------------------------------------
                                                    Amount          Yield          Amount          Yield
                                                 --------------  -------------  --------------  -------------
U.S. Treasury securities and obligations
    of U.S. government agencies and
    corporations                                   $753 276          6.75%        $ 31 797          9.01%
Obligations of State & political subdivisions       101 033          7.10%
Other securities                                                                   395 200          5.83%
                                                 --------------                 --------------
   Total                                           $854 309          6.79%        $426 997          6.07%
                                                 ==============                 ==============

</TABLE>

<PAGE>
                  Table 6 - Composition of the Loan Portfolio

     The following  table  summarizes  the  composition of the loan portfolio at
December 31, 1997 and 1996.

<TABLE>
<CAPTION>
                                                                                December 31,
                                                                 --------------------------------------------
                                                                     1997                           1996
                                                                     ----                           ----
<S> <C>

Commercial                                                        $24 399 929                    $18 719 817
Real estate - mortgage                                             10 065 627                      6 882 004
Real estate - construction                                          6 075 464                      3 886 066
Installment loans to individuals                                   10 552 548                      8 424 170
                                                                 -------------                  -------------
                                                                  $51 093 568                    $37 912 057
Less allowance for loan losses                                        576 497                        503 014
                                                                 -------------                  -------------

Net loans                                                         $50 517 071                    $37 409 043
                                                                 ===============                =============
</TABLE>

   The Corporation had no loans  outstanding to foreign  countries or for highly
leveraged transactions as of December 31, 1997 or 1996.

  There were no categories of loans that  exceeded 10% of  outstanding  loans at
December 31, 1997, which were not disclosed in Table 6.

  In the normal course of business,  the Corporation  makes various  commitments
and incurs certain contingent  liabilities which are disclosed but not reflected
in the accompanying financial statements.  At December 31, 1997, commitments for
standby  letters of credit  totaled  $664,357 and  commitments  to extend credit
totaled  $7,193,712.  At December 31, 1996,  commitments  for standby letters of
credit totaled $293,581 and commitments to extend credit totaled $4,331,307.

<PAGE>




                 Table 7 - Maturity Schedule of Selected Loans

The table below  presents  the  maturities  of  selected  loans  outstanding  at
December 31, 1997.

<TABLE>
<CAPTION>
                                                                  After One
                                                    Within        But Within        After
                                                   One Year       Five Years     Five Years        Total
                                                 --------------  -------------  --------------  -------------
<S> <C>

Commercial                                         $12 926 891    $10 861 952       $611 086     $24 399 929
Real estate - construction                           5 972 684         62 780         40 000       6 075 464
                                                 -----------------------------      ----------  -------------
                                                   $18 899 575    $10 924 732       $651 086     $30 475 393
                                                 ==============================     ==========  =============


Interest sensitivity on such loans maturing after one year:
         Fixed                                                                                   $10 427 477
         Variable                                                                                  1 148 341
                                                                                                -------------
               Total                                                                             $11 575 818
                                                                                                =============

</TABLE>

<PAGE>


                       Table 8 - Summary of Risk Elements


     The following table details information concerning non-accrual, past due
and restructured loans as of December 31 for each of the years indicated:

                                                         December 31,
                                                  --------------------------
                                                     1997            1996
                                                  -----------    ------------
Non-accrual loans                                 $   38 116     $   71 515
Loans past due 90 days or more                       172 855         58 996
Restructured loans                                        --             --
                                                 --------------  -------------
                                                  $  210 971      $ 130 511
                                                 ==============  =============


     Past due loans  consist  of loans  contractually  past due  ninety  days or
longer as to interest or principal  payments which continue to accrue  interest.
Loans on  non-accrual  status are those loans (other than  consumer  installment
loans) which are ninety days past due, unless the loan is both  well-secured and
in process of  collection.  Accrued  interest on these loans is subtracted  from
income,  and thereafter  interest is recognized  only to the extent payments are
received or the loan has otherwise been rehabilitated.

     Non-accrual  loans at December 31, 1997 were  $38,116,  compared to $71,515
for 1996.  Approximately  $8,519 of interest  income would have been recorded if
interest had accrued in 1997.

     As of  December  31,  1997,  the  Corporation  had a total of  $210,971  in
non-accrual,  90 days past due and restructured  loans,  compared to $130,511 in
1996. This was an increase of $80,460 or 62%.

     On December 31, 1997, the  Corporation  had $38,116 in  non-accrual  loans,
which consist of $29,031 in installment  loans,  $6,543 in commercial  loans and
$2,542 in credit  card  loans.  The  $172,855  in 90 days past due  consists  of
$35,266 in installment  loans,  and $105,366 in mortgage  loans,  and $32,223 in
credit card loans.

     As of December 31, 1997,  the  Corporation  had no loans in addition to the
past  due and  non-accrual  loans  mentioned  above  that are  considered  to be
potential problem loans.

The  Corporation's  management  and Board of Directors  have  reviewed the asset
quality of the Bank's loan  portfolio  and the Bank's loan loss reserve and have
found it to be adequate.

<PAGE>

                   Table 9 - Summary of Loan Loss Experience

                                                     1997            1996
                                                     ----            ----

Balance, beginning of period                      $ 503 014      $ 393 139
Less Charge-off's:
        Commercial                                   37 340         23 929
        Real estate - mortgage                            0              0
        Real estate - construction                        0              0
        Installment loans to individuals             50 000         37 203
                                                 --------------  -------------
                Total                            $   87 340     $   61 132
                                                 --------------  -------------

Plus Recoveries:
        Commercial                               $  19  988      $      951
        Real estate - mortgage                            0               0
        Real estate - construction                        0               0
        Installment loans to individuals              7 835           5 056
                                                 --------------  -------------
                 Total                           $   27 823      $    6 007
                                                 --------------  -------------

Additions charged to operating expense           $  133 000      $  165 000
                                                 --------------  -------------

Balance, end of period                           $  576 497      $  503 014
                                                 ==============  =============

Ratio of net charge-offs during the period
   to average loans outstanding during the
   period                                              0.14%          0.17%

     The  Corporation  maintains  the  allowance for loan losses at a sufficient
level to provide for  potential  losses in the loan  portfolio.  Loan losses are
charged directly to the allowance when they occur, while recoveries are credited
to the allowance.  The provision for loan losses is determined  periodically  by
management  upon  consideration  of several  factors,  including  changes in the
character  and size of the loan  portfolio and related loan loss  experience,  a
review and  examination of overall loan quality which includes the assessment of
problem loans, and an analysis of anticipated  economic conditions in the market
area.  An  analysis  of the  allowance  for loan  losses,  including  charge-off
activity, is presented above for the years ended December 31, 1997 and 1996.

<PAGE>

              Table 10 - Allocation of the Reserve for Loan Losses

     The following  table  reflects  management's  allocation of the reserve for
loan losses for the years ended December 31, 1997 and 1996.

<TABLE>
<CAPTION>

                                                      December 31, 1997              December 31, 1996
                                                      -----------------              -----------------
                                                                  % of Loans to               % of Loans to
                                                     Amount       Total Loans       Amount      Total Loans
                                                 ------------------------------------------------------------
<S> <C>

Commercial                                         $ 490 022         47.7%        $ 427 562         49.4%
Real estate - mortgage                                11 530         19.7%           10 060         18.2%
Real estate -  construction                           28 825         11.9%           25 151         10.2%
Installment loans to individuals                      46 120         20.7%           40 241         22.2%
                                                 --------------  -------------  --------------  -------------
                                                   $ 576 497        100.0%        $ 503 014        100.0%
                                                 ==============  =============  ==============  =============
<PAGE>


                         Table 11 - Deposits and Rates

     The  following  table  details the average  amount of, and the average rate
paid on the following  primary  deposit  categories for the years ended December
31, 1997 and 1996.


</TABLE>
<TABLE>
<CAPTION>
                                                     December 31, 1997              December 31, 1996
                                                     -----------------              -----------------

                                                    Average        Average         Average        Average
                                                    Balance          Rate          Balance          Rate
                                                 --------------  -------------  --------------  -------------
<S> <C>

Non-interest bearing:
   Demand deposits                                 $ 6 945 771                    $ 5 588 802
                                                 ----------------               ----------------
Interest-bearing:
   Demand deposits                                 $ 7 783 740       3.3%         $ 5 774 727       3.4%
   Savings deposits                                  5 272 418       3.3%           5 040 481       3.2%
   Time deposits                                    26 422 615       5.6%          20 839 120       5.8%
                                                 --------------                 --------------

                                                   $39 478 773       4.9%         $31 654 328       4.9%
                                                 ----------------               ----------------

                                                   $46 424 544                    $37 243 130
                                                 ================               ================
</TABLE>

     The  Corporation  primarily  uses deposits to fund its loans and investment
securities.   The  Corporation  offers   individuals  and   small-to-medium-size
businesses a variety of deposits accounts. Deposit accounts, including checking,
savings,  money market and certificates of deposit,  are obtained primarily from
the communities which the Corporation services.

<PAGE>

               Table 12 - Maturities of CDs in Excess of $100,000

     The following is a summary of the maturity  distribution of certificates of
deposit in amounts of $100,000 or more as of December 31, 1997.

                                                     Amount         Percent
                                                     ------         -------

Three months or less                             $   114 267           1.6%
Over three - six months                              956 118          13.4%
Over six - twelve months                           3 349 325          47.0%
Over twelve months                                 2 708 059          38.0%
                                                 --------------  -------------
     Total                                       $ 7 127 769         100.0%
                                                 ==============  =============

     Certificates  of deposit in amounts of $100,000 or more were  $7,127,769 at
December 31, 1997.  This represents  22.1% of the total  certificates of deposit
balance of $32,281,155 at December 31, 1997.  The  Corporation  does not solicit
such deposits.  Further,  the Corporation  does not  aggressively bid for public
funds deposits in large denominations, as such deposits may require the pledging
of investment securities.

     The Corporation competes with the major regional financial institutions for
money market accounts and certificates of deposit less than $100,000.  While the
Corporation is competitive  with its interest rates,  using a tiered rate system
to increase  individual account balances,  the Corporation has found that it can
continue to  maintain  its  interest  margin by matching  loan  maturities  with
certificate maturities and setting loan rates based on the Corporation's cost of
funds.

<PAGE>

                      Table 13 - Analysis of Liquid Assets

     Liquidity is a measure of the Corporation's  ability to generate sufficient
cash  to  meet  present  and  future  obligations  in  a  timely  manner.  These
obligations include the credit needs of customers,  funding deposit withdrawals,
and the day-to-day  operations of the Corporation.  The Corporation's ability to
fund these daily commitments at December 31, 1997 and 1996 is illustrated in the
table below:

                                                        December 31,
                                                     1997            1996
                                                 --------------  -------------

Liquid Assets:
   Cash and due from banks                         $ 3 477 382    $ 2 846 434
   Federal funds sold                                3 570 000      1 656 000
   U.S. government agency securities                 2 836 674      2 681 675
                                                 --------------  -------------
        Total liquid assets                        $ 9 884 056    $ 7 184 109
                                                 ==============  =============

Total deposits and other liabilities               $57 114 628    $41 396 603
                                                 =============== ==============

Ratio of liquid assets to deposits
   and other liabilities                                  17.3%          17.4%
                                                 ==============  =============


     The high loan to  deposit  ratio  (89.5%)  as of  December  31,  1997,  has
provided the  opportunity  for the  Corporation  to achieve a high return on its
deposits.  For the year ended December 31, 1997, the  Corporation  experienced a
return on assets of 1.86% and a net interest margin of 6.13%.

     The source of new funds is very strong for both  long-term  and  short-term
duration.  The growth in deposits was $15.7  million  (38.6%)  during 1997.  The
Corporation also has access to overnight federal funds from correspondent  banks
totaling  up  to  $4.5  million.  In  addition,  management  believes  that  the
opportunity for the sale of loans on the market is good. The Corporation's  loan
portfolio  contains  loans of high yields and it enjoys a recent  history of low
loan charge-offs.

<PAGE>
                    Table 14 - Minimum Capital Requirements

     The  following  table  indicates  the  Federal  Reserve's  minimum  capital
requirements  and the  Corporation's  ability  to  reach  such  minimum  capital
requirements for the periods indicated.

                                                         December 31,
                                                 -----------------------------
                                                          1997           1996
                                                          ----           ----
Minimum capital requirements
  set by the Federal Reserve:
      Tier 1 risk-based capital ratio                    4.00%          4.00%
      Total risk-based capital ratio                     8.00%          8.00%
Actual capital ratios of the Corporation:
      Tier 1 risk-based capital ratio                   14.97%         15.72%
      Total risk-based capital ratio                    16.09%         16.97%

     On August 1, 1990, the Federal Reserve issued transitional capital adequacy
guidelines.  These  guidelines  took effect  September 7, 1990.  The new capital
standards   require  an  institution  to  meet  two  separate   minimum  capital
requirements:  (1) a core capital (consisting of stated capital, capital surplus
and retained earnings) requirement equal to 4% of risk-weighted assets and (2) a
total capital risk-based  capital  requirement  applied to risk-weighted  assets
equal to 8%. The  risk-based  capital  requirement  includes  off-balance  sheet
items.  Under the risk-based capital  requirement,  assets are assigned a credit
risk  weighting  based upon their  relative risk ranging from 0% for assets that
are backed by the full  faith and  credit of the  United  States or that pose no
credit risk to the Bank to 100% for assets  such as  delinquent  or  repossessed
assets.

     As indicated in Table 14 above, at December 31, 1997 and December 31, 1996,
the Corporation met the Federal Reserve's minimum capital requirements.

<PAGE>

                          Table 15 - Financial Ratios

     The  following  table  summarizes   ratios  considered  to  be  significant
indicators of the Corporation's  profitability  and financial  condition for the
years ended December 31, 1997 and 1996.


<TABLE>
<CAPTION>
                                                                      For the Years Ending
                                                                          December 31,
                                                                 -------------------------------
                                                                         1997            1996
                                                                 -------------  --------------
<S> <C>

Return on average assets
   (Net income/average total assets)                                     1.86%           2.02%
                                                                 =============  ==============

Return on average equity
   (Net income/average equity)                                          14.99%          23.19%
                                                                 =============  ==============

Dividends payment ratio
   (Dividends declared /
      Net income)                                                       14.42%          13.32%
                                                                 =============  ==============

Average equity to average asset ratio                                   12.42%           8.70%
                                                                 =============  ==============

</TABLE>

<PAGE>

                        Table 16 - Short-Term Borrowings

     The  Corporation  had no  short-term  borrowings  with an  average  balance
outstanding  of more  than  30% of  stockholders'  equity  for the  years  ended
December 31, 1997 and 1996.

<PAGE>

                    Table 17 - Interest Sensitivity Analysis

<TABLE>
<CAPTION>
                                                                              December 31, 1997
                                                                              -----------------
                                                                   90 DAYS                          OVER
                                                   1 - 90 DAYS    to 1 YEAR       1-5 YEARS       5 YEARS          TOTAL
                                                 -------------- --------------  --------------  -------------  --------------
<S> <C>

Earning Assets:
    Loans                                            $12 314        $10 562         $27 663           $555         $51 094
    Investment Sec - HTM                                 303            100             700            604           1 707
    Investment Sec - AFS                                   0            150             952            677           1 779
    Fed Funds Sold                                     3 570              0               0              0           3 570
                                                 --------------  -------------  --------------  -------------  --------------

    Total Earning Assets                             $16 187        $10 812         $29 315         $1 836         $58 150
                                                 --------------  -------------  --------------  -------------  --------------


Interest-Bearing Liabilities:
   Interest Checking                                                                  5 154                          5 154
   Regular Savings                                                                    5 921                          5 921
   Money Market Savings                                5 087                                                         5 087
   Certificate of Deposit:
      $100,000 and Over                                  114           4 305          2 709                          7 128
      $100,000 and Under                               3 616          12 560          8 977                         25 153
                                                 --------------  -------------  --------------  -------------  --------------

   Total Interest-Bearing Liabilities                 $8 817         $16 865        $22 761        $     0         $48 443
                                                 ==============  =============  ==============  =============  ==============

Period GAP                                            $7 370         $(6 053)       $ 6 554        $ 1 836
                                                 ==============  =============  ==============  =============

Cumulative GAP                                        $7 370         $ 1 317        $ 7 871        $ 9 707
                                                 ==============  =============  ==============  =============

Cumulative GAP/Earn Assets                             12.67%           2.26%         13.54%         16.69%
                                                 ==============  =============  ==============  =============

</TABLE>

     The present interest rate sensitivity  position of the Corporation reflects
a favorable  impact upon earnings in the event of rising  interest rates. A rate
increase of as much as 200 basis  points  could have a  favorable  impact on net
interest income of approximately 4.2% in the first year. Conversely,  a decrease
in the rate  structure of 200 basis  points could have a negative  impact on net
interest  income of  approximately  4.8%. The current earning assets and deposit
structure  of the  Corporation  suggest  that  these  trends in  changes  in net
interest  income  would  continue  beyond  1997  given  a rate  change  of  this
magnitude.

<PAGE>

Item 2. Description of Properties

     The  Marathon  Bank  office is located  at 4095  Valley  Pike,  Winchester,
Virginia.  On December 31, 1993,  the  Marathon  Land Trust  executed a deed and
transferred  the office to The  Marathon  Bank.  This  property is owned free of
encumbrances.

     On August 12, 1993 the Bank opened its Warren  County  Branch at 300 Warren
Avenue in Post Office Plaza, Front Royal,  Warren County,  Virginia.  On July 1,
1996, the Bank entered into a new lease with Post Office Plaza, L.C. for the new
branch facility in Front Royal. The terms of the lease include a monthly rent of
$3,846 for the first five years and adjusted annually afterward.  The lease term
is twenty years with the option to renew for two additional five year terms.

     On  February  13,  1995,  the Bank  opened  its  Winchester  Branch at 1041
Berryville Avenue in the City of Winchester, Virginia. The Bank executed a lease
on October 1, 1994, for five years with a monthly lease payment of $1,000.
The Bank has two five-year options to extend this lease.

     On June 18, 1997, the Bank opened a second  Winchester Branch at 1447 North
Frederick Pike,  Winchester,  Virginia. The Bank entered into a lease on January
13,  1997  with a  termination  date of  December  31,  2006.  The  Bank has two
five-year options to extend the lease. The monthly lease payment is $1,750.

     On September 22, 1997, the Bank opened its Shenandoah County Branch at 1014
South Main Street, Woodstock,  Virginia. A new lease was executed by the Bank on
September 1, 1997,  for five years with a monthly  lease payment of $500 for the
first  year,  $700 per month for the second  year,  $800 per month for the third
year,  $900 per month for the  fourth  year and  $1,000  per month for the fifth
year. The bank has options to extend that lease for two five-year options.

Item 3.  Legal Proceedings

     In the  course  of  normal  operations,  the  Corporation  and the Bank are
parties  to  various  legal  proceedings.   Based  upon  information   currently
available, and after consultations with legal counsel,  management believes that
such  legal  proceedings  will  not  have  a  material  adverse  effect  on  the
Corporation's business, financial position, or results of operations.

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

     No matters  were  submitted  during the fourth  quarter of the fiscal  year
covered by this report to a vote of security holders of the Corporation  through
a solicitation of proxies or otherwise.

<PAGE>

                                    Part II

Item 5.  Market for Common Equity and Related Stockholder Matters

     The  Corporation's  common  stock is listed on the NASDAQ  Small Cap Market
under the symbol MFCV.  Prior to the common stock's listing on NASDAQ on October
3, 1996, there were occasional transactions in the stock and management assisted
in matching  persons  interested  in buying or selling the stock.  The trades of
which  management is aware between  January 1, 1995 and October 3, 1996 occurred
at or about $5.00 per share.  For the quarter ending December 31, 1996, the high
and low bid  prices  of the  common  stock  on  NASDAQ  were  $5.00  and  $3.88,
respectively.  During 1997 warrants totaling 192,488 were exercised for the same
number of shares of common stock at a price of $5.00 per share.  For the year of
1997,  the low bid  price  was  $4.75 on  January  3, and the high bid price was
$10.00  per share on  December  8. This bid  information  reflects  inter-dealer
prices,  without retail  mark-up,  mark-down or commission and may not represent
actual transactions.

     At December 31, 1997, the Corporation had approximately  1,020 stockholders
of record.

     Under state law,  without the consent of the  Virginia  Bureau of Financial
Institutions,  the  Corporation  may not pay dividends until it has restored any
deficit in its capital  funds as  originally  paid in.  Dividends  from the Bank
serve as the  primary  funding to the  Corporation  for  dividend  payment.  The
Corporation declared a $.07 per share cash dividend to stockholders of record as
of January 17, 1998 to be paid in January of 1998. Previously, cash dividends of
$.06 per share had been paid in January of 1997.

Item 6.  Management's Discussion and Analysis or Plan of Operations

     Marathon  Financial  Corporation  is the holding  company for The  Marathon
Bank.  The  following  discussion  and analysis of the  financial  condition and
results of operations of the Corporation for the years ending December 31, 1997,
1996 and 1995  should be read in  conjunction  with the  consolidated  financial
statements and related notes included as Exhibit 99.1 in this Form 10-KSB.

Results of Operation

     The major  component  of the  Corporation's  net  earnings is net  interest
income, which is the excess of interest income earned on earning assets over the
interest  expense paid for sources of funds.  Net interest income is effected by
changes  in  volume,  resulting  from  growth and  variations  in balance  sheet
composition,  as well as fluctuations in interest rates and maturities of source
and uses of funds.  Management seeks to maximize net interest income by managing
the balance sheet and determining the optimal product mix with respect to yields
on assets and costs of funds in light of projected  economic  conditions,  while
maintaining an acceptable level of risk.

     Interest income totaled $4,882,654, $3,789,427 and $2,940,310 for the years
ending  December 31,  1997,  1996 and 1995,  respectively.  This  represents  an
increase of  $1,093,227  or 29% in 1997 and  $849,117  or 29% in 1996.  Interest
expense  totaled  $1,943,409,  $1,614,653  and  $1,252,238  for the years ending
December 31, 1997, 1996 and 1995, respectively.  This is an increase of $328,756
or 20% in 1997 and $362,415 or 29% in 1996.  The increase in 1997 was the result
of  significant  growth in the Bank's deposit base due to the opening of two new
branches.

     Net interest income,  before provision for loan losses,  was $2,939,245 for
the year ending  December  31,  1997,  up  $764,471  or 35% over the  $2,174,774
reported  for the same  period in 1996.  In 1996,  net  interest  income  before
provision for loan losses, increased $486,702 or 29% from $1,688,072 in 1995.

<PAGE>

     An  additional  $133,000 was placed into the  provision  for loan losses in
1997,  giving a year-end  balance of $576,497 or 1.13% of total loans.  In 1996,
the  provision  was $165,000  giving a year-end  balance of $503,014 or 1.33% of
total  loans.  The  Corporation  maintains  the  allowance  for loan losses at a
sufficient  level to provide for  potential  losses in the loan  portfolio.  The
allowance  is reviewed by  management  and the Board of  Directors  on a regular
basis considering several factors including changes in the character and size of
the loan portfolio,  related loan loss experiences,  a review and examination of
overall  loan  quality,  the  assessment  of problem  loans,  and an analysis of
anticipated   economic  conditions  in  the  market.  Based  on  that  analysis,
management   believes  that  the  year-end   balance  was  sufficient  to  cover
anticipated losses.

     Non-interest  income totaled $587,179,  $430,178 and $281,329 for the years
ending  December 31, 1997,  1996,  and 1995,  respectively.  This  represents an
increase  of  $157,001  or 36% in 1997  over  1996.  This was the  result  of an
increase in service charge income and other income.

     Non-interest expense totaled $2,582,796,  $1,746,265 and $1,435,441 for the
years ending December 31, 1997, 1996 and 1995, respectively.  This represents an
increase  of $836,531 or 48% in 1997 and an increase of $310,824 or 22% in 1996.
The  additional  expense in 1997 was  attributable  to  increases  in  salaries,
depreciation  and  occupancy  expenses  associated  in the  opening  of two  new
branches in Winchester and Woodstock,  Virginia. The 1996 increase was caused by
additional  occupancy expenses as a result of the Front Royal Branch's move into
a permanent building at midyear.

     Net  income  for the years  ending  December  31,  1997,  1996 and 1995 was
$998,362,  $839,421 and $420,541,  respectively.  This represents an increase of
$158,941 or 18.9% in 1997 over 1996 net income.

Capital Adequacy

     Total stockholders equity on December 31, 1997 was $7,711,414,  an increase
of  $1,821,177  or 31%  from  $5,890,237  in  1996.  The  Corporation's  primary
capital-to-asset  ratio was 11.9% in 1997 versus 12.4% in 1996. This exceeds the
Federal Reserve  requirement of 6% for bank holding companies.  On September 26,
1996,  the bank  completed a public  offering in which 567,192  shares of common
stock were sold at $5.00 per share, resulting in $2,539,038 of new capital after
payment of fees and expenses associated with the offering.  Marathon repurchased
10,000  shares of stock for $46,252 on October 23, 1996.  During 1997,  the bank
issued  192,488  shares  of  common  stock in  exchange  for the same  number of
outstanding  warrants exercised at $5.00 per share. This resulted in $962,440 of
new capital.

Liquidity

     Liquidity is  identified  as the ability to generate or acquire  sufficient
amounts of cash when needed at reasonable  cost, to  accommodate  withdrawals in
deposits,  payments of debt and increases in loan demand. These events may occur
daily or at other short-term intervals in the normal operation of business. Past
experience  helps  management  predict  time  cycles  and  the  amounts  of cash
required.

     In assessing  liquidity,  management  gives  consideration to many relevant
factors,  including stability of deposits, quality of assets, economy of markets
served,   concentrations   of  business  and  industry,   competition   and  the
Corporation's overall financial condition.

     The  Corporation's  primary  sources of liquidity are cash, due from banks,
U.S.   Treasury   securities,   U.S.  Agency  securities  and  other  short-term
investments including Federal Funds sold and the sale of loans.

Impact of Inflation and Changing Prices

     The  financial  statements  and  related  data  presented  herein have been
prepared in accordance  with  generally  accepted  accounting  principles  which
require the measurement of financial  position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time due to inflation.

     Unlike  most  industrial  companies,   virtually  all  of  the  assets  and
liabilities  of a financial  institution  are  monetary in nature.  As a result,
interest  rates  have a more  significant  impact on a  financial  institution's
performance  than the effects of general levels of inflation.  Interest rates do
not necessarily move in the same direction or in the same magnitude as the price
of goods and  services,  since such prices are affected by inflation to a larger
extent than interest rates.

<PAGE>

Other Matters

     In accordance with sound management policy and Federal Reserve  directives,
the bank  appointed a Year 2000  coordinator in early 1997. A review of computer
software and related  hardware was initiated and completed.  Items that were not
Year 2000 compliant were  identified.  Third party software vendors and hardware
maintenance  providers  were  contacted  and have  submitted  estimates to bring
non-compliant processes up to Year 2000 compatibility.  A significant portion of
the  expenditures  required  are related to bringing  hardware up to date and as
much of this  hardware was  scheduled  to be replaced in the ordinary  course of
business,  no  adverse  effect on  earnings  as a result  of Year 2000  required
changes are expected.  The Bank's major  software  provider has already made its
software Year 2000.  The Bank expects to have major systems Year 2000  compliant
by 4th quarter  1998.  Remaining  systems will be  completed in early 1999.  All
systems should be installed and fully tested by mid 1999.

Accounting Rule Changes

     FASB  Statement  No.  125,  "Accounting  for  Transfers  and  Servicing  of
Financial Assets and  Extinguishments  of Liabilities",  was issued in June 1996
and  establishes,  among other things,  new criteria for  determining  whether a
transfer of financial assets in exchange for cash or other consideration  should
be accounted for as a sale or as a pledge of collateral in a secured  borrowing.
Statement  125  also   establishes  new  accounting   requirements  for  pledged
collateral.  As  issued,  Statement  125 is  effective  for  all  transfers  and
servicing of financial assets and extinguishments of liabilities occurring after
December 1996.

     FASB Statement No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125", defers for one year the effective date
(a) of paragraph 15 of Statement 125 and (b) for repurchase agreement,
dollar-roll, securities lending, or similar transactions, of paragraph 9-12 and
237(b) of Statement 125.

     FASB Statement No. 130,  "Reporting  Comprehensive  Income",  was issued in
June 1997 and establishes  standards for reporting and display of  comprehensive
income and its components (revenues, expenses, gains, and losses) in full set of
general-purpose  financial  statements.  This Statement  requires that all items
that are required to be recognized under  accounting  standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.

     This  Statement  requires  that an enterprise  (a) classify  items of other
comprehensive  income by their nature in a financial  statement  and (b) display
the accumulated balance of other  comprehensive  income separately from retained
earnings and additional  paid-in capital in the equity section of a statement of
financial position. This Statement is effective for fiscal years beginning after
December 15, 1997.

     Additionally   during  June  of  1997,   the  FASB  issued  FASB  No.  131,
"Disclosures about Segments of an Enterprise and Related  Information." FASB No.
131 establishes standards for the way that public enterprises report information
about operating segments in annual financial  statements and requires that those
enterprises  report selected  information  about  operating  segments in interim
financial  reports issued to  shareholders.  It also  establishes  standards for
related  disclosures  about  products and services,  geographic  areas and major
customers. This statement becomes effective for financial statements for periods
beginning after December 31, 1997.

      The  effects  of  these  Statements  on  the  Corporation's   consolidated
financial statements are not expected to be material.

Item 7.  Financial Statements

     Financial Statements are included in this Form 10-KSB as Exhibit 99.1.

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

     None.

<PAGE>

                                    Part III

     The  information  required  by Items 9, 10,  11 and 12 of Part III has been
incorporated  herein by reference to the  Corporation's  1998 Proxy Statement as
set forth below in accordance with General Instruction E.3 of Form 10-KSB.

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

     Information  relating to directors and executive officers of the Company is
set forth in the  sections  entitled  "Election  of  Directors",  Nominees"  and
"Continuing Directors" of the 1998 Proxy Statement and is incorporated herein by
reference.

     Information  relating to compliance  with Section 16(a) of the Exchange Act
is  set  forth  in the  section  entitled  Section  16(a)  Beneficial  Ownership
Reporting Compliance and is incorporated herein by reference.

Item 10.  Executive Compensation

     Information  regarding  compensation of officers and directors is set forth
in  the  sections  entitled  "Executive  Compensation",  "Employment  Contracts,
Termination of Employment and Changes in Control  Arrangements"  and "Directors'
Compensation"  in the  1998  Proxy  Statement  and  is  incorporated  herein  by
reference.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

     Information  concerning the security ownership of certain beneficial owners
and  management  is set forth in the section  entitled  "Nominees",  "Continuing
Directors"  and "Security  Ownership of Certain  Beneficial  Owners" in the 1998
Proxy Statement and is incorporated herein by reference.

Item 12.  Certain Relationships and Related Transactions

     Information regarding certain relationships and related transactions is set
forth  in the  section  entitled  "Transactions  with  Management  and  Board of
Directors" in 1998 Proxy Statement and is incorporated herein by reference.

Item 13.  Exhibits and Reports on Form 8-K

     (a)  Exhibit Index

      2.  Not applicable.

      3.    (I) Articles of Incorporation. Incorporation by reference as Exhibit
            3(I) to the Corporation's  Registration  Statement on Form S-1 filed
            on August 26, 1992 (File No. 33-51366).

            (ii)  By-laws.  Incorporated  by reference  as Exhibit  3(ii) to the
            Corporation's Registration Statement on Form S-1 filed on August 26,
            1992 (File No. 33-51366).

     4. Not applicable.

     9.  Not applicable.

<PAGE>

   10.  Material Contracts.

           Exhibit 10.1           401(k)   Plan  of   Marathon   Financial
                                  Corporation,  incorporated herein by
                                  reference as   Exhibit   10.1   to   the
                                  Corporation's Registration   Statement  on
                                  Form  S-1  filed August 26, 1992 (File No.
                                  33-51366).

           Exhibit 10.2           Employment   Agreement   between   The
                                  Marathon    Bank   and   Donald   L.
                                  Unger, incorporated  herein by  reference as
                                  Exhibit 10.2   to  the   Corporation's
                                  Registration Statement  on Form S-1  filed
                                  on  August  26, 1992 (File No. 33-51366).

           Exhibit 10.3           Lease between The Marathon Bank and Post
                                  Office Plaza, L.C. for the branch office at
                                  300 Warren Avenue, Front Royal, Virginia,
                                  incorporated herein by reference as Exhibit
                                  10.3 to the Corporation's Registration
                                  Statement on Form S-1 filed July 26, 1996
                                  (File No. 333-08995).

          Exhibit 10.4            Lease  between The Marathon  Bank and the
                                  Lessors,   Rogers  M.  Fred  and   Clifton  G.
                                  Stoneburner  for  the  branch  office  at 1041
                                  Berryville   Avenue,   Winchester,   Virginia,
                                  incorporated   herein  by   reference  to  the
                                  Corporation's  Annual  Report on Form 10-K for
                                  the year  ended  December  31,  1995 (File No.
                                  0-18868).

          Exhibit 10.5            Lease  between The Marathon  Bank and the
                                  Lessors,  Keith R. Lantz and Mary G. Lantz for
                                  land  upon   which  the  Bank  has   placed  a
                                  double-wide  modular  unit to house the branch
                                  office at 1014 South Main  Street,  Woodstock,
                                  Virginia, filed herein (File No. 0-18868).

 11. Statement re: Computation of Per Share Earnings.

 13.  Not applicable.

 16.  Not applicable.

 18.  Not applicable.

 21.  Subsidiary of Marathon  Financial  Corporation,  incorporated  herein by
      reference as Exhibit 21 to the Corporation's  Registration  Statement on
      Form S-1 filed July 26, 1996 (File No. 333-08995).

 22.  None.

 23.  Not applicable.

 24.  Not applicable.

 27.  Financial Data Schedule.

 28.  Not applicable.

<PAGE>

 99.  Additional Exhibits.

        Exhibit  99.1            The  following   consolidated   financial
                                 statements  of the  Corporation  including  the
                                 related notes and the report of the independent
                                 auditors, are included herein:

                                1.  Independent Auditor's Report.

                                2.  Consolidated  Balance  Sheets - December 31,
                                    1997 and 1996.

                                3.  Consolidated Statement of Income - Years
                                    Ended December 31, 1997, 1996 and 1995.

                                4.  Consolidated   Statements  of  Changes  in
                                    Stockholders'  Equity-Years Ended December
                                    31, 1997, 1996 and 1995.

                                5.  Consolidated Statements of Cash Flows -
                                    Years Ended December 31, 1997, 1996 and
                                    1995.

                                6.  Notes to Consolidated Financial Statements.

(b)  Reports on Form 8-K.  No reports  were filed by the  registrant  during the
fourth quarter of 1997.

<PAGE>

                                   SIGNATURES

     Pursuant to the  requirements of Section 13 of the Securities  Exchange Act
of 1934,  the  Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

<TABLE>
<CAPTION>

<S> <C>
                                                                 MARATHON FINANCIAL CORPORATION

DATE                                                             (Registrant)

March ________, 1998                                             By:  ______________________________
                                                                       Donald L. Unger, President
</TABLE>

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the date indicated.

<TABLE>
<CAPTION>

<S> <C>

DATE                                                             SIGNATURE AND TITLE
----                                                             -------------------


-------------------------------------------------                --------------------------------------------
                                                                 Frank H. Brumback, Director


-------------------------------------------------                --------------------------------------------
                                                                 Robert W. Claytor, Director


-------------------------------------------------                --------------------------------------------
                                                                 Clifton L. Good, Director


-------------------------------------------------                --------------------------------------------
                                                                 Thomas W. Grove, Director


-------------------------------------------------                --------------------------------------------
                                                                 Ralph S. Gregory, Director


-------------------------------------------------                --------------------------------------------
                                                                 Joseph W. Hollis, Director


-------------------------------------------------                --------------------------------------------
                                                                 George R. Irvin, Jr., Director


-------------------------------------------------                --------------------------------------------
                                                                 Gerald H. Kidwell, Director


-------------------------------------------------                --------------------------------------------
                                                                 Lewis W. Spangler, Director


-------------------------------------------------                --------------------------------------------
                                                                 Donald L. Unger, Principal Executive,
                                                                   Financial, Accounting Officer
</TABLE>

<PAGE>

Exhibit Index

 2.  Not applicable.

 3.  (i) Articles of Incorporation. Incorporated by reference as Exhibit 3(I)
     to the Corporation's  Registration Statement on Form S-1 filed on August
     26, 1992 (File No. 33-51366).
     (ii) By-laws. Incorporated by reference as
     Exhibit 3(ii) to the  Corporation's  Registration  Statement on Form S-1
     filed on August 26, 1992 (File No. 33-51366).

 4.  Not applicable.

 9.  Not applicable.

10.  Material Contracts.

         Exhibit 10.1       401(k) Plan of Marathon Financial Corporation,
                            incorporated herein by reference as Exhibit 10.1 to
                            the  Corporation's  Registration  Statement on Form
                            S-1 filed on August 26, 1992 (File No. 33-51366).

         Exhibit 10.2       Employment  Agreement between The Marathon Bank and
                            Donald  L.   Unger,   incorporated   herein  by
                            reference  as  Exhibit  10.2  to  the  Corporation's
                            Registration  Statement  on Form S-1 filed on August
                            26, 1992 (File No. 33-51366).

         Exhibit 10.3       Lease between The Marathon Bank and Post Office
                            Plaza, L. C. for the branch office at 300 Warren
                            Avenue, Front Royal, Virginia, incorporated herein
                            by reference as Exhibit 10.3 to the Corporation's
                            Registration Statement on Form S-1 filed July 26,
                            1996 (File No. 333-08995).

         Exhibit 10.4       Lease   between  The  Marathon  Bank  and  the
                            Lessors,  Rogers M. Fred and Clifton G.  Stoneburner
                            for the  branch  office at 1041  Berryville  Avenue,
                            Winchester,   Virginia,   incorporated   herein   by
                            reference to the Corporation's Annual Report on Form
                            10-K for the year ended December 31, 1995 (File No.
                            0-18868).

         Exhibit 10.5       Lease between The Marathon Bank and the Lessors,
                            Keith R. Lantz and Mary G. Lantz for land upon which
                            the Bank has placed a double-wide modular unit to
                            house the branch office at 1014 South Main Street,
                            Woodstock, Virginia, filed herein.  (File No.
                            0-18868).

11.  Statement re:  Computation of Per Share Earnings. *

13.  Not applicable.

16.  Not applicable.

18.  Not applicable.

21.  Subsidiary of Marathon Financial Corporation,  incorporated herein by
     reference as Exhibit 21 to the Corporation's  Registration  Statement
     on Form S-1 filed July 26, 1996 (File No. 333-08995).

22.  None.

23.  Not applicable.

24.  Not applicable.

27.  Financial Data Schedule. *

28.  Not applicable.

99.  Additional Exhibits.

<PAGE>

           Exhibit 99.1       The   following    consolidated   financial
                              statements  of  the   Corporation   including  the
                              related  notes and the  report of the  independent
                              auditors, are included herein:*

                              1. Independent Auditor's Report.

                              2. Consolidated Balance Sheets - December 31, 1997
                                 and 1996.

                              3. Consolidated Statement of Income - Years Ended
                                 December 31, 1997, 1996 and 1995.

                              4. Consolidated   Statements   of   Changes   in
                                 Stockholders' Equity-Years Ended December 31,
                                 1997, 1996 and 1995.

                              5. Consolidated Statements of Cash Flows - Years
                                 Ended December 31, 1997, 1996 and 1995.

                              6. Notes to Consolidated Financial Statements.

(b)  Reports on Form 8-K.  No reports  were filed by the  registrant  during the
fourth quarter of 1997.

*Filed Herewith.

<PAGE>

Exhibit 10.5

     THIS LEASE.  Made this 1st day of September , 1997, by and between KEITH R.
LANTZ and MARY G. LANTZ,  husband and wife,  and VIRGINIA L.  GOCHENOUR,  widow,
hereinafter sometimes referred to as "Landlord",  parties of the first part, and
THE  MARATHON  BANK,  a  Virginia  Banking  Corporation,  hereinafter  sometimes
referred to as "Tenant".

     WITNESSETH:  That the Landlord in  consideration of the rents and covenants
hereinafter  reserved  on the part of the  Tenant to be paid and  performed  has
agreed to let and does hereby let, lease and demise to the Tenant and the Tenant
does hereby take and hire from the Landlord  .853 acre having a road frontage on
U.S.  Route 11 of 141.1 feet as shown on that certain  drawing of G.W.  Clifford
and  Associates,  a copy of which is  attached  hereto and made a part hereof by
this reference.

     This is a  portion  of the  real  estate  which  was  devised  to  Allen L.
Gochenour in the Will of Maggie  Gochenour dated the 27th day of January,  1959,
probated on the 9th day of December,  1965,  of record in the Clerk's  Office of
the Circuit Court of  Shenandoah  County,  Virginia,  in Will Book 52, page 706.
Allen L. Gochenour died intestate on the 24th day of November,  1977, seised and
possessed of the above described real estate.  He left surviving him as his only
heirs  at law,  his  widow,  Virginia  L.  Gochenour,  and one  son,  James  A.,
Gochenour.  By Deed  dated  the  21st day of  December,  1977,  recorded  in the
aforesaid Clerk's Office in Deed Book 378, page 01, the said James A. Gochenour,
single,  conveyed  unto  Virginia L.  Gochenour  and Keith R. Lantz,  two of the
Grantors herein, all of his undivided two-thirds (2/3) right, title and interest
in and to the real estate of which the above  described  and  conveyed lot was a
portion.

     The term of this lease shall be for five years commencing on the 1st day of
September,  1997,  and expiring on the 31st day of August,  2002, at a rental of
FORTY-SIX THOUSAND EIGHT HUNDRED DOLLARS ($46,800.00)  payable as follows:  FIVE
HUNDRED  DOLLARS  ($500.00) per month for the first year;  SEVEN HUNDRED DOLLARS
($700.00)  per month for the second year;  EIGHT HUNDRED  DOLLARS  ($800.00) per
month for the third  year;  NINE  HUNDRED  DOLLARS  ($900.00)  per month for the
fourth year; and ONE THOUSAND DOLLARS  ($1,000.00) per month for the fifth year.
In the event the Tenant  exercises its option hereunder to renew this lease, the
monthly rent payment will be ONE THOUSAND DOLLARS  ($1,000.00)  increased by the
percentage  increase in the CPI from January 1, 2002, of the year of rent with a
minimum increase of 3% and a maximum increase of 5%.

     This lease is granted and accepted  upon the  foregoing  and the  following
covenants and conditions and subject to the following  restrictions,  to all and
everyone of which the parties consent;  and each of the parties hereby expressly
covenant and agree to keep, perform and observe all of the terms,  covenants and
conditions herein contained on its part to be kept, performed and observed.

     1. The Tenant shall well and truly pay to the Landlord,  at the address set
forth above,  or at such other place as the  Landlord may  designate in writing,
mailed or  delivered to the Tenant,  the rent herein  reserved,  without  demand
therefor,  on the days and in the manner and amounts  herein  prescribed for the
payment hereof.

     2. The Tenant shall be permitted to place a double-wide modular unit on the
demised  premises  containing  approximately  1,100  square feet with a drive-in
window at the rear of the facility with a automatic  teller machine  (ATM).  The
Tenant shall be permitted to build a permanent  facility on the demised premises
with a canopy for three drive-ins.

     Upon the  termination  of this  lease,  any  improvements  made to the real
estate shall  become the property of the Landlord  unless the option to purchase
hereunder is exercised during the term of the lease.

     3. The Landlord requires no security deposit from the Tenant.

     4. The Tenant  shall be  responsible  for all repairs,  maintenance  to any
improvements  made on the  demised  premises,  including,  but not  limited  to,
electrical, heating, air conditioning,  plumbing,  infrastructure and facilities
as well as any parking area.

<PAGE>

     5.  During the term of this  lease the  Tenant  shall pay 58.5% of the real
estate  tax  attributed  to this real  estate as it applies to the land value in
addition to all  improvements  made by the Tenant  imposed on the  demised  real
estate by the state,  county or other lawful  governmental  authority as well as
all personal  property and business taxes imposed by the state,  county or other
lawful  governmental  authority  until such time as the Landlord  subdivides the
real estate and a separate  tax bill is issued for the  demised  premises by the
state, county or other lawful governmental authority.

     6. The  parties  expressly  agree that this lease is executed in order that
the Tenant may conduct  business of a banking  operation  upon the  premises and
that the  demised  premises  shall not be put to any other use without the prior
written consent of the Landlord.

     7. This lease may not be assigned or  transferred  and the premises may not
be sublet  either in whole or in part by Tenant  without  the  Landlord's  prior
written consent.  This lease may not be assigned or transferred and the premises
may  not be  sublet  either  in  whole  or in  part by the  Tenant  without  the
Landlord's  prior  written  consent  unless the  assets of the  Tenant  shall be
purchased by another banking  corporation,  which said banking corporation shall
be subject to all the terms and provisions contained herein.

     8. The  Landlord  reserves  the right to enter  upon the  premises  for the
purposes  of  inspecting  the  demised  premises  and any  improvements  located
thereon,  but the said  inspection  shall not  unreasonably  interfere  with the
Tenant's business operations.

     9. The Tenant  shall  maintain  all public or common  areas  located on the
demised premises from all physical and fire hazards. The Tenant shall adequately
insure all  improvements,  including public or common areas for fire,  casualty,
hazard and liability.  The Tenant shall be responsible for insuring its personal
property and shall be responsible for liability within the demised premises. The
Landlord shall be added as a additional  insured to the insurance policy,  which
shall have a minimum amount of liability coverage in the amount of 1,000,000.00.

     10. All notices  required to be sent under the  provisions of this lease to
the  Landlord  and Tenant by one  another  shall be in writing  and sent by U.S.
Mail, certified, return receipt requested, to:

       LANDLORD:                                 KEITH R. LANTZ
                                                 MARY G. LANTZ
                                                 VIRGINIA L. GOCHENOUR
                                                 254 East Reservoir Road
                                                 Woodstock, Virginia 22664

      TENANT:                                    The Marathon Bank
                                                 4095 Valley Pike
                                                 Winchester, Virginia 22602

Either party may, at any time, by giving notice,  set forth a different  address
to which notices may be sent.

     11. If suit is  brought to enforce  any  covenant  of this lease or for the
breach  of any  covenant  contained  herein,  the  losing  party  shall  pay the
prevailing party a reasonable attorney fee, which will be fixed by the Court, in
addition to Court costs.

     12. It is  expressly  agreed  that if at any time  during  the term of this
lease,  the Tenant  shall be adjudged  bankrupt or  insolvent  by any federal or
state court of competent jurisdiction, the Landlord may declare this lease to be
terminated and cancelled and may take possession of the demised premises. In the
event of any such  bankruptcy  or insolvency of the Landlord or in the event the
premises are sold,  Tenant may elect to terminate this lease, but he will not be
required to do so.

     13. This lease shall be  automatically  extended  for two (2) five year (5)
terms  unless the Tenant  notifies  the Landlord in writing at least ninety (90)
days prior to the termination of the then current lease that it is not extending
the lease. The Tenant,  upon  constructing the permanent  facility  contemplated
hereunder, shall have the right to extend the term of the said lease to a twenty
(20) year term under the same terms and conditions set forth herein.

<PAGE>

     14. The Landlord,  or his  successors  and/or  assigns,  shall not sell the
demised  premises without first offering the property to the Tenant upon certain
terms,  prices and conditions as set forth in writing to the Tenant.  The Tenant
shall have the option to purchase  the  property  under said  terms,  prices and
conditions  as  contained  in the said  notice for a period of thirty  (30) days
after  receiving  the said  written  notice.  In the event the  Tenant  does not
exercise this option, Landlord shall have the right to sell the demised premises
under the same terms,  prices and  conditions for a period of one hundred twenty
(120) days thereafter.  In the event the demised premises are not sold, then the
demised  premises  will  continue to be subject to the  Tenant's  right of first
refusal as provided for in this paragraph.

     15. It is  understood  and agreed that if the demised  premises  are deemed
untenantable by fire or other  unavoidable  casualty,  the Landlord shall not be
obligated to rebuild the building or  reconstruct  the demised  premises and the
Tenant  shall  not be  obligated  to pay the rent  thereon  during  the time the
premises shall be unoccupied or unfit for occupancy  because of said destruction
or untenantable  conditions;  but if the demised premises and buildings  thereon
shall be restored  within a reasonable  time  thereafter  and during the time of
this lease,  the rent shall again  commence to accrue from and after the date of
such restoration; but if the Tenant fails to rebuild and restore the premises in
a reasonable  time  thereafter the Landlord may, at its option,  either consider
this lease to be  cancelled  and  terminated  or to  rebuild  and  restore  said
premises.

     16. If any monthly  installment  of rent herein called for remains  overdue
and  unpaid  for ten (10)  days,  the  Landlord  shall  impose a penalty of five
percent  (5%) of the  monthly  rental  payment  for each month  overdue.  If any
monthly  installment  of rent and interest as herein called for remains  overdue
and unpaid for thirty (30) days, the Landlord,  may, at their option at any time
during such default  declare this lease  terminated  and take  possession of the
demised  premises.  In addition,  the Landlord  reserves  unto itself all of the
rights given to the Landlord under the laws of the Commonwealth of Virginia.  In
the event of default or breach of this lease  agreement,  the Tenant agrees that
it shall be  responsible  for all  costs and  expenses  of the  Landlord  in the
enforcement hereof, including, but not limited to, reasonable attorney fees. The
Landlord  acknowledges  any and all  obligations  as may be  provided  by law to
mitigate damages in the event of breach hereunder.

     17. It is further  understood  that the Tenant will bear all  expenses  for
permits, site plan approval,  survey and all necessary  requirements of the Town
of Woodstock.  It is also understood that all necessary approvals for site plans
will have to be done in the name of the Landlord on behalf of the Tenant.

     18. It is expressly agreed between the parties hereto that the Tenant shall
maintain the demised  premises in a clear and neat condition and that the Tenant
shall be prohibited from storing any unused junk or debris on the premises.

     19. On the last day of the term herein demised,  or upon sooner termination
hereof, the Tenant shall peacefully and quietly leave,  surrender and deliver up
the demised premises, broom clean, reasonable wear and tear excepted. The Tenant
agrees to  indemnify  and save  harmless  the  Landlord  from all  damage to the
building,  contents thereof owned by the Landlord, and the surrounding premises,
caused by the Tenant or by their guests or invitees.

     20. If the whole or a  substantial  part of the demised  premises  shall be
taken for any  public or  quasi-public  use under any statue or right of eminent
domain, or private purchase in lieu thereof, then when possession shall be taken
hereunder of the demised premises,  or any part thereof, the term herein demised
and all rights of the Tenant  hereunder,  shall  immediately cease and terminate
and the rent shall be adjusted as to the time of such termination.

     21. It is further  understood  between the parties hereto that in the event
the Landlord  places the demises  premises  for sale,  the Tenant shall have the
right of first refusal during the term of this lease.

     22. This instrument contains all agreements and conditions made between the
parties hereto, and it may not be modified,  altered or changed orally or in any
manner,  other than by agreement in writing,  signed by all parties  hereto,  or
their successors in interest.

     23. This  instrument  shall be construed in accordance with the laws of the
Commonwealth of Virginia.

     24. The agreement  contained herein shall apply to and inure to the benefit
of and be binding upon the parties hereto and upon their  successors in interest
or personal representatives.

<PAGE>

     IN WITNESS WHEREOF, the parties hereto have execute this lease in duplicate
as of the day and year first above written.


<TABLE>
<CAPTION>
<S> <C>                                                                                                       (SEAL)
                                                                 --------------------------------------------
                                                                               Keith R. Lantz


                                                                                                               (SEAL)
                                                                 --------------------------------------------
                                                                                Mary G. Lantz


                                                                                                               (SEAL)
                                                                 --------------------------------------------
                                                                            Virginia L. Gochenour


                                                                 THE MARATHON BANK:


                                                                 By: ________________________________________________



                                                                                -----------------------------
                                                                                          (Title)

STATE OF VIRGINIA AT LARGE, To-Wit:

     The foregoing instrument was acknowledged before me in Shenandoah County, Virginia, this _________ day
of _________, 1997, by Keith R. Lantz and Mary G. Lantz.

                     My commission expires: _________________________________.


                                                                 ------------------------------------------------------------
                                                                                        Notary Public
STATE OF VIRGINIA AT LARGE, To-Wit:

     The foregoing instrument was acknowledged before me in Shenandoah County, Virginia, this ____________ day
of _______, 1997, by Virginia L. Gochenour.

                 My commission expires: ___________________________________.


                                                                 ------------------------------------------------------------
                                                                                        Notary Public
STATE OF VIRGINIA AT LARGE, To-Wit:

     The foregoing  instrument was acknowledged  before me in Shenandoah County,
Virginia,      this     ___________     day     of     _______,     1997,     by
___________________________________,  _______________,  (Title), of The Marathon
Bank.

                My commission expires: ___________________________________.


                                                                 ------------------------------------------------------------
                                                                                        Notary Public

<PAGE>


EXHIBIT 11

MARATHON FINANCIAL CORPORATION

Computation of Weighted Average Shares Outstanding and Earnings Per Share

                                  Weighted Shares Outstanding End of Month
                                  ----------------------------------------

</TABLE>
<TABLE>
<CAPTION>

                                                                     1997           1996
                                                                     ----           ----
<S> <C>

January                                                           1 863 495       1 306 303
February                                                          1 863 495       1 306 303
March                                                             1 864 462       1 306 303
April                                                             1 865 495       1 306 303
May                                                               1 874 000       1 306 303
June                                                              1 874 000       1 306 303
July                                                              1 938 226       1 306 303
August                                                            2 055 983       1 306 303
September                                                         2 055 983       1 306 303
October                                                           2 055 983       1 863 495
November                                                          2 055 983       1 863 495
December                                                          2 055 983       1 863 495
                                                                 -------------  --------------
                                                                 23 423 088      17 347 212
                           Divided by                             12 months       12 months
                                                                 -------------  --------------

     Weighted Shares Outstanding                                  1 951 924       1 445 601
                                                                 =============  ==============

     Net Income                                                  $  998 362      $  839 421
                                                                 =============  ==============

     Net Income Per Share, Basic                                      $0.51           $0.58
                                                                 =============  ==============

     Net Income Per Share, Assuming Dilution                          $0.50           $0.58
                                                                 =============  ==============
</TABLE>

<PAGE>