<PAGE>

                                 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, 1999.
                         -------------------------------------------------

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

For the transition 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 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 [x]

 Total revenues for the year ended December 31, 1999 were $9,175,041

 The aggregate market value of the voting stock held by
non-affiliates of the registrant was $11,544,484 as of March 15,
2000.  The aggregate market value was computed by using a market
price of $5.6275 per share.

  As of March 15, 2000, the number of shares outstanding of the registrant's
common stock was 2,051,441.
<PAGE>

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of the 1999 Annual Meeting of
Stockholders ("1999 Proxy Statement") are incorporated by reference
in Part III of this Form 10-KSB.


  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 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, 1999, the Bank employed 64
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, discount brokerage service, 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 four 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.  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

  During 1998, the Board of Directors authorized management to repurchase shares
of the Corporation's common stock with the following stipulations: the market
price to book value must be 1.70% or below, and the maximum number of shares
purchased during a calendar year does not exceed 1.5% of outstanding shares.
Based on this criteria, the corporation purchased 17,245 shares of common stock
during 1999.


Supervision and Regulation

  The Corporation is a registered bank holding company subject to regulation and
examination by the Federal Reserve under the Bank Holding Compamy 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 provision 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 Commission (the
"FDIC").  Deposits, reserves, investments, 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.
<TABLE>
<CAPTION>

                         INDEX                                                      Page
                         -----                                                      ----
<S>     <C>

Table 1       Selected 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 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
</TABLE>
<PAGE>

                        Table 1-Selected 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,
                                         ----------------------------------------------------------------------------
At Period End:                                    1999        1998          1997             1996            1995
                                                  ----        ----          ----             ----            ----
<S>     <C>

                                                                       (in thousands   except per share      Data)
Loans-net of unearned income
   and allowance for loan losses               $   74,527  $   65,065     $   49,015         $   37,006   $   28,405
Loans Held for Resale                                 ---         402          1,502                403          369

Allowance for loan loss                               769         755            576                503          299
Total assets                                      103,685      91,852         64,826             47,287       36,070
Deposits                                           93,343      82,295         56,435             40,725       32,622
Shareholders' equity                                9,445       8,790          7,711              5,890        2,678

Income Summary:
Interest income                                     8,315       6,876          4,882              3,789        2,940
Interest expense                                    3,482       2,959          1,943              1,614        1,252
                                               ----------  ----------     ----------         ----------   ----------
   Net interest income                              4,833       3,917          2,939              2,175        1,688
Provision for loan losses                             260         285            133                165          113
                                               ----------  ----------     ----------         ----------   ----------


Net interest income after
   provision for
   loan losses                                 $    4,573  $    3,632     $    2,806         $    2,010   $    1,575
Other income                                          860         819            587                430          281
Other expenses                                      3,758       3,193          2,583              1,746        1,435
                                               ----------  ----------     ----------         ----------   ----------
Income before income taxes                          1,675  $    1,258     $      810         $      694   $      421
Income taxes (benefits)                               564          78           (188)              (145)         - -
                                               ----------  ----------     ----------         ----------   ----------

   Net income                                  $    1,112  $    1,180     $      998         $      839   $      421
                                               ==========  ==========     ==========         ==========   ==========

Per Share Data: *
Book value at period ended                     $     4.62  $     4.26     $     3.75         $     3.16   $     2.05
Net income, basic                                    0.54        0.57           0.51               0.58          .35
Net income, assuming dilution                        0.53        0.56           0.50               0.58          .35
Cash dividends declared                           184,180     165,053        143,920            111,810           --
Average common shares outstanding               2,054,748   2,058,932      1,951,172          1,445,601    1,205,443

*Changed to reflect stock dividend in 1996.
</TABLE>
<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 1999 and 1998 and shows the average
distribution of assets, liabilities, shareholder'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, 1999                        December 31, 1998
                                        ----------------------------------------  -----------------------------------
                                           Average         Earnings/      Yield/     Average     Earnings/   Yield/
Assets:                                 Balances (1)      Expense(3)       Rate    Balances (1)   Expense     Rate
-------                                 ------------      -----------      ----    ------------  ----------   ----
<S>     <C>
Interest Earning Assets

Loans, net of unearned discounts (2)    $ 73,406,447       $7,252,043        9.9%  $58,269,578   $6,063,709    10.4%
   Securities                              9,974,848          587,258        5.9%    6,257,989      381,331     6.1%
   Federal funds sold                      9,779,041          491,769        5.0%    7,991,882      430,995     5.4%
                                        ------------   --------------              -----------   ----------

Total interest earning assets           $ 93,160,336       $8,331,070        8.9%  $72,519,449   $6,876,035     9.5%
                                                       --------------                            ----------


Non-Interest Earning Assets
   Cash and due from banks                 5,530,765                                 4,364,755
   Bank premises and equipment             2,562,174                                 2,591,083
   Intangible assets                               0                                         0
   Other assets                            1,148,345                                 1,263,018
   Allowance for loan losses                (788,777)                                 (656,014)
                                        ------------                               -----------

Total assets                            $101,612,843                               $80,082,291
                                        ============                               ===========

</TABLE>

<TABLE>
<CAPTION>


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

                                            Average        Earnings/     Yield/     Average     Earnings/   Yield/
Liabilities and Shareholders' Equity      Balances(1)       Expense       Rate    Balances(1)    Expense     Rate
---------------------------------------  -------------  ---------------  -------  ------------  ----------  -------
Liabilities
   Interest-bearing deposits             $ 78,800,817        $3,464,415     4.4%  $61,155,144   $2,938,214     4.8%
   Federal funds purchased                          0                 0     0.0%            0            0     0.0%
   Capital lease payable                      220,925            17,808     8.1%      259,020       20,341     7.9%
                                         ------------   ---------------           -----------   ----------

Total interest-bearing liabilities       $ 79,021,742        $3,482,223     4.4%  $61,414,164   $2,958,555     4.8%
                                                        ---------------                         ----------

   Non-Interest Bearing Liabilities:
    Liabilities:
      Demand deposits                      12,984,167                               9,958,661
      Other liabilities                       493,303                                 296,639
                                         ------------                             -----------
   Total liabilities                     $ 92,499,212                             $71,669,464
   Shareholders' equity                     9,113,631                               8,412,827
                                         ------------                             -----------

Total liabilities and shareholders'
 equity                                  $101,612,843                             $80,082,291
                                         ============                             ===========

Net Interest Earnings                                        $4,848,847                          3,917,480
                                                        ===============                         ==========

Net Interest Yield on Earnings Assets                                       5.2%                               5.4%
                                                                         ======                             ======
</TABLE>



(1) Average balances are calculated using daily balances for each category in
1998 & 1999.

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

(3) Amounts are shown on a tax equivalent basis.
<PAGE>

      Table 3-Changes in Net Interest Income Attributable to Rate & Volume
<TABLE>
<CAPTION>

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

                                            Due To     Change In                  Due To     Change In
Interest Earned On:                         Volume        Rate        Total       Volume        Rate        Total
                                          -----------  ----------  -----------  -----------  ----------  -----------
     Loans                                $1,458,209   ($269,875)  $1,188,334   $1,587,785    ($83,441)  $1,504,344
     Securities                              217,959     (12,032)     205,927      199,145     (11,259)     187,886
     Federal Funds Sold                       90,877     (30,103)      60,774      298,691       2,460      301,151
                                          ----------   ---------   ----------   ----------    --------   ----------

Total interest earned on interest
      Bearing assets                      $1,767,045   ($312,010)  $1,455,035   $2,085,621    ($92,240)  $1,993,381
                                          ----------   ---------   ----------   ----------    --------   ----------

Interest Paid On:
     Interest-bearing deposits            $  739,889   ($213,688)  $  526,201   $1,059,500    ($39,385)  $1,020,115
     Federal funds purchased                       0           0            0         (673)          0         (673)
     Capital lease payable                    (3,060)        527       (2,533)      (3,369)       (927)      (4,296)
                                          ----------   ---------   ----------   ----------    --------   ----------

Total interest paid on interest-bearing
     liabilities                          $  736,829   ($213,161)  $  523,668   $1,055,458    ($40,312)  $1,015,146
                                          ----------   ---------   ----------   ----------    --------   ----------

Net interest income                       $1,030,216    ($98,849)  $  931,367   $1,030,163    ($51,928)  $  978,235
                                          ==========   =========   ==========   ==========    ========   ==========
</TABLE>


                     Table 4-Types of Investment Securities

Table 4 summarizes the book value of securities for the two years ending
December 31, 1999 and 1998.

<TABLE>
<CAPTION>

                                       Table 4-Book Value of Securities Available for Sale
                                       ---------------------------------------------------
<S>     <C>


                                                       For the Years Ended
                                                           December 31,
                                        ---------------------------------------------
                                             1999                             1998
                                        ------------                       ----------

U.S Treasury securities and
     obligations of U.S. government
     agencies and corporations          $  3,944,510                     $  4,460,218
Obligations of state & political
     subdivisions                            540,132                                0
Mortgage-backed securities                    15,765                           21,555
Other securities                         .   580,350                          479,800
                                          ----------                       ----------
                                          $5,080,757                       $4,961,573
                                          ==========                       ==========
</TABLE>

<TABLE>
<CAPTION>


                              Table 4-Book Value of Securities Held to Maturity
                              -------------------------------------------------
<S>     <C>


                                           For the Years Ended
                                                December 31,
                                    -------------------------------------
                                             1999           1998
                                          ----------     ----------
U.S. Treasury securities and
     obligations of U.S. government
     agencies and corporations          $  4,687,181   $  4,899,237
Obligations of state and political
     subdivisions.                           959,610        100,840
                                          ----------     ----------
                                          $5,646,791     $5,000,077
                                          ==========     ==========

</TABLE>

  At December 31, 1999, the securities book value was $10,727,548 and the market
value was $10,564,216, compared to December 31, 1998 values of $9,961,650 and
$10,002,374, respectively.  As of December 31, 1999, 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, 1999.  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, 1999
                                                 -------------------------------------------------------------------------
                                                                                                After One But
                                                       Within One Year                         Within Five Years
                                                 ---------------------------   --------------------------------------------
                                                      Amount       Yield                Amount              Yield
                                                 --------------------------     -------------------------------------------
<S>                                              <C>              <C>               <C>                    <C>
U.S. Treasury securities and obligations
   of U.S. government agencies and
   corporations.                                    $450,235       5.19%             $5,856,470               5.73%
Obligations of state & political subdivisions              0       0.00%                553,508               6.61%
Mortgage-backed securities                                 0       0.00%                 15,765               8.72%
Other securities                                           0       0.00%                      0               0.00%
                                                  ----------       ----            -------------             -------
  Total                                             $450,235       5.19%             $6,425,743               5.81%
                                                  ==========       ====            =============             =======
</TABLE>


<TABLE>
<CAPTION>


                                                                                   December 31, 1999
                                                 ------------------------------------------------------------------------------
                                                        After Five But
                                                       Within Ten Years                          After  Ten  Years
                                                 -------------------------------------------------------------------------------
                                                      Amount        Yield                      Amount               Yield
                                                 ----------------------------     ----------------------------------------------
<S>                                              <C>               <C>                    <C>                    <C>
U.S. Treasury securities and obligations
  Of U.S. government agencies and
  corporations.                                    $2,323,460       5.97%                  $        0                0.00%
Obligations of state & political subdivisions         901,044       6.03%                      46,716                4.62%
Mortgage-backed securities                                  0       0.00%                           0                0.00%
Other securities                                            0       0.00%                     580,350                6.33%
                                                   ----------       ----                  -----------              ------
 Total                                             $3,224,504       5.99%                  $  627,066                6.20%
                                                   ==========       ====                  ===========              ======
</TABLE>


                   Table 6-Composition of the Loan Portfolio

The following table summarizes the composition of the loan portfolio at December
31, 1999 and 1998.

<TABLE>
<CAPTION>


                                                                                  December 31,
                                                                      --------------------------------------
                                                                        1999                      1998
                                                                       -------                   ------
Loans secured by real estate:                                                    (In Thousands)
<S>                                                                    <C>                       <C>
     Construction and land development                                 $10,649                   $8,900
     Secured by farmland                                                   744                      733
     Secured by 1-4 family residential                                  16,717                   13,773
     Multi-family residential                                            2,349                    1,379
     Nonfarm, nonresidential loans                                      12,038                    5,168
Loans to farmers (except those secured by real estate)                     220                      218
Commercial and industrial loans (except those secured by
 real estate)                                                           19,041                   21,126
Loans to individuals (except those secured by real estate)              13,311                   15,468
All other loans                                                            557                      100
                                                                       -------                  -------
                                                                       $75,626                  $66,865
Less:
   Unearned income                                                         330                    1,045
   Allowance for loan losses                                               769                      755
                                                                       -------                  -------
                                                                       $74,527                  $65,065
                                                                       =======                  =======
</TABLE>


The  Corporation  had no loans  outstanding  to foreign  countries or for highly
leveraged transactions as of December 31, 1999 or 1998.

There were no categories of loans that exceeded 10% of  outstanding  loans as of
December 31, 1999, 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, 1999,  commitments for
standby  letters of credit totaled  $1,432,380 and  commitments to extend credit
totaled  $13,467,000.  At December 31 1998,  commitments  for standby  letter of
credit totaled $851,449 and commitments to extend credit totaled $8,909,000.
<PAGE>

                  Table 7- Maturity Schedule of Selected Loans

The table below  presents  the  maturities  of  selected  loans  outstanding  at
December 31, 1999.
<TABLE>
<CAPTION>

                                                                After One
                                                 Within         But Within          After
                                                One Year        Five Years       Five Years          Total
                                                --------        ----------       ----------          -----
<S>                                           <C>               <C>              <C>             <C>
Commercial:                                    13,041,442       21,836,210        5,496,494       40,374,146
Real estate-construction                        6,211,881        1,915,717        1,631,385        9,758,983
                                              -----------      -----------       ----------      -----------
                                              $19,253,323      $23,751,927       $7,127,879      $50,133,129
                                              ===========      ===========       ==========      ===========

Interest sensitivity on such loans
  maturing after one year:

     Fixed                                                                                       $26,456,121
     Variable                                                                                     $4,423,685
                                                                                                  ----------
        Total                                                                                    $30,879,806
                                                                                                 ===========
</TABLE>






                       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,
                                                  -------------------------
                                                  1999                1998
                                                  ----                ----

Non-accrual loans                               $40,541            $233,200
Loans past due 90 days or more and
  still accruing interest                        19,862             191,977
Restructured loans                                  - -                 - -
                                                -------            --------
                                                $60,403            $425,177
                                                =======            ========


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

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

     Non-accrual  loans at December 31, 1999 were $40,541,  compared to $233,200
for 1998.  Approximately  $2,934 of interest  income would have been recorded if
interest had been accrued in 1999.

     As of  December  31,  1999,  the  Corporation  had a total  of  $60,403  in
non-accrual,  90 days past due and still  accruing  interest,  and  restructured
loans, compared to $425,177 in 1998. This was a decrease of $364,774 or 85.79%.

      On December 31 1999, the  Corporation  had $40,541 in  non-accrual  loans,
which consist of $27,109 in installment  loans,  $500 in commercial  loans,  and
$12,932 in mortgage  loans.  The $19,862 in 90 days past due and still  accruing
interest consists of $16,589 in installment loans, and $3,273 in credit cards.

As of December 31, 1999 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


                                                    1999                1998
                                                    ----                ----

Balance, beginning of period                    $754,597            $576,497
Less Charge-off's:
         Commercial                              153,699              28,735
         Real estate-mortgage                     29,091                   0
         Real estate-construction                 18,960                   0
         Installment loans to individuals         70,942             122,376
                                                --------            --------
                          Total                 $272,692            $151,111
                                                --------            --------

Plus Recoveries:
         Commercial                               $1,816             $11,925
         Real estate-mortgage                          0              20,368
         Real estate-construction                  2,334                   0
          Installment loans to individuals        23,355              11,918
                                                  ------              ------
                           Total                 $27,505             $44,211
                                                 -------             -------

Additions charged to operating expense          $260,000            $285,000
                                                --------            --------

Balance, end of period                          $769,410            $754,597
                                                ========            ========

Ratio of net charge-offs during the period
    to average loans outstanding during the
    period.                                        0.33%               0.18%


     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  adequacy of the  provision  for loan losses is reviewed
periodically by management  through  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 condition 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, 1999
and 1998.




              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, 1999 and 1998.



<TABLE>
<CAPTION>

                                                               December 31, 1999           December 31, 1998
                                                           -------------------------   ------------------------
                                                                         % of Loans                  % of Loans
                                                                             to                          to
                                                            Amount       Total Loans     Amount      Total Loans
                                                            ------       -----------     ------      -----------
<S>                                                        <C>           <C>           <C>           <C>
Loans secured by real estate:
     Construction and land development                     $ 30,776        14.1%       $ 30,561        13.3%
     Secured by farmland                                      7,219        00.9%          7,169        01.1%
     Secured by 1-4 family residential                       18,388        22.2%         15,092        20.6%
     Multi-family residential                                24,062        03.1%         24,373        02.1%
     Nonfarm, nonresidential loans                          280,314        15.9%        285,426        07.7%
Loans to farmers (except those secured by real
  estate)                                                     2,647        00.3%          2,566        00.3%
Commercial and industrial loans (except secured
  by R/E)                                                   323,418        25.2%        329,042        31.6%
Loans to individuals (except those secured by
  real estate)                                               76,410        17.6%         55,840        23.1%
All other loans                                               6,176        00.7%          4,528        00.2%
                                                           --------       ------       --------        -----
                                                           $769,410       100.0%       $754,597         100%
                                                           ========       ======       ========        =====
</TABLE>
<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, 1999 and 1998.

<TABLE>
<CAPTION>

                                                    December 31, 1999              December 31, 1998
                                                -------------------------      --------------------------
                                                Average          Average        Average         Average
                                                Balance           Rate          Balance           Rate
                                                -------           ----          -------           ----
<S>                                            <C>               <C>          <C>                 <C>
Non-interest bearing:
    Demand deposits                            $12,984,167                    $ 9,958,661
                                               -----------                     ----------
Interest-bearing:
    Demand deposits                            $19,276,178        2.9%        $13,868,025          3.3%
    Savings deposits                             9,457,893        3.0%          7,326,658          3.0%
     Time deposits                              50,066,746        5.2%         39,960,461          5.7%
                                               -----------                     ----------

                                               $78,800,817        4.4%         $61,155,144          4.8%
                                               -----------                    -----------

                                               $91,784,984                    $71,113,805
                                               ===========                    ===========
</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 deposit accounts. Deposit accounts,  including checking,
savings,  money markets and certificates of deposit, are obtained primarily form
the communities which the Corporation services.





   Table 12 - Maturities of CDs and Other Time Deposits in Excess of $100,000


     The following is a summary of the maturity  distribution  of cerificates of
deposit  and other time  deposits  in amounts of $100,000 or more as of December
31, 1999.

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

Three months or less                           $  474,214               5.0%
Over three-six months                           1,415,178              15.1%
Over six-twelve months                          2,754,262              29.3%
Over twelve months                              4,749,373              50.6%
                                               ---------              -----
     Total                                     $9,393,027             100.0%
                                               ==========             ======


     Certificates  of deposit in the amounts of $100,000 or more were $9,393,027
at December 31, 1999. This represents 18.6% of the total certificates of deposit
balance of $50,398,868 at December 31, 1999.  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 a pledging
of investment securities.

     The Corporation competes with the major regional financial institutions for
money market accounts and certificates of deposits 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 a higher  interest  margin than its peers 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, 1999 and 1998 is illustrated in the
table below:



                                                        December 31,
                                                  1999               1998
                                                  ----               ----

Liquid Assets:
   Cash and due from banks                      $8,011,673         $4,533,428
   Federal funds sold                            6,616,000          8,281,000
   Liquid securities                             5,329,742          5,211,808
   Loans maturing in one year or less           22,238,644         20,733,615
                                                ----------         ----------
        Total liquid assets                    $42,196,059        $38,759,851
                                               ===========        ===========

Total deposits and other liabilities           $94,239,997        $83,061,556
                                               ===========        ===========
Ratio of liquid assets to deposits
   and other liabilities                             44.8%              46.7%
                                               ===========        ===========


     The high loan to deposit ratio (80.6%) as of December 31, 1999 has provided
the  opportunity  for the  Corporation to achieve a high return on its deposits.
For the year ended  December 31, 1999, the  Corporation  experienced a return on
assets of 1.09% and a net interest margin of 5.2%.

      The  source of new  funds is  strong  for both  long-term  and  short-term
duration.  The growth in deposits  was $11.0  million  13.4%  during  1999.  The
Corporation also has access to overnight federal funds from correspondent  banks
totaling up to $5.7  million.  In  addition,  The  Corporation  has  established
borrowing  limits through the Federal  Reserve Bank's  discount  window for $2.2
million.  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.





                     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,
                                                   1999              1998
                                                   ----              ----
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           12.31%            12.79%
        Total risk-based capital ratio            13.30%            13.89%


          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 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, 1999 and  December 31,
1998, 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, 1999 and 1998.


                                               For the Years Ending
                                                   December 31,
                                              ---------------------
                                               1999           1998
                                               ----           ----

Return on average assets
   (Net income/average total assets)           1.09%         1.47%
                                               =====         =====

Return on average equity
    (Net income/average equity)               12.20%        14.03%
                                              ======        ======

Dividends payment ratio
     (Dividends declared/
         Net income)                          16.57%        13.98%
                                              ======        ======

Average equity to average asset ratio          8.97%        10.51%
                                              ======        ======




                        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, 1999 and 1998.






                    Table 17 - Interest Sensitivity Analysis


<TABLE>
<CAPTION>


                                                                 December 31, 1999
                                                                 -----------------
                                                                   (In Thousands)
                                                      90 DAYS                        OVER
                                      1-90 DAYS      To 1 YEAR      1-5 YEARS       5 YEARS        TOTAL
<S> <C>                               ---------      ---------      ---------       -------        -----

Earning Assets:
    Loans                              $15,342        $10,192        $43,537        $ 6,225       $75,296
    Investment Securities                    0            450          6,410          3,868        10,728
    Fed Funds Sold                       6,616              0              0              0         6,616
                                       -------        -------        -------        -------       -------

    Total Earning Assets               $21,958        $10,642        $49,947        $10,093       $92,640
                                       -------        -------        -------        -------       -------

Interest-Bearing Liabilities:
    Interest Checking                       $0             $0        $10,435        $     0       $10,435
    Regular Savings                          0              0          9,661              0         9,661
    Money Market Savings                 9,907              0              0              0         9,907
    Certificate of Deposit:                  0              0              0              0             0
      $100,000 and Over                    474          4,169          4,750              0         9,393
      $100,000 and Under                 5,810         20,376         14,820              0        41,006
                                       -------        -------         ------         ------        ------

  Total Interest-Bearing               $16,191        $24,545        $39,666        $     0       $80,402
                                       -------        -------        -------         ------       =======
Liabilities

Period GAP                               5,767       (13,903)         10,281         10,093
                                        ======       ========         ======         ======

Cumulative Gap                           5,767        (8,136)          2,145         12,238
                                        ======        =======          =====         ======

Cumulative GAP/Earn Assets               6.23%        (8.78%)          2.32%         13.21%
                                         =====        =======          =====         ======
</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 no impact on net  interest
income 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  0.9%.  The current  earning  assets and deposit  structure of the
Corporation  suggest that these  trends in changes in net interest  income would
continue beyond 2000 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 $2,500.

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 $800 per month
through the third year,  $900 per month for the fourth year and $1,000 per month
for the fifth year. The Bank has two five-year options to extend that lease.

     On December 16, 1998,  the Bank  purchased a lot  consisting of 1.033 acres
adjacent to the main office  property  located at 4095 Valley Pike,  Winchester.
The Bank  acquired  the  property to be used for  additional  parking and future
expansion.

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 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. 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. During 1998 stock options
totaling  7,203 were  exercised for an equal number of shares of common stock at
prices  ranging from $5.00 to $8.1875 per share.  For the year of 1998,  the low
bid price for the stock was $6.50 on  October 13 and the high bid price as $9.75
on January 8. The low bid during the year 1999 was $6.00 on  September 2 and the
high bid was $7.8 on January 19. During 1999,  stock options were  exercised for
500 shares for $2,500 and the  Corporation  repurchased  17,245 shares of common
stock for $117,780.  This bid information reflects inter-dealer prices,  without
retail  mark-up,   mark-down,   or  commission  and  may  not  represent  actual
transactions.

     At December 31, 1999, the Corporation had approximately  1,050 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 $.09 per share cash dividend to stockholders of record as
of December 31, 1999, to be paid in January of 2000.  Cash dividends of $.08 per
share, declared in 1998, were paid in January of 1999.

 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, 1999,  1998, and
1997 should be read in conjunction  with the consolidated  financial  statements
and related notes  included as Exhibit 99.1 in this Form 10-KSB.  In addition to
the  historical  information,   the  following  discussion,  as  well  as  other
information  appearing  throughout  this  report  may  contain  forward  looking
statements that are subject to certain risks and uncertainties which could cause
actual  results  to  differ   materially  from   historical   results  or  those
anticipated.   Although  the  Corporation  believes  that  any  forward  looking
statements are based upon sound  assumptions  within the limits of the knowledge
of its operations and the existing  economic  conditions,  there is no certainty
that future results will not differ materially from historical  results or those
anticipated by forward looking statements.

Overview
     The  Corporation's  assets grew at a 12.9% pace,  ending the year at $103.7
million.  This growth was primarily due to a 14.5%  increase in net loans with a
balance of $74.5  million  at  year-end.  The loan  growth was funded by a 13.4%
increase in deposits. The deposit balance of $93.3 million at year-end consisted
of a mix of 13.9% non-interest bearing and 86.1% interest bearing funds. The net
income  for the year was  $1,111,592  a decline of 5.8% from the  $1,180,311  in
1998.  The net income in 1997 was  $998,362.  The  decrease in 1999 was a direct
result of the elimination of a net loss carry-forward from prior years. Marathon
Financial Corporation had an income tax expense of $563,676 for 1999 as compared
to $77,596  during 1998 and a $187,734 tax credit in 1997.  Income  before taxes
totaled  $1,675,268  for 1999, an increase of 33.2% over 1998.  In 1998,  income
before taxes  amounted to $1,257,907  and $810,628 in 1997.  Basic  earnings per
share were $.54 on average  shares  outstanding  as compared to $.57 and $.51 in
1998 and 1997 respectively.
<PAGE>

Results of Operations
     The return on average  assets was 1.09% as  compared to 1.47% and 1.86% for
1998 and 1997  respectively.  Return on average equity was 12.20% as compared to
14.03% in 1998 and 14.99% in 1997. A narrowing of the net interest margin, which
is  calculated  by dividing  the average  earning  assets into the net  interest
income,  and the increase in income tax expense are the  underlying  reasons for
the decreases in R.O.A.  and R.O.E. The net interest margin for 1999 was 5.2%, a
decline from 5.4% in 1998 and 6.1% in 1997.  The decrease in market rates is the
primary factor for this decline.

     Earning  assets,  which  consists  mainly of loans,  securities and federal
funds sold totaled  $92.6 million at year-end.  This  represents a 9.7% increase
from 1998 and is  primarily  the reason that the net  interest  income of $4.833
million for 1999 increased by 23.4% over the previous year. The largest increase
in earning assets  occurred in the loan area with an annual growth rate of 14.4%
to $75.3  million  gross.  The total  increase  in the loan  portfolio  was $9.5
million for 1999. Commercial loans decreased 9.9%, real estate construction grew
19.7%,  real estate  mortgage  had a 51.3% rate of growth while  consumer  loans
experienced  a decline of 13.9%.  This overall  growth in loans is indicative of
the  continued  strength of the economy  within the Bank's  service  area.  This
economy is expected to remain strong well into 2000.

     The reserve for loan losses  provides for potential  losses inherent in the
loan portfolio.  Management  considers the Bank's loss  experience,  size of the
loan  portfolio,  value of collateral and guarantors,  non-performing  loans and
economic  conditions both current and anticipated when performing an analysis on
the entire portfolio to estimate the provision. Using these criteria, management
expensed  $260,000  to the reserve for loan losses  during  1999,  bringing  the
year-end  balance to $769,410 or 1.02% of total  loans.  The net charge offs for
loan losses in 1999 was $245,187 for a ratio to average loans of 0.33%.  In 1998
the bank contributed $285,000 to the reserve,  ending the year with a balance of
$754,597 or 1.14% of total loans. The Bank experienced a $106,900 net charge off
for loan  losses,  for a ratio to  average  loans of .18% for  1998.  Management
believes  that the present level of reserve for loan losses is adequate to cover
any potential losses in the loan portfolio.

     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 affected 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  $8,315,492,  $6,876,035,  and $4,882,654 for the
years ending December 31, 1999, 1998, and 1997, respectively. This represents an
increase  of  $1,439,457  or  20.9%  in 1999  and  $1,993,381  or 40.8% in 1998.
Interest expense totaled  $3,482,223,  $2,958,555,  and $1,943,409,for the years
ending December 31, 1999, 1998, and 1997,  respectively.  This is an increase of
$523,668 or 17.7% in 1999 and $1,015,146 or 52.2% in 1998.

     Net interest income,  before provision for loan losses,  was $4,833,269 for
the year ending  December  31,  1999,  up $915,789 or 23.4% over the  $3,917,480
reported  for the same  period in 1998.  In 1998,  net  interest  income  before
provisions for loan losses, increased $978,235 or 33.3% from $2,939,245 in 1997.
The growth in net interest income is due mainly to the strong economy within the
Corporation's  trade  area.  The demand for all types of loans is strong with an
increase in the loan  portfolio of $9.5  million for 1999.  The demand for loans
continues to be fueled by new businesses  locating  within the trade area.  This
growth has  resulted  in the  unemployment  level  falling to record lows and an
increase  in the  area's  population,  thereby  creating  a  growing  source  of
deposits. As of 1999 year-end, non-interest bearing-demand deposits had grown by
21.2% to $12.9  million,  savings  and  interest  bearing  demand  deposits  had
increased by 24.3% to $30.0 million and time deposits had shown a 6.1% growth to
$50.4 million. The deposit mix of $93.3 million was virtually unchanged from the
previous  year with  interest  bearing  deposits  decreasing by 0.9% to 86.1% of
total deposits.
<PAGE>

Non-interest Income
     The Bank's  non-interest  income is derived chiefly form service charges on
deposit  accounts and commissions  and fees from bank services.  During 1999 the
non-interest  income  totaled  $859,549 or a 5.00%  increase  over the  $818,642
earned  in 1998.  The rate of growth  in 1998 was  39.4%  based on  non-interest
income of $587,179  received in 1997. This growth is a result of the increase in
the  amount of  service  charges  assessed  on  deposit  accounts.  The bank has
experienced  a large  increase in the number of deposit  accounts  and volume of
activity during the last two years.

Non-interest Expenses
     Non-interest expense consists of salaries and employee benefits,  occupancy
expenses,  furniture  and  equipment and other  operating  expenses.  The Bank's
non-interest  expense for 1999 totaled  $3,757,550  or an increase of 17.7% over
the total for 1998 of $3,193,215. The amount for 1998 was 23.6% greater than the
$2,582,796  non-interest  expense for 1997.  The reduction in the growth rate of
these expenses is a result of the Bank's increased  efficiency in the use of its
personnel  and  facilities.  The  efficiency  ratio for the Bank during 1999 was
65.8%,  a decrease  from 67.4% in 1998 and 73.2% in 1997. A large portion of the
expenses relating to the Y2K issue was charged to this category.

Income Tax
     Under the  provisions of the Internal  Revenue Code,  the  Corporation  had
available in prior years an operating loss carryforward  which was sufficient to
offset any taxable income. However, the carryforwards were completely eliminated
against taxable income during 1999.  With the elimination of the  carryforwards,
the Bank  expensed  $563,677  in income  taxes  for the  year.  This is a 626.4%
increase over the $77,596  income tax expense in 1998. A detailed  discussion of
the  Corporation's  tax  calculation is contained in Note 7 to the  Consolidated
Financial Statement.

Asset Quality
     Based upon its review and analysis  which  considers  economic  conditions,
changes in the nature and value of the portfolio,  industry  standards and other
relevant factors,  management  believes that the Bank has sufficient reserves to
cover projected losses that may occur in the total loan portfolio.

Non-performing Assets
     Non-performing  assets  include  other real estate owned and loans on which
payment  has been  delinquent  90 days or more and for which  there is a risk of
loss to either  principal or interest.  Other real estate owned  represents real
property taken by the Bank either through  foreclosure or through a deed in lieu
thereof from the borrower.  Non-accrual  loans  amounted to $40,541 at year-end,
representing 0.05% of net loans. This is a decrease from 1998 non-accruals which
were  $233,200,  or 0.36% of the net loans.  At the end of 1999 the bank had two
parcels of real  estate  considered  to be  non-performing  assets  with a total
balance of $183,218 as compared to $18,123 for one parcel at 1998  year-end.  Of
the two remaining parcels,  one has been leased with an option to buy. The value
of that property is $165,095.

Loan Portfolio
     The Bank's lending activities are is principal source of income. The Bank's
loan portfolio is comprised of commercial  loans,  real estate  mortgage  loans,
real estate  construction loans and consumer loans. The primary markets in which
the Bank  makes  loans are  Frederick  County,  the City of  Winchester,  Warren
County,  the Town of Front Royal,  Shenandoah  County and the Town of Woodstock,
all located with in the state of Virginia.  The major portion the loan portfolio
is secured by real estate.


Securities
     Securities  are  classified  as  either  securities  available  for sale or
securities  held to  maturity in  accordance  to FAS No.  115,  "Accounting  for
Certain  Investment  in Debt  and  Equity  Securities".  The  book  value of the
securities  included  in  securities  available  for sale was $5.278  million at
<PAGE>

December 31, 1999 and $4.921  million at December  31, 1998.  The book value for
the  securities  included in held to maturity was $5.647 million at December 31,
1999 and $5.000 million at December 31, 1998. The increase in both categories of
securities was a result of the growth in funds received from deposits.  The bank
does not trade in derivatives and has no plan to do so in the future.

      For financial statement reporting purposes,  securities available for sale
are reported at fair market value as of the statement  date.  The fair value for
these securities at 1999 year-end was $197,110 less than the book value. However
this  unrealized  loss is excluded form earnings and is reported net of tax as a
separate item of shareholders' equity.

Deposits
     The Bank experienced  growth in the three major components of deposits.  As
of 1999 year-end,  non-interest  bearing  demand  deposits had grown by 21.2% to
$12.9 million,  savings and  interest-bearing  demand  deposits had increased by
24.3% to $30.0 million and time deposits had  experienced a 6.1% growth to $50.4
million.  The deposit mix of $93.3 million  changed  slightly with  non-interest
bearing demand deposits  increasing by 0.9% to 13.9% if total deposits.  Savings
and  interest-bearing  demand deposits grew form 29.3% in 1998 to 32.1% of total
deposits in 1999.  Time deposits  dropped by 3.7% to 54.0% of total  deposits at
the end of 1999.

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,  concentration business and industry,  competition and the Corporation's
overall financial condition.

     The Bank's  management  believes that the level of liquidity  maintained by
the bank is sufficient to satisfy it  depositors'  requirements  and to meet its
customers'  credit needs.  Sources of liquidity include cash and due from banks,
Federal  funds  sold,  available  for sale bond  securities,  held for  maturity
securities  maturing within one year or less and loans maturing within one year.
At December 31, 1999, the Bank maintained $42.2 million in liquidity reserves or
77.6% of current  liabilities  due  within one year or less.  For the year 1998,
liquidity reserves were $38.8 million or 77.6% of current liabilities.

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


Capital Adequacy
     Total  stockholders  equity on December 31, 1999 was $9,445,181 an increase
of  $655,068  or  7.5%  from  $8,790,113  in  1998.  The  Corporation's  primary
capital-to-asset  ratio was 9.1% in 1999 versus 9.6% in 1998.  The bank  depends
primarily upon earnings to maintain a strong capital base. During 1999, earnings
less  dividends  increased  retained  earnings by $927,412.  These  transactions
reduced the retained earnings deficit of $1,149,567 as of December 31, 1998 to a
deficit of $222,155 at December 31, 1999.

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>

Year 2000 Issue
     The Year 2000 issue  involved the risk that computer  programs and computer
systems might not be able to perform without interruption into the Year 2000. If
computer systems failed to correctly recognize the date change from December 31,
1999,  to  January 1, 2000,  computer  applications  that rely on the date field
could have failed or created  erroneous  results.  Such erroneous  results would
have affected interest payments or due dates and would have caused the temporary
inability to process transactions and to engage in ordinary business activities.
The Bank's computer  programs and computer  systems did not fail and all systems
performed  in a normal  manner.  The  Corporation  will  continue to monitor the
systems  for  potential  Y2K  related  problems.  However,  management  does not
anticipate any future disruptions regarding Y2K. Including the cost of equipment
purchased  for becoming Y2K  compliant,  the Bank spent  approximately  $230,000
related to the assessment of and efforts in connection with the Year 2000 issue.


Recent Accounting Pronouncements
     In June 1998, the FASB issue Statement No. 133,  "Accounting for Derivative
Instruments and Hedging Activities", which was originally required to be adopted
in years beginning after June 15, 1999.  Statement No. 137, issued in June 1999,
subsequently  amended the effective date of Statement No. 133 to years beginning
after  June 15,  2000.  Statement  No.  133  permits  early  adoption  as of the
beginning of any fiscal quarter after its issuance.  The Bank has not determined
whether to adopt the new statement  early.  This Statement will require the Bank
to recognize all  derivatives  on the balance  sheet at fair value.  Because the
Bank does not currently  employ such derivative  instruments and does not intend
to do so in the future,  management does not anticipate that the adoption of the
new Statement will have any effect on the Bank's earnings or financial position.





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  2000 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 2000 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  2000  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 2000
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 the 2000 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.
<PAGE>

    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 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  Lessor,  James
        Butcher 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 Main Street,
        Woodstock,  Virginia,  and is in the process of constructing a permanent
        facility ion the same lot, incorporated by reference herein by reference
        to the  Corporation's  Annual  Report on Form  10-KSB for the year ended
        December 31, 1997 (File No. 0-18868).

    11. Statement re: Computation of Per Share Earnings

    13. Annual Report to stockholders, filed herewith.

    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.

        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, 1999 and 1998.

        3. Consolidated Statement of Income - Years ended December 31, 1999,
           1998, and 1997.

        4. Consolidated Statements of Changes in Stockholders' Equity - Years
           Ended December 31, 1999, 1998, and 1997.

        5. Consolidated Statements of Cash Flows - Years Ended December 31,
           1999, 1998, and 1997.

        6. Notes to Consolidated Financial Statements.


             (b) Reports on Form 8-K.  No reports were filed by the registrant
                 during the fourth quarter of 1999
<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.

                                        MARATHON FINANCIAL CORPORATION

                                        (Registrant)

                                         By:   /s/  Donald L. Unger
                                             --------------------------------
                                                 Donald L. Unger, President

DATE

March 23, 2000


    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

DATE                                 SIGNATURE AND TITLE

March 23, 2000                       /s/   Walter H. Aikens
---------------------                --------------------------------
                                     (Walter H. Aikens, Director)


March 23, 2000                       /s/   Frank H. Brumback
---------------------                --------------------------------
                                     (Frank H. Brumback, Director)


March 23, 2000                       /s/   Robert W. Claytor
---------------------                --------------------------------
                                     (Robert W. Claytor, Director)


March 23, 2000                       /s/   Clifton L. Good
---------------------                --------------------------------
                                     (Clifton L. Good, Director)


March 23, 2000                       /s/   Thomas W. Grove
---------------------                --------------------------------
                                     (Thomas W. Grove, Director)


March 23, 2000                       /s/   Ralph S. Gregory
---------------------                --------------------------------
                                     (Ralph S. Gregory, Director)


March 23, 2000                       /s/   Joseph W. Hollis
---------------------                --------------------------------
                                     (Joseph W. Hollis, Director)


March 23, 2000                       /s/   George R. Irvin
---------------------                --------------------------------
                                     (George R. Irvin, Director)


March 23, 2000                       /s/   Gerald H. Kidwell
---------------------                --------------------------------
                                     (Gerald H. Kidwell, Director)


March 23, 2000                       /s/   Lewis W. Spangler
---------------------                --------------------------------
                                     (Lewis W. Spangler, Director)


March 23, 2000                       /s/   Donald L. Unger
---------------------                --------------------------------
                                     (Donald L. Unger, Principal Executive,
                                      Financial, Accounting Officer)
<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 From 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 located 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 Lessor,
                 James   Butcher  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, Incorporated
                 herein by reference to the Corporation's Annual Report
                 on Form 10-KSB for the year ended December 31, 1997.
                 (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.  33-08995).

22.  None.

23.  Not applicable.

24.  Not applicable.

27.  Financial Data Schedule. *

28.  Not applicable.


99.  Additional Exhibits.

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









     1. Consolidated  Statements of Cash Flows - Years Ended December 31, 1999,
        1998 and 1997.

     2. Notes to Consolidated Financial Statements

     3. Independent Auditor's Report.

     4. Consolidated Balance Sheets - December 31, 1999 and 1998.

     5. Consolidated  Statement of Income - Years Ended December 31, 1999, 1998
        and 1997.

     6. Consolidated Statements of Changes in Stockholders' Equity - Years Ended
        December 31, 1999, 1998 and 1997.

     7. Consolidated  Statements of Cash Flows - Years Ended December 31, 1999,
        1998 and 1997.

     8. Notes to Consolidated Financial Statements.

(b) Reports on Form 8-K.  No reports were filed by the registrant during the
    fourth quarter of 1999.


*Filed Herewith.