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, 1996

                                       or

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

For the transitions periods from __________________ to __________________

Commission file number:         0-18868

                         Marathon Financial Corporation
                 (Name of small business issuer in its charter)

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

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

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


Securities registered under Section 12(b) of the Act:  Not Applicable

                Securities registered under section 12(g) of the xchange Act
                     Common stock, Par Value 1.00 per share
                                (Title of class)

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

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

     Total revenues for the year ended December 31, 1996 were $4,219,605.

     The aggregate  market value of the voting stock held by  non-affiliates  of
the registrant was $10,249,223 as of March 15, 1997. The aggregate  market value
was computed by using a market price of $5.50 per share.

     As of March 15, 1997, the number of shares  outstanding of the registrant's
common stock was 1,863,495.

DOCUMENTS INCORPORATED BY REFERENCE
Portions  of the Proxy  Statement  for the 1997 Annual  Meeting of  Stockholders
("1997 Proxy  Statement") are incorporated by reference in Part III of this Form
10-KSB.


<PAGE>



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

                                     Part I

Item 1.   Description of Business

General

     Marathon  Financial  Corporation  ("the  Corporation")  is a  bank  holding
company that was incorporated  under the laws of the Commonwealth of Virginia in
June  1989.  The  Corporation  owns  all of the  outstanding  stock  of its sole
subsidiary,  The Marathon Bank ("the Bank"),  which was  incorporated  in August
1987 and acquired by the  Corporation  in October 1990,  in accordance  with the
Plan of Exchange  approved  by the  shareholders  of the Bank in June 1990.  The
Corporation is headquartered  in Frederick  County,  Virginia,  operating in the
Bank's offices in the Marathon Financial Center,  4095 Valley Pike,  Winchester,
Virginia.  On August 12, 1993, The Marathon Bank opened a branch location at 300
Warren Avenue,  Post Office Plaza,  Front Royal in Warren County,  Virginia.  On
February 13, 1995, The Marathon Bank opened a branch located at 1041  Berryville
Avenue, Winchester,  Virginia. 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, 1996, the Bank employed
34 persons on a full-time basis.

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

     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 three large,  Virginia-wide
banks with multiple  offices)  offering  services ranging from deposits and real
estate  loans to full  service  banking.  The Bank is the  newest  and  smallest
commercial bank in its service area.  Certain of these  institutions 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.





                                        1

<PAGE>



Recent Developments

     In June of 1996,  the Bank  moved  into  permanent  quarters  at 300 Warren
Avenue, Post Office Plaza, Front Royal, Warren County,  Virginia.  The Bank also
applied to the State Corporation  Commission for permission to open new branches
in the 1000 Block of South Main  Street,  Woodstock,  Virginia and at 1447 North
Frederick Pike, Winchester,  Virginia. The opening of these two branches,  which
is  anticipated  to occur in early 1997,  will  enable the Bank to better  serve
customers' needs within its trade area.

     On September 26, 1996,  the  Corporation  completed a public stock offering
which  increased the  Corporation's  capital by $2.5  million.  In the offering,
567,192 shares of the  Corporation's  common stock were sold at $5.00 per share.
The stock is now listed on the NASDAQ Small Cap Market under the symbol MFCV.

Supervision and Regulation

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

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

                                        2

<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>
<S> <C>
                                                     INDEX                                                     Page

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

                                        3

<PAGE>



                      Table 1 - Consolidated Financial Data


     The  following  selected  consolidated  financial  data is  based  upon the
Corporation's  audited financial statements and related notes and should be read
in conjunction with such financial statements and notes.
<TABLE>
<CAPTION>
<S> <C>
                                                                             For the Years Ended December 31,
                                                              1996          1995          1994          1993           1992
                                                         -----------    ----------    ----------    ----------     --------
At Period End:                                                          (in thousands except per share data)
  Loans--net of unearned income
    and allowance for loan losses                         $   37 409    $   28 774    $   22 618     $   18 149    $  10 828
  Allowance for loan losses                                      503           393           299            225          196
  Total assets                                                47 287        36 070        27 682         22 379       16 111
  Deposits                                                    40 725        32 622        24 604         19 606       13 678
  Stockholders' equity                                         5 890         2 678         2 244          1 934        1 497

Income Summary
  Interest income                                              3 789         2 940         2 251         1 625          1 361
  Interest expense                                             1 614         1 252           849           717            768
                                                         -----------    ----------    ----------    ----------     ----------
    Net interest income                                  $     2 175    $    1 688    $    1 402    $      908     $      593
  Provision for (recovery of)
    loan losses                                                  165           113           151            12            (88)
                                                         -----------    ----------    ----------    ----------     ----------

  Net interest income after
    provision for (recovery of)
    loan losses                                          $     2 010    $    1 575    $    1 251    $      896     $      681
Other income                                                     430           281           242            93            111
Other expenses                                                 1 746         1 435         1 175           909          1 266
                                                         -----------    ----------    ----------    ----------     ----------
Income (loss) before income taxes                            $   694       $   421       $   318       $    80     $     (474)
Income taxes (benefits)                                         (145)          - -           - -           - -            - -
                                                         -----------    ----------    ----------    ----------     ----------

  Net income (loss)                                      $       839    $      421    $      318    $       80     $     (474)
                                                         ===========    ==========    ==========    ==========     ==========

Per Share Data:  *
Book value at period ended                               $      3.16    $     2.05    $     1.75    $     1.52     $     1.25
Net income (loss)                                                .58           .35           .30           .08           (.40)
Cash dividends declared                                      111 810           - -           - -           - -            - -
Average common shares outstanding                          1 445 601     1 205 443     1 082 615     1 055 466        743 298
</TABLE>

* Changed to reflect stock dividend in 1996.

                                        4

<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  1996  and  1995  and  shows  the   average
distribution  of assets,  liabilities,  stockholder's  equity,  and the  related
income,  expense,  and  corresponding  weighted  average  yields and costs.  The
average  balances  used for the  purpose  of this  table and  other  statistical
disclosures were calculated by using the daily average balances.
<TABLE>
<CAPTION>
<S> <C>

                                              December 31, 1996                        December 31, 1995
                              --------------------------------------------------------------------------------------
                                  Average           Earnings/      Yield/     Average          Earnings/     Yield/
    Assets                       Balances  (1)       Expense        Rate     Balances  (2)     Expense       Rate
    ------                       --------  ---       -------        ----     --------  ---     -------       ----
Interest Earning
  Assets:
    Loans, net of un-
      earned discounts (3)  $    33 282 661        $3 554 808      10.7%   $    26 363 947    $2 786 074     10.6%
    Securities                    2 092 113           131 013       6.3%         1 496 693        87 407      5.8%

    Federal funds sold            1 951 410           103 606       5.3%         1 179 068        66 829      5.7%
                            ---------------        ----------      ----     --------------    ----------     ----


Total interest-
  bearing assets            $    37 326 184        $3 789 427      10.2%    $   29 039 708    $2 940 310     10.1%
                            ---------------        ----------      ----     --------------    ----------     ----

Non-Interest Earning
  Assets:
    Cash and due from
      banks                       2 643 922                                      1 699 438
    Bank premises and
      equipment                   1 411 295                                      1 268 132
    Intangible assets                   - -                                            - -
    Other assets                    585 713                                        406 041
    Allowance for loan
      losses                       (452 202)                                      (323 541)
                                -----------                                ---------------

Total assets                 $   41 514 912                                 $   32 089 778
                             ==============                                 ==============

                                        5

<PAGE>

<CAPTION>


                                              December 31, 1996                        December 31, 1995
                              --------------------------------------------------------------------------------------
                                  Average           Earnings/      Yield/     Average          Earnings/     Yield/
    Liabilities and              Balances  (1)       Expense        Rate     Balances  (2)     Expense       Rate
     Shareholders' Equity        --------  ---       -------        ----     --------  ---     -------       ----
    ---------------------
Liabilities:
  Interest-bearing
    deposits                 $   31 654 328    $    1 566 223       4.9%    $  24 757 495   $  1 203 143      4.9%

Federal funds
  purchased                           5 361               155       2.9%           24 984          1 536      6.1%
Note payable                        473 195            48 275      10.2%          628 588         47 559      7.6%
                            ---------------    --------------      ----     -------------   ------------     ----

Total interest-
  bearing liabilities        $   32 132 884    $    1 614 653       5.0%    $  25 411 067   $  1 252 238      4.9%
                                               --------------                               ------------

Non-Interest-Bearing
  Liabilities:
    Demand deposits               5 588 802                                     4 033 534
    Other liabilities               174 211                                       165 081
                             --------------                                  ------------
Total liabilities            $   37 895 897                                  $ 29 609 682
Stockholders'
    equity                        3 619 015                                     2 480 096
                             --------------                                  ------------

Total liabilities and
  stockholders'
  equity                     $   41 514 912                                  $ 32 089 778
                             ==============                                  ============

Net Interest Earnings                          $    2 174 774                                $ 1 688 072
                                               ==============                                ===========

Net Interest Yield
  on Earningss Assets                                               5.8%                                       5.8%
                                                                   ====                                       ====


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

(2)              Average balances are calculated using month end balances for each category in 1995.

(3)              Non-accrual loans are included in the average balance of this category.
</TABLE>

                                        6

<PAGE>
<TABLE>
<CAPTION>
<S> <C>


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


                                                             December 31,                                        December 31,
                                                             1996 vs. 1995                                       1995 vs. 1994
                          ----------------------------------------------------------------- ----------------------------------
                                                             Due to Change In                                    Due to Change In
                             Volume             Rate            Total             Volume            Rate             Total

Loans                     $   742 058      $     26 676      $   768 734      $    554 742      $   107 451      $    662 193
Securities                     35 840             7 766           43 606            (1 152)         (13 167)          (14 319)
Federal funds sold             41 190            (4 413)          36 777            21 771           19 417            41 188
                          -----------      ------------      -----------      ------------      -----------      ------------

Total interest earned
  on interest bearing
  assets                  $   819 088      $     30 029      $   849 117      $    575 361      $   113 701      $    689 062
                          -----------      ------------      -----------      ------------      -----------      ------------

Interest-bearing
  deposits                $   363 080      $        - -      $   363 080      $    234 786      $   166 743       $   401 529
Federal funds
  purchased                      (828)             (553)          (1 381)           (4 173)           1 776            (2 397)
Notes payable                  (1 865)            2 581              716             3 638              555             4 193
                          -----------      ------------      -----------      ------------      -----------      ------------

Total interest paid
  on interest-bearing
  liabilities             $   360 387      $      2 028      $   362 415      $    234 251      $   169 074       $   403 325
                          -----------      ------------      -----------      ------------      -----------      ------------

Net interest income       $   458 701      $     28 001      $   486 702      $    341 110      $   (55 373)      $   285 737
                          ===========      ============      ===========      ============      ============      ===========
</TABLE>

                                        7

<PAGE>



                                     Table 4 - Types of Investment Securities


     Table 4 summarizes  the book value of  securities  for the two years ending
December 31, 1996 and 1995.


              Table 4 - Book Value of Securities Available for Sale


                                                 For the Years Ended
                                                    December 31,
                                              1996               1995
                                         --------------     --------------

U.S. government agencies
  and corporation                        $    1 343 663     $      447 801
Obligations of state &
  political subdivisions                            - -                - -
Other securities                                332 780            317 289
                                         --------------     --------------
                                         $    1 679 443     $      765 090
                                         ==============     ==============


               Table 4 - Book Value of Securities Held to Maturity

                                                   For the Years Ended
                                                        December 31,
                                                  1996               1995
                                             --------------     --------------

U.S. government agencies
  and corporations                           $    1 292 094     $      649 946
Obligations of state &
  political subdivisions                            251 227            150 000
Other securities                                    107 938            126 019
                                             --------------     --------------
                                             $    1 651 259     $      925 965
                                             ==============     ==============

     At December 31, 1996,  the  securities  book value was  $3,330,702  and the
market value was $3,337,690,  compared to December 31, 1995 values of $1,691,055
and $1,708,102, respectively. As of December 31, 1996, 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.

                                        8

<PAGE>



                     Table 5 - Securities Maturity Analysis


     Table 5 sets forth the maturity distribution and weighted average yields of
the securities  portfolio at December 31, 1996. 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>
<S> <C>
                                                                         December 31, 1996
                                                              After One But           After Five But
                                      Within One Year        Within Five Years       Within Ten Years        After Ten Years
                                     Amount     Yield        Amount     Yield       Amount      Yield       Amount      Yield
                                     ------     -----        ------     -----       ------      -----       ------      -----
Securities of U.S.
  government agencies
  and corporation                  $  993 899    5.38%     $  497 862    6.12%  $    250 053     6.82% $      34 873     9.02%
States & political
  subdivisions                            - -    - -              - -    - -         251 227     8.84%           - -     - -
Other securities                      348 550    6.18%        648 345    5.80%           - -     - -         305 893     5.69%
                                -------------           -------------           ------------           -------------
Total                           $   1 342 449    5.59%  $   1 146 207    5.94%  $    501 280     7.83% $     340 766     6.03%
                                =============           =============           ============           =============
</TABLE>

                                        9

<PAGE>



                   Table 6 - Composition of the Loan Portfolio


     The following  table  summarizes  the  composition of the loan portfolio at
December 31, 1996 and 1995.


                                                       December 31,
                                                 1996               1995
                                            --------------     --------------

Commercial                                  $   18 719 817     $   13 315 029
Real estate - mortgage                           6 882 004          6 133 400
Real estate - construction                       3 886 066          3 637 433
Installment loans to individuals                 8 424 170          6 081 297
                                            --------------     --------------
                                            $   37 912 057     $   29 167 159
Less allowance for loan losses                     503 014            393 139
                                            --------------     --------------

Net loans                                   $   37 409 043     $   28 774 020
                                            ==============     ==============

     The Corporation had no loans outstanding to foreign countries or for highly
leveraged transactions as of December 31, 1996 or 1995.

     There were no categories of loans that exceeded 10% of outstanding loans at
December 31, 1996, 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, 1996, commitments for
standby  letters of credit  totaled  $293,581 and  commitments  to extend credit
totaled  $4,331,307.  At December 31, 1995,  commitments  for standby letters of
credit totaled $76,812 and commitments to extend credit totaled $3,698,658.

                                       10

<PAGE>



                  Table 7 - Maturity Schedule of Selected Loans


     The table below presents the  maturities of selected  loans  outstanding at
December 31, 1996.
<TABLE>
<CAPTION>
<S> <C>
                                                          After One
                                       Within             But Within             After
                                       One Year           Five Years           Five Years             Total
                                       --------           ----------           ----------             -----

Commercial                        $     9 816 083     $     8 325 612     $        578 122     $    18 719 817
Real estate - construction              3 387 589             498 477                  - -           3 886 066
                                  ---------------     ----------------    ----------------     ---------------
                                  $    13 203 672     $     8 824 089     $        578 122     $    22 605 883
                                  ===============     ===============     ================     ================

Interest sensitivity on such loans maturing after one year:
    Fixed                                                                                      $     6 593 206
    Variable                                                                                         2 809 005
                                                                                               ---------------
        Total                                                                                  $     9 402 211
                                                                                               ===============
</TABLE>

                                       11

<PAGE>



                       Table 8 - Summary of Risk Elements


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

                                                December 31,
                                          1996             1995
                                     -------------     ------------

Non-accrual loans                    $      71 515     $     45 445
Loans past due 90
  days or more                              58 996          215 348
Restructured loans                             - -              - -
                                     -------------     ------------
                                     $     130 511     $    260 793
                                     =============     ============

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

     Non-accrual  loans at December 31, 1996 were  $71,515,  compared to $45,445
for 1995.  Approximately  $6,638 of interest  income would have been recorded if
interest had accrued.

     As of  December  31,  1996,  the  Corporation  had a total of  $130,511  in
non-accrual,  90 days past due and restructured  loans,  compared to $260,793 in
1995. This was a decrease of $130,282 or 50%.

     On December 31, 1996, the  Corporation  had $71,515 in  non-accrual  loans,
which consist of $55,974 in installment loans and $15,541 in mortgage loans. The
$58,996 in 90 days past due consists of $41,240 in installment loans and $17,756
in accrual loans.

     As of December 31, 1996,  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.

                                       12

<PAGE>



                    Table 9 - Summary of Loan Loss Experience
<TABLE>
<CAPTION>
<S> <C>

                                                            1996               1995
                                                       --------------     --------------

Balance, beginning of period                           $      393 139     $      299 203
Less             Charge-offs:
       Commercial                                              23 929              5 000
       Real estate - mortgage                                     - -                - -
       Real estate - construction                                 - -                - -
       Installment loans to individuals                        37 203             25 668
                                                       --------------     --------------
            Total                                      $       61 132     $       30 668
                                                       --------------     --------------

Plus             Recoveries:
       Commercial                                      $          951     $        7 063
       Real estate - mortgage                                     - -                - -
       Real estate - construction                                 - -                - -
       Installment loans to individuals                         5 056              4 122
                                                       --------------     --------------
            Total                                      $        6 007     $       11 185
                                                       --------------     --------------


Additions charged to operating expense                 $      165 000     $      113 419
                                                       --------------     --------------

Balance, end of period                                 $      503 014     $      393 139
                                                       ==============     ==============


Ratio of net charge offs during the period
  to average loans outstanding during the
  period                                                        0.17%              0.07%
</TABLE>

     The  Corporation  maintains  the  allowance for loan losses at a sufficient
level to provide for  potential  losses in the loan  portfolio.  Loan losses are
charged directly to the allowance when they occur, while recoveries are credited
to the allowance.  The provision for loan losses is determined  periodically  by
management  upon  consideration  of several  factors,  including  changes in the
character  and size of the loan  portfolio and related loan loss  experience,  a
review and  examination of overall loan quality which includes the assessment of
problem loans, and an analysis of anticipated  economic conditions in the market
area.  An  analysis  of the  allowance  for loan  losses,  including  charge-off
activity, is presented above for the years ended December 31, 1996 and 1995.

                                       13

<PAGE>



              Table 10 - Allocation of the Reserve for Loan Losses


     The following  table  reflects  management's  allocation of the reserve for
loan losses for the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
<S> <C>
                                                December 31, 1996                     December 31, 1995
                                     --------------------------------------------------------------------------
                                                           % of Loans to                         % of Loans to
                                           Amount           Total Loans          Amount           Total Loans
                                           ------           -----------          ------           -----------

Commercial                              $   427 562            49.4%              $334 168           45.7%
Real estate - mortgage                       10 060            18.2                  7 863           21.0
Real estate - construction                   25 151            10.2                 19 657           12.5
Installment loans to
  individuals                                40 241            22.2                 31 451           20.8
                                       ------------        ---------         -------------        --------
                                       $    503 014           100.0%         $     393 139          100.0%
                                       ============        =========         =============        ========
</TABLE>

                                       14

<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, 1996 and 1995.
<TABLE>
<CAPTION>
<S> <C>
                                                December 31, 1996                     December 31, 1995
                                     --------------------------------------------------------------------------
                                           Average            Average            Average            Average
                                           Balance             Rate              Balance            Rate
                                           -------             ----              -------            ----

Non-interest bearing:
  Demand deposits                    $      5 588 802            - -       $      4 033 534            - -
                                     ----------------                      ----------------
Interest-bearing:
  Demand deposits                    $      5 774 727            3.4       $      4 416 757            3.1
  Savings deposits                          5 040 481            3.2              5 009 402            3.3
  Time deposits                            20 839 120            5.8             15 331 336            5.9
                                     ----------------                      ----------------

                                     $     31 654 328            4.9%      $     24 757 495            4.9%
                                     ----------------                      ----------------

                                     $     37 243 130                      $     28 791 029
                                     ================                      ================
</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 market and certificates of deposit,  are obtained primarily from
the communities which the Corporation services.

                                       15

<PAGE>



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


     The following is a summary of the maturity  distribution of certificates of
deposit in amounts of $100,000 or more as of December 31, 1996.

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

Three months or less                 $        765 345           16.1%
Over three - six months                     1 601 603           33.7
Over six - twelve months                    1 237 796           26.1
Over twelve months                          1 143 537           24.1
                                     ----------------      ---------
       Total                         $      4 748 281          100.0%
                                     ================       ========

     Certificates  of deposit in amounts of $100,000 or more were  $4,748,281 at
December 31, 1996.  This  represents  20.2% of the total  certificate of deposit
balance of $23,460,361 at December 31, 1996.  The  Corporation  does not solicit
such deposits.  Further,  the Corporation  does not  aggressively bid for public
funds deposits in large denominations, as such deposits may require the pledging
of investment securities.

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

                                       16

<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, 1996 and 1995 is illustrated in the
table below:

                                                      December 31,
                                              1996                  1995
                                        ----------------       ---------------
Liquid Assets:
  Cash and due from banks               $      2 846 434       $     2 282 876
  Federal funds sold                           1 656 000             1 574 000
  U.S. government agency securities            2 681 675               447 801
                                        ----------------       ---------------
     Total liquid assets                $      7 184 109       $     4 304 677
                                        ================       ===============

Total deposits and other liabilities    $     41 396 603       $    33 392 269
                                        ================       ===============

Ratio of liquid assets to deposits
  and other liabilities                            17.4%                  12.9%
                                        ===============        ===============

     The high loan to  deposit  ratio  (91.9%)  as of  December  31,  1996,  has
provided the  opportunity  for the  Corporation  to achieve a high return on its
deposits.  For the year ended December 31, 1996, the  Corporation  experienced a
return on assets of 2.02% and a net interest margin of 6.01%.

     The source of new funds is very strong for both  long-term  and  short-term
duration.  The growth in deposits was $8.1  million  (24.8%)  during  1996.  The
Corporation also has access to overnight federal funds from correspondent  banks
totaling  up  to  $6.1  million.  In  addition,  management  believes  that  the
opportunity for the sale of loans on the market is good. The Corporation's  loan
portfolio  contains  loans of high yields and it enjoys a recent  history of low
loan charge offs.

                                       17

<PAGE>



                     Table 14 - Minimum Capital Requirements


     The  following  table  indicates  the  Federal  Reserve's  minimum  capital
requirements  and the  Corporation's  ability  to  reach  such  minimum  capital
requirements for the periods indicated.
<TABLE>
<CAPTION>
<S> <C>
                                                                       December 31,
                                                                    1996          1995
                                                                ----------    ----------
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                                 15.72%         9.40%
    Total risk-based capital ratio                                  16.97%        10.60%
</TABLE>

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

     As indicated in Table 14 above, at December 31, 1996 and December 31, 1995,
the Corporation met the Federal Reserve's minimum capital requirements.

                                       18

<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, 1996 and 1995.
                              For the Years Ending
                                                         December 31,
                                                      1996          1995
                                                  ----------    ----------

Return on average assets
  (Net income/average total assets)                    2.02%         1.31%
                                                  =========     =========

Return on average equity
  (Net income/average equity)                         23.19%        17.00%
                                                  =========     =========

Dividend payment ratio
  (Dividends declared per share/
     Net income per share)                            10.34%          - -%
                                                  =========     =========

Average equity to average asset ratio                  8.70%         7.70%
                                                  =========     =========

                                       19

<PAGE>



                        Table 16 - Short-Term Borrowings


     The  Corporation  had no  short-term  borrowings  with an  average  balance
outstanding  of more  than  30% of  stockholders'  equity  for the  years  ended
December 31, 1996 and 1995.

                                       20

<PAGE>



                    Table 17 - Interest Sensitivity Analysis
<TABLE>
<CAPTION>
<S> <C>

                                                                December 31, 1996
                                                       91 Days                          Over
                                       1-90 Days      to 1 Year       1-5 Years        5 Years        Total
                                    ------------   ------------    -------------   -------------   -----------

Earning Assets:
  Loans                             $     12 474   $      5 317    $      19 706   $         415   $    37 912
  Investment securities -
    amortized cost                         1 094            - -              298             259         1 651
  Securities - AFS -
    fair value                               250            - -              846             584         1 680
  Federal funds sold                       1 656            - -              - -             - -         1 656
                                    ------------   ------------    -------------   -------------   -----------
     Total earning assets             $   15 474      $   5 317       $   20 850   $       1 258   $    42 899
                                    ------------   ------------    -------------   -------------   -----------

Interest-Bearing Liabilities:
  Interest checking                 $        - -   $        - -    $       2 312   $         - -   $     2 312
  Regular savings                            - -            - -            5 064             - -         5 064
  Money market savings                     3 659            - -              - -             - -         3 659
  Certificates of deposit:
    $100,000 and over                        765          2 840            1 143             - -         4 748
    Under $100,000                         4 957          7 458            6 297             - -        18 712
                                    ------------   ------------    -------------   -------------   -----------
       Total interest-bearing
         liabilities                $      9 381   $     10 298    $      14 816   $         - -   $    34 495
                                    ------------   ------------    -------------   -------------   -----------

Period GAP                             $   6 093   $     (4 981)   $       6 034   $       1 258   $       - -
                                    ============   ============    =============   =============   ===========

Cumulative GAP                      $      6 093   $      1 112    $       7 146   $       8 404   $       - -
                                    ============   ============    =============   =============   ===========

Cumulative GAP to
  Total earning assets                     14.20%          2.59%           16.66%          19.59%          - -%
                                    ============   ============    =============   =============   ===========
</TABLE>

     The present interest rate sensitivity  position of the Corporation reflects
a favorable  impact upon earnings in the event of rising  interest rates. A rate
increase of as much as 200 basis  points  could have a  favorable  impact on net
interest income of approximately 4.3% in the first year. Conversely,  a decrease
in the rate  structure of 200 basis  points could have a negative  impact on net
interest  income of  approximately  4.7%. The current earning assets and deposit
structure  of the  Corporation  suggest  that  these  trends in  changes  in net
interest  income  would  continue  beyond  1997  given  a rate  change  of  this
magnitude.

                                       21

<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.


Item 3.   Legal Proceedings

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


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

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

                                       22

<PAGE>



                                     Part II


Item 5.   Market for Common Equity and Related Stockholder Matters

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

     At December 31, 1996, the Corporation had approximately 930 stockholders of
record.

     Under state law,  without the consent of the  Virginia  Bureau of Financial
Institutions,  the Bank 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 $.06 per share cash dividend to stockholders of record as of December
27, 1996 to be paid in January of 1997.  Previously,  no cash dividends had been
paid.


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, 1996,
1995 and 1994  should be read in  conjunction  with the  consolidated  financial
statements and related notes included as Exhibit 99.1 in this Form 10-KSB.

Results of Operation

     The major  component  of the  Corporation's  net  earnings is net  interest
income, which is the excess of interest income earned on earning assets over the
interest  expense paid for sources of funds.  Net interest income is effected by
changes  in  volume,  resulting  from  growth and  variations  in balance  sheet
composition, as well as fluctuations in interest rates and maturities of sources
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 $3,789,427, $2,940,310 and $2,251,248 for the years
ending  December 31,  1996,  1995 and 1994,  respectively.  This  represents  an
increase  of  $849,117  or 29% in 1996 and  $689,062  or 31% in  1995.  Interest
expense  totaled  $1,614,653,  $1,252,238  and  $848,913  for the  years  ending
December 31, 1996, 1995 and 1994, respectively.  This is an increase of $362,415
or 29% in 1996 and an increase of $403,325 or 48% in 1995.  The increase in 1996
was the result of significant growth in the Bank's deposit base.

                                       23

<PAGE>



     Net interest income,  before provision for loan losses,  was $2,174,774 for
the year ending  December  31,  1996,  up  $486,702  or 29% over the  $1,688,072
reported  for the same  period in 1995.  In 1995,  net  interest  income  before
provision for loan losses, increased $285,737 or 20% from $1,402,335 in 1994.

     An  additional  $165,000 was placed into the  provision  for loan losses in
1996,  giving a year end balance of $503,014 or 1.33% of total  loans.  In 1995,
the  provision  was $113,419  giving a year-end  balance of $393,139 or 1.35% of
total  loans.  The  Corporation  maintains  the  allowance  for loan losses at a
sufficient  level to provide for  potential  losses in the loan  portfolio.  The
allowance  is reviewed by  management  and the Board of  Directors  on a regular
basis considering several factors including changes in the character and size of
the loan portfolio,  related loan loss experiences,  a review and examination of
overall  loan  quality,  the  assessment  of problem  loans,  and an analysis of
anticipated   economic  conditions  in  the  market.  Based  on  that  analysis,
management   believes  that  the  year  end  balance  was  sufficient  to  cover
anticipated losses.

     Non-interest  income totaled $430,178,  $281,329 and $241,989 for the years
ending  December 31,  1996,  1995 and 1994,  respectively.  This  represents  an
increase  of  $148,849  or 53% in 1996  over  1995.  This was the  result  of an
increase in service charge income and other income.

     Non-interest expense totaled $1,746,265,  $1,435,441 and $1,174,315 for the
years ending December 31, 1996, 1995 and 1994  respectively.  This represents an
increase  of $310,824 or 22% in 1996 and an increase of $261,126 or 22% in 1995.
The  increases  in 1996 and 1995  were  attributable  to an  increase  in salary
expenses,  furniture and equipment  expenses and occupancy  expenses  associated
with the Front Royal Branch's move into a permanent building in 1996.

     Net  income  for the years  ending  December  31,  1996,  1995 and 1994 was
$839,421,  $420,541 and $318,476,  respectively.  This represents an increase of
$418,880 or 99.6% in 1996 over 1995 net income of $420,541.

Capital Adequacy

     Total stockholders' equity on December 31, 1996 was $5,890,237, an increase
of  $3,212,487  or 120%  from  $2,677,750  in 1995.  The  Corporation's  primary
capital-to-asset  ratio was 12.4% in 1996 versus 7.4% in 1995.  This exceeds the
Federal Reserve  requirement of 6% for bank holding companies.  On September 26,
1996,  the bank  completed a public  offering in which 567,192  shares of common
stock were sold at $5.00 per share, resulting in $2,539,038 of new capital after
payment of fees and expenses associated with the offering.  Marathon repurchased
10,000 shares of stock for $46,252 on October 23, 1996.

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.




                                       24

<PAGE>



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

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

Impact of Inflation and Changing Prices

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

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

Accounting Rule Changes

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

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

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


Item 7.   Financial Statements

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


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

     None.

                                       25

<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  1997 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 1997 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 1997 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 sections  entitled  "Nominees",  "Continuing
Directors"  and "Security  Ownership of Certain  Beneficial  Owners" in the 1997
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 1997 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.  Incorporated  by reference as
                  Exhibit 3(i) to the  Corporation's  Registration  Statement on
                  Form S-1 filed on August 26, 1992 (File No. 33-51366).

                                       26

<PAGE>



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

            4.   Not applicable.

            9.   Not applicable

           10.   Material Contracts.

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

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

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

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

           11.   Statement re: Computation of Per Share Earnings.

           13.   Not applicable.

           16.   Not applicable.

           18.   Not applicable.

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

           22.   None.

           23.   Not applicable.

           24.   Not applicable.

           27.   Financial Data Schedule.

           28.   Not applicable.

                                       27

<PAGE>



           99.   Additional Exhibits.

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

                                1.   Independent Auditor's Report.

                                2.   Consolidated Balance Sheets - December 31,
                                     1996 and 1995.

                                3.   Consolidated Statement of Income - Years
                                     Ended December 31, 1996, 1995 and 1994.

                                4.   Consolidated Statements of Changes in
                                     Stockholders' Equity-Years Ended December
                                     31, 1996, 1995 and 1994.

                                5.   Consolidated Statements of Cash Flows -
                                     Years Ended December 31, 1996, 1995 and
                                     1994.

                                6.   Notes to Consolidated Financial Statements.

     (b)    Reports on Form 8-K. No reports were filed by the registrant  during
            the fourth quarter of 1996.

                                       28

<PAGE>



                                   SIGNATURES

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

                                           MARATHON FINANCIAL CORPORATION

DATE                                       (Registrant)

March   31  , 1997                         By:        /s/  Donald L. Unger
                                                   -----------------------
                                                   Donald L. Unger, President

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C>
DATE                                                 SIGNATURE AND TITLE
----                                                 -------------------

       March 31, 1997                                    /s/  Frank H. Brumback
------------------------------------                 ------------------------------
                                                     Frank H. Brumback, Director

------------------------------------
                                                     W. Houston Board, III, Director

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

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

       March 31, 1997                                   /s/  Thomas W. Grove
------------------------------------                 ----------------------------
                                                     Thomas W. Grove, Director

       March 31, 1997                                  /s/  Ralph S. Gregory
------------------------------------                 -----------------------------
                                                     Ralph S. Gregory, Director

       March 31, 1997                                  /s/  Joseph W. Hollis
------------------------------------                 -----------------------------
                                                     Joseph W. Hollis, Director

       March 31, 1997                                  /s/  George R. Irvin, Jr.
------------------------------------                 ---------------------------------
                                                     George R. Irvin, Jr., Director

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

       March 31, 1997                                   /s/  Lewis W. Spangler
------------------------------------                 ------------------------------
                                                     Lewis W. Spangler, Director

       March 31, 1997                                  /s/  Donald L. Unger
------------------------------------                 ------------------------------
                                                     Donald L. Unger, Principal Executive,
                                                       Financial, Accounting Officer

</TABLE>

<PAGE>



            Exhibit Index

            2.   Not applicable.

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

            4.   Not applicable.

            9.   Not applicable

           10.   Material Contracts.

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

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

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

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

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

           13.   Not applicable.

           16.   Not applicable.

           18.   Not applicable.

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

           22.   None.

           23.   Not applicable.

           24.   Not applicable.

           27.   Financial Data Schedule.*

           28.   Not applicable.

           99.   Additional Exhibits.

                 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,
                                     1996 and 1995.

                                3.   Consolidated Statement of Income - Years
                                     Ended December 31, 1996, 1995 and 1994.

                                4.   Consolidated Statements of Changes in
                                     Stockholders' Equity-Years Ended December
                                     31, 1996, 1995 and 1994.

                                5.   Consolidated Statements of Cash Flows -
                                     Years Ended December 31, 1996, 1995 and
                                     1994.

                                6.   Notes to Consolidated Financial Statements.

     (b)    Reports on Form 8-K. No reports were filed by the registrant  during
            the fourth quarter of 1996.


*Filed Herewith.