UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION


                             WASHINGTON, D.C. 20549


                           ---------------------------


                                   FORM 10-QSB


                Quarterly Report Pursuant of Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                           --------------------------

                         For the quarterly period ended:

                                  June 30, 1999

                           Commission File No. 0-18868

                         MARATHON FINANCIAL CORPORATION
             (Exact name of registrant as specified 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)


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


Indicate by check mark whether the  registrant  (1) has filed all  documents and
reports  required to be filed by Section 13 or 15(d) of the Securities  Exchange
Act of 1934 during the preceding 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.


                           Yes      X         No  __________

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock as of the latest practicable date:

     Class                     Number of Shares           Outstanding at
     -----                     ----------------           --------------
 Common Stock                     2,053,571                   8/06/99


<PAGE>

PART I.  FINANCIAL INFORMATION


Item 1.  Financial Statements.

          The following  financial  statements  are provided at the page numbers
indicated.

         Consolidated Statements of Condition as of
           June 30, 1999 and December 31, 1998 ..............................3

         Consolidated Statements of Income for
           the  Quarter and the Six Months Ended June 30, 1999 and 1998......4

         Consolidated Statements of Changes in
         Stockholders Equity for the Six Months
           Ended June 30, 1999 and 1998......................................5

         Consolidated Statements of Cash Flow for the
           Six Months Ended June 30, 1999 and 1998...........................6

         Notes to Consolidated Financial Statements..........................7-9


Item 2.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations.......................................10-13



PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings..................................................14

Item 6.  Exhibits and Reports on Form 8-K..................................14-15


Signature...................................................................16

                                       2
<PAGE>
<TABLE>
                                    MARATHON FINANCIAL CORPORATION & SUBSIDIARY

                                       CONSOLIDATED STATEMENTS OF CONDITION

                                                       as of

                                        June 30, 1999 and December 31, 1998


<CAPTION>
          ASSETS
                                                                                      6/30/99                       12/31/98
                                                                                      -------                       --------
<S>                                                                                  <C>                           <C>
Cash and due from banks                                                              $5,928,534                    $4,533,428
Federal funds sold                                                                   11,396,000                     8,281,000
Securities (fair value:  1999, $9,293,303 and
  1998, $10,002,374)                                                                  9,358,149                     9,961,650
Loans held for resale                                                                   376,777                       401,671
Loans, net                                                                           71,911,510                    65,065,268
Bank premises and equipment, net                                                      2,517,860                     2,615,175
Accrued interest receivable                                                             505,651                       478,820
Other real estate                                                                       183,218                        18,123
Other assets                                                                            557,841                       496,534
                                                                                   ------------                  ------------
     Total assets                                                                  $102,735,540                  $ 91,851,669
                                                                                   ============                  ============

          LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
  Deposits:
     Non-interest bearing demand deposits                                          $ 12,847,628                  $ 10,680,285
     Savings and interest bearing demand deposits                                    28,017,135                    24,127,903
     Time deposits                                                                   52,001,584                    47,486,855
                                                                                   ------------                  ------------
           Total deposits                                                          $ 92,866,347                  $ 82,295,043
     Interest expense payable                                                           144,340                       140,899
     Accounts payable and accrued expenses                                              379,768                       401,395
     Capital lease payable                                                              221,189                       224,219
                                                                                   ------------                  ------------
           Total liabilities                                                       $ 93,611,644                  $ 83,061,556
                                                                                   ------------                  ------------

STOCKHOLDERS' EQUITY
  Preferred stock, Series A, 5% non-cumulative, no par
    value: 1,000,000 shares authorized and unissued                                     - - - -                       - - - -
  Common stock, $1 par value, 20,000,000 shares
    authorized, 1999, 2,055,186 and 1998, 2,063,186 shares
    issued and outstanding                                                          $ 2,055,186                   $ 2,063,186
  Capital surplus                                                                     7,799,764                     7,849,522
  Retained earnings (deficit)                                                          (651,018)                   (1,149,567)
  Accumulated other comprehensive income (loss)                                         (80,036)                       26,972
                                                                                   ------------                  ------------
        Total stockholders' equity                                                  $ 9,123,896                   $ 8,790,113
                                                                                   ------------                  ------------

        Total liabilities and stockholders' equity                                 $102,735,540                  $ 91,851,669
                                                                                   ============                  ============


                            See Accompanying Notes to Consolidated Financial Statements
</TABLE>


                                                               3
<PAGE>
<TABLE>
                                   MARATHON FINANCIAL CORPORATION & SUBSIDIARY
                                         CONSOLIDATED STATEMENTS OF INCOME

<CAPTION>
                                                                        For the Six Months                  For the Quarter
                                                                          Ended June 30,                     Ended June 30,
                                                                       1999             1998              1999             1998
                                                                       ----             ----              ----             ----
<S>                                                                 <C>              <C>                <C>             <C>
Interest income:
  Interest and fees on loans                                        $3,536,894       $2,904,873        $1,822,599       $1,511,616
  Interest on securities held to maturity
     Interest taxable                                                  125,392           64,976            58,098           39,017
     Interest non-taxable                                                  152             ----               152             ----
  Interest and dividends on securities available for sale:
     Interest taxable                                                  124,003           60,894            61,180           36,718
     Interest non-taxable                                                6,052             ----             4,886             ----
     Dividends taxable                                                  15,368           12,075            11,350            9,127
  Interest on federal funds sold                                       170,525          168,711            80,941           98,582
                                                                    ----------       ----------        ----------       ----------
       Total interest income                                        $3,978,386       $3,211,529        $2,039,206       $1,695,060
                                                                    ----------       ----------        ----------       ----------

Interest expense:
  Interest on deposits                                             $ 1,653,344      $ 1,322,525         $ 829,804        $ 701,054
  Interest on leases payable                                             9,013           10,731             4,539            5,280
                                                                    ----------       ----------        ----------       ----------

       Total interest expense                                      $ 1,662,357      $ 1,333,256         $ 834,343        $ 706,334
                                                                    ----------       ----------        ----------       ----------

      Net interest income                                           $2,316,029      $ 1,878,273        $1,204,863        $ 988,726

Provision for loan losses                                              115,000          110,000            55,000           55,000
                                                                    ----------       ----------        ----------       ----------
      Net interest income after provision for loan loss             $2,201,029      $ 1,768,273        $1,149,863        $ 933,726
                                                                    ----------       ----------        ----------       ----------

Other income:
  Service charges on deposit accounts                                $ 372,901        $ 306,811         $ 192,164        $ 167,631
  Commissions and fees                                                  13,993           15,681             8,132           13,659
  Other                                                                 27,723           57,387            15,227            3,089
                                                                    ----------       ----------        ----------       ----------

       Total other income                                            $ 414,617        $ 379,879         $ 215,523        $ 184,379
                                                                    ----------       ----------        ----------       ----------

Other expenses:
  Salaries and employee benefits                                     $ 922,794         $743,946         $ 463,613         $362,864
  Net occupancy expense of premises                                    109,224          122,925            54,401           67,536
  Furniture and equipment                                              186,065          186,039            99,955           92,185
  Legal and professional                                                36,707           50,243            18,660           24,767
  Stationery and supplies                                               79,140           45,828            45,808           20,508
  Postage                                                               55,864           45,612            28,348           28,299
  Marketing                                                             38,902           34,239            24,805           18,537
  FDIC assessment                                                        4,681            5,084             2,364            1,892
  Directors' fees                                                       44,600           43,160            19,500           19,400
  ATM expenses                                                          76,344           36,492            45,297           18,057
  Overdraft charge-offs                                                 58,544           21,257            38,902            5,160
  Other operating expenses                                             237,977          222,438           127,557          120,022
                                                                    ----------       ----------        ----------       ----------
       Total other expenses                                         $1,850,842      $ 1,557,263         $ 969,210        $ 779,227
                                                                    ----------       ----------        ----------       ----------

  Income before income taxes                                         $ 764,804        $ 590,889         $ 396,176        $ 338,878
Provision for income tax expense (benefit)                             266,255          (31,437)          134,115           10,424
                                                                    ----------       ----------        ----------       ----------

       Net income                                                    $ 498,549        $ 622,326         $ 262,061        $ 328,454
                                                                    ==========       ==========         =========       ==========

  Net income per share, basic                                          $   .24          $   .30           $   .13          $   .16
                                                                    ==========       ==========         =========       ==========

  Net income per share, assuming dilution                              $   .24          $   .29           $   .13          $   .16
                                                                    ==========       ==========         =========       ==========

                            See Accompanying Notes to Consolidated Financial Statements
</TABLE>

                                                                4
<PAGE>
<TABLE>
                                    MARATHON FINANCIAL CORPORATION & SUBSIDIARY

                                   STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                  For the Six Months Ended June 30, 1999 and 1998
<CAPTION>
                                                                                     Accumulated
                                                                       Retained         Other                              Total
                                          Common        Capital        Earnings     Comprehensive     Comprehensive     Stockholders
                                          Stock         Surplus        (Deficit)    Income/(Loss)         Income           Equity
                                          -----         -------        ---------    -------------         ------           ------
<S>                                    <C>           <C>             <C>             <C>                 <C>            <C>
Balance, December 31, 1997             $2,055,983    $7,815,454      $(2,164,825)    $    4,802                         $7,711,414
   Comprehensive income:
      Net income                                                         622,326                         $622,326          622,326
      Other comprehensive income,
         unrealized gain on
         securities available for
         sale                                                                             1,583             1,583            1,583
                                                                                                        ---------
   Total comprehensive income                                                                           $ 623,909
                                                                                                        =========

   Issuance of common stock -
      exercise of stock options
        (5,000 shares)                      5,000        20,000                                                             25,000
                                       ----------    ----------      -----------     ----------                         ----------
Balance, June 30, 1998                 $2,060,983    $7,835,454      $(1,542,499)    $    6,385                         $8,360,323
                                       ==========    ==========      ===========     ==========                         ==========



<CAPTION>

                                                                                     Accumulated
                                                                       Retained         Other                              Total
                                          Common        Capital        Earnings     Comprehensive     Comprehensive     Stockholders
                                          Stock         Surplus        (Deficit)    Income/(Loss)         Income           Equity
                                          -----         -------        ---------    -------------         ------           ------

Balance, December 31, 1998             $2,063,186    $7,849,522      $(1,149,567)    $   26,972                         $8,790,113
   Comprehensive income:
      Net income                                                         498,549                         $498,549          498,549
      Other comprehensive income,
         unrealized (loss) on
         securities available for
         sale (net of tax $55,126)                                                     (107,008)         (107,008)        (107,008)
                                                                                                        ---------
   Total comprehensive income                                                                            $391,541
                                                                                                        =========
   Issuance of common stock -
      exercise of stock options
        (500 shares)                          500         2,000                                                              2,500

   Acquisition of common stock
      (8,500 shares)                       (8,500)      (51,758)                                                           (60,258)
                                       ----------    ----------      -----------     ----------                         ----------
Balance, June 30, 1999                 $2,055,186    $7,799,764      $  (651,018)     $ (80,036)                        $9,123,896
                                       ==========    ==========      ===========     ==========                         ==========


                            See Accompanying Notes to Consolidated Financial Statements
</TABLE>


                                                                5
<PAGE>
<TABLE>

                                            MARATHON FINANCIAL CORPORATION & SUBSIDIARY

                                               CONSOLIDATED STATEMENTS OF CASH FLOW

                                          For the Six Months Ended June 30, 1999 and 1998

<CAPTION>
                                                                                              1999                         1998
                                                                                              ----                         ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                          <C>                         <C>
   Net income                                                                                $498,549                    $622,326
   Adjustments to reconcile net income
     to net cash provided by operating activities:
        Amortization                                                                           30,557                      27,206
        Depreciation                                                                          116,567                     142,397
        Net discount accretion on securities                                                   (6,459)                     (1,009)
        Provision for loan loss                                                                55,000                     110,000
        Deferred tax (benefit)                                                                (31,067)                    (42,857)
        Origination of loans available for sale                                            (4,090,833)                 (3,071,950)
        Proceeds from sale of loans available for sale                                      4,750,608                   3,517,673
       Changes in assets and liabilities:
          (Increase) decrease in other assets                                                 (30,239)                     44,279
          (Increase) in accrued interest receivable                                           (26,831)                    (40,416)
          (Decrease) in accounts payable and accrued expenses                                 (21,627)                   (151,905)
          Increase in interest expense payable                                                  3,441                      19,961
          (Increase) in other real estate                                                    (165,095)                       ----
                                                                                          -----------                ------------
                Net cash provided by operating activities                                  $1,082,571                  $1,175,705
                                                                                          -----------                ------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Proceeds from maturities on securities held to maturity                                  1,102,889                  $  310,367
   Proceeds from maturities on securities available for sale                                  216,983                        ----
   Purchase of securities available for sale                                                 (666,920)                 (1,154,650)
   Purchase of securities held to maturity                                                   (150,000)                 (1,407,263)
   Net (increase) in loans                                                                 (7,536,124)                 (8,101,952)
   Purchase of bank premises and equipment                                                    (49,809)                   (277,476)
                                                                                          -----------                ------------
             Net cash used in investing activities                                        $(7,082,981)               $(10,630,974)
                                                                                          -----------                ------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase in demand deposits,
      NOW accounts and savings accounts                                                   $ 6,056,575                 $ 6,063,580
   Net increase in certificates of deposits                                                 4,514,729                   6,487,275
   Principal payments on capital lease payable                                                (3,030)                    (19,251)
   Proceeds from issuance of common stock                                                       2,500                      25,000
   Purchase of common stock                                                                  (60,258)                        ----
                                                                                          -----------                ------------
             Net cash provided by financing activities                                    $10,510,516                 $12,556,604
                                                                                          -----------                ------------

Increase in cash and cash equivalents                                                      $4,510,106                  $3,101,335
          Beginning                                                                        12,814,428                   7,047,382
                                                                                          -----------                ------------
          Ending                                                                          $17,324,534                 $10,148,717
                                                                                          ===========                ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
   Cash payments for:
        Interest                                                                          $ 1,658,916                  $1,313,295
                                                                                          ===========                ============

        Income taxes                                                                        $  82,516                   $  11,420
                                                                                          ===========                ============

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
   Unrealized  gain/(loss) on securities available for sale                                 $ 162,134                   $   1,583
                                                                                          ===========                ============

                            See Accompanying Notes to Consolidated Financial Statements
</TABLE>


                                                                6
<PAGE>
                   MARATHON FINANCIAL CORPORATION & SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       In the opinion of management,  the accompanying  unaudited consolidated
         financial statements contain all adjustments (consisting of only normal
         recurring  accruals) necessary to present fairly the financial position
         as of June 30, 1999 and December 31, 1998, and the result of operations
         and cash flows for the six months  ended  June 30,  1999 and 1998.  The
         statements  should be read in  conjunction  with the Notes to Financial
         Statements  included in the Company's  Annual Report for the year ended
         December 31, 1998.

2.       The results of operations  for the six month period ended June 30, 1999
         and 1998 are not  necessarily  indicative of the results to be expected
         for the full year.

3.       Securities  held to maturity and available for sale as of June 30, 1999
         and December 31, 1998 are:
<TABLE>
<CAPTION>
                                                                               June 30, 1999            December 31, 1998
         Held to Maturity                                                     Amortized Cost              Amortized Cost
                                                                              --------------              --------------
         <S>                                                                      <C>                         <C>
         US treasury securities & obligations of
            US government corporations & agencies                                 $3,797,590                  $4,899,237
         Obligations of state and political
           Subdivisions                                                              250,742                     100,840
                                                                                  ----------                  ----------
                                                                                  $4,048,332                  $5,000,077
                                                                                  ==========                  ==========

<CAPTION>
                                                                                  Fair Value                  Fair Value
                                                                                  ----------                  ----------

         US treasury securities & obligations of
            US government corporations & agencies                                 $3,732,065                  $4,936,539
         Obligations of state and political
            Subdivisions                                                             251,419                     104,262
                                                                                  ----------                  ----------
                                                                                  $3,983,484                  $5,040,801
                                                                                  ==========                  ==========

<CAPTION>

                                                                               June 30, 1999            December 31, 1998
         Available for Sale                                                   Amortized Cost              Amortized Cost
         ------------------                                                   --------------              --------------

         US treasury securities & obligations of
            US government corporations & agencies                                 $4,268,008                  $4,420,515
         Mortgage backed securities                                                   17,227                      20,392
         Obligations of state & political subdivisions                               568,400                        ----
         Other securities                                                            577,450                     479,800
                                                                                  ----------                  ----------
                                                                                  $5,431,085                  $4,920,707
                                                                                  ==========                  ==========

<CAPTION>
                                                                                  Fair Value                  Fair Value
                                                                                  ----------                  ----------

         US treasury securities & obligations of
            US government corporations & agencies                                 $4,160,998                  $4,460,218
         Mortgage backed securities                                                   18,378                      21,555
         Obligations of state & political                                            552,991                        ----
         subdivisions                                                                577,450                     479,800
                                                                                  ----------                  ----------
         Other securities
                                                                                  $5,309,817                  $4,961,573
                                                                                  ==========                  ==========
</TABLE>


                                                            7
<PAGE>


4. The consolidated entity's loan portfolio is composed of the following:

<TABLE>
<CAPTION>
                                                                               June 30, 1999           December 31, 1998
                                                                               -------------           -----------------
         <S>                                                                     <C>                         <C>
         Commercial                                                              $40,423,850                 $35,388,441
         Real estate-mortgage                                                     13,151,856                  11,173,003
         Real estate-construction                                                  8,395,850                   7,472,110
         Installment loans to individuals                                         10,744,712                  11,786,311
                                                                                 -----------                 -----------
                                                                                 $72,716,268                 $65,819,865
         Less:  allowance for loan losses                                            804,758                     754,597
                                                                                 -----------                 -----------
         Loans, net                                                              $71,911,510                 $65,065,268
                                                                                 ===========                 ===========

         The  company  had  non-accrual  loans,  which  were  excluded  from the
         impaired loan disclosure  under FASB 114, which amounted to $151,549 on
         June 30, 1999 and $233,200 on December 31, 1998.


5.       Reserve for Loan Losses:
<CAPTION>
                                                                               June 30, 1999           December 31, 1998
                                                                               -------------           -----------------

         Balance, beginning                                                         $754,597                    $576,497
         Provision charged to operating expense                                      115,000                     285,000
         Recoveries                                                                   16,365                      44,211
         Loan losses charged to the allowance                                       (81,204)                   (151,111)
                                                                                    --------                   ---------
         Balance, ending                                                            $804,758                    $754,597
                                                                                    ========                    ========


6.       Weighted average shares outstanding computation

         The  following  shows the  weighted  average  number of shares  used in
         computing  basic earnings per share and the effect on weighted  average
         number of shares of diluted potential common stock.

<CAPTION>
                                                                             6/30/99                      6/30/98
                                                                             -------                      -------
                                                                                  Per Share                     Per Share
                                                                      Shares        Amount           Shares       Amount
                                                                      ------        ------           ------       ------
         Basic earnings per share                                  2,060,097        $  .24        2,056,588       $  .30
                                                                                    ======                        ======

         Effect of dilutive securities:
              Stock options                                           38,167                         58,004
                                                                   ---------        ------        ---------
         Diluted earnings per share                                2,098,264        $  .24        2,114,592       $  .29
                                                                   =========        ======        =========       ======
</TABLE>

7.       New Accounting Pronouncements

         In October 1998,  the FASB issued  Statement No. 134,  "Accounting  for
         Mortgage-Backed   Securities   Retained  after  the  Securitization  of
         Mortgage  Loans  Held for Sale by a  Mortgage  Banking  Enterprise,  an
         amendment of FASB Statement No. 65." FASB Statement No. 65, as amended,
         requires that, after  securitization  of a mortgage loan held for sale,
         an entity engaged in mortgage banking activities classify the resulting
         mortgage-backed  security as a trading security. This Statement further
         amends  Statement  No. 65 to require that after the  securitization  of
         mortgage  loans held for sale,  an entity  engaged in mortgage  banking
         activities classify the resulting  mortgage-backed  securities or other
         retained  interests  based on its  ability  and  intent to sell or hold
         those investment. This Statement conforms the subsequent accounting for
         securities  retained  after the  securitization  of mortgage loans by a
         mortgage  banking   enterprise  with  the  subsequent   accounting  for
         securities  retained after the  securitization of other types of assets
         by a  non-mortgage  banking  enterprise.  This  Statement  is effective
         beginning in 1999.  The effect of this  Statement on the  Corporation's
         consolidated financial statements is not expected to be material.



                                        8
<PAGE>

         In June 1998, the Financial Accounting Standards Board issued Statement
         No.  133,   "Accounting   for   Derivative   Instruments   and  Hedging
         Activities,"  which is required to be adopted in years  beginning after
         June 15, 1999. The Statement 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.  The Statement  will require
         the Bank to  recognize  all  derivatives  on the balance  sheet at fair
         value.  Derivatives  that are not hedges must be adjusted to fair value
         through income.  If the derivative is a hedge,  depending on the nature
         of the hedge,  changes in the fair value of derivatives  will either be
         offset  against  the  change  in  fair  value  of  the  hedged  assets,
         liabilities,  or firm  commitments  through  earnings or  recognized in
         other  comprehensive  income  until the hedged  item is  recognized  in
         earnings.  The  ineffective  portion of a  derivative's  change in fair
         value will be immediately recognized in earnings.

         Because  the  Bank  does  not  employ  such   derivative   instruments,
         management  does not anticipate  that the adoption of the new Statement
         will have any effect on the Bank's earnings or financial position.



                                        9
<PAGE>

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations



         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. The Corporation is a holding company for
         the Bank and is not  directly  engaged  in the  operation  of any other
         business.

         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
         (with the  exception  of 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.

         Total Assets
         Total  assets for the first six months  ending June 30, 1999  increased
         $10,883,871  or 11.8% since  December 31, 1998.  This increase in total
         assets  resulted from a $6,846,242 or 10.5%  increase in net loans,  an
         increase in federal funds sold of $3,115,000 or 37.6% and a decrease of
         $603,501 or 6.1% in securities.  This equates to an increase in earning
         assets of $9,332,847 or 11.1% in the six months ending June 30, 1999.

         Allowance for Loan Losses
         The allowance for loan losses, as of June 30, 1999, was $804,758.  This
         is an increase of $50,161 or 6.6% since  December 31, 1998.  This gives
         the bank a 1.10%  allowance for loan losses to total loans.  Management
         has  completed  an  analysis  on the  reserve  and feels the reserve is
         adequate.


                                       10
<PAGE>

         Liabilities
         Total  deposits  for the six months  ending  June 30,  1999,  increased
         $10,571,304  or 12.8% since  December  31, 1998.  Non-interest  bearing
         deposits  increased  by  $2,167,343  or 20.3% and savings and  interest
         bearing deposits increased by $3,889,232 or 16.1%.

         Stockholders' Equity
         Total equity has increased by $333,782 or 3.8% since December 31, 1998.
         The  increase  was due to a first half  profit of  $498,549,  which was
         reduced by an increase in unrealized losses on securities available for
         sale of $101,008 net of tax. An additional $2,500 of capital was raised
         through the exercise of stock options equating to 500 additional shares
         of common  stock.  During  the first half the  Corporation  repurchased
         8,500 shares of common stock for $60,258 under the guidelines  approved
         by the Board of Directors. The primary capital to assets ratio is 8.9%.

         Interest Income
         Interest  income totaled  $3,978,386 for the six months ending June 30,
         1999,  $766,857  or 23.9%  higher  than the six months  ending June 30,
         1998. This is a direct result of the increase in earning assets,  which
         increased the interest and fee income.

         Interest Expense
         Total  interest  expense  for the six months  ending  June 30, 1999 was
         $1,662,357,  $329,101 or 24.7%  higher than the six months  ending June
         30, 1998.  Interest on deposits increased by $330,819 or 25.0% over the
         same  period in 1998.  This was the  result of an overall  increase  in
         deposits. Interest on capital leases for the quarter was $9,013, $1,718
         or 16.0% less than the same period in 1998.

         Net Interest Income
         Net  interest  income  for the six  months  ending  June  30,  1999 was
         $2,316,029,  $437,756 or 23.3%  higher than the six months  ending June
         30, 1998. This was the result of an increase in our earning assets.


                                       11
<PAGE>


         Other Income
         Total  other  income  for the six  months  ending  June  30,  1999  was
         $414,617,  $34,738 or 9.1% higher than the same period in 1998. This is
         a result of an  increase  in the  demand  deposit  accounts,  which has
         increased our service charge income.

         Other Expenses
         Total  other  expenses  for the six months  ending  June 30,  1999 were
         $1,850,842,  $293,579 or 18.9%  higher than the six months  ending June
         30, 1998. Salary expense increased  $178,848 or 24.0%,  postage expense
         increased  $10,252 or 22.5%,  furniture and equipment  expense remained
         virtually level, ATM expense increased $39,852 or 109.2% and stationery
         and supplies  increased  $33,312 or 72.7% over the same period in 1998.
         Director's fees were $1,440, an increase of 3.3%. Overdraft charge-offs
         reflect an increase  of $37,287 or 175.4% as a result of the  write-off
         of some demand  deposits  accounts due to the return of checks taken on
         deposit.  Legal and professional  fees decreased  $13,536 or 26.9%. The
         net  increase  in  other  expenses  is in part a result  of  additional
         staffing  to handle  the growth of the bank and the costs  involved  in
         processing an increased number of accounts and transactions.

         Net Income
         Net  income  for the six  months  ending  June 30,  1999  was  $498,549
         compared to $622,326 in the same period in 1998.  This is a decrease of
         $123,777 or 19.9% over the same period of 1998.  The  reduction  in net
         income was the result of the Corporation having to recognize income tax
         expense for the first time due to the elimination of net operating loss
         carryforwards  during 1999.  The  provision  for income  taxes  expense
         increased  $297,692  from a $31,437  benefit  in 1998 to an  expense of
         $266,255 in 1999.

         Liquidity and Capital Resources
         The liquidity  position of the bank is less than its peers because of a
         loan to deposit ratio of 78.3%.  In order to maximize  earning  assets,
         management has exceeded the bank's policy by maintaining a higher ratio
         than that of its peers.  This policy exception has been approved by the
         Board of  Directors.  As the core  deposits  of the  bank  continue  to
         increase, this ratio has become more in line with that of the industry.



                                       12
<PAGE>



         Year 2000 Issue
         The Year 2000  issue  involves  the risk  that  computer  programs  and
         computer systems may not be able to perform without  interruption  into
         the Year 2000. If computer systems do not correctly  recognize the date
         change from December 31, 1999 to January 1, 2000, computer applications
         that rely on the date  field  could fail or create  erroneous  results.
         Such erroneous  results could affect interest payments or due dates and
         could cause the  temporary  inability  to process  transactions  and to
         engage in ordinary business activities. The failure of the Corporation,
         its  suppliers,  and its borrowers to address the Year 2000 issue could
         have  a  material  adverse  effect  on  the   Corporation's   financial
         condition, results of operations, or liquidity.

         In 1997,  the  Corporation  initiated  a review and  assessment  of all
         hardware and  software.  Based on this  assessment,  the  Corporation's
         mainframe hardware and banking software was replaced in 1998 to be Year
         2000 compliant.  However,  testing is required to confirm this. Testing
         began in the  third  quarter  of 1998 and was  completed  in the  first
         quarter of 1999. To date, the  Corporation  has expended  approximately
         $220,000  related to the  assessment of and efforts in connection  with
         the Year 2000 issue.  Remaining expenditures are not expected to have a
         material effect on the Corporation's consolidated financial statements.

         The Corporation has continuing formal  communications  with significant
         loan and  deposit  customers  to  determine  the  extent  to which  the
         Corporation  is  vulnerable to those third  parties'  failure to remedy
         their own Year 2000 issue.

         Although the  Corporation has no reason to conclude that a failure will
         occur,  there  can be no  assurances  that  there  will be no  problems
         related to the Year 2000. This is an unprecedented  event.  While it is
         impossible  to  quantify  the  impact,   the  most  reasonably   likely
         worst-case  scenario  would  entail  diminishment  of  service  levels,
         customer inconveniences,  financial losses, legal liability and similar
         risks.


                                       13
<PAGE>


                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

         None.

Item 2.  Change in Securities.

         None

Item 3.  Defaults upon Senior Securities.

         None

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

         None

Item 5.  Other Information.

         None

Item 6.  Exhibits and Reports on Form 8-K.
(a)      Exhibits

          2.   Plan of acquisition, reorganization,  arrangement, liquidation or
               succession - N/A

          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.   Instruments  defining the rights of security  holders,  including
               indentures - N/A

          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 16, 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  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-K for the year ended December 31, 1997 (File
                  No. 0-18868).

                  Exhibit 10.6 1996 Long-Term Incentive Plan incorporated herein
                  by reference as to the Corporation's  Proxy Statement for 1997
                  Annual Meeting of Stockholders filed April 7, 1997.


                                       14
<PAGE>


          11.  Statement re computation of per share earnings

          15.  Letter re unaudited interim financial information - N/A

          18.  Letter re change in accounting principles - N/A

          19.  Report furnished to security holders - N/A

          22.  Published report regarding  matters submitted to vote of security
               holders - N/A

          23.  Consents of experts and counsel - N/A

          24.  Power of attorney - N/A

          27.  Financial Data Schedule

          99.  Additional Exhibits - None

(b)      Reports on Form 8-K - None



                                       15
<PAGE>


SIGNATURES:
Pursuant  to the  requirements  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:  June 30, 1999                           /s/ Donald L. Unger
                                           -----------------------------------
                                           DONALD L. UNGER
                                           PRINCIPAL EXECUTIVE OFFICER



DATE:  June 30, 1999                           /s/ Frederick A. Board
                                           -----------------------------------
                                           FREDERICK A. BOARD
                                           PRINCIPAL FINANCIAL OFFICER




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