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:

                               September 30, 1997

                           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                                (IRS employer
incorporation or organization)                               identification no.)

            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                    2,055,983                  11/7/97

<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
           September 30, 1997 and December 31, 1996 . . . . . . . . . . . .   3

           Consolidated Statements of Income for the Three Months and
           the Nine Months Ended September 30, 1997 and 1996 . . . . . . . . 4-5

           Consolidated Statements of Changes in
           Shareholders Equity for the Nine
           Months Ended September 30, 1997 and 1996 . . . . .  . . . . . . .   6

           Consolidated Statements of Cash Flows for
           the Nine Months Ended September 30, 1997 and 1996 . . . . . . . . 7-8

           Notes to Consolidated Financial Statements . . . . . . . . . . . 9-12


<PAGE>



                         MARATHON FINANCIAL CORPORATION

                      CONSOLIDATED STATEMENTS OF CONDITION

                                     as of

                    September 30, 1997 and December 31, 1996

<TABLE>
<CAPTION>


                                ASSETS                       9/30/97         12/31/96
<S> <C>
Cash and due from banks                                   $ 3 569 364      $  2 846 434
Securities (fair value: 1997, $ 3,888,314 and
   1996, $3,337,690 )                                       3 877 980         3 331 209
Federal funds sold                                          2 044 000         1 656 000
Loans, net                                                 44 567 688        37 409 043
Bank premises and equipment, net                            2 292 904         1 587 342
Accrued interest receivable                                   277 276           212 089
Other real estate                                              18 123            18 123
Other assets                                                  449 200           226 600
                                                          -----------      ------------
                                                          $57 096 535      $ 47 286 840
                                                          ===========      ============

                  LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Deposits:
   Non-interest bearing                                   $ 7 457 499      $  6 229 844
   Interest bearing                                        41 501 943        34 495 443
                                                          -----------      ------------
                 Total deposits                           $48 959 442      $ 40 725 287
Interest expense payable                                       87 548            81 764
Accounts payable and accrued expenses                         145 421           273 900
Capital lease payable                                         288 509           315 652
                                                          -----------      ------------
                 Total liabilities                        $49 480 920      $ 41 396 603
                                                          -----------      ------------

STOCKHOLDERS' EQUITY
Common stock, $1 par value; 20,000,000 shares
   authorized; 1997, 2,055,983 shares issued and
   outstanding; 1996, 1,863,495 shares issued and
   outstanding.                                           $ 2 055 983      $  1 863 495
Capital surplus                                             7 815 453         7 045 502
Retained earnings (deficit)                                (2 256 050)       (3 019 267)
Unrealized gain on securities available for sale                  229               507
                                                          -----------      ------------

                 Total stockholders' equity               $ 7 615 615      $  5 890 237
                                                          -----------      ------------

                                                          $57 096 535      $ 47 286 840
                                                          ===========      ============
</TABLE>

          See Accompanying Notes to Consolidated Financial Statements


<PAGE>

                         MARATHON FINANCIAL CORPORATION

                       CONSOLIDATED STATEMENTS OF INCOME


<TABLE>
<CAPTION>

                                                             For the Nine Months                  For the Quarter
                                                             Ended September 30,                 Ended September 30,
                                                          1997               1996             1997               1996
                                                          ----               ----             ----               ----
<S> <C>
Interest income:
   Interest and fees on loans                          $3 372 427         $2 613 438       $1 243 951         $   917 156
   Interest on securities held for maturity                51 320             36 710           22 867              12 468
   Interest on securities available for sale               64 699             31 788           21 450              13 898
   Interest on federal funds sold                          91 073             77 736           37 304              45 333
   Dividends on securities available for sale              12 262              9 488            4 232               1 952
                                                       ----------         ----------       ----------         -----------
                 Total interest income                 $3 591 781         $2 769 160       $1 329 804         $   990 807
                                                       ----------         ----------       ----------         -----------


Interest expense:
   Interest on deposits                                $1 363 566         $1 138 115       $  496 509         $   420 397
   Interest on leases and mortgage payable                 17 885             33 465            5 783              10 918
   Interest on fed funds purchased                            673                414              - -                - -
                                                       ----------         ----------       ----------         -----------
                 Total interest expense                $1 382 124         $1 171 994       $  502 292         $   431 315
                                                       -----------        ----------       ----------         -----------


                 Net interest income                   $2 209 657         $1 597 166       $  827 512         $   559 492


Provision for loan losses                                 133 000            100 000           55 000              27 500
                                                       ----------         ----------       ----------         -----------

Net interest income after provision for loan loss      $2 076 657         $1 497 166       $  772 512         $   531 992
                                                       ----------         ----------       ----------         -----------


Other income:
   Service charges on deposit accounts                 $  274 184         $  223 383       $  106 781         $    74 380
   Commissions and fees                                    22 482             50 403            7 188              14 994
   Other                                                   22 215             11 601            5 809               2 151
                                                       ----------          ---------       ----------         -----------
                 Total other income                    $  318 881         $  285 387       $  119 778         $    91 525
                                                       ----------         ----------       ----------         -----------
</TABLE>

<PAGE>

                         MARATHON FINANCIAL CORPORATION

                       CONSOLIDATED STATEMENTS OF INCOME
                                  (Continued)

<TABLE>
<CAPTION>


Other expenses:
<S> <C>
   Salaries and employee benefits               $  865 172          $  631 469           $  324 839          $   222 938
   Net occupancy expense of premises               197 225             101 844               79 337               35 626
   Furniture and equipment                          84 402              64 429               37 234               23 807
   Legal and professional                           37 712              31 622                4 290                6 553
   Marketing                                        68 301              48 625               26 702               16 094
   Stationary and Supplies                          54 881              35 792               23 983               11 898
   Postage                                          42 407              35 911               17 651               10 987
   Directors fees                                   52 250              30 760               17 450               12 035
   ATM expense                                      45 034              25 770                9 853                7 352
   Overdraft charge-offs                            51 629              17 004               31 215                8 739
   Other                                           271 042             255 577              101 710               71 366
                                                ----------          ----------           ----------          -----------
                 Total other expenses           $1 770 055          $1 278 803           $  674 264          $   427 395
                                                ----------          ----------           ----------          -----------


                 Income before income taxes     $  625 483          $  503 750           $  218 026          $   196 122


Provision for income taxes expense (benefit)    $ (137 734)         $    4 067           $  (50 000)         $      - -
                                                ----------          ----------           ----------          -----------


                 Net income                     $  763 217          $  499 683           $  268 026          $   196 122
                                                ----------          ----------           ----------          -----------



Net income per share                                  $.39                $.38                 $.14                 $.15
                                                      ----                ----                 ----                 ----

</TABLE>

          See Accompanying Notes to Consolidated Financial Statements

<PAGE>

                         MARATHON FINANCIAL CORPORATION

                 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

             For the Nine Months Ended September 30, 1997 and 1996

<TABLE>
<CAPTION>


                                                                               Unrealized
                                                                             Gain (Loss) on
                                                                              Securities      Retained
                                              Common           Capital        Available       Earnings
                                              Stock            Surplus        for Sale        (Deficit)
                                            ----------       ----------      -------------- -----------
<S> <C>
Balance, December 31, 1995                  $1 306 303       $5 109 908      $    8 417     $(3 746 878)
   Net income-Jan-Sept, 1996                      - -              - -             - -          499 683
   Sale of common stock
       (567,192 shares), net of
              issuance cost, $210,689          567 192        2 058 079            - -            - -
   Unrealized gain (loss) on
        securities available
         for sale                                 - -              - -          (15 484)          - -
                                            ----------       ----------      ----------     -----------
Balance, September 30, 1996                 $1 873 495       $7 167 987      $   (7 067)    $(3 247 195)
                                            ----------       ----------      ----------     -----------

Balance, December 31, 1996                  $1 863 495       $7 045 502      $      507     $(3 019 267)
    Net income-Jan-Sept, 1997                     - -              - -             - -          763 217
    Issuance of common stock/exercise
         of stock warrants
         (192,488 shares)                      192 488          769 951            - -             - -
     Change in unrealized gain (loss) on
         securities available
          for sale                                - -             - -              (278)           - -
                                            ----------       ----------      ----------     -----------
Balance, September 30, 1997                 $2 055 983       $7 815 453      $      229     $(2 256 050)
                                            ----------       ----------      ----------     -----------
</TABLE>

          See Accompanying Notes to Consolidated Financial Statements


<PAGE>
                         MARATHON FINANCIAL CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

             For the Nine Months Ended September 30, 1997 and 1996

<TABLE>
<CAPTION>

                                                                               1997             1996
                                                                               ----             ----
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                              $   763 217      $   499 683
   Adjustments to reconcile net income
          to net cash provided by operating
          activities:
                 Amortization                                                   30 471           30 702
                 Depreciation                                                  111 759           62 577
                 Provision for loan loss                                       133 000          100 000
                 Deferred tax (benefit)                                       (150 000)            - -
                 Net discount accretion on securities                           (8 488)          (2 246)
                 Changes in assets and liabilities:
                    (Increase) in other assets                                 (72 600)         (34 172)
                    (Increase) in accrued
                         interest receivables                                  (65 187)         (52 044)
                    Increase (decrease) in accounts payable
                         and accrued expenses                                  (16 669)          31 256
                    Increase in interest
                         expense payable                                         5 784           22 162
                                                                           -----------      -----------
                 Net cash provided by operating
                     activities                                                731 287          657 918
                                                                           ===========      ===========

CASH FLOWS FROM INVESTING ACTIVITIES
   Proceeds from maturities and principal payments
        on securities held to maturity                                       1 107 993          559 340
   Purchase of securities held to maturity                                  (1 170 539)           - -
   Purchase of securities available for sale                                  (573 323)      (1 121 862)
   Proceeds from maturities and principal payments
       on securities available for sale                                         97 308          209 966
   Net (increase) in loans                                                  (7 291 645)      (6 534 877)
   Purchase of bank premises and equipment                                    (847 792)        (129 864)
                                                                           -----------      ------------
                 Net cash (used in) investing activities                   $(8 677 998)     $(7 017 297)
                                                                           -----------      -----------
</TABLE>

<PAGE>


                         MARATHON FINANCIAL CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Continued)
             For the Nine Months Ended September 30, 1997 and 1996

<TABLE>
<CAPTION>


                                                                 1997                   1996
                                                                 ----                   ----
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase in demand deposits, NOW
        accounts, and savings accounts                        $4 464 954           $     711 491
   Net increase in certificates of deposits                    3 769 201               6 803 220
   Principal payments on mortgage payable                                                (17 802)
   Principal payments on capital lease payable                   (27 143)                (21 671)
   Net proceeds from issuance of common stock                    962 439               2 625 271
   Cash dividends paid                                          (111 810)                   - -
                                                              ----------           -------------
                 Net cash provided by financing activities    $9 057 641           $  10 100 509
                                                              ----------           -------------

   Increase in cash and cash equivalents                      $1 110 930           $   3 741 130

                 Beginning                                     4 502 434               3 856 876
                                                              ----------           -------------
                 Ending                                       $5 613 364               7 598 006
                                                              ==========           =============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
   Cash payments  for:
          Interest                                            $1 376 340           $   1 149 832
                                                              ==========           =============

          Income Taxes                                        $   12 266           $       4 067
                                                              ==========           =============


SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
   ACTIVITIES

   Unrealized gain (loss) on securities
       available for sale                                     $     (278)          $     (15 484)
                                                              ==========           =============
</TABLE>


          See Accompanying Notes to Consolidated Financial Statements

<PAGE>

                         MARATHON FINANCIAL CORPORATION

                   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 September  30, 1997 and December 31, 1996,  and the result of operations
     and cash flows for the nine months ended  September 30, 1997 and 1996.  The
     statements  should be read in  conjunction  with the Notes to  Consolidated
     Financial  Statements  included in the Company's Annual Report for the year
     ended December 31, 1996.

2.   The results of  operations  for the nine month period ended  September  30,
     1997 and 1996, 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 September 30, 1997
     and December 31, 1996, are:

                                                    09/30/97        12/31/96
                                                   Amortized       Amortized
Held to Maturity                                     Cost            Cost
                                                  -----------     ----------

US treasuries & obligations of
       US government corporations & agencies      $1 451 312      $1 292 094
Obligations of state and political subdivisions      251 082         251 227
Corporate securities                                    - -           99 952
Mortgage backed securities                              - -            7 986
                                                  ----------      ----------
                                                  $1 702 394      $1 651 259
                                                  ==========      ==========


                                                      Fair          Fair
                                                     Value          Value
                                                  ----------      ----------

US treasuries & obligations of
       US government corporations & agencies      $1 456 841      $1 291 573
Obligations of state and political subdivisions      257 410         258 165
Corporate securities                                    - -          100 000
Mortgage backed securities                              - -            8 002
                                                  ----------      ----------
                                                  $1 714 251      $1 657 740
                                                  ==========      ==========

<PAGE>                                              9/30/97         12/31/96
                                                   Amortized       Amortized
Available for Sale                                    Cost           Cost
                                                  ----------      ----------

US treasury securities & obligations
      of US government corporation & agencies     $1 752 009      $1 346 663
Mortgage backed securities                            32 299          34 930
Other                                                391 050         297 850
                                                  ----------      ----------
                                                  $2 175 358      $1 679 443
                                                  ==========      ==========


                                                      Fair           Fair
                                                     Value           Value
                                                  ----------      ----------

US treasury securities & obligations
      of US government corporations & agencies    $1 750 157      $1 345 184
Mortgage backed securities                            34 379          36 916
Other                                                391 050         297 850
                                                  ----------      ----------
                                                  $2 175 586      $1 679 950
                                                  ==========      ==========


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

                                                   9/30/97         12/31/96
                                                  ----------      ----------

Commercial                                        $21 993 098     $18 719 817
Real estate-mortgage                                7 909 009       6 882 004
Real estate-construction                            5 297 592       3 886 066
Installment loans to individuals                   10 005 489       8 424 170
                                                  -----------     -----------
                                                  $45 205 188     $37 912 057
Less:  allowance for loan losses                      637 500         503 014
                                                  -----------     -----------
Loans, net                                        $44 567 688     $37 409 043
                                                  ===========     ===========

<PAGE>

5.  Allowance for Loan Losses:            9/30/97        12/31/96
                                         --------        --------

Balance, beginning                       $503 014        $393 139
Provision charged to operating expense    133 000         165 000
Recoveries                                 25 530           6 007
Loan losses charged to the allowance      (24 044)        (61 132)
                                         --------        --------
Balance, ending                          $637 500        $503 014
                                         ========        ========

     Nonaccrual  loans which were excluded from impaired loan  disclosure  under
     FASB 114 amounted to $280,730 on September 30, 1997 and $71,515 on December
     31, 1996.

6. Weighted average shares outstanding computation

     The  weighted  average  number of  shares  outstanding  for the  nine-month
     periods  ended  September  30,  1997 and 1996  were  1,915,851  shares  and
     1,308,373 shares respectively.

7.  Stock Options Outstanding

The  Corporation  has granted  1,500 stock  options to the  Corporation's  chief
executive officer pursuant to his employment agreement with the Corporation. The
stock options are  exercisable at $5.00 per share. As of September 31, 1997, all
1,500 stock options were outstanding.

In August 1996, the  Corporation's  Board of Directors  approved creation of the
1996 Long-Term Incentive Plan, which provides stock options to the employees and
directors of the  Corporation.  Awards have been approved under such plan in the
aggregate  amount  of  141,875  shares,  65,625  of  which  will be  exercisable
immediately.  This  plan was  approved  by the  shareholders  at the May 6, 1997
meeting.

8.  New Accounting Pronouncements

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.

<PAGE>


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) paragraph 15
of Statement  125 and (b) for repurchase agreement, dollar-roll, securities
lending, or similar transactions, of paragraph 9-12 and 237 (b) of Statement
125.

FASB  Statement No 128,  "Earnings  per Share",  was issued in February 1997 and
establishes  standards for computing and presenting earnings per share (EPS) and
applies to entities with  publicly held common stock or potential  common stock.
This  Statement  simplifies  the  standards  for  computing  earnings  per share
previously  found in APB Opinion No 15,  "Earnings  per  Share",  and makes them
comparable to  international  EPS  standards.  It replaces the  presentation  of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income  statement  for all  entities
with complex capital  structures and requires a reconciliation  of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the  diluted  EPOS  computation.  This  Statement  is  effective  for  financial
statements issued for periods ending after December 15, 1997,  including interim
periods.

FASB Statement No. 129, "Disclosure of Information About Capital Structure", was
issued in February 1997 and  establishes  standards for  disclosing  information
about an entity's capital structure.  It applies to all entities. This Statement
continues the previous  requirements to disclose  certain  information  about an
entity's  capital  structure  found in APB Opinions No. 10,  "Omnibus  Opinion -
1966, and No. 15, Earnings per Share", and FASB Statement No. 47, "Disclosure of
Long-Term  Obligations",  for entities that were subject to the  requirements of
those  standards.  This  Statement is effective  for  financial  statements  for
periods ending after December 15, 1997.

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

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

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

<PAGE>


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

                 Total Assets

                 Total  assets for the nine months  ending  September  30, 1997,
                 increased  $9,809,695  or 20.7% since  December 31, 1996.  This
                 increase in total assets resulted from  $7,158,645  increase in
                 loans or 19.1%, an increase in securities of $546,771 or 16.4%,
                 and an  increase  of  $722,930  or  25.4%  in cash and due from
                 banks.  This  equates  to an  increase  in  earning  assets  of
                 $8,093,416  or 19.1% for the nine months  ending  September 30,
                 1997.  The increase in bank  premises and equipment of $705,562
                 which  reflects a 44.4% increase since December 31, 1996 is the
                 result  of the  Bank  opening  two  new  branches  and a  major
                 addition to the Main Office during the first nine months.  This
                 expansion was necessary to meet our customer needs.

                 Allowance for Loan Losses

                 The  allowance for loan losses,  as of September 30, 1997,  was
                 $637,500.  This is an  increase  of  $134,486  or  26.7%  since
                 December 31, 1996.  This gives the bank a 1.41%  allowance  for
                 loan losses to total gross loans.  Management  has completed an
                 analysis on the reserve and feels the reserve is adequate.

                 Liabilities

                 Total  deposits for the nine months ending  September 30, 1997,
                 increased   $8,234,155  or  20.2%  since   December  31,  1996.
                 Non-interest  bearing deposits increased by $1,227,655 or 19.7%
                 and interest bearing deposits increased by $7,006,500 or 20.3%.

<PAGE>

                 Stockholders' Equity

                 Total  equity  has  increased  by  $1,725,378  or  29.3%  since
                 December 31, 1996.  The increase was due to a nine month profit
                 of  $763,217.   Stock  warrants  totaling  $962,439  were  also
                 exercised during the nine months.  This gives a primary capital
                 to assets ratio of 13.3%.

                 Interest Income

                 Interest  income totaled  $3,591,781 for the nine months ending
                 September  30,  1997,  $822,621  or 29.7%  higher than the nine
                 months ending  September  30, 1996.  This is a direct result of
                 the  increase  in  our  earning  assets,  which  increased  the
                 interest and fee income.

                 Interest Expense

                 Total interest expense for the nine months ending September 30,
                 1997 was  $1,382,124,  $210,130  or 17.9%  higher than the nine
                 months  ending   September  30,  1996.   Interest  on  deposits
                 increased  by  $225,451  or 19.8% over the same period in 1996.
                 This  was  the  result  of an  overall  increase  in  deposits.
                 Mortgage  and lease  interest for the nine months was $17,885 a
                 decrease of $15,580 or 46.6% from the same period in 1996.  The
                 mortgage  on the main bank was paid in full  during  the fourth
                 quarter of 1996.

                 Net Interest Income

                 Net interest  income for the nine months  ending  September 30,
                 1997 was  $2,209,657  $612,491  or 38.3%  higher  than the nine
                 months  ending  September  30, 1996.  This was the result of an
                 increase in our earning assets.

<PAGE>


                 Other Income

                 Total other  income for the nine months  ending  September  30,
                 1997 was $318,881, $33,494 or 11.7% higher than the same period
                 in 1996. This is a result of our increase in the demand deposit
                 area, which has improved our service charge income.

                 Other Expenses

                 Total other  expenses for the nine months ending  September 30,
                 1997 were  $1,770,055,  $491,252 or 38.4%  higher than the nine
                 months ending  September  30, 1996.  Salary  expense  increased
                 $233,703 or 37.0%,  occupancy expense climbed $95,381 or 93.7%,
                 stationery and supplies expense  increased by $19,089 or 53.3%,
                 marketing  expense  jumped  $19,676  or  40.5%,  and  legal and
                 professional  expense  rose to  $37,712,  a $6,090  increase or
                 19.3%  above  the same  period  in 1996.  Directors  fees  were
                 $52,250,  an  increase  of 69.9% due to a change in the amounts
                 paid to Directors per meeting. Overdraft charge-offs reflect an
                 increase  of  $34,625  or  203.6%  as a result  of a bad  check
                 returned  that was  previously  taken on deposit.  ATM expenses
                 climbed  $19,264  or  74.8%.   This  cost  reflects  the  seven
                 additional ATM's placed in service during the first nine months
                 of 1997.  The net  increase in other  expenses is due mainly to
                 the expansion of our  facilities  and the  additional  staffing
                 that this growth  required.  During the latter part of 1996 one
                 of the offices  moved into a permanent  facility  from a mobile
                 unit.  In  addition,  the bank opened two new  branches  during
                 1997, one in June and the second in September. The bank is also
                 undergoing  a major  addition  to the main  office  which  will
                 double the office  space at that  location.  This  addition  is
                 expected to be completed by early 1998.


<PAGE>

                 Net Income

                 Net income for the nine months  ending  September  30, 1997 was
                 $763,217, compared to $499,683 in the same period in 1996. This
                 is an  increase  of  $263,534  or 52.7% over the same period of
                 1996.

                 Liquidity and Capital Resources

                 The  liquidity  position  of the  Bank is less  than it  peer's
                 because  of a loan to  deposit  ratio of 92.3%.  Management  is
                 maximizing  earning assets,  which exceed policy  guidelines to
                 improve profitability.  This policy exception has been approved
                 by Management and the Board of Directors.  The core deposits of
                 the bank continue to increase.

<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

<PAGE>

                 10.  Material contracts

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

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

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

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

                        Exhibit 10.5   Lease  between The Marathon  Bank and the
                                       lessor, H. K. Benham,  III for the branch
                                       office  at  1447  North  Frederick  Pike,
                                       Winchester, Virginia.

                        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.

                 11.  Statement  re:Computation  of  Per  Share  Earnings  - See
                      attached

                 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

<PAGE>


                 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 - N/A

                 99.  Additional Exhibits - None

        (b) There were no Form 8-K's filed during the quarter.

<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:  September 30, 1997                  /s/ DONALD L. UNGER
                                           -------------------------------------
                                           DONALD L. UNGER
                                           PRINCIPAL EXECUTIVE OFFICER




DATE:  September 30, 1997                  /s/ FREDERICK A. BOARD
                                           -------------------------------------
                                           FREDERICK A. BOARD
                                           PRINCIPAL FINANCIAL OFFICER