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:

                                 March 31, 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                      2,060,686                  5/10/99


<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
         March 31, 1999 and December 31, 1998 ...............................3

         Consolidated Statements of Income for
         the Three Months Ended March 31, 1999 and 1998 .....................4

         Consolidated Statements of Changes in
         Stockholders Equity for the Three Months
         Ended March 31, 1999 and 1998.......................................5

         Consolidated Statements of Cash Flow for the
         Three Months Ended March 31, 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

                                             March 31, 1999 and December 31, 1998




<CAPTION>
                                                                                      3/31/99                      12/31/98
                                                                                      -------                      --------
          ASSETS
<S>                                                                               <C>                           <C>         
Cash and due from banks                                                           $  4,279,190                  $  4,533,428
Federal funds sold                                                                   5,995,000                     8,281,000
Securities (fair value:  1999, $9,510,637 and
  1998, $10,002,374)                                                                 9,520,619                     9,961,650
Loans held for resale                                                                  229,567                       401,671
Loans, net                                                                          71,466,878                    65,065,268
Bank premises and equipment, net                                                     2,577,491                     2,615,175
Accrued interest receivable                                                            477,011                       478,820
Other real estate                                                                       18,123                        18,123
Other assets                                                                           501,281                       496,534
                                                                                  ------------                  ------------

     Total assets                                                                 $ 95,065,160                  $ 91,851,669
                                                                                  ============                  ============

          LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
  Deposits:
     Non-interest bearing demand deposits                                         $ 11,708,430                  $ 10,680,285
     Savings and interest bearing demand deposits                                   26,650,146                    24,127,903
     Time deposits                                                                  47,099,015                    47,486,855
                                                                                  ------------                  ------------
           Total deposits                                                         $ 85,457,591                  $ 82,295,043
     Interest expense payable                                                          138,984                       140,899
     Accounts payable and accrued expenses                                             282,024                       401,395
     Capital lease payable                                                             222,719                       224,219
                                                                                  ------------                  ------------
           Total liabilities                                                      $ 86,101,318                  $ 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, 2,060,686 and 1998, 2,063,186 shares
    issued and outstanding                                                        $  2,060,686                  $  2,063,186
  Capital surplus                                                                    7,832,770                     7,849,522
  Retained earnings (deficit)                                                        (913,079)                   (1,149,567)
  Accumulated other comprehensive income (loss)                                       (16,535)                        26,972
                                                                                  ------------                  ------------
        Total stockholders' equity                                                $  8,963,842                  $  8,790,113
                                                                                  ------------                  ------------

        Total liabilities and stockholders' equity                                $ 95,065,160                  $ 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 Three Months
                                                                                                  Ended March 31,
                                                                                        1999                        1998
                                                                                        ----                        ----
<S>                                                                                  <C>                         <C>       
Interest income:
  Interest and fees on loans                                                         $1,714,295                  $1,393,257
  Interest on securities held for maturity, taxable                                      67,294                      25,959
  Interest and dividends on securities available for sale:
     Interest taxable                                                                    62,997                      24,175
     Interest non-taxable                                                                   992                        ----
     Dividends Taxable                                                                    4,018                       2,948
  Interest on federal funds sold                                                         89,584                      70,129
                                                                                     ----------                  ----------
       Total interest income                                                         $1,939,180                  $1,516,468
                                                                                     ----------                  ----------

Interest expense:
  Interest on deposits                                                               $  823,540                  $  621,471
  Interest on leases payable                                                              4,474                       5,451
                                                                                     ----------                  ----------
       Total interest expense                                                        $  828,014                  $  626,922
                                                                                     ----------                  ----------

      Net interest income                                                            $1,111,166                  $  889,546

Provision for loan losses                                                                60,000                      55,000
                                                                                     ----------                  ----------
      Net interest income after provision for loan loss                              $1,051,166                  $  834,546
                                                                                     ----------                  ----------

Other Income:
  Service charges on deposit accounts                                                $  180,737                  $  139,180
  Commissions and fees                                                                    5,861                       2,022
  Other                                                                                  12,496                      54,298
                                                                                     ----------                  ----------
       Total other income                                                            $  199,094                  $  195,500
                                                                                     ----------                  ----------

Other expenses:
  Salaries and employee benefits                                                     $  459,181                  $  381,082
  Net occupancy expense of premises                                                      54,823                      54,337
  Furniture and equipment                                                                86,110                      93,854
  Legal and professional                                                                 18,047                      25,476
  Stationery and supplies                                                                33,332                      25,320
  Postage                                                                                27,516                      17,313
  Marketing                                                                              14,097                      15,702
  FDIC assessment                                                                         2,317                       3,192
  Directors' fees                                                                        25,100                      23,760
  ATM expenses                                                                           31,047                      18,435
  Overdraft charge-offs                                                                  19,642                      16,097
  Other operating expenses                                                              110,420                     103,467
                                                                                     ----------                  ----------
       Total other expenses                                                          $  881,632                  $  778,035
                                                                                     ----------                  ----------

  Income before income taxes                                                         $  368,628                  $  252,011
Provision for income tax expense (benefit)                                              132,140                     (41,861)
                                                                                     ----------                  ----------
       Net income                                                                    $  236,488                  $  293,872
                                                                                     ==========                  ==========

  Net income per share, basic and assuming dilution                                  $      .11                  $      .14
                                                                                     ==========                  ==========

                            See Accompanying Notes to Consolidated Financial Statements
</TABLE>


                                                              4
<PAGE>
<TABLE>

                                             MARATHON FINANCIAL CORPORATION & SUBSIDIARY

                                            STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                         For the Three Months Ended March 31, 1999 and 1998
<CAPTION>
                                                                                    Accumulated
                                                                       Retained        Other                              Total
                                          Common        Capital        Earnings    Comprehensive     Comprehensive     Stockholders
                                          Stock         Surplus        (Deficit)      Income             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                                                         293,872                        $293,872         293,872
      Other comprehensive income,
         unrealized (loss) on
         securities available for                                                        (6,309)                      
         sale                                                                                             (6,309)         (6,309)
                                                                                                       ---------
   Total comprehensive income                                                                          $ 287,563                
                                       ----------    ----------      ----------       ---------        =========       ----------

Balance, March 31, 1998                $2,055,983    $7,815,454      $(1,870,953)     $  (1,507)                       $7,988,977
                                       ==========    ==========      ===========      =========                        ==========



<CAPTION>

                                                                                    Accumulated
                                                                       Retained        Other                              Total
                                          Common        Capital        Earnings    Comprehensive     Comprehensive     Stockholders
                                          Stock         Surplus        (Deficit)      Income             Income           Equity
                                          -----         -------        ---------      ------             ------           ------
Balance, December 31, 1998             $2,063,186    $7,849,522      $(1,149,567)    $   26,972                       $8,790,113
   Comprehensive income:
      Net income                                                         236,488                        $236,488         236,488
      Other comprehensive income:
         unrealized (loss) on
         securities available for
         sale                                                                           (43,507)         (43,507)        (43,507)
                                                                                                        --------
         (net of tax $8,518)                                                                            $192,981
                                                                                                        ========
   Total comprehensive income

   Issuance of common stock -
      exercise of stock options
        (500 shares)                          500         2,000                                                            2,500

   Acquisition of common stock
      (3,000 shares)                       (3,000)      (18,752)                                                         (21,752)
                                       ----------    ----------      ----------       ---------                        ----------

Balance, March 31, 1999                $2,060,686    $7,832,770      $   (913,079)    $ (16,535)                      $8,963,842
                                       ==========    ==========      ============     =========                       ==========


                            See Accompanying Notes to Consolidated Financial Statements
</TABLE>

                                                                 5
<PAGE>
<TABLE>
                                       MARATHON FINANCIAL CORPORATION & SUBSIDIARY

                                           CONSOLIDATED STATEMENTS OF CASH FLOW

                                    For the Three Months Ended March 31, 1999 and 1998

<CAPTION>

                                                                                    1999                        1998
                                                                                    ----                        ----
<S>                                                                            <C>                          <C>        
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                                  $    236,488                 $   293,872
   Adjustments to reconcile net income
     to net cash provided by operating activities:
        Amortization                                                                 27,897                      14,349
        Depreciation                                                                 58,284                      66,516
        Net discount accretion on securities                                         (1,842)                       (192)
        Provision for loan loss                                                      60,000                      55,000
        Deferred tax (benefit)                                                         ----                     (50,000)
        Origination of loans available for sale                                  (2,320,809)                 (1,083,861)
        Proceeds from sale of loans available for sale                            2,492,913                   2,021,726
       Changes in assets and liabilities:
          (Increase) decrease in other assets                                        (4,748)                     25,667
          (Increase) decrease in accrued interest receivable                          1,809                     (12,550)
          Increase (decrease) in accounts payable and accrued expenses               45,685                    (132,884)
          Increase (decrease) in interest expense payable                            (1,915)                     15,177
                                                                               ------------                 -----------
                Net cash provided by operating activities                      $    593,762                 $ 1,212,820
                                                                               ------------                 -----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Proceeds from maturities and principal
      Payments on securities held to maturity                                       650,000                 $   304,349
   Proceeds from maturities on securities available for sale                        176,937                        ----
   Purchase of securities available for sale                                       (427,570)                   (756,250)
   Purchase of securities held to maturity                                             ----                    (799,913)
   Net (increase) in loans                                                       (6,461,610)                 (3,299,587)
   Purchase of bank premises and equipment                                          (48,497)                   (220,266)
                                                                               ------------                 -----------
             Net cash used in investing activities                             $ (6,110,740)                $(4,771,667)
                                                                               ------------                 -----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase in demand deposits,
      NOW accounts and savings accounts                                        $  3,550,388                 $ 3,799,946
   Net increase (decrease) in certificates of deposits                             (387,841)                  3,669,825
   Principal payments on capital lease payable                                       (1,500)                     (9,541)
   Cash dividends paid                                                             (165,055)                       ----
   Proceeds from issuance of common stock                                             2,500                        ----
   Purchase of common stock                                                         (21,752)                       ----
                                                                               ------------                 -----------
             Net cash provided by financing activities                         $  2,976,740                 $ 7,460,230
                                                                               ------------                 -----------

Increase (decrease) in cash and cash equivalents                               $ (2,540,238)                $ 3,901,383
          Beginning                                                              12,814,428                   7,047,382
                                                                               ------------                 -----------
          Ending                                                               $ 10,274,190                 $10,948,765
                                                                                ===========                 ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
   Cash payments for:
        Interest                                                               $    829,929                 $   611,745
                                                                               ============                 ===========

        Income taxes                                                           $     19,516                 $     8,139
                                                                               ============                 ===========

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
   Unrealized (loss) on securities available for sale                          $    (65,920)                $    (6,309)
                                                                               ============                 ===========

                               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  March  31,  1999  and  December  31,  1998,  and the  result  of
         operations and cash flows for the three months ended March 31, 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 three month  period ended March 31,
         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 March 31, 1999
         and December 31, 1998 are:
<TABLE>
<CAPTION>

                                                                              March 31, 1999           December 31, 1998
         Held to Maturity                                                     Amortized Cost              Amortized Cost
         ----------------                                                     --------------              --------------
         <S>                                                                      <C>                         <C>
         US treasury securities & obligations of
            US government corporation & agencies                                  $4,248,795                  $4,899,237
         Obligations of state and political
           subdivisions                                                              100,791                     100,840
                                                                                  ----------                  ----------
                                                                                  $4,349,586                  $5,000,077
                                                                                  ==========                  ==========

<CAPTION>

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

         US treasury securities & obligations of
            US government corporations & agencies                                 $4,235,986                  $4,936,539
         Obligations of state and political
            subdivisions                                                             103,618                     104,262
                                                                                  ----------                  ----------
                                                                                  $4,339,604                  $5,040,801
                                                                                  ==========                  ==========

<CAPTION>

                                                                              March 31, 1999           December 31, 1998
         Available for Sale                                                   Amortized Cost              Amortized Cost
         ------------------                                                   --------------              --------------

         US treasury securities & obligations of
            US government corporation & agencies                                  $4,275,488                  $4,420,515
         Mortgage backed securities                                                   19,346                      20,392
         Obligations of state & political subdivisions                               419,097                        ----
         Other securities                                                            488,100                     479,800
                                                                                  ----------                  ----------
                                                                                  $5,202,031                  $4,920,707
                                                                                  ==========                  ==========

<CAPTION>

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

         US treasury securities & obligations of
            US government corporations & agencies                                 $4,243,148                  $4,460,218
         Mortgage backed securities                                                   20,515                      21,555
         Obligations of state & Political                                            419,270                        ----
         subdivisions                                                                488,100                     479,800
                                                                                  ----------                  ----------
         Other securities
                                                                                  $5,171,033                  $4,961,573
                                                                                  ==========                  ==========
</TABLE>


                                                            7
<PAGE>

4. The consolidated entity's loan portfolio is composed of the following:
<TABLE>
<CAPTION>
                                                                              March 31, 1999           December 31, 1998
                                                                              --------------           -----------------

         <S>                                                                     <C>                         <C>        
         Commercial                                                              $39,321,489                 $35,388,441
         Real estate-mortgage                                                     12,382,798                  11,173,003
         Real estate-construction                                                  8,842,760                   7,472,110
         Installment loans to individuals                                         11,735,641                  11,786,311
                                                                                 -----------                 -----------
                                                                                 $72,282,688                 $65,819,865
         Less:  allowance for loan losses                                            815,810                     754,597
                                                                                 -----------                 -----------
         Loans, net                                                              $71,466,878                 $65,065,268
                                                                                 ===========                 ===========

         The  company  had  non-accrual  loans,  which  were  excluded  from the
         impaired loan disclosure  under FASB 114, which amounted to $458,619 on
         March 31, 1999 and $233,200 on December 31, 1998.


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

         Balance, beginning                                                         $754,597                  $  576,497
         Provision charged to operating expense                                       60,000                     285,000
         Recoveries                                                                    1,855                      44,211
         Loan losses charged to the allowance                                          (642)                   (151,111)
                                                                                    --------                  ----------
         Balance, ending                                                            $815,810                  $  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>
                                                                           3/31/99                       3/31/98
                                                                           -------                       -------
                                                                                  Per Share                     Per Share
                                                                     Shares         Amount          Shares        Amount
                                                                     ------         ------          ------        ------
         Basic earnings per share                                  2,062,524        $  .11        2,055,983       $  .14
                                                                                    ======                        ======

         Effect of dilutive securities:
              Stock options                                           43,958                         60,679
                                                                   ---------                      ---------
         Diluted earnings per share                                2,106,482        $  .11        2,116,662       $  .14
                                                                   =========        ======        =========       ======
</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 three months ending March 31, 1999 increased
         $3,213,491  or 3.5% since  December  31, 1998.  This  increase in total
         assets resulted from a $6,401,610 or 9.8% increase in loans, a decrease
         in federal funds sold of $2,286,000 or 27.6% and a decrease of $441,031
         or 4.4% in securities. This equates to an increase in earning assets of
         $3,502,475 or 4.2% in the three months ending March 31, 1999.

         Allowance for Loan Losses
         -------------------------
         The allowance for loan losses, as of March 31, 1999, was $815,810. This
         is an increase of $61,213 or 8.1% since  December 31, 1998.  This gives
         the bank a 1.14%  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 three months  ending March 31, 1999,  increased
         $3,162,548  or 3.8%  since  December  31,  1998.  Non-interest  bearing
         deposits  increased by $1,028,145 or 9.6% and interest bearing deposits
         increased by $2,134,403 or 3.0%.

         Stockholders' Equity
         --------------------
         Total equity has increased by $173,729 or 2.0% since December 31, 1998.
         The increase was due to a first quarter  profit of $236,488,  which was
         reduced by an increase in unrealized losses on securities available for
         sale of $43,507 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 quarter the Corporation  repurchased
         3,000 shares of common stock for $21,752 under the guidelines  approved
         by the Board of Directors. The primary capital to assets ratio is 9.4%.

         Interest Income
         ---------------
         Interest  income  totaled  $1,939,180 for the three months ending March
         31, 1999,  $422,712 or 27.9% higher than the three months  ending March
         31, 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 three months ending March 31, 1999 was
         $828,014,  $201,092 or 32.1% higher than the three months  ending March
         31, 1998.  Interest on deposits increased by $202,069 or 32.5% over the
         same  period in 1998.  This was the  result of an overall  increase  in
         deposits.  Interest on capital leases for the quarter was $4,474,  $977
         or 17.9% less than the same period in 1998.

         Net Interest Income
         -------------------
         Net  interest  income for the three  months  ending  March 31, 1999 was
         $1,111,166, $221,620 or 24.9% higher than the three months ending March
         31, 1998. This was the result of an increase in our earning assets.

                                       11
<PAGE>

         Other Income
         ------------
         Total  other  income for the three  months  ending  March 31,  1999 was
         $199,094, $3,594 or 1.8% 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 three  months  ending March 31, 1999 were
         $881,632,  $103,597 or 13.3% higher than the three months  ending March
         31, 1998. Salary expense  increased  $78,099 or 20.5%,  postage expense
         increased  $10,203 or 58.9%,  furniture and equipment expense decreased
         by  $7,744  or  8.3%,  ATM  expense  increased  $12,612  or  68.4%  and
         stationery and supplies  increased $8,012 or 31.6% over the same period
         in 1998.  Director's fees were $25,100, an increase of 5.6%.  Overdraft
         charge-offs  reflect an increase of $3,545 or 22.0% as a result of some
         bad check returns and the purging of demand  deposits  accounts.  Legal
         and  professional  fees decreased  $7,429 or 29.1%. 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 three  months  ending  March 31,  1999 was  $236,488
         compared to $293,872 in the same period in 1998.  This is a decrease of
         $57,383 or 19.5% 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  $174,000  from a $41,861  benefit  in 1998 to an  expense of
         $132,139 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 84.6%.  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  borrower to address the Year 2000 issue could
         have 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  also  initiated   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, filed herein (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 - N/A

          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:  March 31, 1999                           /s/ Donald L. Unger
                                        --------------------------------------
                                        DONALD L. UNGER
                                        PRINCIPAL EXECUTIVE OFFICER



DATE:  March 31, 1999                           /s/ Frederick A. Board
                                       ---------------------------------------
                                        FREDERICK A. BOARD
                                        PRINCIPAL FINANCIAL OFFICER




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