MARATHON FINANCIAL CORP
S-4, 2000-07-20
NATIONAL COMMERCIAL BANKS
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     As filed with the Securities and Exchange Commission on July 20, 2000.
                                                  Registration No. 333-
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM S-4
                          REGISTRATION STATEMENT UNDER
                           THE SECURITIES ACT OF 1933

                         MARATHON FINANCIAL CORPORATION
             (Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<CAPTION>
<S>                                  <C>                                <C>
           Virginia                              6021                         54-1560968
(State or Other Jurisdiction of      (Primary Standard Industrial          (I.R.S. Employer
Incorporation or Organization)        Classification Code Number)       Identification Number)
</TABLE>
                                4095 Valley Pike
                              Winchester, VA 22602
                                 (540) 869-6600
    (Address, Including Zip Code, and Telephone Number, Including Area Code,
                  of Registrant's Principal Executive Offices)

                                 Donald L. Unger
                                    President
                         Marathon Financial Corporation
                                4095 Valley Pike
                              Winchester, VA 22602
                                 (540) 869-6600
 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
                        of Agent For Service) Copies of

                               Communications to:
   Wayne A. Whitham, Jr., Esq.                      Phillip C. Stone, Jr., Esq.
Williams, Mullen, Clark & Dobbins                 Wharton, Aldhizer & Weaver PLC
      1021 East Cary Street                           100 South Mason Street
       Richmond, VA 23219                             Harrisonburg, VA 22801
         (804) 783-6473                                   (540) 434-0316
       Fax: (804) 783-6507                             Fax: (540) 434-5502

Approximate  date of  commencement  of proposed  sale to the public:  As soon as
practicable following the effectiveness of this Registration Statement.
     If the  securities  being  registered  on this  form are being  offered  in
connection  with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
     If this form is filed to  register  additional  securities  for an offering
pursuant to Rule 462(b) under the  Securities  Act,  check the following box and
list the Securities Act registration  statement number of the earlier  effective
registration statement for the same offering. [ ]
     If this form is a  post-effective  amendment  filed pursuant to Rule 462(d)
under the  Securities  Act,  check the following box and list the Securities Act
registration  statement number of the earlier effective  registration  statement
for the same offering. [ ]
<TABLE>
<CAPTION>
                         CALCULATION OF REGISTRATION FEE
================================= ================= ====================== =================== =================
                                                       Proposed Maximum     Proposed Maximum
     Title Of Each Class Of         Amount To Be        Offering Price          Aggregate          Amount of
  Securities To Be Registered      Registered (1)        Per Unit (2)      Offering Price (2)  Registration Fee
--------------------------------- ----------------- ---------------------- ------------------- -----------------
<S>                               <C>                        <C>                   <C>              <C>
 Common Stock, $1.00 par value    2,512,105 shares           N/A                   N/A              $3,306
================================= ================= ====================== =================== =================
</TABLE>
(1)  Based  upon an  assumed  number of shares  that may be issued in the merger
     described in this Registration Statement.  The assumed number is based upon
     the maximum  number of shares of common stock of  Rockingham  Heritage Bank
     that may be outstanding immediately prior to the merger.
(2)  Reflects the market price of Rockingham  Heritage Bank's common stock to be
     exchanged  for Marathon  Financial  Corporation  common stock in connection
     with the merger,  computed in  accordance  with Rule 457(c) and Rule 457(f)
     under the Securities Act of 1933, as amended, based upon the average of the
     high and low sales prices  ($7.875 and $7.875) of Rockingham  Heritage Bank
     common  stock as reported on The Nasdaq  SmallCap  Market on July 13, 2000.
     The  proposed  maximum  aggregate  offering  price is  estimated  solely to
     determine the registration fee.
The Registrant hereby amends this  Registration  Statement on such date or dates
as may be necessary to delay its effective date until the Registrant  shall file
a further amendment which specifically  states that this Registration  Statement
shall  thereafter  become  effective  in  accordance  with  Section  5(a) of the
Securities  Act of  1933 or  until  this  Registration  Statement  shall  become
effective on such date as the Commission,  acting pursuant to said Section 8(a),
may determine.

================================================================================

<PAGE>

                  MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT

                [THE FOLLOWING IS PRESENTED IN TWO-COLUMN FORMAT]

         The Boards of Directors of Marathon Financial Corporation and
Rockingham Heritage Bank have agreed to merge the two companies. After the
merger, the combined company will have total assets of approximately $218
million and will serve the area from Waynesboro to Winchester, Virginia, with 11
banking offices. At the time that the merger is effective, Marathon's name will
change to Premier Community Bankshares, Inc. Premier will own and operate two
banks - Rockingham Heritage Bank and The Marathon Bank.

         Rockingham shareholders will receive 1.58 shares of Marathon common
stock for each share of Rockingham common stock they own. Marathon shareholders
will continue to hold their existing shares of Marathon common stock after the
merger. We estimate that upon completion of the merger, approximately 55% of the
outstanding Marathon common stock will be owned by current Rockingham
shareholders and approximately 45% will be owned by persons who are Marathon
shareholders just before the merger is completed.

         We cannot complete the merger unless the shareholders of Rockingham
approve the merger agreement and shareholders of Marathon approve the issuance
of Marathon common stock to holders of Rockingham common stock and amendments to
the Marathon articles of incorporation that implement important merger terms.

         We have each scheduled meetings for our shareholders to vote on these
matters. In Marathon's case, the meeting will be a special meeting at which
shareholders will vote to approve issuing Marathon common stock to Rockingham's
shareholders. Marathon shareholders also will vote on amendments to Marathon's
Articles of Incorporation that will change Marathon's name to Premier Community
Bankshares, Inc. and will elect four Rockingham directors to the Marathon board.
The amendments to Marathon's Articles of Incorporation will take effect only if
the merger is completed.

         In Rockingham's case, the meeting will be a special meeting in which
shareholders will only be asked to consider the proposed merger.

         Whether or not you plan to attend your shareholders meeting, please
take the time to vote by completing and mailing the enclosed proxy card to us.
If you sign, date and mail your proxy card without indicating how you want to
vote, your proxy will be counted as a vote in favor of the transaction. If you
do not return your card, the effect will be a vote against the merger. If your
shares are held in "street name," you must instruct your broker in order to
vote.

         The dates, times and places of the meetings are as follows:

     For Marathon shareholders:

         ________ __, 2000 at __:__ a.m.
         __________, Virginia  _____

     For Rockingham shareholders:

         ________ __, 2000 at __:__ a.m.
         __________, Virginia  _____

         The document accompanying this letter contains additional information
regarding the merger agreement, the proposed merger and the two companies. We
encourage you to read this entire document carefully.

         We strongly support this merger of Marathon and Rockingham and
appreciate your prompt attention to this very important matter.


__________________________________
Donald L. Unger
President
Marathon Financial Corporation


__________________________________
John K. Stephens
Chairman
Rockingham Heritage Bank

                           [END OF TWO-COLUMN FORMAT]

--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this document. Any representation to the contrary is a
criminal offense. The securities offered hereby are not savings accounts,
deposits or other obligations of a bank or savings association and are not
insured by the Federal Deposit Insurance Corporation or any other government
agency.
--------------------------------------------------------------------------------

The date of this joint proxy statement/prospectus is ________ __, 2000, and it
is first being mailed to shareholders on or about ________ __, 2000.


<PAGE>

                         MARATHON FINANCIAL CORPORATION
                                4095 VALLEY PIKE
                           WINCHESTER, VIRGINIA 22602

                    NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
                         TO BE HELD ON ________ __, 2000

         A special meeting of shareholders of Marathon Financial Corporation
("Marathon") will be held at _____ a.m. on ________ __, 2000 at the
________________________________________, to consider the following matters:

         (1)      to approve the issuance of Marathon common stock in connection
                  with the Amended and Restated Agreement and Plan of Merger,
                  dated as of June 21, 2000, by and among Rockingham Heritage
                  Bank ("Rockingham"), Marathon, The Marathon Bank and Marathon
                  Merger Bank, which provides for Marathon Merger Bank to be
                  merged with and into Rockingham;

         (2)      to amend the Articles of Incorporation of Marathon in order to
                  change its name to Premier Community Bankshares, Inc. and to
                  elect four directors of Rockingham to the Marathon board of
                  directors; and

         (3)      any other business properly brought before the special meeting
                  or any adjournment or postponement thereof.

         YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF ISSUING SHARES OF
MARATHON COMMON STOCK TO ROCKINGHAM SHAREHOLDERS IN THE MERGER AND AMENDING
MARATHON'S ARTICLES OF INCORPORATION.

         Only Marathon shareholders of record at the close of business on
________ __, 2000 are entitled to notice of, and to vote at, this special
meeting and any adjournments or postponements thereof.

         Your attention is directed to the joint proxy statement/prospectus
delivered with this Notice.

                                      By Order of the Board of Directors

                                      ___________________________________
                                      ___________________________________
                                      Corporate Secretary

Winchester, Virginia
________ __, 2000

         REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON,
YOU ARE URGED TO VOTE PROMPTLY BY DATING, SIGNING AND RETURNING THE ENCLOSED
PROXY IN THE ACCOMPANYING ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR
TO ITS EXERCISE IN THE MANNER PROVIDED IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS.


<PAGE>

                            ROCKINGHAM HERITAGE BANK
                            110 UNIVERSITY BOULEVARD
                          HARRISONBURG, VIRGINIA 22801

                    NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
                         TO BE HELD ON ________ __, 2000

         A special meeting of shareholders of Rockingham Heritage Bank
("Rockingham") will be held at _____ a.m. on ________ __, 2000 at the
________________________________________, to consider the following matters:

         (1)      The proposal to approve the Amended and Restated Agreement and
                  Plan of Merger, dated as of June 21, 2000, by and among
                  Rockingham and Marathon Financial Corporation ("Marathon"),
                  The Marathon Bank, a wholly owned subsidiary of Marathon, and
                  Marathon Merger Bank, which agreement provides for Marathon
                  Merger Bank to be merged with and into Rockingham; and

         (2)      Any other business properly brought before the special meeting
                  or any adjournment or postponement thereof.

         YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE APPROVAL OF
THE MERGER AGREEMENT.

         Only Rockingham shareholders of record at the close of business on
________ __, 2000 are entitled to notice of, and to vote at, this special
meeting and any adjournments or postponements thereof.

         Your attention is directed to the joint proxy statement/prospectus
delivered with this Notice.

                                      By Order of the Board of Directors

                                      ___________________________________
                                      ___________________________________
                                      Corporate Secretary

Harrisonburg, Virginia
________ __, 2000

         REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON,
YOU ARE URGED TO VOTE PROMPTLY BY DATING, SIGNING AND RETURNING THE ENCLOSED
PROXY IN THE ACCOMPANYING ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR
TO ITS EXERCISE IN THE MANNER PROVIDED IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS.


<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                    Page

                                    CHAPTER I
<S>                                                                                <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER..........................................     I-1
WHO CAN HELP ANSWER YOUR QUESTIONS..............................................     I-4
SUMMARY.........................................................................     I-5
     The Companies..............................................................     I-5
     Issuance of Shares.........................................................     I-5
     Operations after the Merger................................................     I-5
     Reasons for the Merger.....................................................     I-6
     The Meetings...............................................................     I-6
     Record Date; Voting Power..................................................     I-6
     Opinion of Marathon's Financial Advisor....................................     I-6
     Opinion of Rockingham's Financial Advisor..................................     I-7
     No Right to Appraisal......................................................     I-7
     Marathon to Use Pooling-of-Interest Accounting Treatment...................     I-7
     Comparative Per Share Market Price Information.............................     I-7
     Fee for Termination........................................................     I-7
     Share Ownership of Management..............................................     I-7
     Benefits to Management in the Merger.......................................     I-8
     Transaction Structure......................................................     I-8
     Conditions that Must Be Satisfied for the Merger to Occur..................     I-8
     Termination of the Merger Agreement........................................     I-9
     Selected Historical Financial Data.........................................    I-10
     Selected Pro Forma Financial Data..........................................    I-11
     Comparative Per Share Data.................................................    I-12
THE MERGER......................................................................    I-13
     Background of the Merger...................................................    I-13
     Marathon's Reasons for the Merger..........................................    I-14
     Rockingham's Reasons for the Merger........................................    I-15
     Accounting Treatment.......................................................    I-17
     Material Federal Income Tax Consequences of the Merger.....................    I-17
     Absence of Appraisal Rights................................................    I-18
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION.............................    I-19
OPINION OF MARATHON'S FINANCIAL ADVISOR.........................................    I-26
OPINION OF ROCKINGHAM'S FINANCIAL ADVISOR.......................................    I-30
INTERESTS OF CERTAIN PERSONS IN THE MERGER......................................    I-33
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS...................................    I-34
TERMS OF THE MERGER AGREEMENT...................................................    I-34
     Representations and Warranties; Conditions to the Merger...................    I-34
     Regulatory Approvals.......................................................    I-35
     Business Pending the Merger................................................    I-35
     No Solicitation; Board Action..............................................    I-36
     Effective Date.............................................................    I-36
     Surrender of Stock Certificates............................................    I-36
     Waiver, Amendment and Termination..........................................    I-37
     Resales of Marathon Common Stock...........................................    I-37
     Expenses of the Merger and Termination Fee.................................    I-38
MARKET PRICES AND DIVIDENDS.....................................................    I-39



                                        i
<PAGE>

                                                                                    Page

     Market Prices..............................................................    I-39
     Dividends..................................................................    I-40


                                   CHAPTER II
                    INFORMATION ABOUT THE MEETINGS AND VOTING

General.........................................................................    II-1
Marathon Meeting................................................................    II-1
Rockingham Meeting..............................................................    II-2


                                   CHAPTER III
                             DESCRIPTION OF MARATHON

BUSINESS........................................................................    III-1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
     RESULTS OF OPERATIONS......................................................    III-3


                                   CHAPTER IV
                            DESCRIPTION OF ROCKINGHAM

BUSINESS........................................................................    IV-1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
     RESULTS OF OPERATIONS......................................................    IV-7


                                    CHAPTER V
                         MANAGEMENT FOLLOWING THE MERGER

The Board of Directors..........................................................     V-1
Executive Officers Who Are Not Directors........................................     V-2
Security Ownership of Management................................................     V-3
Security Ownership of Certain Beneficial Owners.................................     V-4
Director Compensation...........................................................     V-4
Executive Officer Compensation..................................................     V-5
Stock Options...................................................................     V-5
Employment Agreements...........................................................     V-6
Certain Relationships and Related Transactions..................................     V-7


                                   CHAPTER VI
                                  LEGAL MATTERS

DESCRIPTION OF MARATHON CAPITAL STOCK...........................................    VI-1
COMPARATIVE RIGHTS OF SHAREHOLDERS..............................................    VI-1
     General....................................................................    VI-1



                                       ii
<PAGE>

                                                                                    Page

     Authorized Capital.........................................................    VI-1
     Amendment of Articles of Incorporation or Bylaws...........................    VI-2
     Mergers, Consolidations and Sales of Assets................................    VI-3
     Size and Classification of Board of Directors..............................    VI-4
     Vacancies and Removal of Directors.........................................    VI-4
     Director Liability and Indemnification.....................................    VI-5
     Special Meetings of Shareholders...........................................    VI-7
     Shareholder Nominations and Proposals......................................    VI-7
     Shareholder Voting Rights in General.......................................    VI-8
     Restrictions on Transfer of Common Stock...................................    VI-8
     State Anti-Takeover Statutes...............................................    VI-9
REGULATION......................................................................    VI-10
     General....................................................................    VI-11
     Bank Holding Company Regulation............................................    VI-11
     Bank Supervision...........................................................    VI-12
     Regulatory Capital Requirement.............................................    VI-12
     Limits on Dividends and Other Payments.....................................    VI-13
     FDIC Regulations...........................................................    VI-13
     Deposit Insurance..........................................................    VI-14
     Community Reinvestment Act.................................................    VI-14
     Fiscal and Monetary Policy.................................................    VI-15
     Federal Home Loan Bank System..............................................    VI-15
     Federal Reserve System.....................................................    VI-16
RESALES OF MARATHON COMMON STOCK................................................    VI-16
SHAREHOLDER PROPOSALS...........................................................    VI-16
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS......................    VI-16
EXPERTS.........................................................................    VI-17
LEGAL OPINIONS..................................................................    VI-17
WHERE YOU CAN FIND MORE INFORMATION.............................................    VI-17

</TABLE>







                                      iii
<PAGE>

APPENDICES
----------

General
-------

A    Amended and Restated Agreement and Plan of Merger, dated as of June 21,
     2000, by and among Rockingham Heritage Bank, Marathon Financial
     Corporation, The Marathon Bank and Marathon Merger Bank.

Marathon Financial Corporation
------------------------------

B    Marathon Financial Corporation Financial Statements (including the audited
     December 31, 1999 financial statements and the unaudited March 31, 2000
     financial statements)

C    Opinion of McKinnon & Company, Inc.

Rockingham Heritage Bank
------------------------

D    Rockingham Heritage Bank Financial Statements (including the audited
     December 31, 1999 financial statements and the unaudited March 31, 2000
     financial statements)

E    Opinion of Scott & Stringfellow, Inc.












                                       iv
<PAGE>

                                    CHAPTER I
                     QUESTIONS AND ANSWERS ABOUT THE MERGER

                [THE FOLLOWING IS PRESENTED IN TWO-COLUMN FORMAT]

Q:       Why are Rockingham and Marathon merging?

A:       Both the Rockingham board of directors and the Marathon board of
directors believe the merger is in the best interests of their respective
companies and will provide significant benefits to their respective
shareholders, customers and employees. The boards believe the merger will create
a company with enhanced financial performance which will be better positioned to
be a strong competitor in the rapidly changing and consolidating financial
services industry in Virginia. To review the background and reasons for the
merger in greater detail, see pages I-13 through I-17.

Q:       What will I receive in the merger?

A:       MARATHON SHAREHOLDERS:
Each share of Marathon common stock held by a Marathon shareholder will continue
to represent one share following the merger. Because Marathon's name will change
to Premier Community Bankshares Inc. when the merger becomes effective, each
Marathon share will represent one Premier share. Marathon shareholders will not
need to exchange share certificates in connection with the merger.

FOR EXAMPLE:

o    IF YOU OWN 100 SHARES OF MARATHON COMMON STOCK, AFTER THE MERGER THOSE
     SHARES WILL CONTINUE TO REPRESENT 100 SHARES OF MARATHON COMMON STOCK.

ROCKINGHAM SHAREHOLDERS:
Rockingham shareholders will receive 1.58 shares of Marathon common stock in
exchange for each share of Rockingham common stock they hold. This is the
"exchange ratio." Marathon will not issue fractional shares in the merger.
Instead, Rockingham shareholders will receive a cash payment, without interest,
for the value of any fraction of a share of Marathon common stock that they
would otherwise be entitled to receive, based upon the market value (as
determined in the merger agreement) of a share of Marathon common stock at the
time of the merger.

After the merger, Rockingham's former shareholders will own approximately 55% of
Marathon's outstanding shares of common stock and current Marathon shareholders
will own approximately 45% of Marathon's outstanding shares of common stock.

FOR EXAMPLE:

o    IF YOU OWN 100 SHARES OF ROCKINGHAM COMMON STOCK, AFTER THE MERGER YOU WILL
     RECEIVE 158 SHARES OF MARATHON COMMON STOCK.

o    IF YOU OWN 30 SHARES OF ROCKINGHAM COMMON STOCK, AFTER THE MERGER YOU WILL
     RECEIVE 47 SHARES OF MARATHON COMMON STOCK AND A CHECK FOR 0.40 TIMES THE
     MARKET VALUE OF ONE SHARE OF MARATHON COMMON STOCK.

Q:       What will my dividends be after the merger?

A:       For 1999 Marathon's annual dividend was $0.09 per share. The board
intends to continue dividends at or above this rate. However, Marathon cannot
assure that these payments will continue in the future. The Marathon board will
use its discretion to decide whether and when to declare dividends and in what
amount, and it will consider all relevant factors in doing so.

Q:       What happens as the market price of Marathon common stock fluctuates?

A:       The exchange ratio is fixed at 1.58 shares of Marathon common stock for
each share of



                                       I-1
<PAGE>

Rockingham common stock. Since the market value of Marathon common stock will
fluctuate before and after the closing of the merger, the value of the Marathon
common stock that Rockingham shareholders will receive in the merger will
fluctuate as well and could increase or decrease. Rockingham shareholders should
obtain current market prices for shares of Marathon common stock and shares of
Rockingham common stock.

Q:       When is the merger expected to be completed?

A:       We are working to complete the merger during the third quarter of 2000.

Q:       What are the tax consequences of the merger to me?

A:       ROCKINGHAM SHAREHOLDERS:
We expect that the exchange of shares by Rockingham shareholders generally will
be tax-free to Rockingham shareholders for U.S. federal income tax purposes.
Rockingham shareholders will, however, have to pay taxes on cash received for
fractional shares. To review the tax consequences to Rockingham shareholders in
greater detail, see page I-17. Your tax consequences may depend on your personal
situation. You should consult your tax advisor for a full understanding of the
tax consequences of the merger to you.

MARATHON SHAREHOLDERS:
The merger will have no tax consequences to Marathon shareholders.

Q:       What am I being asked to vote upon?

A:       ROCKINGHAM SHAREHOLDERS:
You are being asked to approve the merger agreement which provides for the
merger of Rockingham and Marathon Merger Bank, a corporation owned by Marathon
and the issuance of 1.58 shares of Marathon common stock for each outstanding
share of Rockingham common stock. Approval of the proposal requires the
affirmative vote of more than two-thirds of the outstanding shares of Rockingham
common stock.

The Rockingham board has unanimously approved and adopted the merger agreement.
The Rockingham board recommends voting for the approval of the merger agreement.

MARATHON SHAREHOLDERS:
You are being asked to approve the issuance of Marathon common stock to
Rockingham shareholders in connection with the merger.

You are also being asked to amend the Marathon articles of incorporation in two
ways. None of the proposed amendments will be effective unless the merger is
completed. First, Marathon's name would be changed to Premier Community
Bankshares, Inc. Secondly, the size of the Marathon board would be reduced from
eleven to eight members, and four Rockingham directors would be elected to the
Marathon board. As a result, following the merger, the Marathon board would
consist of four current Marathon directors and four current Rockingham
directors.

Approval of the proposals requires the affirmative vote of the majority of the
shares voted and the shares voted must represent over 50% of the shares entitled
to vote.

The Marathon Board has unanimously approved and adopted the merger agreement,
the stock issuance and the proposed amendments to the articles of incorporation
and recommends voting FOR the approval of those matters.

Q:       What should I do now?

A:       Just indicate on your proxy card how you want to vote, and sign and
mail it in the enclosed envelope as soon as possible, so that your shares will
be represented at your meeting.

If you are a Marathon shareholder, and if you sign and send in your proxy and do
not indicate how you want to vote, your proxy will be voted in favor of the
stock issuance and the proposed amendments to the articles of incorporation.

If you are a Rockingham shareholder, and if you sign and send in your proxy and
do not indicate



                                      I-2
<PAGE>

how you want to vote, your proxy will be voted in favor of the proposal to
approve the merger. If you do not sign and send in your proxy or you abstain, it
will have the effect of a vote against the merger, as approval requires the
affirmative vote of more than two-thirds of the outstanding shares of Rockingham
common stock.

You may attend your shareholders' meeting and vote your shares in person, rather
than voting by proxy. In addition, you may withdraw your proxy up to and
including the day of your shareholders' meeting by following the directions on
pages II-1 through II-3 and either change your vote or attend your shareholders'
meeting and vote in person.

Q:       If my shares are held in "street name" by my broker, will my broker
vote my shares for me?

A:       Your broker will vote your shares of Rockingham or Marathon common
stock only if you provide instructions on how to vote. You should instruct your
broker how to vote your shares, following the directions your broker provides.
If you do not provide instructions to your broker, your shares will not be voted
and this will have the effect of voting against the merger.

Q:       Should I send in my stock certificates now?

A:       No. After the merger is completed we will send you written instructions
for exchanging your Rockingham common stock certificates for Marathon common
stock certificates.

                           [END OF TWO-COLUMN FORMAT]



                                      I-3
<PAGE>

                       WHO CAN HELP ANSWER YOUR QUESTIONS

         If you want additional copies of this document, or if you want to ask
any questions about the merger, you should contact:

                                    Donald L. Unger
                                    Marathon Financial Corporation
                                    4095 Valley Pike
                                    Winchester, Virginia  22602
                                    (540) 869-6600

                                    John K. Stephens
                                    Rockingham Heritage Bank
                                    110 University Boulevard
                                    Harrisonburg, Virginia  22801
                                    (540) 432-9300










                                      I-4
<PAGE>

                                     SUMMARY

         This summary highlights selected information from this document and may
not contain all the information that is important to you. For a more complete
understanding of the merger and for a more complete description of the legal
terms of the merger, you should read this entire document carefully, as well as
the additional documents to which we refer you, including the merger agreement.
See "Where You Can Find More Information" (page VI-17).

               [THE FOLLOWING IS PRESENTED IN TWO-COLUMN FORMAT]

The Companies

Marathon Financial Corporation
4095 Valley Pike
Winchester, Virginia  22602

         Marathon is a Virginia bank holding company that began operations in
1989. Marathon owns one bank, The Marathon Bank, headquartered in Winchester,
Virginia, which opened in 1988 and now operates five banking offices in
Winchester, Front Royal and Woodstock, Virginia. The Marathon Bank is a member
of the Federal Reserve System and its deposits are insured by the Federal
Deposit Insurance Corporation. On March 31, 2000, Marathon had total assets of
$112.5 million, total deposits of $102.0 million, total loans of $80.2 million
and shareholders' equity of $9.8 million.

         Marathon's common stock is listed and traded on The Nasdaq SmallCap
Market under the symbol "MFCV."

Rockingham Heritage Bank
110 University Boulevard
Harrisonburg, Virginia  22801

         Rockingham is a Virginia state bank that was incorporated in 1989 and
opened in 1990. Its deposits are insured by the Federal Deposit Insurance
Corporation. Rockingham's headquarters are in Harrisonburg, Virginia. Rockingham
operates six banking offices in Harrisonburg, Elkton, Weyers Cave and
Waynesboro, Virginia. On March 31, 2000, Rockingham had total assets of $105.6
million, total deposits of $89.7 million, total loans of $83.2 million, and
shareholders' equity of $12.0 million.

         Rockingham's common stock is listed and traded on The Nasdaq SmallCap
Market under the symbol "RKNG."

Issuance of Shares

         The exchange ratio is 1.58 shares of Marathon common stock for each
share of Rockingham common stock. Accordingly, the 1,589,940 shares of
Rockingham common stock will be converted into approximately 2,512,105 shares of
Marathon common stock. Fractional shares of Marathon common stock will not be
issued, and Rockingham shareholders will receive cash payment, without interest,
for the value of any fraction of a share of Marathon common stock that they
would otherwise be entitled to receive based upon the market value of a share of
Marathon common stock at the time of the merger.

Operations after the Merger

         After the merger, Rockingham Heritage Bank and The Marathon Bank each
will continue to operate in its markets with no change in its name, board of
directors or officers. No bank branches will close as a result of the merger.
Donald L. Unger will remain the Chairman, President and Chief Executive Officer
of The Marathon Bank. John K. Stephens will continue to hold those same offices
at Rockingham.

         At the bank holding company there will be changes. Marathon's board of
directors will be reduced from eleven to eight members, four of whom will be
individuals who currently serve on the Rockingham board. The other four
directors will be current Marathon directors.

         After the merger John K. Stephens will become Marathon's chairman,
while Donald L.



                                      I-5
<PAGE>

Unger will remain President and Chief Executive Officer.

         When the merger becomes effective, Marathon's name will change to
Premier Community Bankshares, Inc. However, the names of the two banks, The
Marathon Bank and Rockingham Heritage Bank, will not change.

Reasons for the Merger

         Both the Marathon board of directors and the Rockingham board of
directors carefully considered the merger decision and unanimously approved and
adopted the merger agreement. The boards had several reasons for approving the
merger. A few of the reasons are set forth below. For a complete discussion, see
pages I-14 through I-17.

o    The merger will approximately double the size of Rockingham and Marathon.
     While neither Marathon nor Rockingham believes that size alone increases
     shareholder value, each recognizes that there are potential benefits
     including the ability to spread growth-related expenses over a larger asset
     base and higher lending limits.

o    The merger will result in more management depth, so that neither Marathon
     nor Rockingham is dependent on one or a few officers. Because the
     organization will be larger, key employees will have more opportunities to
     specialize.

o    After the merger, The Marathon Bank and Rockingham will have an equal
     number of directors on the holding company board.

o    The Marathon Bank and Rockingham Heritage Bank each will operate with a
     high degree of autonomy. Neither bank's name will change, nor will there be
     any changes in either bank's directors of officers.

The Meetings (pages II-1 and II-2)

         The Marathon meeting will be held at the ____________________________
_____________________ Virginia, at _____ a.m., local time, on __________ __,
2000.

         The Rockingham meeting will be held at the ____________________________
_____________________ Virginia, at _____ a.m., local time, on __________ __,
2000.

Record Date; Voting Power (pages II-1 and II-2)

         You are entitled to vote at the Marathon meeting if you owned shares of
Marathon common stock on ________ __, 2000, the record date. On that date, there
were __________ issued and outstanding shares of Marathon common stock held by
approximately _____ holders of record. Marathon shareholders are entitled to one
vote per share on any matter that may properly come before the Marathon meeting.

         You are entitled to vote at the Rockingham meeting if you owned shares
of Rockingham common stock on ________ __, 2000, the record date. On that date,
there were __________ issued and outstanding shares of Rockingham common stock
held by approximately _____ holders of record. Rockingham shareholders are
entitled to one vote per share on any matter that may properly come before the
Rockingham meeting.

Opinion of Marathon's Financial Advisor (page I-26)

         At the April 4, 2000 meeting of the Marathon board, McKinnon & Company,
Inc., financial advisor to the Marathon board, gave its opinion to the Marathon
board that as of that date, the exchange ratio was fair to the Marathon
shareholders from a financial point of view. McKinnon & Company, Inc.
subsequently confirmed its April 4, 2000 opinion by delivery to the Marathon
board of a written opinion dated as of the date of this document. A copy of the
fairness opinion, setting forth the information



                                      I-6
<PAGE>

reviewed, assumptions made and matters considered, is attached to this document
as Appendix C. Marathon shareholders should read the fairness opinion of
McKinnon & Company, Inc.

Opinion of Rockingham's Financial Advisor (page I-30)

          At the April 6, 2000 meeting of the Rockingham board, Scott &
Stringfellow, Inc., financial advisor to the Rockingham board, gave its opinion
to the Rockingham board that as of that date, the exchange ratio was fair to the
Rockingham shareholders from a financial point of view. Scott & Stringfellow,
Inc. subsequently confirmed its April 6, 2000 opinion by delivery to the
Rockingham board of a written opinion dated as of the date of this document. A
copy of the fairness opinion, setting forth the information reviewed,
assumptions made and matters considered, is attached to this document as
Appendix E. Rockingham shareholders should read the fairness opinion of Scott &
Stringfellow, Inc.

No Right to Appraisal (page I-18)

         Under Virginia law, neither Marathon nor Rockingham shareholders have
the right to an appraisal of the fair value of their shares in connection with
the merger.

Marathon to Use Pooling-of-Interest Accounting Treatment (page I-17)

         We expect that the merger will be accounted for as a pooling of
interests. This accounting method means that after the merger Marathon will
report financial results as if Rockingham had always been combined with
Marathon. The availability of pooling-of-interests accounting treatment is a
condition that must be satisfied to close the merger.

Comparative Per Share Market Price Information

         Marathon common stock is traded on The Nasdaq SmallCap Market under the
symbol "MFCV." Marathon common stock is thinly traded. On April 19, 2000, the
last full trading day preceding the public announcement of the proposed merger,
Marathon common stock closed at $6.00. On ________ __, 2000, Marathon common
stock closed at $_____.

         Rockingham common stock is traded on The Nasdaq SmallCap Market under
the symbol "RKNG." Rockingham common stock is thinly traded. On April 10, 2000,
the last full day preceding the public announcement of the proposed merger on
which Rockingham common stock traded, it closed at $9.50. On ________ __, 2000,
Rockingham common stock closed at $_____.

Fee for Termination (page I-38)

         Marathon or Rockingham will be required to pay the other party $400,000
if the merger agreement is terminated because it pursued a merger or acquisition
proposal or initiated merger or acquisition discussions with a third party and
its board determined that a merger or acquisition by the third party was in the
best interests of the company and its shareholders. No fee is payable in that
situation, however, if the other party wrongfully terminated the merger
agreement. Similarly, no fee is payable by a party if, at the time that the
merger agreement was terminated, that party was entitled to terminate on the
basis of a breach by the other party or there was a failure to satisfy certain
closing conditions (other than approval by either of the companies'
shareholders).

         This provision is intended to discourage a third party from interfering
with the merger agreement between Marathon and Rockingham.

Share Ownership of Management (page V-3)

         On the Marathon record date, the executive officers and directors of
Marathon, including their affiliates, had voting power with respect to an
aggregate of __________ shares of Marathon common stock, or approximately _____%
of the shares of Marathon common stock then outstanding.



                                      I-7
<PAGE>

         On the Rockingham record date, the executive officers and directors of
Rockingham, including their affiliates, had voting power with respect to an
aggregate of __________ shares of Rockingham common stock, or approximately
_____% of the shares of Rockingham common stock then outstanding.

         We currently expect that the directors and executive officers of
Marathon and Rockingham will vote their shares of Marathon common stock and
Rockingham common stock, respectively, FOR the approval of the merger.

Benefits to Management in the Merger (page I-33)

         When considering the recommendation of the Rockingham board, you should
be aware that some Rockingham directors and officers have interests in the
merger that may differ from the interests of other Rockingham shareholders. Four
directors of Rockingham -- John K. Stephens, Paul R. Yoder, Stephen T. Heitz and
Wayne B. Ruck -- will become directors of Marathon. They each will receive an
annual fee of $1,500 for service on the Marathon board, $500 for attendance at
each board meeting and $50 for attendance at each board committee meeting.

         The Rockingham board was aware of these and other interests and
considered them before approving and adopting the merger agreement.

Transaction Structure

         Marathon Merger Bank, a wholly owned bank subsidiary of Marathon, will
merge into Rockingham. Marathon Merger Bank was formed solely to facilitate the
merger. It has minimal assets and no liabilities. Marathon Merger Bank will
cease to exist when the merger is completed. When the merger is completed,
Marathon's name will change to Premier Community Bankshares, Inc. Premier will
own and operate two banks, Rockingham and The Marathon Bank.

Conditions that Must Be Satisfied for the Merger to Occur (page I-34)

         The following conditions must be met for us to complete the merger:

    o    approval by Rockingham shareholders of the merger agreement;
    o    approval by Marathon shareholders of the proposals to issue Marathon
         common stock to Rockingham shareholders and to amend the Marathon
         articles of incorporation;
    o    the continuing effectiveness of Marathon's registration statement filed
         with the Securities and Exchange Commission;
    o    receipt of an opinion of Marathon's counsel that the merger will be
         treated for U.S. federal income tax purposes as a tax-free
         reorganization within the meaning of Section 368 of the Internal
         Revenue Code of 1986, as amended; and
    o    receipt of a letter from Marathon's accountants to the effect that the
         merger will qualify for pooling-of-interests accounting treatment under
         generally accepted accounting principles.

         We cannot complete the merger unless Marathon obtains the approval of
the Board of Governors of the Federal Reserve System and the Virginia State
Corporation Commission. Marathon has filed applications with the Federal Reserve
Board and the Virginia State Corporation Commission. While we cannot predict
whether or when Marathon will obtain all required regulatory approvals, we see
no reason why the approvals will not be obtained in a timely manner.

         Unless prohibited by law, either Rockingham or Marathon could elect to
waive a condition that has not been satisfied and complete the merger anyway.



                                      I-8
<PAGE>

Termination of the Merger Agreement (page I-37)

         Marathon and Rockingham can agree to terminate the merger agreement at
any time without completing the merger. Either company may also terminate the
merger agreement without any penalty if:

    o    the merger is not completed on or before February 1, 2001 or

    o    the other party fails to meet one or more conditions of the merger by
         October 30, 2000, unless the terminating party has waived the
         unsatisfied conditions.

                           [END OF TWO-COLUMN FORMAT]








                                      I-9
<PAGE>

                       SELECTED HISTORICAL FINANCIAL DATA

         We are providing the following information to help you analyze the
financial aspects of the merger. We derived this information from audited
financial statements for 1997 through 1999 (Rockingham's 1997 audited financial
statements are not included in this joint proxy statement/prospectus) and
unaudited financial statements for the three months ended March 31, 2000 and
1999. This information is only a summary, and you should read it in conjunction
with the information about Marathon that begins on page III-1, Marathon's
historical financial statements in Appendix B, the information about Rockingham
that begins on page IV-1, and Rockingham's historical financial statements in
Appendix D. You should not rely on the three-month information as being
indicative of results expected for the entire year.

                   MARATHON - HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
                                           Three Months Ended                            Year Ended
                                                March 31,                               December 31,
                                     --------------------------------    -------------------------------------------
                                          2000            1999               1999           1998          1997
                                     --------------------------------    -------------------------------------------

                                                        (In thousands, except per share data)
<S>                                   <C>               <C>              <C>             <C>           <C>
Net interest income                   $  1,252          $ 1,111          $  4,833        $ 3,917       $ 2,939
Net income                                 293              236             1,112          1,180           998
Diluted net income per share              0.14             0.11              0.53           0.56          0.50
Cash dividends per share                    --               --              0.09           0.08          0.07
Book value per share                      4.75             4.35              4.62           4.26          3.75
Total assets                           112,474           95,065           103,685         91,852        64,826
Shareholders' equity                     9,753            8,964             9,445          8,790         7,711

</TABLE>

                  ROCKINGHAM - HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
                                           Three Months Ended                            Year Ended
                                                March 31,                               December 31,
                                     --------------------------------    -------------------------------------------
                                          2000            1999               1999           1998          1997
                                     --------------------------------    -------------------------------------------

                                                        (In thousands, except per share data)
<S>                                   <C>               <C>              <C>             <C>           <C>
Net interest income                   $  1,129          $   921          $  4,053        $ 3,447       $ 2,888
Net income                                 350              275             1,201          1,062           763
Diluted net income per share              0.22             0.17              0.74           0.67          0.58
Cash dividends per share                    --               --                --             --            --
Book value per share                      7.53             6.78              7.31           6.61          5.49
Total assets                           105,590           90,025           101,142         85,791        72,626
Shareholders' equity                    11,967           10,775            11,628         10,515         6,944

</TABLE>





                                      I-10
<PAGE>

                        SELECTED PRO FORMA FINANCIAL DATA

         The following table sets forth certain unaudited pro forma combined
financial data for Marathon giving effect to the merger accounted for as a
pooling of interests. This information should be read in conjunction with the
historical financial statements of Marathon and Rockingham, including respective
notes thereto, appearing elsewhere in this joint proxy statement/prospectus. See
"Unaudited Pro Forma Condensed Financial Information" on page I-19. The pro
forma financial data may not be indicative of the results that actually would
have occurred had the merger been consummated on the dates indicated or that may
be obtained in the future.
<TABLE>
<CAPTION>
                                               Three Months                              Year Ended
                                             Ended March 31,                            December 31,
                                     ---------------------------------   -------------------------------------------
                                          2000             1999               1999           1998         1997
                                     ---------------------------------   -------------------------------------------

                                                        (in thousands, except per share data)
<S>                                   <C>                 <C>                <C>            <C>          <C>
Net interest income                   $  2,381            $  2,032           $  8,886       $  7,364     $  5,827
Net income                                 643                 511              2,313          2,242        1,761
Diluted net income per share              0.14                0.11               0.50           0.49         0.43
Cash dividends per share                    --                  --               0.09           0.08         0.07
Book value per share                      4.76                4.32               4.62           4.22         3.61
Total assets                           218,064             185,090            204,827        177,643      137,452
Shareholders' equity                    21,720              19,739             21,073         19,305       14,655

</TABLE>







                                      I-11
<PAGE>

                           COMPARATIVE PER SHARE DATA

         The following unaudited financial information reflects comparative per
share data relating to (i) net income, cash dividends, and book value per common
share for both Marathon and Rockingham on a historical basis, (ii) net income
and book value per common share on a pro forma basis for Marathon assuming the
Rockingham merger had been effected for the periods presented, and (iii) net
income and book value per common share on a pro forma equivalent basis per
common share for Rockingham assuming the Rockingham merger had been effected for
the periods indicated and accounted for as a pooling of interests. See "The
Merger - Accounting Treatment" on page I-17. The pro forma data reflects the
conversion of each share of Rockingham common stock into 1.58 shares of Marathon
common stock. The information shown below should be read in conjunction with the
historical financial statements of Marathon and Rockingham, including the
respective notes thereto, and in conjunction with the unaudited pro forma
financial statements, including the notes thereto, appearing elsewhere in this
joint proxy statement/prospectus. See "Unaudited Pro Forma Condensed Financial
Information" on page I-19.
<TABLE>
<CAPTION>
                                                   Three Months                              Year Ended
                                                 Ended March 31,                            December 31,
                                         ---------------------------------    -----------------------------------------
                                              2000             1999               1999         1998          1997
                                         ---------------------------------    -----------------------------------------
<S>                                          <C>              <C>               <C>           <C>            <C>
(Per Common Share)
Net Income Basic
    Marathon - Historical                    $ 0.14           $ 0.11            $ 0.54        $ 0.57         $ 0.51
    Rockingham - Historical                    0.22             0.17              0.76          0.70           0.61
    Pro Forma Combined                         0.14             0.11              0.51          0.50           0.45
    Rockingham Pro Forma Equivalent            0.22             0.17              0.80          0.79           0.71
Net Income Diluted
    Marathon - Historical                      0.14             0.11              0.53          0.56           0.50
    Rockingham - Historical                    0.22             0.17              0.74          0.67           0.58
    Pro Forma Combined                         0.14             0.11              0.50          0.49           0.43
    Rockingham Pro Forma Equivalent            0.22             0.17              0.79          0.77           0.68
Cash Dividends Declared
    Marathon - Historical                        --               --              0.09          0.08           0.07
    Rockingham - Historical                      --               --                --            --             --
    Pro Forma Combined                           --               --              0.09          0.08           0.07
    Rockingham Pro Forma Equivalent              --               --              0.14          0.13           0.11
Book Value
    Marathon - Historical                      4.75             4.35              4.62          4.26           3.75
    Rockingham - Historical                    7.53             6.78              7.31          6.61           5.49
    Pro Forma Combined                         4.76             4.32              4.62          4.22           3.61
    Rockingham Pro Forma Equivalent            7.52             6.82              7.30          6.67           5.71

</TABLE>



                                      I-12
<PAGE>

                                   THE MERGER

Background of the Merger

         Marathon and Rockingham operate community banks in geographically
close, but separate markets in northwestern Virginia. Marathon's bank
subsidiary, The Marathon Bank, operates a total of five banking offices that
serve the City of Winchester, the Towns of Woodstock and Front Royal, and the
Counties of Frederick, Shenandoah and Warren, all in Virginia. Rockingham
operates six banking offices that serve the Cities of Harrisonburg and
Waynesboro, the Town of Weyers Cave, and the Counties of Rockingham and Augusta,
all in Virginia. There are no overlapping branch facilities.

         In October 1999, Mr. Unger of Marathon and Mr. Stephens of Rockingham
met to discuss the future plans of both financial institutions. The October 1999
discussions were informal and preliminary in nature. Discussions focused on the
desire of both to remain independent and the continued ability to compete with
large statewide and regional financial institutions, including the challenges
presented by increasing technology cost and the development of non-deposit
products and services. During subsequent meetings between October 1999 and April
2000, discussions between Messrs. Unger and Stephens continued. Due diligence
reviews of legal and financial materials were conducted by each and suggested
terms for a merger of equals were exchanged. The discussions concerned, among
other things, the exchange ratio; the corporate structure of the holding
company; terms regarding independent operation of Marathon and Rockingham in
their separate markets; regulatory and cost issues relating to a merger of
equals; composition of the board of directors of the holding company, The
Marathon Bank and Rockingham; management of each entity; employment contracts;
employees; growth plans for the future; the holding company name and potential
income enhancement and economies of scale.

         On February 3, 2000, Mr. Unger and Directors Hollis and Good from
Marathon and Mr. Stephens and Directors Yoder and Heitz from Rockingham met
informally to discuss the possible plans for a merger of equals between the two
financial institutions. No negotiations took place at this meeting, and the
parties involved did not make any decision as to the structure or terms of a
possible transaction. The purpose of the meeting was to see if the two boards
had reasons to pursue a merger and to gauge the compatibility of the two
entities. The informal conclusion was that the parties should pursue an
affiliation.

         On February 22, 2000, the board of directors of Marathon met to discuss
the possibility of the affiliation with Rockingham. The board reviewed a
five-year history of Rockingham with balance sheets and income statements and
discussed branch structure, structure of a merger of equals, income enhancement,
potential benefits and savings, equal representation from both entities, a
restructuring of the holding company to accommodate the affiliation and the
exchange ratio. The board voted unanimously to proceed with the due diligence.

         On March 7, 2000, the board of directors of Marathon further discussed
the affiliation and voted unanimously to authorize President Unger to proceed
with a definitive agreement for a merger of equals.

         On March 14, 2000, Rockingham's board of directors met and discussed
proposed general terms of a merger agreement with Marathon and agreed to proceed
further. On March 21, 2000, the board met again and discussed the proposed
transaction. At this meeting, the board engaged Scott & Stringfellow to provide
a fairness opinion to Rockingham. The board held a meeting on April 6, 2000 and
invited representatives from Scott & Stringfellow and the law firm of Wharton,
Aldhizer & Weaver to advise Rockingham on the proposed transaction. Scott &
Stringfellow presented a comparative analysis of the two companies and gave an
oral opinion that the proposed transaction was fair from a financial point of



                                      I-13
<PAGE>

view. Representatives from Wharton, Aldhizer & Weaver discussed director's
duties and responsibilities and then presented a draft version of the merger
agreement.

         On March 21, 2000, the board of directors of Marathon authorized
President Unger to employ William McKinnon of McKinnon & Company, Inc. to
provide a fairness opinion and to engage counsel to draft a definitive
agreement. The board of directors of Marathon and Rockingham had an informal
dinner meeting on March 21, 2000 to further pursue the compatibility of the two
entities. There was no set agenda, and no terms were negotiated at this
particular meeting.

         On April 4, 2000, the board of directors of Marathon received materials
from Mr. McKinnon and discussed the exchange ratio of 1.58 and other information
provided by Mr. McKinnon as well as by Yount, Hyde & Barbour, P.C., Marathon's
independent auditors.

         On April 18, 2000, the Board of Directors of Marathon approved the
agreement and plan of merger and authorized Mr. Unger to execute the agreement
and issue a joint press release with Rockingham. On the same day, the Board of
Directors of Rockingham approved the agreement and plan of merger and authorized
Mr. Stephens to execute the agreement and issue a joint press release with
Marathon.

         On April 20, 2000, Mr. Unger and Mr. Stephens executed the merger
agreement.

Marathon's Reasons for the Merger

         Between 1996 and 1999, the Marathon board considered various growth
strategies during its long range planning retreats, including branch expansion
and possible acquisitions of branches from out of state bank holding companies.
During this period, Marathon had formal and informal discussions about acquiring
two other financial institutions, but neither materialized. Marathon's rapid
growth in the past and its projections reflected that additional capital was
necessary. McKinnon & Company, Inc., Marathon's investment bankers, successfully
completed a common stock issue that raised approximately $2.5 million. The new
capital allowed Marathon to implement the aggressive growth plan that the board
had adopted.

         In deciding to enter into the merger agreement with Rockingham, the
Marathon board of directors considered a number of factors. The board did not
assign any relative or specific weights to the factors considered. The principal
factors that led the Marathon board of directors to approve the merger with
Rockingham were:

         o   Expansion of Market Presence. The Marathon board of directors, as
             part of its strategic plan to increase shareholder value by
             expanding its markets and increasing existing markets, believes
             that the affiliation with a profitable well-managed financial
             institution is an effective means of expanding market presence.
             Marathon has concluded that a merger with Rockingham would add
             complementary geographic markets. Combining strong economic markets
             provides a solid franchise in the northern Shenandoah Valley with
             11 offices from Winchester to Waynesboro and surrounding markets.

         o   Autonomy. The Marathon Bank will continue to operate as a local
             bank with its existing employees, management and board of
             directors. Marathon's most important asset, its customers, should
             not see any change in service except future enhancement of products
             and services.


                                      I-14
<PAGE>

         o   Efficiencies. As technology and the demand for new products and
             non-deposit services increases, the ability to absorb costs will be
             more effective with the larger organization.

         o   Quality of Rockingham. The information presented to management and
             the board of directors about Rockingham concerning the earnings,
             asset quality, management, book value, liquidity and composition of
             earning assets demonstrated the attractiveness of Rockingham in the
             affiliation decision.

         o   Depth of Management. While each organization has experienced
             management, the merger provides immediate backup and depth for the
             holding company. This will allow the Chief Executive Officers of
             each bank to explore other expansion opportunities.

         o   Larger Size. Although Marathon does not believe that increased
             size, by itself, increases shareholder value, it does believe that
             the larger size provides greater benefits, including operating
             efficiencies and the ability to serve larger business
             relationships.

         Other material factors considered were the well-capitalized position
and earnings of Rockingham; the compatibility of the management of the two
organizations and the fact that each institution would contribute complementary
business strengths resulting in a well-diversified and well-managed institution;
the resulting complimentary branch network; the additional resources that will
enable Marathon to increase financial services to consumers and businesses; and
higher lending limits due to the institutions' combined capital base, allowing
Marathon to better serve its customer base.

         Based upon the factors discussed above, the Marathon board of directors
concluded that a merger with Rockingham would be in the best interest of
Marathon and its shareholders and would further its goal of enhancing
shareholder value. The Marathon board of directors has committed unanimously to
vote shares under their control in favor of the merger agreement.

         The Marathon board believes that the merger is in the best interest of
Marathon and the Marathon shareholders. The Marathon board recommends that
Marathon shareholders vote FOR the issuance of Marathon common stock to
Rockingham shareholders and FOR the proposed amendments to the Marathon articles
of incorporation.

Rockingham's Reasons for the Merger

         The Rockingham board of directors began updating the company's
long-range plan in early 1997. The planning process included a series of
discussions at executive committee and board meetings during 1997, 1998 and
1999. The board considered various growth options that included, among other
things, raising additional capital and expanding through new branches or branch
acquisitions, affiliating with other community banks or selling to a larger
organization. During this time, Rockingham had numerous informal discussions
with other community banks and investment bankers to explore the various options
available. The board concluded that to continue to remain competitive with
larger, statewide banks, Rockingham would need to become larger so that it could
employ resources more efficiently. After evaluating a number of options, the
board determined that pursuing a merger of equals with one or more similarly
sized banks offered the best potential for maximizing shareholder value over the
long term.

         During this period, Rockingham grew at a rapid pace and projections
showed that additional capital would be necessary to continue this growth. As a
result, in February of 1998, 115,000 shares of common stock were sold in a
public offering managed by McKinnon & Company, Inc., investment bankers, which
raised approximately $2.1 million of new capital. The added capital was to be
used to



                                      I-15
<PAGE>

support growth in existing branches, as well as to allow Rockingham to open
branches in new market areas.

         In deciding to enter into the merger agreement with Marathon, the
Rockingham board of directors considered a number of factors. The board did not
assign any relative or specific weights to the factors considered. The principal
factors that led to the Rockingham board of directors to approve the merger with
Marathon were:

         o   Larger Size. Based on December 31, 1999 data, the combination would
             create a company with approximately twice the size, earnings and
             resources of Rockingham. Although Rockingham does not believe that
             size, in and of itself, necessarily increases shareholder value, it
             does believe that size offers opportunities to improve overall
             performance. Increased lending limits, opportunities to achieve
             greater operating efficiencies and greater management depth are
             three examples of areas where size can benefit a banking
             organization.

         o   Local Autonomy. Rockingham will continue to operate as a separate
             bank under the direction of its current board of directors and
             management.

         o   Operating Efficiencies. By eliminating duplication, utilizing joint
             purchasing power and sharing resources and responsibilities, the
             merger will offer significant opportunities for cost savings.

         o   Quality of Marathon. The information presented to management and
             the board of directors about Marathon concerning the earnings,
             asset quality, management, book value, liquidity and composition of
             earning assets demonstrated the attractiveness of Marathon in the
             affiliation decision.

         o   Management Depth. Each organization has experienced personnel
             covering all facets of the banking operation. Together, Rockingham
             and Marathon will immediately have back-up personnel for each
             function and will be able to take advantage of the many years of
             experience and different perspectives offered by the other's staff.
             Employees will have more career opportunities available, as a
             larger organization permits more specialization, which should
             strengthen Rockingham's ability to attract and develop talented
             employees.

         o   Larger Geographic Coverage. The markets served by both banks are
             adjacent and do not overlap. Each bank will be able to offer
             financial services to customers operating in both market areas.

         o   Operating Compatibility. Both banks are relatively young,
             aggressive, customer focused and share similar operating styles and
             philosophies. At the same time, the organizations have developed
             their own areas of specialization that are expected to benefit the
             other.

         Other material factors considered were the well-capitalized position
and earnings of Marathon; the compatibility of the management of the two
organizations and the fact that each institution would contribute complementary
business strengths resulting in a well-diversified and well-managed institution;
the additional resources that will enable Rockingham to increase financial
services to consumers and businesses; and the larger capital base of the
combined institution, resulting in larger lending limits that will permit
Rockingham to better serve its customer base.


                                      I-16
<PAGE>

         Based upon the above, the Rockingham board of directors concluded that
a merger with Marathon would be in the best interest of Rockingham and its
shareholders and would further its goal of enhancing shareholder value.

         The Rockingham board believes that the merger is in the best interest
of Rockingham and the Rockingham shareholders. The Rockingham board recommends
that Rockingham shareholders vote to APPROVE the merger.

Accounting Treatment

         We anticipate that the merger will be accounted for as a pooling of
interests for accounting and financial reporting purposes. Under this method of
accounting, recorded assets and liabilities of Marathon and Rockingham are
carried forward at their previously recorded amounts, income of the combined
corporations will include income of Marathon and Rockingham for the entire
fiscal year in which the merger occurs, and the reported income of the separate
companies for prior periods will be combined. No recognition of goodwill in the
combination is required of any party to the merger.

         For the merger to qualify as a pooling of interests, it must satisfy a
number of conditions. If all of the conditions to pooling-of-interests
accounting are not satisfied, then the merger would not qualify for
pooling-of-interests accounting treatment. The availability of
pooling-of-interests accounting is a condition to the parties' obligation to
consummate the merger. Marathon and Rockingham have agreed that they will use
their respective best efforts to ensure that the merger will qualify for
pooling-of-interests accounting treatment. In addition, certain affiliates of
Marathon and Rockingham have agreed that they will not sell any Marathon common
stock or Rockingham common stock within 30 days before the effective date of the
merger, nor sell any Marathon common stock until such time as Marathon has
published financial results covering at least 30 days of the combined operations
of Marathon and Rockingham after the merger.

Material Federal Income Tax Consequences of the Merger

         The following is a discussion of the material federal income tax
consequences of the merger to Rockingham shareholders who receive Marathon
common stock in exchange for Rockingham common stock and cash instead of
fractional shares. The discussion does not deal with all aspects of federal
taxation that may be relevant to particular Rockingham shareholders. Certain tax
consequences of the merger may vary depending upon the particular circumstances
of each Rockingham shareholder and other factors.

         You are urged to consult with your tax advisor to determine the
particular tax consequences of the merger to you.

         This summary is based on current law and the advice of Williams,
Mullen, Clark & Dobbins, legal counsel to Marathon. The advice in this summary
is based on, among other things, certain customary assumptions and
representations relating to certain facts and circumstances of, and the
intentions of the parties to the merger. Neither Marathon nor Rockingham has
requested a ruling from the Internal Revenue Service in connection with the
merger. As a condition to consummation of the merger, Marathon and Rockingham
will receive from Williams, Mullen, Clark & Dobbins an opinion as to certain
federal income tax consequences of the merger. The opinion is not binding on the
Internal Revenue Service.



                                      I-17
<PAGE>

         In the opinion of counsel, the merger will constitute a tax-free
reorganization under Section 368(a) of the Internal Revenue Code, if consummated
in the manner set forth in the merger agreement. Accordingly, among other
things, in the opinion of such counsel:

         o   No gain or loss will be recognized by Marathon or Rockingham as a
             result of the merger;

         o   No gain or loss will be recognized by a Rockingham shareholder to
             the extent he receives Marathon common stock solely in exchange for
             his Rockingham common stock pursuant to the merger;

         o   The tax basis of the Marathon common stock received by each
             Rockingham shareholder will be the same as the tax basis of the
             Rockingham common stock surrendered in exchange therefor; and

         o   The holding period for each share of Marathon common stock received
             by each Rockingham shareholder in exchange for Rockingham common
             stock will include the period for which the shareholder held the
             Rockingham common stock exchanged therefor, provided the Rockingham
             common stock is a capital asset in the hands of the holder at the
             effective date of the merger.

         Any cash a Rockingham shareholder receives instead of fractional shares
could result in taxable income. The receipt of that cash will generally be
treated as a sale or exchange of the stock resulting in capital gain or loss
measured by the difference between the cash received and an allocable portion of
the basis of the stock relinquished. The receipt of the cash may be treated as a
dividend and taxed as ordinary income in certain limited situations.

Absence of Appraisal Rights

         Under Section 6.1-43 of the Virginia Banking Act, shareholders of
Rockingham will not be entitled to dissent from the merger and obtain the
judicially determined fair value of their shares of Rockingham.





                                      I-18
<PAGE>

               UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION

         The following unaudited pro forma condensed financial statements have
been prepared on a consolidated basis based upon the historical financial
statements of Marathon and Rockingham. The pro forma combined information gives
effect to the merger accounted for as a pooling of interests, and is based on
the issuance of 2,512,105 shares of Marathon common stock in connection with the
merger, which in turn is based on the number of shares of Rockingham common
stock outstanding at March 31, 2000. The number of shares of Marathon common
stock to be issued in connection with the merger is subject to certain
adjustments described elsewhere in this joint proxy statement/prospectus. Any
difference in the number of shares of Marathon common stock issued in connection
with the merger would affect the pro forma financial information set forth
below.

         The pro forma financial statements should be read in conjunction with
the separate historical financial statements and the related notes thereto of
Marathon in Appendix B and Rockingham's historical financial statements included
in Appendix D (Rockingham's 1997 audited financial statements are not included
in this joint proxy statement/prospectus). It has been assumed that the merger,
if consummated, will be accounted for as a pooling of interests, and therefore
no adjustments have been made to the historical results of operations as a
result of these transactions. The pro forma combined financial position and
results of operations are not necessarily indicative of the results which would
actually have been attained if the Rockingham merger had occurred in the past or
which may be attained in the future.







                                      I-19
<PAGE>

                             MARATHON AND ROCKINGHAM
                        PRO FORMA COMBINED BALANCE SHEET
                                 MARCH 31, 2000
<TABLE>
<CAPTION>
                                                           Marathon        Rockingham      Adjustments      Consolidated
                                                           --------        ----------      -----------      ------------
                                                                                 (Dollars in thousands)
<S>                                                       <C>              <C>              <C>              <C>
Assets
Cash and due from banks                                   $   5,339        $   6,598        $      --        $  11,937
Federal funds sold                                           12,000            4,942               --           16,942
Securities                                                   11,604            8,735               --           20,339
Loans held for resale                                           176               --               --              176
Loans, net                                                   79,231           82,082               --          161,313
Bank premises and equipment, net                              2,766            2,175               --            4,941
Accrued interest receivable                                     567              532               --            1,099
Other real estate                                               165               --               --              165
Other assets                                                    626              526               --            1,152
                                                          ---------        ---------        ---------        ---------

Total assets                                              $ 112,474        $ 105,590        $      --        $ 218,064
                                                          =========        =========        =========        =========

Liabilities and Stockholders' Equity
Liabilities:
Deposits
Interest-bearing                                          $  85,935        $  75,762        $      --        $ 161,697
Non-interest bearing                                         16,056           13,904               --           29,960
Other borrowed money                                             --            3,383               --            3,383
Accrued interest payable and other liabilities                  514              574               --            1,088
Capital lease payable                                           216               --               --              216
Dividends payable                                                --               --               --               --
                                                          ---------        ---------        ---------        ---------

Total liabilities                                           102,721           93,623               --          196,344
                                                          ---------        ---------        ---------        ---------

Stockholders' Equity:
Preferred stock                                                  --               --               --               --
Common stock                                                  2,051            7,950           (5,438)           4,563
Capital surplus                                               7,771            1,976            5,438           15,185
Retained earnings                                                71            2,113               --            2,184
Accumulated other comprehensive income (loss)                  (140)             (72)              --             (212)
                                                          ---------        ---------        ---------        ---------

Total stockholders' equity                                    9,753           11,967               --           21,720
                                                          ---------        ---------        ---------        ---------

Total liabilities and stockholders' equity                $ 112,474        $ 105,590        $      --        $ 218,064
                                                          =========        =========        =========        =========
</TABLE>


                                      I-20
<PAGE>


                             MARATHON AND ROCKINGHAM
                     PRO FORMA COMBINED STATEMENTS OF INCOME
                      FOR THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
                                                                       Marathon    Rockingham    Combined
                                                                      ----------   ----------   ----------
                                                                 (Dollars in thousands, except per share data)
<S>                                                                  <C>          <C>          <C>
Interest and dividend income:
Interest and fees on loans                                           $    1,876   $    1,774   $    3,650
Interest and dividends on securities:
  Taxable                                                                   138          140          278
  Nontaxable                                                                 15           --           15
  Dividends                                                                   6           --            6
Interest on deposits in other banks                                          --           15           15
Interest on Federal funds sold                                              130           90          220
                                                                     ----------   ----------   ----------
        Total interest and dividend income                                2,165        2,019        4,184
                                                                     ----------   ----------   ----------

Interest expense:
        Interest on deposits                                                909          857        1,766
        Interest on short-term borrowings                                    --           33           33
        Interest on capital lease obligations                                 4           --            4
                                                                     ----------   ----------   ----------
        Total interest expense                                              913          890        1,803
                                                                     ----------   ----------   ----------

Net interest income                                                       1,252        1,129        2,381
Provision for loan losses                                                    73           30          103
                                                                     ----------   ----------   ----------
Net interest income after provision for loan losses                       1,179        1,099        2,278
                                                                     ----------   ----------   ----------

Noninterest income:
        Service charges on deposit accounts                                 181           92          273
        Commissions and fees                                                 12            3           15
        Other                                                                11           --           11
                                                                     ----------   ----------   ----------
        Total noninterest income                                            204           95          299
                                                                     ----------   ----------   ----------

Noninterest expense:
        Salaries and employee benefits                                      469          394          863
        Net occupancy expense of premises                                    57           44          101
        Furniture and equipment expense                                      74           58          132
        Other operating expense                                             348          168          516
                                                                     ----------   ----------   ----------
        Total noninterest expense                                           948          664        1,612
                                                                     ----------   ----------   ----------

Income before income taxes                                                  435          530          965
        Income taxes                                                        142          180          322
                                                                     ----------   ----------   ----------

Net income                                                           $      293   $      350   $      643
                                                                     ==========   ==========   ==========

Earnings per common share:
Basic                                                                $     0.14   $     0.22   $     0.14
                                                                     ==========   ==========   ==========
Diluted                                                              $     0.14   $     0.22   $     0.14
                                                                     ==========   ==========   ==========
Weighted average shares outstanding:
Basic                                                                 2,050,764    1,589,940    4,562,869
Diluted                                                               2,071,143    1,616,354    4,628,775

</TABLE>



                                      I-21
<PAGE>

                             MARATHON AND ROCKINGHAM
                     PRO FORMA COMBINED STATEMENTS OF INCOME
                        FOR YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
                                                                                Marathon            Rockingham           Combined
                                                                               -----------          -----------         -----------
                                                                                    (Dollars in thousands, except per share data)
<S>                                                                            <C>                  <C>                 <C>
Interest and dividend income:
Interest and fees on loans                                                     $     7,252          $     6,371         $    13,623
Interest and dividends on securities:
  Taxable                                                                              506                  482                 988
  Nontaxable                                                                            30                   --                  30
  Dividends                                                                             35                   --                  35
Interest on federal funds sold                                                         492                  335                 827
                                                                               -----------          -----------         -----------
          Total interest and dividend income                                         8,315                7,188              15,503
                                                                               -----------          -----------         -----------

Interest expense:
          Interest on deposits                                                       3,464                3,065               6,529
          Interest on short-term borrowings                                             --                   70                  70
          Interest on capital lease obligations                                         18                   --                  18
                                                                               -----------          -----------         -----------
          Total interest expense                                                     3,482                3,135               6,617
                                                                               -----------          -----------         -----------

Net interest income                                                                  4,833                4,053               8,886
Provision for loan losses                                                              260                  120                 380
                                                                               -----------          -----------         -----------
Net interest income after provision for loan losses                                  4,573                3,933               8,506
                                                                               -----------          -----------         -----------

Noninterest income:
          Service charges on deposit accounts                                          779                  338               1,117
          Commissions and fees                                                          23                   --                  23
          Loss on sale of other real estate                                             (2)                  --                  (2)
          Other                                                                         59                   33                  92
                                                                               -----------          -----------         -----------
          Total noninterest income                                                     859                  371               1,230
                                                                               -----------          -----------         -----------

Noninterest expense:
          Salaries and employee benefits                                             1,888                1,410               3,298
          Net occupancy expense of premises                                            225                  381                 606
          Furniture and equipment expense                                              360                   --                 360
          Outside services                                                              --                  190                 190
          Other operating expense                                                    1,284                  504               1,788
                                                                               -----------          -----------         -----------
          Total noninterest expense                                                  3,757                2,485               6,242
                                                                               -----------          -----------         -----------

Income before income taxes                                                           1,675                1,819               3,494
          Income taxes                                                                 563                  618               1,181
                                                                               -----------          -----------         -----------

Net income                                                                     $     1,112          $     1,201         $     2,313
                                                                               ===========          ===========         ===========

Earnings per common share:
Basic                                                                          $      0.54          $      0.76         $      0.51
                                                                               ===========          ===========         ===========
Diluted                                                                        $      0.53          $      0.74         $      0.50
                                                                               ===========          ===========         ===========
Weighted average shares outstanding:
Basic                                                                            2,054,748            1,589,843           4,566,701
Diluted                                                                          2,089,403            1,624,349           4,651,106

</TABLE>



                                      I-22
<PAGE>

                             MARATHON AND ROCKINGHAM
                     PRO FORMA COMBINED STATEMENTS OF INCOME
                        FOR YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
                                                                                Marathon            Rockingham           Combined
                                                                               -----------          -----------         -----------
                                                                                 (Dollars in thousands, except per share data)
<S>                                                                            <C>                  <C>                 <C>
Interest and dividend income:
Interest and fees on loans                                                     $     6,064          $     5,548         $    11,612
Interest and dividends on securities:
  Taxable                                                                              354                  361                 715
  Dividends                                                                             27                   --                  27
Interest on federal funds sold                                                         431                  360                 791
                                                                               -----------          -----------         -----------
          Total interest and dividend income                                         6,876                6,269              13,145
                                                                               -----------          -----------         -----------

Interest expense:
          Interest on deposits                                                       2,938                2,765               5,703
          Interest on short-term borrowings                                             --                   57                  57
          Interest on capital lease obligations                                         21                   --                  21
                                                                               -----------          -----------         -----------
          Total interest expense                                                     2,959                2,822               5,781
                                                                               -----------          -----------         -----------

Net interest income                                                                  3,917                3,447               7,364
Provision for loan losses                                                              285                  144                 429
                                                                               -----------          -----------         -----------
Net interest income after provision for loan losses                                  3,632                3,303               6,935
                                                                               -----------          -----------         -----------

Noninterest income:
          Service charges on deposit accounts                                          734                  287               1,021
          Commissions and fees                                                         111                   --                 111
          Loss on sale of other real estate                                            (54)                  --                 (54)
          Other                                                                         28                   41                  69
                                                                               -----------          -----------         -----------
          Total noninterest income                                                     819                  328               1,147
                                                                               -----------          -----------         -----------

Noninterest expense:
          Salaries and employee benefits                                             1,532                1,162               2,694
          Net occupancy expense of premises                                            263                  323                 586
          Furniture and equipment expense                                              382                   --                 382
          Outside services                                                              --                  156                 156
          Other operating expense                                                    1,016                  384               1,400
                                                                               -----------          -----------         -----------
          Total noninterest expense                                                  3,193                2,025               5,218
                                                                               -----------          -----------         -----------

Income before income taxes                                                           1,258                1,606               2,864
          Income taxes                                                                  78                  544                 622
                                                                               -----------          -----------         -----------

Net income                                                                     $     1,180          $     1,062         $     2,242
                                                                               ===========          ===========         ===========

Earnings per common share:
Basic                                                                          $      0.57          $      0.70         $      0.50
                                                                               ===========          ===========         ===========
Diluted                                                                        $      0.56          $      0.67         $      0.49
                                                                               ===========          ===========         ===========
Weighted average shares outstanding:
Basic                                                                            2,058,932            1,522,948           4,465,190
Diluted                                                                          2,112,009            1,580,660           4,575,861

</TABLE>



                                      I-23
<PAGE>

                             MARATHON AND ROCKINGHAM
                     PRO FORMA COMBINED STATEMENTS OF INCOME
                        FOR YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
                                                                                 Marathon            Rockingham            Combined
                                                                                -----------          -----------         -----------
                                                                                   (Dollars in thousands, except per share data)
<S>                                                                             <C>                  <C>                 <C>
Interest and dividend income:
Interest and fees on loans                                                      $     4,559          $     4,655         $     9,214
Interest and dividends on securities:
  Taxable                                                                               172                  366                 538
  Dividends                                                                              21                   --                  21
Interest on federal funds sold                                                          130                  194                 324
                                                                                -----------          -----------         -----------
          Total interest and dividend income                                          4,882                5,215              10,097
                                                                                -----------          -----------         -----------

Interest expense:
          Interest on deposits                                                        1,918                2,310               4,228
          Interest on federal funds purchased                                             1                   --                   1
          Interest on short-term borrowings                                              --                   17                  17
          Interest on capital lease obligations                                          24                   --                  24
                                                                                -----------          -----------         -----------
          Total interest expense                                                      1,943                2,327               4,270
                                                                                -----------          -----------         -----------

Net interest income                                                                   2,939                2,888               5,827
Provision for loan losses                                                               133                  144                 277
                                                                                -----------          -----------         -----------
Net interest income after provision for loan losses                                   2,806                2,744               5,550
                                                                                -----------          -----------         -----------

Noninterest income:
          Service charges on deposit accounts                                           460                  230                 690
          Commissions and fees                                                          102                   --                 102
          Loss on sale of other real estate                                              --                   --                  --
          Other                                                                          25                   32                  57
                                                                                -----------          -----------         -----------
          Total noninterest income                                                      587                  262                 849
                                                                                -----------          -----------         -----------

Noninterest expense:
          Salaries and employee benefits                                              1,214                1,052               2,266
          Net occupancy expense of premises                                             211                  297                 508
          Furniture and equipment expense                                               263                   --                 263
          Outside services                                                               --                  137                 137
          Other operating expense                                                       895                  365               1,260
                                                                                -----------          -----------         -----------
          Total noninterest expense                                                   2,583                1,851               4,434
                                                                                -----------          -----------         -----------

Income before income taxes                                                      $       810          $     1,155         $     1,965
          Income taxes (benefit)                                                       (188)                 392                 204
                                                                                -----------          -----------         -----------

Net income                                                                      $       998          $       763         $     1,761
                                                                                ===========          ===========         ===========

Earnings per common share:
Basic                                                                           $      0.51          $      0.61         $      0.45
                                                                                ===========          ===========         ===========
Diluted                                                                         $      0.50          $      0.58         $      0.43
                                                                                ===========          ===========         ===========
Weighted average shares outstanding:
Basic                                                                             1,951,172            1,254,713           3,933,619
Diluted                                                                           2,016,153            1,319,502           4,082,477

</TABLE>



                                      I-24
<PAGE>



                Notes to Pro Forma Combined Financial Information

(1)      The pro forma combined information presented is not necessarily
         indicative of the results of operations or the financial position that
         would have resulted had the merger been consummated at the beginning of
         the periods indicated, nor is it necessarily indicative of the results
         of operations in future periods or the future financial position of the
         combined entities.

(2)      It is assumed that the merger will be accounted for on a
         pooling-of-interests accounting basis and, accordingly, the related pro
         forma combined balance sheet adjustments have been calculated using the
         exchange ratio, whereby Marathon will issue 1.58 shares of Marathon
         common stock for each share of Rockingham common stock.

(3)      Per share data for all periods presented has been computed based on the
         combined historical income applicable to common shareholders of
         Marathon and Rockingham using the historical weighted average shares
         outstanding, adjusted to equivalent shares of Marathon common stock.

(4)      Pro forma combined balance sheet adjustments reflect (i) the issuance
         of 2,512,105 shares of Marathon common stock at a par value of $1.00
         per share and (ii) the elimination of Rockingham common stock.



                                      I-25
<PAGE>

                     OPINION OF MARATHON'S FINANCIAL ADVISOR

General

         Marathon's board of directors retained McKinnon & Company, Inc. in an
engagement letter dated March 22, 2000 to serve as its financial advisor and to
evaluate the terms of the merger agreement. McKinnon & Company has rendered its
opinion to the board of directors of Marathon that the terms of the merger
agreement are fair from a financial point of view to the Marathon shareholders.
In developing its opinion, McKinnon & Company reviewed and analyzed material
bearing upon the financial and operating conditions of Marathon, Rockingham, and
on a pro forma basis, Marathon and Rockingham combined, and material prepared in
connection with the merger agreement including, among other things, the
following:

         o   the merger agreement;

         o   the registration statement;

         o   Marathon's and Rockingham's financial results for fiscal years 1992
             through 1999, and the first quarter ended March 31, 2000, and
             certain documents and information deemed relevant to McKinnon &
             Company's analysis;

         o   discussions with senior management of Marathon and Rockingham
             regarding past and current business operations of, and outlook for,
             Marathon and Rockingham, including trends, the terms of the
             proposed merger, and related matters;

         o   the reported price and trading activity of Marathon and Rockingham
             stock and financial and stock market information (when available)
             for Marathon and Rockingham with similar information for certain
             other companies and securities that are publicly traded;

         o   the financial terms of certain recent business combinations
             particularly merger of equal combinations which McKinnon & Company
             deemed comparable in whole or in part;

         o   the relationship of prices paid and relative contributions to
             relevant financial data such as net worth, assets and earnings in
             certain bank and bank holding company affiliations and acquisitions
             in Maryland, North Carolina and Virginia and nationally in recent
             years and the deal price relative to the seller's price one day
             prior to the announcement of the deal; and

         o   other published information and other factors and information which
             McKinnon & Company deemed relevant.

         No instruction or limitations were given or imposed in connection with
the scope of the examination or investigations made by McKinnon & Company in
arriving at its findings. McKinnon & Company has performed such other studies
and analyses it deemed appropriate, including an analysis of the pro forma
financial impact of the merger on Marathon and Rockingham. A copy of McKinnon &
Company's opinion, which sets forth the assumptions made, matters considered and
qualifications made on the review undertaken, is attached as Appendix E hereto
and should be read in its entirety.

         McKinnon & Company used the information gathered to evaluate the
financial terms of the merger using standard valuation methods, including
discounted cash flow analysis, analysis of historical



                                      I-26
<PAGE>

exchange ratios, comparable selected public trade companies, comparable
historical performance, dilution analysis, comparable merger of equal analysis,
and relative contribution analysis.

Present Value Analysis

         McKinnon & Company performed an analysis to determine a range of
present values per share of Marathon common stock assuming Marathon continued to
operate as an independent bank holding company. This range was determined by
present valuing the estimated value of Marathon common stock at the end of year
2004. McKinnon & Company used earnings reported by Marathon for 1999 and
management estimates of $1.350 million in net income for 2000. The net income
projections were grown using earnings growth rates of 8-10% annually in years
2000 through 2004. The future value of the Marathon common stock at the end of
2004 was determined by applying multiples of 8.0 to 12.0 to year 2004 projected
earnings. These values were discounted to present values using discount rates of
10% to 14%, which McKinnon & Company viewed as the appropriate discount rate
range for a commercial bank with Marathon's characteristics. Based upon the
above assumption the value of Marathon common stock ranged from approximately
$5.87 to $9.61 per share on a stand-alone basis.

         McKinnon & Company performed a similar analysis to determine a range of
present values per share of Rockingham common stock assuming Rockingham
continued to operate as an independent bank. McKinnon & Company used earnings
reported by Rockingham for 1999 and management estimates of $1.420 million for
2000. Using the same net income growth rate as used for Marathon and the same
multiples of 2004 projected earnings and same discount rates of 10% to 14% the
value of Rockingham common stock ranged from approximately $7.69 to $12.58 per
share as a stand-alone company.

         McKinnon & Company also performed an analysis to determine a range of
present values per share of Marathon and Rockingham common stock on a combined
basis. This range was determined by present valuing the estimated value of
Marathon's common stock on a pro forma basis at the end of year 2004. McKinnon &
Company used earnings reported by Marathon and Rockingham for 1999, management
estimates for 2000 net of estimated one time merger expenses of approximately
$245,000 and estimated annual cost savings and revenue enhancements of $310,000
expected to result from the merger. The net income projections were grown using
earnings growth rates of 8-10% annually in years 2001 through 2004. The future
value of the pro forma common stock at the end of year 2004 was determined by
applying multiples of 8.0 to 12.0 to year 2004 projected earnings. These values
were discounted to present value using discount rates of 10% to 14%, which
McKinnon & Company viewed as the appropriate discount rate range for a
commercial bank with Marathon's and Rockingham's pro forma characteristics.
Based upon the above assumptions the value of the pro forma Marathon common
stock ranged from approximately $5.85 to $9.63 per share.

Analysis of Historical Exchange Ratios

         McKinnon & Company reviewed the trading behavior of Marathon's and
Rockingham's common stocks and analyzed the ratio of the closing prices of
Rockingham common stock to Marathon common stock from December 31, 1998 through
March 31, 2000. This analysis showed that such ratios ranged from a high of 1.77
to a low of 1.26, with a most recent 12 month average of 1.53x, most recent 6
month average of 1.59x, most recent 3 month average of 1.55x and most recent day
average of 1.61x.

Market Comparable Analysis

         McKinnon & Company analyzed the performance and financial condition of
Marathon and Rockingham relative to two groups including the following 18 large
and 51 small financial institutions: Bank of America; First Union Corporation;
Wachovia Corporation; BB&T Corp.; First Virginia Bank,



                                      I-27
<PAGE>

Inc.; Centura Banks, Inc.; Mercantile Bankshares, Inc.; Keystone Financial;
Riggs National Corp.; Provident Bankshares; United Bankshares, Inc.; Susquehanna
Bancshares; F&M National Corporation; First Charter Corporation; F&M Bancorp;
FCNB Corp.; First Community Bankshares; and Union Bankshares Corp.
(collectively, the Large Bank Group); and a group of 51 community banks,
primarily in Virginia, with some in North Carolina, Maryland and the District of
Columbia (collectively, the Small Bank Group). Among the financial information
compared was information relating to equity to assets, loans to deposits, net
interest margin, non-performing assets, total assets, non-accrual loans, loan
loss reserve and asset growth rates. Additional information compared for the
trailing twelve month period ended December 31, 1999 was:
<TABLE>
<CAPTION>
                                               Average of     Average of     Average Overall
                                               Large Bank     Small Bank       Comparable
                  Marathon     Rockingham         Group          Group         Bank Groups
                  --------     ----------         -----          -----         -----------
<S>                <C>            <C>             <C>             <C>            <C>
Price/
 Book Value        124.5%         117.0%          178.0%          124.0%         137.6%

Price/ LTM
 Earnings           10.8x          11.8x           11.8x           11.0x          11.1x

Return on
 Avg. Assets         1.09%          1.27%           1.29%           1.14%          1.18%

Return on
 Avg. Equity        12.20%         10.81%          14.60%          11.16%         11.98%

Dividend
 Yield               1.39%          N/A             4.10%           2.83%          3.38%

Payout              12%             N/A            43%             32%            35%

</TABLE>

         Overall, in the opinion of McKinnon & Company, Rockingham's operating
and financial ratios were generally in line with the Small Bank Group and in
line with the Large Bank Group while its common stock was priced by the market
at similar levels to the average Large and Small Bank Group. Rockingham's equity
to asset ratio was slightly higher than the Small Bank Group and Large Bank
Group (11.5% for Rockingham, 8.6% for the Large Bank Group and 10.0% for the
Small Bank Group); its net interest margin (4.59%) was 137.6% of the Large Bank
Group (4.21%) and Small Bank Group (4.33%); its level of non-performing assets
to total assets (0.04%) was better than the Large Bank Group (0.52%) and the
Small Bank Group (0.51%); and its reserves to non-performing assets ( N/M ) was
higher than the Small Bank Group (255.0%) and the Large Bank Group (209.9%).
With a price to earnings ratio of 11.8x trailing twelve months earnings
Rockingham's common stock was priced slightly above the Large Bank Group (11.8
times) and the Small Bank Group (11.0 times). Rockingham's price to book ratio
of 117.0% was at a discount to the Large Bank Group (178.0%) and the Small Bank
Group (137.6%). Accordingly, Rockingham's common stock is reasonably valued when
compared to the Large Bank Group and to the Small Bank Group.



                                      I-28
<PAGE>

Pro Forma Merger Analysis - Dilution

         McKinnon & Company analyzed certain pro forma effects of the merger
based upon earnings forecasts of Marathon and Rockingham, as well as estimated
cost savings and revenue enhancements totaling $300,000 expected to result from
the merger. This analysis indicated that the transaction, excluding one time
merger costs, would be dilutive to earnings per share of Marathon in 2000 and
accretive in each year thereafter, once the projected cost savings and projected
revenue enhancements are realized, and that the merger would not be dilutive to
Marathon's book value per share. The actual results achieved by Marathon may
vary from projected results. Specifically, estimated earnings per share are
expected to be diluted 7.69% in 2000 and book value per share is expected to be
unaffected. The pro forma effect on Rockingham's earnings per share, dividends
and market value is an increase in earnings per share of 8.97%, in the cash
dividend of approximately $.08 per share, and from the recent closing price of
$5.75 per share for Marathon and $8.50 per share for Rockingham, an increase of
6.88% in the pro forma market value of Rockingham. Marathon's cash dividend
payout ratio is 12% compared with an average of 35% and 32%, respectively, among
the comparable Large and Small Bank groups. McKinnon & Company concluded from
this that the transaction would not have a significant positive or negative
impact on Marathon and the Marathon shareholders in that the market value of
Marathon's common stock, after giving effect to the exchange ratio, although
there can be no assurance that pro forma amounts are indicative of the future
and there is no assurance that anticipated cost savings will occur.

Comparable Merger of Equals Transactions Analysis

         McKinnon & Company analyzed eleven other bank merger transactions
characterized as mergers of equals in the United States in 1998, 1999 and 2000.
This analysis showed that, among other things, the median relative contributions
of the companies was: 55.8% and 44.2% in terms of total assets; 55.0% and 45.0%
in terms of stockholders' equity; 54.8% and 45.2% in terms of trailing twelve
months earnings; and 57.0% and 43.0% in terms of common shares. Marathon's and
Rockingham's relative contributions would be: 50.6% and 49.4% in terms of
assets; 44.8% and 55.2% in terms of stockholders' equity; 48.1% and 51.9% in
terms of trailing earnings; and 44.9% and 55.1% in terms of common shares.

         McKinnon & Company also analyzed the same group of eleven comparable
merger of equals transactions in 1998, 1999 and 2000 which showed the market
premium of the consideration received by shareholders of the non-surviving
entity in the transactions to the market values of the common stock of such
entity on the trading date prior to the announcement. Such premiums ranged from
0% to 34.15% and had a mean value of 17.13%. Marathon and Rockingham announced
their proposed merger Thursday, April 20. Based on closing prices of $9.50 for
Rockingham and $6 for Marathon, on Wednesday, April 19, the premium, based on
the closing prices of each and an exchange ratio of 1.58 shares of Marathon to
be issued for each share of Rockingham, such premium was zero.

Relative Contribution Analysis

         McKinnon & Company analyzed certain historical balance sheet, income
statement and ratio data for Marathon and Rockingham for 1997 through 1999, as
well as certain projected net income data performed by management of Rockingham
and Marathon for 2000. McKinnon & Company also analyzed the ratio of the closing
monthly prices of Marathon common stock and Rockingham common stock over the
period from December 31, 1998, through March 31, 2000. The analysis showed,
among other things, that from the fiscal years ended 1999, Marathon would have
contributed approximately 48.1% of pro forma combined net income to common
shareholders; for 2000, Marathon was projected to contribute, based on
management projections, 48.7% of pro forma combined projected net income; at
March 31, 2000 Marathon would have contributed 44.9% of pro forma market
capitalization; at December 31, 1999, Marathon would have contributed 44.8% of
pro forma stockholders' equity and



                                      I-29
<PAGE>

50.6% of pro forma total assets. At the exchange ratio of 1.58 shares of
Marathon common stock for each share of Rockingham common stock, the holders of
Marathon common stock will own 44.9% of the continuing corporation.

                    OPINION OF ROCKINGHAM'S FINANCIAL ADVISOR

         Pursuant to an engagement letter dated as of March 27, 2000, Rockingham
retained Scott & Stringfellow, Inc. as a financial advisor in connection with
Rockingham's consideration of a possible business combination with Marathon. In
connection therewith, the Rockingham board requested Scott & Stringfellow to
render its opinion as to the fairness, from a financial point of view, of the
exchange ratio to the holders of Rockingham common stock. Scott & Stringfellow
delivered to Rockingham's board its oral opinion on April 6, 2000 that as of
such date, the exchange ratio was fair, from a financial point of view, to the
holders of shares of Rockingham common stock. Scott & Stringfellow has
reconfirmed its opinion by delivering a written opinion to the Rockingham board,
dated the date of this proxy statement/prospectus, to the effect that, as of the
date thereof, the exchange ratio was fair to the holders of shares of Rockingham
common stock from a financial point of view. Scott & Stringfellow is a regional
investment banking firm and was selected by Rockingham based on the firm's
reputation and experience in investment banking, its extensive experience and
knowledge of the Virginia banking market, its recognized expertise in the
valuation of commercial banking businesses and because of its familiarity with,
and prior work for Rockingham. Scott & Stringfellow, through its investment
banking business and specifically through its Financial Institutions Group,
specializes in commercial banking institutions and is continually engaged in the
valuation of such businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings and other corporate
transactions.

         The full text of Scott & Stringfellow's opinion, dated the date of this
proxy statement/prospectus, which sets forth the assumptions made, procedures
followed, matters considered and limits on the review undertaken, is attached as
Appendix E to this proxy statement/prospectus. The description of the Scott &
Stringfellow opinion set forth herein is qualified in its entirety by reference
to Appendix E. The Scott & Stringfellow opinion is provided for the information
of Rockingham shareholders because it was provided to the Rockingham board in
connection with its consideration of the merger.

         In developing its opinion, Scott & Stringfellow reviewed and analyzed:

         o   the merger agreement;

         o   this proxy statement/prospectus;

         o   Rockingham's audited financial statements for the three years ended
             December 31, 1999;

         o   Rockingham's unaudited financial statements for the three months
             ended March 31, 2000 and 1999, and other internal information
             relating to Rockingham prepared by Rockingham's management;

         o   information regarding the trading market for Rockingham common
             stock and Marathon common stock and the price ranges within which
             the respective stocks have traded;

         o   the relationship of prices paid to relevant financial data such as
             net worth, earnings, deposits and assets in certain bank and bank
             holding company mergers and acquisitions in recent years;



                                      I-30
<PAGE>

         o   Marathon's annual reports to shareholders and its audited financial
             statements for the three years ended December 31, 1999;

         o   Marathon's unaudited financial statements for the three months
             ended March 31, 2000 and 1999, and other internal information
             relating to Marathon prepared by Marathon's management; and

         o   conducted such other studies, analysis and investigations
             particularly of the banking industry, and considered such other
             information as it deemed appropriate, the material portion of which
             is described below.

         o   Scott & Stringfellow also took into account its assessment of
             general economic, market and financial conditions and its
             experience in other transactions, as well as its experience in
             securities valuations and knowledge of the commercial banking
             industry generally.

         o   Scott & Stringfellow also has discussed with members of
             Rockingham's and Marathon's management past and current business
             operations, the background of the merger, the reasons and basis for
             the merger, results of regulatory examinations, and the business
             and future prospects of Rockingham and Marathon individually and as
             a combined entity, as well as other matters relevant to its
             inquiry.

         Scott & Stringfellow relied without independent verification upon the
accuracy and completeness of all of the financial and other information reviewed
by it and discussed with it for purposes of its opinion. With respect to
financial forecasts reviewed by Scott & Stringfellow in rendering its opinion,
Scott & Stringfellow assumed that such financial forecasts were reasonably
prepared on the basis reflecting the best currently available estimates and
judgment of the managements of Rockingham and Marathon as to the future
financial performance of Rockingham and Marathon, respectively. Scott &
Stringfellow did not make an independent evaluation or appraisal of the assets
or liabilities of Rockingham and Marathon nor was it furnished with any such
appraisal.

         In connection with rendering its opinion, Scott & Stringfellow
performed a variety of financial analyses. Scott & Stringfellow evaluated the
financial terms of the transaction using standard valuation methods, including
contribution analysis, dilution analysis, discounted cash flow analysis, among
others. The following is a summary of the material analyses presented by Scott &
Stringfellow to the Rockingham board of directors in connection with its
fairness opinion.

         Summary of Proposal. Scott & Stringfellow reviewed the financial terms
of a proposed transaction whereby Rockingham will be merged into Marathon.
Rockingham shareholders will receive 1.58 shares of Marathon common stock in
exchange for each share of Rockingham common stock they hold. Based upon this
exchange ratio, Scott & Stringfellow estimates that upon completion of the
merger, approximately 55% of the outstanding Marathon common stock will be owned
by current Rockingham shareholders.

         Contribution Analysis. Scott & Stringfellow reviewed the relative
contributions of, among other things, last twelve months net interest income,
last twelve months net income, estimated 2000 net income, total assets, total
loans, total deposits, total equity and market capitalization to be made by
Rockingham and Marathon to the combined institution based on data at and for the
twelve months ended March 31, 2000. Scott & Stringfellow compared such
contributions to the consideration to be received by



                                      I-31
<PAGE>

Rockingham shareholders. Based upon the exchange ratio, the shareholders of
Rockingham common stock will own approximately 55.0% of Marathon's common stock
after the transaction closes.
<TABLE>
<CAPTION>
                                                                                              Rockingham
                                                    Marathon              Rockingham           Pro Forma
                                                Contribution            Contribution           Ownership
                                                -------------           ------------           ---------
<S>                                                    <C>                    <C>                 <C>
Last 12 Months Net Interest Income                     53.9%                  46.1%               55.0%

Last 12 Months Net Income                              47.8%                  52.2%               55.0%

Estimated 2000 Net Income                              48.7%                  51.3%               55.0%

Total Assets                                           51.6%                  48.4%               55.0%

Total Loans                                            49.1%                  50.9%               55.0%

Total Deposits                                         53.2%                  46.8%               55.0%

Total Equity                                           44.9%                  55.1%               55.0%

Market Capitalization                                  47.1%                  52.9%               55.0%

</TABLE>

         Dilution Analysis. Based upon publicly available financial information
on Rockingham and Marathon, Scott & Stringfellow considered the effect of the
transaction on the last twelve months earnings, estimated 2000 earnings, and
book value of Rockingham and Marathon. The immediate effect on Rockingham was to
increase last twelve months earnings by $0.05 per share or 5.86%, increase
estimated 2000 earnings by $0.08 per share or 7.64%, and decrease book value by
$0.01 per share or 0.09%. The effect on Marathon under the same assumption is to
decrease last twelve months earnings by $0.03 per share or 6.36%, decrease
estimated 2000 earnings by $0.05 per share or 8.02%, and increase book value by
$0.01 per share or 0.11%. This dilution analysis does not take into account the
longer-term benefits for the combined companies resulting from the combination.

         Discounted Cash Flow Analysis. Scott & Stringfellow performed a
discounted cash flow analysis under various projections to estimate the fair
market value of Rockingham's common stock. Among other things, Scott &
Stringfellow considered asset and earnings growth of 12.0% and a required equity
capital level of 8.0% of assets. A range of discount rates from 12.0% to 14.0%
was applied to cash flows resulting from the projections during the first five
years and the residual values. The residual values were estimated by
capitalizing the projected final year earnings by the discount rates, less the
projected long-term growth rate of Rockingham's earnings. The discount rates,
growth rates and capital levels were chosen based on what Scott & Stringfellow,
in its judgment, considered to be appropriate taking into account, among other
things, Rockingham's past and current financial performance and conditions, the
general level of inflation, rates of return for fixed income and equity
securities in the marketplace generally and particularly in the banking
industry. Based upon these analyses, Scott & Stringfellow developed, for
purposes of its opinion, a reference range for the value of Rockingham common
stock of



                                      I-32
<PAGE>

$9.88 to $12.14 per share. Using similar assumptions, with $300,000 of cost
savings or revenue enhancements included, Scott & Stringfellow performed a
discounted cash flow analysis of Rockingham and Marathon as a combined entity.
The discounted cash flow analysis showed a range of present values that would
imply (based on the exchange ratio) a range of present values for holders of
Rockingham common stock of $10.71 to $13.43 per share.

         Other Analyses. Scott & Stringfellow also reviewed, among other things,
selective investment research reports on, and earnings estimates for, Rockingham
and Marathon and analyzed available information regarding the ownership of
Marathon common stock. In addition, Scott & Stringfellow prepared an overview of
Marathon's business, prepared a summary of the historical financial performance
of Marathon, summarized Marathon's financial goals and objectives, and, based on
publicly available information, analyzed Marathon's deposit market share and
branch presence.

        In connection with its opinion dated as of the date of this proxy
statement, Scott & Stringfellow performed procedures to update, as necessary,
certain of the analyses described above and reviewed the assumptions on which
such analyses described above were based and the factors considered in
connection therewith.

         The summary set forth above includes all the material factors
considered by Scott & Stringfellow in developing its opinion. The preparation of
a fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of these methods
to the particular circumstances and, therefor, such an opinion is not readily
susceptible to summary description. Accordingly, notwithstanding the separate
factors discussed above, Scott & Stringfellow believes that its analyses must be
considered as a whole and that selecting portions of its analysis and of the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the evaluation process underlying its opinion. As a
whole, these various analyses contributed to Scott & Stringfellow's opinion that
the exchange ratio is fair from a financial point of view to Rockingham's
shareholders.

         Pursuant to an engagement letter dated March 27, 2000 between
Rockingham and Scott & Stringfellow, in exchange for its services, Rockingham
has agreed to pay Scott & Stringfellow $10,000, upon the delivery of its
opinion, plus $25,000 payable at the closing of the merger. In addition, Scott &
Stringfellow shall be reimbursed for all reasonable expenses. In the ordinary
course of its business, Scott & Stringfellow may actively trade the equity
securities of Rockingham for its own account or the account of its customers,
and, accordingly, may at any time hold a long or short position in such
securities.

                   INTERESTS OF CERTAIN PERSONS IN THE MERGER

         Certain members of Rockingham's management, as well as certain members
of the Rockingham board of directors, have interests in the merger in addition
to their interests as shareholders of Rockingham. These interests are described
below. In each case, the Rockingham board was aware of these interests and
considered them, among other matters, in approving the merger agreement and the
transactions contemplated thereby.

         Indemnification. Marathon has generally agreed to indemnify the
officers and directors of Rockingham to the same extent and on the same
conditions as they are entitled to from Rockingham before the merger. Marathon
also has agreed to provide directors' and officers' liability insurance for the
present officers and directors of Rockingham comparable to the coverage
currently provided by Rockingham before the merger.



                                      I-33
<PAGE>

         Directors of Rockingham. John K. Stephens, Paul R. Yoder, Stephen T.
Heitz and Wayne B. Ruck, who will serve on the Marathon board, initially will
receive annual retainers and monthly fees for service on Marathon's board. Based
on the existing schedule utilized by Marathon, these individuals will receive an
annual fee of $1,500, $500 for attendance at each board meeting and $50 for
attendance at each board committee meeting.

         Employees and Benefit Plans. Marathon will coordinate the participation
of Rockingham's employees in its employee benefit plans and programs. Subject to
restrictions and limitations that applicable law may impose, Marathon will treat
the service of a Rockingham employee with Rockingham as service with Marathon
for purposes of all employee benefit plans and programs. Marathon will also
honor Rockingham's obligations for all accrued and unused vacation, sick leave
and personal leave and all employment, severance, consulting and other
compensation contracts and agreements that Rockingham has previously disclosed
to Marathon.


                  CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS

         Both Marathon and Rockingham are corporations subject to the provisions
of the Virginia Stock Corporation Act. Rockingham's shareholders' rights are
presently governed by Rockingham's articles of incorporation and bylaws. Upon
consummation of the merger and Rockingham's shareholders becoming shareholders
of Marathon, shareholders' rights will be governed by the articles of
incorporation and bylaws of Marathon.

         There are a few material differences between the rights of a Rockingham
shareholder under Rockingham's articles of incorporation and bylaws, on the one
hand, and the rights of a Marathon shareholder under the articles of
incorporation and bylaws of Marathon, on the other hand, which are disclosed in
the section "Comparative Rights of Shareholders" on page VI-1.


                          TERMS OF THE MERGER AGREEMENT

         The following is a summary description in the material aspects of the
merger agreement. This description does not purport to be complete and is
qualified in its entirety by reference to Appendix A that contains the full
merger agreement. We urge you to read Appendix A in its entirety.

Representations and Warranties; Conditions to the Merger

         The merger agreement contains representations and warranties by
Marathon and Rockingham, including representations and warranties with respect
to their individual organizations, authorizations to enter into the merger
agreement, capitalization, financial statements and pending and threatened
litigation. These representations and warranties, except as otherwise provided
in the merger agreement, will not survive the effective date of the merger.

         The obligations of Marathon and Rockingham to consummate the merger are
subject to the following conditions, among others:

         o   approval of the merger agreement by the Rockingham shareholders;

         o   approval of the stock issuance and amendments to the articles of
             incorporation by the Marathon shareholders;



                                      I-34
<PAGE>

         o   receipt of all necessary regulatory approvals not conditioned or
             restricted in a manner that, in the judgment of the boards of
             directors of Marathon or Rockingham, materially adversely affects
             the economic or business benefits of the merger so as to render
             inadvisable or unduly burdensome consummation of the merger;

         o   the absence of certain actual or threatened proceedings before a
             court or other governmental body relating to the merger;

         o   the receipt of an opinion of counsel as to certain federal income
             tax consequences of the merger;

         o   the receipt of a letter from Marathon's accountants to the effect
             that the merger will qualify for pooling-of-interests accounting
             treatment under generally accepted accounting principles;

         o   performance by the other company of its obligations under the
             merger agreement;

         o   the accuracy, in all material respects, of the representations and
             warranties of the other company contained in the merger agreement;

         o   the receipt of certain opinions and certificates from the other
             company;

         o   the receipt by Marathon of a final fairness opinion from McKinnon &
             Company, Inc.; and

         o   the receipt by Rockingham of a final fairness opinion from Scott &
             Stringfellow, Inc.


Regulatory Approvals

         As indicated above, the merger is conditioned on the prior approval of
the merger by the Board of Governors of the Federal Reserve System and the
Virginia State Corporation Commission. Marathon has filed applications with the
Federal Reserve and the Virginia State Corporation Commission. While we cannot
predict whether or when Marathon will obtain all required regulatory approvals,
we see no reason why the approvals will not be obtained in a timely manner.
However, there can be no assurance that the necessary approvals will be
obtained, or that any approval will not be conditioned in a manner which makes
consummation of the merger, in the judgment of the board of directors of
Marathon or Rockingham, inadvisable or unduly burdensome.

Business Pending the Merger

         Until the effective date of the merger, Marathon and Rockingham each
has agreed that it will operate its business substantially as presently
operated, in the ordinary course of business, and will use its best efforts to
preserve intact its relationships with persons having business dealings with it.
Until the effective date, Marathon and Rockingham each has agreed not to take,
without the other's consent, certain specific actions in connection with the
ongoing operation of its business. Specifically, neither Marathon nor Rockingham
may:

         o   enter into any merger, consolidation or business combination (other
             than the merger) or any acquisition or disposition of a material
             amount of assets or securities or solicit proposals in respect
             thereof;



                                      I-35
<PAGE>

         o   amend its charter or bylaws (except as may be required by the
             merger agreement);

         o   issue any capital stock, except upon exercise of rights, warrants
             or options issued pursuant to existing employee benefits plans,
             programs or arrangements or effect any stock split or otherwise
             change its capitalization; or

         o   purchase or redeem any of its capital stock.


No Solicitation; Board Action

         Marathon and Rockingham each has agreed not to (i) encourage, solicit
or initiate discussions or negotiations with any other person concerning any
merger, share exchange, sale of substantial assets, tender offer, sale of shares
of capital stock or similar transaction, (ii) enter into any agreement with any
third party providing for a business combination transaction, equity investment
or sale of a significant amount of assets, or (iii) furnish any information to
any other person relating to or in support of such transaction.

Effective Date

         If the merger is approved by the shareholders of Rockingham, all
required governmental and other consents are obtained and the other conditions
to the merger are satisfied or waived, the merger will be consummated and made
effective on the date and at the time indicated on the certificate of merger
issued by the Virginia State Corporation Commission pursuant to the Virginia
Stock Corporation Act. See "Terms of the Merger Agreement - Representations and
Warranties; Conditions to the Merger" on page I-34.

         It is anticipated that the effective date of the merger will occur in
the third quarter of 2000.

Surrender of Stock Certificates

         As soon as practicable after the merger, Marathon will cause Registrar
and Transfer Company, its exchange agent, to mail a letter of transmittal and
instructions for use to surrender the certificates representing shares of
Rockingham common stock in exchange for certificates representing shares of
common stock of Marathon, which by that time will have changed its name to
Premier Community Bankshares, Inc.

         Rockingham shareholders should not send in their certificates until
they receive such instructions.

         Promptly after surrender of one or more certificates for Rockingham
common stock, together with a properly completed letter of transmittal, you will
receive a certificate or certificates representing the number of shares of
Marathon common stock to which you are entitled and, where applicable, a check
for the amount payable in cash instead of issuing a fractional share. Lost,
stolen, mutilated or destroyed certificates will be treated in accordance with
the existing procedures of Marathon.

         After the merger, you will be entitled to vote the number of shares of
Marathon common stock into which your Rockingham common stock has been
converted, regardless of whether you have surrendered your Rockingham
certificates. The merger agreement provides, however, that no dividend or
distribution payable to the holders of record of Marathon common stock at or as
of any time after the



                                      I-36
<PAGE>

effective date of the merger will be paid to the holder of any Rockingham
certificate until such holder physically surrenders such certificate, promptly
after which time all such dividends or distributions will be paid, without
interest.

Waiver, Amendment and Termination

         At any time on or before the effective date of the merger, any term or
condition of the merger may be waived by the party that is entitled to its
benefits. The merger agreement may be amended at any time before the merger by
agreement of the parties whether before or after the shareholder meetings. Any
material change in a material term of the merger agreement will require a
resolicitation of Marathon's and Rockingham's shareholders. Such a material
change might include, but is not limited to, a decrease in the exchange ratio or
a change in the tax consequences to Rockingham's shareholders.

         The merger agreement may be terminated by Marathon or Rockingham,
whether before or after the approval of the merger by the shareholders of both
companies, in the following manner:

         o   by mutual consent of Rockingham and Marathon;

         o   unilaterally by Rockingham or Marathon, if the merger has not
             occurred on or before February 1, 2001;

         o   unilaterally by either Rockingham or Marathon if the satisfaction
             of one or more conditions of the merger has not been met by the
             non-terminating party (unless waived by the terminating party) by
             October 30, 2000, provided that the terminating party is not then
             in breach of any of its obligations, covenants, representations,
             warranty or other agreement contained in the merger agreement;

         o   unilaterally by either Rockingham or Marathon if, before the merger
             occurs, the non-terminating party has agreed to sell substantially
             all of its assets and liabilities or voting stock; or

         o   unilaterally by either Rockingham or Marathon if either party has
             received a superior proposal that Rockingham or Marathon believes
             in good faith must be accepted for the benefit of either party's
             shareholders.

         In the event of termination, the merger agreement shall become null and
void, except that certain revisions thereof relating to expenses,
confidentiality of information and any liability due to any intentional breach
of any provision of the merger agreement shall survive any such termination.

Resales of Marathon Common Stock

         All shares of Marathon common stock received by Rockingham shareholders
in connection with the merger will be freely transferable, except the Marathon
common stock received by persons who are deemed to be "affiliates" of Rockingham
for purposes of Rule 145 under the Securities Act of 1933, as amended (the
"Securities Act"). To the best knowledge of Rockingham and Marathon, the only
persons who may be deemed to be affiliates of Rockingham subject to these
limitations are the directors and executive officers of Rockingham.



                                      I-37
<PAGE>

Expenses of the Merger and Termination Fee

         In general, whether or not the merger is consummated, each of
Rockingham and Marathon will pay its own expenses related to preparing, entering
into and carrying out the merger agreement and preparing and filing the
registration statement of which this joint proxy statement/prospectus is a part.

         If the merger agreement terminates because, prior to the date of
termination, either Rockingham or Marathon solicited or pursued a business
combination inquiry or proposal from a third party and either Rockingham's or
Marathon's board determined that a business combination with the third party was
in the best interests of either company and its shareholders, the company
involved in such proposal shall pay the other party $400,000. No payment will be
due, however, if the merger agreement was terminated by the company involved in
such proposal because the other company entered into an agreement to be
acquired. Additionally, no payment will be due if the other company wrongfully
terminated the merger agreement or, if at the time the merger agreement was
terminated, the company involved in the proposal was entitled to terminate or
refuse to close on the grounds that the other company breached any
representation or warranty in the merger agreement. Finally, no payment will be
due if there was a failure to satisfy certain closing conditions; a failure to
obtain regulatory approval; if the Securities and Exchange Commission issued a
stop order or threatened to issue a stop order concerning this joint proxy
statement/prospectus; or, in the case that Rockingham has received a third-party
proposal, if counsel to Marathon did not issue an opinion that the merger is tax
free to the shareholders of Rockingham. This provision is intended to discourage
another party from interfering with the merger agreement between Marathon and
Rockingham.

         If either party willfully and materially breaches the merger agreement,
that party must pay the costs associated with this transaction incurred by the
non-breaching party. If the merger agreement is terminated because either the
Rockingham or the Marathon shareholders did not approve the merger agreement,
then the non-approving party will pay 50% of the costs and expenses of the other
party. In either of the above scenarios, such reimbursement will not exceed a
total of $50,000.








                                      I-38
<PAGE>

                           MARKET PRICES AND DIVIDENDS

Market Prices

         Marathon. Marathon common stock is listed and traded on The Nasdaq
SmallCap Market under the symbol "MFCV."

         The following table sets forth the high and low closing sales prices of
the common stock as reported by The Nasdaq SmallCap Market for the periods
listed.

                             Marathon Market Prices

                                                       Sales Price ($)
                                                       ---------------

                                                  High                   Low
                                                  ----                   ---
         1998:
                  1st quarter                     9.75                   8.50
                  2nd quarter                     9.00                   8.00
                  3rd quarter                     9.38                   7.25
                  4th quarter                     8.00                   6.50
         1999:
                  1st quarter                     7.88                   6.94
                  2nd quarter                     7.63                   6.50
                  3rd quarter                     7.25                   6.00
                  4th quarter                     6.75                   6.19
         2000:
                  1st quarter                     6.75                   5.25
                  2nd quarter                     6.25                   5.00
                  3rd quarter                     6.25                   5.00
                    (through July 14, 2000)

         The closing price of Marathon common stock on The Nasdaq SmallCap
Market on April 19, 2000, the last full trading day preceding the public
announcement of the proposed merger, was $6.00 per share. The closing price of
Marathon common stock on The Nasdaq SmallCap Market on ________ __, 2000, the
latest practicable date before the date of this joint proxy statement/prospectus
was $_____ per share.

         As of ________ __, 2000, Marathon had approximately _____ shareholders
of record.

         Rockingham. Rockingham common stock has been listed and traded on The
Nasdaq SmallCap Market under the symbol "RKNG" since October 1998.



                                      I-39
<PAGE>

         The following table sets forth the high and low closing sales prices of
the common stock as reported by The Nasdaq SmallCap Market since October 1998.
Information presented for periods prior to October 1998 reflects those trades
known to Rockingham during that time.

                            Rockingham Market Prices

                                                         Sales Price ($)
                                                         ---------------

                                                   High                    Low
                                                   ----                    ---
         1998:
                  1st quarter                      10.89                  10.09
                  2nd quarter                      13.16                  10.20
                  3rd quarter                      13.16                   9.98
                  4th quarter                      10.89                   9.30
         1999:
                  1st quarter                      10.89                   9.53
                  2nd quarter                      10.00                   8.63
                  3rd quarter                      11.42                   8.58
                  4th quarter                      12.38                   9.05
         2000:
                  1st quarter                      10.47                   8.00
                  2nd quarter                       9.50                   7.25
                  3rd quarter                       9.50                   7.25
                     (through July 14, 2000)

         The closing price of Rockingham common stock on The Nasdaq SmallCap
Market on April 10, 2000, the last trading day preceding the public announcement
of the proposed merger on which Rockingham common stock traded, was $9.50 per
share. The closing price of Rockingham common stock on The Nasdaq SmallCap
Market on ________ __, 2000, the latest practicable date before the date of this
joint proxy statement/prospectus was $_____ per share.

         As of ________ __, 2000, Rockingham had approximately _____
shareholders of record.

Dividends

         Marathon. Marathon declared a $.09 per share cash dividend to
shareholders of record as of December 31, 1999, which was paid in January of
2000. A cash dividend of $.08 per share, declared in 1998, was paid in January
1999. A cash dividend of $.07 per share, declared in 1997, was paid in 1998.

         Rockingham. Rockingham declared stock dividends on its common stock in
February 2000, February 1999, March 1998, January 1997 and January 1996.
Rockingham has not paid cash dividends.

         Regulation on Payment of Dividends. Certain state law restrictions are
imposed on distributions of dividends to the shareholders of Marathon and
Rockingham. Shareholders are entitled to receive dividends as declared by the
respective board of directors. However, no such distribution may be made if,
after giving effect to the distribution, it would not be able to pay its debts
as they become due in the usual course of business or its total assets would be
less than its total liabilities. There are similar restrictions with respect to
stock repurchases and redemptions.

         Banks have limitations imposed upon all "capital distributions,"
including cash dividends, payments to repurchase or otherwise acquire their
shares, payments to shareholders of another institution



                                      I-40
<PAGE>

in a cash-out merger, and other distributions charged against capital. As of
March 31, 2000, The Marathon Bank had the capacity to pay no more than $______
million in total dividends to its sole shareholder, Marathon without regulatory
approval, and Rockingham had the capacity to pay $2.6 million in total dividends
to its shareholders.

         Similarly, The Marathon Bank and Rockingham each are subject to legal
limitations on capital distributions including the payment of dividends, if,
after making such distribution, the institution would become "undercapitalized"
(as such term is used in the statute). For all state member banks of the Federal
Reserve seeking to pay dividends, the prior approval of the applicable Federal
Reserve Bank is required if the total of all dividends declared in any calendar
year will exceed the sum of the bank's net profits for that year and its
retained net profits for the preceding two calendar years. Federal law also
generally prohibits a depository institution from making any capital
distribution (including payment of a dividend or payment of a management fee to
its holding company) if the depository institution would thereafter fail to
maintain capital above regulatory minimums. Federal Reserve Banks are also
authorized to limit the payment of dividends by any state member bank if such
payment may be deemed to constitute an unsafe or unsound practice. In addition,
under Virginia law no dividend may be declared or paid that would impair a
Virginia chartered bank's paid-in capital. The Virginia State Corporation
Commission has general authority to prohibit payment of dividends by a Virginia
chartered bank if it determines that the limitation is in the public interest
and is necessary to ensure the bank's financial soundness.

         Following the consummation of the merger, most of the revenues of
Marathon and Marathon's ability to pay dividends to its shareholders will depend
on dividends paid to it by The Marathon Bank and Rockingham. Based on the
current financial condition of The Marathon Bank and Rockingham, Marathon
expects that the above-described provisions will have no impact on Marathon's
ability to obtain dividends from The Marathon Bank and Rockingham or on
Marathon's ability to pay dividends to its shareholders.





                                      I-41
<PAGE>

                                   CHAPTER II
                    INFORMATION ABOUT THE MEETINGS AND VOTING

General

        We are furnishing this document in connection with the solicitation of
proxies by the board of directors of Marathon for use at the special meeting of
Marathon shareholders including any adjournments or postponements of the
meeting, to be held on ________ __, 2000 , and by the board of directors of
Rockingham for use at the special meeting of Rockingham shareholders including
any adjournments or postponements of the meeting, to be held on ________ __,
2000, at the times and places set forth in the accompanying notices.

Marathon Meeting

         General. The Marathon meeting will be held on ________ __, 2000 at ____
a.m., local time, at the ___________________________________________________,
Virginia. At the Marathon meeting, holders of Marathon common stock will be
asked to consider and approve the issuance of Marathon common stock to
Rockingham shareholders and amendments to the Marathon articles of
incorporation. The amendments to the articles of incorporation would make two
changes. Neither of the proposed changes would take effect unless the merger is
completed. The first change would be to change Marathon's name to Premier
Community Bankshares, Inc. Secondly, the board of directors would be changed to
include four current Marathon directors and four current Rockingham directors.
Please refer to Chapter V for information on who will manage Marathon after the
merger.

         Marathon shareholders may also be asked to vote upon a proposal to
adjourn or postpone the Marathon meeting for the purpose of, among other things,
allowing additional time for the solicitation of proxies from Marathon
shareholders to approve the merger agreement.

         Record Date; Voting Power. Only holders of record of shares of Marathon
common stock at the close of business on _____ ___, 2000 are entitled to notice
of and to vote at the Marathon meeting. As of such date, there were __________
issued and outstanding shares of Marathon common stock held by approximately
______ holders of record. Holders of record of Marathon common stock on the
Marathon record date are entitled to one vote per share on any matter that may
properly come before the Marathon meeting. Brokers who hold shares of Marathon
common stock as nominees will not have discretionary authority to vote such
shares in the absence of instructions from the beneficial owners thereof. Any
such shares of Marathon common stock for which a broker has submitted an
executed proxy but for which the beneficial owner thereof has not given
instructions on voting to such broker are referred to as "broker non-votes."

         Vote Required. The presence in person or by proxy of the holders of a
majority of the shares of Marathon common stock outstanding on the Marathon
record date will constitute a quorum for the transaction of business at the
Marathon meeting. Abstentions and broker non-votes will be counted for purposes
of establishing the presence of a quorum at the Marathon meeting. The approval
of the proposals to issue Marathon common stock to Rockingham shareholders and
to amend the Marathon articles of incorporation each requires a greater number
of votes cast in favor of each matter than the number of votes opposing the
matter.

         On the record date, the executive officers and directors of Marathon,
including their affiliates, had voting power with respect to an aggregate of
__________ shares of Marathon common stock or



                                      II-1
<PAGE>

approximately _______% of the shares of Marathon common stock then outstanding.
We expect that such directors and officers will vote all of such shares in favor
of the proposal to approve the merger agreement.

         Recommendation of the Marathon Board. The Marathon board has
unanimously approved and adopted the merger agreement, the stock issuance and
the proposed amendments to the articles of incorporation. The Marathon board
believes that the merger and related actions are fair to and in the best
interests of Marathon and the Marathon shareholders and recommends that the
Marathon shareholders vote "FOR" approval of the stock issuance and amendments
to the articles of incorporation. See "The Merger - Marathon's Reasons for the
Merger" on page I-14.

         Solicitation and Revocation of Proxies. A form of proxy is enclosed
with this document. All shares of Marathon common stock represented by properly
executed proxies (whether through the return of the enclosed proxy card or by
telephone) will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated on such proxies. If no instructions
are indicated, such shares will be voted FOR approval of the issuance of
Marathon common stock to Rockingham shareholders, FOR the proposed amendments to
Marathon's articles of incorporation and in the discretion of the proxy holder
as to any other matter which may properly come before the Marathon meeting.

         Each holder of Marathon common stock is requested to vote by
completing, dating and signing the accompanying proxy card and returning it
promptly to marathon in the enclosed, postage-paid envelope. Marathon
shareholders should not send stock certificates with their proxy cards.

         Any Marathon shareholder who has previously delivered a properly
executed proxy may revoke such proxy at any time before its exercise. A proxy
may be revoked either by (i) filing with the secretary of Marathon prior to the
Marathon meeting, at Marathon's principal executive offices, either a written
revocation of such proxy or a duly executed proxy bearing a later date or (ii)
attending the Marathon meeting and voting in person. Presence at the Marathon
meeting will not revoke a shareholder's proxy unless such shareholder votes in
person.

         The cost of soliciting proxies will be borne by Marathon. Proxies may
be solicited by personal interview, mail or telephone. In addition, Marathon may
reimburse brokerage firms and other persons representing beneficial owners of
shares of Marathon common stock for their expenses in forwarding solicitation
materials to beneficial owners. Proxies may also be solicited by certain of
Marathon's executive officers, directors and regular employees, without
additional compensation, personally or by telephone or facsimile transmission.

         Other Matters. Marathon is unaware of any matter to be presented at the
Marathon meeting other than the proposal to approve the merger agreement. If
other matters are properly presented at the Marathon meeting, the persons named
in the enclosed form of proxy will have authority to vote all properly executed
proxies in accordance with their judgment on any such matter, including, without
limitation, any proposal to adjourn or postpone the Marathon meeting, provided
that no proxy that has been designated to vote against approval of the merger
agreement will be voted in favor of any proposal to adjourn or postpone the
Marathon meeting for the purpose of soliciting additional proxies to approve the
merger agreement.

Rockingham Meeting

         General. The Rockingham meeting will be held on ________ __, 2000 at
____ a.m., local time, at the ________________________________, Virginia. At the
Rockingham


                                      II-2
<PAGE>

meeting, holders of Rockingham common stock will be asked to consider and vote
upon a proposal to approve the merger agreement. Rockingham shareholders may
also be asked to vote upon a proposal to adjourn or postpone the Rockingham
meeting for the purpose of, among other things, allowing additional time for the
solicitation of proxies from Rockingham shareholders to approve the merger
agreement.

         Record Date; Voting Power. Only holders of record of shares of
Rockingham common stock at the close of business on _____ ___, 2000 are entitled
to notice of and to vote at the Rockingham meeting. As of such date, there were
__________ issued and outstanding shares of Rockingham common stock held by
approximately ______ holders of record. Holders of record of Rockingham common
stock on the Rockingham record date are entitled to one vote per share on any
matter that may properly come before the Rockingham meeting. Brokers who hold
shares of Rockingham common stock as nominees will not have discretionary
authority to vote such shares in the absence of instructions from the beneficial
owners thereof. Any such shares of Rockingham common stock for which a broker
has submitted an executed proxy but for which the beneficial owner thereof has
not given instructions on voting to such broker are referred to as "broker
non-votes."

         Vote Required. The presence in person or by proxy of the holders of a
majority of the shares of Rockingham common stock outstanding on the Rockingham
record date will constitute a quorum for the transaction of business at the
Rockingham meeting. Abstentions and broker non-votes will be counted for
purposes of establishing the presence of a quorum at the Rockingham meeting. The
approval of the proposal to approve the merger agreement requires the
affirmative vote of holders of more than two-thirds of the shares of Rockingham
common stock outstanding on the record date. Broker non-votes and abstentions
will be counted and will have the effect of a vote against the proposal to
approve the merger agreement.

         On the record date, the executive officers and directors of Rockingham,
including their affiliates, had voting power with respect to an aggregate of
__________ shares of Rockingham common stock or approximately _______% of the
shares of Rockingham common stock then outstanding. We expect that such
directors and officers will vote all of such shares in favor of the proposal to
approve the merger agreement. In addition, on the Rockingham record date, the
directors and executive officers of Rockingham beneficially owned 700 shares of
Marathon common stock.

         Recommendation of the Rockingham Board. The Rockingham board has
unanimously approved and adopted the merger agreement. The Rockingham board
believes that the merger is fair to and in the best interests of Rockingham and
the Rockingham shareholders and recommends that the Rockingham shareholders vote
"FOR" approval of the merger agreement and the transactions contemplated
thereby. See "The Merger - Rockingham's Reasons for the Merger" on page I-15.

         Solicitation and Revocation of Proxies. A form of proxy is enclosed
with this document. All shares of Rockingham common stock represented by
properly executed proxies (whether through the return of the enclosed proxy card
or by telephone) will, unless such proxies have been previously revoked, be
voted in accordance with the instructions indicated on such proxies. If no
instructions are indicated, such shares will be voted FOR approval of the merger
agreement and in the discretion of the proxy holder as to any other matter which
may properly come before the Rockingham meeting.

         Each holder of Rockingham common stock is requested to vote by
completing, dating and signing the accompanying proxy card and returning it
promptly to Rockingham in the enclosed, postage-paid envelope. Rockingham
shareholders should not send stock certificates with their proxy cards.



                                      II-3
<PAGE>

         Any Rockingham shareholder that has previously delivered a properly
executed proxy may revoke such proxy at any time before its exercise. A proxy
may be revoked either by (i) filing with the secretary of Rockingham prior to
the Rockingham meeting, at Rockingham's principal executive offices, either a
written revocation of such proxy or a duly executed proxy bearing a later date
or (ii) attending the Rockingham meeting and voting in person. Presence at the
Rockingham meeting will not revoke a shareholder's proxy unless such shareholder
votes in person.

         The cost of soliciting proxies will be borne by Rockingham. Proxies may
be solicited by personal interview, mail or telephone. In addition, Rockingham
may reimburse brokerage firms and other persons representing beneficial owners
of shares of Rockingham common stock for their expenses in forwarding
solicitation materials to beneficial owners. Proxies may also be solicited by
certain of Rockingham's executive officers, directors and regular employees,
without additional compensation, personally or by telephone or facsimile
transmission.

         Other Matters. Rockingham is unaware of any matter to be presented at
the Rockingham meeting other than the proposal to approve the merger agreement.
If other matters are properly presented at the Rockingham meeting, the persons
named in the enclosed form of proxy will have authority to vote all properly
executed proxies in accordance with their judgment on any such matter,
including, without limitation, any proposal to adjourn or postpone the
Rockingham meeting, provided that no proxy that has been designated to vote
against approval of the merger agreement will be voted in favor of any proposal
to adjourn or postpone the Rockingham meeting for the purpose of soliciting
additional proxies to approve the merger agreement.













                                      II-4
<PAGE>

                                   CHAPTER III
                             DESCRIPTION OF MARATHON

                                    BUSINESS

General

         Marathon is a bank holding company that was incorporated under the laws
of the Commonwealth of Virginia in June 1989. Marathon owns all of the
outstanding stock of its sole subsidiary, The Marathon Bank ("The Marathon
Bank"), which was incorporated in August 1987 and acquired by Marathon in
October 1990. Marathon is headquartered in Frederick County, Virginia. The
Marathon Bank's offices are located in the Marathon Financial Center, 4095
Valley Pike, Winchester, Virginia. Marathon is a holding company for The
Marathon Bank and is not directly engaged in the operation of any other
business.

         The Marathon Bank, which is chartered under the laws of the
Commonwealth of Virginia, conducts a general banking business through its
offices. The Marathon Bank's deposits are insured under the Federal Deposit
Insurance Act and The Marathon Bank is a member of the Federal Reserve System.
As of December 31, 1999, The Marathon Bank employed 64 persons on a full-time
basis.

         The banking business in the area served by The Marathon Bank (the
counties of Frederick, Clarke, Shenandoah, and Warren, Virginia) is highly
competitive with respect to both loans and deposits. In The Marathon Bank's
primary service area, there are approximately six commercial banks (including
four large, Virginia-wide banks with multiple offices) offering services ranging
from deposits and real estate loans to full service banking. Certain of the
commercial banks in this service area have higher lending limits than The
Marathon Bank and may provide various services for their customers that are not
offered by The Marathon Bank. In addition, there can be no assurance that other
financial institutions, with substantially greater resources than Marathon and
The Marathon Bank, will not establish operations in The Marathon Bank's service
area.

Recent Developments

         During 1998, the Board of Directors authorized management to repurchase
shares of Marathon's common stock with the following stipulations: the market
price to book value must be 1.70% or below, and the maximum number of shares
purchased during a calendar year does not exceed 1.50% of outstanding shares.
Based on this criteria, Marathon purchased 17,245 shares of its common stock
during 1999.

Supervision and Regulation

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



                                      III-1
<PAGE>

acquiring shares of a company engaged in activities found by the Federal Reserve
to be so closely related to banking or managing banks as to be a proper incident
thereto.

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

Properties

         The Marathon Bank office is located at 4095 Valley Pike, Winchester,
Virginia. On December 31, 1993, the Marathon Land Trust executed a deed and
transferred the office to The Marathon Bank. This property is owned free of
encumbrances.

         On August 12, 1993, The Marathon Bank opened its Warren County Branch
at 300 Warren Avenue in Post Office Plaza, Front Royal, Warren County, Virginia.

         On July 1,1996, The Marathon Bank entered into a new lease with Post
Office Plaza, L.C. for the new branch facility in Front Royal. The terms of the
lease include a monthly rent of $3,846 for the first five years, to be adjusted
annually afterward. The lease term is twenty years with the option to renew for
two additional five-year terms.

         On February 13, 1995, The Marathon Bank opened its Winchester Branch at
1041 Berryville Avenue in the City of Winchester, Virginia. The Marathon Bank
executed a lease on October 1, 1994, for five years with a monthly lease payment
of $1,000. The Marathon Bank has two five-year options to extend this lease.

         On June 18, 1997, The Marathon Bank opened a second Winchester Branch
at 1447 North Frederick Pike, Winchester, Virginia. The Marathon Bank entered
into a lease on January 13, 1997, with a termination date of December 31, 2006.
The Marathon Bank has two five-year options to extend the lease. The monthly
lease payment is $2,500.

         On September 22, 1997, The Marathon Bank opened its Shenandoah County
Branch at 1014 South Main Street, Woodstock, Virginia. A new lease was executed
by The Marathon Bank on September 1, 1997, for five years with a monthly lease
payment of $800 per month through the third year, $900 per month for the fourth
year and $1,000 per month for the fifth year. The Marathon Bank has two
five-year options to extend that lease.

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

Legal Proceedings

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




                                     III-2
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         Marathon is the holding company for The Marathon Bank. The following
discussion is intended to assist readers in understanding and evaluating the
financial condition and results of operations of Marathon and The Marathon Bank.
This review should be read in conjunction with the consolidated financial
statements and related notes included in Appendix B to this joint proxy
statement/prospectus. This analysis provides an overview of the significant
changes that occurred during the periods presented.

         In addition to the historical information, the following discussion, as
well as other information appearing throughout this joint proxy
statement/prospectus, may contain forward looking statements that are subject to
certain risks and uncertainties which could cause actual results to differ
materially from historical results or those anticipated. Although Marathon
believes that any forward looking statements are based upon sound assumptions
within the limits of the knowledge of its operations and the existing economic
conditions, there is no certainty that future results will not differ materially
from historical results or those anticipated by forward looking statements.












                                     III-3
<PAGE>

                             Selected Financial Data

         The income statement data, per share data, and balance sheet data
contained in the following summary financial data for the five years ended
December 31, 1999 are derived from the audited financial statements of Marathon.
The financial data for the three month periods ended March 31, 2000 and 1999 are
taken from unaudited financial statements. The summary should be reviewed in
conjunction with the historical financial statements included in Appendix B of
this document.
<TABLE>
<CAPTION>
                               For the Three Months Ended
                                         March 31,                              For the Years Ended December 31,
                               ----------------------------------------------------------------------------------------------------
                                      2000         1999          1999          1998           1997           1996           1995
                                      ----         ----          ----          ----           ----           ----           ----
                                                        (In thousands except per share data)
<S>                               <C>           <C>           <C>           <C>           <C>            <C>            <C>
Income Statement Data:
Interest income                   $     2,165   $     1,939   $     8,315   $     6,876   $     4,882    $     3,789    $     2,940
Interest expense                          913           828         3,482         2,959         1,943          1,614          1,252
                                  -----------   -----------   -----------   -----------   -----------    -----------    -----------
Net interest income                     1,252         1,111         4,833         3,917         2,939          2,175          1,688
Provision for loan losses                  73            60           260           285           133            165            113
                                  -----------   -----------   -----------   -----------   -----------    -----------    -----------


Net interest income after
   provision for
   loan losses                          1,179         1,051         4,573         3,632         2,806          2,010          1,575
Other income                              204           199           859           819           587            430            281
Other expenses                            948           882         3,757         3,193         2,583          1,746          1,435
                                  -----------   -----------   -----------   -----------   -----------    -----------    -----------
Income before income taxes        $       435   $       368   $     1,675   $     1,258   $       810    $       694    $       421
Income taxes (benefits)                   142           132           563            78          (188)          (145)            --
                                  -----------   -----------   -----------   -----------   -----------    -----------    -----------

   Net income                     $       293   $       236   $     1,112   $     1,180   $       998    $       839    $       421
                                  ===========   ===========   ===========   ===========   ===========    ===========    ===========

Per Share Data: (1)

Book value at period ended        $      4.75   $      4.35   $      4.62   $      4.26   $      3.75    $      3.16    $      2.05
Net income, basic                        0.14          0.11          0.54          0.57          0.51           0.58           0.35
Net income, assuming dilution            0.14          0.11          0.53          0.56          0.50           0.58           0.35
Cash dividends declared           $        --   $        --   $       .09   $       .08   $       .07    $       .08    $        --
Average common shares outstanding   2,050,764     2,062,524     2,050,748     2,058,932     1,951,172      1,445,601      1,205,443

Balance Sheet Data:
Loans, net                        $    79,231   $    71,467   $    74,527   $    65,065   $    49,015    $    37,006    $    28,405
Loans held for resale                     176           230            --           402         1,502            403            369
Allowance for loan loss                   802           816           769           755           576            503            393
Total assets                          112,474        95,065       103,685        91,852        64,826         47,287         36,070
Deposits                              101,991        85,458        93,343        82,295        56,435         40,725         32,622
Shareholders' equity                    9,753         8,964         9,445         8,790         7,711          5,890          2,678

Performance Ratios:
Return on average assets (2)             1.10%         1.01%         1.09%         1.47%         1.86%          2.02%          1.32%
Return on average equity (2)            12.17%        10.59%        12.20%        14.03%        14.99%         23.19%         16.96%
Net interest margin (3)                  5.14%         5.14%         5.21%         5.40%         6.09%          5.83%          5.81%
Average loans to deposits               80.43%        81.98%        79.98%        81.94%        92.36%         89.37%         92.94%
Average equity to average assets         9.03%         9.48%         8.97%        10.51%        12.42%          8.72%          7.78%

Asset Quality Ratios:
Allowance for loan losses to
   period end loans                      1.00%         1.13%         1.02%         1.14%         1.13%          1.32%          1.34%
Allowance for loan losses to
   non-accrual loans                    11.28x        17.79x        18.98x        30.86x        15.12x         70.30x         86.50x
Non-performing assets to period
   end loans and other real estate       0.30%         0.66%         0.30%         0.38%         0.07%          0.19%          0.15%
Net charge-offs to average loans         0.05%         0.00%         0.34%         0.18%         0.14%          1.00%          1.05%

</TABLE>
____________________
(1)  Shares outstanding and per share data for years prior to 1997 adjusted to
     reflect the impact of the February 8, 1996, 15% of net income stock
     dividend.
(2)  Annualized for the three months ended March 31, 2000 and 1999.
(3)  Net interest margin is calculated as tax equivalent net interest income
     divided by average earning assets.



                                     III-4
<PAGE>

   Average Balances, Interest Income and Expenses and Average Yields and Rates

         The following table sets forth information relating to The Marathon
Bank's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated and the average yields
earned and rates paid for the periods indicated. Such yields and costs are
derived by dividing income or expense by the average daily balances of assets
and liabilities, respectively, for the periods presented.
<TABLE>
<CAPTION>
                                                      March 31, 2000              December 31, 1999           December 31, 1998
                                          -----------------------------------------------------------------------------------------
                                            Average     Earnings/  Yield/  Average    Earnings/  Yield/ Average    Earnings/  Yield/
  Assets:                                   Balances    Expense(2)  Rate   Balances   Expense(2)  Rate  Balances   Expense(2)  Rate
  -------                                   --------    ----------  ----   --------   ----------  ----  --------   ----------  ----
<S>                                        <C>          <C>         <C>  <C>          <C>         <C>  <C>         <C>        <C>
Interest Earning Assets
Loans, net of unearned discounts (1)       $ 77,506,235 $ 1,876,065 9.7% $ 73,406,447 $7,252,043  9.9% $58,269,578 $6,063,709  10.4%
Securities:
   Taxable                                 $  9,750,971 $   143,853 5.9% $  9,356,267   $553,766  5.9% $ 6,257,989 $  381,331   6.1%
   Non-Taxable                                1,425,431      22,740 6.4%      618,581     33,492  5.4%          --         --    --
                                           ------------ -----------      ------------ ----------       ----------- ----------
   Total Securities                        $ 11,176,402 $   166,593      $  9,974,848 $  587,258       $ 6,257,989 $  381,331

Federal funds sold                            9,310,181     130,231 5.6%    9,779,041    491,769  5.0%   7,991,882    430,995   5.4%
                                           ------------ -----------      ------------ ----------       ----------- ----------

Total interest earning assets              $ 97,992,818 $ 2,172,889 8.9% $ 93,160,336 $8,331,070  8.9% $72,519,449 $6,876,035   9.5%
                                                        -----------                   ----------


Non-Interest Earning Assets
   Cash and due from banks                    5,451,908                     5,530,765                   4,364,755
   Bank premises and equipment                2,661,946                     2,562,174                   2,591,083
   Other assets                               1,268,362                     1,148,345                   1,263,018
   Allowance for loan losses                   (790,455)                     (788,777)                   (656,014)
                                           ------------                  ------------                  -----------

Total assets                               $106,584,579                  $101,612,843                  $80,082,291
                                           ============                  ============                  ===========


Liabilities and Shareholders' Equity

Interest-bearing Liabilities:
   Interest-bearing deposits               $ 82,960,445 $   908,889 4.4% $ 78,800,817 $3,464,415  4.4% $61,155,144 $2,938,214   4.8%
   Capital lease payable                        216,943       4,350 8.1%      220,925     17,808  8.1%     259,020     20,341   7.9%
                                           ------------ -----------      ------------ ----------       ----------- ----------

Total interest-bearing liabilities         $ 83,177,388 $   913,239 4.4% $ 79,021,742 $3,482,223  4.4% $61,414,164 $2,958,555   4.8%
                                                        -----------                   ----------

   Non-Interest Bearing Liabilities:
    Liabilities:
      Demand deposits                        13,401,590                    12,984,167                    9,958,661
      Other liabilities                         377,098                       493,303                      296,639
                                           ------------                  ------------                      -------
   Total liabilities                       $ 96,956,076                  $ 92,499,212                  $71,669,464
   Shareholders' equity                       9,628,503                     9,113,631                    8,412,827
                                           ------------                  ------------                  -----------

Total liabilities and shareholders' equity $106,584,579                  $101,612,843                  $80,082,291
                                           ============                  ============                  ===========

Net Interest Income                                     $ 1,259,650                   $4,848,847                   $3,917,480
                                                        ===========                   ==========                   ==========
Interest Rate Spread                                                4.5%                          4.5%                          4.7%
Net Interest Margin                                                 5.1%                          5.2%                          5.4%
                                                                    ====                          ====                          ====
</TABLE>
______________________
(1)  Non-accrual loans are included in the average balance of this category
(2)  Amounts are shown on a tax equivalent basis.




                                     III-5
<PAGE>

                            Volume and Rate Analysis
<TABLE>
<CAPTION>
                                                  Three Months Ended March 31,
                                                      2000 compared to 1999
                                             ----------------------------------------
                                                Increase (Decrease)
                                                 Due to Changes in
                                                Volume         Rate         Total
                                             ------------ ------------- -------------
<S>                                           <C>          <C>            <C>
       Interest Earned On:
       Loans receivable, net                  $     4,483  $      5,061   $     9,544
       Securities, taxable                         21,436          (200)       21,236
       Securities, non-taxable                    217,906       (56,136)      161,770
       Federal funds sold                          23,423        17,224        40,647
                                             ------------ ------------- -------------
             Total interest income                267,248       (34,051)      233,197
                                             ------------ ------------- -------------

       Interest Paid On:
           Interest-bearing deposits               91,916        (6,567)       85,349
           Federal funds purchased                     --            --            --
           Capital lease payable                     (125)           --          (125)
                                             ------------ ------------- -------------
             Total interest expense                91,791        (6,567)       85,224
                                             ------------ ------------- -------------
              Net interest income             $   175,457  $    (27,484) $    147,973
                                             ============ ============= =============
</TABLE>

<TABLE>
<CAPTION>
                                                         December 31,                                 December 31,
                                                     1999 compared to 1998                       1998 compared to 1997
                                            ------------------------------------------  -------------------------------------------
                                               Increase (Decrease)                          Increase (Decrease)
                                                Due to Changes in                            Due to Changes in
                                               Volume          Rate          Total          Volume          Rate           Total
Interest Earned On:                         ------------   ------------   ------------   ------------   ------------    -----------
<S>                                          <C>            <C>            <C>            <C>            <C>            <C>
Loans receivable, net                        $ 1,458,209    $  (269,875)   $ 1,188,334    $ 1,587,785    $   (83,441)   $ 1,504,344
Securities, taxable                              184,664        (12,229)       172,435        199,145        (11,259)       187,886
Securities, nontaxable                            16,746         16,746         33,492             --             --             --
Federal Funds Sold                                90,877        (30,103)        60,774        298,691          2,460        301,151
                                             -----------    -----------    -----------    -----------    -----------    -----------
Total interest income                        $ 1,750,496    $  (295,461)   $ 1,455,035    $ 2,085,621    $   (92,240)   $ 1,993,381
                                             -----------    -----------    -----------    -----------    -----------    -----------
Interest Paid On:
     Interest-bearing deposits               $   739,889    $  (213,688)   $   526,201    $ 1,059,500    $   (39,385)   $ 1,020,115
     Federal funds purchased                          --             --             --           (673)            --           (673)
     Capital lease payable                        (3,060)           527         (2,533)        (3,369)          (927)        (4,296)
                                             -----------    -----------    -----------    -----------    -----------    -----------

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

Net interest income                          $ 1,013,667    $   (82,300)   $   931,367    $ 1,030,163    $   (51,928)   $   978,235
                                             ===========    ===========    ===========    ===========    ===========    ===========
</TABLE>








                                     III-6
<PAGE>

                                   Securities

         The following table summarizes the book value of securities for the
periods indicated:

                   Book Value of Securities Available for Sale
                   -------------------------------------------
<TABLE>
<CAPTION>
                                              For the Three Months Ended              For the Years Ended
                                                       March 31,                            December 31,
                                              ---------------------------     -------------------------------------
                                                         2000                        1999                 1998
                                                         ----                        ----                 ----
<S>                                                   <C>                         <C>                  <C>
U.S. Treasury securities and
    obligations of U.S. government
    agencies and corporations                         $4,226,546                  $3,944,510           $4,460,218
Obligations of state & political
    subdivisions                                         539,792                     540,132                   --
Mortgage-backed securities                                15,316                      15,765               21,555
Other securities                                         580,350                     580,350              479,800
                                                      ----------                  ----------           ----------
                                                      $5,362,004                  $5,080,757           $4,961,573
                                                      ==========                  ==========           ==========
</TABLE>

                    Book Value of Securities Held to Maturity
                    -----------------------------------------
<TABLE>
<CAPTION>
                                              For the Three Months Ended              For the Years Ended
                                                       March 31,                          December 31,
                                              --------------------------      -------------------------------------
                                                       2000                        1999                 1998
                                                       ----                        ----                 ----
<S>                                                 <C>                         <C>                  <C>
U.S. Treasury securities and
    obligations of U.S. government
    agencies and corporations                       $5,283,421                  $4,687,181           $4,899,237
Obligations of state and political
    subdivisions                                       958,794                     959,610              100,840
                                                    ----------                  ----------           ----------
                                                    $6,242,215                  $5,646,791           $5,000,077
                                                    ==========                  ==========           ==========
</TABLE>

         At March 31, 2000, the securities book value was $11,604,219 compared
to $10,727,548 and $9,961,650 as of December 31, 1999 and 1998, respectively.
The market value of securities at March 31, 2000 was $11,414,315 compared to
$10,564,216 and $10,002,374 at December 31, 1999 and 1998, respectively. As of
March 31, 2000, there were no obligations by any one issuer in the investment
portfolio, exclusive of obligations of the U.S. Government or U.S. Agencies and
Corporations, which in the aggregate exceeded 10% of stockholders' equity.





                                     III-7
<PAGE>
                   Investment Portfolio - Maturity and Yields

         The following table sets forth the maturity distribution and weighted
average yields of the securities portfolio at March 31, 2000. The weighted
average yields are calculated on the book value of the portfolio and on
securities interest income adjusted for amortization of premium and accretion of
discount.
<TABLE>
<CAPTION>
                                                                              March 31, 2000
                                                  -----------------------------------------------------------------------
                                                                                                After One But
                                                          Within One Year                      Within Five Years
                                                  ---------------------------------    ----------------------------------
                                                      Amount             Yield             Amount             Yield
                                                  ---------------------------------    ----------------------------------
<S>                                                    <C>                   <C>           <C>                     <C>
U.S. Treasury securities and obligations
    of U.S. government agencies and
    corporations                                       $ 697,754             5.29%         $6,690,270              6.00%
Obligations of state and political subdivisions               --             0.00%            794,884              6.37%
Mortgage-backed securities                                    --             0.00%                 --              0.00%
Other securities                                              --             0.00%                 --              0.00%
                                                  ---------------    --------------    ---------------    ---------------
    Total                                              $ 697,754             5.29%         $7,485,154              6.04%
                                                  ===============    ==============    ===============    ===============
</TABLE>
<TABLE>
<CAPTION>
                                                                              March 31, 2000
                                                  -----------------------------------------------------------------------
                                                           After Five But
                                                          Within Ten Years                      After Ten Years
                                                  ---------------------------------    ----------------------------------
                                                      Amount             Yield             Amount             Yield
                                                  ---------------------------------    ----------------------------------
<S>                                                  <C>                     <C>             <C>                   <C>
U.S. Treasury securities and obligations
    of U.S. government agencies and
    corporations                                     $ 2,121,943             5.96%           $     --              0.00%
Obligations of state and political subdivisions          656,066             6.04%             47,636              4.62%
Mortgage-backed securities                                11,812             8.72%              3,504              8.78%
Other securities                                              --             0.00%            580,350              6.42%
                                                  ---------------    --------------    ---------------    ---------------
Total                                                $ 2,789,821             5.99%         $  631,490              6.30%
                                                  ===============    ==============    ===============    ===============
</TABLE>

                                 Loan Portfolio

         The following table summarizes the composition of the loan portfolio at
the dates indicated.
<TABLE>
<CAPTION>
                                                                           March 31,                 December 31,
                                                                         ---------------    --------------------------------
                                                                              2000               1999             1998
                                                                              ----               ----             ----
<S>                                                                         <C>                 <C>              <C>
Loans secured by real estate:                                                               (In thousands)
     Construction                                                           $12,412             $10,649         $ 8,900
     Secured by farmland                                                        738                 744             733
     Secured by 1-4 family residential                                       17,100              16,717          13,773
     Multi-family residential                                                 2,072               2,349           1,379
     Nonfarm, nonresidential loans                                           12,063              12,038           5,168
Loans to farmers (except those secured by real estate)                          232                 220             218
Commercial and industrial loans (except those secured by real estate)        21,604              19,041          21,126
Loans to individuals (except those secured by real estate)                   13,495              13,311          15,468
All other loans                                                                 550                 557             100
                                                                            -------             -------         -------
                                                                            $80,266             $75,626         $66,865
Less:
   Unearned income                                                              233                 330           1,045
   Allowance for loan losses                                                    802                 769             755
                                                                            -------             -------         -------
                                                                            $79,231             $74,527         $65,065
                                                                            =======             =======         =======
</TABLE>


                                     III-8
<PAGE>

         Marathon had no loans outstanding to foreign countries or for highly
leveraged transactions as of March 31, 2000, December 31, 1999 or December 31,
1998.

         There were no categories of loans that exceeded 10% of outstanding
loans as of March 31, 2000, which were not disclosed in the above table.

         In the normal course of business, the corporation makes various
commitments and incurs certain contingent liabilities, which are disclosed but
not reflected in the accompanying financial statements. At March 31, 2000,
commitments for standby letters of credit totaled $1,470,735 and commitments to
extend credit totaled $13,879,018. At December 31, 1999, commitments for standby
letters of credit totaled $1,432,380 and commitments to extend credit totaled
$13,467,000. At December 31 1998, commitments for standby letter of credit
totaled $851,449 and commitments to extend credit totaled $8,909,000.

                       Maturity Schedule of Selected Loans

         The table below presents the maturities of selected loans outstanding
at March 31, 2000.
<TABLE>
<CAPTION>
                                                              After One
                                              Within          But Within         After
                                             One Year         Five Years       Five Years          Total
                                             --------         ----------       ----------          -----
                                                                (Dollars in thousands)
<S>                                           <C>               <C>              <C>              <C>
Commercial:                                   $ 6,416           $11,623          $3,565           $21,604
Real estate-construction                        7,720             2,458           2,234            12,412
                                              -------           -------          ------           -------
                                              $14,136           $14,081          $5,799           $34,016
                                              =======           =======          ======           =======

Interest sensitivity on such loans
   maturing after one year:
      Fixed                                                                                       $17,376
      Variable                                                                                      2,504
                                                                                                  -------
        Total                                                                                     $19,880
                                                                                                  =======
</TABLE>

                              Non-Performing Assets

         The following table details information concerning non-accrual, past
due and restructured loans as well as other real estate owned, for the periods
indicated:
<TABLE>
<CAPTION>
                                                                            March 31,              December 31,
                                                                           -------------    ---------------------------
                                                                               2000             1999          1998
                                                                               ----             ----          ----
<S>                                                                          <C>              <C>           <C>
Non-accrual loans                                                            $ 71,087         $ 40,541      $233,200
Other Real Estate                                                             165,095          183,218        18,123
Restructured loans                                                                 --               --            --
                                                                             --------         --------      --------
   Total Non-performing assets                                               $236,182         $223,759      $251,323

Non-performing assets to period end loans and other real estate owned            .30%             .30%          .38%
                                                                                 ====             ====          ====
Loans past due 90 days or more and still accruing interest                   $113,206         $ 19,862      $191,977
                                                                             ========         ========      ========
</TABLE>



                                     III-9
<PAGE>

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

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

         As of March 31, 2000, Marathon had a total of $236,182 in nonperforming
assets compared to $223,759 at December 31, 1999, representing an increase of
5.55%.

         On March 31 2000, Marathon had $71,087 in non-accrual loans, which
consist of $24,201 in installment loans, $10,968 in commercial loans, and
$35,918 in mortgage loans. Approximately $6,450 of interest income would have
been recorded if interest had been accrued during the first quarter of 2000. The
$113,206 in 90 days past due and still accruing interest consists of $2,363 in
installment loans, and $110,843 in commercial loans.

         As of March 31, 2000, Marathon had no loans in addition to the past due
and non-accrual loans mentioned above that are considered to be potential
problem loans.

         Marathon's management and Board of Directors have reviewed the asset
quality of The Marathon Bank's loan portfolio and The Marathon Bank's loan loss
reserve and have found it to be adequate.

                                Loan Loss Summary
<TABLE>
<CAPTION>
                                                           March 31,            December 31,
                                                           --------             ------------
                                                         2000      1999        1999       1998
                                                         ----      ----        ----       ----
<S>                                                    <C>        <C>        <C>        <C>
Balance, beginning of period                           $769,410   $754,597   $754,597   $576,497
Less Charge-off's:
         Commercial                                    $     --   $     --   $153,699   $ 28,735
         Real estate-mortgage                                --         --     29,091         --
         Real estate-construction                        13,319        642     18,960         --
         Installment loans to individuals                35,841         --     70,942    122,376
                                                       --------   --------   --------   --------
                          Total Charge-offs            $ 49,160   $    642   $272,692   $151,111
                                                       --------   --------   --------   --------

Plus Recoveries:
         Commercial                                    $     50   $     82   $  1,816   $ 11,925
         Real estate-mortgage                                --         --         --     20,368
         Real estate-construction                         1,008        996      2,334         --
         Installment loans to individuals                 7,430        777     23,355     11,918
                                                       --------   --------   --------   --------
                           Total Recoveries            $  8,488   $  1,855   $ 27,505   $ 44,211
                                                       --------   --------   --------   --------

Provision for loan losses                              $ 73,400   $ 60,000   $260,000   $285,000
                                                       --------   --------   --------   --------

Balance, end of period                                 $802,138   $815,810   $769,410   $754,597
                                                       ========   ========   ========   ========

Ratio of net charge-offs during the period to
average loans outstanding during the period               0.05%      0.00%      0.34%      0.18%

</TABLE>

         Marathon maintains the allowance for loan losses at a sufficient level
to provide for potential losses in the loan portfolio. Loan losses are charged
directly to the allowance when they occur, while



                                     III-10
<PAGE>

recoveries are credited to the allowance. The adequacy of the provision for loan
losses is reviewed periodically by management through consideration of several
factors including changes in the character and size of the loan portfolio and
related loan loss experience, a review and examination of overall loan quality
which includes the assessment of problem loans and an analysis of anticipated
economic condition in the market area. An analysis of the allowance for loan
losses, including charge-off activity, is presented above for the periods
indicated.

                    Allocation of the Reserve for Loan Losses

         The following table reflects management's allocation of the reserve for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
                                                                    March 31, 2000        December 31, 1999      December 31, 1998
                                                                    --------------        -----------------      -----------------
                                                                         % of Loans to           % of Loans to         % of Loans to
                                                                  Amount  Total Loans    Amount   Total Loans   Amount  Total Loans
                                                                  ------  -----------    ------   -----------   ------  -----------
<S>                                                              <C>          <C>       <C>          <C>       <C>          <C>
Loans secured by real estate:
     Construction                                                $ 32,086     15.5%     $ 30,776     14.1%     $ 30,561     13.3%
     Secured by farmland                                            7,299     00.9%        7,219     00.9%        7,169     01.1%
     Secured by 1-4 family residential                             20,053     21.3%       18,388     22.2%       15,092     20.6%
     Multi-family residential                                      24,064     02.6%       24,062     03.1%       24,373     02.1%
     Nonfarm, nonresidential loans                                296,791     15.0%      280,314     15.9%      285,426     07.7%
Loans to farmers (except those secured by real estate)              2,026     00.3%        2,647     00.3%        2,566     00.3%
Commercial and industrial loans (except those
  secured by real estate)                                         324,365     26.9%      323,418     25.2%      329,042     31.6%
Loans to individuals (except those secured by
  real estate)                                                     88,235     16.8%       76,410     17.6%       55,840     23.1%
All other loans                                                     7,219     00.7%        6,176     00.7%        4,528     00.2%
                                                                 --------    -----      --------    -----      --------    -----
                                                                 $802,138    100.0%     $769,410    100.0%     $754,597    100.0%
                                                                 ========    =====      ========    =====      ========    =====

</TABLE>










                                     III-11
<PAGE>

                     Average Deposits and Average Rates Paid

         The following table details the average amount of, and the average rate
paid on the following primary deposit categories for the years ended December
31, 1999 and 1998, and first quarter of 2000.
<TABLE>
<CAPTION>
                                           March 31, 2000           December 31, 1999         December 31, 1998
                                           --------------           -----------------         -----------------
                                         Average      Average       Average       Average      Average      Average
                                         Balance       Rate         Balance        Rate        Balance       Rate
                                         -------       ----         -------        ----        -------       ----
<S>                                   <C>                        <C>                        <C>
Non-interest bearing:
    Demand deposits                   $13,401,590                $12,984,167                $9,958,661
                                      -----------                -----------                ----------
Interest-bearing:
    Demand deposits                   $20,825,615      2.8%      $19,276,178       2.9%     $13,868,025      3.3%
    Savings deposits                    9,777,847      3.0%        9,457,893       3.0%       7,326,658      3.0%
    Time deposits                      52,356,983      5.3%       50,066,746       5.2%      39,960,461      5.7%
                                      -----------                -----------                -----------

                                      $82,960,445      4.4%      $78,800,817       4.4%     $61,155,144      4.8%
                                      -----------                -----------                -----------

                                      $96,362,035                $91,784,984                $71,113,805
                                      ===========                ===========                ===========
</TABLE>

         Marathon primarily uses deposits to fund its loans and investment
securities. Marathon offers individuals and small-to-medium-size businesses a
variety of deposit accounts. Deposit accounts, including checking, savings,
money markets and certificates of deposit, are obtained primarily from the
communities which Marathon services.

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

         The following is a summary of the maturity distribution of certificates
of deposit and other time deposits in amounts of $100,000 or more as of March
31, 2000.

                                                    March 31, 2000
                                                    --------------
                                                Amount            Percent
                                                ------            -------

         Three months or less                $ 1,577,888            14.3%
         Over three-six months                 1,175,689            10.6%
         Over six-twelve months                4,070,375            36.8%
         Over twelve months                    4,237,364            38.3%
                                             -----------           ------
              Total                          $11,061,316           100.0%
                                             ===========           ======


         Certificates of deposit in the amounts of $100,000 or more were
$11,061,316 at March 31, 2000. This represents 20.7% of the total certificates
of deposit balance of $53,471,305 at March 31, 2000. Marathon does not solicit
such deposits. Further, Marathon does not aggressively bid for public funds
deposits in large denominations, as such deposits may require a pledging of
investment securities.

         Marathon competes with the major regional financial institutions for
money market accounts and certificates of deposits less than $100,000. While
Marathon is competitive with its interest rates, using a tiered rate system to
increase individual account balances, Marathon has found that it can continue to


                                     III-12
<PAGE>

maintain a higher interest margin than its peers by matching loan maturities
with certificate maturities and setting loan rates based on Marathon's cost of
funds.

                            Summary of Liquid Assets

         Liquidity is a measure of Marathon's ability to generate sufficient
cash to meet present and future obligations in a timely manner. These
obligations include the credit needs of customers, funding deposit withdrawals,
and the day-to-day operations of Marathon. Marathon's ability to fund these
daily commitments is illustrated in the following table for the periods
indicated:
<TABLE>
<CAPTION>
                                                         March 31,                   December 31,
                                                         ---------                   ------------
                                                            2000               1999                1998
                                                            ----               ----                ----
<S>                                                     <C>                 <C>                 <C>
Liquid Assets:
   Cash and due from banks                              $  5,338,800        $ 8,011,673         $ 4,533,428
   Federal funds sold                                     12,000,000          6,616,000           8,281,000
   Liquid securities                                       5,612,602          5,329,742           5,211,808
   Loans maturing in one year or less                     22,152,094         22,238,644          20,733,615
                                                        ------------        -----------         -----------
        Total liquid assets                             $ 45,103,496        $42,196,059         $38,759,851
                                                        ============        ===========         ===========

Total deposits and other liabilities                    $102,720,807        $94,239,997         $83,061,556
                                                        ============        ===========         ===========

Ratio of liquid assets to deposits
   and other liabilities                                       43.9%              44.8%               46.7%
                                                        ============        ===========         ===========
</TABLE>

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

         The source of new funds is strong for both long-term and short-term
duration. The growth in deposits was $11.0 million or 13.4% during 1999.
Marathon also has access to overnight federal funds from correspondent banks
totaling up to $5.7 million. In addition, Marathon has established borrowing
limits through the Federal Reserve Bank's discount window for $2.2 million.
Management believes that the opportunity for the sale of loans on the market is
good. Marathon's loan portfolio contains loans of high yields and it enjoys a
recent history of low loan charge-offs.






                                     III-13
<PAGE>

                                 Capital Ratios

         The following table indicates the Federal Reserve's minimum capital
requirements and Marathon's capital ratios at the dates indicated.
<TABLE>
<CAPTION>
                                                March 31,              December 31,
                                                ----------             ------------            Regulatory
                                                   2000           1999             1998          Minimum
                                                   ----           ----             ----          -------
<S>                                                <C>            <C>              <C>            <C>
         Leverage Ratio                            9.26%          8.90%            9.63%          4.00%
         Tier 1 risk-based capital ratio          11.82%         12.31%           12.79%          4.00%
         Total risk-based capital ratio           12.78%         13.30%           13.89%          8.00%
</TABLE>

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

         As indicated in table above, Marathon met the Federal Reserve's minimum
capital requirements as of March 31, 2000 and December 31, 1999 and 1998.

                                Financial Ratios

         The following table summarizes ratios considered to be significant
indicators of Marathon's profitability and financial condition for the periods
indicated.
<TABLE>
<CAPTION>
                                                                       For the Three
                                                                       Months Ended                   For the Years Ended
                                                                         March 31,                       December 31,
                                                                     ------------------     ----------------------------------------
                                                                           2000                   1999                  1998
                                                                     ------------------     ------------------    ------------------
<S>                                                                        <C>                    <C>                   <C>
Return on average assets (Net income/average total assets) (1)              1.10%                  1.09%                 1.47%
                                                                     ==================     ==================    ==================

Return on average equity (Net income/average equity) (1)                   12.17%                 12.20%                14.03%
                                                                     ==================     ==================    ==================

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

Average equity to average asset ratio                                       9.03%                  8.97%                10.51%
                                                                     ==================     ==================    ==================
_______________
</TABLE>
(1)  Annualized for the three months ended March 31, 2000.



                                     III-14
<PAGE>

                              Short-Term Borrowings

         Marathon had no short-term borrowings with an average balance
outstanding of more than 30% of stockholders' equity for the three months ended
March 31, 2000 and the years ended December 31, 1999 and 1998.


                          Interest Sensitivity Analysis

         The following table illustrates the interest sensitivity gap position
of The Marathon Bank at March 31, 2000. This table presents a position that
existed at that one particular day, and since it changes continually, it is not
necessarily indicative of The Marathon Bank's position at any other time.
<TABLE>
<CAPTION>
                                                                                        March 31, 2000
                                                                                        --------------
                                                                                        (In thousands)
                                                                            90 Days                          Over
                                                           1-90 Days       To 1 Year       1-5 Years        5 Years          Total
                                                           ---------       ---------       ---------        -------          -----
<S>                                                         <C>             <C>             <C>             <C>             <C>
Earning Assets:
    Loans (1)                                               $ 16,742        $ 11,525        $ 43,350        $  8,416        $ 80,033
    Securities                                                    --             698           7,486           3,420          11,604
    Federal funds sold                                        12,000              --              --              --          12,000
                                                            --------        --------        --------        --------        --------

       Total interest-sensitive assets                      $ 28,742        $ 12,223        $ 50,836        $ 11,836        $103,637
                                                            --------        --------        --------        --------        --------

Interest-Bearing Liabilities:
    Interest-bearing demand deposits                        $     --        $     --        $ 12,506        $     --        $ 12,506
    Savings                                                       --              --          10,043              --          10,043
    Money Market Savings                                       9,915              --              --              --           9,915
    Certificate of Deposit:                                       --              --              --              --              --
      $100,000 and Over                                        1,578           5,246           4,237              --          11,061
      $100,000 and Under                                       7,987          20,910          13,513              --          42,410
                                                            --------        --------        --------        --------        --------

        Total interest-sensitive
           liabilities                                      $ 19,480        $ 26,156        $ 40,299        $     --        $ 85,935
                                                            --------        --------        --------        --------        ========

Period GAP                                                  $  9,262        $(13,933)       $ 10,537        $11,836
                                                            ========        ========        ========        =======

Cumulative Gap                                              $  9,262        $ (4,671)       $  5,866        $17,702
                                                            ========        ========        ========        =======

Cumulative GAP/Earning Assets                                  8.94%          (4.51%)          5.66%         17.08%
                                                            ========        ========        ========        =======
</TABLE>
_________________
(1)   Nonaccrual loans are included in the totals reflected.


         The present interest sensitivity position of Marathon reflects a
favorable impact upon earnings in the event of rising interest rates. A rate
increase of as much as 200 basis points could have no impact on net interest
income in the first year. Conversely, a decrease in the rate structure of 200
basis points could have a negative impact on net interest income of
approximately 0.9%. The current earning assets and deposit structure of Marathon
suggest that these trends in changes in net interest income would continue
beyond 2000 given a rate change of this magnitude.



                                     III-15
<PAGE>

    Results of Operations for the Three Months Ended March 31, 2000 and 1999
    ------------------------------------------------------------------------

General

         Net income for the three months ending March 31, 2000 was $292,733
compared to $236,488 in the same period in 1999. This is an increase of $56,245
or 23.8%. The provision for income tax expense increased $10,176 from $132,140
in 1999 to $142,316 in 2000. The return on assets on an annualized basis was
1.10% for the first three months of 2000 as compared to 1.09% for the year of
1999. For the first quarter of 2000 the return on equity on an annualized basis
was 12.17%, down slightly from 12.20% for all of 1999.

         Interest income totaled $2,165,157 for the three months ended March 31,
2000, which was $225,977 or 11.7% higher than for the three months ended March
31, 1999. This is a direct result of the increase in earning assets, which
increased the interest and fee income.

         Total interest expense for the three months ended March 31, 2000 was
$913,239, which was $85,225 or 10.3% higher than the three months ended March
31, 1999. Interest on deposits increased by $85,349 or 10.4% over the same
period in 1999 due to an overall increase in deposits.

         Net interest income for the three months ended March 31, 2000 was
$1,251,918, which was $140,752 or 12.7% higher than the three months ended March
31, 1999. This was the result of an increase in our earning assets. The net
interest margin declined slightly in the first quarter of 2000 to 5.14% from the
average for 1999 of 5.21%.

Non-interest Income

         Total other income for the three months ending March 31, 2000 of
$203,159 was $4,065 or 2.0% higher than for the same period in 1999. This is a
result of an increase in the demand deposit accounts, which has increased our
service charge income.

Non-interest Expenses

         Total other expenses for the three months ending March 31, 2000 of
$946,628 were $64,996 or 7.4% higher than for the three months ending March 31,
1999. Salary expense increased $9,366 or 2.0%. Postage expense increased $4,084
or 14.8%. Furniture and equipment expense decreased by $12,469 or 14.5%. ATM
expense increased $19,673 or 63.4% and stationery and supplies increased $9,270
or 27.8% over the same period in 1999. Telephone costs were $28,144, an increase
of 91.2%. Marathon experienced a net recovery of $13,623 from overdrafts for the
first quarter. This compares to a $19,642 net chargeoff for the same period of
1999. The net increase in other expenses is in part a result of additional
staffing to handle the growth and the costs involved in processing an increased
number of accounts and transactions. In spite of rising costs in certain
categories, The Marathon Bank's efficiency ratio improved from 67.25% for the
first quarter of 1999 to 64.71% for the same period of 2000.

   Results of Operations for the Years Ended December 31, 1999, 1998 and 1997
   --------------------------------------------------------------------------

         Marathon's assets increased 12.9% from December 31, 1998 to December
31, 1999, ending 1999 at $103.7 million. This growth was primarily due to a
14.5% increase in net loans with a balance of $74.5 million at year-end. The
loan growth was funded by a 13.4% increase in deposits. The deposit balance of
$93.3 million at year-end consisted of a mix of 13.9% non-interest bearing and
86.1% interest bearing funds. The net income for the year was $1,111,592, a
decline of 5.8% from the $1,180,311 in 1998. The net income in 1997 was
$998,362. The decrease in 1999 was a direct result of the significant increase
in



                                     III-16
<PAGE>

income taxes resulting from the elimination of a net operating loss
carry-forward from prior years. Marathon Financial Corporation had an income tax
expense of $563,676 for 1999 as compared to $77,596 during 1998 and a $187,734
tax benefit in 1997. Income before taxes totaled $1,675,268 for 1999, an
increase of 33.2% over 1998. In 1998, income before taxes amounted to $1,257,907
and $810,628 in 1997. Basic earnings per share for 1999 were $.54 on average
shares outstanding as compared to $.57 and $.51 in 1998 and 1997 respectively.

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

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

         The reserve for loan losses provides for potential losses inherent in
the loan portfolio. Management considers The Marathon Bank's loss experience,
size of the loan portfolio, value of collateral and guarantors, non-performing
loans and economic conditions both current and anticipated when performing an
analysis on the entire portfolio to estimate the provision. Using these
criteria, management expensed $260,000 to the reserve for loan losses during
1999, bringing the year-end balance to $769,410 or 1.02% of total loans. The net
charge offs for loan losses in 1999 was $245,187 for a ratio to average loans of
0.34%. In 1998, The Marathon Bank added $285,000 to the reserve, ending the year
with a balance of $754,597 or 1.14% of total loans. The Marathon Bank
experienced a $106,900 net charge off for loan losses, for a ratio to average
loans of .18% for 1998. Management believes that the present level of reserve
for loan losses is adequate to cover any potential losses in the loan portfolio.

         The major component of Marathon's net earnings is net interest income,
which is the excess of interest income earned on earning assets over the
interest expense paid for sources of funds. Net interest income is affected by
changes in volume, resulting from growth and variations in balance sheet
composition, as well as fluctuations in interest rates and maturities of source
and uses of funds. Management seeks to maximize net interest income by managing
the balance sheet and determining the optimal product mix with respect to yields
on assets and costs of funds in light of projected economic conditions while
maintaining an acceptable level of risk.

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

         Net interest income, before provision for loan losses, was $4,833,269
for the year ending December 31, 1999, up $915,789 or 23.4% over the $3,917,480
reported for the same period in 1998. In



                                     III-17
<PAGE>

1998, net interest income before provisions for loan losses, increased $978,235
or 33.3% from $2,939,245 in 1997. The growth in net interest income is due
mainly to the strong economy within Marathon's trade area. The demand for all
types of loans is strong, with an increase in the loan portfolio of $9.5 million
for 1999. The demand for loans continues to be fueled by new businesses locating
within the trade area. This growth has resulted in the unemployment level
falling to record lows and an increase in the area's population, creating a
growing source of deposits. As of 1999 year-end, non-interest bearing-demand
deposits had grown by 21.2% to $12.9 million, savings and interest bearing
demand deposits had increased by 24.3% to $30.0 million and time deposits had
shown a 6.1% growth to $50.4 million. The deposit mix of $93.3 million was
virtually unchanged from the previous year with interest bearing deposits
decreasing by 0.9% to 86.1% of total deposits.

Non-interest Income

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

Non-interest Expenses

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

Income Tax

         Under the provisions of the Internal Revenue Code, Marathon had
available in prior years an operating loss carryforward which was sufficient to
offset any taxable income. However, the carryforwards were completely eliminated
against taxable income during 1999. With the elimination of the carryforwards,
The Marathon Bank expensed $563,676 in income taxes for 1999. This is a 626.4%
increase over the $77,596 income tax expense in 1998. A detailed discussion of
Marathon's tax calculation is contained in Note 7 to the Consolidated Financial
Statement.

    Comparison of Financial Condition at March 31, 2000 and December 31, 1999
    -------------------------------------------------------------------------

         Total assets at March 31, 2000 increased $8,788,623 or 8.5% from
December 31, 1999. This increase in total assets resulted from a $4,703,752 or
6.3% increase in loans, an increase in federal funds sold of $5,384,000 or 81.4%
and an increase of $876,671 or 8.2% in securities. The increase in earning
assets was $11,140,740 or 12.1% in the three months ending March 31, 2000.



                                     III-18
<PAGE>

Allowance for loan losses

         The allowance for loan losses, at March 31, 2000, was $802,138, an
increase of $32,728 or 4.3% from December 31, 1999. This gives Marathon a 1.00%
allowance for loan losses to total loans. Management has completed an analysis
on the reserve and feels the reserve is adequate.

Liabilities

         Total deposits for the three months ending March 31, 2000 increased
$8,647,970 or 9.3% from December 31, 1999. Non-interest bearing deposits
increased by $3,114,964 or 24.1% and interest bearing deposits increased by
$5,533,006 or 6.9%. Non-interest bearing deposits represented 15.7% of total
deposits as of March 31, 2000, compared to 13.9% at 1999 year end. Savings and
money market deposits were 31.8% of total deposits at March 31, 2000, which was
a slight decrease from 32.1% on December 31, 1999.

Stockholders' Equity

         Total equity has increased by $307,813 or 3.3% from December 31, 1999
to March 31, 2000. The increase was due to the net of a first quarter profit of
$292,733 and an increase in unrealized losses on securities available for sale
of $9,920 net of tax. An additional $25,000 of capital was raised through the
exercise of stock options equating to 5,000 additional shares of common stock.
The primary capital to assets ratio is 8.8%.

                    Financial Condition at December 31, 1999
                    ----------------------------------------

Asset Quality

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

Non-performing Assets

         Non-performing assets include other real estate owned and loans on
which payment has been delinquent 90 days or more and for which there is a risk
of loss to either principal or interest. Other real estate owned represents real
property taken by The Marathon Bank either through foreclosure or through a deed
in lieu thereof from the borrower. Non-accrual loans amounted to $40,541 at
December 31, 1999, representing 0.05% of net loans. This is a decrease from 1998
year end non-accrual loans which were $233,200, or 0.36% of the net loans. At
the end of 1999 Marathon had two parcels of real estate considered to be
non-performing assets with a total balance of $183,218 as compared to $18,123
for one parcel at 1998 year-end. Of the two remaining parcels, one has been
leased with an option to buy. The value of that property is $165,095.

Loan Portfolio

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



                                     III-19
<PAGE>

Securities

         Securities are classified as either securities available for sale or
securities held to maturity in accordance to FAS No. 115, "Accounting for
Certain Investment in Debt and Equity Securities". The book value of the
securities included in securities available for sale was $5.278 million at
December 31, 1999 and $4.921 million at December 31, 1998. The book value for
the securities included in held to maturity was $5.647 million at December 31,
1999 and $5.000 million at December 31, 1998. The increase in both categories of
securities was a result of the growth in funds received from deposits. The bank
does not trade in derivatives and has no plan to do so in the future.

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

Deposits

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

Liquidity

         Liquidity is identified as the ability to generate or acquire
sufficient amounts of cash when needed at reasonable cost, to accommodate
withdrawals in deposits, payments of debt and increases in loan demand. These
events may occur daily or at other short-term intervals in the normal operation
of business. Past experience helps management predict time cycles and the
amounts of cash required.

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

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

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

Capital Adequacy

         Total stockholders equity on December 31, 1999 was $9,445,181 an
increase of $655,068 or 7.5% from $8,790,113 in 1998. Marathon's primary
capital-to-asset ratio was 9.1% in 1999 versus 9.6% in 1998. Marathon depends
primarily upon earnings to maintain a strong capital base. During 1999,



                                     III-20
<PAGE>

earnings less dividends increased retained earnings by $927,412. These
transactions reduced the retained earnings deficit of $1,149,567 as of December
31, 1998 to a deficit of $222,155 at December 31, 1999.

Impact of Inflation and Changing Prices

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

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

Year 2000 Issue

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

Recent Accounting Pronouncements

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








                                     III-21
<PAGE>

                                   CHAPTER IV
                            DESCRIPTION OF ROCKINGHAM

                                    BUSINESS

General

         Rockingham is a bank chartered under the laws of the Commonwealth of
Virginia and a member of the Federal Reserve System. Rockingham was incorporated
on June 7, 1989 under the laws of Virginia and opened for business on November
15, 1990 in a temporary office at 181 C Neff Avenue, Harrisonburg, Virginia. On
December 7, 1991, Rockingham moved into its present facility at 110 University
Boulevard, Harrisonburg, Virginia. On January 3, 1994, Rockingham opened its
first branch office in the Red Front Supermarket on Chicago Avenue,
Harrisonburg, Virginia, and Rockingham opened its second branch office at 1980
South Main Street, Harrisonburg, Virginia on June 21, 1995. On November 13, 1996
Rockingham opened a third branch office at 410 W. Spotswood Trail, in the town
of Elkton, Virginia. On April 15, 1999, Rockingham opened a branch at 51
Franklin Street in Weyers Cave, Virginia and on June 1, 1999 it opened another
at 2556 Jefferson Highway, Suite 110, just outside of Waynesboro, Virginia.
Rockingham has one wholly owned subsidiary, RHB Services, Inc. At December 31,
1999 Rockingham had total assets of $101.1 million, total loans (net) of $77.9
million, total deposits of $87.8 million, and total stockholders' equity of
$11.6 million.

Principal Market Area

         Rockingham's principal market area is the City of Harrisonburg, the
County of Rockingham, and the County of Augusta, all in Virginia, which together
have a population over 200,000 according to the 1990 census. Harrisonburg is
located in the heart of the historic Shenandoah Valley in western Virginia. The
area is served by two universities and three colleges and has a diverse economic
base. It is a retail-trading center for a number of surrounding counties in both
Virginia and West Virginia. Augusta County adjoins Rockingham County and also
enjoys a diverse economic base.

Banking Services

         Rockingham has two lines of business. The first is providing deposit
services to the local market. This includes checking, savings and money market
accounts, as well as certificates of deposit. The second line of business is
making loans. Rockingham makes loans to businesses and consumers for a variety
of purposes including construction, permanent mortgages, automobile and other
major consumer goods, lines-of-credit and equipment purchases. Rockingham also
provides other related services such as traveler's checks, cashiers checks, safe
deposit boxes, equipment leasing and investment and insurance through a third
party affiliation. Rockingham structures its lending and deposit policies and
products to meet the needs of its local market.

         Rockingham intends to continue to compete aggressively for customers in
its principal market area by offering a more personalized and responsive level
of customer service. By processing all information and documents in Rockingham's
offices, Rockingham believes it has a competitive advantage in serving customers
by providing immediate attention and solutions to customer account questions and
problems. Rockingham's policies, procedures and services are all designed for
the local community by directors and employees who are familiar with local needs
and market conditions. Rockingham intends to expand its principal market area in
the future as opportunities and resources become available and will consider
branching or making acquisitions in adjoining counties.



                                      IV-1
<PAGE>

Lending Activities

         Loan Portfolio. Rockingham is an active lender to small businesses,
professionals and individuals. A majority of Rockingham's loans are secured by
commercial and/or residential real estate. Loan terms vary from ninety days to
five years as Rockingham attempts to spread maturities to better manage cash
flow and interest rate exposure. At December 31, 1999, approximately 41% of
total loans were variable rate and/or mature in one year or less while the
remaining loans were fixed rate. Rockingham's loan committee approves all loans
over $500,000. Rockingham maintains an internal lending limit of $1,500,000.

         The risk associated with residential mortgage loans and installment
loans to individuals varies based upon factors such as job stability, income
levels and general economic conditions. Loans to small businesses contain a
higher level of risk, as they are more directly affected by economic conditions.
Real estate construction loans, most of which qualify for or have permanent
mortgage commitments, are affected by supply and demand and economic conditions.

         Commercial Business Loans. Rockingham's primary lending efforts are
directed toward small business. This is a market segment that requires more
flexibility and personal attention. Consequently, Rockingham believes that as a
local institution, it is better able to serve those customers. At December 31,
1999, commercial loans, including commercial mortgages, made up approximately
78% of the principal amount of Rockingham's loan portfolio. Commercial loans are
made on a secured and unsecured basis. Security is usually real estate coupled
with equipment, receivables and/or inventories. The borrower's ability to repay
the loan is largely dependent upon the success of the business and as a result
these loans often carry a higher degree of risk than other types of loans made
by Rockingham. Additionally some collateral values are more difficult to assess
due to the specialized use of the asset and/or the limited resale market for the
collateral. In cases such as these, Rockingham often seeks secondary sources of
collateral or repayment in the form of other assets and/or guarantees.

         Residential Real Estate Loans. Rockingham is an active real estate
lender both for its own portfolio and as an originator of residential mortgage
loans for the secondary market. Residential real estate loans made up
approximately 15% of the principal amount of Rockingham's loan portfolio at
December 31, 1999. Primarily single family residences secure these loans and the
majority are three to five year balloon notes with amortization periods ranging
from ten to thirty years. Construction loans are included in this category and
are made primarily to individuals for the purpose of building single family
residences. To limit risk, Rockingham generally loans no more than 80% of the
lower of cost or appraised value of the collateral and requires the borrower to
qualify for, or have a commitment for, permanent financing.

         Installment Loans. Rockingham offers various types of personal loans to
purchase automobiles and other large consumer items. At December 31, 1999,
installment loans made up approximately 7% of the principal amount of
Rockingham's loan portfolio.

Subsidiary - RHB Services, Inc.

         RHB Services, Inc., a wholly owned subsidiary of Rockingham Heritage
Bank, was incorporated on February 27, 1997. Since 1997, RHB Services, Inc. has
owned stock in a title insurance company. In July 1999, RHB Services, Inc.
purchased stock of a new insurance company just being formed.



                                      IV-2
<PAGE>

Competition

         Rockingham is the only independent bank headquartered in the City of
Harrisonburg, Virginia. Rockingham competes with a number of branches of, and
banks owned by, both small and large out-of-market banking organizations, most
of which have substantially greater resources than Rockingham. Rockingham also
competes with mortgage companies, credit unions, savings and loans, finance
companies and money market funds.

Employees

         Rockingham currently has thirty-six full-time employees and twelve
part-time employees. Employee relations are considered to be good.

Supervision and Regulation

General

         Rockingham is extensively regulated under both federal and state law.
The following is a brief summary of certain statutes, rules and regulations
affecting Rockingham. This summary is qualified in its entirety by reference to
the particular statutory and regulatory provisions referred to below and is not
intended to be an exhaustive description of the statutes or regulations
applicable to Rockingham's business. Supervision, regulation and examination of
banks by the bank regulatory agencies are intended primarily for the protection
of depositors rather than shareholders. The various laws and regulations
administered by the regulatory agencies affect corporate practices, such as
payment of dividends, incurring debt and acquisition of financial institutions
and other companies, and affect business practices, such as payment of interest
on deposits, the charging of interest on loans, types of business conducted and
location of offices. Any change in applicable law or regulation may have a
material effect on the business and prospects of Rockingham.

         Rockingham is organized as a Virginia-chartered banking corporation and
is regulated and supervised by the Bureau of Financial Institutions of the
Virginia State Corporation Commission. In addition, Rockingham is regulated and
supervised by the Board of Governors of the Federal Reserve System ("Federal
Reserve Board"), which serves as its primary federal regulator, and is subject
to certain regulations promulgated by the Federal Deposit Insurance Corporation
("FDIC"). The Virginia State Corporation Commission and the Federal Reserve
Board conduct regular examinations of Rockingham, reviewing the adequacy of the
loan loss reserves, quality of the loans and investments, propriety of
management practices, compliance with laws and regulations, and other aspects of
Rockingham's operations. In addition to these regular examinations, Rockingham
must furnish to the Federal Reserve Board quarterly reports containing detailed
financial statements and schedules.

         Federal and Virginia banking laws and regulations govern all areas of
the operations of Rockingham, including reserves, loans, mortgages, capital,
issuance of securities, payment of dividends and establishment of branches.
Federal and state bank regulatory agencies also have the general authority to
limit the dividends paid by insured banks. As its primary federal regulator, the
Federal Reserve Board has authority to impose penalties, initiate civil and
administrative actions and take other steps intended to prevent Rockingham from
engaging in unsafe or unsound practices. In this regard, the Federal Reserve
Board has adopted capital adequacy requirements applicable to state member
banks, such as Rockingham. See "Supervision and Regulation -- Capital
Requirements."

         Under the provisions of federal law, federally insured banks are
subject, with certain exceptions, to certain restrictions on extensions of
credit to their affiliates, on investments in the stock or other



                                      IV-3
<PAGE>

securities of affiliates and on the taking of such stock or securities as
collateral from any borrower. In addition, such banks are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit or the providing of any property or service.

         Banks are also subject to the provisions of the Community Reinvestment
Act of 1977, which requires the appropriate federal bank regulatory agency, in
connection with its regular examination of a bank, to assess the bank's record
in meeting the credit needs of the community serviced by the bank, including
low- and moderate-income neighborhoods. The regulatory agency's assessment of
the bank's record is made available to the public. Further, such assessment is
required by any bank which has applied to, among other things, establish a new
branch office that will accept deposits, relocate an existing office, or merge,
consolidate with or acquire the assets or assume the liabilities of a federally
regulated financial institution.

         Current Federal law authorizes interstate acquisitions of banks and
bank holding companies without geographic limitation. Effective June 1, 1997, a
bank headquartered in one state is able to merge with a bank headquartered in
another state, as long as neither of the states has opted out of such interstate
merger authority prior to such date. States are authorized to enact laws
permitting such interstate bank merger transactions prior to June 1, 1997, as
well as authorizing a bank to establish "de novo" interstate branches. Virginia
enacted early "opt in" laws, permitting interstate bank merger transactions.
Once a bank has established branches in a state through an interstate merger
transaction, the bank may establish and acquire additional branches at any
location in the state where a bank headquartered in that state could have
established or acquired branches under applicable Federal or state law.

Deposit Insurance

         Rockingham is subject to FDIC deposit insurance assessments. See
"Supervision and Regulation--Recent Legislative Developments" as filed in the
original Registration Form 10-SB.

Governmental Policies

         The operations of Rockingham are affected not only by general economic
conditions, but also by the policies of various regulatory authorities. In
particular, the Federal Reserve Board regulates money, credit and interest rates
in order to influence general economic conditions. These policies have a
significant influence on overall growth and distribution of loans, investments,
and deposits and affect interest rates charged on loans or paid for time and
savings deposits. Federal Reserve Board monetary policies have had a significant
effect on the operating results of commercial banks in the past and are expected
to continue to do so in the future.

Limits on Dividends and Other Payments

         As a state member bank subject to the regulations of the Federal
Reserve Board, Rockingham must obtain the approval of the Federal Reserve Board
for any dividend if the total of all dividends declared in any calendar year
would exceed the total of its net profits, as defined by the Federal Reserve
Board for that year, combined with its retained net profits for the preceding
two years. In addition, Rockingham may not pay a dividend in an amount greater
than its undivided profits then on hand after deducting its losses and bad
debts. For this purpose, bad debts are generally defined to include the
principal amount of loans which are in arrears with respect to interest by six
months or more unless such loans are fully secured and in the process of
collection. Moreover, for purposes of this limitation, Rockingham is not
permitted to add the balance in its allowance for loan losses account to its
undivided profits then on hand; however, it may net the sum of its bad debts as
so defined against the balance in its



                                      IV-4
<PAGE>

allowance for loan losses account and deduct from undivided profits only bad
debts that are so defined in excess of that account.

         In addition, the Federal Reserve Board is authorized to determine under
certain circumstances relating to the financial condition of a state member bank
that the payment of dividends would be an unsafe and unsound practice and to
prohibit payment thereof. The payment of dividends that depletes a bank's
capital base could be deemed to constitute such an unsafe or unsound practice.
The Federal Reserve Board has indicated that banking organizations should
generally pay dividends only out of current operating earnings.

         The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") provides that no insured depository institution may make any capital
distribution (which would include a cash dividend) if, after making the
distribution, the institution would not satisfy one or more of its minimum
capital requirements.

Capital Requirements

         In January 1989, the Federal Reserve Board published risk-based capital
guidelines in final form, which are applicable to Rockingham. The Federal
Reserve Board guidelines redefine the components of capital, categorize assets
into different risk classes and include certain off-balance sheet items in the
calculation of risk-weighted assets. These guidelines became effective on March
15, 1989. The minimum ratio of qualified total capital to risk-weighted assets
(including certain off-balance sheet items, such as standby letters of credit)
is 8.00%. At least half of the total capital must be comprised of common equity,
retained earnings and a limited amount of permanent preferred stock, less
goodwill ("Tier 1 capital"). The remainder ("Tier 2 capital") may consist of a
limited amount of subordinated debt, other preferred stock, certain other
instruments and a limited amount of loan and lease loss reserves. Rockingham's
Tier 1 and Total Risk Based Capital ratios as of December 31, 1999, were 15.49%
and 14.36%.

         In addition, the Federal Reserve Board has established minimum Leverage
ratio (Tier 1 capital to total average assets less intangibles) guidelines that
are applicable to Rockingham. These guidelines provide for a minimum ratio of
4.00% for banks that meet certain specified criteria, including that they have
the highest regulatory rating. All other banks will be required to maintain a
Leverage ratio of 3.0% plus an additional cushion of at least 100 to 200 basis
points. Rockingham's Leverage ratio as of December 31, 1999, was 12.40%. The
guidelines also provide that banks experiencing internal growth or making
acquisitions will be expected to maintain strong capital internal growth or
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets.

Properties

         Rockingham presently owns three facilities: its main office at 110
University Boulevard in Harrisonburg, a second branch located at 1980 South Main
Street, and a building located at 410 W. Spotswood Trail in Elkton, Virginia
which serves as a third branch location. The main office is a one story brick
building with approximately 5,800 square feet and was constructed in 1991. The
site is 1.9 acres and will accommodate up to 5,000 square feet of additional
building space. It is located in a relatively new and rapidly growing retail and
professional area of the city. The South Main Branch is located on a .75 acre
site on the south end of the city and provides 3,000 square feet of office
space. The Elkton Branch resides on a .33 acre site providing 2,500 square feet
of office space. Rockingham also owns an undeveloped commercial lot on Evelyn
Byrd Avenue, approximately 100 yards from the main office. This .4 acre lot is
for possible future expansion purposes.



                                      IV-5
<PAGE>

         Additionally, Rockingham has a branch located in the Red Front
Supermarket on Chicago Avenue in the City of Harrisonburg. This is a leased
facility with approximately 260 square feet of space. The lease expires December
31, 2001. The minimum rent commitment at December 31, 1999 totals $28,800.
Rockingham has entered into a lease agreement for its new Weyers Cave branch.
The lease was for one year and the space is approximately 900 square feet.
Rockingham is currently on a month to month lease until a new building is
complete later in 2000. The minimum rent commitment at December 31, 1999 totals
$700. The new Waynesboro lease agreement is for space of approximately 2,040
square feet. The lease runs for five years with options for four more terms of
five years each. The minimum rental commitment for Waynesboro at December 31,
1999 totals $120,720. All properties are in sound physical condition and are
deemed to be adequately insured. There are no mortgages, liens or other
limitations on Rockingham's ownership of its properties.

Legal Proceedings

         Rockingham is a party to various routine legal proceedings incidental
to the ordinary course of its business. Management believes that there are no
legal proceedings outside the normal course of business and thus no material
effect from any legal proceedings.











                                      IV-6
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

         Management's discussion and analysis is intended to aid the reader in
understanding and evaluating the results of operations and the financial
condition of Rockingham. The analysis attempts to identify trends and material
changes that occurred during the reporting periods. The discussion should be
read in conjunction with the consolidated financial statements and their related
notes included in Appendix D to this joint proxy statement/prospectus.

         In addition to the historical information, the following discussion, as
well as other information appearing throughout this joint proxy
statement/prospectus, may contain forward looking statements that are subject to
certain risks and uncertainties which could cause actual results to differ
materially from historical results or those anticipated. Although Rockingham
believes that any forward looking statements are based upon sound assumptions
within the limits of the knowledge of its operations and the existing economic
conditions, there is no certainty that future results will not differ materially
from historical results or those anticipated by forward looking statements.

Results of Operations

         The following table provides a summary of the results of operations for
the three months ended March 31, 2000 and 1999 and the years ended December 31,
1999 and 1998, as well as certain information regarding Rockingham's financial
condition during those periods.
<TABLE>
<CAPTION>
Selected Financial Data
-------------------------------------------------------------------------------------------------------------------
(Dollars in thousands except per share data)

At and for the Three Months ended March 31,                                          2000                  1999
-------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                   <C>
Results of Operations
     Interest Income                                                              $    2,019            $    1,642
     Interest Expense                                                                    890                   721
                                                                                  ---------------------------------
     Net Interest Income                                                               1,129                   921
     Provision for Loan Losses                                                            30                    30
                                                                                  ---------------------------------
     Net Interest Income After Provision for Loan Losses                               1,099                   891
     Non-Interest Income                                                                  95                    89
     Non-Interest Expense                                                                664                   563
                                                                                  ---------------------------------
     Income Before Income Taxes                                                          530                   417
     Provision for Income Tax Expense                                                    180                   142
                                                                                  ---------------------------------
         Net Income                                                               $      350            $      275
                                                                                  =================================
Share Data
     Basic Earnings Per Share                                                     $     0.22            $     0.17
     Diluted Earnings Per Share                                                   $     0.22            $     0.17
     Book Value                                                                   $     7.53            $     6.78
     Shares Outstanding                                                            1,589,940             1,589,940
Financial Condition
     Total Investments                                                            $    8,735            $    8,545
     Total Loans                                                                      82,082                69,058
     Total Assets                                                                    105,590                90,025
     Total Deposits                                                                   89,666                77,723
     Total Equity                                                                     11,967                10,775
</TABLE>





                                      IV-7
<PAGE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
At and for the Years ended December 31,                                              1999                  1998
-------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                   <C>
Results of Operations
     Interest Income                                                              $    7,188            $    6,269
     Interest Expense                                                                  3,135                 2,822
                                                                                  ---------------------------------
     Net Interest Income                                                               4,053                 3,447
     Provision for Loan Losses                                                           120                   144
                                                                                  ---------------------------------
     Net Interest Income After Provision for Loan Losses                               3,933                 3,303
     Non-Interest Income                                                                 371                   328
     Non-Interest Expense                                                             (2,485)               (2,025)
                                                                                  ---------------------------------
     Income Before Income Taxes                                                        1,819                 1,606
     Provision for Income Tax Expense                                                    618                   544
                                                                                  ---------------------------------
         Net Income                                                               $    1,201            $    1,062
                                                                                  =================================
Share Data
     Basic Earnings Per Share                                                     $      .76            $      .70
     Diluted Earnings Per Share                                                   $      .74            $      .67
     Book Value at Year-End                                                       $     7.31            $     6.61
     Shares Outstanding                                                            1,589,843             1,589,811
Financial Condition
     Total Investments                                                            $    8,359            $    8,357
     Total Loans                                                                      78,984                65,874
     Total Assets                                                                    101,142                85,791
     Total Deposits                                                                   87,811                73,709
     Total Equity                                                                     11,628                10,515
</TABLE>

            Results of Operations - March 31, 2000 vs. March 31, 1999
            ---------------------------------------------------------

         Net income for the first three months of 2000 was $350,000, a 27%
increase over the $275,000 earned in the same period last year. An increase in
net interest income of $208,000 after provision for loan loss was the primary
reason for improvement in earnings.

         Net Interest Income. Net interest income is the difference between
interest income and interest expense and represents Rockingham's gross profit
margin. The net interest margin represents net interest income divided by
average earning assets. It reflects the average effective rate earned by
Rockingham on its earning assets. Net interest income and the net interest
margin are influenced by fluctuations in market rates and changes in both volume
and mix of average earning assets and the liabilities that fund those assets.











                                      IV-8
<PAGE>

         Rockingham's net interest income for the first three months of 2000 was
$1,129,000 versus $921,000 for the same period last year. The following table
sets forth Rockingham's average daily interest earning assets and average daily
interest bearing liabilities, the average yields earned on such assets and rates
paid on such liabilities, and the net interest margin, for all periods
indicated.
<TABLE>
<CAPTION>
Yield/Cost Analysis
----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
                                                                  Three Months Ended March 31,
                                            --------------------------------------------------------------------------
                                                            2000                                 1999
                                            ------------------------------------- ------------------------------------
                                                            Interest    Average                 Interest     Average
                                               Average       Income/    Yield/       Average     Income/     Yield/
                                               Balance       Expense     Cost        Balance     Expense      Cost
----------------------------------------------------------------------------------------------------------------------
<S>                                         <C>           <C>              <C>    <C>         <C>               <C>
Assets
Federal Funds                               $      6,388  $        90      5.67%  $     4,491 $        52       4.70%
Interest-Bearing Deposits                          1,010           15      5.97%           --          --       0.00%
Investment Securities                              8,604          140      6.54%        8,298         127       6.21%
Loans                                             81,659        1,774      8.74%       67,383       1,463       8.81%
                                            --------------------------------------------------------------------------
       Total Earning Assets                 $     97,661  $     2,019      8.31%  $    80,172 $     1,642       8.31%
                                            ==========================================================================

Liabilities
Borrowed Funds                              $      2,319  $        33      5.72%  $     1,210 $        17       5.70%
Deposits
     Interest-Bearing Demand (NOW)                13,493           91      2.71%       11,530          78       2.74%
     Savings                                      10,296           79      3.07%        9,909          75       3.07%
     Time Deposits                                52,652          687      5.25%       42,309         551       5.28%
                                            --------------------------------------------------------------------------
       Total Interest-Bearing Liabilities   $     78,760  $       890      4.55%  $    64,958 $       721       4.51%
                                            ==========================================================================

Net Interest Income                                       $     1,129                         $       921

Net Interest Margin                                                        4.63%                                4.60%
</TABLE>

         Net interest income is the difference between interest income and
interest expense and represents Rockingham's gross profit margin. The $208,000
improvement in net interest income from the first three months of 1999 to the
same period of 2000 was primarily the result of a 22% increase in average daily
earning assets.

         The net interest margin is a measure of net interest income
performance. It represents the difference between interest income, including net
loan fees earned, and interest expense reflected as a percentage of average
daily interest earning assets. For the first three months of 2000, the net
interest margin remained relatively the same at 4.63% compared to 4.60% for the
same period in 1999.







                                      IV-9
<PAGE>

         Net interest income is affected by changes in both average interest
rates and average volumes of interest earning assets and interest bearing
liabilities. The following table sets forth the amounts of the total change in
interest income that can be attributed to rate (change in rate multiplied by old
volume) and volume (change in volume multiplied by old rate) for the periods
indicated. The amount of change not solely due to rate or volume changes was
allocated between the change due to rate and the change due to volume based on
the relative size of the rate and volume changes.

Analysis of Changes in Net Interest Income

(Dollars in thousands)
<TABLE>
<CAPTION>
                                                       Three Months Ended March 31, 2000
                                                    over Three Months Ended March 31, 1999
                                              ----------------------------------------------------
                                                              Increase (Decrease)
                                                               Due to Change in
                                              ----------------------------------------------------
                                                                                       Net
                                                  Average                            Increase
                                                  Volume             Rate           (Decrease)
                                              ----------------------------------------------------
<S>                                           <C>               <C>               <C>
Interest Income
Federal Funds                                 $          25     $          13     $          38
Deposits                                                 15                --
Investment Securities                                     5                 8                15
Loans                                                   322               (11)               13
                                              ----------------------------------------------------
         Total Interest Income                          367                10               377
                                              ----------------------------------------------------

Interest Expense
Borrowed Funds                                           16                --                16
Deposits
     Interest-Bearing Demand (NOW)                       13                --                13
     Savings                                              4                --                 4
     Time deposits                                      140                (4)              136
                                              ----------------------------------------------------
         Total Interest Expense                         173                (4)              169
                                              ----------------------------------------------------

Change in Net Interest Income                 $         194     $          14     $         208
                                              ====================================================
</TABLE>


        Non-Interest Income. Rockingham's total non-interest income increased
from $89,000 in the first three months of 1999 to $95,000 in the same period of
2000. The increase is attributable to the service charges on an increased number
of checking accounts.

        Non-Interest Expense. In the first three months of 2000, total
non-interest expense increased $101,000 or 18% compared to the same period last
year. Salaries and benefits increased $73,000 most of which was due to new hires
for two new branches. In addition, occupancy rose $10,000 from the prior period
while equipment depreciation and maintenance increased $14,000 due to the new
branches.

         Income Taxes. Income tax expense was $180,500 for the first three
months of 2000. The provision for the same period of 1999 was $141,500. The
increase was due to the increase in pretax income.





                                     IV-10
<PAGE>

         Results of Operations - December 31, 1999 vs. December 31, 1998
         ---------------------------------------------------------------

         Net income in 1999 was $1,201,000, surpassing by 13 percent the 1998
income of $1,062,000. Consequently, diluted earnings per share rose from $.67
per share in 1998 to $.74 per share in 1999. An analysis of factors that
influenced net income in 1999 and 1998 is presented in the sections that follow.

         Net Interest Income. As indicated in the tables below, net interest
income increased from $3,447,000 to $4,053,000 or 18 percent from 1998 to 1999.
The majority of the $606,000 increase in net interest income can be attributed
to volume changes in average balances of assets. The volume change in average
earning assets of $14.5 million provided $1,213,000 of additional interest
income in 1999. The yield on earning assets decreased 35 basis points causing a
$294,000 decline in interest income that resulted in a net increase of $919,000.
By comparison, the average volume increase in interest-bearing liabilities of
$10.9 million accounted for $481,000 of the growth in interest expense and a 28
basis point decrease in average rates paid accounted for a $168,000 offset
resulting in a net gain in interest expense of $313,000.
<TABLE>
<CAPTION>
Yield/Cost Analysis
----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
                                                            1999                                  1998
                                            ------------------------------------- ------------------------------------
                                                            Interest    Average                 Interest     Average
                                               Average       Income/    Yield/       Average     Income/     Yield/
                                               Balance       Expense     Cost        Balance     Expense      Cost
----------------------------------------------------------------------------------------------------------------------
<S>                                         <C>           <C>              <C>    <C>         <C>               <C>
Assets
Federal Funds                               $      6,625  $       335      5.06%  $     6,650 $       360       5.41%
Investment Securities                              7,633          482      6.31%        5,662         361       6.38%
Loans                                             74,031        6,371      8.61%       61,507       5,548       9.02%
                                            --------------------------------------------------------------------------
       Total Earning Assets                 $     88,289  $     7,188      8.14%  $    73,819 $     6,269       8.49%
                                            ==========================================================================

Liabilities
Borrowed Funds                              $      1,265  $        70      5.53%  $     1,031 $        58       5.63%
Deposits
     Interest-Bearing Demand (NOW)                12,409          334      2.69%       10,401         313       3.01%
     Money Market                                  4,923          173      3.51%        3,425         125       3.65%
     Savings                                       5,400          140      2.59%        4,718         130       2.76%
     Time Deposits                                47,036        2,418      5.14%       40,510       2,196       5.42%
                                            --------------------------------------------------------------------------
       Total Interest-Bearing Liabilities   $     71,033  $     3,135      4.42%  $    60,085 $     2,822       4.70%
                                            ==========================================================================

Net Interest Income                                       $     4,053                         $     3,447

Net Interest Margin                                                        4.59%                                4.67%

</TABLE>







                                     IV-11
<PAGE>

Analysis of Changes in Net Interest Income

(Dollars in thousands)
<TABLE>
<CAPTION>
                                                   Year 1999 over 1998                        Year 1998 over 1997
                                         ----------------------------------------   ----------------------------------------
                                                   Increase (Decrease)                        Increase (Decrease)
                                                    Due to Change in                           Due to Change in
                                         ----------------------------------------   ----------------------------------------
                                                                         Net                                        Net
                                            Average                   Increase         Average                   Increase
                                            Volume        Rate       (Decrease)        Volume        Rate       (Decrease)
                                         ----------------------------------------   ----------------------------------------
<S>                                      <C>          <C>            <C>            <C>          <C>            <C>
Interest Income
Federal Funds                            $        (1) $     (24)     $       (25)   $       168  $       (2)    $       166
Investment Securities                            125         (4)             121             (9)          3              (6)
Loans                                          1,089       (266)             823            963         (69)            894
                                         ----------------------------------------   ----------------------------------------
         Total Interest Income                 1,213       (294)             919          1,122         (68)          1,054
                                         ----------------------------------------   ----------------------------------------

Interest Expense
Borrowed Funds                                    13         (1)              12             36           5              41
Deposits
     Interest-Bearing Demand (NOW)                56        (35)              21             65          17              82
     Money Market                                 53         (5)              48             33           9              42
     Savings                                      18         (8)              10             14          (1)             13
     Time deposits                               341       (119)             222            285          32             317
                                         ----------------------------------------   ----------------------------------------
         Total Interest Expense                  481       (168)             313            433          62             495
                                         ----------------------------------------   ----------------------------------------

Change in Net Interest Income            $       732  $    (126)     $       606    $       689  $     (130)    $       559
                                         ========================================   ========================================
</TABLE>


         Non-Interest Income. Non-interest income is comprised of service
charges and other fee related income from services rendered by Rockingham as
well as fees from the origination of mortgage loans and fees from the sale of
securities.

         Non-interest income rose $43,000, or 13 percent, from 1998 to 1999.
Service charges on deposit accounts, the largest component, increased 18 percent
due to higher volumes of business.

         Non-Interest Expense. Non-interest expense represents the overhead of
Rockingham. Rockingham's management actively monitors all categories of
non-interest expense in an attempt to improve productivity and earnings
performance.

         In 1999, non-interest expense increased $459,000 or 23 percent to
$2,484,000. Of this increase, 53 percent was related to the new Waynesboro and
Weyers Cave branches. Salaries associated with the new branches were
approximately $145,000 while over $100,000 of the increase was directly
attributed to supplying, equipping, and running the new branches. This means
that general bank growth only increased expenses by 11 percent.

         Income Taxes. The provision for income tax expense was $618,000 in
1999, compared with $544,000 in 1998. The increase was due to an increase in
pretax income.

                               Financial Condition
                               -------------------

         Rockingham's financial condition is measured in terms of its asset and
liability composition, asset quality, capital resources, and liquidity. These
factors affecting Rockingham's financial condition are discussed below.



                                     IV-12
<PAGE>

Assets

         Total assets at December 31, 1999 amounted to $101.1 million, or 18
percent above the 1998 mark of $85.8 million. This growth in total assets is
indicative of the overall growth that Rockingham has experienced since its
inception in 1990.

        Loans. Net loans increased $4,135,000 or 21%, (annualized) from December
31, 1999 to March 31, 2000. The net loan to deposit ratio was 92% at March 31,
2000, compared to 89% at December 31, 1999.

         Net loans increased 20 percent to $77.9 million on December 31, 1999
from $64.9 million a year earlier. Average loans also increased 20 percent to
$74.0 million in 1999 from $61.5 million in 1998.

         The following table sets forth the composition of Rockingham's loan
portfolio at the dates indicated:
<TABLE>
<CAPTION>
                                                                                December 31,
                                            March 31,           ---------------------------------------------
                                              2000                     1999                      1998
                                       --------------------     -------------------      --------------------
<S>                                        <C>                     <C>                       <C>
      Commercial                           $ 31,707,780            $ 30,664,275              $ 27,232,758
      Commercial real estate                 33,589,194              30,960,871                22,684,448
      Residential real estate                12,304,525              11,945,985                11,227,924
      Consumer installment                    5,571,962               5,412,581                 4,728,497
                                       --------------------     -------------------      --------------------
                                             83,173,461              78,983,712                65,873,627
                                       --------------------     -------------------      --------------------
      Less:
          Allowance for loan losses             981,821                 919,546                   835,905
          Unearned net loan fees                109,855                 117,012                    88,305
                                       --------------------     -------------------      --------------------
                                              1,091,676               1,036,558                   924,210
                                       --------------------     -------------------      --------------------
                                           $ 82,081,785            $ 77,947,154              $ 64,949,417
                                       ====================     ===================      ====================
</TABLE>

         Net loan charge-offs in 1999 were $36,000, or .05 percent of average
loans. In 1998, Rockingham experienced net charge-offs of $27,000, or .04
percent of average loans. At March 31, 2000, Rockingham had one non-accrual loan
of $75,000 and five loans 90 days or more past due totaling $133,000. At
December 31, 1999, Rockingham had no non-accrual loans and three loans 90 days
or more past due totaling $126,000. At December 31, 1998, Rockingham had one
non-accrual loan of $28,000 and one loan 90 or more days past due totaling
$7,000.

         The following table sets forth the scheduled maturity of selected loans
as of December 31, 1999:
<TABLE>
<CAPTION>
                                                        Over 1 Year
                                                      Through 5 Years               Over 5 Years
                                                  ------------------------    -------------------------
                                   One Year         Fixed        Floating       Fixed         Floating
                                   or Less           Rate          Rate          Rate           Rate          Total
                                 -------------    ----------    ----------    ----------     -----------   -----------
                                                                (Dollars in thousands)
<S>                                 <C>               <C>             <C>           <C>            <C>      <C>
Real estate - construction          $   1,813            --            --            --             --      $   1,813
Business                               17,388         6,755           679           679            650         26,151
                                 -------------    ----------    ----------    ----------     ----------    -----------

        Total                       $  19,201         6,755           679           679            650      $  27,964
                                 =============    ==========    ==========    ==========     ==========    ===========
</TABLE>



                                     IV-13
<PAGE>

         Rockingham maintains a general allowance for loan losses and does not
allocate its allowance for loan losses to individual categories of loans. In
determining the adequacy for loan losses, management considers the size and
composition of the loan portfolio, historical experience, economic conditions,
the value and adequacy of collateral and guarantors, and the current level of
the allowance. In addition, consideration is given to potential losses
associated with non-accrual loans and loans that are considered to be potential
problems.

         At December 31, 1999, the allowance for loan losses was $920,000, or
1.16 percent of loans. A year earlier, the allowance was $836,000, or 1.27
percent of loans. Management believes that the allowance is adequate, subject to
unforeseen economic changes or unexpected regulatory developments. The following
table demonstrates these various key loan portfolio relationships.
<TABLE>
<CAPTION>
Selected Loan Data
------------------------------------------------------------------------------------------
(Dollars in thousands)
                                                                   1999            1998
------------------------------------------------------------------------------------------
<S>                                                            <C>             <C>
Loans Outstanding at Year-End                                  $    78,984     $   65,874
Average Loans                                                       74,031         61,507
Allowance at Year-End                                                  920            836
Net Charge-Offs                                                         36             27


Non-Accrual Loans to Year-End Loans                                    --           0.04%
Loans 90 or More Days Past Due to Year-End Loans                     0.15%          0.01%
Allowance to Year-End Loans                                          1.16%          1.27%
Charge-Offs to Average Loans                                         0.05%          0.04%
</TABLE>

         The following table sets forth the changes in the allowance for loan
losses for the periods indicated:
<TABLE>
<CAPTION>

                                                       Three Months                   Year Ended
                                                          Ended                      December 31,
                                                         March 31,       -------------------------------------
                                                           2000                1999                1998
                                                     -----------------   -----------------    ----------------
<S>                                                         <C>                 <C>                 <C>
   Balance, beginning of year                               $ 919,546           $ 835,905           $ 719,159
       Provision charged to operations                         30,000             120,000             144,000
       Recoveries of amounts charged off                       32,305              15,223               7,988
                                                     -----------------   -----------------    ----------------
                                                              981,851             971,128             871,147
       Amounts charged off                                         30              51,582              35,242
                                                     -----------------   -----------------    ----------------
   Balance, end of year                                     $ 981,821           $ 919,546           $ 835,905
                                                     =================   =================    ================
</TABLE>

         Loans are stated at the amount of unpaid principal, reduced by unearned
fees and an allowance for loan losses. The allowance for loan losses is
established through a provision for loan losses charged against income. Loans
are charged against the allowance for loan losses when management believes that
collection of the principal is unlikely. The allowance is an amount that
management believes will be adequate to absorb estimated losses on existing
loans, based on an evaluation of the ability to collect loans and prior loss
experience. This evaluation also takes into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrower's ability to pay. While management uses the



                                     IV-14
<PAGE>

best information available to make its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in economic
conditions. In addition, regulatory agencies, as an integral part of their
examination process, periodically review Rockingham's allowance for loan losses,
and may require Rockingham to make additions to the allowance based on their
judgment about information available to them at the time of their examinations.
Management does not assign specific reserves to categories of loans but believes
that the overall allowance is sufficient to cover all loans in total.

         Unearned interest on discounted loans is amortized over the life of the
loan using the interest method. For all loans, interest is accrued daily on the
outstanding balances. For impaired loans, accrual of interest is discontinued on
a loan when management believes, after considering collection efforts and other
factors, that the borrower's financial condition is such that collection of
interest is doubtful. A loan is restored to accrual basis when the borrower's
financial condition improves to the extent that the ability to collect principal
is no longer in doubt.

         A loan is impaired when it is probable Rockingham will be unable to
collect all contractual principal and interest payments due in accordance with
the terms of the loan agreement. Impaired loans are measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or fair value of the collateral. Interest income on impaired loans is
recognized on a cash basis. At March 31, 2000 and December 31, 1999 and 1998,
Rockingham had no impaired loans and, therefore, no specific allowance has been
established for impaired loans.

         Loan origination and commitment fees and certain direct loan
origination costs are capitalized and recognized as an adjustment of the yield
of the related loan.

         The following table sets forth information regarding past due loans and
nonperforming assets at the dates indicated:
<TABLE>
<CAPTION>
                                                            March 31,               December 31,
                                                         -----------------  ------------------------------
                                                               2000             1999            1998
                                                         -----------------  -------------   --------------
                                                                       (Dollars in thousands)
<S>                                                           <C>                <C>              <C>
Accruing Loans 90 Days or More Delinquent (1)
  Residential                                                 $     -            $     -          $     -
  Nonresidential                                                  109                109                -
  Business                                                         24                 16                -
  Consumer                                                          -                  1                7
                                                         -------------      -------------   --------------
     Total                                                        133                126                7
                                                         =============      =============   ==============

Nonperforming Loans
  Residential                                                       -                  -                -
  Nonresidential                                                   74                  -                -
  Business                                                          -                  -               28
  Consumer                                                          -                  -                -
                                                         -------------      -------------   --------------
         Subtotal                                                  74                  0               28
                                                         -------------      -------------   --------------
Renegotiated Loans:
  Nonresidential                                                    -                  -                -
Real Estate Owned:
  Nonresidential                                                    -                  -                -
                                                         -------------      -------------   --------------
Total Nonperforming Assets                                    $   207            $   126          $    35
                                                         =============      =============   ==============
Nonperforming Assets to Total Assets                            0.20%              0.12%            0.04%
                                                         =============      =============   ==============
_______________
(1) Includes portion guaranteed by the Small Business Administration.
</TABLE>


                                     IV-15
<PAGE>

         Investment Securities. Investment securities represent the second
largest component of earning assets. On December 31, 1999, investment securities
totaled $8.4 million. Investment securities accounted for 8 percent and 10
percent of total assets at December 31, 1999 and 1998, respectively.

         On March 31, 2000, the fair market value of the investment portfolio
was 98.6 percent of its book value compared with 100.6 percent on March 31,
1999. At March 31, 2000, the portfolio had $123,000 of net unrealized losses.
This loss of market value was consistent with market conditions in 200.

         On December 31, 1999, the fair market value of the investment portfolio
was 98.7 percent of its book value compared with 101.1 percent on December 31,
1998. At year-end 1999, the portfolio had $106,000 of net unrealized losses.
This loss of market value was consistent with market conditions in 1999. Gross
amounts of appreciation and depreciation for each category of investment
securities, as well as other information with respect to yields and maturities,
are set forth in the following tables.
<TABLE>
<CAPTION>
                                                                        Gross           Gross
                                                      Amortized       Unrealized      Unrealized          Fair
                                                         Cost           Gains           Losses            Value
                                                  -----------------------------------------------------------------
<S>                                                 <C>            <C>             <C>               <C>
March 31, 2000:
    Securities available-for-sale:
       U. S. Government agencies                    $  5,501,607   $          312  $      111,689    $   5,390,230
       Mortgage-backed securities                        816,766            2,713              --          819,497
       Other securities                                  595,740               --              --          595,740
                                                  -----------------------------------------------------------------
                                                       6,914,113            3,043         111,689        6,805,467
                                                  -----------------------------------------------------------------
    Securities being held-to-maturity:
       U. S. Government agencies                       1,598,032            1,493           6,600        1,592,925
       Mortgage-backed securities                        331,965               --           8,753          323,212
                                                  -----------------------------------------------------------------
                                                       1,929,997            1,493          15,353        1,916,137
                                                  -----------------------------------------------------------------
                                                    $  8,844,110   $        4,536  $      127,042    $   8,721,604
                                                  =================================================================


                                                                        Gross           Gross
                                                      Amortized       Unrealized      Unrealized          Fair
                                                         Cost           Gains           Losses            Value
                                                  -----------------------------------------------------------------
December 31, 1999:
    Securities available-for-sale:
       U. S. Government agencies                    $  5,003,810   $           --  $      101,025    $   4,902,785
       Mortgage-backed securities                        904,705            2,613              --          907,318
       Other securities                                  599,950               --              --          599,950
                                                  -----------------------------------------------------------------
                                                       6,508,465            2,613         101,025        6,410,053
                                                  -----------------------------------------------------------------
    Securities being held-to-maturity:
       U. S. Government agencies                       1,597,059            4,306           6,540        1,594,825
       Mortgage-backed securities                        351,836               --           5,527          346,309
                                                  -----------------------------------------------------------------
                                                       1,948,895            4,306          12,067        1,941,134
                                                  -----------------------------------------------------------------
                                                    $  8,457,360   $        6,919  $      113,092    $   8,351,187
                                                  =================================================================
</TABLE>




                                     IV-16
<PAGE>
<TABLE>
<CAPTION>

                                                                        Gross           Gross
                                                      Amortized       Unrealized      Unrealized          Fair
                                                         Cost           Gains           Losses            Value
                                                  -----------------------------------------------------------------
<S>                                                 <C>            <C>             <C>               <C>
December 31, 1998:
    Securities available-for-sale:
       U. S. Government agencies                    $  3,511,895   $       27,605  $            -    $   3,539,500
       Mortgage-backed securities                      1,425,492            8,121               -        1,433,613
       Other securities                                  522,100                -               -          522,100
                                                  -----------------------------------------------------------------
                                                       5,459,487           35,726               0        5,495,213
    Securities being held-to-maturity:
       U. S. Government agencies                       2,095,438           46,082               -        2,141,520
       Mortgage-backed securities                        765,969           10,697               -          776,666
                                                  -----------------------------------------------------------------
                                                       2,861,407           56,779               0        2,918,186
                                                  -----------------------------------------------------------------
                                                    $  8,320,894   $       92,505  $            0    $   8,413,399
                                                  =================================================================
</TABLE>

         The amortized cost and fair value of investment securities, as of March
31, 2000, are shown below by contractual maturity. Maturities may differ from
contractual maturities in mortgage-backed securities because the mortgages
underlying the securities may be called or repaid without penalties.
Mortgage-backed securities and other securities are excluded from the maturity
summary since they do not have a single maturity date.
<TABLE>
<CAPTION>
                                                                  Amortized           Fair              Weighted
                                                                     Cost             Value           Average Rate
                                                                --------------   ------------------------------------
<S>                                                             <C>              <C>                      <C>
Available-for-sale:
    Due one year or less                                        $   3,002,545    $    2,923,100           5.97%
    Due after one year through five years                           2,499,062         1,979,685           7.03%
                                                                --------------   ---------------
                                                                $   5,501,607    $    4,902,785           6.45%
                                                                ==============   ===============
Held-to-maturity:
    Due one year or less                                        $     498,753    $      499,065           6.77%
    Due after one year through five years                           1,099,279         1,095,760           6.75%
                                                                --------------   ---------------
                                                                $   1,598,032    $    1,594,825           6.76%
                                                                ==============   ===============
</TABLE>

         Investment securities with an amortized cost of $1,499,221 and $498,752
were pledged as collateral on public deposits at December 31, 1999 and 1998,
respectively.

Liabilities

        Deposits and Short-Term Borrowings. Rockingham's primary source of funds
is depository accounts. The deposit base is made up of demand deposits, savings
and money market accounts and certificates of deposit. Rockingham does not
solicit funds outside of its principal market area and as a result, almost all
of the deposits are provided by individuals and businesses located within the
local community.

        Rockingham is a note option depository for the Treasury, Tax & Loan
system. This allows Rockingham to use customers' tax deposits for short-term
periods. Rockingham also has borrowed funds from the Federal Home Loan Bank of
Atlanta. Rockingham pays an interest rate on funds held for the Treasury and the
FHLB as shown below.



                                     IV-17
<PAGE>

        As shown below, the quarterly average interest bearing deposits
increased by 12% (annualized) from December 31, 1999 to March 31, 2000. The
average rates paid by Rockingham reflect the interest rates nationally.
<TABLE>
<CAPTION>
                                                               Three Months Ended            Three Months Ended
                                                                 March 31, 2000              December 31, 1999
                                                             ------------------------      -----------------------
                                                                            (Dollars in thousands)
                                                              Average    Average            Average     Average
                                                              Balance       Rate            Balance       Rate
------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>             <C>           <C>            <C>
Interest bearing demand                                        $ 13,493        2.71%         $ 13,050       2.68%

Savings                                                          10,296        3.07%           10,744       3.01%

Certificates of deposit                                          52,652        5.25%           51,362       5.11%
                                                             -----------------------------------------------------

           Total deposits                                        76,441        4.51%           75,156       4.39%

Borrowed money                                                    2,319        5.72%            1,252       5.70%
                                                             -----------------------------------------------------

                Total (weighted average rate)                  $ 78,760        4.55%         $ 76,408       4.41%
                                                             =====================================================
</TABLE>

         Total deposits on December 31, 1999 were $87.8 million, or 19 percent
above the prior year total of $73.7 million. This growth in Rockingham's deposit
base is attributable to the addition of Rockingham's fifth and sixth branch
offices in 1999. The table below shows the balances in each of the types of
deposit accounts at March 31, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
Deposits
---------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)

                                                       March 31,                              December 31,
                                                         2000                                     1999
                                            --------------------------------         --------------------------------
                                                                 As a % of                                As a % of
                                                                   Total                                    Total
                                                  Balance        Deposits                  Balance        Deposits
---------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                   <C>                <C>                   <C>
Demand                                         $    13,904           15.51%             $    11,976           13.64%
NOW and money market accounts                       18,921           21.10%                  18,014           20.51%
Savings                                              4,943            5.51%                   5,016            5.71%
Time certificates, $100,000 or more                  7,120            7.94%                   7,303            8.32%
Other time certificates                             44,778           49.94%                  45,502           51.82%
                                            -------------------------------------------------------------------------
                                               $    89,666          100.00%             $    87,811          100.00%
                                            =========================================================================
</TABLE>

        The following table summarizes the maturity distribution of certificates
of deposit in amounts of $100,000 or more as of March 31, 2000:

                Less than 3 months                          $   545,169
                3 months to 6 months                          2,594,051
                6 months to 12 months                         3,164,527
                Greater than 12 months                          816,258
                                                         ---------------
                                                            $ 7,120,005
                                                         ===============



                                     IV-18
<PAGE>

Impact of Inflation and Changing Prices

         The financial statements and accompanying footnotes have been prepared
in accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without consideration for changes in the relative purchasing power of
money over time due to inflation. The assets and liabilities of Rockingham
Heritage Bank are primarily monetary in nature and changes in interest rates
have a greater impact on Rockingham Heritage Bank's performance than do the
effects of inflation.

Capital Resources

         Total stockholders' equity on December 31, 1999 was $11.6 million, or
11 percent above the 1998 level of $10.5 million. Return on average equity in
1999 was 10.81 percent as compared to 11.22 percent in 1998.

         The Federal Reserve mandates minimum capital requirements for banks.
Under this system, all balance sheet assets are assigned a certain risk category
with a prescribed weight. Off-balance-sheet items, such as loan commitments and
letters of credit, are also assigned a risk rating. The sum of the balance sheet
and off-balance-sheet amounts multiplied by their respective risk weight factors
must then meet a required minimum test. Tier 1 Capital is defined as
stockholders' equity minus certain intangible assets. Tier 2 Capital consists of
Tier 1 Capital plus a certain amount of the allowance for loan losses. At
December 31, 1999, Rockingham substantially exceeded all minimum requirements.
See Note 10 of the Notes to Consolidated Financial Statements.

Liquidity

         Liquidity is defined as Rockingham's ability to provide funds for
customers' demands for loans and deposit withdrawals without impairing
profitability. To meet these needs, Rockingham maintains cash reserves and
overnight and readily marketable investments. Funds can also be obtained through
increasing deposits or through Rockingham's borrowing privileges with several
correspondent banks.

         A related concern of liquidity management is interest rate sensitivity.
Changes in interest rates may affect funding requirements, as well as the
relative liquidity of certain assets. As of December 31, 1999, Rockingham's
interest sensitive liabilities maturing or repricing within one year exceeded
interest sensitive assets maturing or repricing within one year, creating a
negative "gap" position. To assist further in the analysis and management
process, Rockingham calculates the effects of sudden interest rate changes upon
net interest income by taking into account the balance sheet gap position and
the degree of sensitivity to rate changes of each grouping of assets and
liabilities. Rockingham's objective is to minimize risk associated with sudden
changes in interest rates and, accordingly, avoid speculating on interest rate
movement. The following table demonstrates the relationship between interest
sensitive assets and interest sensitive liabilities on December 31, 1999.



                                     IV-19
<PAGE>
<TABLE>
<CAPTION>
Interest Sensitivity Analysis
--------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
                                                          Over 3       Over 1      Over 2      Over 3      Over 4
                                               3          Months        Year       Years        Years       Years
                                             Months      Through      Through     Through      Through     Through      Over 5
At December 31                              or Less      12 Mos.      2 Years     3 Years      4 Years     5 Years      Years
--------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>         <C>           <C>         <C>         <C>          <C>         <C>
Earnings Assets
   Federal Funds Sold                     $    7,677  $          -  $        -  $        -  $         -  $        -  $        -
   Investment Securities                         968         2,600       2,479           -          805           -         907
   Loans (Net)                                19,894        11,689       7,664       8,747       13,180      17,048         695
                                         ---------------------------------------------------------------------------------------
    Total Earning Assets                      28,539        14,289      10,143       8,747       13,985      17,048       1,602
                                         ---------------------------------------------------------------------------------------

Interest-Bearing Liabilities
   NOW and Money Market Accounts              18,014             -           -           -            -           -           -
   Savings                                     5,016             -           -           -            -           -           -
   Time certificates                          12,180        32,341       5,942       1,466          876           -           -
                                         ---------------------------------------------------------------------------------------
    Total Interest-Bearing Liabilities        35,210        32,341       5,942       1,466          876           -           -
                                         ---------------------------------------------------------------------------------------

Interest Sensitivity Gap
   Asset (Liability) Sensitive            $   (6,671) $    (18,052) $    4,201  $    7,281  $    13,109  $   17,048  $    1,602
                                         ---------------------------------------------------------------------------------------
   Cumulative Gap                         $   (6,671) $    (24,723) $  (20,522) $  (13,241) $      (132) $   16,916  $   18,518
                                         ---------------------------------------------------------------------------------------
</TABLE>











                                     IV-20
<PAGE>

                                    CHAPTER V
                         MANAGEMENT FOLLOWING THE MERGER

The Board of Directors

         The Marathon board of directors currently is comprised of 11 members.

         The merger agreement requires that Marathon reduce the size of the
board to eight members. In connection with this reduction, seven current
directors of Marathon will resign, and four current directors of Rockingham will
become directors of Marathon. In addition, the board of directors will be
divided into three classes, two of which will consist of three members and one
of which will consist of two members. The directors of Marathon following the
merger will serve for the terms of their respective classes, which expire in
2001, 2002 and 2003.

         The following table sets forth the composition of the board of
directors following the merger.
<TABLE>
<CAPTION>
               Class II                        Class III                         Class I
        (Term Expiring in 2001)         (Term Expiring in 2002)          (Term Expiring in 2003)
<S>                                        <C>                              <C>
           Walter H. Aikens                 Clifton L. Good                 Stephen T. Heitz*
            Paul R. Yoder*                 Joseph W. Hollis                 John K. Stephens*
                                            Wayne B. Ruck*                   Donald L. Unger
</TABLE>
_______________________
*        Rockingham director

         The following paragraphs set forth certain information, as of May 31,
2000, for the eight individuals who are expected to serve as directors of
Marathon following the consummation of the merger. Unless otherwise indicated,
each director has held his or her current position for more than five years.

                                     Class I
                             (Term Expiring in 2003)

         Stephen T. Heitz, 47, has served as a director of Rockingham since
1989. He is an attorney and partner in the firm of Litten and Sipe, L.L.P. in
Harrisonburg, Virginia.

         John K. Stephens, 57, has been President and Chief Executive Officer of
Rockingham since 1994 and Chairman of the Board of Rockingham since 1998. From
1990 to 1998, he served as Vice Chairman of the Board of Rockingham.

         Donald L. Unger, 58, has been President and Chief Executive Officer of
Marathon and The Marathon Bank since 1992. He also has served as a director of
Marathon and The Marathon Bank since 1993. Mr. Unger was elected Chairman of The
Marathon Bank in May 2000.




                                       V-1
<PAGE>

                                    Class II
                             (Term Expiring in 2001)

         Walter H. Aikens, 50, has served as a director of Marathon since 1998
and of The Marathon Bank since 1998. He is President of H & W Construction Co.,
Inc., President of Aikens Corporation, and develops real estate for rental
property.

         Paul R. Yoder, Jr., 58, is Vice Chairman of the Board of Rockingham and
has served as a director of Rockingham since 1989. He is a physician and surgeon
and is a partner in the professional firm of Rockingham Eye Physicians, P.C.

                                    Class III
                             (Term Expiring in 2002)

         Clifton L. Good, 63, has served as a director of Marathon since 1989
and of The Marathon Bank since 1987. He is President of Clifton L. Good Realty,
Incorporated, in Front Royal, Virginia.

         Joseph W. Hollis, 46, has served as a director of Marathon since 1989
and of The Marathon Bank since 1987. He is President of B. J. Sager (beer
distributor) in Winchester, Virginia.

         Wayne B. Ruck, 60, has served as a director of Rockingham since 1996.
He is co-founder and co-owner of Packaging Services, Inc. of Weyers Cave,
Virginia, and seven other packaging-related companies in the Mid-Atlantic
region.

Executive Officers Who Are Not Directors

         Following the closing of the merger, the officers of each of The
Marathon Bank and Rockingham will retain the same or similar positions that they
held with the respective bank prior to the merger. See the information set forth
above for certain information with respect to Messrs. John K. Stephens and
Donald L. Unger, who are expected to serve as the executive officers of Marathon
following the consummation of the merger.









                                      V-2
<PAGE>

Security Ownership of Management

         The following table sets forth, based on information as of ________ __,
2000, the beneficial ownership of Marathon common stock, the beneficial
ownership of Rockingham common stock and the anticipated beneficial ownership,
after giving effect to the merger, of Marathon common stock by each director and
executive officer of Marathon and Rockingham and by each person who will serve
as a director or executive officer of Marathon following the merger.
<TABLE>
<CAPTION>
                                                Ownership Before                         Ownership After
                                                   the Merger                               the Merger
                                                   ----------                               ----------
                                                                                             Marathon
                                                                                           Common Stock
                                                                                           ------------
                                         Marathon             Rockingham            Number            Percent
                                     Common Stock (1)      Common Stock (1)        of Shares        of Class (%)
                                     ----------------      ----------------        ---------        ------------
<S>                                        <C>                 <C>                   <C>                <C>
Marathon Directors:

Walter H. Aikens*                           19,864                 -                  19,864             **
Frank H. Brumback                           42,055                 -                  42,055             **
Robert W. Claytor                           55,061                 -                  55,061            1.2
Clifton L. Good*                            64,943                 -                  64,943            1.4
Ralph S. Gregory                            74,856                 -                  74,856            1.6
Thomas W. Grove                             16,009                 -                  16,009             **
Joseph W. Hollis*                           65,701                 -                  65,701            1.4
George R. Irvin, Jr.                        74,710                551                 75,580            1.7
Gerald H. Kidwell                           62,529                728                 63,679            1.4
Lewis W. Spangler                           44,031                 -                  44,031             **
Donald L. Unger*                            24,022                 -                  24,022             **

All current Marathon Directors
   and Executive Officers as a
   group (11 Persons)                      543,781               1,279               545,801            11.8

Rockingham Directors:

Paul S. Cline                                 -                 12,507                19,050             **
Betty N. Curry                                -                  8,438                13,332             **
Margaret E. Haynes                            -                 21,553                34,053             **
Stephen T. Heitz*                             -                 11,784                18,618             **
Elmer T. Kramer                               -                  5,851                 9,244             **
Wayne B. Ruck*                                -                 71,576               113,090            2.5
Donald E. Showalter                           -                  3,312                 5,232             **
John K. Stephens*                            400                61,983                98,333            2.2
Jeremiah B. Sullivan, Ph.D.                   -                  8,765                13,848             **
Richard G. Tutwiler                           -                 34,334                54,247            1.2
Paul R. Yoder, Jr., M.D.*                     -                 32,029                50,605            1.1

All current Rockingham
   Directors and Executive
   Officers as a group (13
   Persons)                                  400               287,203               454,175            9.9

All post-merger Marathon
   Directors and Executive
   Officers as a
   group (8 persons)                                                                 455,176            9.9
___________________
</TABLE>


                                      V-3
<PAGE>

*      Director of Marathon following the consummation of the merger.
**     Percentage of ownership will be less than one percent of the outstanding
       shares of Marathon common stock.

(1)  Amounts include beneficial ownership of shares of common stock, if any,
     held in the name of the spouse, minor children or other relatives of a
     director living in such person's home, as well as shares, if any, held in
     the name of another person under an arrangement whereby the director or
     executive officer can vest title in himself at once or at some future time.
     Amounts also include beneficial ownership of shares of common stock
     issuable upon the exercise of stock options exercisable within 60 days of
     ________ __, 2000.

Security Ownership of Certain Beneficial Owners

         The following table sets forth, to the knowledge of Marathon and
Rockingham and based on information as of ________ __, 2000, (i) the beneficial
ownership of each person who owns more than five percent of the outstanding
shares of Rockingham common stock and (ii) the anticipated beneficial ownership
of each person expected to own more than five percent of the outstanding shares
of Marathon common stock after giving effect to the merger. No person is known
to be the beneficial owner of more than five percent of the outstanding shares
of Marathon common stock.
<TABLE>
<CAPTION>
                                                  Ownership of                             Ownership of
                                             Rockingham Common Stock                  Marathon Common Stock
                                                Before the Merger                        After the Merger
                                                -----------------                        ----------------
                                          Number                Percent             Number            Percent
                                         of Shares           of Class (%)          of Shares        of Class (%)
                                         ---------           ------------          ---------        ------------
<S>                                       <C>                     <C>               <C>                 <C>
J. Gray Ferguson                          88,440                  5.6               139,735             3.1
P.O. Box 4400
Charlottesville, VA  22905
</TABLE>

Director Compensation

         Each director of Marathon is paid an annual retainer fee of $1,500 and
directors' fees for meetings attended as follows:

              Board of Directors Meetings                            $  500
              Loan, Audit and Compensation Committee Meetings        $   50




                                      V-4
<PAGE>

Executive Officer Compensation

         The following table presents information concerning the compensation of
Messrs. Unger and Stephens. This table presents compensation for services
rendered in all capacities to Marathon and its subsidiaries by Mr. Unger and to
Rockingham by Mr. Stephens in 1999, 1998 and 1997.

                           Summary Compensation Table
<TABLE>
<CAPTION>
                                                                                Long Term
                                          Annual Compensation                  Compensation
                                          -------------------                  ------------

                                                                                Securities
                                                                                Underlying           All Other
Name                             Year         Salary            Bonus        Options (#) (1)      Compensation (2)
----                             ----         ------            -----        ---------------      ----------------
<S>                              <C>         <C>                <C>                                   <C>
Donald L. Unger                  1999        $122,000           $8,050               --               $9,760
President and Chief              1998         115,000            8,050               --               $9,200
   Executive Officer of          1997         108,000            6,040            2,203               $8,000
   Marathon

John K. Stephens                 1999        $125,445          $27,400           21,279 (3)          $14,921
Chairman, President and          1998         115,915           23,500            1,306               13,748
   Chief Executive               1997          95,919           17,000           30,482                9,586
   Officer of Rockingham
</TABLE>

_____________________
(1)  Amounts have been adjusted to reflect (i) stock dividends paid by
     Rockingham and (ii) the exchange ratio in the merger.
(2)  For Mr. Unger, amounts represent contributions to Marathon's 401(k) Plan
     and to Marathon's Excess Benefit Plan on behalf of Mr. Unger pursuant to
     Mr. Unger's employment agreement. For Mr. Stephens, amounts represent
     contributions to the Rockingham Heritage Bank Employee Retirement Plan and
     the Rockingham Heritage Bank Money Purchase Plan on behalf of Mr. Stephens.
(3)  On July 11, 2000, Rockingham rescinded the options to purchase shares of
     Rockingham common stock that were granted to Mr. Stephens in 1999.

Stock Options

         Option Grants. No stock options were granted to Mr. Unger in 1999. The
table below provides information concerning stock options granted by Rockingham
to Mr. Stephens during 1999.

                        Option Grants In Last Fiscal Year
<TABLE>
<CAPTION>
                                                     Percent of Total
                            Number of Securities    Options Granted to
                             Underlying Options        Employees in        Exercise or Base
                             Granted (#)(1)(2)        Fiscal Year (%)       Price ($/Share)       Expiration Date
                             -----------------        ---------------       ---------------       ---------------
<S>                              <C>                         <C>                  <C>              <C>
John K. Stephens                 19,908 (3)                  26                   9.34             July 13, 2009

</TABLE>

_________________
(1)  Stock options were awarded at or above the fair market value of the shares
     of Rockingham common stock at the date of award.


                                      V-5
<PAGE>

(2)  The total number of securities underlying unexercised options have been
     adjusted to reflect the exchange ratio in the merger.
(3)  On July 11, 2000, Rockingham rescinded the options to purchase shares of
     Rockingham common stock that were granted to Mr. Stephens in 1999.

         Option Exercises and Holdings. The following table sets forth
information with respect to exercised and unexercised options held by Messrs.
Unger and Stephens as of December 31, 1999. No stock options were exercised by
Messrs. Unger or Stephens in 1999.

                          Fiscal Year End Option Values
<TABLE>
<CAPTION>
                                         Number of Securities Underlying       Value of Unexercised In-The-Money
                                              Unexercised Options at                       Options at
Name                                       December 31, 1999 (#)(1)(2)              December 31, 1999 ($)(3)
----                                       ---------------------------              ------------------------
                                         Exercisable        Unexercisable        Exercisable       Unexercisable
                                         -----------        -------------        -----------       -------------
<S>                                         <C>                  <C>                 <C>                <C>
Donald L. Unger                             17,500               7,500               20,790             8,910
John K. Stephens                            28,803              19,908              116,125            14,364
</TABLE>
_______________________
(1)  The total number of securities underlying unexercised options have been
     adjusted to reflect (i) stock dividends paid by Rockingham and (ii) the
     exchange ratio in the merger.
(2)  On July 11, 2000, Rockingham rescinded the options to purchase shares of
     Rockingham common stock that were granted to Mr. Stephens in 1999.
(3)  The value of unexercised in-the-money options at fiscal year end was
     calculated by determining the difference between (i) the fair market value
     of common stock underlying the options at December 31, 1999 and (ii) the
     exercise price of the options.


Employment Agreements

         Marathon and Mr. Unger entered into an employment agreement on April 1,
1998 (the "Agreement"). The Agreement was automatically renewed on March 31,
2000 for a one year period, and will automatically renew for successive one year
periods thereafter unless expressly terminated by Marathon.

         As compensation under the Agreement, Mr. Unger receives a base salary
of $108,000. As additional compensation under the Agreement and at the election
and in the discretion of the Board of Directors, Mr. Unger may receive a bonus
in the form of cash or options to purchase common stock of Marathon. The
Agreement permits Mr. Unger to participate in any benefit plans adopted by
Marathon under the same terms and conditions as other employees of Marathon.

         In the event of a change in control of Marathon, the Agreement provides
that Mr. Unger shall receive a cash payment equal to the greater of (i) the
amount of salary due to Mr. Unger for the remainder of the term of the Agreement
or (ii) the product of his annual salary and the multiple of the book value per
share of Marathon's Common Stock received by Marathon's stockholders in
connection with such change of control, provided such multiple does not exceed
3.



                                      V-6
<PAGE>

Certain Relationships and Related Transactions

         Marathon's officers, directors, their immediate families and affiliated
companies in which they are stockholders maintain normal business relationships
with The Marathon Bank. Loans made by The Marathon Bank are made in the ordinary
course of business on the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with others, and do
not involve more than normal risks of collectibility or present other
unfavorable features. The aggregate amount of such loans was approximately
$2,743,000 at December 31, 1999.

         The Marathon Bank also has a lease with Post Office Plaza, L.C. of
which Donald L. Unger, President, Chief Executive Officer and director of
Marathon, and Thomas W. Grove, a director of Marathon, each own 25%. The lease
arrangement was approved by the Bureau of Financial Institutions of the Virginia
State Corporation Commission and the Federal Reserve Board in regard to
establishing a branch at 300 Warren Avenue, Front Royal, Warren County,
Virginia. The land lease became effective in July 1993 and converted into a
lease for both the land and building thereon in June 1996. The lease expires on
June 30, 2016. The rent paid on the lease totaled $47,354 for the year 1999.

         The firm of Litten and Sipe, LLP of which Stephen T. Heitz, a director
of Rockingham and a director nominee for the post-merger Marathon board, is a
partner, rendered legal services to Rockingham in 1999. The firm of Wharton
Aldhizer & Weaver, PLC of which Donald E. Showalter, a director of Rockingham,
is a partner, also rendered legal services to Rockingham in 1999. Rockingham
expects to retain both law firms for 2000.

         In 1999, and up to the present time, there were transactions between
Rockingham and some of Rockingham's officers and directors. These transactions
consisted of extensions of credit by Rockingham in the ordinary course of its
business. In addition, some of these persons are at present, as in the past,
directors or officers of corporations, which are customers with Rockingham in
the ordinary course of business. Each transaction was made on substantially the
same terms, including interest rates, collateral and repayment terms, as those
prevailing at the time for comparable transactions with the general public. In
the opinion of management, none of the transactions involved more than the
normal risk of collectibility or present other unfavorable features. The
aggregate amount of such loans was approximately $1,798,000 at December 31,
1999. Additional information on the activity in such loans is set forth in Note
14 to Rockingham's financial statements, which are attached as Appendix D to
this joint proxy statement/prospectus.











                                      V-7
<PAGE>

                                   CHAPTER VI
                                  LEGAL MATTERS

                      DESCRIPTION OF MARATHON CAPITAL STOCK

Common Stock

         Voting Rights. Each share of Marathon common stock entitles the holder
thereof to one vote on all matters voted on by shareholders. The shares of
Marathon common stock do not have cumulative voting rights, which means that the
holders of more than 50% of the shares of Marathon common stock voting for the
election of directors can elect all of the directors, in which event the holders
of the remaining shares of Marathon common stock will not be able to elect any
of the directors.

         Dividend Rights. Holders of Marathon common stock are entitled to
receive dividends when, as and if declared by the board of directors out of
funds legally available for the payment of dividends.

         Liquidation Rights. Subject to the rights of holders of Marathon
preferred stock, upon any liquidation, dissolution or winding up of the affairs
of the Marathon, holders of Marathon common stock are entitled to receive pro
rata all of the assets of Marathon for distribution to shareholders. No shares
of Marathon preferred stock are currently outstanding.

         Assessment and Redemption. Shares of Marathon common stock presently
outstanding are validly issued, fully paid and nonassessable. There is no
provision for any voluntary redemption of the Marathon common stock.

         Other. Holders of Marathon common stock have no subscription, sinking
fund, conversion or preemptive rights.


                       COMPARATIVE RIGHTS OF SHAREHOLDERS

General

         Marathon and Rockingham are corporations subject to the provisions of
the Virginia Stock Corporation Act. Rights as a shareholder of Rockingham are
governed by Rockingham's articles of incorporation and bylaws and by the
Virginia Stock Corporation Act. Upon consummation of the merger, Rockingham
shareholders will become shareholders of Marathon, and as such shareholder
rights will then be governed by the articles of incorporation and bylaws of
Marathon and by the Virginia Stock Corporation Act.

         The following is a summary of the material differences in the rights of
shareholders of Rockingham and Marathon. This summary is qualified in its
entirety by reference to the articles of incorporation and bylaws of Marathon
and Rockingham and to the Virginia Stock Corporation Act.

Authorized Capital

         Rockingham. The Rockingham Articles authorize the issuance of up to
2,000,000 shares of Rockingham common stock, par value $5.00 per share, of which
1,589,940 shares were issued and outstanding as of ________ __, 2000. Rockingham
is not authorized to issue preferred stock.



                                      VI-1
<PAGE>

         Marathon. The Marathon Articles authorize the issuance of up to
20,000,000 shares of Marathon common stock, par value $1.00 per share, of which
2,051,441 shares were issued and outstanding as of ________ __, 2000. The
Marathon Articles further authorize 1,000,000 shares of preferred stock, without
par value, 300,000 of which shares have been designated as Series "A" 1992
Preferred Stock. No shares of Marathon preferred stock were issued and
outstanding as of ________ __, 2000.

         Marathon's Articles authorize the Marathon board, without shareholder
approval, to fix the preferences and relative rights of the preferred stock,
within certain limitations, and to establish series of such preferred stock and
determine the variations, such as in dividends, voting rights, redemption price
and conditions, and conversion features, between each series. Although series
may have different features, all series shall rank on a parity as to dividends
and assets with all other series according to the respective dividend rates and
amounts distributable upon any voluntary or involuntary liquidation of the
corporation fixed for each such series and without preference or priority of any
series over any other series. All shares of preferred stock within a series
shall be identical, and all shares of preferred stock shall be preferred over
common stock as to both dividends and amounts distributable upon any voluntary
or involuntary liquidation of the corporation. If any additional shares of
preferred stock are issued, the rights of holders of Marathon common stock would
be subject to the rights and preferences conferred to holders of such preferred
stock.

         The authority to create and issue separate classes and series of
preferred stock allows a corporation greater flexibility in structuring
financings and acquisitions. While such issuances could, under certain
circumstances, be considered to have the effect of making a change in control
more difficult, any issuance of such stock would be subject to applicable law,
including, without limitation, the duty of the Marathon board to exercise its
good faith business judgment in the best interests of Marathon and its
shareholders. Under Marathon's Articles, the Marathon board would be authorized
to issue a series of preferred stock with more than one vote, less than one
vote, no vote or one vote per share.

         Marathon's ability to pay dividends is limited by restrictions imposed
by the Virginia Stock Corporation Act on Virginia corporations. In general,
dividends paid by a Virginia corporation may be paid only if, after giving
effect to the distribution, (i) the corporation is still able to pay its debts
as they become due in the usual course of business, or (ii) the corporation's
total assets are greater than or equal to the sum of its total liabilities plus
(unless the corporation's Articles permit otherwise) the amount that would be
needed, if the corporation were to be dissolved at the time of the distribution,
to satisfy the preferential rights, upon the dissolution, of shareholders whose
preferential rights are superior to those receiving the distribution.

         No dividends may be declared or paid on Marathon common stock unless
dividends accrued on the preferred stock for that period have been paid or
declared and a sum sufficient for the payment thereof set apart for such
payment.

Amendment of Articles of Incorporation or Bylaws

         The Virginia Stock Corporation Act provides that an amendment to a
corporation's articles of incorporation must be approved by each voting group
entitled to vote on the proposed amendment. Under Virginia law, an amendment to
the corporation's articles of incorporation must be approved by more than
two-thirds of all votes entitled to be cast by that voting group. However, the
corporation's articles of incorporation may require a greater vote or a lesser
vote, which may not be not less than a majority, by each voting group entitled
to vote on the transaction. A corporation's board of directors may require a
greater vote.



                                      VI-2
<PAGE>

         Rockingham. Rockingham's Articles do not address amendments, so
Rockingham is governed by the provisions of the Virginia Stock Corporation Act.
Accordingly, amendments to Rockingham's Articles must be approved by two-thirds
of all votes entitled to be cast by each voting group, except that certain minor
amendments may be made to the Rockingham Articles by the Rockingham board
without shareholder action.

         The Rockingham Bylaws provide that the Rockingham Bylaws may be amended
or repealed, and new bylaws adopted, by a majority vote of the full Board of
Directors at any regular or special meeting. The Rockingham Bylaws also provide
that the Rockingham Board has no power to adopt a bylaw that would (i) require
more than a majority of voting shares for a quorum or more than a majority of
the votes cast to constitute shareholder action unless otherwise required by
law, or (ii) that would permit management other than by a board of directors.
The Rockingham Bylaws further enable the shareholders to prescribe that any
bylaws adopted or amended by the shareholders may not be amended or repealed by
the Rockingham Board.

         Marathon. As noted above, amendments to the articles of incorporation
of Virginia corporations, such as Marathon, can be submitted to the shareholders
for a vote only by the board of directors. Additionally, Virginia law provides,
as a general rule, that an amendment to the articles of incorporation must be
approved by each voting group entitled to vote on the proposed amendment by more
than two-thirds of all votes entitled to be cast by each voting group. However,
Virginia law also permits the articles of incorporation to provide for a greater
or lesser vote. Marathon's Articles contain such a provision. Marathon's
Articles provide that amendments must be approved by a majority of the votes
entitled to be cast by each voting group entitled to vote at a meeting at which
a quorum of each class exists. The Marathon Articles also contain a special
provision regarding amendment to the Articles with respect to the size,
classification, and terms of the board of directors and related election and
removal provisions. Such an amendment to the Articles would need the affirmative
vote of either (i) at least two-thirds of the outstanding shares entitled to
vote or (ii) a majority of the originally elected board of directors or their
replacements after a vacancy and a majority of the outstanding shares entitled
to vote. The effect of this latter provision is to make it more difficult to
replace the Marathon board in a takeover attempt.

         Marathon's Bylaws may be amended or altered by either the board of
directors or the shareholders by a majority vote. Moreover, the shareholders
have the power to enact bylaws which may not be altered or repealed by the
Board.

Mergers, Consolidations and Sales of Assets

         Rockingham. The Rockingham Articles do not address the vote required in
the event of mergers, consolidations and sales of assets. Accordingly, pursuant
to Virginia law, a merger, share exchange, or direct or indirect sale, lease,
exchange or other disposition of all or substantially all of the property of
Rockingham must be approved by two-thirds of the issued and outstanding shares
of each voting class.

         Marathon. Marathon's Articles provide that a plan of merger or share
exchange, or direct or indirect sale, lease, exchange or other disposition of
all or substantially all of the property of Marathon not in the ordinary course
of business may be approved by a two-thirds vote of each class of voting stock
at a meeting at which a quorum exists. Additionally, consistent with Virginia
law, the Marathon board may condition its submission of such plan of merger or
share exchange or such a sale or disposition of assets to the shareholders on
any basis, including the requirement of a greater or lesser vote than the
required vote described above, provided that the vote may not be less than a
majority of all votes cast. The provision for an alternative vote on mergers,
share exchanges and certain sales, leases, exchanges or dispositions of assets
in Marathon's Articles may make it easier for the board of directors to gain



                                      VI-3
<PAGE>

shareholder approval of such actions than would be the case if a favorable vote
of two-thirds of the outstanding shares were required in all cases.

Size and Classification of Board of Directors

         Rockingham. The Rockingham Bylaws provide for a board of directors
consisting of not less than five or more than fifteen individuals. Rockingham
currently has 11 directors. Directors are not elected for multiple-year terms
and shall continue to hold office until their respective successors are elected
and qualify, unless the director dies, resigns, retires, becomes disqualified,
or is removed from office.

         Marathon. Marathon's Articles and Bylaws provide that its board of
directors shall consist of 11 individuals. Marathon's Articles and Bylaws
provide further, subject to the rights of holders of any series of preferred
stock, for the division of the directors into three classes, as nearly equal in
number as possible, with staggered three-year terms of office. The Marathon
Articles permit the Marathon board to amend the Marathon Bylaws from time to
time to increase or decrease the number of directors by up to 30% of the number
last elected by the Shareholders. If the number of directors has changed, any
increase or decrease shall be apportioned among the classes so as to maintain
the number of directors in each class as nearly equal as possible, but in no
case will a decrease in the number of directors shorten the term of any
incumbent director.

         A classified board of directors makes it more difficult for
shareholders, including those holding a majority of shares, to force an
immediate change in the composition of a majority of the board of directors,
even when the reason for a proposed removal is poor performance. Since the terms
of only approximately one-third of Marathon's directors expire each year, at
least two annual elections are required for the shareholders to change a
majority, whereas a majority of a non-classified board may be changed in one
year.

Vacancies and Removal of Directors

         Rockingham. The Rockingham Bylaws provide that directors may be
removed, with or without cause, by a majority vote of the shares entitled to
vote for directors. A vacancy on the Board of Directors, however occurring, may
be filled by a majority vote of the remaining directors, although the remaining
directors may be less than a quorum.

         Marathon. Marathon's Articles and Bylaws allow removal of a director
from office only for cause, by the affirmative vote of at least two-thirds of
the votes cast by each class of Marathon voting stock at a meeting called for
that purpose. Such a meeting could be the annual shareholder meeting or a
special shareholder meeting, although only the president, the chairman of the
board, or the board itself has a right to call a special shareholder meeting.

         Under Marathon's Articles, newly created directorships resulting from
any vacancies on the board of directors can be filled only by the affirmative
vote of a majority of the remaining directors then in office, even if that
number is less than a quorum of the board of directors. This provision would
enable incumbent directors to fill vacancies on the board of directors of
Marathon to the exclusion of Marathon's shareholders, regardless of the reason
for the vacancy.

         The provisions of Marathon's Articles relating to the removal of
directors and the filling of vacancies would preclude a holder of a majority of
the voting stock from removing incumbent directors and simultaneously gaining
control of the board of directors by filling the vacancies so created with its
own nominees. Accordingly, except with the concurrence of a majority of the
directors remaining in



                                      VI-4
<PAGE>

office, persons seeking representation either by enlarging the board of
directors or by filling the newly created directorships with their own nominees
would be unsuccessful.

Director Liability and Indemnification

         The Virginia Stock Corporation Act provides that in any proceeding
brought by or in the right of a corporation or brought by or on behalf of
shareholders of the corporation, the damages assessed against an officer or
director arising out of a single transaction, occurrence or course of conduct
may not exceed the lesser of (1) the monetary amount, including the elimination
of liability, specified in the articles of incorporation or, if approved by the
shareholders, in the bylaws as a limitation on or elimination of the liability
of the officer or director; or (2) the greater of (a) $100,000 or (b) the amount
of cash compensation received by the officer or director from the corporation
during the twelve months immediately preceding the act or omission for which
liability was imposed. The liability of an officer or director is not limited
under the Virginia Stock Corporation Act or a corporation's articles of
incorporation and bylaws if the officer or director engaged in willful
misconduct or a knowing violation of the criminal law or of any federal or state
securities law.

         In addition, the Virginia Stock Corporation Act permits a Virginia
corporation to indemnify any director or officer for reasonable expenses
incurred in any legal proceeding in advance of final disposition of the
proceeding, if the director or officer furnishes the corporation a written
statement of his good faith belief that he has conducted himself in good faith
and that he believed that his conduct was in the best interests of the
corporation, and a determination is made by the board of directors that such
standard has been met. In a proceeding by or in the right of the corporation, no
indemnification shall be made in respect of any matter as to which an officer or
director is adjudged to be liable to the corporation, unless the court in which
the proceeding took place determines that, despite such liability, such person
is reasonably entitled to indemnification in view of all the relevant
circumstances. In any other proceeding, no indemnification shall be made if the
director or officer is adjudged liable to the corporation on the basis that
personal benefit was improperly received by him. Corporations are given the
power to make any other or further indemnity, including advancement of expenses,
to any director or officer that may be authorized by the articles of
incorporation or any bylaw made by the shareholders, or by any resolution
adopted, before or after the event, by the shareholders, except an indemnity
against willful misconduct or a knowing violation of the criminal law. Unless
limited by its articles of incorporation, indemnification of a director or
officer is mandatory when he entirely prevails in the defense of any proceeding
to which he is a party because he is or was a director or officer.

         Rockingham. The Rockingham Articles provide that, to the extent that
Virginia permits the limitation or elimination of liability of directors or
officers, the maximum liability of an officer or director to Rockingham or its
shareholders is limited to one hundred dollars for a single transaction,
occurrence or course of conduct. The Rockingham Articles require Rockingham to
indemnify any director or officer of Rockingham who is made a party to any
proceeding against any liability incurred in the proceeding, because he was or
is a director or officer of Rockingham or any controlled entity or because,
while a director or officer of Rockingham, he served in any capacity at another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise at the request of Rockingham. "Proceeding" is broadly defined to
include pending, threatened or completed actions of all types, and includes
actions by or in the right of Rockingham. Similarly, "liability" is defined to
include, not only judgments, but also settlements, penalties, fines, and certain
excise taxes. The Rockingham Articles also provide that the Rockingham board
may, upon majority vote of a quorum, but is not obligated to, indemnify its
other employees or agents and any person serving in any capacity at the request
of Rockingham. Rockingham is also required to pay reasonable expenses, including
counsel fees, incurred by a director or officer of Rockingham in a proceeding in
advance of the final disposition of any such proceeding, provided that the
indemnified person undertakes to repay Rockingham if it is ultimately determined
that such person was



                                      VI-5
<PAGE>

not entitled to indemnification. Determination of eligibility for
indemnification, of meeting the requisite standard of conduct, and of the
reasonableness of expenses, all with respect to an indemnification of claims of
officers, employees, agents and others, shall be made by the Rockingham board of
directors. Such a determination relating to a claim for indemnification by a
Rockingham director shall be made in accordance with Virginia law, i.e., by a
majority vote of a disinterested quorum of directors or director committee, by
majority vote of disinterested shareholders, or by special legal counsel
appointed by the board of directors. At this time, Virginia law does not permit
indemnification against willful misconduct or a knowing violation of the
criminal law.

         The rights of indemnification provided in Rockingham's Articles are not
exclusive of any other rights which may be available under any insurance or
other agreement. In addition, the Rockingham Articles authorize Rockingham to
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of Rockingham, whether or not Rockingham would have the power
to provide indemnification to such person. Corporate indemnification is not
available if a person is indemnified through insurance or some other source.

         Marathon. Marathon's Articles provide that, to the extent that Virginia
permits the limitation or elimination of liability of directors or officers, a
director or officer shall not be liable to Marathon or its shareholders for
monetary damages in any action brought by or on behalf of Marathon or its
shareholders. Marathon's Articles require it to indemnify, to the extent
permitted by Virginia law, any person who is made a party to any proceeding
because he was or is a director or officer of Marathon, or because he is or was
an officer or director who served at the request of Marathon as a director,
officer, trustee or partner of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against any liability,
including reasonable expenses and legal fees, incurred in the proceeding. Under
Marathon's articles of incorporation, "proceeding" is broadly defined to include
pending, threatened or completed actions of all types and includes an action
brought by or on behalf of Marathon shareholders. "Liability" is defined to
include, not only judgments, but also settlements, penalties, fines and certain
excise taxes.

         The indemnification provisions also require Marathon to pay reasonable
expenses incurred by a director or officer of Marathon in a proceeding in
advance of the final disposition of any such proceeding, provided that the
indemnified person provides a written statement of his good faith belief that he
has met the requisite standard of conduct and undertakes to repay Marathon if it
is ultimately determined that such person was not entitled to indemnification.
At this time, Virginia law does not permit indemnification against willful
misconduct or a knowing violation of the criminal law.

         Determination of eligibility for indemnification, of meeting the
requisite standard of conduct and the reasonableness of expenses shall be made
by the Marathon board of directors by a majority vote of a quorum of directors
not a party to the proceeding, by a director committee if a quorum cannot be
obtained from the full board, by special legal counsel selected by the board of
directors, or by the shareholders, excluding shares owned by the directors who
are parties to the proceeding.

         Marathon is also empowered, by a majority vote of a quorum of
disinterested directors, to extend such indemnification to Marathon employees or
agents.

         The rights of indemnification provided in Marathon's Articles are not
exclusive of any other rights which may be available under any insurance or
other agreement, by vote of shareholders or disinterested directors or
otherwise. In addition, the Marathon Articles authorize Marathon to maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of Marathon, whether or not Marathon would have the power to provide
indemnification to such person. The rights of indemnification provided to
directors of Marathon could reduce the likelihood of shareholder derivative



                                      VI-6
<PAGE>

actions and may discourage other third party claims against the directors, even
if such actions otherwise would be beneficial to shareholders of Marathon.

         Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling Marathon
pursuant to the foregoing provisions, Marathon has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.

Special Meetings of Shareholders

         Rockingham. The Rockingham Bylaws provide that special meetings of
shareholders may be held on the call of the Chairman of the Board, Chief
Executive Officer, President, Secretary, or the Rockingham Board, which means
that the shareholders of Rockingham do not have the right to call special
meetings.

         Marathon. Marathon's Bylaws provide that special meetings of
shareholders may be held whenever called by the president, chairman of the board
of directors or by the board of directors itself, which means that the
shareholders of Marathon do not have the right to call special meetings. The
inability of shareholders to call a special meeting could affect changes in
control of Marathon by delaying the presentation to shareholders of proposals
relating to, or facilitating, such a change in control until the annual meeting.

Shareholder Nominations and Proposals

         Rockingham. The Rockingham Articles and Bylaws do not address
shareholder nominations and proposals.

         Marathon. Under Marathon's Bylaws, notice of a proposed nomination or a
shareholder proposal meeting certain specified requirements must be received by
Marathon not less than 45 days prior to the meeting of shareholders.

         Marathon's Bylaws require that the shareholder's notice of nomination
for director set forth as to each nominee (i) the name and business address of
such nominee, (ii) the fact that the nominee has consented to his name being
placed in nomination, (iii) the name and record address of the shareholder
making the nomination, (iv) the class and amount of beneficial ownership of
Marathon capital stock by the nominating shareholder, and (v) any material
interest of the shareholder in the proposed nomination.

         Marathon's Bylaws require that the notice relating to a shareholder
proposal contain (i) a brief description of the shareholder proposal and the
reason for conducting such business at the meeting, (ii) the name and record
address of the shareholder proposing such business, (iii) the class and number
of shares of Marathon stock which are beneficially owned by the shareholder
making the proposal and (iv) any material interest (financial or otherwise) of
such shareholder in the proposal.

         If the information supplied by a shareholder is deficient in any
material aspect or if the foregoing procedure is not followed, the chairman of
the meeting may announce to the meeting that such shareholder's nomination or
purpose should not be brought before the annual meeting and that such nominee
shall not be eligible for election as a director of Marathon or such business is
not properly brought before the meeting.

         The advance notice procedure of Marathon's Bylaws affords the Marathon
board the opportunity to consider the qualifications of the proposed nominees
and to inform shareholders about such qualifications. Although such procedure
does not give the board of directors of Marathon any power to



                                      VI-7
<PAGE>

approve or disapprove of shareholder nominations for election of directors, it
may have the effect of precluding surprise nominations and a contest for the
election if directors if such procedure established by it is not followed.
Furthermore, such procedure may discourage or deter a third party from
conducting a solicitation of proxies to elect its own slate of directors.

         The procedures regarding shareholder proposals and nominations provide
the Marathon board with the information necessary to evaluate a shareholder
proposal or nomination and other relevant information, such as existing
shareholder support, as well as the time necessary to consider and evaluate such
information in advance of the applicable meeting. The proposed procedures,
however, give incumbent directors advance notice of a business proposal or
nomination. This may make it easier for the incumbent directors to defeat a
shareholder proposal or nomination, even when certain shareholders view such
proposal or nomination as in the best interests of Marathon or its shareholders.
Marathon's Articles and Bylaws do not prevent shareholders from making proposals
under the Commission's rules and regulations.

Shareholder Voting Rights in General

         The Virginia Stock Corporation Act generally provides that shareholders
do not have cumulative voting rights unless those rights are provided in the
corporation's articles of incorporation. The Virginia Stock Corporation Act also
specifies additional voting requirements for Affiliated Transactions which are
discussed below under "State Anti-Takeover Statutes."

         Rockingham. The Rockingham Articles do not permit shareholders to
cumulate votes for the election of directors. Each share entitled to vote is
entitled to one vote on each matter submitted to a vote.

         The Rockingham Articles eliminate the pre-emptive right of shareholders
to subscribe for and purchase unissued shares of Rockingham stock.

         The Rockingham Bylaws also prohibit the use of any voting trust
agreement or any other type of agreement conferring to another person the
authority to vote one's shares.

         Marathon. Marathon's Articles do not provide shareholders cumulative
rights for the election of directors. Therefore, the holders of a majority of
the shares voted in the election of directors can elect all of the directors
then standing for election. The holders of Marathon common stock are entitled to
one vote per share on all matters submitted to a vote of shareholders. Except to
the extent to which the board of directors shall have specified voting power
with respect to any other class of stock and except as otherwise provided by
law, the exclusive voting power shall be vested in the holders of Marathon
common stock.

         The Marathon Articles eliminate the pre-emptive right of shareholders
to subscribe for and purchase any shares of any class of Marathon stock or other
securities, or any other options, warrants, or rights to purchase.

Restrictions of Transfer of Common Stock

         Rockingham. The Rockingham Articles and Bylaws do not contain any
restriction relating to the identity of the transferee of any share of stock.

         Marathon. The Marathon Articles provide that shares of common stock may
not be transferred (whether by sale, assignment, gift, pledge, hypothecation or
bequest) to any person, other than a Marathon subsidiary or employee benefit
plan, who is or who would become as a result of the transfer, an owner of



                                      VI-8
<PAGE>

10% or more of the outstanding shares of Marathon common stock, unless such
transfer has been approved in advance by a majority of the Marathon board of
directors. Any prohibited transfer is void to the extent of shares that exceed
9.99% ownership by the transferee. Any transfer of stock may be conditioned upon
the transferor's affidavit that the transfer would not violate this restriction.
The restriction on transfer is to be noted conspicuously on the stock
certificate.

State Anti-Takeover Statutes

         The Virginia Stock Corporation Act restricts transactions between a
corporation and its affiliates and potential acquirors. The summary below is
necessarily general and is not intended to be a complete description of all the
features and consequences of those provisions, and is qualified in its entirety
by reference to the statutory provisions contained in the Virginia Stock
Corporation Act. Because both Rockingham and Marathon are Virginia corporations,
the provisions of the Virginia Stock Corporation Act described below apply to
Rockingham and Marathon and will continue to apply to Marathon after the merger.

         Affiliated Transactions. The Virginia Stock Corporation Act contains
provisions governing "Affiliated Transactions," found at Sections 13.1-725 -
727.1 of the Virginia Stock Corporation Act. Affiliated Transactions include
certain mergers and share exchanges, certain material dispositions of corporate
assets not in the ordinary course of business, any dissolution of a corporation
proposed by or on behalf of an Interested Shareholder (as defined below), and
reclassifications, including reverse stock splits, recapitalizations or mergers
of a corporation with its subsidiaries, or distributions or other transactions
which have the effect of increasing the percentage of voting shares beneficially
owned by an Interested Shareholder by more than 5%. For purposes of the Virginia
Stock Corporation Act, an Interested Shareholder is defined as any beneficial
owner of more than 10% of any class of the voting securities of a Virginia
corporation.

         Subject to certain exceptions discussed below, the provisions governing
Affiliated Transactions require that, for three years following the date upon
which any shareholder becomes an Interested Shareholder, any Affiliated
Transaction must be approved by the affirmative vote of holders of two-thirds of
the outstanding shares of the corporation entitled to vote, other than the
shares beneficially owned by the Interested Shareholder, and by a majority (but
not less than two) of the Disinterested Directors (as defined below). A
Disinterested Director is defined in the Virginia Stock Corporation Act as a
member of a corporation's board of directors who (i) was a member before the
later of January 1, 1988 or the date on which an Interested Shareholder became
an Interested Shareholder and (ii) was recommended for election by, or was
elected to fill a vacancy and received the affirmative vote of, a majority of
the Disinterested Directors then on the corporation's board of directors. At the
expiration of the three year period after a shareholder becomes an Interested
Shareholder, these provisions require approval of the Affiliated Transaction by
the affirmative vote of the holders of two-thirds of the outstanding shares of
the corporation entitled to vote, other than those beneficially owned by the
Interested Shareholder.

         The principal exceptions to the special voting requirement apply to
Affiliated Transactions occurring after the three year period has expired and
require either that the transaction be approved by a majority of the
corporation's Disinterested Directors or that the transaction satisfy certain
fair price requirements of the statute. In general, the fair price requirements
provide that the shareholders must receive the higher of: the highest per share
price for their shares as was paid by the Interested Shareholder for his or its
shares, or the fair market value of the shares. The fair price requirements also
require that, during the three years preceding the announcement of the proposed
Affiliated Transaction, all required dividends have been paid and no special
financial accommodations have been accorded the interested Shareholder, unless
approved by a majority of the Disinterested Directors.



                                      VI-9
<PAGE>

         None of the foregoing limitations and special voting requirements
applies to a transaction with an Interested Shareholder who has been an
Interested Shareholder continuously since the effective date of the statute
(January 26, 1988) or who became an Interested Shareholder by gift or
inheritance from such a person or whose acquisition of shares making such person
an Interested Shareholder was approved by a majority of the Disinterested
Directors of the corporation.

         These provisions were designed to deter certain takeovers of Virginia
corporations. In addition, the Virginia Stock Corporation Act provides that by
affirmative vote of a majority of the voting shares other than shares owned by
any Interested Shareholder, a corporation may adopt by meeting certain voting
requirements, an amendment to its articles of incorporation or bylaws providing
that the Affiliated Transactions provisions shall not apply to the corporation.
Neither Rockingham nor Marathon has adopted such an amendment. Currently, no
person owns or controls 10% or more of either Rockingham common stock or
Marathon common stock, and there are no Interested Shareholders of Rockingham or
Marathon as defined by the Virginia Stock Corporation Act.

         Control Share Acquisitions. The Virginia Control Share Acquisitions
statute, found at Sections 13.1-728.1 - 728.8 of the Virginia Stock Corporation
Act, also is designed to afford shareholders of a public company incorporated in
Virginia protection against certain types of non-negotiated acquisitions in
which a person, entity or group ("Acquiring Person") seeks to gain voting
control of that corporation. With certain enumerated exceptions, the statute
applies to acquisitions of shares of a corporation which would result in an
Acquiring Person's ownership of the corporation's shares entitled to vote in the
election of directors falling within any one of the following ranges: 20% to
33-1/3%, 33-1/3% to 50% or 50% or more (a "Control Share Acquisition"). Shares
that are the subject of a Control Share Acquisition ("Control Shares") will not
be entitled to voting rights unless the holders of a majority of the
"Disinterested Shares" vote at an annual or special meeting of shareholders of
the corporation to accord the Control Shares with voting rights. Disinterested
Shares do not include shares owned by the Acquiring Person or by officers and
inside directors of the target company. Under certain circumstances, the statute
permits an Acquiring Person to call a special shareholders' meeting for the
purpose of considering granting voting rights to the holders of the Control
Shares. As a condition to having this matter considered at either an annual or
special meeting, the Acquiring Person must provide shareholders with detailed
disclosures about his identity, the method and financing of the Control Share
Acquisition and any plans to engage in certain transactions with, or to make
fundamental changes to, the corporation, its management or business. Under
certain circumstances, the statute grants dissenters' rights to shareholders who
vote against granting voting rights to the Control Shares. The Virginia Control
Share Acquisitions Statute also enables a corporation to make provisions for
redemption of Control Shares with no voting rights. A corporation may opt-out of
the statute, which Rockingham has not done, by so providing in its articles of
incorporation or bylaws. Marathon, however, has opted out of the statute by so
providing in its Bylaws. Among the acquisitions specifically excluded from the
statute are acquisitions which are a part of certain negotiated transactions to
which the corporation is a party and which, in the case of mergers or share
exchanges, have been approved by the corporation's shareholders under other
provisions of the Virginia Stock Corporation Act.

                                   REGULATION

         Set forth below is a brief description of the material laws and
regulations that affect Marathon. The description of these laws and regulations,
as well as descriptions of laws and regulations contained elsewhere herein, is
not necessarily complete and is qualified in its entirety by reference to these
laws and regulations.



                                     VI-10
<PAGE>

General

         Marathon is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended. As such, Marathon is supervised by the
Board of Governors of the Federal Reserve System. Marathon is also subject to
Virginia laws that regulate banks and bank holding companies. Virginia's banking
laws are administered by the Bureau of Financial Institutions of the State
Corporation Commission of Virginia. Marathon is also affected by rules and
regulations of the Federal Deposit Insurance Corporation. Marathon is a member
of the Federal Reserve System and the Federal Home Loan Bank of Atlanta. The
various laws and regulations administered by the regulatory agencies affect
corporate practices, expansion of business, and provisions of services. Also,
monetary and fiscal policies of the United States directly affect bank loans and
deposits and thus may affect Marathon's earnings. The future impact of these
policies and of the continuing regulatory changes in the financial services
industry cannot be predicted.

         The supervision, regulation and examination of The Marathon Bank are
intended primarily for the protection of depositors rather than holders of
Marathon securities.

Bank Holding Company Regulation

         Marathon is required to file with the Federal Reserve its periodic
reports and any additional information the Federal Reserve may require. The
Federal Reserve examines Marathon and may examine its subsidiaries. The State
Corporation Commission also may examine Marathon.

         The Bank Holding Company Act requires prior Federal Reserve approval
for, among other things, the acquisition of direct or indirect ownership or
control of more than 5% of the voting shares or substantially all of the assets
of any bank, or a merger or consolidation of a bank holding company with another
bank holding company. A bank holding company may acquire direct or indirect
ownership or control of voting shares of any company that is engaged directly or
indirectly in banking or managing or controlling banks or performing services
for its authorized subsidiaries. A bank holding company also may engage in or
acquire an interest in a company that engages in activities which the Federal
Reserve has determined by regulation or order to be so closely related to
banking as to be a proper incident thereto.

         The activities permissible to bank holding companies and their
affiliates were substantially expanded by the Gramm-Leach-Bliley Act, which the
President signed on November 12, 1999. Gramm-Leach-Bliley repeals the
anti-affiliation provisions of the Glass-Steagall Act to permit the common
ownership of commercial banks, investment banks and insurance companies. Under
Gramm-Leach-Bliley, a bank holding company can elect to be treated as a
financial holding company. A financial holding company may engage in any
activity and acquire and retain any company that the Federal Reserve determines
to be financial in nature. A financial holding company also may engage in any
activity that is complementary to a financial activity and does not pose a
substantial risk to the safety and soundness of depository institutions or the
financial system generally. The Federal Reserve must consult with the Secretary
of the Treasury in determining whether an activity is financial in nature or
incidental to a financial activity.

         Marathon is a legal entity separate and distinct from The Marathon
Bank. Section 23A of the Federal Reserve Act restricts loans from The Marathon
Bank to Marathon. Section 23A defines "covered transactions," which include
loans, and limits a bank's covered transactions with any affiliate to 10% of the
bank's capital and surplus. It also requires that all of a bank's loans to an
affiliate be secured by acceptable collateral, generally United States
government or agency securities. Marathon and The Marathon Bank also are subject
to Section 23B of the Federal Reserve Act, which requires that



                                     VI-11
<PAGE>

transactions between The Marathon Bank and Marathon or its other subsidiaries be
on terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to The Marathon Bank as those
prevailing at the time for transactions with unaffiliated companies.

         Federal Reserve policy requires a bank holding company to act as a
source of financial strength and to take measures to preserve and protect bank
subsidiaries in situations where additional investments in a troubled bank may
not otherwise be warranted. As a result, a bank holding company may be required
to lend money to its subsidiaries in the form of capital notes or other
instruments which qualify as capital under regulatory rules. Any loans from the
holding company to such subsidiary banks likely will be unsecured and
subordinated to such bank's depositors and perhaps to other creditors of its
bank subsidiaries.

Bank Supervision

         As a Virginia bank that is a member of the Federal Reserve System, The
Marathon Bank is regulated and examined by the State Corporation Commission and
by its primary federal regulator, the Federal Reserve. The State Corporation
Commission and the Federal Reserve regulate and monitor all of The Marathon
Bank's operations, including reserves, loans, mortgages, payments of dividends
and the establishment of branches.

         Various statutes limit the ability of The Marathon Bank to pay
dividends, extend credit or otherwise supply funds to Marathon and its non-bank
subsidiaries. Dividends from The Marathon Bank are expected to constitute
Marathon' major source of funds.

Regulatory Capital Requirements

         All banks are required to maintain minimum levels of regulatory
capital. The federal bank regulatory agencies have established substantially
similar risked based and leverage capital standards for banks that they
regulate. These regulatory agencies also may impose capital requirements in
excess of these standards on a case-by-case basis for various reasons, including
financial condition or actual or anticipated growth. Under the risk-based
capital requirements of these regulatory agencies, Marathon and The Marathon
Bank are required to maintain a minimum ratio of total capital to risk-weighted
assets of at least 8%. At least half of the total capital is required to be tier
1 capital, which consists principally of common and certain qualifying preferred
shareholders' equity, less certain intangibles and other adjustments. The
remainder, tier 2 capital, consists of a limited amount of subordinated and
other qualifying debt and a limited amount of the general loan loss allowance.
Based upon the applicable Federal Reserve regulations, at December 31, 1999, The
Marathon Bank was considered to be "well capitalized."

         In addition, the federal regulatory agencies have established a minimum
leverage capital ratio, tier 1 capital divided by tangible assets. These
guidelines provide for a minimum leverage capital ratio of 3% for banks and
their respective holding companies that meet certain specified criteria,
including that they have the highest regulatory examination rating and are not
contemplating significant growth or expansion. All other institutions are
expected to maintain a leverage ratio of at least 100 to 200 basis points above
that minimum. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets.



                                     VI-12
<PAGE>

Limits on Dividends and Other Payments

         Virginia law restricts distributions of dividends to shareholders of
Marathon. Marathon shareholders are entitled to receive dividends as declared by
the Marathon Board of Directors. No distribution to Marathon shareholders may be
made if, after giving effect to the distribution, Marathon would not be able to
pay its debts as they become due in the usual course of business or its total
assets would be less than its total liabilities. There are similar restrictions
on stock repurchases and redemptions.

         Banks have limits on all capital distributions, including cash
dividends, payments to repurchase or otherwise acquire shares, payments to
shareholders of another institution in a cash-out merger, and other
distributions charged against capital. As of December 31, 1999, The Marathon
Bank had the capacity to pay no more than $5.2 million in total dividends to its
sole shareholder, Marathon.

         The Marathon Bank may not make a capital distribution, including the
payment of a dividend, if, after the distribution, it would become
undercapitalized . The prior approval of the applicable Federal Reserve Bank is
required if the total of all dividends declared in any calendar year will exceed
the sum of the bank's net profits for that year and its retained net profits for
the preceding two calendar years. Federal Reserve Banks also may limit the
payment of dividends by any state member bank if it considers the payment an
unsafe or unsound practice. In addition, under Virginia law no dividend may be
declared or paid that would impair a Virginia chartered bank's paid-in capital.
The State Corporation Commission has general authority to prohibit payment of
dividends by a Virginia chartered bank if it determines that the limit is in the
public interest and is necessary to ensure the bank's financial soundness.

FDIC Regulations

         The Federal Deposit Insurance Corporation Improvements Act of 1991
required each federal banking agency to revise its risk-based capital standards
to ensure that those standards take adequate account of interest rate risk,
concentration of credit risk and the risks of non-traditional activities. Each
federal banking agency has issued regulations, specifying the levels at which a
financial institution would be considered "well capitalized", "adequately
capitalized", "under capitalized", "significantly under capitalized", or
"critically under capitalized", and to take certain mandatory and discretionary
supervisory actions based on the capital level of the institution. Those
supervisory actions become increasingly severe for banks that are
under-capitalized or worse.

         Under the Federal Reserve's regulations implementing the prompt
corrective action provisions, an institution is considered well capitalized if
it has total risk-based capital of 10% or more, has a tier I risk-based capital
ratio of 6% or more, has a leverage capital ratio of 5% or more and is not
subject to any order or final capital directive to meet and maintain a specific
capital level for any capital measure.

         An adequately capitalized institution has a total risk-based capital
ratio of 8% or more, a tier I risk-based ratio of 4% or more and a leverage
capital ratio of 4% or more (3% under certain circumstances) and does not meet
the definition of well capitalized.

         An undercapitalized institution has a total risk-based capital ratio
that is less than 8%, a tier I risk-based capital ratio that is less than 4% or
a leverage capital ratio that is less than 4% (3% in certain circumstances).
Undercapitalized banks are subject to growth limits and are required to submit a
capital restoration plan for approval. For a capital restoration plan to be
acceptable, the bank's parent holding company must guarantee that the bank will
comply with the capital restoration plan. The aggregate liability of the parent
holding company is limited to the lesser of 5% of the bank's total assets at the
time it became undercapitalized and the amount necessary to bring the
institution into compliance with



                                     VI-13
<PAGE>

applicable capital standards. If a bank fails to submit an acceptable plan, it
is treated as if it is significantly undercapitalized. If the controlling
holding company fails to fulfill its obligations and files (or has filed against
it) a petition under the federal Bankruptcy Code, the claim would be entitled to
a priority in such bankruptcy proceeding over third-party creditors of Marathon.

         A significantly undercapitalized institution has a total risk-based
capital ratio that is less than 6%, a tier I risk-based capital ratio that is
less than 3% or a leverage capital ratio that is less than 3%. Significantly
undercapitalized depository institutions may be subject to a number of
requirements and restrictions, including orders to sell sufficient voting stock
to become adequately capitalized, requirements to reduce total assets, and
cessation of receipt of deposits from correspondent banks.

         A critically undercapitalized institution has a ratio of tangible
equity to total assets that is equal to or less than 2%. A critically
undercapitalized bank is likely to be put in receivership and liquidated.

         In addition, under certain circumstances, a federal banking agency may
reclassify a well capitalized institution as adequately capitalized and may
require an adequately capitalized institution or an undercapitalized institution
to comply with supervisory actions as if it were in the next lower category.

         The Federal Deposit Insurance Corporation Improvements Act also
required federal banking regulators to draft standards in a number of other
important areas to assure bank safety and soundness, including internal
controls, information systems and internal audit systems, credit underwriting,
asset growth, compensation, loan documentation and interest rate exposure. The
Federal Deposit Insurance Corporation Improvements Act also required the
regulators to establish maximum ratios of classified assets to capital, and
minimum earnings sufficient to absorb losses without impairing capital. The
legislation also contained other provisions which restricted the activities of
state-chartered banks, amended various consumer banking laws, limited the
ability of undercapitalized banks to borrow from the Federal Reserve's discount
window and required federal banking regulators to perform annual onsite bank
examinations.

         The 1991 legislation also contains a variety of other provisions that
may affect the operations of Marathon and The Marathon Bank, including new
reporting requirements, regulatory standards for estate lending, "truth in
savings" provisions, the requirement that a depository institution give 90 days'
prior notice to customers and regulatory authorities before closing any branch,
and a prohibition on the acceptance or renewal of brokered deposits by
depository institutions that are not well capitalized or are adequately
capitalized and have not received a waiver from the FDIC.

Deposit Insurance

         The deposits of The Marathon Bank are currently insured to a maximum of
$100,000 per depositor, subject to certain aggregation rules. The FDIC has
implemented a risk-related assessment system for deposit insurance premiums. All
depository institutions have been assigned to one of nine risk assessment
classifications based on certain capital and supervisory measures. Marathon's
deposits are subject to the rates of the Savings Associations Insurance Fund
since Marathon converted to a commercial bank from a federal savings bank on
December 1, 1995. Based on its current risk classifications, Marathon pays the
minimum Savings Associations Insurance Fund assessment and Bank Insurance Fund
assessments.

Community Reinvestment Act

         Marathon and The Marathon Bank are subject to the provisions of the
Community Reinvestment Act of 1977, as amended ("CRA"). Under the Community
Reinvestment Act, all banks have an



                                     VI-14
<PAGE>

obligation, consistent with its safe and sound operation, to help meet the
credit needs for their entire communities, including low and moderate-income
neighborhoods. The Community Reinvestment Act does not establish specific
lending requirements or programs for financial institutions, nor does it limit
an institution's discretion to develop the types of products and services that
it believes are best suited to its particular community consistent with the
Community Reinvestment Act. A depository institution's primary federal
regulator, in connection with its examination of the institution, must assess
the institution's record in assessing and meeting the credit needs of the
community served by that institution, including low and moderate-income
neighborhoods. The regulatory agency's assessment of the institution's record is
made available to the public. Further, such assessment is required of any
institution which has applied to charter a national bank, obtain deposit
insurance coverage for a newly chartered institution, establish a new branch
office that accepts deposits, relocate an office or merge or consolidate with,
or acquire the assets or assume the liabilities of, a federally regulated
financial institution. If a bank holding company applies for approval to acquire
a bank or other bank holding company, the Federal Reserve will assess the
records of each subsidiary depository institution of the applicant bank holding
company, and such records may be the basis for denying the application.
Following the most recent Community Reinvestment Act examination in February
1999 The Marathon Bank received a "satisfactory" Community Reinvestment Act
rating.

Fiscal and Monetary Policy

         Banking is a business which depends on interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits and
its other borrowings, and the interest received by a bank on its loans and
securities holdings, constitutes the major portion of a bank's earnings. Thus,
the earnings and growth of Marathon and The Marathon Bank will be subject to the
influence of economic conditions generally, both domestic and foreign, and also
to the monetary and fiscal policies of the United States and its agencies,
particularly the Federal Reserve. The Federal Reserve regulates the supply of
money through various means, including open market dealings in United States
government securities, the discount rate at which banks may borrow from the
Federal Reserve, and the reserve requirements on deposits. The nature and timing
of any changes in such policies and their effect on Marathon and The Marathon
Bank cannot be predicted.

Federal Home Loan Bank System

         Marathon is a member of the Federal Home Loan Bank System, which
consists of 12 district Federal Home Loan Banks with each subject to supervision
and regulation by the Federal Housing Finance Board. The Federal Home Loan Banks
provide a central credit facility for member institutions. Marathon, as a member
of the Federal Home Loan Bank of Atlanta, is required to acquire and hold shares
of capital stock in that Federal Home Loan Bank in an amount equal to at least
1% of the aggregate principal amount of their unpaid residential mortgage loans,
home purchase contracts and similar obligations at the beginning of each year,
or 5% of their borrowings from the Federal Home Loan Bank of Atlanta, whichever
is greater. At December 31, 1999, Marathon had an investment of $1.8 million in
the stock of the Federal Home Loan Bank of Atlanta and was in compliance with
these requirements.

         Advances from the Federal Home Loan Bank of Atlanta are secured.
Interest rates charged for advances vary depending upon maturity, the cost of
funds to the Federal Home Loan Bank of Atlanta and the purpose of the borrowing.
At December 31, 1999, Marathon had $___ million outstanding in borrowings from
the Federal Home Loan Bank of Atlanta.



                                     VI-15
<PAGE>

Federal Reserve System

         The Federal Reserve Board of Governors requires all depository
institutions to maintain reserves against their transaction accounts and
non-personal time deposits. Because required reserves must be maintained in the
form of vault cash or a noninterest-bearing account at a Federal Reserve Bank,
the effect of this reserve requirement is to reduce the earning assets of
Marathon.

                        RESALES OF MARATHON COMMON STOCK

         Rockingham Shareholders. The shares of Marathon common stock to be
issued to Rockingham shareholders in the merger have been registered under the
Securities Act. These shares may be traded freely and without restriction by
those shareholders not deemed to be "affiliates" of Rockingham as that term is
defined under the Securities Act. An affiliate of a corporation, as defined by
the rules promulgated under the Securities Act, is a person who directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, that corporation. Any subsequent transfer by an
affiliate of Rockingham must be one permitted by the resale provisions of Rule
145 promulgated under the Securities Act or as otherwise permitted under the
Securities Act.

         Affiliates of Marathon and Rockingham. Commission guidelines regarding
qualifying for the pooling-of-interests method of accounting also limit sales of
shares of the acquiring company and acquired company by affiliates of either
company in a business combination such as the merger. These guidelines indicate
that the pooling-of-interests method of accounting will generally not be
challenged on the basis of sales by such affiliates if these persons do not
dispose of any of the shares of the corporation they own or any shares of the
corporation they receive in connection with a merger during the period beginning
30 days prior to the merger and ending when financial results covering at least
30 days of post-merger operations of the combined entity have been published
(the "Pooling Restricted Period").

         Rockingham has agreed to deliver to Marathon not less than 30 days
prior to the effective date, for each of its affiliates, an agreement that such
person will not dispose of (i) any Marathon common stock in violation of the
Securities Act or (ii) any Rockingham common stock or Marathon common stock
during the Pooling Restricted Period.

                              SHAREHOLDER PROPOSALS

         Proposals of Marathon's shareholders intended to be presented at the
next Annual Meeting must be received by Marathon no later than December 6, 2000,
in order to be considered for inclusion in Marathon's proxy materials for the
2001 Annual Meeting of Shareholders.

         Proposals of shareholders intended to be presented at Rockingham's 2001
Annual Meeting must be received by the Secretary of Rockingham, at its principal
executive offices, 110 University Boulevard, Harrisonburg, Virginia 22801, for
inclusion in its proxy statement relating to that meeting by November 23, 2000.

           CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

         This joint proxy statement/prospectus, including information included
or incorporated by reference herein, contains certain forward-looking statements
with respect to the financial condition, results of operations, plans,
objectives, future performance and businesses of each of Marathon and
Rockingham. These forward-looking statements involve certain risks and
uncertainties. Factors that may cause actual results to differ materially from
those contemplated by such forward-looking statements include, among others, the
following possibilities:



                                     VI-16
<PAGE>

         o      competitive pressure from banks and other financial service
                providers increases significantly;

         o      changes in the interest rate environment reduce margins;

         o      general economic conditions, either nationally or regionally,
                are less favorable than expected, resulting in, among other
                things, a deterioration in credit quality;

         o      changes occur in the regulatory environment;

         o      changes occur in business conditions and inflation; and

         o      changes occur in the securities markets.


                                     EXPERTS

         The financial statements of Marathon Financial Corporation as of
December 31, 1999 and 1998 and for each of the years ended December 31, 1999,
1998 and 1997 have been included herein and in the registration statement in
reliance upon the report of Yount, Hyde & Barbour, PC, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.

         The financial statements of Rockingham Heritage Bank as of December 31,
1999 and 1998 and for each of the years then ended have been included herein and
in the registration statement in reliance upon the report of McGladrey & Pullen,
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.


                                 LEGAL OPINIONS

         The validity of the shares of Marathon common stock offered hereby is
being passed upon for Marathon by Williams, Mullen, Clark & Dobbins, Richmond,
Virginia. Williams, Mullen, Clark & Dobbins will deliver an opinion to Marathon
and Rockingham concerning certain federal income tax consequences of the merger.
See "The Merger - Material Federal Income Tax Consequences of the Merger" on
page 15.

         Certain matters relating to the merger will be passed upon for
Rockingham by Wharton, Aldhizer & Weaver, PLC, Harrisonburg, Virginia.


                       WHERE YOU CAN FIND MORE INFORMATION

         Marathon maintains an Internet site at www.themarathonbank.com, which
contains information relating to Marathon and its business.

         In addition, Marathon files annual, quarterly and current reports,
proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any document that Marathon files at the
Commission's public reference room facility located at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices at 7 World Trade
Center, 13th Floor, Suite 1300, New York, New York 10048 and Suite 1400,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Please call
the Commission at 1-800-SEC-0330 for further information on the public reference
room. The Commission maintains an Internet site at www.sec.gov that contains
reports, proxy and information statements and other information regarding
issuers, including Marathon, that file documents with the Commission
electronically through the Commission's electronic data gathering, analysis and
retrieval system known as EDGAR. Marathon's reports, proxy and information
statements




                                     VI-17
<PAGE>

may also be reviewed at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington D.C. 20006.

         This joint proxy statement/prospectus is part of a registration
statement filed by Marathon with the Commission. Because the rules and
regulations of the Commission allow the omission of certain portions of the
registration statement from this document, this joint proxy statement/prospectus
does not contain all the information contained in the registration statement.
You may review the registration statement and the exhibits filed with the
registration statement for further information regarding Marathon. The
registration statement and its exhibits may be inspected at the public reference
facilities of the Commission at the addresses mentioned above.











                                     VI-18

<PAGE>

                                                                      Appendix A


                              AMENDED AND RESTATED

                          AGREEMENT AND PLAN OF MERGER

                                  BY AND AMONG

                            ROCKINGHAM HERITAGE BANK

                                 ("Rockingham")

                         MARATHON FINANCIAL CORPORATION

                                     ("MFC")

                                  MARATHON BANK

                                       AND

                              MARATHON MERGER BANK

                              ("Merger Subsidiary")






                                  JUNE 21, 2000



                                      A-1
<PAGE>


                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                                               Page
                                                                                                               ----

                                    ARTICLE 1

                         The Merger and Related Matters
<S>      <C>                                                                                                    <C>
1.1      The Merger.............................................................................................A-4
1.2      Management of Rockingham and MFC.......................................................................A-5
1.3      The Closing and Effective Date.........................................................................A-5
1.4      Definitions............................................................................................A-6

                                    ARTICLE 2

                          Basis and Manner of Exchange

2.1      Conversion of Shares...................................................................................A-6
2.2      Manner of Exchange.....................................................................................A-7
2.3      No Fractional Shares...................................................................................A-8
2.4      Dividends..............................................................................................A-8
2.5      Rockingham Stock Option Plans..........................................................................A-8

                                    ARTICLE 3

                          Representation and Warranties

3.1      Representations and Warranties of Rockingham...........................................................A-8
3.2      Representations and Warranties of MFC.................................................................A-16

                                    ARTICLE 4

                       Conduct Prior to the Effective Date

4.1      Access to Records and Properties......................................................................A-25
4.2      Confidentiality.......................................................................................A-25
4.3      Registration Statement, Proxy Statement and Shareholder Approval......................................A-25
4.4      Operation of the Business of Rockingham and MFC.......................................................A-26
4.5      Dividends.............................................................................................A-29
4.6      No Solicitation.......................................................................................A-29
4.7      Regulatory Filings....................................................................................A-29
4.8      Public Announcements..................................................................................A-30
4.9      Notice of Breach......................................................................................A-30
4.10     Accounting Treatment..................................................................................A-30
4.11     Merger Consummation...................................................................................A-30
4.12     Notification of Certain Matters.......................................................................A-30


                                      A-2
<PAGE>

                                    ARTICLE 5

                              Additional Agreements

5.1      Registration of Shares................................................................................A-31
5.2      Benefit Plans.........................................................................................A-31
5.3      Indemnification.......................................................................................A-31

                                    ARTICLE 6

                            Conditions to the Merger

6.1      Conditions to Each Party's Obligations to Effect the Merger...........................................A-31
6.2      Conditions to Obligations of MFC......................................................................A-33
6.3      Conditions to Obligations of Rockingham...............................................................A-34

                                    ARTICLE 7

                                   Termination

7.1      Termination...........................................................................................A-35
7.2      Effect of Termination.................................................................................A-36
7.3      Non-Survival of Representations, Warranties and Covenants.............................................A-37
7.4      Expenses..............................................................................................A-37

                                    ARTICLE 8

                               General Provisions

8.1      Entire Agreement......................................................................................A-39
8.2      Waiver and Amendment..................................................................................A-39
8.3      Descriptive Headings..................................................................................A-39
8.4      Governing Law.........................................................................................A-39
8.5      Notices...............................................................................................A-39
8.6      Counterparts..........................................................................................A-40
8.7      Severability..........................................................................................A-40
8.8      Brokers and Finders...................................................................................A-40
8.9      Subsidiaries..........................................................................................A-40

Exhibit A -       Plan of Merger between Rockingham Heritage Bank and Marathon Merger Bank

Exhibit B -       Amended and Restated Articles of Incorporation

</TABLE>


                                      A-3
<PAGE>



                          AGREEMENT AND PLAN OF MERGER

         THIS   AMENDED  AND  RESTATED   AGREEMENT   AND  PLAN  OF  MERGER  (the
"Agreement")  is made and entered  into June 21, 2000 by and between  Rockingham
Heritage  Bank,  a Virginia  state  bank with its  principal  office  located in
Harrisonburg,   Virginia  ("Rockingham"),   Marathon  Financial  Corporation,  a
Virginia  corporation with its principal office located in Winchester,  Virginia
("MFC"), Marathon Bank, a wholly-owned bank subsidiary of MFC ("Marathon Bank"),
and Marathon  Merger Bank, a  wholly-owned  bank  subsidiary of MFC (the "Merger
Subsidiary").  Rockingham and MFC are sometimes referred to herein  individually
as a "Party" or together as "the Parties". The Agreement amends and restates the
Agreement and Plan of Merger by and among the parties (the "Original Agreement")
dated as of April 20, 2000.

                                   WITNESSETH:

         WHEREAS, MFC and Rockingham have agreed in the Original Agreement to an
affiliation of their two companies through a merger under Virginia law, in which
Rockingham will become a wholly-owned subsidiary of MFC; and

         WHEREAS,  in order to effect the merger, the Merger Subsidiary has been
incorporated as a wholly-owned subsidiary of MFC, which will merge with and into
Rockingham,  pursuant to the terms and  conditions  of this Amended and Restated
Agreement and Plan of Merger and the Plan of Merger in the form attached  hereto
as Exhibit A (the "Plan of Merger"); and

         WHEREAS,  the Board of Directors of each of Rockingham  and MFC (i) has
determined  that  this  Agreement  and  the  business  combination  and  related
transactions  contemplated  hereby are in the best  interests of Rockingham  and
MFC,  respectively,  and in the best  long-term  interests  of their  respective
shareholders,  (ii) has  determined  that this  Agreement  and the  transactions
contemplated  hereby are consistent  with, and in furtherance of, its respective
business strategies and (iii) has authorized, at meetings of each of such Boards
of Directors, the execution of this Agreement; and

         WHEREAS,  the parties  hereto intend that the Merger as defined  herein
shall qualify as a reorganization  under the provisions of Section 368(a) of the
Internal  Revenue  Code of 1986,  as amended  ("IRC"),  for  federal  income tax
purposes,  and that the Merger shall be accounted for as a  pooling-of-interests
transaction for accounting purposes.

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants and agreements set forth herein, the parties hereby agree as follows:

                                    ARTICLE 1

                         The Merger and Related Matters

         1.1      The  Merger.  Subject  to the  terms  and  conditions  of this
Agreement,  the  Merger  Subsidiary  shall be merged  with and into  Rockingham,
pursuant  to the Plan of Merger  attached  hereto  as  Exhibit A and made a part
hereof (the "Merger"), as follows: at 11:59 p.m. on the


                                      A-4
<PAGE>

Effective Date (defined below) (the "Effective Time"), (i) each of the shares of
the capital stock of the Merger  Subsidiary  issued and outstanding  immediately
prior to the Effective Time shall cease to be outstanding and shall be converted
into and become one share of common  stock of  Rockingham,  and (ii) each of the
shares of capital stock of Rockingham  issued and outstanding  immediately prior
to the Effective Time,  excluding  shares held by MFC (other than in a fiduciary
capacity  or as a result  of debts  previously  contracted),  shall  cease to be
outstanding and shall be converted into and become shares of common stock of MFC
based upon the Exchange Ratio (defined below). The separate corporate  existence
of Merger  Subsidiary  shall thereupon  cease,  and from and after the Effective
Time,  the Merger  shall have the  effect set forth in Section  13.1-721  of the
Virginia Stock  Corporation  Act (the "VSCA").  Rockingham will be the surviving
corporation in the Merger and its name and corporate existence,  with all of its
rights,  privileges,  immunities,  powers  and  franchises,  shall  continue  in
accordance  with  applicable  law. The Articles of  Incorporation  and Bylaws of
Rockingham  in effect  prior to the  Effective  Date  shall be the  Articles  of
Incorporation  and Bylaws of Rockingham  subsequent to the Effective  Date until
thereafter amended in accordance with applicable law.

         1.2      Management of Rockingham and MFC. From and after the Effective
Date,  John K. Stephens  ("Stephens"),  current  President  and Chief  Executive
Officer of  Rockingham,  shall  become the Chairman of the Board of Directors of
MFC,  and Donald Unger  ("Unger")  shall remain  President  and Chief  Executive
Officer of MFC. All other executive  management  positions in MFC, Marathon Bank
and Rockingham shall be held by those individuals  currently holding the same or
similar executive  management  positions in the respective entities prior to the
Effective  Date. As of the Effective Date, MFC and the Board of Directors of MFC
shall have  amended the Bylaws of MFC to reduce the number of Directors to eight
(8) members and taken such other steps as are  reasonably  necessary  to provide
for (i) the  resignation  of six current Board  members,  (ii) the staggering of
such vacancies such that, with the addition of four Rockingham Board Members, to
be designated by Rockingham,  all Board seats will be apportioned nearly equally
between  the  four  continuing  Marathon  Board  Members  and the  four  joining
Rockingham  Board Members and (iii) the placement of Stephens and Unger in Board
seats to serve  concurrent  three (3) year terms.  After the Effective Date, the
continuing  and new Directors  shall serve until  expiration  of the  respective
terms  of  the  Board  seats  held  by  them  as  provided  in the  Articles  of
Incorporation,  as  amended.  On or about the  Effective  Date,  MFC shall  have
obtained shareholder approval for and filed its Amended and Restated Articles of
Incorporation,  substantially  in the form  attached  hereto as  Exhibit B which
Articles may be changed prior to filing upon the mutual  consent of the Parties.
MFC will also make corresponding changes to its bylaws to conform to alterations
made to the Articles.

         1.3      The Closing and Effective Date. All documents  required by the
terms of this  Agreement to be delivered at or prior to the Effective  Date will
be exchanged by the parties at the closing of the Merger (the "Merger Closing"),
which shall be held before the  Effective  Date.  The Merger  Closing shall take
place at the  offices of  Wharton,  Aldhizer  & Weaver,  PLC,  in  Harrisonburg,
Virginia,  or at such other place as may be mutually agreed upon by the parties.
At or after the Merger  Closing,  MFC,  Merger  Subsidiary and Rockingham  shall
execute  and  deliver  to the  Virginia  State  Corporation  Commission  ("SCC")
Articles  of Merger  containing  the Plan of  Merger.  The Merger  shall  become
effective on the date (the "Effective  Date") shown on the Certificate of Merger
issued by the SCC. Unless otherwise agreed upon in writing


                                      A-5
<PAGE>

by the chief executive officers of MFC and Rockingham, subject to the conditions
to the  obligations  of the parties to effect the Merger as set forth in Article
6, the parties shall use their best efforts to cause the Effective Date to occur
on the  first  day of the  first  quarter  following  the  month  in  which  the
conditions set forth in Article 6 are satisfied.

         1.4      Definitions. Any term defined anywhere in this Agreement shall
have the meaning  ascribed  to it for all  purposes  of this  Agreement  (unless
expressly noted to the contrary). In addition:

                  (a)      the  term  "knowledge"  when used with  respect  to a
party shall mean the knowledge, after due inquiry, of any "Executive Officer" of
such party and the Executive Officers of its wholly owned subsidiaries,  as such
term is defined in Regulation O (12 C.F.R. 215);

                  (b)      the term "material adverse effect", when applied to a
party,  shall  mean an event,  occurrence  or  circumstance  (including  without
limitation  (i) the making of any provisions for possible loan and lease losses,
write-downs   of  other  real  estate  and  taxes  and  (ii)  any  breach  of  a
representation  or warranty by such party) which (a) has or is reasonably likely
to  have a  material  adverse  effect  on the  financial  position,  results  of
operations or business of the Party or its subsidiaries, or (b) would materially
impair the  Party's,  or its  subsidiary's,  ability to perform its  obligations
under  this  Agreement  or  the   consummation  of  the  Merger  and  the  other
transactions  contemplated by this  Agreement.  Solely for purposes of measuring
whether an event,  occurrence or circumstance  has a material  adverse effect on
such Party's results of operations,  the term "results of operations" shall mean
net interest income plus non-interest  income (less securities gains) less gross
expenses (excluding  provisions for possible loan and lease losses,  write-downs
of other real estate and taxes);  and provided  further,  that material  adverse
effect  shall not be deemed to include  the impact of (i) changes in banking and
similar laws of general  applicability or  interpretations  thereof by courts or
governmental   authorities,   (ii)  changes  in  generally  accepted  accounting
principles or regulatory  accounting  requirements  applicable to banks and bank
holding companies generally,  and (iii) the Merger on the operating  performance
of the Parties to this Agreement; and

                  (c)      The   term   "Disclosure"   shall  mean  the  written
disclosure  statement  of each Party  setting  forth the  information  specified
below,  to be  delivered  by such Party to the other prior to  execution of this
Agreement.

                                    ARTICLE 2

                          Basis and Manner of Exchange

         2.1      Conversion  of  Shares.  Upon  and by  reason  of  the  Merger
becoming  effective and except as set forth in Section 2.3 below,  no cash shall
be allocated to the  shareholders  of  Rockingham  and stock shall be issued and
allocated as follows:  Each share of  Rockingham  Common Stock  (defined  below)
issued  and  outstanding  immediately  prior to the  Effective  Date  shall,  by
operation of law, cease to be outstanding and shall  automatically  be converted
into and  exchanged for 1.58 shares (the  "Exchange  Ratio") of MFC Common Stock
(defined  in Section  3.2(d)).  In the event MFC changes the number of shares of
MFC Common Stock issued and


                                      A-6
<PAGE>

outstanding  prior to the Effective  Date as a result of any stock split,  stock
dividends,   recapitalization   or  similar  transaction  with  respect  to  the
outstanding MFC Common Stock, and the record date therefor shall be prior to the
Effective Date, the Exchange Ratio shall be proportionately adjusted. Nothing in
this Section 2.1 shall be deemed to prohibit  the issuance by MFC or  Rockingham
of any stock pursuant to the MFC Option Plan and  Rockingham  Option Plans (each
defined  below),  without  requiring an  adjustment to the Exchange  Ratio;  any
issuances  of stock other than  pursuant  to the MFC Option Plan and  Rockingham
Option Plans shall remain subject to the limitations,  covenants and obligations
in this Agreement.

          2.2      Manner of Exchange.

                  (a)      Prior to the  Effective  Date,  MFC shall reserve for
issuance with the Exchange Agent (defined  below) a sufficient  number of shares
of MFC Common  Stock to provide  for payment of the  consideration  set forth in
Section  2.1.  At and after the  Effective  Date,  each  Rockingham  Certificate
previously  representing  shares of Rockingham Common Stock shall represent only
the right to receive the consideration set forth in Sections 2.1 and 2.3 of this
Agreement (hereinafter, the "Merger Consideration").  As promptly as practicable
after the Effective  Date, MFC shall cause  Registrar and Transfer  Corporation,
acting as the exchange agent ("Exchange  Agent"), to send to each shareholder of
record  of  Rockingham  immediately  prior to the  Effective  Date,  transmittal
materials  for use in exchanging  such  shareholder's  certificates  of properly
endorsed  Rockingham  Common Stock (or an indemnity and such  affidavit or other
documentation  satisfactory to MFC and the Exchange  Agent, in their  reasonable
judgment,  if any of such certificates are lost, stolen or destroyed)  (together
"Rockingham Certificates") for the Merger Consideration.  Each shareholder, upon
the  surrender  of his  Rockingham  Certificates  to the  Exchange  Agent,  duly
endorsed for transfer, will be entitled to receive in exchange therefore (i) the
Merger  Consideration,  and (ii) the right to receive any  dividends  previously
declared but unpaid as to such stock,  provided,  however, that no interest will
be paid on any such fractional  share checks or dividends to which the holder of
such shares shall be entitled to receive upon such delivery.

                  (b)      After the Effective  Date there shall be no transfers
on the stock transfer  records of Rockingham of any shares of Rockingham  Common
Stock.  The Exchange  Agent shall not be entitled to vote or exercise any rights
of ownership with respect to the shares of MFC Common Stock held by it from time
to time hereunder,  except that it shall receive and hold all dividends or other
distributions paid or distributed with respect to such shares for the account of
the persons entitled thereto.

                  (c)      Any  portion  of the  aggregate  amount of cash to be
paid in lieu of  fractional  shares  pursuant to Section 2.3,  and  dividends or
other  distributions  to be paid  pursuant to Section  2.4,  or any  interest or
investment  proceeds from such sums that remain unclaimed by the shareholders of
Rockingham for six months after the Effective Date shall be paid by the Exchange
Agent to MFC upon the written request of MFC.  Thereafter,  any  shareholders of
Rockingham who have not theretofore complied with this Section 2 shall look only
to MFC for the  Merger  Consideration  deliverable  in  respect of each share of
Rockingham Common Stock such shareholder holds, without any interest thereon.

                                      A-7
<PAGE>

                  (d)      If any outstanding  Rockingham  Certificates  are not
surrendered  prior to the date on which such payments would otherwise escheat to
or become the property of any governmental  unit or agency,  the unclaimed items
shall,  to the extent  permitted  by any  abandoned  property,  escheat or other
applicable laws, become the property of MFC immediately prior to such date (and,
to the extent not in its  possession,  shall be paid over to it), free and clear
of all claims or interest  of any person  previously  entitled  to such  claims.
Notwithstanding the foregoing,  neither the Exchange Agent nor any party to this
Agreement (or any  subsidiary  thereof)  shall be liable to any former holder of
Rockingham  Common Stock for any amount delivered to a public official  pursuant
to applicable abandoned property, escheat or similar laws.

         2.3      No Fractional  Shares. No certificates or scrip for fractional
shares of MFC Common  Stock will be issued.  In lieu  thereof,  MFC will pay the
value of such fractional shares in cash on the basis of the fair market value of
MFC Common Stock  immediately  preceding the Effective Date. The market value of
MFC Common  Stock will be its  average  closing  sales  price as reported on the
NASDAQ for each of the ten full  trading  days  ending on the fifth day prior to
the Effective Date.

         2.4      Dividends.  No dividend or other  distribution  payable to the
holders of record of MFC Common  Stock at or as of any time after the  Effective
Date shall be paid to a Rockingham  shareholder until such holder surrenders the
Rockingham  Certificates  for  exchange  as  provided  in  Section  2.2 of  this
Agreement,  promptly after which time all such dividends or distributions  shall
be paid without interest.

         2.5      Rockingham  Stock Option  Plans.  At the  Effective  Date,  by
virtue of the  Merger  and  without  any  action on the part of any holder of an
option,  each option to acquire shares of Rockingham Common Stock (a "Rockingham
Option")  granted  pursuant to Rockingham's  1991 Stock Option Plan and the 1999
Long  Term  Incentive  Plan  (the  "Rockingham   Option  Plans")  that  is  then
outstanding  and  unexercised  shall be  converted  into and become an option to
acquire MFC Common Stock on the same terms and  conditions as are in effect with
respect to the Rockingham  Option  immediately prior to the Effective Date (such
option being  referred to herein as a "Converted  Option"),  except that (i) the
number of shares of MFC Common Stock subject to such Rockingham  Option shall be
equal to the  number  of shares  of  Rockingham  Common  Stock  subject  to such
Rockingham  Option  immediately  prior to the Effective  Date  multiplied by the
Exchange  Ratio,  the product being  rounded,  if  necessary,  up or down to the
nearest whole share,  and (ii) the per share  exercise  price of the  Rockingham
Option (as such price is established under the Rockingham Option Plans) shall be
adjusted by dividing the per share exercise  price of the  Rockingham  Option by
the Exchange Ratio,  and rounding to the nearest whole cent. It is intended that
the foregoing assumption of the Rockingham Options shall be effected in a manner
which is consistent  with the  requirements  of Section 424 of the IRC as to any
Rockingham Option that is an incentive stock option.

                                    ARTICLE 3

                          Representation and Warranties

         3.1      Representations  and  Warranties  of  Rockingham.  Subject  to
Section 8.9 below, Rockingham represents and warrants to MFC as follows:


                                      A-8
<PAGE>

                  (a)      Organization,  Standing  and Power.  Rockingham  is a
corporation and a Virginia state bank, duly organized,  validly  existing and in
good standing  under the laws of Virginia,  and it has all  requisite  corporate
power and  authority to carry on its business as now being  conducted and to own
and operate its assets,  properties  and business.  Rockingham has the corporate
power and  authority  to execute  and  deliver  this  Agreement  and perform the
respective  terms of this  Agreement  and the Plan of  Merger.  Rockingham  is a
member of the Federal Reserve System,  and except as set forth in the Disclosure
is in  compliance  in all  material  respects  with all  rules  and  regulations
promulgated  by the  Board of  Governors  of the  Federal  Reserve  System  (the
"Federal  Reserve"),  the Virginia State Corporation  Commission ("SCC") and any
other relevant regulatory authority.  Rockingham is an "insured bank" as defined
in the  Federal  Deposit  Insurance  Act  ("FDIA")  and  applicable  regulations
thereunder.  Rockingham is, except as set forth in the Disclosure, in compliance
in all  material  respects  with all rules and  regulations  promulgated  by the
Federal Reserve, the SCC and any other relevant regulatory authority.

                  (b)      Bank Subsidiaries.  Rockingham does not own, directly
or  indirectly,  5% or more of the  outstanding  capital  stock or other  equity
securities of any corporation,  bank or other organization,  actively engaged in
business  except RHB  Services,  Inc., a  wholly-owned  subsidiary of Rockingham
(hereinafter,   "Rockingham  Subsidiary"  and  together  with  Rockingham,   the
"Rockingham Companies").  Set forth in the Disclosure is (i) the jurisdiction of
incorporation,  capitalization and ownership of the Rockingham Subsidiary;  (ii)
the names of the officers and directors of the Rockingham Subsidiary;  and (iii)
the jurisdictions in which the Rockingham Subsidiary is qualified or licensed to
do business as a foreign corporation. The Rockingham Subsidiary is a corporation
duly  organized  and  validly  existing  under the laws of its  jurisdiction  of
incorporation.  The  Articles  of  Incorporation  and  Bylaws of the  Rockingham
Subsidiary  delivered by Rockingham  with the Disclosure is complete and correct
as of the date hereof. To Rockingham's knowledge,  the Rockingham Subsidiary (i)
has full corporate  power and authority to own, lease and operate its properties
and to carry on its business as now  conducted  except where the absence of such
power or authority  would not have a material  adverse  effect on the  financial
condition,  results of operations  or business of  Rockingham on a  consolidated
basis,  and (ii) is duly  qualified  to do  business in the states of the United
States and foreign  jurisdictions  where its ownership or leasing of property or
the conduct of its business requires such  qualification and where failure to so
qualify would have a material adverse effect on the financial condition, results
of operations or business of Rockingham on a consolidated basis. To Rockingham's
knowledge,  the Rockingham Subsidiary has all federal,  state, local and foreign
governmental  authorizations  and licenses  necessary for it to own or lease its
properties and assets and to carry on its business as it is now being conducted,
except where  failure to obtain such  authorization  or license would not have a
material  adverse  effect on the financial  condition,  results of operations or
business  of  Rockingham  on a  consolidated  basis.  Except as set forth in the
Disclosure,  Rockingham  owns  the  stock  and/or  interests  in the  Rockingham
Subsidiary free and clear of any claims, liens, encumbrances or restrictions and
there  are no  agreements  or  understandings  with  respect  to the  voting  or
disposition of any such shares.

                                      A-9
<PAGE>

                   (c)      Authority.

                           (1)      The   execution   and   delivery   of   this
Agreement,  the Plan of Merger and the consummation of the Merger have been duly
and  validly  authorized  by all  necessary  corporate  action  on the  part  of
Rockingham,  except the approval of shareholders.  The Agreement  represents the
legal,  valid,  and  binding  obligations  of  Rockingham,  enforceable  against
Rockingham  in  accordance   with  its  terms  (except  in  all  such  cases  as
enforceability   may  be   limited   by   applicable   bankruptcy,   insolvency,
reorganization,   moratorium  or  similar  laws  affecting  the  enforcement  of
creditors'  rights  generally and except that the  availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).

                           (2)      Except as set forth in the  Disclosure,  and
subject to the receipt of the  requisite  approvals  referred to in Sections 4.7
and 6.1, neither the execution and delivery of this Agreement,  the consummation
of the transactions  contemplated  herein, nor compliance by Rockingham with any
of the  provisions  hereof will:  (i) conflict with or result in a breach of any
provision of Rockingham's  Articles of Incorporation or Bylaws;  (ii) constitute
or result in the breach of any term,  condition or provision of, or constitute a
default  under,  or give  rise to any  right  of  termination,  cancellation  or
acceleration  with respect to, or result in the creation of any lien,  charge or
encumbrance upon, any property or assets of Rockingham pursuant to (A) any note,
bond, mortgage,  indenture,  or (B) any material license,  agreement,  lease, or
other instrument or obligation, to which Rockingham is a party or by which it or
any of its properties or assets may be bound, or (iii) violate any order,  writ,
injunction,  decree, statute, rule or regulation applicable to Rockingham or any
or its properties or assets.


                  (d)      Capital  Structure.  The authorized  capital stock of
Rockingham consists of Two Million (2,000,000) shares of common stock, par value
$5.00 per share,  of which,  as of the date  hereof,  One Million  Five  Hundred
Eighty-nine  Thousand  Nine  Hundred  Forty  (1,589,940)  shares  are issued and
outstanding (the "Rockingham  Common Stock").  The issued and outstanding shares
of  Rockingham  Common  Stock are fully paid and  nonassessable,  not subject to
shareholder  preemptive  rights,  and  not  issued  in  violation  of any  other
agreement  to  which  Rockingham  is a  party  or  otherwise  bound,  or of  any
registration  or  qualification  provisions  of any federal or state  securities
laws.  Except for outstanding  options to purchase  134,769 shares of Rockingham
Common Stock, of which 50,458 options are vested as of the date hereof, pursuant
to the  Rockingham  Option Plans,  there are no  outstanding  understandings  or
commitments of any character  pursuant to which  Rockingham could be required or
expected to issue shares of capital stock.

                  (e)   Financial   Statements.    The   "Rockingham   Financial
Statements" shall mean all materials provided in Rockingham's Annual Report, for
the period ending December 31, 1999. Except as set forth in the Disclosure,  the
Rockingham  Financial  Statements  fairly  present  the  financial  position  of
Rockingham as of the dates  indicated and the results of operations,  changes in
shareholders'  equity and  statements of cash flows for the periods or as of the
dates set  forth  therein  in  conformity  with  generally  accepted  accounting
principles  applicable to financial  institutions applied on a consistent basis.
The books and records of Rockingham  fairly reflect in all material respects the
transactions  to which it is a party or by which its

                                      A-10
<PAGE>


properties are subject or bound.  Such books and records have been properly kept
and  maintained  and  are  in  compliance  in all  material  respects  with  all
applicable legal and accounting requirements.

                  (f)      Absence of Undisclosed  Liabilities.  At December 31,
1999,  Rockingham  did not have  any  obligation  or  liability  (contingent  or
otherwise)  of any nature which was not  reflected in the  Rockingham  Financial
Statements,  except  for those  which in the  aggregate  are  immaterial  or are
otherwise set forth in the Disclosure.

                  (g)      Legal  Proceedings;  Compliance with Laws.  Except as
set  forth  in  the  Disclosure  there  are no  actions,  suits  or  proceedings
instituted or pending or, to the knowledge of Rockingham, threatened or probable
of assertion against the Rockingham Companies,  or against any property,  asset,
interest or right, that are reasonably  expected to have, either individually or
in the  aggregate  a  material  adverse  effect on the  financial  condition  of
Rockingham  or  that  are   reasonably   expected  to  threaten  or  impede  the
consummation of the Merger.  None of the Rockingham  Companies is a party to any
agreement or  instrument or subject to any judgment,  order,  writ,  injunction,
decree or rule that might  reasonably  be  expected  to have a material  adverse
effect on the  condition  (financial  or  otherwise),  business or  prospects of
Rockingham.  Except  as set  forth  in the  Disclosure,  as of the  date of this
Agreement,  neither  Rockingham  nor any of its  properties  is a party to or is
subject to any order, decree, agreement,  memorandum of understanding or similar
arrangement with, or a commitment  letter or similar  submission to, any federal
or state  governmental  agency or  authority  charged  with the  supervision  or
regulation  of  depository  institutions  or mortgage  lenders or engaged in the
insurance  of deposits  which  restricts or purports to restrict in any material
respect the conduct of its business or its properties,  or in any manner relates
to the capital,  liquidity,  credit  policies or management of it; and except as
set forth in the Disclosure none of the Rockingham Companies has been advised by
any such regulatory  authority that such authority is  contemplating  issuing or
requesting (or is considering the  appropriateness of issuing or requesting) any
such order, decree, agreement, memorandum of understanding, commitment letter or
similar  submission.  To the knowledge of Rockingham,  the Rockingham  Companies
have complied in all material respects with all laws, ordinances,  requirements,
regulations or orders applicable to its business (including  environmental laws,
ordinances, requirements, regulations or orders).

                  (h)      Regulatory Approvals. To the knowledge of Rockingham,
there is no reason why the  regulatory  approvals  referred to in Section 6.1(b)
should not be  obtained  without the  imposition  of any  condition  of the type
referred to in Section 6.1(b).

                  (i)      Labor  Relations.  Rockingham  is not a  party  to or
bound by any collective  bargaining  agreement,  contract or other  agreement or
understanding with a labor union or labor organization, nor is it the subject of
a proceeding  asserting that it has committed an unfair labor  practice  (within
the  meaning of the  National  Labor  Relations  Act) or seeking to compel it to
bargain with any labor  organization  as to wages and  conditions of employment,
nor is there any strike or other labor dispute  involving it, pending or, to the
best of its knowledge, threatened, nor is it aware of any activity involving its
employees  seeking to certify a  collective  bargaining  unit or engaging in any
other organizational activity.


                                      A-11
<PAGE>

                  (j)      Tax Matters.  The Rockingham Companies have filed all
federal,  state and local tax returns and reports  required to be filed, and all
taxes  shown  by  such  returns  to be due and  payable  have  been  paid or are
reflected as a liability in the  Rockingham  Financial  Statements  or are being
contested in good faith and are disclosed as set forth in the Disclosure. Except
to the extent  that  liabilities  therefor  are  specifically  reflected  in the
Rockingham  Financial  Statements,  there  are no  federal,  state or local  tax
liabilities of the Rockingham  Companies other than liabilities that have arisen
since  December 31, 1999,  all of which have been properly  accrued or otherwise
provided for on the books and records of Rockingham.  Except as set forth in the
Disclosure  no tax  return  or  report  of the  Rockingham  Companies  is  under
examination  by any taxing  authority  or the subject of any  administrative  or
judicial proceeding,  and no unpaid tax deficiency has been asserted against any
Rockingham Company by any taxing authority.

                  (k)      Property.  Except as disclosed or reserved against in
the  Rockingham  Financial  Statements  or as set forth in the  Disclosure,  the
Rockingham  Companies  have  good and  marketable  title  free and  clear of all
material  liens,  encumbrances,   charges,  defaults  or  equities  of  whatever
character to all of the material properties and assets,  tangible or intangible,
reflected  in  the  Rockingham  Financial  Statements  as  being  owned  by  the
Rockingham  Companies  as  of  the  date  thereof.  To  the  best  knowledge  of
Rockingham,  all buildings, and all fixtures,  equipment, and other property and
assets which are material to its business on a  consolidated  basis,  held under
leases or subleases by the Rockingham Companies are held under valid instruments
enforceable in accordance with their  respective  terms,  subject to bankruptcy,
insolvency,   reorganization,   moratorium  and  similar  laws.  The  buildings,
structures,  and  appurtenances  owned,  leased,  or occupied by the  Rockingham
Companies are in good operating condition and in a state of good maintenance and
repair, and to the knowledge of Rockingham (i) comply with applicable zoning and
other  municipal  laws and  regulations,  and (ii)  there are no latent  defects
therein.

                  (l)      Reports.   Since  January  1,  1995,  the  Rockingham
Companies  have filed all reports and  statements,  together with any amendments
required to be made with respect  thereto,  that were  required to be filed with
the SCC, the Federal Reserve, and to the best knowledge of Rockingham, any other
governmental  or  regulatory  authority or agency having  jurisdiction  over its
operations.

                  (m)      Employee Benefit Plans.

                           (1)      Except  as set forth in the  Disclosure  all
material  pension,  retirement,  profit sharing,  deferred  compensation,  stock
option,  bonus,  vacation or other material  incentive plans or agreements,  all
material medical, dental or other health plans, all life insurance plans and all
other material employee benefit plans or fringe benefit plans, including without
limitation, all "Employee Benefit Plans" as that term is defined in Section 3(3)
of the Employee  Retirement  Income Security Act of 1974, as amended  ("ERISA"),
currently  adopted,  maintained  by,  sponsored  in  whole  or in  part  by,  or
contributed  to by the  Rockingham  Companies  for  the  benefit  of  employees,
retirees or other  beneficiaries  eligible  to  participate  (collectively,  the
"Rockingham  ERISA Plans") are in compliance with the applicable  terms of ERISA
and the

                                      A-12
<PAGE>

IRC and any other applicable laws, rules and regulations the breach or violation
of which could result in a material  liability to Rockingham  on a  consolidated
basis.

                           (2)      No Rockingham  ERISA Plan which is a defined
benefit  pension  plan has any  "Unfunded  Current  Liability,"  as that term is
defined in Section  302(d)(8)(A) of ERISA,  and the present fair market value of
the assets of any such plan exceeds the plan's  "Benefit  Liabilities,"  as that
term is defined in Section 4001(a)(16) of ERISA, when determined under actuarial
factors  that would  apply if the plan was  terminated  in  accordance  with all
applicable legal requirements.

         (n)      Investment  Securities.  Subject  to FASB 115,  and except for
pledges to secure public and trust  deposits and  obligations  under  agreements
pursuant to which  Rockingham  has sold  securities  subject to an obligation to
repurchase,  or as set forth in the Disclosure none of the investment securities
reflected in the Rockingham  Financial Statements is subject to any restriction,
contractual,  statutory, or otherwise, which would impair materially the ability
of the holder of such investment to dispose freely of any such investment at any
time.

                  (o)      Certain Contracts.

                           (1)      Except  as set forth in the  Disclosure,  or
agreements  entered  into in the  ordinary  course of the  banking  business  of
Rockingham,  Rockingham  is not a party  to,  or  bound  by,  (i)  any  material
agreement,  arrangement  or commitment,  (ii) any agreement,  indenture or other
instrument  relating to the borrowing of money by Rockingham or the guarantee by
Rockingham  of  any  such  obligation,  (iii)  any  agreement,   arrangement  or
commitment  relating  to the  employment  of a  consultant  or  the  employment,
election,  retention in office or severance of any present or former director or
officer, (iv) any agreement to make loans or for the provision, purchase or sale
of goods, services or property between Rockingham and any director or officer of
Rockingham,  or any member of the  immediate  family or  affiliate of any of the
foregoing,  or  (v)  any  agreement  between  Rockingham  and  any  5%  or  more
shareholder of Rockingham.

                           (2)      None of the Rockingham Companies, nor to the
knowledge  of  Rockingham,  the other  party  thereto,  is in default  under any
material agreement,  commitment,  arrangement,  lease, insurance policy or other
instrument whether entered into in the ordinary course of business or otherwise,
nor has  there  occurred  any  event  that,  with the lapse of time or giving of
notice or both,  would  constitute  such a default,  other than defaults of loan
agreements by borrowers from Rockingham in the ordinary course of its business.

                           (3)      Since  December  31,  1999,  the  Rockingham
Companies  have not incurred or paid any  obligation or liability  that would be
material to the Rockingham  Companies,  except  obligations  incurred or paid in
connection  with  transactions  in  the  ordinary  course  of  business  of  the
Rockingham  Companies  consistent  with its practice and, except as set forth in
the  Disclosure  from  December  31,  1999 to the date  hereof,  the  Rockingham
Companies have not taken any action that, if taken after the date hereof,  would
breach any of the covenants contained in Section 4.4 hereof.

                                      A-13
<PAGE>

                  (p)      Insurance. A complete list of all policies or binders
of fire, liability,  product liability,  workmen's  compensation,  vehicular and
other  insurance held by or on behalf of the Rockingham  Companies  shall be set
forth  in the  Disclosure  and all  such  policies  or  binders  are  valid  and
enforceable in accordance  with their terms,  are in full force and effect,  and
insure against risks and  liabilities to the extent and in the manner  customary
for the industry and are deemed  appropriate  and sufficient by Rockingham.  The
Rockingham  Companies are not in default with respect to any provision contained
in any such  policy or binder  and has not  failed to give any notice or present
any claim  under  any such  policy or  binder  in due and  timely  fashion.  The
Rockingham  Companies have not received notice of cancellation or non-renewal of
any such policy or binder. To the knowledge of Rockingham there is no inaccuracy
in any  application  for such  policies or binders,  any failure to pay premiums
when due or any similar  state of facts or the  occurrence  of any event that is
reasonably  likely to form the basis for any material claim against it not fully
covered  (except to the extent of any applicable  deductible) by the policies or
binders referred to above. None of the Rockingham Companies have received notice
from any of its insurance carriers that any insurance premiums will be increased
materially  in the  future  or that  any  such  insurance  coverage  will not be
available in the future on substantially the same terms as now in effect.

                  (q)      Absence of Material Changes and Events. Except as set
forth in the Disclosure since December 31, 1999, there has not been any material
adverse change in the condition  (financial or otherwise),  aggregate  assets or
liabilities,  cash flow, earnings or business of the Rockingham  Companies,  and
the Rockingham  Companies have conducted  their  businesses only in the ordinary
course consistent with past practice.

                   (r)     Loans, OREO and Allowance for Loan Losses.

                           (1)      Except as set forth in the  Disclosure,  and
except for matters which individually or in the aggregate do not have a material
adverse effect on the Merger or the financial  condition of  Rockingham,  to the
best knowledge of Rockingham,  each loan reflected as an asset in the Rockingham
Financial Statements (i) is evidenced by notes,  agreements,  or other evidences
of indebtedness which are true, genuine and what they purport to be, (ii) to the
extent  secured,  has been secured by valid liens and security  interests  which
have been perfected, and (iii) is the legal, valid and binding obligation of the
obligor named  therein,  enforceable  in accordance  with its terms,  subject to
bankruptcy,  insolvency and other laws of general  applicability  relating to or
affecting  creditors'  rights and to general  equity  principles.  All loans and
extensions  of credit  which are subject to  regulation  by the Federal  Reserve
which have been made by Rockingham comply therewith.

                           (2)      The  classification on the books and records
of Rockingham of loans and/or non-performing assets as nonaccrual, troubled debt
restructuring,  OREO or other similar  classification,  complies in all material
respects with generally accepted accounting principles and applicable regulatory
accounting principles.

                           (3)      Except   for  liens,   security   interests,
claims,  charges, or such other encumbrances as have been appropriately reserved
for in the  Rockingham  Financial  Statements or are not material,  title to the
OREO is good and marketable,  and there are no adverse claims or

                                      A-14
<PAGE>

encumbrances  on the OREO.  All  title,  hazard and other  insurance  claims and
mortgage  guaranty  claims with  respect to the OREO have been timely  filed and
Rockingham has not received any notice of denial of any such claim.

                           (4)      Rockingham  is in  possession  of all of the
OREO or, if any of the OREO  remains  occupied  by the  mortgagor,  eviction  or
summary  proceedings  have been commenced or rental  arrangements  providing for
market rental rates have been agreed upon and Rockingham is diligently  pursuing
such eviction or summary proceedings or such rental arrangements.  Except as set
forth in the  Disclosure,  no legal  proceeding  or  quasi-legal  proceeding  is
pending or, to the knowledge of  Rockingham,  threatened  concerning any OREO or
any servicing  activity or omission to provide a servicing activity with respect
to any of the OREO.

                           (5)      Except as set forth in the  Disclosure,  all
loans made by Rockingham to facilitate the disposition of OREO are performing in
accordance with their terms.

                           (6)      Except as set forth in the  Disclosure,  the
allowance  for  possible  loan  losses  and the  reserve  for OREO  shown on the
Rockingham  Financial Statements was, and the allowance for possible loan losses
and the reserve for OREO shown on the  financial  statements of Rockingham as of
dates  subsequent to the execution of this Agreement will be, in each case as of
the dates  thereof,  adequate in all  material  respects to provide for possible
losses,  net of recoveries  relating to loans  previously  charged off, on loans
outstanding  (including  accrued  interest  receivable)  of Rockingham and other
extensions of credit (including  letters of credit and commitments to make loans
or extend credit) by Rockingham, and for possible losses on OREO.

                  (s)      Statements True and Correct.  None of the information
supplied or to be supplied by the  Rockingham  Companies  for  inclusion  in the
Registration Statement on Form S-4 (the "Registration Statement") to be filed by
MFC with the SEC,  the Joint Proxy  Statement  (as defined in Section 4.3) to be
mailed to every  Rockingham  shareholder  or any other document to be filed with
the SEC,  the SCC, the Federal  Reserve,  or any other  regulatory  authority in
connection with the transactions  contemplated  hereby,  will, at the respective
time such documents are filed,  and, in the case of the Registration  Statement,
when it becomes  effective  and with respect to the Proxy  Statement/Prospectus,
when  first  mailed to  Rockingham  shareholders,  be false or  misleading  with
respect to any  material  fact or omit to state any material  fact  necessary in
order to make the  statements  therein  not  misleading,  or, in the case of the
Joint Proxy Statement or any supplement  thereto,  at the time of the Rockingham
Shareholders'  Meeting or the MFC  Shareholders'  Meeting (as defined in Section
4.3), be false or misleading  with respect to any material fact or omit to state
any  material   fact   necessary  to  correct  any   statement  in  any  earlier
communication  with respect to the  solicitation of any proxy for the Rockingham
Shareholders' Meeting or the MFC Shareholders' Meeting.

                  (t)      Brokers and Finders. No Rockingham Company nor any of
their  respective  officers,  directors or  employees,  has employed any broker,
finder  or  financial  advisor  or  incurred  any  liability  for  any  fees  or
commissions in connection with the transactions


                                      A-15
<PAGE>

contemplated herein,  except for the retention of Scott & Stringfellow,  Inc. to
provide a fairness opinion.

                  (u)      Repurchase Agreements. With respect to all agreements
pursuant to which any Rockingham Company has purchased  securities subject to an
agreement to resell, if any, any such Rockingham Company has a valid,  perfected
first lien or security interest in the government securities or other collateral
securing the repurchase  agreement,  and the value of such collateral  equals or
exceeds the amount of the debt secured thereby.

                  (v)      Administration  of  Trust  Accounts.  Rockingham  has
properly  administered,  in all respects  material and which could reasonably be
expected to be material to the business,  operations  or financial  condition of
Rockingham,  all  accounts  for which it acts as a fiduciary  including  but not
limited to accounts for which it serves as trustee, agent,  custodian,  personal
representative,  guardian, conservator or investment advisor, in accordance with
the terms of the governing  documents and  applicable  state and federal law and
regulation and common law. To the knowledge of Rockingham,  neither  Rockingham,
nor any director,  officer or employee of Rockingham has committed any breach of
trust with respect to any such  fiduciary  account which is material to or could
reasonably  be  expected  to  be  material  to  the   business,   operations  or
consolidated  financial  condition of Rockingham,  and the  accountings for each
such  fiduciary  account  are true and  correct  in all  material  respects  and
accurately  reflect  the  assets  of  such  fiduciary  account  in all  material
respects.

                  (w)      Takeover Laws; No Dissenters  Rights.  The Rockingham
Companies  have taken all action  necessary  to exempt  this  Agreement  and the
transactions  contemplated  hereby from the requirements of any "control share,"
"fair  price,"   "affiliate   transaction"  or  other   anti-takeover  laws  and
regulations of any state, including without limitation Sections 13.1-725 through
13.1-728 of the VSCA, and Sections  13.1-728.1  through  13.1-728,9 of the VSCA.
Holders of Rockingham Common Stock do not have dissenters'  rights in connection
with the Merger.

                  (x)      Environmental    Matters.   To   the   knowledge   of
Rockingham,  the  Rockingham  Companies are in substantial  compliance  with all
Environmental   Laws.  None  of  the  Rockingham   Companies  has  received  any
communication  alleging that any  Rockingham  Company is not in such  compliance
and, to the knowledge of  Rockingham,  there are no present  circumstances  that
would prevent or interfere with the continuation of such compliance.

         3.2      Representations  and Warranties of MFC. Subject to Section 8.9
below, MFC represents and warrants to Rockingham as follows:

                  (a)      Organization,   Standing  and  Power.   The  Marathon
Companies (defined below) are corporations duly organized,  validly existing and
in good  standing  under the laws of  Virginia.  Each  Marathon  Company has all
requisite  corporate  power and  authority to carry on its business as now being
conducted  and to own and operate  its  assets,  properties  and  business.  The
Marathon Companies have the corporate power and authority to execute and deliver
this  Agreement and perform the  respective  terms of this Agreement and Plan of
Merger.  MFC and Marathon Bank are members of the Federal  Reserve  System,  and
except as set forth in the


                                      A-16
<PAGE>


Disclosure  are in  compliance  in all  material  respects  with all  rules  and
regulations  promulgated by the Board of Governors of the Federal  Reserve,  the
SCC and any other relevant  regulatory  authority.  MFC is duly  registered as a
bank  holding  company  under  the Bank  Holding  Company  Act of 1956,  and the
Marathon Bank is a Virginia  state bank and an "Insured  Bank" as defined in the
FDIA and applicable  regulations  thereunder.  No other  Marathon  Company is an
Insured Bank.  The Marathon Bank is, except as set forth in the  Disclosure,  in
compliance in all material  respects with all rules and regulations  promulgated
by the Federal Reserve, the SCC and any other relevant regulatory authority.

                  (b)      Bank  Subsidiaries.  MFC does not  own,  directly  or
indirectly,  5% or  more  of the  outstanding  capital  stock  or  other  voting
securities of any corporation,  bank or other  organization  actively engaged in
business except (i) Marathon Bank, (ii) the Merger Subsidiary, (hereinafter MFC,
Marathon Bank and Merger  Subsidiary  each may be referred to  individually as a
"Marathon  Company" and collectively as the "Marathon  Companies"),  (iii) a 51%
ownership  interest in  Shenandoah  Valley  Title  Company,  a Virginia  limited
liability company  ("Shenandoah')  (hereinafter Marathon Bank, Merger Subsidiary
and Shenandoah  Valley Title Company each may be referred to  individually  as a
"Marathon Subsidiary" and collectively as the "Marathon Subsidiaries"), and (iv)
a 20% ownership  interest in  Professional  Titles of Virginia,  LLC, a Virginia
limited  liability  company  ("PTV").  Set  forth in the  Disclosure  is (i) the
jurisdiction  of  incorporation,  capitalization  and ownership of each Marathon
Subsidiary;  (ii) the  names of the  officers  and  directors  of each  Marathon
Subsidiary;  and (iii) the  jurisdictions  in which each Marathon  Subsidiary is
qualified  or licensed to do business as a foreign  corporation.  Each  Marathon
Subsidiary is a corporation  duly organized and validly  existing under the laws
of its jurisdiction of  incorporation.  The Articles of Incorporation and Bylaws
of each of the Marathon  Subsidiaries  delivered by Marathon with the Disclosure
are complete and correct as of the date hereof. To MFC's knowledge,  each of the
Marathon Subsidiaries and PTV (i) has full corporate power and authority to own,
lease and operate its  properties  and to carry on its business as now conducted
except  where the absence of such power or  authority  would not have a material
adverse effect on the financial condition,  results of operations or business of
MFC on a  consolidated  basis,  and (ii) is duly qualified to do business in the
states of the United  States and foreign  jurisdictions  where its  ownership or
leasing of property or the conduct of its business  requires such  qualification
and where  failure to so qualify  would  have a material  adverse  effect on the
financial condition,  results of operations or business of MFC on a consolidated
basis. To MFC's  knowledge,  each of the Marathon  Subsidiaries  and PTV has all
federal,  state,  local and foreign  governmental  authorizations  and  licenses
necessary for it to own or lease its  properties  and assets and to carry on its
business  as it is now being  conducted,  except  where  failure to obtain  such
authorization  or  license  would  not have a  material  adverse  effect  on the
financial condition,  results of operations or business of MFC on a consolidated
basis.  Except  as set  forth  in the  Disclosure,  MFC owns  its  stock  and/or
interests  in each of the  Marathon  Companies  and PTV  free  and  clear of any
claims,  liens,  encumbrances  or  restrictions  and there are no  agreements or
understandings with respect to the voting or disposition of any such shares.

                  (c)      Authority.

                           (1)      The   execution   and   delivery   of   this
Agreement,  the Plan of Merger and the consummation of the Merger have been duly
and validly  authorized  by all  necessary


                                      A-17
<PAGE>

corporate action on the part of the Marathon  Companies,  except the approval of
shareholders in the case of MFC. The Agreement  represents the legal, valid, and
binding obligation of the Marathon  Companies,  enforceable against the Marathon
Companies  in   accordance   with  its  terms  (except  in  all  such  cases  as
enforceability   may  be   limited   by   applicable   bankruptcy,   insolvency,
reorganization,   moratorium  or  similar  laws  affecting  the  enforcement  of
creditors'  rights  generally and except that the  availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).

                           (2)      Except as set forth in the  Disclosure,  and
subject to the receipt of the  requisite  approvals  referred to in Sections 4.7
and 6.1,  neither the execution and delivery of this Agreement the  consummation
of the  transactions  contemplated  herein,  nor the  compliance by the Marathon
Companies with any of the provisions  hereof will (i) conflict with or result in
a breach of any  provision  of their  respective  Articles of  Incorporation  or
Bylaws,  (ii)  constitute  or result in the  breach  of any term,  condition  or
provision  of,  or  constitute  default  under,  or give  rise to any  right  of
termination,  cancellation  or  acceleration  with  respect to, or result in the
creation of any lien,  charge or encumbrance upon, any property or assets of the
Marathon Companies pursuant to (A) any note, bond, mortgage,  indenture,  or (B)
any material  license,  agreement,  lease or other instrument or obligation,  to
which any of the Marathon Companies is a party or by which any of them or any of
their  properties  or assets may be bound,  or (iii)  violate  any order,  writ,
injunction,  decree,  statute,  rule  or  regulation  applicable  to  any of the
Marathon Companies or any of their properties or assets.

                   (d)      Capital Structure.

                           (1)      The authorized capital stock of MFC consists
of Twenty  Million  (20,000,000)  shares of common  stock,  par value  $1.00 per
share, ("MFC Common Stock") of which Two Million Fifty-one Thousand Four Hundred
Forty-one  (2,051,441)  shares  are  issued  and  outstanding  and  One  Million
(1,000,000)  shares of preferred stock, none of which is issued.  The issued and
outstanding  shares of MFC Common  Stock are fully paid and  nonassessable,  not
subject to  shareholder  preemptive  rights,  and not issued in violation of any
agreement to which MFC is a party or otherwise  bound, or of any registration or
qualification  provisions  of any  federal or state  securities  laws  provided,
however,  that the  transfer of shares of the Common  Stock in MFC to holders of
10% or more of MFC's Common Stock is restricted  by Article II,  Section 4(c) of
the MFC Articles of  Incorporation.  Except for outstanding  options to purchase
129,375  shares of MFC Common  Stock,  of which 84,625 are vested as of the date
hereof,  pursuant to the Marathon Long-Term Incentive Plan (the "Marathon Option
Plan"), there are no outstanding  understandings or commitments of any character
pursuant  to which MFC or any of the  Marathon  Companies  could be  required or
expected to issue shares of capital stock.  The shares of MFC Common Stock to be
issued in exchange for shares of Rockingham  Common Stock upon  consummation  of
the Merger will have been duly  authorized  and, when issued in accordance  with
the  terms  of  this  Agreement,   will  be  validly  issued,   fully  paid  and
nonassessable and subject to no preemptive rights.

                           (2)      The  outstanding  shares of capital stock of
the Marathon  Bank have been duly  authorized  and are validly  issued,  and are
fully paid and  nonassessable  and all such


                                      A-18
<PAGE>

shares are owned by MFC, free and clear of all liens,  claims and  encumbrances.
No rights are  authorized,  issued or  outstanding  with  respect to the capital
stock of the  Marathon  Bank and  there  are no  agreements,  understandings  or
commitments  relating to the right of MFC to vote or to dispose of said  shares.
None of the  shares of capital  stock of the  Marathon  Bank has been  issued in
violation of the preemptive rights of any person.

                  (e)      Financial Statements.  The "MFC Financial Statements"
shall mean all materials provided in the consolidated Marathon Financial Report,
dated  December  31,  1999.  Except  as set  forth  in the  Disclosure,  the MFC
Financial  Statements fairly present the financial  position of MFC and Marathon
Bank as of the  dates  indicated  and the  results  of  operations,  changes  in
shareholders'  equity and  statements of cash flows for the periods or as of the
dates set  forth  therein  in  conformity  with  generally  accepted  accounting
principles  applicable to financial  institutions applied on a consistent basis.
The books and records of MFC and  Marathon  Bank fairly  reflect in all material
respects the  transactions to which it is a party or by which its properties are
subject or bound.  Such books and records have been properly kept and maintained
and are in compliance in all material  respects  with all  applicable  legal and
accounting requirements.

                  (f)      Absence of Undisclosed  Liabilities.  At December 31,
1999, neither MFC nor Marathon Bank had any obligation or liability  (contingent
or  otherwise)  of any nature  which  were not  reflected  in the MFC  Financial
Statements  except  for  those  which in the  aggregate  are  immaterial  or are
otherwise set forth in the Disclosure.

                  (g)      Legal  Proceedings;  Compliance with Laws.  Except as
set  forth  in  the  Disclosure  there  are no  actions,  suits  or  proceedings
instituted  or pending or, to the  knowledge of MFC,  threatened  or probable of
assertion against any of the Marathon Companies, or against any property, asset,
interest or right of any of them, that are reasonably  expected to have,  either
individually  or in the  aggregate,  a material  adverse effect on the financial
condition of the Marathon Companies or that are reasonably  expected to threaten
or impede the  consummation of the Merger.  None of the Marathon  Companies is a
party to any agreement or instrument  or subject to any judgment,  order,  writ,
injunction,  decree or rule that might reasonably be expected to have a material
adverse effect on the condition (financial or otherwise),  business or prospects
of MFC on a consolidated  basis. Except as set forth in the Disclosure as of the
date of  this  Agreement,  none  of the  Marathon  Companies  nor  any of  their
properties  is a  party  to or is  subject  to  any  order,  decree,  agreement,
memorandum of understanding or similar  arrangement with, or a commitment letter
or similar submission to, any federal or state governmental  agency or authority
charged  with the  supervision  or  regulation  of  depository  institutions  or
mortgage  lenders or engaged in the  insurance  of deposits  which  restricts or
purports to restrict in any  material  respect the conduct of the business of it
or its  subsidiary  or  properties,  or in any manner  relates  to the  capital,
liquidity,  credit  policies  or  management  of it; and except set forth in the
Disclosure,  none  of the  Marathon  Companies  has  been  advised  by any  such
regulatory authority that such authority is contemplating  issuing or requesting
(or is considering the appropriateness of issuing or requesting) any such order,
decree,  agreement,  memorandum of  understanding,  commitment letter or similar
submission. To the knowledge of MFC, the Marathon Companies have complied in all
material respects with all laws, ordinances, requirements, regulations


                                      A-19
<PAGE>

or orders applicable to its business (including  environmental laws, ordinances,
requirements, regulations or orders).

                  (h)      Regulatory Approvals.  To the knowledge of MFC, there
is no reason why the regulatory  approvals  referred to in Section 6.1(b) should
not be obtained  without the imposition of any condition of the type referred to
in Section 6.1(b).

                  (i)      Labor Relations.  None of the Marathon Companies is a
party to, or is bound by any collective bargaining agreement,  contract or other
agreement or understanding with a labor union or labor  organization,  nor is it
the  subject  of a  proceeding  asserting  that has  committed  an unfair  labor
practice  (within the meaning of the National Labor Relations Act) or seeking to
compel it to bargain with any labor  organization  as to wages and conditions of
employment, nor is there any strike or other labor dispute involving it, pending
or, to the best of its  knowledge,  threatened,  nor is it aware of any activity
involving  its  employees  seeking to certify a  collective  bargaining  unit or
engaging in any other organizational activity.

                  (j)      Tax Matters.  The Marathon  Companies  have filed all
federal,  state, and local tax returns and reports required to be filed, and all
taxes  shown  by  such  returns  to be due and  payable  have  been  paid or are
reflected as a liability in the MFC Financial  Statements or are being contested
in good faith and are set forth in the  Disclosure.  Except to the  extent  that
liabilities therefor are specifically reflected in the MFC Financial Statements,
there are no federal,  state or local tax liabilities of the Marathon  Companies
other than  liabilities  that have arisen since  December 31, 1999, all of which
have been properly accrued or otherwise provided for on the books and records of
the Marathon Companies.  Except as set forth in the Disclosure, no tax return or
report of any of the  Marathon  Companies  is under  examination  by any  taxing
authority or the subject of any  administrative or judicial  proceeding,  and no
unpaid tax deficiency has been asserted against any of the Marathon Companies by
any taxing authority.

                  (k)      Property.  Except as disclosed or reserved against in
the MFC  Financial  Statements  or as set forth in the  Disclosure  the Marathon
Companies have good and marketable  title free and clear of all material  liens,
encumbrances,  charges, defaults or equities of whatever character to all of the
material  properties and assets,  tangible or  intangible,  reflected in the MFC
Financial  Statements  as  being  owned by MFC or  Marathon  Bank as of the date
thereof.  To the knowledge of MFC, all buildings,  and all fixtures,  equipment,
and  other  property  and  assets  which  are  material  to  its  business  on a
consolidated basis, held under leases or subleases by the Marathon Companies are
held under valid  instruments  enforceable in accordance  with their  respective
terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar
laws. The buildings, structures, and appurtenances owned, leased, or occupied by
the Marathon  Companies are in good  operating  condition and in a state of good
maintenance  and repair,  and to the knowledge of MFC (i) comply with applicable
zoning and other  municipal laws and  regulations,  and (ii) there are no latent
defects therein.

                  (1)      Reports.   Since   January  1,  1995,   the  Marathon
Companies  have filed all reports and  statements,  together with any amendments
required to be made with respect  thereto,  that were  required to be filed with
the SEC, the Federal Reserve,  the SCC, and any other governmental or regulatory
authority or agency having jurisdiction over their operations.


                                      A-20
<PAGE>

                  (m)      Employee Benefit Plans.

                           (1)      Except  as set forth in the  Disclosure  all
material  pension,  retirement,  profit sharing,  deferred  compensation,  stock
option,  bonus,  vacation or other material  incentive plans or agreements,  all
material medical, dental or other health plans, all life insurance plans and all
other material employee benefit plans or fringe benefit plans, including without
limitation,  all Employee  Benefit  Plans,  currently  adopted,  maintained  by,
sponsored in whole or in part by, or contributed to by the Marathon Companies or
for the  benefit of  employees,  retirees  or other  beneficiaries  eligible  to
participate  (collectively,  the "MFC ERISA Plans") are in  compliance  with the
applicable  terms of ERISA and the IRC and any other  applicable laws, rules and
regulations  the  breach  or  violation  of which  could  result  in a  material
liability to the Marathon Companies.

                           (2)      No MFC ERISA Plan which is a defined benefit
pension  plan  has  any  Unfunded  Current  Liability  (as  defined  in  Section
3.1(m)(2))  and the  present  fair  market  value of the assets of any such plan
exceeds the plan's Benefit Liabilities (as defined in Section  3.1(m)(2)),  when
determined  under actuarial  factors that would apply if the plan was terminated
in accordance with all applicable legal requirements.

                  (n)      Investment  Securities.  Subject  to  FASB  115,  and
except for pledges to secure  public and trust  deposits and  obligations  under
agreements pursuant to which MFC or Marathon Bank has sold securities subject to
an  obligation  to  repurchase,  or as set forth in the  Disclosure  none of the
investment  securities  reflected in the MFC Financial  Statements is subject to
any  restriction,  contractual,  statutory,  or  otherwise,  which would  impair
materially the ability of the holder of such investment to dispose freely of any
such investment at any time.

                  (o)      Certain Contracts.

                           (1)      Except  as set forth in the  Disclosure,  or
agreements  entered into in the ordinary  course of the banking  business of the
Marathon Companies,  the Marathon Companies are not a party to, or bound by, (i)
any material agreement, arrangement or commitment, (ii) any agreement, indenture
or other  instrument  relating to the  borrowing of money by any of the Marathon
Companies  or  the  guarantee  by  any of the  Marathon  Companies  of any  such
obligation,  (iii) any  agreement,  arrangement  or  commitment  relating to the
employment of a consultant or the employment,  election,  retention in office or
severance of any present or former  director or officer,  (iv) any  agreement to
make loans or for the provision, purchase or sale of goods, services or property
between any of the Marathon  Companies and any director or officer of any of the
Marathon Companies, or any member of the immediate family or affiliate of any of
the foregoing,  or (v) any agreement  between any of the Marathon  Companies and
any 5% or more shareholder of MFC.

                           (2)      None of the Marathon  Companies,  nor to the
knowledge  of MFC,  the other party  thereto,  is in default  under any material
agreement, commitment,  arrangement, lease, insurance policy or other instrument
whether  entered into in the ordinary  course of business or otherwise,  nor has
there  occurred  any event  that,  with the lapse of time or giving of


                                      A-21
<PAGE>

notice or both,  would  constitute  such a default,  other than defaults of loan
agreements  by  borrowers  from  Marathon  Bank in the  ordinary  course  of its
business.

                           (3)      Since   December  31,  1999,   the  Marathon
Companies  have not incurred or paid any  obligation or liability  that would be
material  to the  Marathon  Companies,  except  obligations  incurred or paid in
connection with  transactions in the ordinary course of business of the Marathon
Companies  consistent  with  their  practices  and,  except  as set forth in the
Disclosure  from  December 31, 1999 to the date hereof,  the Marathon  Companies
have not taken any action that, if taken after the date hereof, would breach any
of the covenants contained in Section 4.4 hereof

                  (p)      Insurance. A complete list of all policies or binders
of fire, liability,  product liability,  workmen's  compensation,  vehicular and
other  insurance  held by or on behalf of the  Marathon  Companies  shall be set
forth  in the  Disclosure  and all  such  policies  or  binders  are  valid  and
enforceable in accordance  with their terms,  are in full force and effect,  and
insure against risks and  liabilities to the extent and in the manner  customary
for the industry and are deemed  appropriate and sufficient by MFC. The Marathon
Companies are not in default with respect to any provision contained in any such
policy or binder and have not  failed to give any  notice or  present  any claim
under any such policy or binder in due and timely fashion.  None of the Marathon
Companies has received  notice of cancellation or non-renewal of any such policy
or binder. To the knowledge of MFC, there are no inaccuracies in any application
for such  policies  or  binders,  any  failure to pay  premiums  when due or any
similar state of facts or the occurrence of any event that is reasonably  likely
to form the basis for any material claim against it not fully covered (except to
the extent of any applicable  deductible) by the policies or binders referred to
above.  None of the  Marathon  Companies  has  received  notice  from any of its
insurance carriers that any insurance  premiums will be increased  materially in
the future or that any such  insurance  coverage  will not be  available  in the
future on substantially the same terms as now in effect.

                  (q)      Absence of Material Changes and Events. Except as set
forth in the  Disclosure  since  December 31,  1999,  there (i) has not been any
material  adverse change in the condition  (financial or  otherwise),  aggregate
assets or liabilities, cash flow, earnings or business of the Marathon Companies
(and to the knowledge of MFC, of Shenandoah and PTV), and the Marathon Companies
have conducted their businesses only in the ordinary course consistent with past
practice,  and (ii)  there  has been no  change  in any  accounting  principles,
practices or methods of the Marathon  Companies (and to the knowledge of MFC, of
Shenandoah and PTV) other than as required by GAAP.

                  (r)       Loans, OREO and Allowance for Loan Losses.

                           (1)      Except as set forth in the  Disclosure,  and
except for matters which individually or in the aggregate do not have a material
adverse  effect  on  the  Merger  or the  financial  condition  of the  Marathon
Companies,  to the knowledge of MFC, each loan  reflected as an asset in the MFC
Financial Statements (i) is evidenced by notes,  agreements,  or other evidences
of indebtedness which are true, genuine and what they purport to be, (ii) to the
extent  secured,  has been secured by valid liens and security  interests  which
have been perfected, and


                                      A-22
<PAGE>

(iii) is the legal,  valid and binding  obligation of the obligor named therein,
enforceable in accordance with its terms, subject to bankruptcy,  insolvency and
other laws of general  applicability  relating to or affecting creditors' rights
and to general equity  principles.  All loans and extensions of credit which are
subject to  regulation  by the Federal  Reserve which have been made by Marathon
Bank comply therewith.

                           (2)      The  classification on the books and records
of Marathon Bank of loans and/or non-performing  assets as nonaccrual,  troubled
debt  restructuring,  OREO or  other  similar  classification,  complies  in all
material respects with generally accepted  accounting  principles and applicable
regulatory accounting principles.

                           (3)      Except   for  liens,   security   interests,
claims,  charges, or such other encumbrances as have been appropriately reserved
for in the MFC Financial  Statements  or are not material,  title to the OREO is
good and  marketable,  and there are no adverse  claims or  encumbrances  on the
OREO. All title,  hazard and other insurance claims and mortgage guaranty claims
with respect to the OREO have been timely filed and the Marathon  Companies have
not received any notice of denial of any such claim.

                           (4)      The Marathon Bank is in possession of all of
the OREO or, if any of the OREO remains  occupied by the mortgagor,  eviction or
summary  proceedings  have been commenced or rental  arrangements  providing for
market  rental  rates have been  agreed  upon and  Marathon  Bank is  diligently
pursuing  such  eviction or summary  proceedings  or such  rental  arrangements.
Except  as set  forth in the  Disclosure,  no legal  proceeding  or  quasi-legal
proceeding is pending or, to the  knowledge of MFC,  threatened  concerning  any
OREO or any servicing  activity or omission to provide a servicing activity with
respect to any of the OREO.

                           (5)      Except as set forth in the  Disclosure,  all
loans made by Marathon Bank to facilitate the disposition of OREO are performing
in accordance with their terms.

                           (6)      Except as set forth in the  Disclosure,  the
allowance  for  possible  loan  losses and the reserve for OREO shown on the MFC
Financial  Statements  was, and the  allowance  for possible loan losses and the
reserve for OREO shown on the  consolidated  financial  statements  of MFC as of
dates  subsequent to the execution of this Agreement will be, in each case as of
the dates  thereof,  adequate in all  material  respects to provide for possible
losses,  net of recoveries  relating to loans  previously  charged off, on loans
outstanding  (including  accrued  interest  receivable) of the Marathon Bank and
other extensions of credit (including  letters of credit and commitments to make
loans or extend credit) by the Marathon Bank, and for possible losses on OREO.

                  (s)      Statements True and Correct.  None of the information
supplied or to be supplied by the Marathon Companies (or to MFC's knowledge, any
information  provided by Shenandoah  and PTV) for inclusion in the  Registration
Statement,  the Joint Proxy Statement or any other document to be filed with the
SEC or any  other  regulatory  authority  in  connection  with the  transactions
contemplated hereby, will, at the respective time such documents are filed, and,
in the case of the Registration  Statement,  when it becomes  effective and with
respect to the Joint Proxy Statement, when first mailed to MFC shareholders,  be
false or misleading with respect to

                                      A-23
<PAGE>

any material fact or omit to state any material fact  necessary in order to make
the  statements  therein  not  misleading,  or, in the case of the  Joint  Proxy
Statement or any supplement thereto, at the time of the Rockingham Shareholders'
Meeting or the MFC Shareholders' Meeting, be false or misleading with respect to
any material  fact or omit to state any material  fact  necessary to correct any
statement in any earlier  communication  with respect to the solicitation of any
proxy for the Rockingham Shareholders' Meeting or the MFC Shareholders' Meeting.

                  (t)      Brokers and Finders. No Marathon  Companies,  nor any
of their respective officers,  directors or employees,  has employed any broker,
finder  or  financial  advisor  or  incurred  any  liability  for  any  fees  or
commissions in connection with the transactions  contemplated herein, except for
the retention of McKinnon & Company, Inc. to provide a fairness opinion.

                  (u)      Repurchase Agreements. With respect to all agreements
pursuant to which any Marathon  Company has purchased  securities  subject to an
agreement to resell,  if any, any such Marathon  Company has a valid,  perfected
first lien or security interest in the government securities or other collateral
securing the repurchase  agreement,  and the value of such collateral  equals or
exceeds the amount of the debt secured thereby.

                  (v)      Administration   of  Trust  Accounts.   The  Marathon
Companies have properly  administered,  in all respects material and which could
reasonably be expected to be material to the  business,  operations or financial
condition  of the  Marathon  Companies,  all  accounts  for  which  it acts as a
fiduciary  including but not limited to accounts for which it serves as trustee,
agent, custodian, personal representative,  guardian,  conservator or investment
advisor,  in accordance with the terms of the governing documents and applicable
state and federal law and  regulation  and common law. To the  knowledge of MFC,
neither  Marathon Bank,  nor any director,  officer or employee of Marathon Bank
has  committed  any breach of trust with respect to any such  fiduciary  account
which is  material  to or could  reasonably  be  expected  to be material to the
business,  operations or consolidated financial condition of Marathon Companies,
and the accountings for each such fiduciary  account are true and correct in all
material respects and accurately reflect the assets of such fiduciary account in
all material respects.

                  (w)      Takeover  Laws;  No Dissenters  Rights.  The Marathon
Companies  have taken all action  necessary  to exempt  this  Agreement  and the
transactions  contemplated  hereby from the requirements of any "control share,"
"fair  price,"   "affiliate   transaction"  or  other   anti-takeover  laws  and
regulations of any state, including without limitation Sections 13.1-725 through
13.1-728 of the VSCA, and Sections  13.1-728.1  through  13.1-728.9 of the VSCA.
Holders of MFC Common Stock do not have  dissenters'  rights in connection  with
the Merger.

                  (x)      Environmental  Matters.  To the knowledge of MFC, the
Marathon  Companies are in substantial  compliance with all Environmental  Laws.
None of the Marathon Companies has received any communication  alleging that any
Marathon  Company is not in such  compliance and, to the knowledge of MFC, there
are  no  present   circumstances  that  would  prevent  or  interfere  with  the
continuation of such compliance.


                                      A-24
<PAGE>

                                    ARTICLE 4

                       Conduct Prior to the Effective Date

         4.1      Access to Records and  Properties.  Rockingham  will keep MFC,
and the  Marathon  Companies  will  keep  Rockingham,  advised  of all  material
developments  relevant to their  respective  businesses prior to consummation of
the Merger.  Prior to the Effective  Date,  the Marathon  Companies,  on the one
hand, and Rockingham on the other,  agree to give to the other party  reasonable
access to all the  premises,  books,  records  (including  tax returns filed and
those in preparation), properties, personnel and such other reasonably requested
information of it and its  subsidiaries and to cause its officers to furnish the
other with such financial and operating data and other  information with respect
to the business and  properties as the other shall from time to time request for
the purposes of verifying the warranties and  representations  set forth herein;
provided,  however,  that (a) any such investigation  shall be conducted in such
manner as not to interfere  unreasonably  with the  operation of the  respective
business of the other,  and (b) no  investigation  pursuant to this  Section 4.1
shall affect or be deemed to modify any representation or warranty made herein.

         4.2      Confidentiality.  Between the date of this  Agreement  and the
Effective  Date or the date on which this Agreement is terminated per Article 7,
the Marathon  Companies,  Shenandoah and PTV and the  Rockingham  Companies each
will  maintain in  confidence,  and cause its  directors,  officers,  employees,
agents and advisors to maintain in  confidence,  and not use to the detriment of
the other party, any written,  oral or other information  obtained in confidence
from the other party or a third party in connection  with this  Agreement or the
transactions  contemplated  hereby unless such  information  is already known to
such party or to others not bound by a duty of  confidentiality  or unless  such
information  becomes publicly  available through no fault of such party,  unless
use of such  information  is  necessary or  appropriate  in making any filing or
obtaining  any  consent  or  approval  required  for  the  consummation  of  the
transactions  contemplated  hereby  or  unless  the  furnishing  or use of  such
information is required by or necessary or appropriate in connection  with legal
proceedings. If the Merger is not consummated, each party will return or destroy
as much of such written information as may be requested by the other Party.

         4.3      Registration   Statement,   Proxy  Statement  and  Shareholder
Approval.  The Board of Directors of  Rockingham,  and the Board of Directors of
MFC,  each  will  duly  call  and  will  hold  a  meeting  of  their  respective
shareholders as soon as practicable for the purpose of approving the Merger,  in
the case of  Rockingham,  and  approving  the Amended and  Restated  Articles of
Incorporation  of MFC,  substantially  in the form attached hereto as Exhibit B,
and the issuance of MFC Common  Stock  ("Stock  Approval"),  in the case of MFC,
(the "Rockingham  Shareholders'  Meeting" and the "MFC  Shareholders'  Meeting",
respectively). Subject to the duties of the Board of Directors of Rockingham and
of MFC (as advised in writing by their respective  counsel),  Rockingham and MFC
each shall use its best  efforts to solicit  and obtain  votes of the holders of
its Common  Stock in favor of the  Merger,  in the case of


                                      A-25
<PAGE>

Rockingham, and the Stock Approval, in the case of MFC, and will comply with the
provisions in their respective  Articles of Incorporation and Bylaws relating to
the call and holding of a meeting of shareholders for such purpose; no member of
the  Board  of  Directors  of  Rockingham  or  MFC  shall  advise  or  encourage
shareholders not to vote in favor of the Merger,  in the case of Rockingham,  or
Stock Approval, in the case of MFC; and Rockingham and MFC shall, at the other's
request,  recess or adjourn the meeting if such recess or  adjournment is deemed
by the other to be  necessary  or  desirable.  MFC and  Rockingham  will prepare
jointly  the  proxy  statement/prospectus  to be used  in  connection  with  the
Rockingham  Shareholders'  Meeting and the MFC Shareholders' Meeting (the "Joint
Proxy  Statement").  MFC will  prepare  and file  with the SEC the  Registration
Statement,  of which such Joint Proxy Statement shall be a part and will use its
best efforts to have the Registration  Statement  declared effective as promptly
as possible and will advise Rockingham promptly after MFC receives notice of the
time when the  Registration  Statement has become effective or any supplement or
amendment has been filed, of the issuance of any stop order or the suspension of
the  qualification  of the  shares of capital  stock  issuable  pursuant  to the
Registration  Statement,  or  the  initiation  or  threat  known  to  MFC of any
proceeding for any such purpose,  or of any request by the SEC for the amendment
or supplement of the Registration Statement or for additional information.  When
the Registration Statement or any post-effective amendment or supplement thereto
shall become effective, and at all times subsequent to such effectiveness, up to
and including the dates of the MFC and Rockingham  Shareholders'  Meetings, such
Registration  Statement and all amendments or supplements thereto,  with respect
to all information set forth therein  furnished or to be furnished by Rockingham
and by the  Marathon  Companies  relating to the  Marathon  Companies,  (i) will
comply in all material  respects with the  provisions of the  Securities  Act of
1933 and any other applicable  statutory or regulatory  requirements,  including
applicable  state  blue-sky and  securities  laws, and (ii) will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated  therein or necessary  to make the  statements  contained  therein not
misleading;  provided, however, in no event shall any party hereto be liable for
any untrue  statement of a material fact or omission to state a material fact in
the  Registration  Statement  made in reliance  upon,  and in  conformity  with,
written  information  concerning  another  party  furnished  by such other party
specifically  for use in the  Registration  Statement.  MFC  shall  use its best
efforts to obtain prior to the effective date of the Registration Statement, all
necessary state securities laws or "blue sky" permits and approvals  required to
carry  out  the  transactions  contemplated  by  this  Agreement.  Prior  to the
Effective Date, MFC shall notify the NASDAQ of the additional shares of Marathon
Common Stock to be issued by MFC in exchange for the shares of Rockingham Common
Stock.

          4.4      Operation of the Business of Rockingham and MFC.

                  (1)      The  Rockingham  Companies  and each of the  Marathon
Companies agree that from the date hereof to the Effective Date it shall use its
best  efforts to (a) conduct its  business in the  regular,  ordinary  and usual
course  consistent  with past  practice;  (b) maintain  and preserve  intact its
business organization,  properties,  leases, employees and advantageous business
relationships  and retain the services of its officers  and key  employees,  (c)
take no action which would  adversely  affect or delay the ability of Rockingham
or the Marathon  Companies to perform their respective  covenants and agreements
on a timely  basis  under  this  Agreement  and (d) take no action  which  would
adversely  affect or delay the ability of the  Marathon  Companies to obtain any
necessary approvals,  consents or waivers of any governmental authority required
for the transactions  contemplated  hereby or which would reasonably be expected
to result in any such  approvals,  consents or waivers  containing  any material
condition or restriction.


                                      A-26
<PAGE>

                  (2)      Without limiting the generality of the foregoing, and
except as otherwise provided in this Agreement and except to the extent required
by law or regulation or any governmental entity or to effect this merger, during
the period from the date of this  Agreement to the Effective  Date,  neither the
Rockingham  Companies nor the Marathon Companies shall without the prior written
consent of the other Party:

                           (a)      Issue any  shares of  capital  stock  except
pursuant to the exercise of stock options or warrants outstanding as of the date
of this  Agreement;  (ii) change the terms of any  outstanding  stock options or
warrants;  (iii) issue,  grant or sell any option,  warrant,  call,  commitment,
stock  appreciation  right,  right to purchase  or  agreement  of any  character
relating to its  authorized or issued  capital  stock;  or (iv) split,  combine,
reclassify  or adjust any shares of its capital  stock or  otherwise  change its
capitalization;

                           (b)      Voluntarily   make   any   changes   in  the
composition of its officers, directors or other key management personnel;

                           (c)      Make any change in the compensation or title
of any  Executive  Officer (as defined in  Regulation O) or any director or make
any change in the  compensation  or title of any other  employee,  other than in
accordance with past employment policies and practices in the ordinary course of
business,  any of which  changes  shall be reported  in writing  promptly to the
other Party;

                           (d)      Enter into, modify, or accelerate any bonus,
incentive  compensation,  stock option,  deferred compensation,  profit sharing,
thrift,  retirement,  pension,  group  insurance  or other  benefit  plan or any
employment or consulting agreement;

                           (e)      Incur any obligation, guarantee or liability
(whether  absolute or contingent,  excluding suits instituted  against it), make
any pledge,  encumber any of its assets,  or dispose of any of its assets in any
other  manner,  except in the  ordinary  course of its business and for adequate
value;

                           (f)      Make,    or   commit   to   make,    capital
expenditures of $20,000 individually, or aggregating $100,000 or more;

                           (g)      Knowingly  waive  any  right to  substantial
value;

                           (h)      Enter   into   any   material   transactions
otherwise than in the ordinary course of its business;

                           (i)      Alter,   amend  or  repeal   its  Bylaws  or
Articles of Incorporation;

                           (j)      Implement   or  adopt  any   change  in  its
accounting principles,  practices or methods,  except as may be required by GAAP
or regulatory guidelines;

                                      A-27
<PAGE>

                           (k)      Settle  any  claim,   action  or  proceeding
involving  any  liability  for money  damages in excess of  $100,000 or imposing
material  restrictions  upon the operations of the  Rockingham  Companies or the
Marathon Companies;

                           (1)      Acquire or agree to  acquire,  by merging or
consolidating  with,  or by  purchasing a  substantial  equity  interest in or a
substantial  portion of the assets of, or by any other  manner,  any business or
any  corporation,  partnership,  association or other business  organization  or
division  thereof or  otherwise  acquire or agree to acquire  any assets of such
business organizations;

                           (m)      except  for  Rockingham's   proposed  branch
office in Weyers Cave, Virginia, establish or commit to the establishment of any
new branch or other office facilities;

                           (n)      other  than  in  the   ordinary   course  of
business  consistent  with past  practice,  in individual  amounts not to exceed
$50,000,  make any  investment  either  by  purchase  of  stock  or  securities,
contributions  to capital,  property  transfers,  or purchase of any property or
assets  of any  other  individual,  corporation  or other  entity  other  than a
subsidiary;

                           (o)      make any  investment  in any debt  security,
including  mortgage-backed  and  mortgaged-related  securities  (other  than  US
government and US government agency securities with final maturities not greater
than five years,  mortgage-backed or mortgage related securities which would not
be  considered  "high risk"  securities  pursuant to Thrift  Bulletin  Number 52
issued by the OTS or  securities of the FHLB, in each case that are purchased in
the ordinary course of business consistent with past practice);

                           (p)      enter into,  renew,  amend or terminate  any
contract  or  agreement,  or make any change in any of its leases or  contracts,
other than with respect to those involving  aggregate  payments of less than, or
the provision of goods or services with a market value of less than, $20,000 per
annum;

                           (q)      knowingly take any action that would prevent
or impede the Merger from  qualifying  (i) for  pooling-of-interests  accounting
treatment or (ii) as a  reorganization  within the meaning of Section 368 of the
IRC;

                           (r)      take any action that is intended or expected
to  result  in any of its  representations  and  warranties  set  forth  in this
Agreement  becoming untrue at any time prior to the Effective Date, or in any of
the conditions to the Merger set forth in Article 6 not being satisfied, or in a
violation of any provision of this Agreement,  except,  in every case, as may be
required by applicable law; or

                           (s)      other  than  in  the   ordinary   course  of
business consistent with past practice, (i) sell, transfer,  mortgage,  encumber
or otherwise dispose of any of its material properties,  leases or assets to any
individual,  corporation  or other entity or (ii) cancel,  release or assign any
material indebtedness of any such individual, corporation or other entity;

                                      A-28
<PAGE>

                           (t)      make,  renew,  increase,  extend or purchase
any material  loans other than in conformance  with a written  lending policy in
effect as of the date of this  Agreement,  or in the ordinary course of business
consistent with past practices;

                           (u)      agree  or make  any  commitment  to take any
action that is prohibited by this Section 4.4.

         4.5      Dividends.  Neither Party shall make,  declare or pay any cash
or stock dividend from the date of this Agreement through the Effective Date.

         4.6      No Solicitation. Without the prior consent of the President of
the other  Party,  unless and until this  Agreement  shall have been  terminated
pursuant to its terms, the Rockingham Companies and Marathon Companies,  nor any
of their  respective  officers,  directors,  representatives  or  agents  shall,
directly  or  indirectly,  (i)  encourage,  solicit or initiate  discussions  or
negotiations  with any person other than the other Party  concerning any merger,
share  exchange,  sale of substantial  assets,  tender offer,  sale of shares of
capital stock or similar transaction involving either of the Parties, (ii) enter
into any agreement  with any third party  providing  for a business  combination
transaction,  equity  investment  or  sale of a  significant  amount  of  assets
involving  either of the Parties,  or (iii) furnish any information to any other
person relating to or in support of such transaction;  provided,  however,  that
nothing  contained in this Section 4.6 shall  prohibit the Board of Directors of
either Party from (i) furnishing information to, or entering into discussions or
negotiations with any person or entity that makes an unsolicited  written,  bona
fide proposal to acquire such Party pursuant to a merger,  consolidation,  share
exchange,  business  combination,  tender  or  exchange  offer or other  similar
transaction,  if,  and only to the  extent  that,  (A) such  Board of  Directors
receives a written  opinion  from its  independent  financial  advisor that such
proposal  may be superior to the Merger  from a financial  point-of-view  to the
Party's  shareholders,   (B)  the  Board  of  Directors  of  such  Party,  after
consultation  with its legal  counsel,  determines  in its good  faith  business
judgment that such action is necessary for the Board of Directors to comply with
its duties to  shareholders  under  applicable law (such proposal that satisfies
(A) and (B) being referred to herein as a "Superior  Proposal") and (C) prior to
furnishing  such  information  to, or entering into  discussions or negotiations
with, such person or entity,  such Party (1) provides  reasonable  notice to the
other Party to the effect that it is furnishing information to, or entering into
discussions or negotiations with, the party making the unsolicited proposal, and
(2) receives from such person or entity an executed confidentiality agreement in
reasonably  customary form, (ii) complying with Rule l4e-2 promulgated under the
Exchange Act with regard to a tender or exchange offer, or (iii) failing to make
or  withdrawing  or  modifying  its  recommendation  to  approve  the Merger and
entering  into  the  Superior  Proposal  if  such  Board  of  Directors,   after
consultation with and based upon the advice of legal counsel,  determines in its
good faith  business  judgment  that such action is  necessary  for the Board of
Directors to comply with its duties to shareholders under applicable law.

         4.7      Regulatory  Filings.  MFC shall  (i)  prepare  all  regulatory
filings  required to consummate the  transactions  contemplated by the Agreement
and the Plan of Merger and submit the  filings  for  approval  with the  Federal
Reserve Board and the SCC, and any other governing regulatory authority, as soon
as  practicable  after  the date  hereof,  and (ii)  provide  copies  of same

                                      A-29
<PAGE>

to Rockingham contemporaneously with the Submission to the respective regulatory
authority MFC shall use its best efforts to obtain approvals of such filings.

         4.8      Public  Announcements.  Each Party will consult with the other
before issuing any press release or otherwise making any public  statements with
respect to the  Merger  and shall not issue any such  press  release or make any
such public statement prior to such  consultations  except as may be required by
law.

         4.9      Notice of Breach.  MFC and Rockingham will give written notice
to the other Party  promptly upon becoming  aware of the impending or threatened
occurrence  of any event which would cause or  constitute a breach of any of the
representations,  warranties  or  covenants  made  to the  other  party  in this
Agreement and will use its best efforts to prevent or promptly remedy the same.

         4.10     Accounting  Treatment.  The Marathon  Companies and Rockingham
shall  each use their  best  efforts to ensure  that the  Merger  qualifies  for
pooling-of-interests accounting treatment.

         4.11     Merger  Consummation.  Subject to the terms and  conditions of
this Agreement,  the Rockingham  Companies and the Marathon  Companies shall use
their best efforts in good faith to take, or cause to be taken, all actions, and
to do or  cause  to be done  all  things  necessary,  proper  or  desirable,  or
advisable  under  applicable  laws, as promptly as  practicable  so as to permit
consummation  of the  Merger at the  earliest  possible  date,  consistent  with
Section 1.3 herein,  and to otherwise  enable  consummation of the  transactions
contemplated  hereby and shall  cooperate fully with the other Parties hereto to
that end,  and each of  Rockingham  and MFC shall use,  and shall  cause each of
their  respective  subsidiaries  to use, its best efforts to obtain all consents
(governmental  or other)  necessary or  desirable  for the  consummation  of the
transactions contemplated by this Agreement.

         4.12     Notification of Certain  Matters.  The Marathon  Companies and
Rockingham  Companies  shall give  prompt  notice to the other Party of: (i) any
event or notice of, or other communication relating to, a default or event that,
with notice or lapse of time or both,  would become a default,  received by such
party  subsequent to the date of this Agreement and prior to the Effective Date,
under any contract material to the financial condition,  properties,  businesses
or results of operations of the Marathon Companies or Rockingham Companies;  and
(ii) any event,  condition,  change or occurrence  which  individually or in the
aggregate has, or which, so far as reasonably can be foreseen at the time of its
occurrence, is reasonably likely to result in a material adverse effect or which
would have been  required to be disclosed in such  party's  Disclosure  had such
event,  condition,  change  or  occurrence  been  known at the time  such  party
delivered its Disclosure; provided, however, that no notice provided pursuant to
this  Section  4.12 shall  affect or be deemed to modify any  representation  or
warranty  made  herein.  Each  of the  Rockingham  Companies  and  the  Marathon
Companies  shall give  prompt  notice to the other  party of any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with any of the transactions contemplated by
this Agreement.

                                      A-30
<PAGE>

                                    ARTICLE 5

                              Additional Agreements

         5.1      Registration  of  Shares.  MFC shall  take  such  steps as are
reasonably  necessary to provide that shares of MFC Common Stock to be issued to
shareholders of Rockingham  pursuant to this Agreement  (including shares issued
upon the exercise of outstanding  options for  Rockingham  Common Stock) will be
registered under the Securities Act of 1933, as amended.

         5.2      Benefit Plans. As soon as  administratively  practicable after
the  Effective  Date,  the Parties  shall use their best  efforts to combine all
existing employee pension,  benefit,  health and similar plans on the same terms
and  conditions,   without  waiting  periods  or  exceptions  for   pre-existing
conditions,  giving effect to years of service with the respective Parties,  and
as otherwise required by law.

         5.3      Indemnification. MFC agrees that following the Effective Date,
it  shall   indemnify   and  hold   harmless   any  person  who  has  rights  to
indemnification  from Rockingham,  to the same extent and on the same conditions
as such  person is  entitled to  indemnification  pursuant  to Virginia  law and
Rockingham's  Articles of Incorporation  or Bylaws,  as in effect on the date of
this  Agreement,  to the extent  legally  permitted  to do so,  with  respect to
matters occurring on or prior to the Effective Date. MFC further agrees that any
such person who has rights to  indemnification  pursuant to this  Section 5.3 is
expressly  made a third party  beneficiary of this Section 5.3 and may directly,
in such  person's  personal  or  representative  capacity,  enforce  such rights
through  an action at law or in equity or through  any other  manner or means of
redress allowable under Virginia law to the same extent as if such person were a
party hereto.  Without  limiting the foregoing,  in any case in which  corporate
approval may be required to effectuate any indemnification, MFC shall direct, at
the  election  of  the  party  to be  indemnified,  that  the  determination  of
permissibility of indemnification  shall be made by independent counsel mutually
agreed  upon  between  MFC  and  the  indemnified   party.  MFC  shall  maintain
Rockingham's  existing  directors' and officers'  liability policy or some other
policy providing coverage (i) in amounts and upon terms no less favorable to the
persons  currently  covered by  Rockingham's  existing policy and (ii) such that
there will be continuous and  uninterrupted  insurance for potential or existing
claims,  whether made or not made,  upon terms no less  favorable to the persons
currently  covered by Rockingham's  existing policy.  In the event MFC or any of
its successors or assigns (i) consolidates  with or merges into any other person
or entity and shall not be the continuing or surviving  corporation or entity of
such  consolidation or merger, or (ii) transfers or conveys all or substantially
all of its properties and assets to any person or entity, then, and in each such
case,  to the  extent  necessary,  proper  provision  shall  be made so that the
successors and assigns of MFC assume the  obligations  set forth in this Section
5.3.

                                    ARTICLE 6

                            Conditions to the Merger

         6.1      Conditions to Each Party's  Obligations  to Effect the Merger.
The respective  obligations of each of the Marathon Companies and the Rockingham
Companies to effect the


                                      A-31
<PAGE>

Merger  and the  other  transactions  contemplated  by this  Agreement  shall be
subject to the  fulfillment  or waiver at or prior to the Effective  Date of the
following conditions:

                  (a)      Shareholder  Approvals.  Shareholders  of  Rockingham
shall have  approved  all  matters  relating  to this  Agreement  and the Merger
required to be approved by such  shareholders  in accordance  with Virginia law,
and  shareholders  of MFC shall have  approved the Stock  Approval in accordance
with Virginia law.

                  (b)      Regulatory Approvals.  This Agreement and the Plan of
Merger shall have been approved by all regulatory  authorities whose approval is
required for  consummation of the  transactions  contemplated  hereby,  and such
approvals  shall not have imposed any  condition or  requirement  which would so
materially   adversely   impact  the  economic  or  business   benefits  of  the
transactions  contemplated  by  this  Agreement  as to  render  inadvisable  the
consummation  of the Merger in the reasonable  opinion of the Board of Directors
of MFC or Rockingham.

                  (c)      Registration  Statement.  The Registration  Statement
shall have been  declared  effective and shall not be subject to a stop order or
any threatened stop order.

                  (d)      Opinions of Counsel.  Rockingham shall have delivered
to MFC and MFC shall have delivered to Rockingham opinions of counsel,  dated as
of the Effective  Date, as to such matters as they may each  reasonably  request
with respect to the  transactions  contemplated  by this Agreement and in a form
reasonably acceptable to each of them.

                  (e)      Legal Proceedings. Neither the Marathon Companies nor
the Rockingham  Companies shall be subject to any order, decree or injunction of
a court or agency of  competent  jurisdiction  which  enjoins or  prohibits  the
consummation  of the Merger,  and there shall not be pending or  instituted  any
material   proceeding,   for  the  purpose  of  enjoining  or  prohibiting   the
consummation of the Merger or any  transactions  contemplated by this Agreement.
No statute, rule or regulation shall have been enacted, entered,  promulgated or
enforced by any governmental entity which prohibits,  restricts or makes illegal
consummation of the Merger.

                  (f)      Accountants'  Letter.  MFC and Rockingham  shall have
received  letters,  dated as of the  Effective  Date,  from both  Yount,  Hyde &
Barbour, P.C. and McGladrey & Pullen, L.L.C., satisfactory in form and substance
to  both  Parties,  that  the  Merger  will  qualify  for   pooling-of-interests
accounting treatment under generally accepted accounting principles.

                  (g)      Employment Agreements. The Board of Directors of each
MFC  and  Rockingham  will  have  approved   substantially   similar  employment
agreements for Unger and Stephens, respectively.

                  (h)      Registration   Statement;    Blue   Sky   Laws.   The
Registration  Statement  shall have been  declared  effective  by the SEC and no
proceedings   shall  be  pending  or  threatened  by  the  SEC  to  suspend  the
effectiveness  of the  Registration  Statement,  and MFC shall have

                                      A-32
<PAGE>

received all required  approvals by state  securities or "blue sky"  authorities
with respect to the transactions contemplated by this Agreement.

                  (i)      Third Party Consents. The Parties shall have obtained
the  consent or approval of each  person  (other than the  regulatory  approvals
referred  to in  Sections  4.7 and 6.1(b))  whose  consent or approval  shall be
required under any loan or credit agreement, note, mortgage,  indenture,  lease,
license,  guarantee,  indemnification  or other agreement or instrument to which
the Rockingham  Companies are a party or are otherwise  bound,  except those for
which failure to obtain such consents and approvals  would not,  individually or
in the aggregate,  have a material  adverse effect upon the  consummation of the
transactions contemplated by this Agreement.

                  (j)      Articles of  Amendment.  The Articles of Amendment in
the form  attached  hereto  shall  have been  filed  with the State  Corporation
Commission,  reflecting  an  effective  date  prior  to the  date of the  Merger
Closing.

         6.2      Conditions to  Obligations  of MFC. The  obligations of MFC to
effect the Merger shall be subject to the  fulfillment  or waiver at or prior to
the Effective Date of the following additional conditions:

                  (a)      Representations   and   Warranties.   Each   of   the
representations and warranties  contained herein of Rockingham shall be true and
correct as of the date of this  Agreement and upon the  Effective  Date with the
same effect as though all such  representations  and warranties had been made on
the Effective Date, except (i) for any such  representations and warranties made
as of a specified date, which shall be true and correct as of such date, (ii) as
expressly  contemplated  by this  Agreement,  or (iii) for  representations  and
warranties the inaccuracies of which relate to matters that,  individually or in
the  aggregate,  do not  materially  adversely  affect  the Merger and the other
transactions  contemplated  by this  Agreement  and MFC shall  have  received  a
certificate  or  certificates  signed by the Chief  Executive  Officer and Chief
Financial Officer of Rockingham dated the Effective Date, to such effect.

                  (b)      Performance  of  Obligations.  Rockingham  shall have
performed in all material  respects all obligations  required to be performed by
it under this Agreement prior to the Effective Date, and MFC shall have received
a  certificate  signed by the Chief  Executive  Officer  of  Rockingham  to that
effect.

                  (c)      Affiliate Letters. Each shareholder of Rockingham who
may be deemed by counsel for MFC to be an "affiliate"  of Rockingham  within the
meaning of Rule 145 under the  Securities  Act of 1933 shall have  executed  and
delivered a commitment and  undertaking to the effect that (1) such  shareholder
will  dispose of the shares of MFC Common  Stock  received by him in  connection
with the Merger only in accordance  with the provisions of paragraph (d) of Rule
145 and in a manner  that would not  prevent  the  Merger  from  qualifying  for
pooling-of-interests  accounting  treatment;  (2)  such  shareholders  will  not
dispose  of any such  shares  until  MFC has  received  an  opinion  of  counsel
acceptable to it that such proposed  disposition will not violate the provisions
of any applicable  securities laws; and (3) the certificates  representing  said
shares may bear a conspicuous legend referring to the forgoing restrictions.

                                      A-33
<PAGE>

                  (d)      Investment  Banking Letter. MFC shall have received a
written  opinion  in form and  substance  satisfactory  to MFC from  McKinnon  &
Company,  Inc.  addressed to MFC and dated the date the Joint Proxy Statement is
mailed to  shareholders  of MFC,  to the  effect  that the terms of the  Merger,
including the Exchange Ratio,  are fair, from a financial point of view, to NEC.
At its option,  MFC may require that such fairness  opinion be updated as of the
Effective  Date  and,  in such  event,  it shall  also be a  condition  to MFC's
obligation to consummate the Merger that MFC receive such updated opinion.

                  (e)      Good Standing and Other Certificates.  MFC shall have
received  certificates  (such  certificates  to be dated as of a day as close as
practicable to the Merger Closing Date) from  appropriate  authorities as to the
corporate  existence of the  Rockingham  Companies and such other  documents and
certificates to evidence fulfillment of the conditions set forth in Sections 6.1
and 6.2 as MFC may reasonably require.

         6.3      Conditions to Obligations of  Rockingham.  The  obligations of
Rockingham to effect the Merger shall be subject to the fulfillment or waiver at
or prior to the Effective Date of the following additional conditions:

                  (a)      Representations   and   Warranties.   Each   of   the
representations and warranties  contained herein of the Marathon Companies shall
be true and correct as of the date of this Agreement and upon the Effective Date
with the same effect as though all such  representations and warranties had been
made  on the  Effective  date,  except  (i)  for any  such  representations  and
warranties  made as of a specified  date,  which shall be true and correct as of
such  date,  (ii) as  expressly  contemplated  by this  Agreement,  or (iii) for
representations and warranties the inaccuracies of which relate to matters that,
individually or in the aggregate,  do not materially adversely affect the Merger
and the other  transactions  contemplated by this Agreement and Rockingham shall
have  received  a  certificate  or  certificates  signed by the Chief  Executive
Officer and Chief Financial Officer of each of the Marathon  Companies dated the
Effective Date, to such effect.

                  (b)      Performance of  Obligations.  The Marathon  Companies
shall have  performed in all material  respects all  obligations  required to be
performed by it under this Agreement prior to the Effective Date, and Rockingham
shall have received a certificate  signed by the Chief Executive Officer of each
of the Marathon Companies to that effect.

                  (c)      Investment  Banking  Letter.  Rockingham  shall  have
received a written opinion in form and substance satisfactory to Rockingham from
Scott & Stringfellow,  P.C. addressed to Rockingham and dated the date the Joint
Proxy Statement is mailed to shareholders of Rockingham,  to the effect that the
terms of the Merger,  including the Exchange  Ratio,  are fair, from a financial
point of view, to  Rockingham.  At its option,  Rockingham may require that such
fairness  opinion be updated as of the  Effective  Date and, in such  event,  it
shall also be a condition to  Rockingham's  obligation to consummate  the Merger
that Rockingham receive such updated opinion.

                                      A-34
<PAGE>

                  (d)      Tax  Opinion.   Rockingham  shall  have  received  an
opinion  of Kaufman &  Canoles,  or other  counsel  reasonably  satisfactory  to
Rockingham,  to the effect  that the Merger  will  constitute  a  reorganization
within the meaning of Section 368 of the  Internal  Revenue Code and that (i) no
gain or loss will be recognized by the  shareholders of Rockingham to the extent
they receive MFC Common Stock  solely in exchange  for their  Rockingham  Common
Stock in the Merger,  (ii) the holding  period of the shares of MFC Common Stock
received  pursuant to the Merger by Rockingham's  shareholders  will include the
holding  period of the shares of  Rockingham  Common Stock  exchanged  therefor,
provided  that the  Rockingham  Common Stock was held as a capital  asset at the
effective time of the Merger.

                  (e)      Good  Standing  and  Other  Certificates.  Rockingham
shall have received  certificates  (such certificates to be dated as of a day as
close as practicable to the Merger Closing Date) from appropriate authorities as
to the corporate  existence of the Marathon  Companies and such other  documents
and certificates to evidence fulfillment of the conditions set forth in Sections
6.1 and 6.2 as Rockingham may reasonably require.

                                    ARTICLE 7

                                   Termination

         7.1      Termination.  Notwithstanding  any  other  provision  of  this
Agreement,  and  notwithstanding  the approval of this Agreement and the Plan of
Merger  by the  shareholders  of  MFC  and  Rockingham,  this  Agreement  may be
terminated and the Merger abandoned at any time prior to the Effective Date:

                  (a)      By the mutual  consent of the Board of  Directors  of
each of MFC and Rockingham in a written instrument;

                  (b)      By  the  respective  Boards  of  Directors  of MFC or
Rockingham  if the  conditions  set forth in Section  6.1 have not been met,  or
waived by both  Parties,  by October 30, 2000,  provided  that the party seeking
termination is not then in material breach of any of its obligations, covenants,
representations, warranties or other agreement contained in this Agreement.

                  (c)      By the Board of  Directors  of MFC if the  conditions
set forth in  Section  6.2 have not been met by  Rockingham  or waived by MFC by
October 30, 2000,  provided that the Marathon Companies are not then in material
breach of any of their  obligations,  covenants,  representations,  warranty  or
other agreement contained in this Agreement;

                  (d)      By  the  Board  of  Directors  of  Rockingham  if the
conditions set forth in Section 6.3 have not been met by the Marathon  Companies
or waived by  Rockingham  by October  30,  2000,  provided  that the  Rockingham
Companies  are  not  then  in  material  breach  of  any of  their  obligations,
covenants,  representations,  warranty  or  other  agreement  contained  in this
Agreement;

                  (e)      By  either  MFC  or  Rockingham,   if  its  Board  of
Directors  so  determines,  by vote of a majority  of the  members of its entire
Board,  in the event that the Merger is not

                                      A-35
<PAGE>

consummated  by February 1, 2001,  unless the failure to so  consummate  by such
time is due to the breach of any representation,  warranty or covenant contained
in this Agreement by the party seeking to terminate;

                  (f)      By the Board of Directors of  Rockingham  if,  before
the  Effective  Date,  MFC shall  enter into any  agreement  or letter of intent
providing for the direct or indirect  acquisition  of  substantially  all of the
assets and liabilities or voting stock of any of the Marathon Companies.

                  (g)      By the Board of  Directors  of MFC,  if,  before  the
Effective  Date,  Rockingham  shall enter into any agreement or letter of intent
providing for the direct or indirect  acquisition  of  substantially  all of the
assets and liabilities or voting stock of any of the Rockingham Companies.

                  (h)(i)   By a vote of a majority of the Board of  Directors of
MFC at any time during the 45 day period following the date of this Agreement if
MFC determines in its sole good faith business  judgment that, in the aggregate,
the  financial  condition,  business,  prospects  or  regulatory  status  of the
Rockingham  Companies  are  materially  and  adversely  different  from what was
reasonably expected by MFC, based on the Rockingham  Financial  Statements,  the
Disclosure, and other information disclosed by Rockingham prior to the execution
of this  Agreement;  provided  that MFC shall  inform  Rockingham  upon any such
termination  as to the reasons for MFC's  determination,  and provided  further,
that  this  Section  7.1(h)(i)  shall  not  limit  in any way the due  diligence
investigation of Rockingham which MFC may perform, or otherwise affect any other
rights which MFC has after the date hereof and after the  expiration  of such 45
day period following the date hereof, under the terms of this Agreement;

                           (ii)     By a vote  of a  majority  of the  Board  of
Directors of Rockingham at any time during the 45 day period  following the date
of this  Agreement,  if Rockingham  determines  in its sole good faith  business
judgment that, in the aggregate, the financial condition, business, prospects or
regulatory  status of the Marathon  Companies,  Shenandoah and PTV is materially
adversely  different from what was reasonably  expected by Rockingham,  based on
the MFC Financial Statements, the Disclosure, and other information disclosed by
the Marathon  Companies prior to the execution of this Agreement;  provided that
Rockingham  shall  inform MFC upon any such  termination  as to the  reasons for
Rockingham's determination;  and, provided further, that this Section 7.1(h)(ii)
shall  not  limit in any way the due  diligence  investigation  of the  Marathon
Companies  which  Rockingham may perform,  or otherwise  affect any other rights
which  Rockingham  has after the date hereof and after the expiration of such 45
day period following the date hereof, under the terms of this Agreement;

                  (i)      By  the  respective  Boards  of  Directors  of MFC or
Rockingham, if a Party has received an unsolicited Superior Proposal, as defined
in  Section  4.6,  and the  Board of such  Party  determines  in its good  faith
business judgment that the Superior Proposal must be accepted in order to comply
with the Board of Directors' duties to shareholders under applicable law.

         7.2      Effect of  Termination.  In the event of the  termination  and
abandonment  of this  agreement  and the Merger  pursuant to Section  7.1,  this
Agreement shall become void and have

                                      A-36
<PAGE>

no effect,  except that all of Sections  4.2, 4.8 and 7.4 shall survive any such
termination  and abandonment and no party shall be relieved or released from any
liability  arising  out of an  intentional  breach  of  any  provision  of  this
Agreement.

         7.3      Non-Survival  of  Representations,  Warranties  and Covenants.
Except for Sections 1.2, 1.4, 2.1, 2.2, 2.3, 2.4, 2.5, 4.2, 4.8, 4.10, 5.1, 5.2,
5.3, 7.4 and Article 8 of this Agreement, none of the respective representations
and  warranties,  obligations,  covenants  and  agreements  of the parties shall
survive the Effective Date, provided that no such  representations,  warranties,
obligations,  covenants  and  agreements  shall be  deemed to be  terminated  or
extinguished  so as to deprive MFC or Rockingham (or any director,  officer,  or
controlling person thereof of any defense in law or equity which otherwise would
be available against the claims of any person,  including without limitation any
shareholder or former shareholder of either MFC or Rockingham.

         7.4      Expenses.  The Parties  provide for the payment of expenses as
follows:

                  (a)      Except as provided  below,  each of the Parties shall
bear  and  pay  all  costs  and  expenses  incurred  by it or on its  behalf  in
connection  with  the  transactions  contemplated  herein,  including  fees  and
expenses of its own consultants, investment bankers, accountants and counsel.

                  (b)      Notwithstanding  the  provisions  of  Section  7.4(a)
hereof,  if for any reason the Merger is not  approved  by the  shareholders  of
Rockingham or the Stock Approval is not approved by the shareholders of MFC, the
non-approving party shall bear and pay 50% of the costs and expenses incurred by
the other Party with respect to the fees and expenses of  accountants,  counsel,
printers  and  persons  involved  in  the  transactions   contemplated  by  this
Agreement, including the preparation of the Registration Statement and the Joint
Proxy Statement.

                  (c)      If this  Agreement is terminated by MFC or Rockingham
because of a willful  and  material  breach by the other of any  representation,
warranty,  covenant,  undertaking or restriction set forth herein,  and provided
that the  terminating  Party  shall  not have been in  breach  (in any  material
respect)  of  any   representation  and  warranty,   covenant,   undertaking  or
restriction  contained  herein,  then the breaching Party shall bear and pay all
such costs and  expenses  of the other  Party,  including  fees and  expenses of
consultants,  investment bankers,  accountants,  counsel,  printers, and persons
involved in the  transactions  contemplated  by this  Agreement,  including  the
preparation of the Registration Statement and the Joint Proxy Statement.

                  (d)      Any liability to the other  incurred by Rockingham or
MFC  pursuant  to  Section  7.4(b) and (c),  above,  shall not exceed a total of
$50,000.

                  (e)      If this  Agreement is terminated by MFC or Rockingham
(i) under Section 7.1(i) due to Rockingham's pursuit of a Superior Proposal,  or
(ii) any  Specified  Event  (as  defined  below)  occurs  after the date of this
Agreement,  then  Rockingham  shall pay MFC the amount of $400,000 to compensate
MFC for all of its out-of-pocket and internal costs and

                                      A-37
<PAGE>

expenses  associated  with this  transaction.  The term  "Specified  Event"  for
purposes of this subsection shall mean the following:

                           (1)      Rockingham,  without  having  received MFC's
prior  written  consent,  shall have entered  into an agreement  with any person
other than MFC to (i) acquire,  merge or consolidate,  or enter into any similar
transaction,  with Rockingham, (ii) purchase, lease, or otherwise acquire all or
substantially  all of the assets of  Rockingham,  or (iii) purchase or otherwise
acquire  directly from  Rockingham  securities  representing  10% or more of the
voting power of Rockingham; or

                           (2)      After the date of this Agreement, any person
shall have made a bona fide  proposal to Rockingham  by public  announcement  or
written  communication  that is or becomes the subject of public  disclosure  to
acquire Rockingham by merger, share exchange, consolidation,  purchase of all or
substantially all of its assets or any other similar transaction, and within six
(6) months after the  termination of this Agreement,  Rockingham  enters into an
agreement to be acquired by such person.

                  (f)      If this  Agreement is terminated by Rockingham or MFC
(i) for any  reason  under  Section  7.1(i)  due to MFC's  pursuit of a Superior
Proposal,  or (ii) any Specified  Event (as defined below) occurs after the date
of this  Agreement,  then MFC shall pay  Rockingham  the amount of  $400,000  to
compensate  Rockingham  for all of its  out-of-pocket  and  internal  costs  and
expenses  associated  with this  transaction.  The term  "Specified  Event"  for
purposes of this subsection shall mean the following:

                           (1)      MFC,  without having  received  Rockingham's
prior  written  consent,  shall have entered  into an agreement  with any person
other than Rockingham to (i) acquire,  merge or  consolidate,  or enter into any
similar transaction, with MFC, (ii) purchase, lease, or otherwise acquire all or
substantially  all of the assets of MFC, or (iii) purchase or otherwise  acquire
directly  from MFC  securities  representing  10% or more of the voting power of
MFC; or

                           (2)      After the date of this Agreement, any person
shall have made a bona fide  proposal to MFC by public  announcement  or written
communication that is or becomes the subject of public disclosure to acquire MFC
by merger, share exchange,  consolidation,  purchase of all or substantially all
of its assets or any other similar transaction,  and within six (6) months after
the termination of this  Agreement,  MFC enters into an agreement to be acquired
by such person.

                  (g)      Final  settlement with respect to the payment of such
fees and expenses by the Parties shall be made within thirty (30) days after the
termination of this Agreement,  except in the case of subsections  7.4(e)(2) and
7.4(f)(2) for which  settlement  must be made within thirty (30) days after such
party enters into an agreement as described therein.

                                      A-38
<PAGE>

                                    ARTICLE 8

                               General Provisions

         8.1      Entire Agreement. This Agreement contains the entire agreement
among the Marathon  Companies and Rockingham  with respect to the Merger and the
related  transactions  and supersedes all prior  arrangements or  understandings
with respect thereto.

         8.2      Waiver and Amendment.  Any term or provision of this Agreement
may be  waived  in  writing  at any  time  by  the  party  which  is,  or  whose
shareholders are,  entitled to the benefits  thereof,  and this Agreement may be
amended or  supplemented  by written  instructions  duly executed by the parties
hereto at any time,  whether  before or after the meetings of Rockingham and MFC
shareholders referred to in Section 6.1(a) hereof, except statutory requirements
and requisite approvals of shareholders and regulatory authorities.

         8.3      Descriptive Headings. Descriptive headings are for convenience
only and shall not  control  or  affect  the  meaning  and  construction  of any
provisions of this Agreement.

         8.4      Governing  Law.  Except as  required  otherwise  or  otherwise
indicated  herein,  this Agreement shall be construed and enforced  according to
the laws of the Commonwealth of Virginia.

         8.5      Notices.   All  notices  or  other  communications  which  are
required or permitted  hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail,  postage prepaid,  addressed
as follows:

         If to MFC:

                  Donald Unger, President
                  MFC Financial Corporation
                  4095 Valley Pike
                  Winchester, Virginia 22602
                  (Tel. (540) 869-6600)

         Copy to:

                  Wayne A. Whitham, Jr.
                  Williams, Mullen, Clark & Dobbins, P.C.
                  1021 E. Cary Street
                  P. O. Box 1320
                  Richmond, VA  23218-1320
                  (Tel. (804) 783-6473)

                                      A-39
<PAGE>

         If to Rockingham

                  John K. Stephens, President
                  Rockingham Heritage Bank
                  110 University Boulevard
                  Harrisonburg, Virginia 22801

         Copy to

                  Stephen T. Heitz, Esq.
                  Litten & Sipe, L.L.P.
                  410 Neff Avenue
                  Harrisonburg, VA 22801
                  (Tel. (540) 434-5353)

                  Stephan W. Milo, Esq.
                  Wharton, Aldhizer & Weaver, PLC
                  100 South Mason Street
                  Harrisonburg, VA 22801-7528

         8.6      Counterparts.  This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts together
shall constitute one and the same agreement.

         8.7      Severability.  In the event any  provisions of this  Agreement
shall be held invalid or unenforceable  by any court of competent  jurisdiction,
such holding shall not invalidate or render  unenforceable  any other provisions
hereof.  Any provision of this Agreement held invalid or  unenforceable  only in
part or degree  shall  remain in full  force and  effect to the  extent not held
invalid or unenforceable.  Further,  the parties agree that a court of competent
jurisdiction  may  reform  any  provision  of this  Agreement  held  invalid  or
unenforceable so as to reflect the intended agreement of the parties hereto.

         8.8      Brokers and Finders. Except for McKinnon & Company and Scott &
Stringfellow,  P.C., each of the Parties represents and warrants that neither it
nor any of its officers, directors,  employees,  affiliates, or subsidiaries has
employed  any  broker or finder or  incurred  any  liability  for any  financial
advisory  fees,  investment  banker's  fees,  brokerage  fees,  commissions,  or
finders' fees in connection with this Agreement or the transactions contemplated
hereby.  In the event of any claim by any broker or finder based upon his or its
representing or being retained by or allegedly representing or being retained by
either MFC or Rockingham,  the Marathon Companies or Rockingham, as the case may
be, agrees to indemnify  and hold the other party  harmless of and from any such
claim.

         8.9      Subsidiaries.  To the extent any representations,  warranties,
and covenants in this Agreement are made relative to a Party's subsidiary,  such
subsidiary shall be deemed to have made such  representations,  warranties,  and
covenants together with such Party.

                                      A-40
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts  by their duly authorized  officers and their corporate
seals to be affixed hereto, all as of the date first written above.

                            MFC FINANCIAL CORPORATION

                            By:      /s/ Donald Unger
                               -----------------------------------------
                                 Donald Unger
                                 President and Chief Executive Officer

                            MARATHON MERGER BANK



                            By:      /s/ Donald Unger
                               -----------------------------------------
                                 Donald Unger
                                 President and Chief Executive Officer

                            MARATHON BANK



                            By:      /s/ Donald Unger
                               -----------------------------------------
                                 Donald Unger
                                 President and Chief Executive Officer

                            ROCKINGHAM HERITAGE BANK

                            By:      /s/ John K. Stephens
                               ------------------------------------------
                                 John K. Stephens
                                 President and Chief Executive Officer


                                      A-41
<PAGE>


                                                                       EXHIBIT A
                                                            to the Agreement and
                                                                  Plan of Merger

                                 PLAN OF MERGER

                                     BETWEEN

                            ROCKINGHAM HERITAGE BANK,

                                       AND

                              MARATHON MERGER BANK

         Pursuant to this Plan of Merger  ("Plan of  Merger"),  Marathon  Merger
Bank ("Merger  Subsidiary")  a  wholly-owned  subsidiary  of Marathon  Financial
Corporation,  a  Virginia  corporation  ("MFC"),  shall be merged  with and into
Rockingham Heritage Bank, a Virginia banking corporation ("Rockingham") pursuant
to a merger under Section  13.1-716,  et seq. of the Virginia Stock  Corporation
Act (the "Merger").

                                    ARTICLE 1

                               Terms of the Merger

         1.1      The Merger. Subject to the terms and conditions of the Amended
and Restated  Agreement and Plan of Merger  ("Agreement'),  dated as of June 21,
2000 between  Rockingham,  MFC Merger  Subsidiary  and Marathon Bank, the Merger
Subsidiary shall be merged with and into Rockingham,  as follows:  at 11:59 p.m.
on the  Effective  Date (the  "Effective  Time"),  (i) each of the shares of the
capital stock of the Merger Subsidiary issued and outstanding  immediately prior
to the Effective Time shall cease to be outstanding  and shall be converted into
and become one share of common stock of Rockingham,  and (ii) each of the shares
of capital stock of Rockingham  issued and outstanding  immediately prior to the
Effective Time, excluding shares held by MFC (other than in a fiduciary capacity
or as a result of debts  previously  contracted),  shall cease to be outstanding
and shall be converted  into and become shares of common stock of MFC based upon
the Exchange Ratio (defined below). The separate  corporate  existence of Merger
Subsidiary  shall  thereupon  cease,  and from and after the Effective Date, the
Merger shall have the effect set forth in Section 13.1-721 of the Virginia Stock
Corporation Act. Rockingham will be the surviving  corporation in the Merger and
its  name  and  corporate  existence,  with  all  of  its  rights,   privileges,
immunities,  powers and franchises, shall continue in accordance with applicable
law.

         1.2      Articles  of  Incorporation   and  Bylaws.   The  Articles  of
Incorporation  and  Bylaws  of  Rockingham  in effect  immediately  prior to the
consummation  of the Merger shall remain in effect  subsequent  to the Effective
Date until otherwise amended or repealed.

                                      A-42
<PAGE>

                                    ARTICLE 2

                           Manner of Exchanging Shares

         2.1      Conversion  of  Shares.  Upon  and by  reason  of  the  Merger
becoming  effective and except as set forth in Section 2.3 below,  no cash shall
be allocated to the  shareholders  of  Rockingham  and stock shall be issued and
allocated  as  follows:  each  share  of  Rockingham  common  stock  issued  and
outstanding  immediately prior to the Effective Date shall, by operation of law,
cease to be outstanding and shall  automatically be converted into and exchanged
for 1.58 shares (the  "Exchange  Ratio") of MFC common  stock.  In the event MFC
changes the number of shares of MFC common stock issued and outstanding prior to
the  Effective  Date  as  a  result  of  any  stock  split,   stock   dividends,
recapitalization  or similar  transaction  with respect to the  outstanding  MFC
common stock, and the record date therefor shall be prior to the Effective Date,
the Exchange Ratio shall be  proportionately  adjusted.  The Merger shall become
effective on the date (the "Effective  Date") shown on the Certificate of Merger
issued  by the  SCC.  Unless  otherwise  agreed  upon in  writing  by the  chief
executive  officers  of MFC and  Rockingham,  subject to the  conditions  to the
obligations of the parties to effect the Merger as set forth in Article 6 of the
Agreement,  the Parties shall use their best efforts to cause the Effective Date
to occur on the first day of the first quarter  following the month in which the
conditions set forth in Article 6 are satisfied.

          2.2     Manner of Exchange

                  (a)      At and  after the  Effective  Date,  each  Rockingham
Certificate  previously  representing  shares of  Rockingham  common stock shall
represent only the right to receive the  consideration set forth in Sections 2.1
and 2.3 (hereinafter,  the "Merger  Consideration").  As promptly as practicable
after the Effective Date,  Merger  Subsidiary shall cause Registrar and Transfer
Corporation  acting as the exchange agent  ("Exchange  Agent"),  to send to each
shareholder  of record of Rockingham  immediately  prior to the Effective  Date,
transmittal  materials for use in exchanging such shareholder's  certificates of
properly endorsed Rockingham common stock (or an indemnity and such affidavit or
other  documentation  satisfactory  to MFC  and the  Exchange  Agent,  in  their
reasonable judgment,  if any of such certificates are lost, stolen or destroyed)
(together  "Rockingham   Certificates")  for  the  Merger  Consideration.   Each
shareholder,  upon the surrender of his Rockingham  Certificates to the Exchange
Agent,  duly  endorsed  for  transfer,  will be  entitled to receive in exchange
therefore  (i) the  Merger  Consideration,  and (ii) the  right to  receive  any
dividends  previously declared but unpaid as to such stock,  provided,  however,
that no interest will be paid on any such  fractional  share checks or dividends
to which the  holder of such  shares  shall be  entitled  to  receive  upon such
delivery.

                  (b)      After the Effective  Date there shall be no transfers
on the stock transfer  records of Rockingham of any shares of Rockingham  common
stock.  The Exchange  Agent shall not be entitled to vote or exercise any rights
of ownership with respect to the shares of MFC common stock held by it from time
to time hereunder,  except that it shall receive and hold all dividends or other
distributions paid or distributed with respect to such shares for the account of
the persons entitled thereto.

                                      A-43
<PAGE>

                  (c)      Any  portion  of the  aggregate  amount of cash to be
paid in lieu of fractional shares pursuant to Section 2.3 hereof,  and dividends
or other  distributions to be paid pursuant to Section 2.4 of the Agreement,  or
any interest or investment  proceeds from such sums that remain unclaimed by the
shareholders of Rockingham for six months after the Effective Date shall be paid
by the Exchange Agent to Merger  Subsidiary  upon the written  request of Merger
Subsidiary.  Thereafter, any shareholders of Rockingham who have not theretofore
complied with this Section 2 shall look only to Merger Subsidiary for the Merger
Consideration  deliverable  in respect of each share of Rockingham  common stock
such shareholder holds, without any interest thereon.

                  (d)      If any outstanding  Rockingham  Certificates  are not
surrendered  prior to the date on which such payments would otherwise escheat to
or become the property of any governmental  unit or agency,  the unclaimed items
shall,  to the extent  permitted  by any  abandoned  property,  escheat or other
applicable laws, become the property of Merger  Subsidiary  immediately prior to
such date (and, to the extent not in its possession,  shall be paid over to it),
free and clear of all claims or  interest of any person  previously  entitled to
such claims.  Notwithstanding the foregoing,  neither the Exchange Agent nor any
party to this  Agreement  (or any  subsidiary  thereof)  shall be  liable to any
former  holder of Rockingham  common stock for any amount  delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.

         2.3      No Fractional  Shares. No certificates or scrip for fractional
shares  of MFC  common  stock  will  be  issued.  In  lieu  thereof,  Rockingham
shareholders  shall be paid the value of such  fractional  shares in cash on the
basis of the fair market value of MFC common  stock  immediately  preceding  the
Effective Time. The market value of MFC common stock will be its average closing
sales  price as  reported  on the NASDAQ for each of the ten full  trading  days
ending on the fifth day prior to the Effective Date.

                                    ARTICLE 3

                                   Termination

         This  Plan  of  Merger  may be  terminated  at any  time  prior  to the
Effective Date by the parties hereto as provided in Article 7 of the Agreement.

                            MARATHON MERGER BANK



                            By:_____________________________________
                                 Donald Unger
                                 President and Chief Executive Officer

                                      A-44
<PAGE>

                            ROCKINGHAM HERITAGE BANK

                            By:_____________________________________
                                John K. Stephens
                                President and Chief Executive Officer


                                      A-45
<PAGE>


                                                                       EXHIBIT B
                                                            to the Agreement and
                                                                  Plan of Merger

                              AMENDED AND RESTATED

                          ARTICLES OF INCORPORATION OF

                       PREMIER COMMUNITY BANKSHARES, INC.

                                    ARTICLE I

         The name of the Corporation is:

                            PREMIER COMMUNITY BANKSHARES, INC,


                                   ARTICLE II

         (1)      Authorized Shares; No Preemptive Rights. The Corporation shall
have authority to issue  20,000,000  shares of Common Stock, par value $1.00 per
share, and 1,000,000 shares of Preferred Stock,  without par value. No holder of
shares of any class of the Corporation shall have any preemptive or preferential
right  to  purchase  or  subscribe  to  (i)  any  shares  of  any  class  of the
Corporation,  whether now or hereafter authorized;  (ii) any warrants, rights or
options to purchase  any such shares;  or (iii) any  securities  or  obligations
convertible into any such shares or into warrants, rights or options to purchase
any such shares.

         (2)      Preferred  Stock.  The Board of Directors  may  determine  the
preferences,  limitations and relative  rights,  to the extent  permitted by the
Virginia Stock Corporation Act, of any class of shares of Preferred Stock before
the  issuance  of any shares of such class,  or of one or more  series  within a
class of Preferred Stock before the issuance of any shares of such series.  Each
such  class or series  shall be  appropriately  designated  by a  distinguishing
designation prior to the issuance of any shares thereof.  The Preferred Stock of
all series shall have  preferences,  limitations and relative  rights  identical
with  those of other  shares  of the  same  series  and,  except  to the  extent
otherwise  provided in the  description  of the series,  with those of shares of
other series of the same class.

         Prior to the  issuance of any shares of a class or series of  Preferred
Stock,  (a) the  Board of  Directors  shall  establish  such  class or series by
adopting a resolution  and by filing with the State  Corporation  Commission  of
Virginia  articles of  amendment  setting  forth the  designation  and number of
shares of the class or series and the relative rights and  preferences  thereof,
and (b) the  State  Corporation  Commission  of  Virginia  shall  have  issued a
certificate of amendment.

         (3)      Common  Stock.  The  holders  of Common  Stock  shall,  to the
exclusion  of the holders of any other class of stock of the  Corporation,  have
the sole and full power to vote for the election of directors  and for all other
purposes  without  limitation  except  only  (a) as  otherwise  provided  in the
articles of amendment for a particular  class or series of Preferred  Stock, and
(b)


                                      A-46
<PAGE>

as  otherwise   expressly   provided  by  the  then  existing  statutes  of  the
Commonwealth  of  Virginia.  The holders of Common Stock shall have one vote for
each share of Common Stock held by them.

         Subject to the  provisions  of any articles of amendment for a class or
series of  Preferred  Stock,  the  holders of Common  Stock shall be entitled to
receive  dividends  if, when and as declared  by the Board of  Directors  out of
funds legally  available  therefor and to the net assets remaining after payment
of all liabilities upon voluntary or involuntary liquidation of the Corporation.

         (4)      Restrictions on Transfer of Common Stock.

                  (a)      For purposes of this  Article,  the  following  terms
shall have the meanings indicated:

                           (i)      "Affiliate"   shall  mean  any  person  that
directly,  or indirectly  through one or more  intermediaries,  controls,  or is
controlled by, or is under common control with the person specified.

                           (ii)     "Associate"  shall  mean as to any  specific
person

                                    (aa)     Any   corporation  or  organization
(other than the  Corporation  and its  Subsidiaries)  of which such person is an
officer or partner or is, directly or indirectly, the beneficial owner of 10% or
more of any class of equity securities;

                                    (bb)     any trust or other  estate in which
such  person has a  substantial  beneficial  interest or as to which such person
serves as trustee or in a similar fiduciary capacity; and

                                    (cc)     any  relative  or  spouse  of  such
person, or any relative of such spouse, who has the same home as such person,

                           (iii)    A person  shall be a  "beneficial  owner" of
any  securities as to which such person and any of such  person's  Affiliates or
Associates,  individually  or in the  aggregate,  have  or  share  directly,  or
indirectly through any contract,  arrangement,  understanding,  relationship, or
otherwise:

                                    (aa)     voting  power,  which  includes the
power to vote, or to direct the voting of such securities;

                                    (bb)     investment  power,  which  includes
the power to dispose of or to direct the disposition of such securities; or

                                    (cc)     the right to acquire  voting  power
or investment power (whether such right is exercisable immediately or only after
the passage of time) pursuant to any

                                      A-47
<PAGE>

agreement,  arrangement  or  understanding  or upon the  exercise of  conversion
rights, exchange rights, warrants or options, or otherwise;

provided, that

                                    (ww)     in no case shall a director  of the
Corporation be deemed the beneficial owner of any securities  beneficially owned
by another director of the Corporation,  solely by reason of actions  undertaken
by such persons in their capacity as directors of the Corporation;

                                    (xx)     a person  shall not be  deemed  the
beneficial  owner of any  securities as a result of any voting power that arises
solely from a revocable  proxy given in response to a public proxy  solicitation
made pursuant to and in accordance with the applicable provisions of the General
Rules and Regulations under the Securities  Exchange Act of 1934 and that is not
reportable by such person on Schedule 13D (or any successor schedule) under such
Act;

                                    (yy)     any person  engaged in  business as
an  underwriter  of  securities  who acquires  securities  through such person's
participation in good faith in a firm commitment  underwriting  registered under
the  Securities  Act of 1933  shall not be deemed the  beneficial  owner of such
securities   until  the  expiration  of  forty  days  after  the  date  of  such
acquisition; and

                                    (zz)     a  clearing  agency,  a  broker  or
dealer in  securities,  a bank or voting  trustee or other  nominee shall not be
deemed the beneficial  owner of securities  held of record by such person but as
to which a third party has the power to direct the vote.

                           (iv)     "Control" shall mean the possession,  direct
or indirect,  of the power to direct or to cause the direction of the affairs of
a person,  whether through the ownership of voting securities or by agreement or
understanding or otherwise.

                           (v)      "Excess  Shares"  shall mean that  number of
shares of Common Stock  transferred to an acquiring person which,  when added to
all other shares of Common Stock of which the acquiring person is the beneficial
owner, exceeds 9.99% of the outstanding Common Stock of the Corporation.

                           (vi)     "Interested   Shareholder"  shall  mean  any
person who or which is the beneficial owner,  directly or indirectly,  of 10% or
more of the outstanding shares of Common Stock; provided,  however that the term
"Interested  Shareholder"  shall not include  any  Subsidiary,  or any  savings,
employee stock  ownership or other employee  benefit plan of the  Corporation or
any  Subsidiary,  or any fiduciary  with respect to any such plan then acting in
such  capacity.  For purposes of  determining  whether a person is an Interested
Shareholder, the number of shares of Common Stock deemed to be outstanding shall
include shares deemed owned through application of subsection (4)(a)(iii)(cc) of
this  Article but shall not include any other shares of Common Stock that may be
issuable  pursuant  to any  agreement,  arrangement  or  understanding,  or upon
exercise of conversion rights, warrants or options, or otherwise.

                                      A-48
<PAGE>

                           (vii)    A "person" shall mean any individual,  firm,
corporation, partnership, joint venture, or other entity.

                           (viii)   "Subsidiary"  means any corporation of which
a majority of any class of equity security is owned, directly or indirectly,  by
the  Corporation;  provided,  however,  that for purposes of the  definition  of
Interested Shareholder set forth herein, the term "Subsidiary" shall mean only a
corporation  of which a  majority  of each  class of equity  security  is owned,
directly or indirectly, by the Corporation.

                           (ix)     A   "transfer"    shall   mean   any   sale,
assignment, gift, pledge, hypothecation, or bequest of Common Stock.

                  (b)      The  Board  of  Directors  shall  have  the  power to
determine for purposes of these Articles,  on the basis of information  known to
it after such  inquiry as it deems to be  sufficient:  (i) whether a  particular
person  is an  Interested  Shareholder  or  would be an  Interested  Shareholder
following any proposed  transfer of Common Stock;  (ii) whether any person is an
Affiliate or Associate of any person; (iii) the number of shares of Common Stock
beneficially  owned by any person;  and (iv) whether  there has been a change in
Control of any person. Any such determination by the Board of Directors shall be
final.

                  (c)      Transfer   of  shares  of  Common   Stock   shall  be
restricted  as follows:  Holders of shares of common Stock  shall,  upon demand,
disclose promptly to the Corporation in writing such information with respect to
the  beneficial  ownership  of the Common Stock as the Board of Directors in its
sole and absolute  discretion shall deem advisable for determining the existence
or identity of an Interested Shareholder; and a beneficial owner of Common Stock
by virtue of  becoming a  beneficial  owner shall be deemed to consent to and to
waive any objections to such disclosure.  The Corporation may, as a condition to
transfer or registration of transfer of shares of Common Stock, require that the
record holder establish to the  satisfaction of the Corporation,  by filing with
the transfer agent an  appropriate  affidavit or certificate or such other proof
as  the  Corporation  shall  deem  necessary,  that  such  transferee  is not an
Interested  Shareholder  and would not  become an  Interested  Shareholder  as a
result of such transfer.

                  (d)      The  existence  of the  restrictions  on  transfer of
Common Stock set forth in this Article shall be noted conspicuously on the front
or back of the certificate  evidencing  shares of such stock or contained in any
information statement required by ss. 13.1-648.B of the Virginia Code.

         (5)      Share Options.  Shareholder approval shall not be required for
the issuance of rights,  options,  or warrants for the purchase of shares of the
Corporation to any director,  officer,  or employee of the Corporation or any of
its subsidiaries.

                                   ARTICLE III

         (1)      Directors.  On and after the date these  Amended and  Restated
Articles  of  Incorporation  are  effective,  the  Board  of  Directors  of  the
Corporation  shall consist of


                                      A-49
<PAGE>

the following  eight  individuals who shall hold office in the Class and for the
term expiring as set forth in Section (2) below:

                  Class I:

                  Donald L. Unger
                  John K. Stephens
                  Stephen T. Heitz

                  Class II:

                  Walter H. Aikens
                  Paul R. Yoder, Jr.

                  Class III:

                  Clifton L. Good
                  Joseph W. Hollis
                  Wayne B. Ruck

         (2)      Number, Election and Term of Directors. The Board of Directors
may amend the by-laws  from time to time to  increase or decrease  the number of
Directors  by up to  30%  of  the  number  of  Directors  last  elected  by  the
shareholders.  The Board of Directors shall be divided into three classes, Class
I, Class II and Class III, which shall be as nearly equal in number as possible.
The Directors of the first class (Class I) shall hold office for a term expiring
at the 2003 Annual  Meeting of  Shareholders;  the Directors of the second class
(Class II) shall hold office for a term  expiring at the 2001 Annual  Meeting of
the  Shareholders;  and the  Directors of the third class (Class III) shall hold
office for a term expiring at the 2002 Annual Meeting of  Shareholders.  At each
annual  meeting  of  shareholders  thereafter  the  successors  to the  class of
Directors whose terms shall then expire shall be identified as being of the same
class as the  Directors  they  succeed  and  elected  to hold  office for a term
expiring at the third succeeding  annual meeting of  shareholders.  Whenever the
number of Directors is changed, any newly-created  directorships or any decrease
in  directorships  shall be so  apportioned  among the  classes  by the Board of
Directors so as to make all classes as nearly equal in number as possible.

         (3)      Newly-Created  Directorships  and  Vacancies.  Subject  to the
rights of the  holders of any  Preferred  Stock then  outstanding,  any  vacancy
occurring in the Board of Directors may be filled by the  affirmative  vote of a
majority of the  remaining  Directors  though less than a quorum of the Board of
Directors,  and the Directors so chosen shall hold office for a term expiring at
the next annual  meeting of  shareholders  at which  Directors  are elected.  No
decrease in the number of directors  constituting  the Board of Directors  shall
shorten the term of any incumbent director.

         (4)      Removal of  Directors.  In addition to any other vote that may
be  required by  statute,  these  Articles  of  Incorporation  or any  amendment
thereto, or the By-laws of the


                                      A-50
<PAGE>

Corporation,  any Director may be removed only for cause by the affirmative vote
of more than 66 2/3% of the outstanding voting Shares.

         (5)      Amendment or Repeal. In addition to any other vote that may be
required by statute,  these Articles of Incorporation or any amendment  thereto,
or the By-laws of the  Corporation,  the provisions of this Article shall not be
amended or repealed,  nor shall any provision of these Articles of Incorporation
be adopted that is inconsistent with this Article, unless such action shall have
been approved by the affirmative vote of either:

                  (a)      the  holders of more than 66 2/3% of the  outstanding
Voting Shares (notwithstanding anything to the contrary in Article IV); or

                  (b)      a  majority  of those  Directors  who are  Continuing
Directors  and the holders of the  requisite  number of shares  specified by the
Board of Directors pursuant to Article IV for the amendment of these Articles of
Incorporation.

         (6)      Certain Definitions.  For purposes of this Article:

                  (a)      "Continuing  Director"  means any member of the Board
of Directors who:

                           (i)      was elected to the Board of Directors of the
Corporation at the Corporation's organizational meeting on May 16, 1989; or

                           (ii)     was  recommended  for  election  by,  or was
elected to fill a vacancy and  received the  affirmative  vote of, a majority of
the Continuing Directors then on the Board.

                  (b)      "Voting Shares" shall mean the outstanding  shares of
all classes or series of the  Corporation's  stock entitled to vote generally in
the election of Directors.

                                   ARTICLE IV

         Unless the Board of Directors  conditions  its submission of a proposed
amendment to these Articles of  Incorporation  on receipt of a greater vote, any
amendment to these Articles of Incorporation that requires  shareholder approval
under ss.  13.1-707  of the  Virginia  Code shall be approved by not less than a
majority of the votes cast on the proposed  amendment by each class or series of
stock  entitled to vote on such amendment at a meeting at which a quorum of each
such  class or series  exists.  Unless  the Board of  Directors  conditions  its
submission of a proposed  extraordinary  corporate  event (as defined  below) on
receipt of a greater  vote,  any  extraordinary  corporate  event that  requires
shareholder  approval  under the  Virginia  Code shall be  approved by more than
two-thirds  of all votes by each  class or series of stock  entitled  to vote on
such event at a meeting  at which a quorum of each such class or series  exists.
For the purposes of this Article IV,  "extraordinary  corporate event" means any
merger  pursuant to Virginia Code ss.  13.1-716,  any statutory  share  exchange
pursuant to Virginia Code ss. 13.1-717,  any sale of all or substantially all of
the assets of the  Corporation  pursuant  to Virginia  Code ss.  13.1-724 or any
dissolution  of the  Corporation  pursuant  to  Virginia  Code ss.  13.742.  The
provisions of this Article



                                      A-51
<PAGE>

IV shall not be deemed to affect any shareholder  vote required by Article 14 of
the Virginia Stock Corporation Act.

                                    ARTICLE V

         (1)      In this Article:

                  "applicant" means the person seeking indemnification  pursuant
to this Article.

                  "expenses" includes counsel fees.

                  "liability"   means  the   obligation   to  pay  a   judgment,
settlement,  penalty, fine, including any excise tax assessed with respect to an
employee  benefit  plan,  or  reasonable  expenses  incurred  with  respect to a
proceeding.

                  "party"  includes  an  individual  who  was,  is,  or  may  be
threatened to be made a named defendant or respondent in a proceeding.

                  "proceeding"  means  any  threatened,  pending,  or  completed
action,  suit,  or  proceeding,  whether  civil,  criminal,   administrative  or
investigative and whether formal or informal.

         (2)      In  any  proceeding   brought  by  or  in  the  right  of  the
Corporation or brought by or on behalf of  shareholders of the  Corporation,  no
Director or officer of the Corporation shall be liable to the Corporation or its
shareholders  for  monetary  damages  in excess  of $0.00  with  respect  to any
transaction,  occurrence,  or course of conduct,  whether prior or subsequent to
the effective date of these Articles,  except for liability  resulting from such
person's  having  engaged in willful  misconduct  or a knowing  violation of the
criminal law or any federal or state securities law.

         (3)      The Corporation shall indemnify (a) any person who was or is a
party to any proceeding,  including a proceeding brought by a shareholder in the
right of the  Corporation  or  brought  by or on behalf of  shareholders  of the
Corporation,  by reason of the fact that he is or was a  Director  or officer of
the  Corporation,  or (b) any  Director  or officer who is or was serving at the
request of the Corporation as a director, trustee, partner or officer of another
corporation,  partnership,  joint venture, trust, employee benefit plan or other
enterprise,  against  any  liability  incurred  by him in  connection  with such
proceeding  unless he engaged in willful  misconduct  or a knowing  violation of
criminal law. A person is  considered to be serving an employee  benefit plan at
the  Corporation's  request if his duties to the Corporation  also impose duties
on, or otherwise  involve  services by him to the plan or to  participants in or
beneficiaries  of the plan.  The Board of  Directors is hereby  empowered,  by a
majority vote of a quorum of disinterested  Directors,  to enter into a contract
to indemnify any Director or officer in respect of any proceedings  arising from
any act or omission,  whether  occurring  before or after the  execution of such
contract.
                                      A-52
<PAGE>

         (4)      The  provisions  of this Article  shall be  applicable  to all
proceedings  commenced after the  effectiveness of these Articles,  arising from
any act or omission,  whether occurring before or after such  effectiveness.  No
amendment or repeal of this Article shall have any effect on the right, provided
under this Article with respect to any act or omission  occurring  prior to such
amendment or repeal.  The Corporation shall promptly take all such actions,  and
make all such  determinations,  as shall be necessary or  appropriate  to comply
with its obligation to make any indemnity  under this Article and shall promptly
pay or reimburse all reasonable expenses, including attorneys' fees, incurred by
any such Director or officer in connection with such actions and  determinations
or proceedings of any kind arising therefrom.

         (5)      The   termination  of  any  proceeding  by  judgment,   order,
settlement,  conviction,  or upon a plea of nolo  contendere or its  equivalent,
shall not of itself  create a  presumption  that the  applicant did not meet the
standard of conduct described in Sections (2) or (3) of this Article.

         (6)      Any indemnification  under Section (3) of this Article (unless
ordered by a court) shall be made by the  Corporation  only as authorized in the
specific  case upon a  determination  that  indemnification  of the applicant is
proper  in the  circumstances  because  he has met the  applicable  standard  of
conduct set forth in Section (3).

                  The determination shall be made:

                  (a)      By the Board of  Directors  by a  majority  vote of a
quorum consisting of Directors not at the time parties to the proceeding;

                  (b)      If a quorum cannot be obtained  under  subsection (a)
of this Section, by majority vote of a committee duly designated by the Board of
Directors  (in which  designation  Directors  who are parties may  participate),
consisting  solely  of two or more  Directors  not at the  time  parties  to the
proceeding;

                  (c)      By special legal counsel;

                           (i)      Selected  by the Board of  Directors  or its
committee in the manner prescribed in subsection (a) or (b) of this Section; or

                           (ii)     If a quorum of the Board of Directors cannot
be obtained  under  subsection  (a) of this  Section  and a committee  cannot be
designated  under  subsection (b) of this Section,  selected by majority vote of
the fall Board of  Directors,  in which  selected  Directors who are parties may
participate; or

                  (d)      By the  shareholders,  but  shares  owned by or voted
under the control of Directors who are at the time parties to the proceeding may
not be voted on the determination.

         Any  evaluation as to  reasonableness  of expenses shall be made in the
same manner as the determination  that  indemnification  is appropriate,  except
that if the  determination is made by special legal counsel,  such evaluation as
to  reasonableness  of expenses shall be made by those entitled under subsection
(c) of this Section (6) to select counsel.

                                      A-53
<PAGE>

         Notwithstanding the foregoing,  in the event there has been a change in
the  composition  of a majority of the Board of Directors  after the date of the
alleged act or omission with respect to which  indemnification  is claimed,  any
determination as to indemnification  and advancement of expenses with respect to
any claim for  indemnification  made  pursuant to this Article  shall be made by
special legal counsel  agreed upon by the Board of Directors and the  applicant.
If the Board of  Directors  and the  applicant  are  unable  to agree  upon such
special legal counsel the Board of Directors and the applicant each shall select
a nominee, and the nominees shall select such special legal counsel.

         (7)      (a)      The  Corporation  shall  pay  for  or  reimburse  the
reasonable  expenses incurred by any applicant who is a party to a proceeding in
advance  of  final   disposition   of  the  proceeding  or  the  making  of  any
determination under Section (3) if the applicant furnishes the Corporation:

                  (i)      a written  statement of his good faith belief that he
has met the standard of conduct described in Section (3); and

                  (ii)     a written undertaking,  executed personally or on his
behalf, to repay the advance if it is ultimately determined that he did not meet
such standard of conduct,

                  (b)      The   undertaking   required  by  paragraph  (ii)  of
subsection (a) of this Section shall be an unlimited  general  obligation of the
applicant  but need not be secured  and may be  accepted  without  reference  to
financial ability to make repayment.

                  (c)      Authorizations  of payments  under this Section shall
be made by the persons specified in Section (6).

         (8)      The Board of Directors is hereby  empowered,  by majority vote
of a quorum consisting of disinterested  directors,  to cause the Corporation to
indemnify or contract to indemnify  any person not  specified in Sections (2) or
(3) of this  Article  who was,  is or may become a party to any  proceeding,  by
reason of the fact that he is or was an employee or agent of the Corporation, or
is or was serving at the  request of the  Corporation  as a  director,  officer,
employee or agent of another  corporation,  partnership,  joint venture,  trust,
employee benefit plan or other enterprise,  to the same extent as if such person
were  specified  as one to whom  indemnification  is granted in Section (3). The
provisions  of Sections (4) through (7) of this Article  shall be  applicable to
any indemnification provided hereafter pursuant to this Section (8).

         (9)      The  Corporation  may  purchase  and  maintain   insurance  to
indemnify it against the whole or any portion of the liability  assumed by it in
accordance with this Article and may also procure insurance,  in such amounts as
the Board of Directors  may  determine,  on behalf of any person who is or was a
Director, officer, employee or agent of the Corporation, or is or was serving at
the  request of the  Corporation  as a Director,  officer,  employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise,  against any liability  asserted against or incurred by him in
any such  capacity  or  arising  from his  status  as


                                      A-54
<PAGE>

such,  whether or not the Corporation  would have power to indemnify him against
such liability under the provisions of this Article.

         (10)     Every reference  herein to directors,  officers,  employees or
agents shall include former directors,  officers, employees and agents and their
respective  heirs,  executors and  administrators.  The  indemnification  hereby
provided and provided  hereafter  pursuant to the power hereby conferred by this
Article on the Board of Directors  shall not be exclusive of any other rights to
which any  person  may be  entitled,  including  any  right  under  policies  of
insurance  that may be purchased and  maintained by the  Corporation  or others,
with respect to claims,  issues or matters in relation to which the  Corporation
would not have the power to indemnify  such person under the  provisions of this
Article.  Such rights shall not prevent or restrict the power of the Corporation
to make or provide for any further  indemnity,  or  provisions  for  determining
entitlement to indemnity,  pursuant to one or more  indemnification  agreements,
by-laws, or other arrangements (including, without limitation, creation of trust
funds or security interests funded by letters of credit or other means) approved
by the  Board  of  Directors  (whether  or  not  any  of  the  Directors  of the
Corporation  shall be a party to or beneficiary of any such agreements,  by-laws
or  arrangements);  provided,  however that any  provision  of such  agreements,
by-laws or other arrangements shall be effective if and to the extent that it is
determined to be contrary to this Article or applicable laws of the Commonwealth
of Virginia.

         (11)     Each  provision of this  Article  shall be  severable,  and an
adverse  determination  as to any  such  provision  shall in no way  affect  the
validity of any other provision.



                                      A-55
<PAGE>

                                                                      Appendix B

                         INDEX TO FINANCIAL STATEMENTS

                         MARATHON FINANCIAL CORPORATION


<TABLE>
<CAPTION>
                                                                                                            Page

<S>                                                                                                     <C>
Independent Auditor's Report of Yount, Hyde & Barbour, P.C......................................................B-2

Consolidated Financial Statements

     Consolidated Balance Sheets as of December 31, 1999 and 1998...............................................B-3
     Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997.....................B-4
     Consolidated Statements of Changes in Shareholders' Equity for the years ended
        December 31, 1999, 1998 and 1997........................................................................B-6
     Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997.................B-7

Notes to Consolidated Financial Statements...............................................................B-9 - B-30

Interim Consolidated Financial Statements (Unaudited)

     Consolidated Statements of Condition as of March 31, 2000 and December 31, 1999...........................B-31
     Consolidated Statements of Income for the three months ended
        March 31, 2000 and 1999................................................................................B-32
     Consolidated Statements of Changes in Stockholders' Equity for the three months
        ended March 31, 2000 and 1999..........................................................................B-33
     Consolidated Statements of Cash Flow for the the three months ended
        March 31, 2000 and 1999................................................................................B-34

Notes to Consolidated Financial Statements (unaudited)..................................................B-35 - B-37

</TABLE>










                                      B-1
<PAGE>

                          INDEPENDENT AUDITOR'S REPORT







To the Board of Directors
Marathon Financial Corporation
Winchester, Virginia


         We  have  audited  the  accompanying  consolidated  balance  sheets  of
Marathon Financial Corporation and subsidiary, as of December 31, 1999 and 1998,
and the related  consolidated  statements  of income,  changes in  shareholders'
equity,  and cash flows for the years ended  December 31,  1999,  1998 and 1997.
These  financial   statements  are  the   responsibility  of  the  Corporation's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.


         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.


         In our opinion, the consolidated financial statements referred to above
present fairly,  in all material  respects,  the financial  position of Marathon
Financial Corporation and subsidiary,  as of December 31, 1999 and 1998, and the
results of their  operations  and their cash flows for the years ended  December
31, 1999,  1998 and 1997,  in  conformity  with  generally  accepted  accounting
principles.

                                            /s/ YOUNT, HYDE & BARBOUR, P.C.
Winchester, Virginia
January 14, 2000




                                      B-2
<PAGE>

<TABLE>
<CAPTION>

                              MARATHON FINANCIAL CORPORATION

                               Consolidated Balance Sheets
                                December 31, 1999 and 1998
               Assets                                                                                 1999                 1998
                                                                                                  -----------          -----------
<S>                                                                                             <C>                   <C>

 Cash and due from banks                                                                       $    8,011,673         $  4,533,428
 Federal funds sold                                                                                 6,616,000            8,281,000
 Securities available for sale                                                                      5,080,757            4,961,573
 Securities held to maturity (fair value approximates $5,483,459 and
   $5,040,801 at December 31, 1999 and 1998, respectively)                                          5,646,791            5,000,077
 Loans held for sale                                                                                       --              401,671
 Loans, net of allowance for loan losses of $769,410 in 1999
   and $754,597 in 1998                                                                            74,526,925           65,065,268
 Bank premises and equipment, net                                                                   2,591,033            2,615,175
 Accrued interest receivable                                                                          534,911              478,820
 Other real estate                                                                                    183,218               18,123
 Other assets                                                                                         493,870              496,534
                                                                                              ---------------        -------------
                                                                                               $  103,685,178         $ 91,851,669
                                                                                              ===============        =============
 Liabilities and Shareholders' Equity
 Liabilities
      Deposits:
          Noninterest-bearing demand deposits                                                  $   12,940,831         $ 10,680,285
          Savings and interest-bearing demand deposits                                             30,002,843           24,127,903
          Time deposits                                                                            50,398,868           47,486,855
                                                                                              ---------------        -------------
               Total deposits                                                                  $   93,342,542         $ 82,295,043
 Interest expense payable                                                                             147,164              140,899
 Accounts payable and accrued expenses                                                                532,255              401,395
 Capital lease payable                                                                                218,036              224,219
 Commitments and contingent liabilities                                                                    --                   --
                                                                                              ---------------        -------------
               Total liabilities                                                               $   94,239,997         $ 83,061,556
                                                                                              ---------------        -------------

 Shareholders' Equity
     Preferred stock, Series A, 5% noncumulative, no par
       value; 1,000,000 shares authorized and unissued                                         $           --         $         --
     Common stock, $1 par value; 20,000,000 shares authorized;
       1999, 2,046,441 shares issued and outstanding;
       1998, 2,063,186 shares issued and outstanding                                                2,046,441            2,063,186
     Capital surplus                                                                                7,750,987            7,849,522
     Retained earnings (deficit)                                                                     (222,155)          (1,149,567)
     Accumulated other comprehensive income (loss)                                                   (130,092)              26,972
                                                                                              ---------------        -------------
          Total shareholders' equity                                                           $    9,445,181         $  8,790,113
                                                                                              ---------------        -------------

                                                                                               $  103,685,178         $ 91,851,669
                                                                                              ===============        =============
</TABLE>

 See Notes to Consolidated Financial Statements.

                                      B-3
<PAGE>

                         MARATHON FINANCIAL CORPORATION

                        Consolidated Statements of Income
                  Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>



                                                                             1999                 1998                 1997
                                                                        ---------------      -------------        -------------
<S>                                                                     <C>                  <C>                  <C>


 Interest and dividend income:
     Interest and fees on loans                                           $ 7,252,043          $ 6,063,709          $ 4,559,365
     Interest on investment securities:
          Nontaxable                                                           13,875                   --                   --
          Taxable                                                             261,059              184,289               93,379
     Interest and dividends on securities
       available for sale:
               Nontaxable                                                      16,364                   --                   --
               Taxable                                                        245,517              169,675               78,588
               Dividends                                                       34,865               27,367               21,478
 Interest on federal funds sold                                               491,769              430,995              129,844
                                                                          -----------          ------------         -----------
                    Total interest and dividend income                    $ 8,315,492          $ 6,876,035          $ 4,882,654
                                                                          -----------          ------------         -----------
 Interest expense:
     Interest on deposits                                                 $ 3,464,415          $ 2,938,214          $ 1,918,099
     Interest on capital lease obligations                                     17,808               20,341               24,637
     Interest on federal funds purchased                                           --                   --                  673
                                                                          -----------          -----------          -----------
     Total interest expense                                               $ 3,482,223          $ 2,958,555          $ 1,943,409
                                                                          -----------          -----------          -----------

     Net interest income                                                  $ 4,833,269          $ 3,917,480          $ 2,939,245


 Provision for loan losses                                                    260,000              285,000              133,000
                                                                          -----------          -----------          -----------

     Net interest income after
       provision for loan losses                                          $ 4,573,269          $ 3,632,480          $ 2,806,245
                                                                          -----------          -----------           ----------

 Other income:
     Service charges on deposit accounts                                  $   779,285          $   734,243          $   459,695
     Commissions and fees                                                      23,373              111,048              102,234
     Loss on sale of other real estate                                         (2,119)             (54,249)                  --
     Other                                                                     59,010               27,600               25,250
                                                                          -----------          -----------           ----------
          Total other income                                              $   859,549          $   818,642          $   587,179
                                                                          -----------          -----------          -----------
</TABLE>


 See Notes to Consolidated Financial Statements.

                                      B-4
<PAGE>

                    MARATHON FINANCIAL CORPORATION

                   Consolidated Statements of Income
                              (Continued)
             Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>



                                                                        1999                 1998                 1997
                                                                    -------------        -------------        ------------
<S>                                                                 <C>                   <C>                 <C>


 Other expenses:
      Salaries and employee benefits                                 $ 1,887,748          $ 1,532,069          $ 1,213,499
      Net occupancy expense of premises                                  225,697              262,686              211,293
      Furniture and equipment                                            360,089              382,340              263,105
      Other                                                            1,284,016            1,016,120              894,899
                                                                     -----------          -----------          -----------
          Total other expenses                                       $ 3,757,550          $ 3,193,215          $ 2,582,796
                                                                     -----------          -----------          -----------

          Income before income taxes                                 $ 1,675,268          $ 1,257,907          $   810,628


 Provision for income tax (benefit)                                      563,676               77,596             (187,734)
                                                                     -----------          -----------          -----------

           Net income                                                $ 1,111,592          $ 1,180,311          $   998,362
                                                                     ===========          ===========          ===========

 Earnings per share, basic                                           $      0.54          $      0.57          $      0.51
                                                                     ===========          ===========          ===========

 Earnings per share, assuming dilution                               $      0.53          $      0.56          $      0.50
                                                                     ===========          ===========          ===========
</TABLE>

 See Notes to Consolidated Financial Statements.

                                      B-5
<PAGE>

                         MARATHON FINANCIAL CORPORATION

           Consolidated Statements of Changes in Shareholders' Equity
                  Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>

                                                                                       Accumulated
                                                                         Retained          Other                           Total
                                           Common         Capital       Earnings      Comprehensive  Comprehensive    Shareholders'
                                            Stock         Surplus       (Deficit)     Income (Loss)     Income            Equity
                                          -----------    -----------   ------------   -------------  --------------   -------------
<S>                                       <C>           <C>           <C>              <C>           <C>              <C>


 Balance, December 31, 1996               $ 1,863,495    $ 7,045,502   $ (3,019,267)   $      507                      $  5,890,237
   Comprehensive income:
     Net income                                    --             --        998,362            --     $   998,362      $    998,362
     Other comprehensive income,
        unrealized gain on securities
        available for sale                         --             --             --         4,295           4,295             4,295
                                                                                                      -----------
     Total comprehensive income                    --             --             --            --     $ 1,002,657                --
                                                                                                      ===========
   Dividends declared ($.07 per share)             --             --       (143,920)           --                          (143,920)
   Issuance of common stock
     warrants (192,488 shares)                192,488        769,952             --            --                           962,440
                                          -----------    -----------   -------------   -----------                     -------------
 Balance, December 31, 1997               $ 2,055,983    $ 7,815,454   $ (2,164,825)   $    4,802                      $  7,711,414
   Comprehensive income:
     Net income                                    --             --      1,180,311            --     $ 1,180,311         1,180,311
     Other comprehensive income,
        unrealized gain on securities
        available for sale (net of tax,
        $13,894)                                   --             --             --        22,170          22,170            22,170
                                                                                                      -----------
     Total comprehensive income                    --             --             --            --     $ 1,202,481                --
                                                                                                      ===========
   Dividends declared ($.08 per share)             --             --       (165,053)           --                          (165,053)
   Issuance of common stock
     exercise of stock options
     (7,203 shares)                             7,203         34,068             --            --                            41,271
                                          -----------    -----------   -------------    ----------                     -------------
 Balance, December 31, 1998               $ 2,063,186    $ 7,849,522   $ (1,149,567)   $   26,972                      $  8,790,113
   Comprehensive income:
     Net income                                    --             --      1,111,592            --     $ 1,111,592         1,111,592
     Other comprehensive income,
        unrealized loss on securities
         available for sale (net of tax,
        $80,912)                                   --             --             --      (157,064)       (157,064)         (157,064)
                                                                                                       ----------
     Total comprehensive income                    --             --             --            --     $   954,528                 -
                                                                                                       ==========
   Dividends declared ($.09 per share)             --             --       (184,180)           --                          (184,180)
   Issuance of common stock
     exercise of stock options
     (500 shares)                                 500          2,000             --            --                             2,500
   Acquisition of common stock
     (17,245 shares)                          (17,245)      (100,535)            --            --                          (117,780)
                                         -------------   ------------    -----------   -----------                     -------------
 Balance, December 31, 1999              $  2,046,441    $ 7,750,987     $ (222,155)   $ (130,092)                     $  9,445,181
                                         =============   ============    ===========   ===========                     =============
</TABLE>

 See Notes to Consolidated Financial Statements.

                                      B-6
<PAGE>

                         MARATHON FINANCIAL CORPORATION

                      Consolidated Statements of Cash Flows
                  Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>


                                                                                 1999                 1998                  1997
                                                                             ------------         ------------         -------------
<S>                                                                          <C>                  <C>                  <C>

 Cash Flows from Operating Activities
     Net income                                                              $ 1,111,592          $ 1,180,311          $   998,362
     Adjustments to reconcile net income to net cash
       provided by (used in) operating activities:
          Amortization                                                            52,252               52,878               41,846
          Depreciation                                                           302,705              302,869              198,156
          Provision for loan losses                                              260,000              285,000              133,000
          Deferred tax expense (benefit)                                          93,628               72,346             (200,000)
          Loss on sale of other real estate                                        2,119               54,249
          Loss on sale of bank premises and equipment                                344
          Net amortization and (accretion) on securities                          11,111                4,316              (13,317)
          Origination of loans held for sale                                  (7,473,222)          (7,520,722)          (5,992,149)
          Proceeds from sale of loans held for sale                            7,874,893            8,621,489            4,773,003
          Changes in assets and liabilities:
               (Increase) in other assets                                        (62,303)             (77,806)            (125,826)
               (Increase) in accrued interest receivable                         (56,091)            (192,983)             (73,748)
               Increase (decrease) in accounts payable
                 and accrued expenses                                            111,733               84,741              (10,491)
               Increase in interest expense payable                                6,265               36,146               22,989
                                                                             -----------          -----------          -----------
                    Net cash provided by (used in) operating activities      $ 2,235,026          $ 2,902,834          $  (248,175)
                                                                             -----------          -----------          -----------

 Cash Flows from Investing Activities
     Proceeds from maturities, calls and principal
       payments of investment securities                                     $ 1,100,000          $   403,000          $ 1,107,991
     Proceeds from maturities, calls and principal
       payments of securities available for sale                                 305,169              361,404              503,397
     Purchase of investment securities                                        (1,750,335)          (3,698,262)          (1,152,890)
     Purchase of securities available for sale                                  (669,820)          (3,505,333)            (600,386)
     Net (increase) in loans                                                 (10,022,090)         (16,335,635)         (12,451,882)
     Purchase of bank premises and equipment                                    (302,024)            (438,969)          (1,137,155)
     Proceeds from sale of bank premises and equipment                            23,117                   --                   --
     Proceeds from sale of other real estate                                     133,219              375,751                   --
                                                                            ------------         ------------         ------------
          Net cash (used in) investing activities                           $(11,182,764)        $(22,838,044)        $(13,730,925)
                                                                            ------------         ------------         ------------

 Cash Flows from Financing Activities
     Net increase in demand deposits, NOW accounts
       and savings accounts                                                 $  8,135,486         $ 10,654,122         $  6,889,140
     Net increase in certificates of deposit                                   2,912,013           15,205,700            8,820,794
     Net proceeds from issuance of common stock                                    2,500               41,271              962,440
     Acquisition of common stock                                                (117,780)                  --                   --
     Principal payments on capital lease obligations                              (6,183)             (54,917)             (36,516)
     Payment of dividends                                                       (165,053)            (143,920)            (111,810)
                                                                            ------------         ------------         ------------
          Net cash provided by financing activities                         $ 10,760,983         $ 25,702,256         $ 16,524,048
                                                                            ------------         ------------         ------------
</TABLE>

See Notes to Consolidated Financial Statements.

                                      B-7
<PAGE>

                         MARATHON FINANCIAL CORPORATION

                      Consolidated Statements of Cash Flows
                                   (Continued)
                  Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>


                                                                                  1999                1998                 1997
                                                                            -------------        -------------        -------------
<S>                                                                         <C>                  <C>                   <C>

               Increase in cash and cash equivalents                        $  1,813,245         $  5,767,046          $ 2,544,948
 Cash and Cash Equivalents
     Beginning                                                                12,814,428            7,047,382            4,502,434
                                                                            ------------         ------------          -----------

     Ending                                                                 $ 14,627,673         $ 12,814,428          $ 7,047,382
                                                                            ============         ============          ===========
 Supplemental Disclosures of Cash Flow Information
      Cash payments for:
          Interest                                                          $  3,475,958         $  2,922,409          $ 1,920,420
                                                                            ============         ============          ===========
          Income taxes                                                      $    437,516         $     17,595          $    12,179
                                                                            ============         ============          ============

 Supplemental Schedule of Noncash Investing and
   Financing Activities:
     Other real estate acquired in settlement of loans                      $    300,433         $         --          $   430,000
                                                                            ============         ============          ===========

     Unrealized gain (loss) on securities available for sale                $   (237,976)        $     36,064          $     4,295
                                                                            ============         ============          ===========
</TABLE>


 See Notes to Consolidated Financial Statements.

                                      B-8
<PAGE>


                         MARATHON FINANCIAL CORPORATION

                   Notes to Consolidated Financial Statements


Note 1.       Nature of Banking Activities and Significant Accounting Policies

              Marathon   Financial   Corporation   (the   Corporation)  and  its
              subsidiary,  the  Marathon  Bank,  grant  commercial,   financial,
              agricultural,  residential  and  consumer  loans to  customers  in
              Virginia.  The loans are  expected  to be repaid from cash flow or
              proceeds from the sale of selected assets of the borrowers.

              The accounting and reporting  policies of the Corporation  conform
              to  generally  accepted  accounting   principles  and  to  general
              practices within the banking industry.  The following is a summary
              of the more significant policies.

                 Principles of Consolidation

                    The  consolidated   financial  statements  of  the  Marathon
                    Financial  Corporation  and  its  subsidiary,   include  the
                    accounts  of  all  companies.   All  material   intercompany
                    balances and transactions have been eliminated.

                 Securities

                    Debt  securities that management has the positive intent and
                    ability  to hold to  maturity  are  classified  as  "held to
                    maturity"  and recorded at amortized  cost.  Securities  not
                    classified as held to maturity,  including equity securities
                    with readily  determinable  fair values,  are  classified as
                    "available  for  sale"  and  recorded  at fair  value,  with
                    unrealized  gains and  losses  excluded  from  earnings  and
                    reported in other comprehensive income.

                    Purchase  premiums and discounts are  recognized in interest
                    income  using  the  interest  method  over the  terms of the
                    securities. Declines in the fair value of available for sale
                    securities below their cost that are deemed to be other than
                    temporary  are  reflected  in earnings  as realized  losses.
                    Gains and losses on the sale of  securities  are recorded on
                    the  trade  date  and  are  determined  using  the  specific
                    identification method.

                 Loans

                    The  Corporation  grants  mortgage,  commercial and consumer
                    loans  to  customers.  A  substantial  portion  of the  loan
                    portfolio is represented  by mortgage  loans  throughout the
                    Frederick County,  Warren County and Shenandoah County areas
                    of  Virginia.  The ability of the  Corporation's  debtors to
                    honor their  contracts is dependent upon the real estate and
                    general economic conditions in this area.

                    Loans that management has the intent and ability to hold for
                    the   foreseeable   future  or  until  maturity  or  payoff
                    generally are reported at their outstanding unpaid principal
                    balances less the allowance for loan losses. Interest income
                    is accrued on the unpaid  principal  balance.  Nonrefundable
                    loan fees and direct loan  origination  costs are recognized
                    in operations when received and incurred,  respectively. The
                    impact of this  methodology is not  significantly  different
                    from  recognizing  the net of these  fees and costs over the
                    contractual life of the related loan.

                                      B-9
<PAGE>


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

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

                 Loans Held for Sale

                    Loans  originated  and  intended  for sale in the  secondary
                    market are  carried at the lower of cost or  estimated  fair
                    value in the aggregate.  Net unrealized  losses, if any, are
                    recognized  through a  valuation  allowance  by  charges  to
                    income.

                 Allowance for Loan Losses

                    The allowance for loan losses is  established  as losses are
                    estimated  to have  occurred  through a  provision  for loan
                    losses charged to earnings.  Loan losses are charged against
                    the allowance when management believes the  uncollectibility
                    of a loan balance is confirmed.  Subsequent  recoveries,  if
                    any, are credited to the allowance.

                    The  allowance  for loan  losses is  evaluated  on a regular
                    basis by management and is based upon management's  periodic
                    review  of the  collectibility  of the  loans  in  light  of
                    historical  experience,  the  nature  and volume of the loan
                    portfolio, adverse situations that may affect the borrower's
                    ability  to  repay,   estimated   value  of  any  underlying
                    collateral  and   prevailing   economic   conditions.   This
                    evaluation is inherently subjective as it requires estimates
                    that  are  susceptible  to  significant   revision  as  more
                    information becomes available.

                    The impairment of loans that have been separately identified
                    for  evaluation  is measured  based on the present  value of
                    expected future cash flows or, alternatively, the observable
                    market  price  of  the  loans  or  the  fair  value  of  the
                    collateral.  However,  for those  loans that are  collateral
                    dependent  (that is, if repayment of those loans is expected
                    to be provided solely by the underlying  collateral) and for
                    which management has determined foreclosure is probable, the
                    measure of  impairment  of those loans is to be based on the
                    fair  value  of the  collateral.  Large  groups  of  smaller
                    balance  homogeneous  loans are  collectively  evaluated for
                    impairment. Accordingly, the Corporation does not separately
                    identify  individual  consumer  and  residential  loans  for
                    impairment disclosures.

         Classifications of Amortization on Assets Acquired Under Capital Leases

                    The  amortization  expense on assets  acquired under capital
                    leases is included with the depreciation expense.

                                      B-10
<PAGE>


                 Earnings Per Share

                   Basic  earnings  per share  represents  income  available  to
                   common shareholders divided by the weightedaverage number of
                   common shares outstanding during the period. Diluted earnings
                   per share reflects  additional  common shares that would have
                   been outstanding if dilutive potential common shares had been
                   issued, as well as any adjustment to income that would result
                   from the assumed  issuance.  Potential common shares that may
                   be issued by the  Corporation  relate  solely to  outstanding
                   stock options,  and are  determined  using the treasury stock
                   method.

                 Income Taxes

                   Deferred  taxes are  provided on a liability  method  whereby
                   deferred tax assets are recognized  for deductible  temporary
                   differences,  operating  loss  carryforwards,  and tax credit
                   carryforwards.  Deferred tax  liabilities  are recognized for
                   taxable temporary differences.  Temporary differences are the
                   differences  between  the  reported  amounts  of  assets  and
                   liabilities  and their tax  bases.  Deferred  tax  assets are
                   reduced by a  valuation  allowance  when,  in the  opinion of
                   management,  it is more likely than not that some  portion or
                   all of the deferred tax assets will not be realized. Deferred
                   tax assets and  liabilities  are  adjusted for the effects of
                   changes in tax laws and rates on the date of enactment.

                 Cash and Cash Equivalents

                   For  purposes  of  reporting   cash  flows,   cash  and  cash
                   equivalents  include cash on hand, amounts due from banks and
                   federal  funds sold.  Generally,  federal funds are purchased
                   and sold for oneday periods.

                 Bank Premises and Equipment

                   Bank   premises  and   equipment  are  stated  at  cost  less
                   accumulated depreciation. Depreciation is computed using both
                   straightline  and  accelerated   methods  over  the  assets'
                   estimated useful lives.  Estimated useful lives range from 10
                   to 39 years for  buildings  and 3 to 7 years  for  furniture,
                   fixtures and equipment.

                 Other Real Estate Owned

                   Foreclosed  properties  are  recorded  at  the  lower  of the
                   outstanding  loan balance at the time of  foreclosure  or the
                   estimated  fair  value  less  estimated  costs  to  sell.  At
                   foreclosure any excess of loan balance over the fair value of
                   the  property is charged to the  allowance  for loan  losses.
                   Such carrying value is  periodically  reevaluated and written
                   down if there is an indicated decline in fair value. Costs to
                   bring a property to salable  condition are  capitalized up to
                   the fair  value of the  property  while  costs to  maintain a
                   property in salable condition are expensed as incurred.

                 Advertising Costs

                   The Corporation follows the policy of charging the production
                   costs of advertising to expense as incurred.

                                      B-11
<PAGE>


                 Use of Estimates

                    In preparing consolidated financial statements in conformity
                    with generally accepted accounting principles, management is
                    required to make estimates and  assumptions  that affect the
                    reported amounts of assets and liabilities as of the date of
                    the  balance  sheet and  reported  amounts of  revenues  and
                    expenses during the reporting  period.  Actual results could
                    differ from those  estimates.  Material  estimates  that are
                    particularly  susceptible to significant  change in the near
                    term relate to the  determination  of the allowance for loan
                    losses, the valuation of foreclosed real estate and deferred
                    tax assets.


Note 2.       Securities

              The amortized cost and fair value of the securities  available for
              sale as of December 31, 1999 and 1998, are as follows:

<TABLE>
<CAPTION>

                                                             Gross               Gross
                                         Amortized          Unrealized          Unrealized            Fair
                                            Cost              Gains              (Losses)            Value
                                        ----------         -----------        -------------       -----------
                                                                       1999
                                        ----------------------------------------------------------------------
<S>                                     <C>                 <C>                 <C>               <C>

     U.S. Government and
          federal agencies              $ 4,115,468         $       --          $ (170,958)        $3,944,510
     Obligations of state and
          political subdivisions            567,007                 --             (26,875)           540,132
     Mortgagebacked securities               15,042                723                  --             15,765
     Other                                  580,350                 --                  --            580,350
                                        -----------         ----------         ------------        -----------
                                        $ 5,277,867         $      723          $ (197,833)        $5,080,757
                                        ===========         ==========         ============        ===========
</TABLE>

<TABLE>
<CAPTION>

                                                                          1998
                                        ------------------------------------------------------------------------
<S>                                     <C>                   <C>                 <C>             <C>
 U.S. Government and
    federal agencies                     $4,420,515           $ 41,769            $ (2,066)      $ 4,460,218
 Mortgagebacked securities                   20,392              1,163                                21,555
 Other                                      479,800                                                  479,800
                                        -----------           --------            --------       -----------
                                         $4,920,707           $ 42,932            $ (2,066)      $ 4,961,573
                                        ===========           ========            ========       ===========
</TABLE>

                                      B-12
<PAGE>


              The amortized cost and fair value of the securities  available for
              sale as of December 31, 1999, by contractual  maturity,  are shown
              below. Expected maturities may differ from contractual  maturities
              because mortgages underlying the mortgagebacked securities may be
              called  or  prepaid  without  any  penalties.   Therefore,   these
              securities  are not  included in the  maturity  categories  in the
              maturity summary.

<TABLE>
<CAPTION>

                                                             Amortized            Fair
                                                                Cost             Value
                                                             ----------       ----------
<S>                                                        <C>               <C>


 Due in one year or less                                   $   200,167       $   199,314
 Due after one year through five years                       4,166,897         3,988,194
 Due after five years through ten years                        265,168           250,369
 Due over ten years                                             50,243            46,765
 Mortgagebacked securities                                      15,042            15,765
 Other                                                         580,350           580,350
                                                           -----------       -----------
                                                           $ 5,277,867       $ 5,080,757
                                                           ===========       ===========
</TABLE>


              The  amortized  cost and fair  value of  securities  being held to
              maturity as of December 31, 1999 and 1998, are as follows:

<TABLE>
<CAPTION>

                                                                 Gross              Gross
                                           Amortized          Unrealized         Unrealized             Fair
                                              Cost               Gains             (Losses)             Value
                                          -----------         ----------         -----------         -----------
                                                                           1999
                                          ----------------------------------------------------------------------
<S>                                        <C>                  <C>             <C>                <C>
U.S. Government and
federal agencies                           $ 4,687,181           $ 164          $ (146,282)        $ 4,541,063
Obligations of state and
political subdivisions                         959,610                             (17,214)            942,396
                                           -----------         ---------        ----------         -----------
                                           $ 5,646,791           $ 164          $ (163,496)        $ 5,483,459
                                           ===========         =========        ==========         ===========
</TABLE>

<TABLE>
<CAPTION>


                                                                            1998
                                         -----------------------------------------------------------------------
<S>                                       <C>                    <C>                <C>            <C>
 U.S. Government and
    federal agencies                     $ 4,899,237            $ 39,376           $ (2,074)      $ 4,936,539
 Obligations of state and
    political subdivisions                   100,840               3,422                 --           104,262
                                         -----------            --------           --------       -----------
                                         $ 5,000,077            $ 42,798           $ (2,074)      $ 5,040,801
                                         ===========            ========           ========       ===========
</TABLE>

                                      B-13
<PAGE>


              The amortized cost and fair value of the securities  being held to
              maturity as of December 31, 1999,  by  contractual  maturity,  are
              shown below.


                                              Amortized             Fair
                                                Cost                Value
                                             ----------          ----------
 Due in one year or less                     $  251,014          $  248,985
 Due after one year through five years        5,264,348           5,106,168
 Due after five years through ten years         131,429             128,306
                                             ----------          ----------
                                             $5,646,791          $5,483,459
                                             ==========          ==========




              For the years ended December 31, 1999,  1998 and 1997,  there were
              no sales of securities available for sale.

              Securities  having a book  value of  $2,639,891  and  $847,910  at
              December 31, 1999 and 1998 were pledged to secure public  deposits
              and for other purposes required by law.


Note 3.       Loans and Related Party Transactions

              The composition of the net loans is as follows:

<TABLE>
<CAPTION>

                                                                                                December 31,
                                                                                   ---------------------------------
                                                                                          1999               1998
                                                                                   --------------     --------------
                                                                                             (in thousands)
<S>                                                                                <C>                <C>

 Loans secured by real estate:
     Construction and land development                                                  $ 10,649            $ 8,900
     Secured by farmland                                                                     744                733
     Secured by 14 family residential                                                     16,717             13,773
     Multifamily residential                                                               2,349              1,379
     Nonfarm, nonresidential loans                                                        12,038              5,168
 Loans to farmers (except those secured by real estate)                                      220                218
 Commercial and industrial loans (except those secured by real estate)                    19,041             21,126
 Loans to individuals (except those secured by real estate)                               13,311             15,468
 All other loans                                                                             557                100
                                                                                        $ 75,626           $ 66,865
                                                                                       ---------          ---------
 Less:
     Unearned income                                                                         330              1,045
     Allowance for loan losses                                                               769                755
                                                                                       ---------          ---------
                                                                                        $ 74,527           $ 65,065
                                                                                       =========          =========
</TABLE>

                                      B-14
<PAGE>


              The  Corporation  has  had,  and  may be  expected  to have in the
              future,  banking  transactions  in the ordinary course of business
              with directors,  executive officers,  their immediate families and
              affiliated  companies  in which  they are  principal  shareholders
              (commonly  referred  to as related  parties),  on the same  terms,
              including  interest rates and collateral,  as those  prevailing at
              the time for comparable  transactions  with others.  These persons
              and  firms  (exclusive  of loans to any such  person  which in the
              aggregate did not exceed $60,000) were indebted to the Corporation
              for loans totaling  $2,743,082 and $2,090,201 at December 31, 1999
              and 1998,  respectively.  During 1999,  total principal  additions
              were $1,484,378 and total principal payments were $831,497.


Note 4.       Allowance for Loan Losses

              Changes in the allowance for loan losses are as follows:

<TABLE>
<CAPTION>

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

 Balance, beginning                                              $ 754,597          $ 576,497          $ 503,014
   Provision for loan losses                                       260,000            285,000            133,000
   Recoveries                                                       27,505             44,211             27,823
   Loan losses charged to
     the allowance                                                (272,692)          (151,111)           (87,340)
                                                                ----------         ----------         ----------
 Balance, ending                                                 $ 769,410          $ 754,597          $ 576,497
                                                                ==========         ==========         ==========
</TABLE>

              Nonaccrual loans excluded from impaired loan disclosure under FASB
              114  amounted  to $40,541 and  $233,200  at December  31, 1999 and
              1998,  respectively.  If interest on these loans had been accrued,
              such income  would have  approximated  $2,934 and $15,681 for 1999
              and 1998, respectively.

Note 5.       Bank Premises and Equipment, Net

              Bank premises and equipment as of December 31, 1999 and 1998
              consists of the following:
<TABLE>
<CAPTION>

                                                                  1999                1998
                                                              -------------      -------------
<S>                                                          <C>                <C>

 Bank premises                                                 $ 2,196,723        $ 2,127,824
 Furniture and equipment                                         1,603,245          1,522,678
 Capital leases  property and equipment                            256,561            255,604
 Bank premises and equipment in process                            104,342                 --
                                                               -----------       ------------
                                                               $ 4,160,871        $ 3,906,106
 Less accumulated depreciation                                   1,569,838          1,290,931
                                                               -----------       ------------
                                                               $ 2,591,033        $ 2,615,175
                                                               ===========       ============
</TABLE>

                                      B-15
<PAGE>


              Depreciation  and amortization  included in operating  expense for
              1999,   1998  and  1997  was  $302,705,   $323,168  and  $228,365,
              respectively.


Note 6.       Deposits

              The aggregate amount of time deposits in denominations of $100,000
              or  more  at  December  31,  1999  and  1998  was  $9,393,027  and
              $9,320,255, respectively.

              At December 31, 1999,  the  scheduled  maturities of time deposits
              are as follows:


     Years Ending December 31:

               2000              $ 30,829,450
               2001                10,439,380
               2002                 2,657,044
               2003                 4,549,994
               2004                 1,923,000
                                 ------------
                                 $ 50,398,868
                                 ============

Note 7.       Income Taxes

              Net deferred tax assets consist of the following components as of
              December 31, 1999 and 1998:

<TABLE>
<CAPTION>

                                                          1999                 1998
                                                       ----------           ----------
<S>                                                    <C>                   <C>

 Deferred tax assets:
   Net operating loss carryforward                     $       --           $  187,705
   Writedown of other real estate                           2,720                2,720
   Other real estate expenditures                           2,641                  192
   Nonaccrual interest                                      1,187                5,545
   Allowance for loan losses                              159,363               70,963
   Alternative minimum tax credits                             --               21,856
   Deferred benefit plans                                  21,798                   --
   Securities available for sale                           67,017                   --
                                                       ----------           ----------
                                                       $  254,726           $  288,981
                                                       ----------           ----------

 Deferred tax liabilities:
   Depreciation                                        $    3,683           $   11,327
   Securities available for sale                               --               13,894
                                                       ----------           ----------
                                                       $    3,683           $   25,221
                                                       ----------           ----------

                                                       $  251,043           $  263,760
                                                       ==========           ==========
</TABLE>

                                      B-16
<PAGE>


              The provision for income taxes (benefit) charged to operations for
              the years ended December 31, 1999, 1998 and 1997,  consists of the
              following:

<TABLE>
<CAPTION>

                                                            1999               1998                1997
                                                        ------------       -----------        ------------
<S>                                                      <C>                <C>                 <C>
 Current tax expense                                     $ 470,048         $    5,250           $   12,266
 Deferred tax expense                                       93,628            411,235              278,740
 Change in valuation allowance                                  --           (338,889)            (478,740)
                                                         ---------         ----------           ----------
                                                         $ 563,676         $   77,596           $ (187,734)
                                                         =========         ==========           ==========
</TABLE>


              The income  tax  provision  differs  from the amount of income tax
              determined by applying the U.S.  federal income tax rate to pretax
              income for the years ended  December 31, 1999,  1998 and 1997, due
              to the following:

<TABLE>
<CAPTION>


                                                            1999               1998                1997
                                                         -----------       -----------        ------------
<S>                                                      <C>                 <C>                 <C>
 Computed "expected" tax expense                         $ 569,591          $ 427,688           $ 275,614
 Increase (decrease) in income taxes
   resulting from:
     Reduction of valuation allowance                           --           (338,889)           (478,740)
     Other                                                  (5,915)           (11,203)             15,392
                                                         ---------         ----------          ----------
                                                         $ 563,676          $  77,596           $(187,734)
                                                         =========         ==========          ==========
</TABLE>


Note 8.       Leases

              Capital Leases

                 The  Corporation  has a lease  agreement on a branch  facility,
                 located  on  land  leased  from  a  partnership  of  which  the
                 Corporation's  president is a partner. The liability is payable
                 in monthly  installments  of $1,991  through May 31, 2016 at an
                 interest  rate of 8%. The capital lease payable at December 31,
                 1999 in the amount of $218,036  represents the present value of
                 the balance due in future years for lease rentals discounted at
                 the respective  interest rates.  Since the term of the lease is
                 approximately  the  same as the  estimated  useful  life of the
                 assets,  and the  present  value of the  future  minimum  lease
                 payments at the  beginning of the lease  approximated  the fair
                 value  of  the  leased  assets  at  that  date,  the  lease  is
                 considered to be a capital lease and has been so recorded.

                                      B-17
<PAGE>


                 The  following  is a schedule  by years of the  future  minimum
                 lease  payments  under  the  capital  lease  together  with the
                 present value of the net minimum lease  payments as of December
                 31, 1999:

Lease Commitments and Total Rental Expense

 Years ending December 31:

   2000                                                      $  23,898
   2001                                                         23,898
   2002                                                         23,898
   2003                                                         23,898
   2004                                                         23,898
   Later years                                                 272,834
                                                             ---------
        Total minimum lease payments                         $ 392,324
   Less the amount representing interest                       174,288
                                                             ---------
        Present value of net minimum
          lease payments                                     $ 218,036
                                                             =========


                 The Corporation entered into a twentyyear operating lease with
                 a partnership of which the Corporation's president is a partner
                 for the rental of a branch location and improvements. The lease
                 expires on May 31, 2016 and has two fiveyear  renewal options.
                 The lease provides that the Corporation pay all property taxes,
                 insurance  and  maintenance  costs  plus an  annual  rental  of
                 $22,256 for the initial lease beginning July 1, 1996. The total
                 minimum lease  commitment at December 31, 1999 under this lease
                 is $367,224.

                 The Corporation leases a branch location.  The lease expires on
                 March 30, 2000 and has two fiveyear renewal options. The lease
                 provides that the Corporation pay all property taxes, insurance
                 and  maintenance  plus an  annual  rental  of  $12,000  for the
                 initial  lease period  commencing  on April 1, 1995.  The total
                 minimum lease commitments at December 31, 1999 under this lease
                 is $3,000.

                 The Corporation entered into a tenyear operating lease for the
                 rental of a branch location.  The lease expires on December 31,
                 2006 and has two fiveyear renewal options.  The lease provides
                 that the  Corporation  pay all property  taxes,  insurance  and
                 maintenance  plus rental  payments for the initial lease period
                 commencing  on  January  13,  1997.  The  total  minimum  lease
                 commitments at December 31, 1999 under this lease is $221,631.

                 The  Corporation  entered into a fiveyear  operating lease for
                 the rental of a branch  location.  The lease  expires on August
                 31,  2002 and has two  fiveyear  renewal  options.  The  lease
                 provides that the Corporation pay all property taxes, insurance
                 and  maintenance  plus rental  payments  for the initial  lease
                 period commencing on September 1, 1997. The total minimum lease
                 commitments at December 31, 1999 under this lease is $29,200.

                                      B-18
<PAGE>


The total minimum lease  commitment for these operating  leases is due as
follows:

 2000                                              $  65,256
 2001                                                 63,456
 2002                                                 61,006
 2003                                                 53,774
 2004                                                 54,563
 Later years                                         321,150
                                                   ----------
                                                   $ 619,205
                                                   ==========

                 Total rental  expense was $86,594,  $68,556 and $56,933 for the
                 years ended December 31, 1999, 1998 and 1997, respectively.

              Fixed Equipment on Land Leased with Related Parties

                 Fixed equipment with a depreciated cost at December 31, 1999 of
                 $16,160 is located on land leased from a  partnership  of which
                 the Corporation's  president is a partner. The lease expires on
                 May 31, 2016.


Note 9.       Commitments and Contingent Liabilities

              In the  normal  course of  business,  there are other  outstanding
              commitments and contingent  liabilities which are not reflected in
              the accompanying financial statements. See Note 12 with respect to
              financial instruments with offbalancesheet risk.

              As members of the  Federal  Reserve  System,  the  Corporation  is
              required to maintain  certain  average reserve  balances.  For the
              final weekly reporting period in the years ended December 31, 1999
              and 1998, the aggregate amounts of daily average required balances
              were approximately $495,000 and $394,000, respectively.

              The Corporation is required to maintain  certain  required reserve
              balances with its correspondent bank. Those required balances were
              $900,000 and $950,000 for 1999 and 1998, respectively.


Note 10.      Dividend Restrictions

              Federal and state  regulations limit the amount of dividends which
              the  Corporation  can pay without  obtaining  prior  approval and,
              additionally,  federal  regulations  require that the  Corporation
              maintain  minimum capital  requirements.  As of December 31, 1999,
              the  Corporation  was  required  to obtain  prior  approval on any
              dividend declared.

                                      B-19
<PAGE>


              The  Corporation  did obtain  approval from the State  Corporation
              Commission to pay dividends in 1999,  1998 and 1997. On January 7,
              1998, the Board of Directors  declared a cash dividend of $.07 per
              share payable  January 26, 1998 to  shareholders of record January
              17, 1998. On December 15, 1998, the Board of Directors  declared a
              cash  dividend  of $.08 per  share  payable  January  29,  1999 to
              shareholders  of record  December 31, 1998.  On December 21, 1999,
              the Board of Directors  declared a cash dividend of $.09 per share
              payable  January 31, 2000 to  shareholders  of record December 31,
              1999.

              Transfers  of funds  from the  banking  subsidiary  to the  parent
              corporation in the form of loans,  advances and cash dividends are
              restricted  by federal  and state  regulatory  authorities.  As of
              December 31, 1999 no unrestricted  funds could be transferred from
              the banking  subsidiary to the parent  corporation,  without prior
              regulatory approval.


Note 11.      Other Expenses

              The principal components of "Other expenses" in the Consolidated
              Statements of Income are:
<TABLE>
<CAPTION>


                                                               1999                1998                1997
                                                          -------------      -------------       -------------
<S>                                                       <C>                <C>                  <C>

 Telephone                                                 $    96,841         $    84,232           $ 48,709
 Advertising                                                    27,351              39,952             75,870
 Stationery and supplies                                       171,893             102,716             73,722
 Postage                                                       119,678              92,296             59,392
 Directors fees                                                 89,300              83,250             69,315
 ATM expense                                                   165,613              87,525             56,800
 Forgery loss                                                       --                  --             59,870
 Other (includes no items in excess
 of 1% of total revenue)                                       613,340             526,149            451,221
                                                           -----------        ------------         ----------
                                                           $ 1,284,016         $ 1,016,120          $ 894,899
                                                           ===========        ============         ==========
</TABLE>

Note 12.      Financial Instruments With OffBalanceSheet Risk

              The   Corporation   is  party  to   financial   instruments   with
              offbalancesheet  risk in the normal  course of  business to meet
              the financing needs of its customers.  These financial instruments
              include commitments to extend credit and standby letters of credit
              and commercial  lines of credit.  Those  instruments  involve,  to
              varying  degrees,  elements  of credit and  interest  rate risk in
              excess  of  the  amount  recognized  in the  consolidated  balance
              sheets.

              The  Corporation's  exposure to credit loss is  represented by the
              contractual amount of these commitments.  The Corporation  follows
              the same  credit  policies  in making  commitments  as it does for
              onbalancesheet instruments.

                                      B-20
<PAGE>


              At December 31, 1999 and 1998, the following financial instruments
              were outstanding whose contract amounts represent credit risk:


                                                        Contract Amount
                                                 ------------------------------
                                                     1999               1998
                                                 -----------       ------------
                                                         (Thousands)

      Commitments to grant loans                   $   608            $ 4,415
      Standby letters of credit                      1,432                851
      Unfunded commitments under lines
          of credit                                 12,859              4,494

              Commitments  to extend credit are agreements to lend to a customer
              as long as there is no violation of any condition  established  in
              the contract. Commitments generally have fixed expiration dates or
              other termination  clauses and may require payment of a fee. Since
              many of the commitments are expected to expire without being drawn
              upon, the total  commitment  amounts do not necessarily  represent
              future  cash   requirements.   The   Corporation   evaluates  each
              customer's credit  worthiness on a casebycase  basis. The amount
              of  collateral  obtained,   if  it  is  deemed  necessary  by  the
              Corporation,  is based on  management's  credit  evaluation of the
              counterparty.

              Unfunded  commitments under commercial lines of credit,  revolving
              credit lines and overdraft  protection  agreements are commitments
              for possible  future  extensions of credit to existing  customers.
              These  lines of credit  are  uncollateralized  and  usually do not
              contain a specified maturity date and may not be drawn upon to the
              total extent to which the Corporation is committed.

              Commercial   and  standby   letters  of  credit  are   conditional
              commitments issued by the Corporation to guarantee the performance
              of a  customer  to a third  party.  Those  letters  of credit  are
              primarily   issued  to  support   public  and  private   borrowing
              arrangements.  Essentially  all  letters  of  credit  issued  have
              expiration  dates  within one year.  The credit  risk  involved in
              issuing letters of credit is essentially the same as that involved
              in  extending  loan  facilities  to  customers.   The  Corporation
              generally holds collateral  supporting those commitments for which
              collateral is deemed necessary.

              The Corporation has cash accounts in other  commercial  banks. The
              amount on  deposit  at two of these  banks at  December  31,  1999
              exceeded the  insurance  limits of the Federal  Deposit  Insurance
              Corporation by approximately $1,091,544.


Note 13.      Defined Contribution Retirement Plan

              The   Corporation  has  a  401(k)  Profit  Sharing  Plan  covering
              employees who have  completed six months of service and who are at
              least 21 years of age.  Employees may  contribute up to 20 percent
              of their  compensation  subject to certain limits based on federal
              tax   laws.   The   Corporation   makes   discretionary   matching
              contributions  equal to 50 percent of an  employee's  compensation
              contributed  to  the  Plan  up  to 3  percent  of  the  employee's
              compensation. Additional amounts may be contributed, at the option
              of  the  Corporation's   Board  of  Directors.   These  additional
              contributions generally amount to 2 percent of eligible employee's
              compensation.  Employer  contributions vest to the employee over a
              sixyear  period.  For the years ended December 31, 1999, 1998 and
              1997,  expense  attributable  to the  Plan  amounted  to  $43,100,
              $40,494 and $31,361, respectively.

                                      B-21
<PAGE>


Note 14.      Disclosures About Fair Value of Financial Instruments

              The following  methods and  assumptions  were used to estimate the
              fair value of each class of financial  instruments for which it is
              practicable to estimate that value:

                 Cash and ShortTerm Investments

                    For those shortterm  instruments,  the carrying amount is a
                    reasonable estimate of fair value.

                 Securities

                    For  securities,  fair  values  are based on  quoted  market
                    prices or dealer quotes.

                 Loans Held for Sale

                    Fair  values  are based on quoted  market  prices of similar
                    loans sold on the secondary market.

                 Loan Receivables

                    For certain  homogeneous  categories of loans,  such as some
                    residential mortgages,  and other consumer loans, fair value
                    is estimated  using the quoted market prices for  securities
                    backed by similar  loans,  adjusted for  differences in loan
                    characteristics.  The fair value of other  types of loans is
                    estimated  by  discounting  the future  cash flows using the
                    current  rates  at  which  similar  loans  would  be made to
                    borrowers  with  similar  credit  ratings  and for the  same
                    remaining maturities.

                 Deposit Liabilities

                    The fair value of demand  deposits,  savings  accounts,  and
                    certain  money  market  deposits  is the  amount  payable on
                    demand   at  the   reporting   date.   The  fair   value  of
                    fixedmaturity  certificates  of deposit is estimated  using
                    the  rates   currently   offered  for  deposits  of  similar
                    remaining maturities.

                 Accrued Interest

                    The carrying  amounts of accrued  interest  approximate fair
                    value.

                 Capital Lease Payable

                    The fair values of the  Corporation's  longterm  borrowings
                    (other than deposits) are estimated  using  discounted  cash
                    flow   analyses,   based   on  the   Corporation's   current
                    incremental  borrowing  rates for similar types of borrowing
                    arrangements.

                 Off-BalanceSheet Financial Instruments

                    The fair value of  commitments to extend credit is estimated
                    using  the  fees   currently   charged   to  enter   similar
                    agreements,  taking into account the remaining  terms of the
                    agreements  and  the  present   credit   worthiness  of  the
                    counterparties.  For fixedrate loan commitments, fair value
                    also  considers the  difference  between  current  levels of
                    interest rates and the committed rates.

                                      B-22
<PAGE>


                    The fair  value of  standby  letters  of credit is based on
                    fees  currently  charged  for similar  agreements  or on the
                    estimated  cost to terminate  them or  otherwise  settle the
                    obligations with the counterparties at the reporting date.

                    At December 31, 1999 and 1998,  the  difference  between the
                    carrying  amounts  and fair values of loan  commitments  and
                    standby letters of credit were immaterial.

<TABLE>
<CAPTION>


                                                                 1999                                   1998
                                                    ---------------------------------    ---------------------------------
                                                      Carrying             Fair              Carrying             Fair
                                                       Amount              Value              Amount              Value
                                                    -------------       -------------    ---------------      ------------
                                                               (Thousands)                            (Thousands)
<S>                                                 <C>                    <C>            <C>                    <C>

 Financial assets:
     Cash and shortterm
       investments                                     $ 14,628           $ 14,628            $ 12,814           $ 12,814
     Securities                                          10,727             10,564               9,962             10,002
     Loans held for sale                                     --                 --                 402                402
     Loans                                               74,527             75,915              65,065             68,265
     Accrued interest receivable                            535                535                 479                479


 Financial liabilities:
     Deposits                                          $ 93,343           $ 93,384            $ 82,295           $ 83,935
     Longterm debt                                          218                218                 224                247
     Accrued interest payable                               147                147                 141                141
</TABLE>


Note 15.      Minimum Regulatory Capital Requirements

              The Corporation (on a consolidated basis) and the Bank are subject
              to various  regulatory  capital  requirements  administered by the
              federal  banking   agencies.   Failure  to  meet  minimum  capital
              requirements   can  initiate   certain   mandatory   and  possibly
              additional   discretionary   actions  by   regulators   that,   if
              undertaken,   could   have  a  direct   material   effect  on  the
              Corporation's  and  Bank's  financial  statements.  Under  capital
              adequacy  guidelines  and  the  regulatory  framework  for  prompt
              corrective action, the Corporation and the Bank must meet specific
              capital  guidelines  that involve  quantitative  measures of their
              assets,   liabilities  and  certain   offbalancesheet  items  as
              calculated  under  regulatory  accounting  practices.  The capital
              amounts  and   classification  are  also  subject  to  qualitative
              judgments by the regulators about components, risk weightings, and
              other  factors.   Prompt  correction  action  provisions  are  not
              applicable to bank holding companies.

              Quantitative  measures established by regulation to ensure capital
              adequacy  require the Corporation and the Bank to maintain minimum
              amounts  and ratios  (set  forth in the table  below) of total and
              Tier 1 capital (as defined in the  regulations)  to  riskweighted
              assets (as  defined) and of Tier 1 capital (as defined) to average
              assets (as defined).  Management believes, as of December 31, 1999
              and  1998,  that the  Corporation  and the  Bank  met all  capital
              adequacy requirements to which they are subject.

                                      B-23
<PAGE>


              As of December 31,  1999,  the most recent  notification  from the
              Federal  Reserve  Bank  categorized  the Bank as well  capitalized
              under the regulatory framework for prompt corrective action. To be
              categorized  as well  capitalized,  an  institution  must maintain
              minimum total  riskbased,  Tier 1 riskbased  and Tier 1 leverage
              ratios as set forth in the table below.

              There are no conditions or events since the notification that
              management believes have changed the Bank's category. The
              Corporation's and the Bank's capital amounts and ratios as of
              December 31, 1999 and 1998 are also presented in the table.

<TABLE>
<CAPTION>

                                                                                     Minimum Capital
                                Actual                                                Requirement
                         ------------------                             -----------------------------------------
                           Amount    Ratio                               Amount                            Ratio
                         --------- ---------                            ----------                        -------
                                                                                   (Amount in Thousands)
<S>                       <C>       <C>      <C>                        <C>    <C>                        <C>
As of December 31, 1999:
  Total Capital to Risk
    Weighted Assets:
      Consolidated        $10,344   13.30%  (greater than or equal to)  $6,221 (greater than or equal to)  8.00%
      Marathon Bank       $ 9,900   12.75%  (greater than or equal to)  $6,210 (greater than or equal to)  8.00%
  Tier 1 Capital to Risk
    Weighted Assets:
      Consolidated        $ 9,575   12.31%  (greater than or equal to)  $3,110 (greater than or equal to)  4.00%
      Marathon Bank       $ 9,131   11.76%  (greater than or equal to)  $3,105 (greater than or equal to)  4.00%
  Tier 1 Capital to
    Average Assets:
      Consolidated        $ 9,575    8.90%  (greater than or equal to)  $4,305 (greater than or equal to)  4.00%
      Marathon Bank       $ 9,131    8.52%  (greater than or equal to)  $4,284 (greater than or equal to)  4.00%


As of December 31, 1998:
  Total Capital to Risk
    Weighted Assets:
      Consolidated        $ 9,518   13.89%  (greater than or equal to)  $5,481 (greater than or equal to)  8.00%
      Marathon Bank       $ 8,787   12.84%  (greater than or equal to)  $5,476 (greater than or equal to)  8.00%
  Tier 1 Capital to Risk
    Weighted Assets:
      Consolidated        $ 8,763   12.79%  (greater than or equal to)  $2,740 (greater than or equal to)  4.00%
      Marathon Bank       $ 8,032   11.73%  (greater than or equal to)  $2,738 (greater than or equal to)  4.00%
  Tier 1 Capital to
    Average Assets:
      Consolidated        $ 8,763    9.63%  (greater than or equal to)  $3,640 (greater than or equal to)  4.00%
      Marathon Bank       $ 8,032    8.90%  (greater than or equal to)  $3,610 (greater than or equal to)  4.00%
</TABLE>

<TABLE>
<CAPTION>
                                                                           Minimum
                                                                          To Be Well
                                                                      Capitalized Under
                                                                      Prompt Corrective
                                                                      Action Provisions
                                                         --------------------------------------------
                                                          Amount                               Ratio
                                                         ---------                            --------

<S>                           <C>                         <C>      <C>                         <C>
As of December 31, 1999:
  Total Capital to Risk
    Weighted Assets:
      Consolidated                                                              N/A
      Marathon Bank            (greater than or equal to)  $7,763  (greater than or equal to)   10.00%
  Tier 1 Capital to Risk
    Weighted Assets:
      Consolidated                                                             N/A
      Marathon Bank                                        $4,658  (greater than or equal to)    6.00%
  Tier 1 Capital to
    Average Assets:
      Consolidated                                                             N/A
      Marathon Bank            (greater than or equal to)  $5,356  (greater than or equal to)    5.00%


As of December 31, 1998:
  Total Capital to Risk
    Weighted Assets:
      Consolidated                                                             N/A
      Marathon Bank            (greater than or equal to)  $6,845  (greater than or equal to)   10.00%
  Tier 1 Capital to Risk
    Weighted Assets:
      Consolidated                                                             N/A
      Marathon Bank            (greater than or equal to)  $4,107  (greater than or equal to)    6.00%
  Tier 1 Capital to
    Average Assets:
      Consolidated                                                             N/A
      Marathon Bank            (greater than or equal to)  $4,512  (greater than or equal to)    5.00%
</TABLE>

                                      B-24
<PAGE>


Note 16.      Stock Option Plans

              The LongTerm  Incentive  Plan allows for incentive  stock options
              and  nonqualified  stock  options to be granted  with an  exercise
              price to be not less  than  100% of the Fair  Market  Value of the
              Stock on the day the stock  option is granted.  350,000  shares of
              the Corporation's Common Stock have been reserved for the issuance
              of stock options under the Incentive  Plan. All options expire ten
              years from the grant date.

              The fair value of each employeerelated  grant is estimated at the
              grant  date  using the  BlackScholes  optionpricing  model.  The
              estimates  were  calculated  using the following  weightedaverage
              assumptions for grants in 1998 and 1997: Dividend rate of .12% and
              .16%,  price volatility of 20.65% and 35.00%,  riskfree  interest
              rate of 4.50% and 5.00%,  respectively,  and  expected  lives of 5
              years. There were no options granted in 1999.

              The Corporation applies APB Opinion 25 in accounting for its stock
              option  plans.  Accordingly,  no  compensation  expense  has  been
              recognized  for 1999,  1998 or 1997.  Had  compensation  cost been
              determined on the basis of fair value  pursuant to FASB  Statement
              No.  123,  net income and  earnings  per share  would have been as
              follows:

<TABLE>
<CAPTION>

                                      1999               1998                 1997
                                   -----------        -----------          ---------
<S>                               <C>                <C>                  <C>

 Net income
   As reported                     $ 1,111,592        $ 1,180,311         $  998,362
                                   ===========        ===========         ==========
   Proforma                        $ 1,103,762        $ 1,166,453         $  970,561
                                   ===========        ===========         ==========
 Basic earnings per share
   As reported                     $      0.54        $      0.57         $     0.51
                                   ===========        ===========         ==========
   Proforma                        $      0.54        $      0.57         $     0.50
                                   ===========        ===========         ==========

 Diluted earnings per share
   As reported                     $      0.53        $      0.56         $     0.50
                                   ===========        ===========         ==========
   Proforma                        $      0.53        $      0.55         $     0.48
                                   ===========        ===========         ==========
</TABLE>

                                      B-25
<PAGE>


              Changes in the stock options  outstanding related to the LongTerm
              Incentive Plan for employees is summarized as follows:

<TABLE>
<CAPTION>

                                                  1999                     1998                       1997
                                        ----------------------     --------------------        --------------------
                                                      Weighted                 Weighted                   Weighted
                                          Number       Average       Number    Average          Number     Average
                                            of        Exercise         of      Exercise           of      Exercise
                                          Shares        Price        Shares     Price           Shares      Price
                                        ---------   ----------     ----------  --------        ---------  ---------
<S>                                     <C>         <C>            <C>          <C>             <C>       <C>
Outstanding at beginning of year          44,875     $   5.25        42,078    $   5.12             --      $   --
Granted                                       --           --         5,000        7.25         42,078        5.12
Exercised                                   (500)        5.00        (2,203)       7.39             --          --
Forfeited                                     --           --            --          --             --          --
                                        --------                   --------                   --------
Outstanding at end of year                44,375     $   5.25        44,875    $   5.25         42,078      $ 5.12
                                        ========                   ========                   ========
Options execisable at yearend             26,625     $   5.25        20,875    $   5.22         14,721      $ 5.12
Weightedaverage fair value of
   options granted during the year      $     --                   $   2.02                    $  1.97
</TABLE>






              Changes in the stock options outstanding related to the Long-Term
              Incentive Plan for directors is summarized as follows:

<TABLE>
<CAPTION>


                                                  1999                     1998                       1997
                                        ----------------------     --------------------        --------------------
                                                      Weighted                 Weighted                   Weighted
                                          Number       Average       Number    Average          Number     Average
                                            of        Exercise         of      Exercise           of      Exercise
                                          Shares        Price        Shares     Price           Shares      Price
                                        ---------   ----------     ----------  --------        ---------  ---------
<S>                                     <C>         <C>            <C>          <C>             <C>       <C>
Outstanding at beginning of year           90,000    $    5.00       100,000   $   5.00               --  $     --
Granted                                        --           --            --         --          100,000      5.00
Exercised                                      --           --        (5,000)      5.00               --        --
Forfeited                                      --           --        (5,000)      5.00               --        --
                                        ---------   ----------     ---------   --------        ---------  --------
Outstanding at end of year                 90,000    $    5.00        90,000   $   5.00          100,000  $   5.00
                                        =========                  =========                   ---------
Options execisable at yearend              63,000    $    5.00        54,000   $   5.00           50,000  $   5.00
 Weightedaverage fair value of
    options granted during the year      $     --                  $     --                              $   1.94

</TABLE>

                                      B-26
<PAGE>


              Information pertaining to options outstanding at December 31, 1999
              is as follows:
<TABLE>
<CAPTION>

                                     Options Outstanding                    Options Exercisable
                           -----------------------------------------     -------------------------
                                            Weighted
                                            Average        Weighted                     Weighted
                                           Remaining        Average                      Average
      Exercise                Number      Contractual      Exercise        Number       Exercise
       Price               Outstanding       Life            Price       Exercisable      Price
--------------------       -----------    ------------     ---------     -----------    ----------
<S>                        <C>            <C>             <C>            <C>           <C>
    $      5.00               129,375      6.75 years       $ 5.00          86,625        $ 5.00
           7.25                 5,000      8.75 years         7.25           3,000          7.25
                           -----------
 Outstanding at
   end of year                134,375      6.82 years       $ 5.08          89,625        $ 5.08
                           ===========                                   ===========
</TABLE>




Note 17.      Earnings Per Share

              The following shows the weighted  average number of shares used in
              computing  earnings  per share and the effect on weighted  average
              number of shares of  diluted  potential  common  stock.  Potential
              dilutive common stock had no effect on income  available to common
              shareholders.

<TABLE>
<CAPTION>


                              1999                       1998                    1997
                        ---------------------     ------------------     ---------------------
                                       Per                     Per                      Per
                                      Share                   Share                    Share
                         Shares       Amount        Shares    Amount       Shares      Amount
                        --------    ---------     ---------  --------    ----------   --------
<S>                    <C>           <C>           <C>       <C>           <C>        <C>
Basic earnings
  per share             2,054,748   $   0.54      2,058,932  $  0.57      1,951,172    $  0.51
                                    ========                 =======                  ========
Effect of dilutive
  securities:
     Stock options         34,655                    53,077                  45,421
     Warrants                  --                        --                  19,560
                        ---------                 ---------               ---------
Diluted earnings
  per share             2,089,403   $   0.53      2,112,009   $ 0.56      2,016,153    $  0.50
                        =========   ========      =========  =======      =========   ========
</TABLE>





Options of 5,000 were not  included in  computing  diluted EPS for 1999  because
their effects were antidilutive.

                                      B-27
<PAGE>


Note 18.  Parent Corporation Only Financial Statements


                            MARATHON FINANCIAL CORPORATION
                              (Parent Corporation Only)

                                    Balance Sheets
                              December 31, 1999 and 1998



<TABLE>
<CAPTION>


                                                          1999               1998
                                                      -----------       -----------
<S>                                                   <C>              <C>

 Assets
   Cash on deposit with subsidiary bank               $   127,156       $   130,241
   Securities                                             495,728           761,344
   Accrued interest receivable                              7,168            14,545
   Investment in capital stock of subsidiary            9,004,126         8,052,263
   Other assets                                             1,805                --
                                                      -----------       -----------
      Total assets                                    $ 9,635,983       $ 8,958,393
                                                      ===========       ===========
Liabilities
   Income taxes payable                               $     6,622       $     3,225
   Dividends payable                                      184,180           165,055
                                                      -----------       -----------
                                                      $   190,802       $   168,280
                                                      -----------       -----------
 Shareholders' Equity
   Preferred stock                                    $        --       $        --
   Common stock                                         2,046,441         2,063,186
   Capital surplus                                      7,750,987         7,849,522
   Retained earnings (deficit)                           (222,155)       (1,149,567)
   Accumulated other comprehensive income (loss)         (130,092)           26,972
                                                      -----------       -----------
      Total shareholders' equity                      $ 9,445,181       $ 8,790,113
                                                      -----------       -----------
      Total liabilities and shareholders' equity      $ 9,635,983       $ 8,958,393
                                                      ===========       ===========
</TABLE>

                                      B-28
<PAGE>


                   MARATHON FINANCIAL CORPORATION
                     (Parent Corporation Only)


                        Statements of Income
            Years Ended December 31, 1999, 1998 and 1997




<TABLE>
<CAPTION>




                                                              1999           1998            1997
                                                           ----------      ----------      ----------
<S>                                                        <C>             <C>            <C>

Income
   Interest on investment securities, taxable              $   31,514      $   14,447      $    5,945
   Interest on securities available for sale, taxable             606          31,647           8,625
                                                           ----------      ----------      ----------
     Total income                                          $   32,120      $   46,094      $   14,570
                                                           ----------      ----------      ----------

Expenses, other                                            $   13,069          18,607      $   11,927
                                                           ----------      ----------      ----------

   Income before income taxes and
    undistributed income of subsidiary                     $   19,051      $   27,487      $    2,643

Provision for income tax                                        6,622              --              --
                                                           ----------      ----------      ----------
   Income before undistributed
     income of subsidiary                                  $   12,429      $   27,487      $    2,643

Undistributed income of subsidiary                          1,099,163       1,152,824         995,719
                                                           ----------      ----------      ----------
   Net income                                              $1,111,592      $1,180,311      $  998,362
                                                           ==========      ==========      ==========
</TABLE>

                                      B-29
<PAGE>


                    MARATHON FINANCIAL CORPORATION
                       (Parent Corporation Only)



                       Statements of Cash Flows
             Years Ended December 31, 1999, 1998 and 1997






<TABLE>
<CAPTION>


                                                             1999               1998              1997
                                                          -----------       -----------       -----------
<S>                                                       <C>               <C>               <C>

Cash Flows from Operating Activities
  Net income                                              $ 1,111,592       $ 1,180,311       $   998,362
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
  Amortization of securities discounts, net                       820             2,195                --
  Undistributed income of subsidiary                       (1,099,163)       (1,152,824)         (995,719)
  Decrease in prepaid expenses                                     --                --               283
  (Increase) decrease in accrued interest receivable            7,377                 1           (14,545)
  Increase (decrease) in accounts payable                       6,622                --            (1,363)
                                                          -----------       -----------       -----------
     Net cash provided by (used in)
      operating activities                                $    27,248       $    29,683       $   (12,982)
                                                          -----------       -----------       -----------

Cash Flows from Investing Activities
  Proceeds from maturities of investment securities       $   250,000       $   150,000       $        --
  Purchase of investment securities                                --                --          (401,490)
  Purchase of securities available for sale                        --                --          (502,561)
                                                          -----------       -----------       -----------
     Net cash provided by (used in)
       investing activities                               $   250,000       $   150,000       $  (904,051)
                                                          -----------       -----------       -----------

Cash Flows from Financing Activities
  Net proceeds from issuance of common stock              $     2,500       $    41,271       $   962,440
  Acquisition of common stock                                (117,780)               --                --
  Payment of dividends                                       (165,053)         (143,920)         (111,810)
                                                          -----------       -----------       -----------
     Net cash provided by (used in)
      financing activities                                $  (280,333)      $  (102,649)      $   850,630
                                                          -----------       -----------       -----------

     Increase (decrease) in cash
      and cash equivalents                                $    (3,085)      $    77,034       $   (66,403)


Cash and Cash Equivalents
  Beginning                                                   130,241            53,207           119,610
                                                          -----------       -----------       -----------


  Ending                                                  $   127,156       $   130,241       $    53,207
                                                          ===========       ===========       ===========

Supplemental Schedule of Noncash
  Investing and Financing Activities,
  unrealized gain (loss) on securities
  available for sale                                      $  (237,976)      $    36,064       $     4,295
                                                          ===========       ===========       ===========
</TABLE>


                                      B-30
<PAGE>

<TABLE>
                                 MARATHON FINANCIAL CORPORATION & SUBSIDIARY

                                    CONSOLIDATED STATEMENTS OF CONDITION

                                                    as of

                                    March 31, 2000 and December 31, 1999
<CAPTION>


          ASSETS
                                                                    3/31/00                       12/31/99
                                                                    -------                       --------
<S>                                                              <C>                            <C>
Cash and due from banks                                          $  5,338,800                   $ 8,011,673
Federal funds sold                                                 12,000,000                     6,616,000
Securities (fair value:  2000, $11,414,315 and
  1999, $10,564,216)                                               11,604,219                    10,727,548
Loans held for resale                                                 176,316                             0
Loans, net                                                         79,230,677                    74,526,925
Bank premises and equipment, net                                    2,765,810                     2,591,033
Accrued interest receivable                                           567,147                       534,911
Other real estate                                                     165,095                       183,218
Other assets                                                          625,737                       493,870
                                                                 ------------                  ------------

     Total assets                                                $112,473,801                  $103,685,178
                                                                 ============                  ============

          LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
  Deposits:
     Noninterest-bearing demand deposits                         $ 16,055,795                   $12,940,831
     Savings and interest bearing demand deposits                  32,463,412                    30,002,843
     Time deposits                                                 53,471,305                    50,398,868
                                                                 ------------                  ------------
           Total deposits                                        $101,990,512                   $93,342,542
     Interest expense payable                                         163,821                       147,164
     Accounts payable and accrued expenses                            350,063                       348,075
     Capital lease payable                                            216,411                       218,036
     Dividends Payable                                                      0                       184,180
                                                                 ------------                  ------------
           Total liabilities                                     $102,720,807                   $94,239,997
                                                                 ------------                  ------------

STOCKHOLDERS' EQUITY
  Preferred stock, Series A, 5% non-cumulative, no par
    Value: 1,000,000 shares authorized and unissued                         0                             0
  Common stock, $1 par value, 20,000,000 shares
    Authorized, 2000, 2,051,441 and 1999, 2,046,441 shares
    Issued and outstanding                                        $ 2,051,441                   $ 2,046,441
  Capital surplus                                                   7,770,987                     7,750,987
  Retained earnings (deficit)                                          70,579                      (222,155)
  Accumulated other comprehensive income (loss)                      (140,013)                     (130,092)
                                                                 ------------                  ------------
        Total stockholders' equity                                $ 9,752,994                   $ 9,445,181
                                                                 ------------                  ------------


        Total liabilities and stockholders' equity               $112,473,801                  $103,685,178
                                                                 ============                  ============

                         See Accompanying Notes to Consolidated Financial Statements

</TABLE>

                                      B-31
<PAGE>

<TABLE>
                                 MARATHON FINANCIAL CORPORATION & SUBSIDIARY
                                      CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
                                                                               For the Three Months
                                                                                  Ended March 31,
                                                                         2000                        1999
                                                                         ----                        ----
<S>                                                                   <C>                         <C>
Interest and dividend income:
  Interest and fees on loans                                          $1,876,065                  $1,714,295
  Interest on investment securities held for maturity:
     Taxable                                                              75,543                      67,294
     Nontaxable                                                            9,418                           0
  Interest and dividends on securities available for sale:
     Taxable                                                              62,365                      62,997
     Nontaxable                                                            5,591                         992
     Dividends                                                             5,944                       4,018
  Interest on federal funds sold                                         130,231                      89,584
                                                                      ----------                  ----------
       Total interest and dividend income                             $2,165,157                  $1,939,180
                                                                      ----------                  ----------

Interest expense:
  Interest on deposits                                                $  908,889                   $ 823,540
  Interest on leases payable                                               4,350                       4,474
                                                                      ----------                  ----------
       Total interest expense                                         $  913,239                   $ 828,014
                                                                      ----------                  ----------

      Net interest income                                             $1,251,918                  $1,111,166


Provision for loan losses                                                 73,400                      60,000
                                                                      ----------                  ----------
      Net interest income after provision for loan losses             $1,178,518                  $1,051,166
                                                                      ----------                  ----------

Other Income:
  Service charges on deposit accounts                                  $ 180,768                   $ 180,737
  Commissions and fees                                                    11,653                       5,861
  Other                                                                   10,738                      12,496
                                                                      ----------                  ----------
       Total other income                                              $ 203,159                   $ 199,094
                                                                      ----------                  ----------

Other expenses:
  Salaries and employee benefits                                       $ 468,547                   $ 459,181
  Net occupancy expense of premises                                       56,956                      54,823
  Furniture and equipment                                                 73,641                      86,110
  Legal and professional                                                  18,215                      18,047
  Stationery and supplies                                                 42,602                      33,332
  Postage                                                                 31,600                      27,516
  Marketing                                                               17,079                      14,097
  Telephone                                                               28,144                      14,720
  Directors' fees                                                         29,175                      25,100
  ATM expenses                                                            50,720                      31,047
  Other operating expenses                                               129,949                     117,659
                                                                      ----------                  ----------
       Total other expenses                                             $946,628                   $ 881,632
                                                                      ----------                  ----------

       Income before income taxes                                       $435,049                   $ 368,628
Provision for income tax expense                                         142,316                     132,140
                                                                      ----------                  ----------
       Net income                                                      $ 292,733                   $ 236,488
                                                                      ==========                  ==========

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

                         See Accompanying Notes to Consolidated Financial Statements
</TABLE>


                                      B-32
<PAGE>

<TABLE>
                                             MARATHON FINANCIAL CORPORATION & SUBSIDIARY

                                     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                         For the Three Months Ended March 31, 2000 and 1999
<CAPTION>
                                                                                    Accumulated
                                                                    Retained           Other                              Total
                                          Common       Capital      Earnings       Comprehensive     Comprehensive     Stockholders
                                          Stock        Surplus      (Deficit)       Income/Loss          Income           Equity
                                          -----        -------      ---------       -----------          ------           ------

<S>                                    <C>          <C>           <C>                <C>                <C>           <C>
Balance, December 31, 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
         (Net of Tax, $22,412)                                                          (43,507)         (43,507)        (43,507)
                                                                                                        --------

   Total comprehensive income                                                                           $192,981
                                                                                                        ========
   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
                                       ==========   ==========    ===========         ==========                      ==========

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

Balance, December 31, 1999              $2,046,441    $7,750,987   $(222,154)         $(130,092)                      $9,445,182
   Comprehensive income:
      Net income                                                     292,733                            $292,733         292,733
      Other comprehensive income,
         unrealized (loss) on
         securities available for sale
         (Net of Tax, $5,111)                                                            (9,921)          (9,921)         (9,921)
                                                                                                        --------
   Total comprehensive income                                                                           $282,812
                                                                                                        ========

    Issuance of common stock -
        exercise of stock options
        (5000 shares)                       5,000       20,000            --                 --                           25,000
                                       ----------   ----------    -----------        ----------                       ----------

Balance, March 31, 2000                $2,051,441   $7,770,987       $70,579          $(140,013)                      $9,752,994
                                       ==========   ==========    ===========         ==========                      ==========


                                     See Accompanying Notes to Consolidated Financial Statements
</TABLE>


                                      B-33
<PAGE>
<TABLE>
                                    MARATHON FINANCIAL CORPORATION & SUBSIDIARY

                                       CONSOLIDATED STATEMENTS OF CASH FLOW

                                For the Three Months Ended March 31, 2000 and 1999
<CAPTION>

                                                                              2000                         1999
                                                                              ----                         ----
<S>                                                                          <C>                         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                                $292,733                    $236,488
   Adjustments to reconcile net income
     to net cash provided by operating activities:
        Amortization                                                           12,595                      27,897
        Depreciation                                                           57,503                      58,284
        Net discount accretion on securities                                    2,397                      (1,842)
        Provision for loan loss                                                73,400                      60,000
        Loss on sale of other real estate                                      10,264                          --
        Origination of loans available for sale                            (1,090,332)                 (2,320,809)
        Proceeds from sale of loans available for sale                        914,316                   2,492,913
       Changes in assets and liabilities:
          (Increase) in other assets                                         (139,351)                     (4,748)
          (Increase) decrease in accrued interest receivable                  (32,237)                      1,809
          Increase in accounts payable and accrued expenses                     1,988                      45,685
          Increase (decrease) in interest expense payable                      16,657                     (1,915)
                                                                           ----------                  ----------
                Net cash provided by operating activities                    $119,933                    $593,762
                                                                           ----------                  ----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Proceeds from maturities and principal
      Payments on securities held to maturity                                      --                     650,000
   Proceeds from maturities on securities available for sale                      461                     176,937
   Purchase of securities available for sale                                 (298,758)                   (427,570)
   Purchase of securities held to maturity                                   (595,803)                         --
   Net (increase) in loans                                                 (4,777,452)                 (6,461,610)
   Purchase of bank premises and equipment                                   (232,278)                    (48,497)
   Proceeds from sale of other real estate                                      7,859                          --
                                                                           ----------                  ----------
             Net cash used in investing activities                        $(5,895,971)                $(6,110,740)
                                                                           ----------                  ----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase in demand deposits,
      NOW accounts and savings accounts                                   $ 5,575,533                 $ 3,550,388
   Net increase (decrease) in certificates of deposits                      3,072,437                    (387,841)
   Principal payments on capital lease payable                                 (1,625)                     (1,500)
   Cash dividends paid                                                       (184,180)                   (165,055)
   Proceeds from issuance of common stock                                      25,000                       2,500
   Purchase of common stock                                                        --                     (21,752)
                                                                           ----------                  ----------
             Net cash provided by financing activities                    $ 8,487,165                 $ 2,976,740
                                                                           ----------                  ----------

Increase (decrease) in cash and cash equivalents                           $2,711,127                 $(2,540,238)
          Beginning                                                        14,627,673                  12,814,428
                                                                           ----------                  ----------
          Ending                                                          $17,338,800                 $10,274,190
                                                                          ===========                 ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
   Cash payments for:
        Interest                                                            $ 896,582                   $ 829,929
                                                                            =========                   =========

        Income taxes                                                        $   7,601                   $  19,516
                                                                            =========                   =========

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
   Unrealized (loss) on securities available for sale                      $  (15,032)                 $  (65,920)
                                                                           ==========                  ==========

                            See Accompanying Notes to Consolidated Financial Statements
</TABLE>

                                      B-34
<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,  2000  and  December  31,  1999,  and the  result  of
         operations and cash flows for the three months ended March 31, 2000 and
         1999.  The statements  should be read in conjunction  with the Notes to
         Financial  Statements  included in the Corporation's  Annual Report for
         the year ended December 31, 1999.

2.       The results of  operations  for the three month  period ended March 31,
         2000 and 1999  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, 2000
         and December 31, 1999 are:
<TABLE>
<CAPTION>
                                                                               March 31, 2000            December 31, 1999
         Held to Maturity                                                      Amortized Cost             Amortized Cost
         ----------------                                                      --------------             --------------

         <S>                                                                      <C>                         <C>
         US government & federal agencies                                         $5,283,421                  $4,687,181
         Obligations of state & political subdivisions                               958,794                     959,610
                                                                                  ----------                  ----------
                                                                                  $6,242,215                  $5,646,791
                                                                                  ==========                  ==========
<CAPTION>
                                                                                  Fair Value                  Fair Value
                                                                                  ----------                  ----------

         US government & federal agencies                                         $5,119,876                  $4,541,063
         Obligations of state & political subdivisions                               932,435                     942,396
                                                                                  ----------                  ----------
                                                                                  $6,052,311                  $5,483,459
                                                                                  ==========                  ==========

<CAPTION>


                                                                              March 31, 2000           December 31, 1999
         Available for Sale                                                   Amortized Cost              Amortized Cost
         ------------------                                                   --------------              --------------

         US government & federal agencies                                         $4,412,726                  $4,115,468
         Mortgage backed securities                                                   14,687                      15,042
         Obligations of state & political subdivisions                               566,310                     567,007
         Other Securities                                                            580,350                     580,350
                                                                                  ----------                  ----------
                                                                                  $5,574,073                  $5,277,867
                                                                                  ==========                  ==========
<CAPTION>
                                                                                  Fair Value                  Fair Value
                                                                                  ----------                  ----------

         US government & federal agencies                                         $4,226,546                  $3,944,510
         Mortgage backed securities                                                   15,316                      15,765
         Obligations of state & Political                                            539,792                     540,132
         subdivisions                                                                580,350                     580,350
                                                                                  ----------                  ----------
         Other Securities                                                         $5,362,004                  $5,080,757
                                                                                  ==========                  ==========
</TABLE>


                                      B-35
<PAGE>

<TABLE>
4.       The consolidated entity's loan portfolio is composed of the following:
<CAPTION>

                                                                              March 31, 2000           December 31, 1999
                                                                              --------------           -----------------

         <S>                                                                     <C>                         <C>
         Commercial                                                              $44,003,236                 $40,374,011
         Real estate-mortgage                                                     14,285,892                  14,353,721
         Real estate-construction                                                 10,729,688                   9,759,118
         Installment loans to individuals                                         11,013,999                  10,809,485
                                                                                 -----------                 -----------
                                                                                 $80,032,815                 $75,296,335
         Less:  allowance for loan losses                                            802,138                     769,410
                                                                                 -----------                 -----------
         Loans, net                                                              $79,230,677                 $74,526,925
                                                                                 ===========                 ===========

         The  company  had  non-accrual  loans,  which  were  excluded  from the
         impaired loan  disclosure  under FASB 114, which amounted to $71,087 on
         March 31, 2000 and $40,541 on December 31, 1999.


5.       Reserve for Loan Losses:
<CAPTION>
                                                                              March 31, 2000           December 31, 1999
                                                                              --------------           -----------------

         Balance, beginning                                                        $ 769,410                   $ 754,597
         Provision charged to operating expense                                       73,400                     260,000
         Recoveries                                                                    8,487                      27,505
         Loan losses charged to the allowance                                        (49,159)                   (272,692)
                                                                                 -----------                 -----------
         Balance, ending                                                           $ 802,138                    $769,410
                                                                                 ===========                 ===========


6.       Earnings Per Share

         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>
                                                                            3/31/00                       3/31/99
                                                                            -------                       -------
                                                                                   Per Share                     Per Share
                                                                     Shares         Amount          Shares         Amount
                                                                     ------         ------          ------         ------
         Basic earnings per share                                  2,050,764        $   .14       2,062,524        $  .11
                                                                                    =======                        ======
         Effect of dilutive securities:
              Stock options                                           20,379                         43,958
                                                                   ---------        -------       ---------        ------
         Diluted earnings per share                                2,071,143        $   .14       2,106,482        $  .11
                                                                   =========        =======       =========        ======
</TABLE>

7.       New Accounting Pronouncements

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



                                      B-36
<PAGE>

8.       Proposed Merger

         Rockingham  Heritage Bank (NASDAQ Small Cap: RKNG) and the  Corporation
         have approved a definitive merger of equals agreement. This transaction
         is subject to the approval of regulatory  authorities and  shareholders
         of both MFC and  RKNG.  Under the terms of the  merger  agreement,  the
         existing  holding  company of Marathon  Financial  Corporation  will be
         utilized,  changing  its name to  Premier  Community  Bankshares,  Inc.
         (Premier).  Marathon and  Rockingham  will  operate as separate  banks.
         Rockingham  Heritage  shareholders  will receive 1.58 shares of Premier
         common stock for each share of Rockingham  Heritage  common stock.  The
         transaction will be a tax-free  exchange of shares and be accounted for
         as a pooling-of-interest. It is anticipated that the merger will become
         effective in the third quarter of 2000.  As of December 31, 1999,  RKNG
         had  assets  of  $101.1  million,  net  loans of $77.9  million,  total
         deposits  of $87.8  million  and  total  stockholders'  equity of $11.6
         million.





                                      B-37
<PAGE>

                                                                      Appendix C



                                  July __, 2000

Board of Directors
Marathon Financial Corporation
4095 Valley Pike
Stephens City, Virginia 22655-0998

Dear Board Members:

         In  connection  with  the  proposed  "merger  of  equals"  of  Marathon
Financial  Corporation  ("Marathon") and Rockingham Heritage Bank ("Rockingham")
you have asked us to render an opinion as to whether the financial  terms of the
Amended and Restated Agreement and Plan of Merger,  including the Plan of Merger
attached  thereto  (the  "Plan of  Merger")  dated as of June 21,  2000  between
Marathon  and  Rockingham,  are fair  from a  financial  point  of view,  to the
stockholders  of Marathon.  The Amended and Restated Plan of Merger provides for
the merger of Marathon  Merger Bank, a wholly owned  subsidiary of Marathon (the
"Merger  Subsidiary")  with and into  Rockingham and  stockholders of Rockingham
will receive  common stock of Marathon  (the  "Merger").  Under the terms of the
Agreement,  upon  consummation  of the  Merger,  each  share of common  stock of
Rockingham,  par value  $2.50  per  share,  automatically  shall  become  and be
converted into 1.58 shares of the common stock of Marathon,  par value $1.00 per
share ("Marathon Common Stock") and each option  outstanding of Rockingham shall
be  converted to options of Marathon  Common Stock based upon the same  exchange
ratio.  Cash will be paid in lieu of  fractional  shares.  As of the date of the
Plan of Merger,  Rockingham  had  1,589,940  shares of common  stock  issued and
outstanding.  Under the terms of the Plan of Merger,  and based on the  exchange
ratio of 1.58 shares of Marathon for each share of Rockingham  common stock,  an
aggregate  of  2,512,105  shares of Marathon  Common Stock may be issued for the
Rockingham common stock  outstanding,  and options for shares of Marathon Common
Stock will be exchanged for options for Rockingham Common Stock.

         McKinnon & Company,  Inc.  ("McKinnon")  is an investment  banking firm
that  specializes  in Virginia  community  banks and  thrifts.  In twelve  years
McKinnon has been lead managing  underwriter in approximately  thirty-six public
stock  offerings  for  Virginia  community  banks and  thrifts and has served as
financial advisor,  including providing fairness opinions,  to numerous Virginia
community  banks  and  thrifts.  McKinnon,  as  part of its  investment  banking
business,  is engaged in the evaluation of businesses,  particularly  banks, and
their securities,  in connection with mergers and  acquisitions,  initial public
offerings,   private  placements  and  evaluations  for  estates  and  corporate
recapitalizations.   McKinnon  is  also  a  market  maker  in   Marathon's   and
Rockingham's Common Stocks on the NASDAQ Small Cap Bulletin Board Market and was
the exclusive managing underwriter of the common stock issues of each, including
575,000 of Marathon issued September 26, 1996 at $5.00 per



                                      C-1
<PAGE>

Page 2

share,  and  approximately  253,575  shares of  Rockingham at $9.50 per share on
February 4, 1998  (adjusted  for a  subsequent  2/1 stock split and two 5% stock
dividends).  McKinnon is also a market maker in Virginia  community  bank stocks
listed on NASDAQ and the OTC Bulletin Board. McKinnon believes it has a thorough
working knowledge of the banking industry throughout Virginia.

         In developing  our opinion,  we have among other  things,  reviewed and
analyzed  material  bearing  upon the  financial  and  operating  conditions  of
Marathon,  Rockingham,  and,  on a pro  forma  basis,  Marathon  and  Rockingham
combined,  and material  proposed in connection  with the Agreement,  including,
among other things, the following:

         (1) the  Agreement  and Plan of Merger and the Plan of Merger, dated as
of April 18, 2000 among  Marathon and Rockingham;

         (2) the  registration  statement filed with the Securities and Exchange
Commission  in  connection  with the  proposed  Merger,  including a  prospectus
relating  to  2,512,105  shares  of  common  stock of  Marathon,  and the  Proxy
Statement  relating to the  special  meetings of  stockholders  of Marathon  and
Rockingham held on August ___, 2000;

         (3) Marathon's and Rockingham's financial results for fiscal years 1992
through  1999,  and  the  first  and  second  quarters  ended  March  31,  2000,
respectively,  and certain  documents  and  information  we deem relevant to our
analysis;

         (4) held discussions with senior  management of Marathon and Rockingham
regarding past and current  business  operations of, and outlook for,  Marathon,
Rockingham,  including  trends,  the terms of the proposed  Merger,  and related
matters;

         (5) reviewed the reported price and trading  activity of Marathon's and
Rockingham  Common Stock and  compared  financial  and stock market  information
(when  available)  for Marathon and  Rockingham  with  similar  information  for
certain other companies, and securities for which are publicly traded;

         (6) reviewed   the   financial   terms  of  certain   recent   business
combinations which we deemed comparable in whole or in part;

         (7)  performed  such  other  studies  and  analyses  as  we  considered
appropriate,  including  an  analysis of the pro forma  financial  impact of the
Merger on Marathon and Rockingham;

         (8) reviewed other published  information,  performed certain financial
analyses and considered other factors and information which we deem relevant.



                                      C-2
<PAGE>
Page 3

         In  conducting  our review and arriving at our opinion,  we have relied
upon and assumed the accuracy and  completeness of the information  furnished to
us  by  or  on  behalf  of  Marathon  and  Rockingham.  We  have  not  attempted
independently  to  verify  such  information,  nor have we made any  independent
appraisal  of the assets of Marathon or  Rockingham.  We have taken into account
our assessment of general economic,  financial market and industry conditions as
they exist and can be evaluated at the date hereof, as well as our experience in
business valuation in general.

         We have been  retained by you as a financial  advisor to Marathon  with
respect to the  proposed  Merger.  In the normal  course of business  McKinnon &
Company,  Inc. is a market maker in the common stock of Marathon and  Rockingham
listed on the NASDAQ Small Cap Bulletin Board System. Our opinion is directed to
the Board of Directors of Marathon.  We  participated in some of the discussions
but we did not  recommend  the  structure  or give  any  opinion  regarding  the
business reasons for doing this proposed Merger.

         On the basis of our analysis and review and in reliance on the accuracy
and  completeness  of  the  information  furnished  to us  and  subject  to  the
conditions noted above, ti is our opinion that, as of the date hereof, the terms
of the  Agreement  are fair,  from a financial  point of view, to the holders of
Marathon Common Stock.


                                                  Very truly yours,



                                                  McKinnon & Company, Inc.




                                      C-3
<PAGE>

                                                                      Appendix D


                          INDEX TO FINANCIAL STATEMENTS

                            ROCKINGHAM HERITAGE BANK


<TABLE>
<CAPTION>
                                                                                                               Page

<S>                                                                                                      <C>
Independent Auditor's Report of McGladrey & Pullen, LLP.........................................................D-2

Consolidated Financial Statements

     Consolidated Balance Sheets as of December 31, 1999 and 1998...............................................D-3

     Consolidated Statements of Income for the years ended December 31, 1999 and 1998...........................D-4

     Consolidated Statements of Stockholders' Equity for the years ended
     December 31, 1999 and 1998.................................................................................D-5

     Consolidated Statements of Cash Flows for the years ended December 31, 1999 and 1998.......................D-6

Notes to Consolidated Financial Statements...............................................................D-8 - D-22

Interim Consolidated Financial Statements (Unaudited)

     Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999....................................D-23

     Consolidated Statements of Income for the three months ended March 31, 2000 and 1999......................D-24

     Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2000
     and 1999..................................................................................................D-25

     Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999..................D-26

Notes to Consolidated Financial Statements (unaudited).........................................................D-28

</TABLE>







                                      D-1
<PAGE>



                          Independent Auditor's Report



To the Board of Directors
Rockingham Heritage Bank
Harrisonburg, Virginia

We have  audited the  accompanying  consolidated  balance  sheets of  Rockingham
Heritage Bank and  Subsidiary as of December 31, 1999 and 1998,  and the related
consolidated statements of income,  stockholders' equity, and cash flows for the
years then ended.  These  financial  statements  are the  responsibility  of the
Bank's  management.  Our  responsibility  is to  express  an  opinion  on  these
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Rockingham Heritage
Bank and  Subsidiary  as of December  31, 1999 and 1998 and the results of their
operations  and their cash flows for the years  then  ended in  conformity  with
generally accepted accounting principles.


                                         /s/ McGladrey & Pullen, LLP


Harrisonburg, Virginia
January 19, 2000, except for Note 17 as to which the date is February 8, 2000
and Notes 18 and 19 as to which the date is July 11, 2000



                                      D-2
<PAGE>


ROCKINGHAM HERITAGE BANK

CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
                                                                                              1999                  1998
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>                  <C>
ASSETS
Cash and due from banks (Note 2)                                                        $    3,906,883       $    3,820,692
Federal funds sold                                                                           7,677,000            5,602,000
                                                                                        -----------------------------------
          Cash and cash equivalents                                                         11,583,883            9,422,692

Investment securities available-for-sale (Note 3)                                            6,410,053            5,495,213
Investment securities held-to-maturity (fair value
  market value 1999 $1,941,134; 1998 $2,918,186)  (Note 3)                                   1,948,895            2,861,407
Loans, net (Notes 4 and 5)                                                                  77,947,154           64,949,417
Bank premises and equipment  (Note 6)                                                        2,169,319            2,077,221
Accrued income receivable                                                                      532,872              424,907
Deferred income taxes  (Note 9)                                                                342,500              238,300
Income taxes receivable                                                                              -               90,848
Other assets                                                                                   207,595              231,354
                                                                                        -----------------------------------
          Total assets                                                                  $  101,142,271       $   85,791,359
                                                                                        ===================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
    Deposits:  (Note 7)
       Interest bearing                                                                 $   75,834,932       $   62,978,999
       Noninterest bearing                                                                  11,975,914           10,730,087
                                                                                        -----------------------------------
                                                                                            87,810,846           73,709,086
    Borrowed funds (Note 8)                                                                  1,302,383            1,260,689
    Accrued interest and other liabilities                                                     389,670              306,362
    Income taxes payable                                                                        11,652                    -
                                                                                        -----------------------------------
          Total liabilities                                                                 89,514,551           75,276,137
                                                                                        -----------------------------------
Commitments and Contingencies  (Notes 6, 8, 12, 13 and 18)

Stockholders' Equity:  (Notes 10 and 14)
    Common stock - $5 par value; authorized 2,000,000
     shares; issued 1999 1,589,843 shares; 1998 1,589,811 shares                             7,949,215            7,570,530
    Additional paid-in capital                                                               1,974,989            1,596,273
    Retained earnings                                                                        1,768,375            1,324,840
    Accumulated other comprehensive income (loss)                                              (64,859)              23,579
                                                                                        -----------------------------------
          Total stockholders' equity                                                        11,627,720           10,515,222
                                                                                        -----------------------------------
          Total liabilities and stockholders' equity                                    $  101,142,271       $   85,791,359
                                                                                        ===================================
</TABLE>


See Notes to Consolidated Financial Statements.


                                      D-3
<PAGE>

ROCKINGHAM HERITAGE BANK

CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
                                                                                               1999                 1998
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>                  <C>
Interest income:
    Interest and fees on loans                                                          $    6,370,838       $    5,547,903
    Interest and dividends on investment securities                                            481,900              361,646
    Interest on federal funds sold                                                             334,645              359,826
                                                                                        -----------------------------------
                                                                                             7,187,383            6,269,375
                                                                                        -----------------------------------

Interest expense:
    Deposits                                                                                 3,064,799            2,764,875
    Borrowed funds                                                                              69,863               57,520
                                                                                        -----------------------------------
                                                                                             3,134,662            2,822,395
                                                                                        -----------------------------------

          Net interest income                                                                4,052,721            3,446,980
Provision for loan losses  (Note 5)                                                            120,000              144,000
                                                                                        -----------------------------------
          Net interest income after provision for loan losses                                3,932,721            3,302,980
                                                                                        -----------------------------------

Noninterest income:
    Service fees                                                                               337,687              287,035
    Other                                                                                       33,470               40,994
                                                                                        -----------------------------------
                                                                                               371,157              328,029
                                                                                        -----------------------------------
Noninterest expenses:
    Salaries and wages                                                                       1,160,657              952,577
    Employee benefits                                                                          249,327              208,750
    Occupancy                                                                                  380,762              323,159
    Outside services                                                                           189,454              156,342
    Other                                                                                      504,242              384,309
                                                                                        -----------------------------------
                                                                                             2,484,442            2,025,137
                                                                                        -----------------------------------

          Income before provision for income taxes                                           1,819,436            1,605,872
Provision for income taxes  (Note 9)                                                           618,500              544,000
                                                                                        -----------------------------------


          Net income                                                                    $    1,200,936       $    1,061,872
                                                                                        ===================================

Basic earnings per share                                                                $          .76       $          .70
                                                                                        ===================================

Diluted earnings per share                                                              $          .74       $          .67
                                                                                        ===================================

</TABLE>


See Notes to Consolidated Financial Statements.


                                      D-4
<PAGE>

ROCKINGHAM HERITAGE BANK

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
                                                                                                   Accumulated
                                                                     Additional                       Other
                                                        Common        Paid-in        Retained     Comprehensive
                                          Shares         Stock        Capital        Earnings         Income             Total
---------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>          <C>            <C>            <C>            <C>               <C>
Balance, January 1, 1998                 1,265,562    $ 2,869,755    $ 3,018,097    $ 1,056,068    $       216       $  6,944,136
                                                                                                                     ------------
    Comprehensive income:
       Net income                                -              -              -      1,061,872              -          1,061,872
       Change in unrealized gain on
        securities available-for-sale,
        net of taxes of $12,100                  -              -              -              -         23,363             23,363
                                                                                                                     ------------
         Total comprehensive income                                                                                     1,085,235
                                                                                                                     ------------
    Exercise of stock options               70,674        307,355       (134,941)             -              -            172,414
    Stock offering                         253,575        575,000      1,609,273              -              -          2,184,273
    Stock split (2 for 1)                        -      3,457,920     (3,457,920)             -              -                  -
    Stock dividend 5%                            -        360,500        432,600       (793,100)             -                  -
    Tax benefit related to exercise
     of stock options                            -              -        129,164              -              -            129,164
                                         ----------------------------------------------------------------------------------------

Balance, December 31, 1998               1,589,811      7,570,530      1,596,273      1,324,840         23,579         10,515,222
                                                                                                                     ------------
    Comprehensive income:
       Net income                                -              -              -      1,200,936              -          1,200,936
       Change in unrealized gain on
        securities available-for-sale,
        net of tax benefit of ($45,700)          -              -              -              -        (88,438)           (88,438)
                                                                                                                     ------------
         Total comprehensive income                                                                                     1,112,498
                                                                                                                     ------------
    Adjustment on partial shares
     for 5% dividend                            32            155            186           (341)             -                  -
    Stock dividend 5%                            -        378,530        378,530       (757,060)             -                  -
                                         ----------------------------------------------------------------------------------------
Balance, December 31, 1999               1,589,843    $ 7,949,215    $ 1,974,989    $ 1,768,375    $   (64,859)      $ 11,627,720
                                         ========================================================================================
</TABLE>


See Notes to Consolidated Financial Statements.


                                      D-5
<PAGE>

ROCKINGHAM HERITAGE BANK

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
                                                                                    1999                1998
---------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                <C>
Cash Flows From Operating Activities
    Net income                                                                  $  1,200,936       $  1,061,872
    Adjustments to reconcile net income to net cash provided
     by operating activities:
       Depreciation and amortization                                                 196,400            186,103
       Provision for loan losses                                                     120,000            144,000
       Deferred income taxes                                                         (58,500)           (41,300)
       (Increase) in accrued income receivable                                      (107,965)           (55,750)
       Amortization and accretion of bond premiums and discount, net                  10,528              7,817
       (Increase) in other assets                                                     (5,660)          (120,453)
       (Increase) decrease in income taxes receivable                                 90,848            (90,848)
       Increase in accrued interest and other liabilities                             83,308             73,643
       Increase in income taxes payable                                               11,652             98,083
                                                                                -------------------------------
          Net cash provided by operating activities                                1,541,547          1,263,167
                                                                                -------------------------------

Cash Flows From Investing Activities
    Available-for-sale securities:
       Maturities                                                                  1,516,621          1,066,124
       Purchases                                                                  (2,576,913)        (5,111,507)
    Held-to-maturity securities:
       Maturities                                                                    913,298          1,024,066
    Loans made to customers, net (increase)                                      (13,117,737)       (10,150,950)
    Purchases of premises and equipment                                             (259,079)          (156,065)
                                                                                -------------------------------
          Net cash used in investing activities                                  (13,523,810)       (13,328,332)
                                                                                -------------------------------
</TABLE>


                                   (Continued)


                                      D-6
<PAGE>

ROCKINGHAM HERITAGE BANK

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31, 1999 and 1998


<TABLE>
<CAPTION>
                                                                                     1999              1998
---------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                <C>
Cash Flows From Financing Activities
    Net increase in interest bearing deposits                                   $ 12,855,933       $  6,250,498
    Net increase in noninterest bearing deposits                                   1,245,827          2,457,086
    Increase in borrowed funds                                                        41,694            844,272
    Proceeds from exercise of stock options                                                -            172,414
    Proceeds from stock issuance                                                           -          2,184,273
                                                                                -------------------------------
          Net cash provided by financing activities                               14,143,454         11,908,543
                                                                                -------------------------------

          Increase (decrease) in cash and cash equivalents                         2,161,191           (156,622)

Cash and cash equivalents:
    Beginning                                                                      9,422,692          9,579,314
                                                                                -------------------------------
    Ending                                                                      $ 11,583,883       $  9,422,692
                                                                                ===============================

Supplemental Disclosures of Cash Flow Information
    Cash payments for:
       Interest paid to depositors                                              $  3,039,733       $  2,758,037
                                                                                ===============================

       Income taxes                                                             $    574,500       $    578,000
                                                                                ===============================

Supplemental Schedule of Noncash Investing Activities
    Net unrealized gain (loss) on available-for-sale securities                 $    (88,438)      $     23,363
                                                                                ===============================

    Tax benefit related to exercise of stock options                            $          -       $    129,164
                                                                                ===============================
</TABLE>

See Notes to Consolidated Financial Statements.




                                      D-7
<PAGE>

ROCKINGHAM HERITAGE BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 1.  Significant Accounting Policies

Nature of  business:  Rockingham  Heritage  Bank (the Bank) is a community  bank
organized under the laws of the  Commonwealth of Virginia in 1990, with branches
located  within  the  city of  Harrisonburg  and the  counties  of  Augusta  and
Rockingham. The Bank offers customary banking services,  including acceptance of
checking, savings and time deposits and the making of commercial,  agricultural,
real estate and consumer  loans,  to customers who are  predominantly  small and
middle-market businesses and individuals.

Basis  of  financial  statement  presentation  and  accounting  estimates:   The
accounting  and  reporting  policies of the Bank conform to  generally  accepted
accounting  principles and to accepted practice within the banking industry.  In
preparing the accompanying financial statements,  management is required to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities and disclosures of contingent  assets and liabilities at the date of
the financial  statements  and the reported  amounts of revenue and expenses for
the reporting period. Actual results could differ from those estimates.

The Bank's  consolidated  financial  statements include the accounts of the Bank
and  its  wholly  owned  subsidiary.  All  material  intercompany  accounts  and
transactions are eliminated in consolidation.

Cash, cash equivalents and cash flows: Cash and cash equivalents include cash on
hand,  amounts due from banks  (including cash items in process of clearing) and
federal  funds sold.  Cash flows from loans  originated by the Bank and deposits
are reported net.

Investment  securities:  Investment  securities  that  management  has  both the
positive  intent and ability to hold to maturity are  classified  as  securities
held-to-maturity  and are carried at cost,  adjusted for amortization of premium
or accretion of discount using the interest method.  Securities that may be sold
prior to maturity for asset/liability  management purposes,  or that may be sold
in response to changes in interest  rates,  to changes in  prepayment  risk,  to
increase  regulatory  capital  or  other  similar  factors,  are  classified  as
securities  available-for-sale and carried at fair value with any adjustments to
fair value, after tax, reported as a separate component of comprehensive income.

Interest and dividends on securities, including the amortization of premiums and
the  accretion  of  discounts,   are  reported  in  interest  and  dividends  on
securities. Gains and losses on the sale of securities are recorded on the trade
date and are calculated using the specific-identification method.





                                      D-8
<PAGE>

ROCKINGHAM HERITAGE BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 1.  Significant Accounting Policies (Continued)

Loans:  Loans are stated at the amount of unpaid principal,  reduced by unearned
fees and an  allowance  for loan  losses.  The  allowance  for  loan  losses  is
established  through a provision for loan losses charged against  income.  Loans
are charged against the allowance for loan losses when management  believes that
collectibility  of the  principal is unlikely.  The  allowance is an amount that
management  believes  will be  adequate to absorb  estimated  losses on existing
loans,  based on an  evaluation  of the  collectibility  of loans and prior loss
experience.  This  evaluation  also takes  into  consideration  such  factors as
changes  in the  nature  and  volume of the loan  portfolio,  overall  portfolio
quality,  review of specific problem loans, and current economic conditions that
may  affect  the  borrower's  ability  to pay.  While  management  uses the best
information  available  to  make  its  evaluation,  future  adjustments  to  the
allowance  may be  necessary  if  there  are  significant  changes  in  economic
conditions.  In  addition,  regulatory  agencies,  as an integral  part of their
examination  process,  periodically review the Bank's allowance for loan losses,
and may  require  the Bank to make  additions  to the  allowance  based on their
judgment about information available to them at the time of their examinations.

Unearned  interest on  discounted  loans is amortized  over the life of the loan
using the  interest  method.  For all loans,  interest  is accrued  daily on the
outstanding balances. For impaired loans, accrual of interest is discontinued on
a loan when management believes,  after considering collection efforts and other
factors,  that the  borrower's  financial  condition is such that  collection of
interest is doubtful.  A loan is restored to accrual  basis when the  borrower's
financial  condition  improves to the extent  collectibility  of principal is no
longer in doubt.

A loan is impaired  when it is  probable  the Bank will be unable to collect all
contractual  principal and interest payments due in accordance with the terms of
the loan  agreement.  Impaired  loans are measured based on the present value of
expected future cash flows discounted at the loan's effective  interest rate or,
as a practical expedient, at the loan's observable market price or fair value of
the collateral. Interest income on impaired loans is recognized on a cash basis.
At December 31, 1999 and 1998, the Bank had no impaired loans and, therefore, no
specific allowance has been established for impaired loans.

Loan origination and commitment fees and certain direct loan  origination  costs
are  capitalized  and  recognized  as an  adjustment of the yield of the related
loan.

Bank  premises and  equipment:  Bank premises and equipment are carried at cost,
less  accumulated  depreciation  and  amortization  computed  principally by the
straight-line method over the following estimated useful lives:

          Building and improvements                15-40 years
          Furniture and equipment                  5-7 years


Income taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary  differences and deferred tax
liabilities  are  recognized  for  taxable  temporary   differences.   Temporary
differences  are the  differences  between  the  reported  amounts of assets and
liabilities and their tax bases.  Deferred tax assets are reduced by a valuation
allowance  when, in the opinion of  management,  it is more likely than not that
some portion or all of the  deferred  tax assets will not be realized.  Deferred
tax assets and  liabilities  are adjusted for the effects of changes in tax laws
and rates on the date of enactment.



                                      D-9
<PAGE>

ROCKINGHAM HERITAGE BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 1.  Significant Accounting Policies (Continued)

Accumulated other comprehensive  income:  Accumulated other comprehensive income
consists solely of unrealized gains and losses on available-for-sale securities.

Earnings per common share: Basic earnings per common share have been computed on
the basis of the weighted-average  number of common shares outstanding.  Diluted
earnings  per share  have been  computed  using the  weighted-average  of common
shares and  potentially  dilutive  stock options  during the year.  Following is
information  regarding the  computation of earnings per share data for the years
ended December 31, 1999 and 1998, respectively:
<TABLE>
<CAPTION>
                                                             1999                             1998
                                                ------------------------------    ------------------------------
                                                  Numerator       Denominator       Numerator       Denominator
                                                ----------------------------------------------------------------
<S>                                             <C>                <C>            <C>                <C>
Basic Earnings Per Share
    Income Available to Stockholders            $  1,200,936               -      $  1,061,872               -
    Average Shares Outstanding                             -       1,589,843                 -       1,522,948
    Effect of Dilutive Shares                              -          34,506                 -          57,712
                                                                  -----------                       -----------
Dilutive Shares                                                    1,624,349                         1,580,660
                                                                  ===========                       ===========
</TABLE>
Stock options were treated as dilutive  common  shares using the treasury  stock
method.  This method assumes that any proceeds from the options would be used to
purchase  common  stock at current  market  prices.  Common stock issued and per
share amounts have been adjusted for all years presented to reflect the 1998 two
for one stock split and 5% stock dividends in 1999 and 1998.

Future reporting requirements:  In June 1998, the Financial Accounting Standards
Board (FASB) issued Statement No. 133, Accounting for Derivative Instruments and
Hedging  Activities,  which is required to be adopted in years  beginning  after
June 15, 2000 (as amended by FASB No. 137). The Statement permits early adoption
as of the beginning of any fiscal  quarter after its issuance.  The Bank expects
to adopt the new Statement effective January 1, 2001. 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 from 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 of the Bank's minimal use of derivatives, management does not anticipate
that the adoption of the new  Statement  will have a  significant  effect on the
Bank's earnings or financial position.



                                      D-10
<PAGE>

ROCKINGHAM HERITAGE BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 2.  Restrictions on Cash and Cash Equivalents

The Bank is required to maintain  reserve  balances in cash,  or on deposit with
the Federal Reserve Bank, based upon a percentage of certain deposits. The total
required balance as of December 31, 1999 and 1998 was approximately $510,000 and
$400,000, respectively.


Note 3.  Investment Securities

Carrying  amounts and  approximate  fair values of  investment  securities as of
December 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
                                                                        Gross           Gross
                                                     Amortized       Unrealized       Unrealized           Fair
                                                        Cost            Gains           Losses             Value
                                                  -----------------------------------------------------------------
<S>                                               <C>              <C>               <C>             <C>
1999:
    Securities available-for-sale:
       U. S. Government agencies                  $   5,003,810    $            -    $    101,025    $    4,902,785
       Mortgage-backed securities                       904,705             2,613               -           907,318
       Other securities                                 599,950                 -               -           599,950
                                                  -----------------------------------------------------------------
                                                      6,508,465             2,613         101,025         6,410,053
                                                  -----------------------------------------------------------------
    Securities being held-to-maturity:
       U. S. Government agencies                      1,597,059             4,306           6,540         1,594,825
       Mortgage-backed securities                       351,836                 -           5,527           346,309
                                                  -----------------------------------------------------------------
                                                      1,948,895             4,306          12,067         1,941,134
                                                  -----------------------------------------------------------------
                                                  $   8,457,360    $        6,919    $    113,092    $    8,351,187
                                                  =================================================================

                                                                        Gross           Gross
                                                     Amortized       Unrealized       Unrealized           Fair
                                                        Cost            Gains           Losses             Value
                                                  -----------------------------------------------------------------
1998:
    Securities available-for-sale:
       U. S. Government agencies                  $   3,511,895    $       27,605    $          -    $    3,539,500
       Mortgage-backed securities                     1,425,492             8,121               -         1,433,613
       Other securities                                 522,100                 -               -           522,100
                                                  -----------------------------------------------------------------
                                                      5,459,487            35,726               -         5,495,213
                                                  -----------------------------------------------------------------
    Securities being held-to-maturity:
       U. S. Government agencies                      2,095,438            46,082               -         2,141,520
       Mortgage-backed securities                       765,969            10,697               -           776,666
                                                  -----------------------------------------------------------------
                                                      2,861,407            56,779               -         2,918,186
                                                  -----------------------------------------------------------------
                                                  $   8,320,894    $       92,505    $          -    $    8,413,399
                                                  =================================================================
</TABLE>



                                      D-11
<PAGE>

ROCKINGHAM HERITAGE BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 3.  Investment Securities (Continued)

The amortized cost and fair value of investment  securities,  as of December 31,
1999,  are shown  below by  contractual  maturity.  Maturities  may differ  from
contractual  maturities  in  mortgage-backed  securities  because the  mortgages
underlying  the   securities   may  be  called  or  repaid  without   penalties.
Mortgage-backed  securities and other  securities are excluded from the maturity
summary since they do not have a single maturity date.


                                                    Amortized           Fair
                                                      Cost              Value
                                                 -------------------------------
Available-for-sale:
    Due one year or less                         $   3,004,435     $   2,923,100
    Due after one year through five years            1,999,375         1,979,685
                                                 -------------------------------
                                                 $   5,003,810     $   4,902,785
                                                 ===============================
Held-to-maturity:
    Due one year or less                         $     497,837     $     499,065
    Due after one year through five years            1,099,222         1,095,760
                                                 -------------------------------
                                                 $   1,597,059     $   1,594,825
                                                 ===============================

Investment  securities  with an amortized  cost of $1,499,221  and $498,752 were
pledged  as  collateral  on  public  deposits  at  December  31,  1999 and 1998,
respectively.


Note 4.  Loans

The composition of net loans is as follows:

                                                      1999               1998
                                                 -------------------------------
Commercial                                       $  30,664,275     $  27,232,758
Commercial real estate                              30,960,871        22,684,448
Residential real estate                             11,945,985        11,227,924
Consumer installment                                 5,412,581         4,728,497
                                                 -------------------------------
                                                    78,983,712        65,873,627
                                                 -------------------------------
Less:
    Allowance for loan losses                          919,546           835,905
    Unearned net loan fees                             117,012            88,305
                                                 -------------------------------
                                                     1,036,558           924,210
                                                 -------------------------------
                                                 $  77,947,154     $  64,949,417
                                                 ===============================

There were no nonaccruing loans at December 31, 1999 and $28,000 at December 31,
1998. Interest related to these loans was immaterial.



                                      D-12
<PAGE>

ROCKINGHAM HERITAGE BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 5.  Allowance for Loan Losses

Changes in the allowance for loan losses are as follows:

                                                      1999              1998
                                                 -------------------------------
Balance, beginning of year                       $     835,905     $     719,159
    Provision charged to operations                    120,000           144,000
    Recoveries of amounts charged off                   15,223             7,988
                                                 -------------------------------
                                                       971,128           871,147
    Amounts charged off                                 51,582            35,242
                                                 -------------------------------
Balance, end of year                             $     919,546     $     835,905
                                                 ===============================


Note 6.  Bank Premises and Equipment

The major  classes of bank  premises  and  equipment  and the total  accumulated
depreciation as of December 31 are as follows:

                                                      1999              1998
                                                 -------------------------------

Land                                             $     598,350     $     598,350
Buildings and improvements                           1,397,037         1,349,815
Furniture and equipment                              1,239,639         1,028,599
                                                 -------------------------------
                                                     3,235,026         2,976,764
Less accumulated depreciation                        1,065,707           899,543
                                                 -------------------------------
                                                 $   2,169,319     $   2,077,221
                                                 ===============================

The Bank leases space for three  branches  under  operating  leases which expire
through  2004.  Rental  expense  was  $44,800 in 1999 and  $14,400 in 1998.  The
minimum rent commitment is as follows:

              Year                                   Amount
              ------------------------------------------------

              2000                               $      44,100
              2001                                      43,400
              2002                                      29,000
              2003                                      29,000
              2004                                       4,800
                                                 -------------
                                                 $     150,300
                                                 =============



                                      D-13
<PAGE>

ROCKINGHAM HERITAGE BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 7.  Deposits

The composition of deposits is as follows:

                                                      1999              1998
                                                 -------------------------------

Demand deposits, noninterest bearing             $  11,975,914     $  10,730,087
NOW and money market accounts                       18,013,999        15,832,045
Savings                                              5,016,171         5,164,542
Time certificates, $100,000 or more                  7,302,922         5,704,283
Other time certificates                             45,501,840        36,278,129
                                                 -------------------------------
                                                 $  87,810,846     $  73,709,086
                                                 ===============================

At December 31, 1999, scheduled maturities of time certificates are as follows:

               Year                                   Amount
               -----------------------------------------------

               2000                              $  44,520,522
               2001                                  5,941,814
               2002                                  1,466,242
               2003                                    876,184
                                                 -------------
                                                 $  52,804,762
                                                 =============


Note 8.  Lines of Credit/Borrowed Funds

The Bank has the  ability  to borrow  approximately  $21  million  from  various
correspondent banks.

Borrowed  funds  consist of treasury tax and loan  deposits  which are generally
repaid within 30 days from the transaction date and a $1 million  borrowing from
the Federal Home Loan Bank of Atlanta at an interest rate of 5.52%.




                                      D-14
<PAGE>

ROCKINGHAM HERITAGE BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 9.  Income Taxes

Deferred  tax  assets and  liabilities  included  in  deferred  income  taxes at
December 31, 1999 and 1998 consist of the following components:


                                                      1999               1998
                                                 -------------------------------
Deferred tax assets:
    Allowance for loan losses                    $     305,500     $     273,500
    Deferred loan fees                                  39,800            30,000
    Deferred compensation                               17,500                 -
    Other                                               33,500                 -
                                                 -------------------------------
                                                       396,300           303,500
                                                 -------------------------------
Deferred tax liabilities:
    Accumulated depreciation                            42,700            41,000
    Other                                               11,100            24,200
                                                 -------------------------------
                                                        53,800            65,200
                                                 -------------------------------

Deferred income taxes                            $     342,500     $     238,300
                                                 ===============================

The provision  for income taxes  charged to income for the years ended  December
31, 1999 and 1998 consists of the following:


                                                      1999              1998
                                                 -------------------------------

Current tax expense                              $     677,000     $    585,300
Deferred tax (benefit)                                 (58,500)         (41,300)
                                                 -------------------------------
                                                 $     618,500     $    544,000
                                                 ===============================




                                      D-15
<PAGE>

ROCKINGHAM HERITAGE BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 10.  Regulatory Capital Requirements

The Bank is subject to certain  restrictions on the amount of dividends that can
be  declared   without  prior  regulatory   approval.   At  December  31,  1999,
substantially  all retained  earnings were  available  for dividend  declaration
without regulatory approval.

The Bank is subject to various regulatory capital  requirements  administered by
the federal banking agencies.  Failure to meet minimum capital  requirements can
initiate certain mandatory,  and possibly additional  discretionary,  actions by
regulators  that,  if  undertaken,  could have a direct  material  effect on the
Bank's  financial   statements.   Under  capital  adequacy  guidelines  and  the
regulatory  framework for prompt corrective  action, the Bank must meet specific
capital  guidelines  that involve  quantitative  measures of the Bank's  assets,
liabilities,  and certain off-balance-sheet items as calculated under regulatory
accounting  practices.  The Bank's capital amounts and  classification  are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain  minimum amounts and ratios (set forth in the table
below)  of  total  and  Tier  1  capital  (as  defined  in the  regulations)  to
risk-weighted  assets,  and of Tier 1  capital  to  average  assets.  Management
believes  that,  as of December  31, 1999,  the Bank meets all capital  adequacy
requirements to which it is subject.

As of December 31, 1998, the most recent notification from the State Corporation
Commission  of the  Commonwealth  of  Virginia  categorized  the  Bank  as  well
capitalized under the regulatory  framework for prompt corrective  action. To be
categorized  as  well   capitalized,   the  Bank  must  maintain  minimum  total
risk-based, Tier 1 risk-based, Tier 1 leverage ratios as set forth in the table.
There are no  conditions  or events  since that  notification  which  management
believes have changed the Bank's category.

The Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
                                                                                         To Be Well Capitalized
                                                                    For Capital          Under Prompt Corrective
                                          Actual                 Adequacy Purposes          Action Provisions
                                    Amount      Ratio           Amount        Ratio        Amount        Ratio
                               ---------------------------------------------------------------------------------
<S>                            <C>              <C>        <C>                <C>      <C>               <C>
As of December 31, 1999:
   Total Capital
   (to Risk Weighted Assets)   $  12,612,125    15.49% >   $  6,511,846 >     8.0% >   $  8,139,808 >    10.0%
                                                       -                -          -                -
   Tier 1 Capital
   (to Risk Weighted Assets)      11,692,579    14.36% >      3,255,923 >     4.0% >      4,883,885 >     6.0%
                                                       -                -          -                -
   Tier 1 Capital
   (to Average Assets)            11,692,579    12.40% >      3,771,020 >     4.0% >      4,713,775 >     5.0%
                                                       -                -          -                -
As of December 31, 1998:
   Total Capital
   (to Risk Weighted Assets)   $  11,327,548    16.30% >   $  5,559,346 >     8.0% >   $  6,949,183 >    10.0%
                                                       -                -          -                -
   Tier 1 Capital
   (to Risk Weighted Assets)      10,491,643    15.10% >      2,779,673 >     4.0% >      4,169,510 >     6.0%
                                                       -                -          -                -
   Tier 1 Capital
   (to Average Assets)            10,491,643    13.28% >      3,160,059 >     4.0% >      3,950,074 >     5.0%
                                                       -                -          -                -
</TABLE>



                                      D-16
<PAGE>

ROCKINGHAM HERITAGE BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 11.  Fair Value of Financial Instruments

Management  uses its best  judgment in  estimating  the fair value of the Bank's
financial instruments;  however, there are inherent weaknesses in any estimation
technique.  Therefore,  for  substantially all financial  instruments,  the fair
value estimates  herein are not  necessarily  indicative of the amounts the Bank
could have realized in a sales transaction on the dates indicated. The estimated
fair value amounts have been measured as of their respective year ends, and have
not been  reevaluated  or updated for purposes of these  consolidated  financial
statements  subsequent to those  respective  dates.  As such, the estimated fair
values of these  financial  instruments  subsequent to the respective  reporting
dates may be different than the amounts reported at each year end.

The following  information  should not be interpreted as an estimate of the fair
value of the entire Bank since a fair value  calculation  is only provided for a
limited  portion  of  the  Bank's  assets.  Due  to a wide  range  of  valuation
techniques  and the  degree  of  subjectivity  used  in  making  the  estimates,
comparisons  between the Bank's disclosures and those of other companies may not
be meaningful.  The following  methods and assumptions were used to estimate the
fair values of the Bank's  financial  instruments for which it is practicable to
estimate that value:

Cash and cash  equivalents:  The carrying  amounts reported in the balance sheet
for cash and due from  banks and  federal  funds  sold  approximate  their  fair
values.

Investment  securities:  For  U.  S.  Government  agencies  and  mortgage-backed
securities,  fair values are based on quoted market prices. For other securities
which are not tradable, fair value approximates carrying value.

Loans receivable:  For variable-rate  loans that reprice  frequently and with no
significant change in credit risk, fair values are based on carrying values. For
certain homogeneous categories of loans, such as some residential mortgages, and
other consumer loans, fair value is estimated using the quoted market prices for
securities   backed  by  similar  loans,   adjusted  for   differences  in  loan
characteristics.  The fair  values  of other  types of loans  are  estimated  by
discounting  the future  cash flows using the  interest  rates  currently  being
offered for loans with similar terms to borrowers with similar credit quality.

Deposit liabilities:  The fair value of demand deposits,  savings accounts,  and
variable rate money market deposits,  represents the amount payable on demand at
the reporting date. The fair values of fixed-rate,  fixed-maturity  certificates
of deposit are estimated using a discounted cash flow  calculation  that applies
the  interest  rates  currently   offered  for  deposits  of  similar  remaining
maturities.

Borrowed  funds:  The carrying  amount of borrowed funds  approximates  its fair
value.

Commitments to extend credit and standby  letters of credit:  Since the majority
of  the  Bank's  off-balance-sheet  instruments  consists  of  nonfee-producing,
variable  rate  commitments,  the  Bank  has  determined  they  do  not  have  a
distinguishable fair value.



                                      D-17
<PAGE>

ROCKINGHAM HERITAGE BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 11.  Fair Value of Financial Instruments (Continued)

The estimated fair value of the Bank's financial  instruments as of December 31,
1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
                                                                  1999                             1998
                                                      ----------------------------      ---------------------------
                                                         Carrying         Fair            Carrying          Fair
                                                          Amount          Value            Amount           Value
                                                      -------------------------------------------------------------
<S>                                                   <C>             <C>               <C>             <C>
Financial assets:
   Cash and cash equivalents                          $     11,584    $     11,584      $      9,423    $     9,423
   Investment securities available-for-sale                  6,410           6,410             5,495          5,495
   Investment securities held-to-maturity                    1,949           1,941             2,862          2,918
   Loans                                                    77,947          77,749            64,949         65,596
                                                      -------------------------------------------------------------
       Total financial assets                               97,890    $     97,684            82,729    $    83,432
Nonfinancial assets                                          3,252    ============             3,062    ===========
                                                      ------------                      ------------
       Total assets                                   $    101,142                      $     85,791
                                                      ============                      ============
Financial liabilities:
    Deposits                                          $     87,811    $     88,070      $     73,709    $    74,003
    Borrowed funds                                           1,302           1,298             1,261          1,261
                                                      -------------------------------------------------------------
       Total financial liabilities                          89,113    $     89,368            74,970    $    75,264
Nonfinancial liabilities                                       401    ============               306    ===========
Shareholders' equity                                        11,628                            10,515
                                                      ------------                      ------------
       Total liabilities and shareholders' equity     $    101,142                      $     85,791
                                                      ============                      ============
</TABLE>





                                      D-18
<PAGE>

ROCKINGHAM HERITAGE BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 12.  Financial Instruments with Off-Balance-Sheet Risk

The Bank is a party to financial instruments with  off-balance-sheet risk in the
normal course of business to meet the financing  needs of its  customers.  These
financial  instruments  include commitments to extend credit and standby letters
of credit.  These instruments  involve,  to varying degrees,  elements of credit
risk in excess of the amount recognized in the consolidated  balance sheets. The
contract  amounts  of  those  instruments  reflect  the  extent  of  the  Bank's
involvement in particular classes of financial instruments.

The Bank's exposure to credit loss in the event of  nonperformance  by the other
party to the financial  instrument for  commitments to extend credit and standby
letters of credit is represented by the contractual amount of those instruments.
The Bank uses the same credit  policies in making  commitments  and  conditional
obligations as it does for on-balance-sheet instruments. A summary of the Bank's
commitments at December 31, 1999 are as follows:


        Commitments to extend credit                 $   15,025,000
        Loan commitments                                  2,833,000
        Standby letters of credit                           687,000
                                                     --------------
                                                     $   18,545,000
                                                     ==============

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without  being  drawn  upon,  the total  commitment  amounts do not  necessarily
represent future cash requirements. The Bank evaluates each customer's credit in
determining  the amount of collateral to obtain.  Collateral held varies but may
include  accounts  receivable;  inventory;  property,  plant and equipment;  and
income-producing commercial properties.

Standby  letters of credit  are  conditional  commitments  issued by the Bank to
guarantee the performance of a customer to a third party.  Those  guarantees are
primarily  issued to support  public and  private  borrowing  arrangements.  The
credit risk  involved in issuing  letters of credit is  essentially  the same as
that involved in extending loan facilities to customers.


Note 13.  Concentrations of Credit Risk

The majority of the Bank's  loans,  commitments  to extend  credit,  and standby
letters of credit have been granted to customers in the Bank's market area.  The
concentrations  of  credit  by type  of  loan  are  set  forth  in  Note 4.  The
distribution of commitments to extend credit  approximates  the  distribution of
loans  outstanding.  The Bank, as a matter of policy,  does not extend credit to
any single borrower in excess of $1,500,000.





                                      D-19
<PAGE>

ROCKINGHAM HERITAGE BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 14.  Transactions With Related Parties

The  Bank  has  had,  and  may  be  expected  to  have  in the  future,  banking
transactions  in the  ordinary  course of  business  with  directors,  principal
officers,  their immediate  families and affiliated  companies in which they are
principal  stockholders  (commonly referred to as related parties), all of which
have been, in the opinion of management,  on the same terms,  including interest
rates  and  collateral,   as  those   prevailing  at  the  time  for  comparable
transactions with others.

A summary of detail  activity for the years ended December 31, 1999 and 1998 are
as follows:

                                                1999              1998
                                          --------------------------------
Balance, beginning                        $    2,336,000    $    2,334,000
    New loans                                    763,000         1,130,000
    Repayments                                (1,301,000)       (1,128,000)
                                          --------------------------------
Balance, ending                           $    1,798,000    $    2,336,000
                                          ================================


Note 15.  Stock Option Plans

In April 1991, a stock option plan was adopted and 182,324  shares,  as adjusted
for stock splits and  dividends,  of the Bank's common stock were reserved to be
granted under the plan. As of December 31, 1999, there are 1,926 of these shares
available  for the  granting  of  options.  All  options  were  granted at their
estimated  fair  value at date of  grant.  The  50,458  director's  options  are
exercisable  currently.  The 9,522 employee options,  which were issued in 1998,
vest and become  exercisable in 2001.  Beginning in 1998,  directors desiring to
exercise their options must tender their options using a cashless format whereby
shares of stock are issued for the net value of the options tendered.

In July 1999,  a second  stock  option plan was adopted and 131,250  shares,  as
adjusted for the 2000 5% dividend,  of the Bank's  common stock were reserved to
be granted  under the plan.  As of December 31, 1999,  there are 56,461 of these
shares available for the granting of options.  All options were granted at their
estimated fair value at date of grant.  All 74,789 options granted in 1999 under
the new plan vest and become  exercisable at 20% per year starting in July 2000.
Grantees  desiring to exercise  their options may choose to tender their options
using a cashless  format whereby shares of stock are issued for the net value of
the options tendered.





                                      D-20
<PAGE>

ROCKINGHAM HERITAGE BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 15.  Stock Option Plans (Continued)

The following table is a summary of stock option activity for 1999 and 1998. All
information is restated for stock dividends issued each year.
<TABLE>
<CAPTION>
                                                                                          Weighted-Average
                                                               Number of Shares       Exercise Price Per Share
                                                            ---------------------     ------------------------
                                                               1999        1998           1999          1998
                                                            ---------------------     ------------------------
<S>                                                          <C>          <C>               <C>           <C>
Options outstanding, beginning of year                        61,426     140,897      $     5.32    $     4.16
Granted                                                       74,789      12,127            9.34         10.84
Terminated                                                    (1,446)     (2,248)          10.71          8.21
Exercised/tendered                                                 -     (89,350)              -          4.18
                                                            ---------------------
Options outstanding, end of year                             134,769      61,426            7.49          5.32
                                                            =====================

Options exercisable                                           50,458      50,458            4.11          4.11
</TABLE>

Grants  of  options  under  the Plans are  accounted  for  following  Accounting
Principles  Board Opinion No. 25 and related  interpretations.  Accordingly,  no
compensation  costs  have  been  recorded.   FASB  Statement  No.  123  requires
disclosures  concerning  the fair value of  options  and  encourages  accounting
recognition  for options  using the fair value  method.  The Bank has elected to
apply the disclosure-only provisions of the Statement.

The fair value of options is estimated at the grant date using the Black-Scholes
option-pricing  model with the following  assumptions for 1998: dividend rate of
0%,  risk-free  interest  rates of 6.36% to 6.86%  for 1999 and  4.65% for 1998,
expected  lives of 2 years to 10 years for 1999 and 3 years for 1998,  and price
volatility of 41.84% for 1999 and 30.42% for 1998.  The fair value per option of
options  granted  during  the year is $6.99 for 1999 and  $2.87  for  1998.  Had
compensation  cost been recorded  based on the fair value of awards at the grant
date,  the pro forma  impact on the  Bank's net income and net income per common
share  would  have  been to  decrease  net  income  and  earnings  per  share by
approximately $87,000 for 1999 and $20,000 for 1998 and $0.06 for 1999 and $0.01
for 1998.


Note 16.  Retirement Plans

The Bank has a defined contribution money purchase pension plan for all eligible
employees and a 401(k) plan for all eligible employees electing to participate.

Retirement  plan  expense  for the years  ended  December  31, 1999 and 1998 was
$78,000 and $74,000, respectively.




                                      D-21
<PAGE>

ROCKINGHAM HERITAGE BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 17.  Subsequent Events

On  February 8, 2000,  the Board of  Directors  of the Bank  declared a 5% stock
dividend  to  shareholders  of record on  February  23,  2000 which  resulted in
approximately  75,700 new shares  being  issued.  All per share and stock option
information has been restated to give effect to this stock dividend.

Note 18.  Merger with Marathon Financial Corporation

On April 18,  2000,  the Board of Directors  approved an  Agreement  and Plan of
Merger with  Marathon  Financial  Corporation  (Marathon).  Marathon's  Board of
Directors also approved the agreement on April 18, 2000.  Under the terms of the
agreement,  the Bank's  shareholders will receive 1.58 shares of Marathon common
stock for each  outstanding  share.  The  merger is subject  to  regulatory  and
shareholder approval.

Note 19.  Recission of Stock Options

On July 11, 2000, the Board of Directors  rescinded  options to purchase  74,789
shares of the Bank's  stock,  which had been granted under the Bank's 1999 stock
option plan. All grantees acknowledged and agreed to the recission.











                                      D-22
<PAGE>

ROCKINGHAM HERITAGE BANK

COSOLIDATED BALANCE SHEETS
March 31, 2000 and December 31, 1999
<TABLE>
<CAPTION>
                                                                                    March 31,             December 31,
ASSETS                                                                                2000                    1999
--------------------------------------------------------------------------------------------------------------------------
                                                                                   (Unaudited)               (Note)
<S>                                                                             <C>                    <C>
Cash and due from banks                                                         $       6,598,477      $        3,906,883
Federal funds sold                                                                      4,942,000               7,677,000
                                                                                ------------------------------------------
                  Cash and cash equivalents                                            11,540,477              11,583,883

Investment securities available-for-sale                                                6,805,467               6,410,053
Investment securities held-to-maturity (approximate market value
    Mar 1999 $1,916,137; Dec 1999 $1,941,134)                                           1,929,997               1,948,895
Loans, net                                                                             82,081,785              77,947,154
Bank premises and equipment, net                                                        2,174,579               2,169,319
Accrued income receivable                                                                 531,724                 532,872
Deferred income taxes                                                                     345,980                 342,500
Other assets                                                                              180,113                 207,595
                                                                                ------------------------------------------
                  Total assets                                                  $     105,590,122      $      101,142,271
                                                                                ==========================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
           Deposits:
    Interest bearing                                                            $      75,761,805      $       75,834,932
    Noninterest bearing                                                                13,904,554              11,975,914
                                                                                ------------------------------------------
                                                                                       89,666,359              87,810,846

    Borrowed money                                                                      3,382,646               1,302,383
    Accrued interest and other liabilities                                                403,115                 389,670
    Income taxes payable                                                                  171,245                  11,652

                                                                                ------------------------------------------
                                                                                       93,623,365              89,514,551
                                                                                ------------------------------------------

Stockholders' Equity:
    Common stock, $5 par value, authorized 2,000,000 shares; issued
      Mar 2000 1,589,940 shares; Dec 1999 1,589,843 shares                              7,949,700               7,949,215
    Surplus                                                                             1,975,474               1,974,989
    Accumulated other comprehensive income (loss)                                         (71,707)                (64,859)
    Retained earnings                                                                   2,113,290               1,768,375
                                                                                ------------------------------------------
                  Total stockholders' equity                                           11,966,757              11,627,720
                                                                                ------------------------------------------

                  Total liabilities and stockholders' equity                    $     105,590,122      $      101,142,271
                                                                                ==========================================
</TABLE>

See  notes  to  Consolidated  Financial  Statements.  Note - extracted  from the
December 31, 1999 audited financial information.



                                      D-23
<PAGE>

ROCKINGHAM HERITAGE BANK

COSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 2000 and 1999 (Unaudited)

<TABLE>
<CAPTION>
                                                                                   March 31,             March 31,
                                                                                      2000                 1999
----------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                   <C>
Interest income:
     Interest and fees on loans                                                 $      1,773,580      $     1,462,968
     U.S. Government agencies and mortgage backed securities                             140,467              127,077
     Interest on deposits                                                                 15,373                    0
     Interest on federal funds sold                                                       90,060               52,294
                                                                                -----------------     ----------------
                                                                                       2,019,480            1,642,339
     Interest expense on borrowed money                                                   33,300               17,366
     Interest expense on deposits                                                        856,816              704,510
                                                                                -----------------     ----------------
                  Net interest income                                                  1,129,364              920,463
Provision for loan losses                                                                 30,000               30,000
                                                                                -----------------     ----------------
                  Net interest income after provision for loan losses                  1,099,364              890,463

Other income:
     Service fees                                                                         91,910               82,025
     Commissions                                                                           3,097                7,070
                                                                                -----------------     ----------------
                                                                                          95,007               89,095

Other expenses:
     Salaries and wages                                                                  318,211              258,780
     Employee benefits                                                                    75,366               61,399
     Occupancy                                                                            44,214               34,048
     Equipment depreciation and maintenance                                               58,217               44,183
     Other                                                                               167,771              164,476
                                                                                -----------------     ----------------
                                                                                         663,779              562,886

                  Income before taxes                                                    530,592              416,672
Federal income taxes                                                                     180,500              141,500

                                                                                -----------------     ----------------
                  Net income                                                    $        350,092      $       275,172
                                                                                =================     ================
Earnings per common share - Basic                                               $           0.22      $          0.17
                                                                                =================     ================
Earnings per common share - Diluted                                             $           0.22      $          0.17
                                                                                =================     ================
</TABLE>

See notes to Consolidated Financial Statements.



                                      D-24
<PAGE>

ROCKINGHAM HERITAGE BANK

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Three Months Ended March 31, 2000 and 1999 (Unaudited)

<TABLE>
<CAPTION>
                                                                                                     Accumulated
                                                                      Additional                        Other
                                                        Common         Paid-in        Retained      Comprehensive
                                          Shares         Stock         Capital        Earnings       Income (Loss)        Total
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>          <C>             <C>            <C>                <C>           <C>
Balance, January 1, 1999                  1,589,811    $ 7,570,530     $ 1,596,273    $1,324,840         $   23,579    $10,515,222
                                                                                                                     --------------
  Comprehensive income:
    Net income                                                                           275,172                           275,172
    Change in unrealized gain/
    (loss) on securities available-
    for-sale, net of taxes of $7,900                                                                        (15,407)       (15,407)

                                                                                                                     --------------
    Total comprehensive income                                                                                             259,765
                                                                                                                     --------------

  Split shares for stock dividend                32            155             186          (341)                                0
                                       --------------------------------------------------------------------------------------------

Balance, March 31, 1999                   1,589,843    $ 7,570,685     $ 1,596,459    $1,599,671          $   8,172    $10,774,987
                                       ============================================================================================

Balance, January 1, 2000                  1,589,843    $ 7,949,215     $ 1,974,989    $1,768,375          $ (64,859)   $11,627,720
  Comprehensive income:
    Net income                                                                           350,092                           350,092
    Change in unrealized gain/
    (loss) on securities available-
    for-sale, net of taxes of $3,480                                                                         (6,848)        (6,848)

                                                                                                                     --------------
    Total comprehensive income                                                                                             343,244

  Other                                                                                   (4,207)                           (4,207)

  Split shares for stock dividend                97            485             485          (970)                                0
                                       --------------------------------------------------------------------------------------------

Balance, March 31, 2000                   1,589,940     $7,949,700      $1,975,474    $2,113,290         $  (71,707)   $11,966,757
                                       ============================================================================================

</TABLE>

See notes to Consolidated Financial Statements.


                                      D-25
<PAGE>

ROCKINGHAM HERITAGE BANK

CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2000 and 1999 (Unaudited)

<TABLE>
<CAPTION>
                                                                                       March 31,              March 31,
                                                                                         2000                   1999
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>                   <C>
Cash Flows From Operating Activities
       Net Income                                                                   $      350,092        $       275,172
       Adjustments to reconcile net income to net cash provided by operating
          activities:
           Depreciation                                                                     54,306                 42,801
           Provision for loan losses                                                        30,000                 30,000
           (Increase)/decrease in accrued income receivable                                  1,148                (82,470)
           Amortization and accretion of bond premiums and discount, net                     1,569                 16,454
           Decrease in income taxes receivable                                                   0                 90,848
           Decrease in other assets                                                         18,481                121,476
           (Increase) in deferred income taxes                                                   0                (13,175)
           Increase/(decrease) in accrued interest and other liabilities                    13,445                (47,910)
           Increase in income taxes payable                                                159,593                 50,651
                                                                                   ---------------------------------------
            Net cash provided by operating activities                               $      628,634        $       483,847
                                                                                   ---------------------------------------

Cash Flows From Investing Activities
       Available-for-sale securities:
          Maturities                                                                $       87,297        $       126,585
          Purchases                                                                       (499,687)              (539,188)
       Held-to-maturity securities:
          Maturities                                                                        19,770                197,997
          Purchases                                                                              0                      0
       Loans made to customers, net (increase)                                          (4,164,631)            (4,058,901)
       Purchases of premises and equipment                                                 (50,565)               (64,579)
                                                                                   ---------------------------------------
            Net cash used in investing activities                                   $   (4,607,816)       $    (4,338,086)
                                                                                   ---------------------------------------
</TABLE>


                                   (Continued)



                                      D-26
<PAGE>

ROCKINGHAM HERITAGE BANK

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Three Months Ended March 31, 2000 and 1999 (Unaudited)
<TABLE>
<CAPTION>

                                                                                       March 31,              March 31,
                                                                                         2000                   1999
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>                   <C>
Cash Flows From Financing Activities
       Net increase/(decrease) in interest bearing liabilities                      $      (73,127)       $     3,545,387
       Net increase in noninterest bearing deposits                                      1,928,640                468,257
       (Decrease) in borrowed funds                                                      2,080,263                (42,985)
                                                                                   ---------------------------------------
            Net cash provided by financing activities                               $    3,935,776        $     3,970,659
                                                                                   ---------------------------------------

            Increase (decrease) in cash and cash equivalents                               (43,406)               116,420

Cash and cash equivalents:
       Beginning                                                                        11,583,883              9,422,692
                                                                                   ---------------------------------------
       Ending                                                                       $   11,540,477        $     9,539,112
                                                                                   =======================================

Supplemental Disclosures of Cash Flow Information
           Cash payments for:
           Interest paid to depositors                                              $      856,276        $       699,620
                                                                                   ---------------------------------------

           Income taxes                                                             $       21,000        $             0
                                                                                   ---------------------------------------

Supplemental Schedule of  Noncash Investing Activities
       Net unrealized loss on available-for-sale securities                         $       (6,848)       $       (15,407)
                                                                                   ---------------------------------------
</TABLE>


See notes to Consolidated Financial Statements.






                                      D-27
<PAGE>

ROCKINGHAM HERITAGE BANK

NOTES TO FINANCIAL STATEMENTS


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

Note 1.  Significant Accounting Policies

The financial statements conform to generally accepted accounting principles and
to general practice within the banking  industry.  In the opinion of management,
the  accompanying   unaudited  financial   statements  contain  all  adjustments
necessary to present fairly the financial position as of March 31, 2000, and the
results of  operations  for the three months ended March 31, 2000 and 1999.  The
notes included herein should be read in conjunction  with the audited  financial
statements  for the year ended  December 31, 1999. The results of operations for
the three months ended March 31, 2000 and 1999 are not necessarily indicative of
the results to be expected for the full year.

Note 2.  Subsequent Events

Merger with Marathon Financial Corporation
------------------------------------------

On April 18,  2000,  the Board of Directors  approved an  Agreement  and Plan of
Merger with  Marathon  Financial  Corporation  (Marathon).  Marathon's  Board of
Directors also approved the agreement on April 18, 2000.  Under the terms of the
agreement,  the Bank's  shareholders will receive 1.58 shares of Marathon common
stock for each  outstanding  share.  The  merger is subject  to  regulatory  and
shareholder approval.

Recission of Stock Options
--------------------------

On July 11, 2000, the Board of Directors  rescinded  options to purchase  74,789
shares of the Bank's  stock,  which had been granted under the Bank's 1999 stock
option plan. All grantees acknowledged and agreed to the recission.









                                      D-28


<PAGE>

                                                                      Appendix E



                                  July __, 2000



Board of Directors
Rockingham Heritage Bank
110 University Blvd.
Harrisonburg, VA 22801

Dear Madams and Gentlemen:

         You have asked us to render our opinion  relating to the fairness, from
a financial  point of view,  to the  shareholders  of  Rockingham  Heritage Bank
("Rockingham")  of the terms of an Amended and Restated  Plan of Merger  between
Rockingham and Marathon Financial  Corporation  ("Marathon") dated June 21, 2000
(the "Merger  Agreement")  pursuant to which  Rockingham will be merged with and
into  Marathon  (the  "Merger")  and further  provides that each share of common
stock of Rockingham issued and outstanding shall be exchanged for 1.58 shares of
common stock of Marathon.

         Scott &  Stringfellow,  as a customary part of its  investment  banking
business,  is engaged  in the  valuation  of  financial  institutions  and their
securities   in   connection   with   mergers   and   acquisitions,   negotiated
underwritings,  private  placements,  and valuations  for estate,  corporate and
other purposes.  We have acted as financial advisor to the Board of Directors of
Rockingham in connection with the transaction  described  above. We are familiar
with  Rockingham,  having  acted as its  financial  advisor in the past and have
provided certain investment banking services from time to time.

          In developing our opinion,  we have, among other things,  reviewed and
analyzed:  (1)  the  Merger  Agreement;  (2)  the  joint  Proxy  Statement;  (3)
Rockingham's audited financial statements for the three years ended December 31,
1999; (4) Rockingham's unaudited financial statements for the three months ended
March 31, 2000 and 1999, and other internal  information  relating to Rockingham
prepared by  Rockingham's  management;  (5)  information  regarding  the trading
market for the common  stocks of  Rockingham  and  Marathon and the price ranges
within which the respective  stocks have traded;  (6) the relationship of prices
paid to relevant financial data such as net worth, earnings, assets and deposits
in certain  bank and bank holding  company  mergers and  acquisitions  in recent
years;  (7)  Marathon's   annual  reports  to  shareholders  and  its  financial
statements for the three years ended December 31, 1999; (8) Marathon's unaudited
financial  statements  for the three months  ended March 31, 2000 and 1999,  and
certain other internal  information  relating to Marathon prepared by Marathon's
management.  We have  discussed  with members of management  of  Rockingham  and
Marathon the background of the Merger,  the reasons and basis for the Merger and
the business and future prospects of Rockingham and Marathon individually and as
a combined entity.  Finally, we have conducted such other studies,  analyses and
investigations,  particularly of the banking industry, and considered such other
information as we have deemed appropriate.

         In  conducting  our review and arriving at our opinion,  we have relied
upon and assumed the



                                      E-1
<PAGE>

Board of Directors
Rockingham Heritage Bank
July ____, 2000
Page 2



accuracy and completeness of the information  furnished to us by or on behalf of
Rockingham  and  Marathon.  We have not attempted  independently  to verify such
information,  nor  have we made  any  independent  appraisal  of the  assets  of
Rockingham  or  Marathon.  With  respect  to  the  information  relating  to the
prospects of  Rockingham  and  Marathon,  we have assumed that such  information
reflects the best currently available judgments and estimates of the managements
of Rockingham  and Marathon as to the likely future  financial  performances  of
their  respective  companies  and of the  combined  entity.  We have  taken into
account  our  assessment  of general  economic,  financial  market and  industry
conditions as they exist and can be evaluated as of the date hereof,  as well as
our experience in business  valuation in general.  We have also assumed that, in
the course of obtaining  regulatory  and third party consents for the Merger and
the transactions  contemplated by the Merger  Agreement,  no restriction will be
imposed  that will have a  material  adverse  effect on the  future  results  of
operations or financial condition of Rockingham or Marathon.

         Our advisory  services and opinion  expressed  herein were prepared for
the  use of the  Board  of  Directors  of  Rockingham  and do not  constitute  a
recommendation to the Rockingham  shareholders as to how they should vote at the
shareholders' meeting in connection with the Merger. We hereby consent, however,
to  the  inclusion  of  this  opinion  as an  exhibit  to  the  proxy  statement
distributed in connection with the Merger.

         On the basis of our analyses and review and in reliance on the accuracy
and  completeness  of  the  information  furnished  to us  and  subject  to  the
conditions and  assumptions  noted above, it is our opinion that, as of the date
hereof,  the terms of the Merger  Agreement  are fair from a financial  point of
view to the shareholders of Rockingham common stock.

                            Very truly yours,

                            SCOTT & STRINGFELLOW, INC.


                            By:
                                 ------------------------------------------
                                 Gary S. Penrose
                                 Managing Director
                                 Financial Institutions Group



                                      E-2
<PAGE>

                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20.  Indemnification of Directors and Officers

         Article 10 of Chapter 9 of Title 13.1 of the Code of Virginia permits a
Virginia  corporation  to  indemnify  any  director  or officer  for  reasonable
expenses incurred in any legal proceeding in advance of final disposition of the
proceeding,  if the  director or officer  furnishes  the  corporation  a written
statement  of his good  faith  belief  that he has met the  standard  of conduct
prescribed  by the Code and a  determination  is made by the board of  directors
that such  standard  has been  met.  In a  proceeding  by or in the right of the
corporation,  no  indemnification  shall be made in  respect of any matter as to
which an officer or director is adjudged to be liable to the corporation, unless
the court in which the  proceeding  took place  determines  that,  despite  such
liability,  such person is reasonably entitled to indemnification in view of all
the relevant circumstances. In any other proceeding, no indemnification shall be
made if the  director or officer is adjudged  liable to the  corporation  on the
basis that personal  benefit was improperly  received by him.  Corporations  are
given the power to make any other or further indemnity, including advancement of
expenses,  to any director or officer that may be  authorized by the articles of
incorporation or any bylaw made by the shareholders,  or any resolution adopted,
before or after the event,  by the  shareholders,  except an  indemnity  against
willful misconduct or a knowing violation of the criminal law. Unless limited by
its  articles  of  incorporation,  indemnification  of a director  or officer is
mandatory when he entirely prevails in the defense of any proceeding to which he
is a party because he is or was a director or officer.

         The Articles of  Incorporation  of the  Registrant  contain  provisions
indemnifying  the  directors  and officers of the  Registrant to the full extent
permitted by Virginia law. In addition, the Articles of Incorporation  eliminate
the  personal  liability  of the  Registrant's  directors  and  officers  to the
Registrant or its shareholders for monetary damages to the full extent permitted
by Virginia law.

Item 21.  Exhibits and Financial Statement Schedules

(a)      Exhibits:

         The following exhibits are filed on behalf of the Registrant as part of
this Registration Statement:

Exhibit No.                Document

         2.1        Amended and Restated Agreement and Plan of Merger,  dated as
                    of June 21, 2000, by and and among Rockingham Heritage Bank,
                    Marathon  Financial  Corporation,   The  Marathon  Bank  and
                    Marathon  Merger  Bank,  included as Appendix A to the Joint
                    Proxy  Statement/Prospectus  included  in this  Registration
                    Statement.*

         3.1        Articles of Incorporation of Marathon Financial Corporation,
                    incorporated  herein by  reference  to  Exhibit  3(i) of the
                    Registrant's    Registration    Statement   on   Form   S-1,
                    Registration No. 33-51366, filed August 26, 1992.

                                      II-1
<PAGE>


         3.2        Bylaws   of  Marathon  Financial  Corporation,  incorporated
                    herein by  reference  to Exhibit  3(ii) of the  Registrant's
                    Registration   Statement  on  Form  S-1,   Registration  No.
                    33-51366, filed August 26, 1992.

         5.1        Legal opinion of Williams, Mullen, Clark & Dobbins.*

         8.1        Tax opinion of Williams, Mullen, Clark & Dobbins.*

         21.1       Subsidiaries of the Registrant.*

         23.1       Consent  of  Williams,  Mullen, Clark & Dobbins (included in
                    Exhibit 5.1).*

         23.2       Consent of Yount, Hyde & Barbour, P.C.*

         23.3       Consent of McGladrey & Pullen, L.L.C.*

         23.4       Consent of McKinnon & Company, Inc.*

         23.5       Consent of Scott & Stringfellow, P.C.*

         24.1       Powers of attorney (included on signature page).*

         99.1       Form of Proxy of Marathon Financial Corporation.*

         99.2       Form of Proxy of Rockingham Heritage Bank.*

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

*Filed herewith

Item 22.  Undertakings

(a)      Undertakings Required by Item 512 of Regulation S-K.

         The undersigned registrant hereby undertakes:

                  (1)      To file,  during any period in which  offers or sales
                           are being made,  a  post-effective  amendment to this
                           registration statement:

                           (i)      To  include  any   prospectus   required  by
                                    Section  10(a)(3) of the  Securities  Act of
                                    1933;

                           (ii)     To  reflect in the  prospectus  any facts or
                                    events  arising after the effective  date of
                                    the  registration  statement  (or  the  most
                                    recent  post-effective   amendment  thereof)
                                    which,  individually  or in  the  aggregate,
                                    represent  a   fundamental   change  in  the
                                    information  set  forth in the  registration
                                    statement.  Notwithstanding  the  foregoing,
                                    any   increase  or  decrease  in  volume  of
                                    securities  offered  (if  the  total  dollar
                                    value of securities offered would not exceed
                                    that which was registered) and any deviation
                                    from  the low or high  end of the




                                      II-2
<PAGE>

                                    estimated  maximum  offering  range  may  be
                                    reflected  in the form of  prospectus  filed
                                    with the Commission  pursuant to Rule 424(b)
                                    if, in the aggregate,  the changes in volume
                                    and price  represent no more than 20 percent
                                    change  in the  maximum  aggregate  offering
                                    price  set  forth  in  the  "Calculation  of
                                    Registration  Fee"  table  in the  effective
                                    registration statement; and

                           (iii)    To include  any  material  information  with
                                    respect  to the  plan  of  distribution  not
                                    previously  disclosed  in  the  registration
                                    statement  or any  material  change  to such
                                    information in the registration statement;

                           provided,  however, that paragraph (1)(i) and (1)(ii)
                           shall not apply if the  registration  statement is on
                           Form S-3,  Form S-8 or Form F-3, and the  information
                           required to be included in a post-effective amendment
                           by those  paragraphs is contained in periodic reports
                           filed  with or  furnished  to the  Commission  by the
                           registrant pursuant to Section 13 or Section 15(d) of
                           the Exchange Act that are  incorporated  by reference
                           in the registration statement.

                  (2)      That,  for the purpose of  determining  any liability
                           under  the   Securities   Act  of  1933,   each  such
                           post-effective  amendment shall be deemed to be a new
                           registration  statement  relating  to the  securities
                           offered therein,  and the offering of such securities
                           at that time shall be deemed to be the  initial  bona
                           fide offering thereof.

                  (3)      To   remove   from   registration   by   means  of  a
                           post-effective  amendment any of the securities being
                           registered  which remain unsold at the termination of
                           the offering.

         The undersigned  registrant hereby undertakes as follows: that prior to
any public  reoffering of the securities  registered  hereunder through use of a
prospectus  which is a part of this  registration  statement,  by any  person or
party which is deemed to be an  underwriter  within the meaning of Rule  145(c),
the  issuer  undertakes  that  such  reoffering   prospectus  will  contain  the
information  called  for by the  applicable  registration  form with  respect to
reofferings  by  persons  who may be deemed  underwriters,  in  addition  to the
information called for by the other items of the applicable form.

         The  registrant  undertakes  that every  prospectus:  (i) that is filed
pursuant to the  paragraph  immediately  preceding or (ii) that purports to meet
the  requirements of Section  10(a)(3) of the Act and is used in connection with
an offering  of  securities  subject to Rule 415,  will be filed as a part of an
amendment  to the  registration  statement  and  will  not be  used  until  such
amendment is  effective,  and that,  for purposes of  determining  any liability
under the Securities Act of 1933,  each such  post-effective  amendment shall be
deemed to be a new  registration  statement  relating to the securities  offered
therein,  and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

         Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors,  officers and controlling  persons of
the  registrant  pursuant  to  the  foregoing  provisions,   or  otherwise,  the
registrant  has been advised that in the opinion of the  Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and




                                      II-3
<PAGE>


is,  therefore,  unenforceable.  In the event  that a claim for  indemnification
against such  liabilities  (other than the payment by the registrant of expenses
incurred or paid by a director,  officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director,  officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been  settled by  controlling  precedent,  submit to a court of  appropriate
jurisdiction the question whether such  indemnification  by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

(b) The  undersigned  registrant  hereby  undertakes  to respond to requests for
information  that is incorporated  by reference into the prospectus  pursuant to
Item 4, 10(b),  11, or 13 of this form,  within one  business  day of receipt of
such  request,  and to send the  incorporated  documents  by first class mail or
other equally  prompt means.  This includes  information  contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.

(c) The  undersigned  registrant  hereby  undertakes  to  supply  by  means of a
post-effective  amendment  all  information  concerning a  transaction,  and the
company  being  acquired  involved  therein,  that  was not the  subject  of and
included in the registration statement when it became effective.




                                      II-4
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this  Registration  Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Winchester,
Commonwealth of Virginia, on July 14, 2000.

                                       MARATHON FINANCIAL CORPORATION



                                       By:   /s/ Donald L. Unger
                                           -------------------------------------
                                           Donald L. Unger
                                           President and Chief Executive Officer


                                POWER OF ATTORNEY

         Each  of  the   undersigned   hereby   appoints   Donald  L.  Unger  as
attorney-in-fact and agent for the undersigned, with full power of substitution,
for and in the name, place and stead of the  undersigned,  to sign and file with
the  Securities  and Exchange  Commission  under the  Securities Act of 1933, as
amended, any and all amendments  (including  post-effective  amendments) to this
Registration Statement,  with any schedules or exhibits thereto, and any and all
supplements  or other  documents  to be filed with the  Securities  and Exchange
Commission  pertaining to the  registration of securities  covered hereby,  with
full power and authority to do and perform any and all acts and things as may be
necessary or desirable in furtherance of such registration.

         Pursuant to the requirements of the Securities Act of 1933, as amended,
this  Registration  Statement  has been signed by the  following  persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
                  Signature                                     Title                               Date
                  ---------                                     -----                               ----
<S>                                              <C>                                            <C>

            /s/ Donald L. Unger                  President and Chief Executive Officer          July 14, 2000
-------------------------------------------                  and Director
               Donald L. Unger                    (Principal Executive, Financial and
                                                          Accounting Officer)


           /s/ Walter H. Aikens                                Director                         July 14, 2000
-------------------------------------------
              Walter H. Aikens


           /s/ Frank W. Brumback                               Director                         July 14, 2000
-------------------------------------------
              Frank H. Brumback


           /s/ Robert W. Claytor                               Director                         July 14, 2000
-------------------------------------------
              Robert W. Claytor

<PAGE>

                  Signature                                     Title                               Date
                  ---------                                     -----                               ----


            /s/ Clifton L. Good                                Director                         July 14, 2000
-------------------------------------------
               Clifton L. Good


            /s/ Thomas W. Grove                                Director                         July 14, 2000
-------------------------------------------
               Thomas W. Grove


           /s/ Ralph S. Gregory                                Director                         July 14, 2000
-------------------------------------------
              Ralph S. Gregory


           /s/ Joseph W. Hollis                                Director                         July 14, 2000
-------------------------------------------
              Joseph W. Hollis


         /s/ George R. Irvin, Jr.                              Director                         July 14, 2000
-------------------------------------------
            George R. Irvin, Jr.


           /s/ Gerald H. Kidwell                               Director                         July 14, 2000
-------------------------------------------
              Gerald H. Kidwell


           /s/ Lewis W. Spangler                               Director                         July 14, 2000
-------------------------------------------
              Lewis W. Spangler
</TABLE>


<PAGE>

                                  EXHIBIT INDEX

Exhibit No.         Document

         2.1        Amended and Restated Agreement and Plan of Merger,  dated as
                    of June 21, 2000, by and and among Rockingham Heritage Bank,
                    Marathon  Financial  Corporation,   The  Marathon  Bank  and
                    Marathon  Merger  Bank,  included as Appendix A to the Joint
                    Proxy  Statement/Prospectus  included  in this  Registration
                    Statement.*

         3.1        Articles of Incorporation of Marathon Financial Corporation,
                    incorporated  herein by  reference  to  Exhibit  3(i) of the
                    Registrant's    Registration    Statement   on   Form   S-1,
                    Registration No. 33-51366, filed August 26, 1992.

         3.2        Bylaws   of  Marathon  Financial  Corporation,  incorporated
                    herein by  reference  to Exhibit  3(ii) of the  Registrant's
                    Registration   Statement  on  Form  S-1,   Registration  No.
                    33-51366, filed August 26, 1992.

         5.1        Legal opinion of Williams, Mullen, Clark & Dobbins.*

         8.1        Tax opinion of Williams, Mullen, Clark & Dobbins.*

         21.1       Subsidiaries of the Registrant.*

         23.1       Consent  of  Williams,  Mullen, Clark & Dobbins (included in
                    Exhibit 5.1).*

         23.2       Consent of Yount, Hyde & Barbour, P.C.*

         23.3       Consent of McGladrey & Pullen, L.L.C.*

         23.4       Consent of McKinnon & Company, Inc.*

         23.5       Consent of Scott & Stringfellow, P.C.*

         24.1       Powers of attorney (included on signature page).*

         99.1       Form of Proxy of Marathon Financial Corporation.*

         99.2       Form of Proxy of Rockingham Heritage Bank.*

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

*Filed herewith



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