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


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   -----------


                                    FORM 8-K


                                 CURRENT REPORT


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


                        Date of Report: November 20, 2000
                        (Date of earliest event reported)



                       PREMIER COMMUNITY BANKSHARES, INC.
             (Exact Name of Registrant as Specified in its Charter)



          Virginia                      0-18868                   54-1560968
(State or Other Jurisdiction    (Commission File Number)        (IRS Employer
      of Incorporation)                                      Identification No.)

            4095 Valley Pike
          Winchester, Virginia                             22602
(Address of Principal Executive Offices)                 (Zip Code)


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


                         Marathon Financial Corporation
          (Former Name or Former Address, if Changed Since Last Report)



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

<PAGE>

Item 2.     Acquisition or Disposition of Assets.

         On November 20, 2000,  Premier  Community  Bankshares,  Inc.  (formerly
Marathon  Financial  Corporation),   a  Virginia  corporation  (the  "Company"),
acquired all of the issued and outstanding  capital stock of Rockingham Heritage
Bank, a Virginia state bank ("Rockingham"),  through a merger by Marathon Merger
Bank, a Virginia state bank and wholly owned subsidiary of the Company, with and
into  Rockingham  (the  "Merger").  The Merger was  consummated  pursuant  to an
Amended and Restated Agreement and Plan of Merger, dated as of June 21, 2000, by
and among Rockingham,  the Company, The Marathon Bank, a Virginia state bank and
a wholly owned subsidiary of the Company ("Marathon"),  and Marathon Merger Bank
(the "Merger Agreement").

         Under the terms of the Merger,  each outstanding  share of Rockingham's
common  stock,  par value  $5.00  per share  ("Rockingham  Common  Stock"),  was
converted  into the right to receive 1.58 shares of the Company's  common stock,
par  value  $1.00  per  share  ("Company  Common  Stock"),  and  cash in lieu of
fractional  shares.  There were  1,589,940  shares of  Rockingham  Common  Stock
outstanding immediately prior to the consummation of the Merger.

         In  connection  with the  Merger,  Rockingham  became  a  wholly  owned
subsidiary  of the Company.  In  addition,  the size of the  Company's  Board of
Directors was reduced from 11 to eight members, and four of the former directors
of Rockingham became directors of the Company.

         Furthermore,  the  Company  changed its name from  "Marathon  Financial
Corporation" to "Premier  Community  Bankshares,  Inc." effective as of November
20, 2000. The Company's subsidiaries,  Marathon and Rockingham, will continue to
operate under their current names for the foreseeable future. Effective November
21, 2000,  shares of Company  Common Stock began trading on The Nasdaq  SmallCap
Market ("Nasdaq") under the symbol "PREM." Prior to that date, shares of Company
Common Stock traded on Nasdaq under the symbol "MFCV."

         For a more  detailed  description  of the  Merger,  see the Joint Proxy
Statement/Prospectus  that was filed with the Securities and Exchange Commission
on August 17, 2000 in connection  with the Company's  Registration  Statement on
Form S-4 (File No. 333-41844), and which is incorporated herein by reference.




                                        2
<PAGE>

Item 7.     Financial Statements, Pro Forma Financial Information and Exhibits.

      (a)   Financial Statements of Businesses Acquired.

            The following  financial  statements  of Rockingham  are included in
this report:

               Independent Auditor's Report of McGladrey & Pullen, LLP
               Consolidated Financial Statements
                  Consolidated Balance Sheets as of December 31, 1999 and 1998
                  Consolidated Statements of Income for the years ended December
                     31, 1999 and 1998
                  Consolidated  Statements of Stockholders' Equity for the years
                     ended December 31, 1999 and 1998
                  Consolidated  Statements  of Cash  Flows for the  years  ended
                     December 31, 1999 and 1998
               Notes to Consolidated Financial Statements
               Interim Consolidated Financial Statements (unaudited)
                  Consolidated  Balance  Sheets  as of  September  30,  2000 and
                     December 31, 1999
                  Consolidated  Statements  of Income for the nine months  ended
                     September 30, 2000 and 1999
                  Consolidated  Statements of Stockholders'  Equity for the nine
                     months ended September 30, 2000 and 1999
                  Consolidated  Statements  of Cash  Flows  for the nine  months
                     ended September 30, 2000 and 1999
               Notes to Consolidated Financial Statements (unaudited)




                                       3
<PAGE>


                      [MCGLADREY & PULLEN, LLP LETTERHEAD]



                          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



                                       4
<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.



                                       5
<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.



                                       6
<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.



                                       7
<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)




                                       8
<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.






                                       9
<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.







                                       10
<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.





                                       11
<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.





                                       12
<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>





                                       13
<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.





                                       14
<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
                                                 =============





                                       15
<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%.






                                       16
<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
                                                 ===============================





                                       17
<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>





                                       18
<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.





                                       19
<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>






                                       20
<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.






                                       21
<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.







                                       22
<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.






                                       23
<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.











                                       24
<PAGE>



ROCKINGHAM HERITAGE BANK

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                  September 30,          December 31,
                                                                                      2000                  1999
                                                                                  (unaudited)
---------------------------------------------------------------------------------------------------------------------
ASSETS
<S>                                                                             <C>                   <C>
Cash and due from banks                                                         $     7,038,540       $     3,906,883
Federal funds sold                                                                    3,107,000             7,677,000
                                                                                ---------------       ---------------
                  Cash and cash equivalents                                          10,145,540            11,583,883

Investment securities available-for-sale                                              6,841,090             6,410,053
Investment securities held-to-maturity (fair value September 2000
    $1,367,386; December 1999 $1,941,134)                                             1,367,815             1,948,895
Loans, net                                                                           90,359,556            77,947,154
Bank premises and equipment, net                                                      2,152,739             2,169,319
Accrued income receivable                                                               620,378               532,872
Deferred income taxes                                                                   325,258               342,500
Other assets                                                                            388,424               207,595
                                                                                ---------------       ---------------
                                                                                $   112,200,800       $   101,142,271
                                                                                ===============       ===============

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
    Deposits
         Interest bearing                                                       $    77,958,179       $    75,834,932
         Noninterest bearing                                                         14,464,529            11,975,914
                                                                                ---------------       ---------------
                                                                                     92,422,708            87,810,846

    Borrowed money                                                                    6,525,022             1,302,383
    Accrued interest and other liabilities                                              496,067               401,322
                                                                                ---------------       ---------------
                                                                                     99,443,797            89,514,551
                                                                                ---------------       ---------------

Stockholders' Equity
    Common stock, $5 par value, authorized 2,000,000 shares; issued
      September 2000 1,589,940 shares; December 1999 1,589,843
      shares                                                                          7,949,700             7,949,215
    Additional paid-in capital                                                        1,975,474             1,974,989
    Accumulated other comprehensive loss                                                (31,366)              (64,859)
    Retained earnings                                                                 2,863,195             1,768,375
                                                                                ---------------       ---------------
                                                                                     12,757,003            11,627,720
                                                                                ---------------       ---------------

                                                                                $   112,200,800       $   101,142,271
                                                                                ===============       ===============
</TABLE>


See notes to Consolidated Financial Statements.


                                       25
<PAGE>


ROCKINGHAM HERITAGE BANK

CONSOLIDATED STATEMENTS OF INCOME
Nine Months ended September 30, 2000 and 1999 (Unaudited)
<TABLE>
<CAPTION>
                                                                                  September 30,       September 30,
                                                                                      2000                1999
--------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                  <C>
Interest income
     Interest and fees on loans                                                 $     5,698,007      $     4,669,923
     Interest and dividends on investment securities                                    426,055              353,514
     Interest on federal funds sold                                                     259,800              206,007
     Interest bearing deposits                                                           37,637                    -
                                                                                ---------------      ---------------
                                                                                      6,421,499            5,229,444
Interest expense
     Interest expense on borrowed money                                                 192,552               51,663
     Interest expense on deposits                                                     2,739,858            2,233,524
                                                                                ---------------      ---------------
                  Net interest income before provision for loan losses                3,489,089            2,944,257
Provision for loan losses                                                                90,000               90,000
                                                                                ---------------      ---------------
                  Net interest income after provision for loan losses                 3,399,089            2,854,257

Noninterest income
     Service fees                                                                       298,994              244,620
     Commissions                                                                         13,564               23,884
                                                                                ---------------      ---------------
                                                                                        312,558              268,504

Noninterest expenses
     Salaries and wages                                                                 981,396              847,878
     Employee benefits                                                                  227,152              183,886
     Occupancy and equipment                                                            296,934              277,580
     Outside services                                                                   296,764              279,550
     Other                                                                              242,404              233,918
                                                                                ---------------      ---------------
                                                                                      2,044,650            1,822,812

                  Income before provision for income taxes                            1,666,997            1,299,949
Provision for income taxes                                                              567,000              442,000

                                                                                ---------------      ---------------
                  Net income                                                    $     1,099,997      $       857,949
                                                                                ===============      ===============
Earnings per common share - Basic                                               $          0.69      $          0.54
                                                                                ===============      ===============

Earnings per common share - Diluted                                             $          0.68      $          0.53
                                                                                ===============      ===============
</TABLE>


See notes to Consolidated Financial Statements.



                                       26
<PAGE>

Rockingham Heritage Bank

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 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                                                                           857,949                           857,949
    Change in unrealized gain(loss)
    on securities available-for-sale,
    net of taxes of $23,255                                                                                 (45,143)       (45,143)

                                                                                                                     --------------
    Total comprehensive income                                                                                             812,806
                                                                                                                     --------------

Adjustment on partial shares for 5%              32            155             186          (341)                                0
dividend
                                        -------------------------------------------------------------------------------------------

Balance, September 30, 1999               1,589,843    $ 7,570,685     $ 1,596,459    $2,182,448         $  (21,564)   $11,328,028
                                        ===========================================================================================

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                                                                         1,099,997                         1,099,997
    Change in unrealized gain(loss)
    on securities available-for-sale,
    net of taxes of $17,254                                                                                  33,493         33,493
                                                                                                                     --------------
    Total comprehensive income                                                                                           1,133,490
                                                                                                                     --------------

Other                                                                                     (4,207)                           (4,207)
Adjustment on partial shares for 5%              97            485             485          (970)                                0
dividend
                                        -------------------------------------------------------------------------------------------

Balance, September 30, 2000               1,589,940     $7,949,700      $1,975,474    $2,863,195         $  (31,366)   $12,757,003
                                        ===========================================================================================
</TABLE>





See notes to Consolidated Financial Statements.


                                       27
<PAGE>



Rockingham Heritage Bank

CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2000 and 1999 (Unaudited)

<TABLE>
<CAPTION>
                                                                          September 30,      September 30,
                                                                              2000               1999
----------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                <C>
Cash Flows From Operating Activities
       Net Income                                                        $    1,099,997     $      857,949
       Adjustments to reconcile net income to net cash provided
          by operating activities:
           Depreciation                                                         160,202            139,891
           Provision for loan losses                                             90,000             90,000
           Increase in accrued income receivable                                (87,506)           (73,035)
           Amortization and accretion of bond premiums and
            discount, net                                                         4,216             (2,581)
           (Increase)decrease in income taxes receivable                         (7,664)            46,500
           (Increase)decrease in other assets                                  (194,725)            48,365
           Increase in deferred income taxes                                       (152)                 -
           Increase in accrued interest and other liabilities                   106,397            105,123
           Decrease in income taxes payable                                     (11,652)                 -
                                                                         --------------     --------------
            Net cash provided by operating activities                         1,159,113          1,212,212
                                                                         --------------     --------------

Cash Flows From Investing Activities
       Available-for-sale securities
          Maturities                                                            238,444          1,409,438
          Purchases                                                            (629,235)        (1,566,038)
       Held-to-maturity securities
          Maturities                                                            583,298            851,641
       Net increase in loans                                                (12,502,402)       (11,933,444)
       Purchases of premises and equipment                                     (122,062)          (294,941)
                                                                         --------------     --------------
            Net cash used in investing activities                           (12,431,957)       (11,533,344)
                                                                         --------------     --------------
</TABLE>



                                   (Continued)



                                       28
<PAGE>


Rockingham Heritage Bank

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Nine Months Ended September 30, 2000 and 1999 (Unaudited)

<TABLE>
<CAPTION>
                                                                          September 30,      September 30,
                                                                              2000               1999
----------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                <C>
Cash Flows From Financing Activities
       Net increase in interest bearing liabilities                      $    2,123,247     $   10,406,136
       Net increase in noninterest bearing deposits                           2,488,615          1,525,061
       Increase in borrowed funds                                             5,222,639            225,079
                                                                         --------------     --------------
            Net cash provided by financing activities                         9,834,501         12,156,276
                                                                         --------------     --------------

            Increase(Decrease) in cash and cash equivalents                  (1,438,343)         1,835,144

Cash and cash equivalents
       Beginning                                                             11,583,883          9,422,692
                                                                         --------------     --------------
       Ending                                                            $   10,145,540     $   11,257,836
                                                                         ==============     ==============

Supplemental Disclosures of Cash Flow Information
       Cash payments for:
           Interest paid to depositors                                 $    2,713,509     $    2,221,929
                                                                         ==============     ==============

           Income taxes                                                  $      586,409     $      395,500
                                                                         ==============     ==============

Supplemental Schedule of  Noncash Investing Activities
       Net unrealized gain(loss) on available-for-sale securities        $       33,493     $      (45,143)
                                                                         ==============     ==============
</TABLE>


See notes to Consolidated Financial Statements.


                                       29
<PAGE>



ROCKINGHAM HERITAGE BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
--------------------------------------------------------------------------------

Note 1. 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  Rockingham  and Augusta.  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.

Note 2. Basis of Presentation

The accompanying  unaudited  consolidated  financial  statements (expect for the
consolidated  balance  sheet at December 31, 1999,  which is audited)  have been
prepared in accordance with generally accepted accounting principles for interim
financial information.  Accordingly,  they do not include all of the information
required by generally  accepted  accounting  principles  for complete  financial
statements.  In the opinion of management,  all adjustments  (none of which were
other than normal recurring  accruals)  necessary for a fair presentation of the
financial position and results of operations for the periods presented have been
included.  The results of operations  for the three and nine month periods ended
September 30, 2000 are not  necessarily  indicative of the results of operations
that may be expected for the Bank's year ending December 31, 2000.

The  accounting  policies  followed  are as set  forth in Note 1 of the Notes to
Consolidated   Financial   Statements  in  the  Bank's  1999  Annual  Report  to
Stockholders.

Note 3. Earnings per 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 three  months and nine  months
ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
                                                  Three months ended 9/30/00           Three months ended 9/30/99
                                                  --------------------------           --------------------------
                                                 Numerator         Denominator        Numerator        Denominator
                                              ----------------- ------------------ ----------------- -----------------
<S>                                             <C>             <C>                  <C>             <C>
Basic earnings per share
  Income available to stockholders              $     365,490                        $    315,246
  Average shares outstanding                                            1,589,940                           1,589,843
  Effect of dilutive shares                                                25,496                              27,513
                                                                ------------------                   -----------------
Dilutive shares                                                         1,615,436                           1,617,356
                                                                ==================                   =================
</TABLE>


                                       30
<PAGE>


ROCKINGHAM HERITAGE BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                   Nine months ended 9/30/00           Nine months ended 9/30/99
                                                   -------------------------           -------------------------
                                                 Numerator         Denominator        Numerator        Denominator
                                              ----------------- ------------------ ----------------- -----------------
<S>                                             <C>             <C>                  <C>             <C>
Basic earnings per share
  Income available to stockholders              $   1,099,997                        $     857,949
  Average shares outstanding                                            1,589,940                           1,589,843
  Effect of dilutive shares                                                27,576                              27,513
                                                                ------------------                   -----------------
Dilutive shares                                                         1,617,516                           1,617,356
                                                                ==================                   =================
</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 periods  presented to reflect the 5%
stock dividends in 2000 and 1999.

Note 4. 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.  The bank's shareholders approved the merger on September
13, 2000 and the regulatory approval was obtained on November 3, 2000.

Note 5. 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.



                                       31
<PAGE>


         (b)      Pro Forma Financial Information.

         The following unaudited pro forma condensed  financial  statements have
been  prepared  on a  consolidated  basis  based upon the  historical  financial
statements of the Company 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 Company Common Stock in connection  with
the Merger,  which in turn is based on the number of shares of Rockingham Common
Stock  outstanding at September 30, 2000. The number of shares of Company Common
Stock to be  issued  in  connection  with  the  Merger  is  subject  to  certain
adjustments set forth in the Merger  Agreement.  Any difference in the number of
shares of Company 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
the  Company,  which  have been  filed  with the  Commission,  and  Rockingham's
historical  financial  statements,   which  are  included  in  Item  7(a)  above
(Rockingham's  1997  audited  financial  statements  are  not  included  in this
report). 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 that would  actually have been attained if the Merger
had occurred in the past or that may be attained in the future.


                                       32
<PAGE>


                             MARATHON AND ROCKINGHAM
                        PRO FORMA COMBINED BALANCE SHEET
                               September 30, 2000
<TABLE>
<CAPTION>
                                                           Marathon       Rockingham      Adjustments    Consolidated
                                                           --------       ----------      -----------    ------------
                                                                                   (Dollars in thousands)
<S>                                                      <C>             <C>             <C>             <C>
Assets
Cash and due from banks                                  $      5,836    $      7,039    $         --    $     12,875
Federal funds sold                                             14,337           3,107              --          17,444
Securities                                                     13,274           8,209              --          21,483
Loans held for resale                                             207              --              --             207
Loans, net                                                     86,222          90,360              --         176,582
Bank premises and equipment, net                                2,789           2,153              --           4,942
Accrued interest receivable                                       609             620              --           1,229
Other real estate                                                  --              --              --               -
Other assets                                                      548             713              --           1,261
                                                         ------------------------------------------------------------

Total assets                                             $    123,822    $    112,201    $         --    $    236,023
                                                         ============================================================

Liabilities and Stockholders' Equity
Liabilities:
Deposits
Interest-bearing                                         $     93,721    $     77,958    $         --    $    171,679
Non-interest bearing                                           18,999          14,465              --          33,464
Other borrowed money                                               --           6,525              --           6,525
Accrued interest payable and other liabilities                    438             496              --             934
Capital lease payable                                             213              --              --             213
Dividends payable                                                  --              --              --               -
                                                         ------------------------------------------------------------

Total liabilities                                        $    113,371    $     99,444    $         --    $    212,815
                                                         ------------------------------------------------------------

Commitments                                                        --              --              --              --

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                                                 710           2,863              --           3,573
Accumulated other comprehensive income (loss)                     (81)            (32)             --            (113)
                                                         ------------------------------------------------------------

Total stockholders' equity                               $     10,451    $     12,757    $         --    $     23,208
                                                         ------------------------------------------------------------

Total liabilities and stockholders' equity               $    123,822    $    112,201    $         --    $    236,023
                                                         ============================================================
</TABLE>




                                       33
<PAGE>


                             MARATHON AND ROCKINGHAM
                       PRO FORMA COMBINED INCOME STATEMENT
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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                                        $   6,004      $   5,698      $  11,702
Interest and dividends on securities:
  Taxable                                                               432            426            858
  Nontaxable                                                             53             --             53
  Dividends                                                              29             --             29
Interest on deposits in other banks                                      --             38             38
Interest on Federal funds sold                                          498            260            758
                                                                  ---------      ---------      ---------
       Total interest and dividend income                         $   7,016      $   6,422      $  13,438
                                                                  ---------      ---------      ---------
Interest expense:
       Interest on deposits                                       $   2,959      $   2,740      $   5,699
       Interest on short-term borrowings                                 --            193            193
       Interest on capital lease obligations                             13             --             13
                                                                  ---------      ---------      ---------
       Total interest expense                                     $   2,972      $   2,933      $   5,905
                                                                  ---------      ---------      ---------

       Net interest income                                        $   4,044      $   3,489      $   7,533
Provision for loan losses                                               273             90            363
                                                                  ---------      ---------      ---------
       Net interest income after provision for loan losses        $   3,771      $   3,399      $   7,170
                                                                  ---------      ---------      ---------
Non Interest Income:
       Service charges on deposit accounts                        $     608      $     299      $     907
       Commissions and fees                                              28             14             42
       Other                                                             44             --             44
                                                                  ---------      ---------      ---------
       Total Non Interest Income                                  $     680      $     313      $     993
                                                                  ---------      ---------      ---------
Non Interest Expense:
       Salaries and employee benefits                             $   1,446      $   1,209      $   2,655
       Net occupancy expense of premises                                168            130            298
       Furniture and equipment expense                                  230            167            397
       Other operating expense                                        1,171            539          1,710
                                                                  ---------      ---------      ---------
       Total Non Interest Expense                                 $   3,015      $   2,045      $   5,060
                                                                  ---------      ---------      ---------

       Income before income taxes                                 $   1,436      $   1,667      $   3,103
       Income taxes                                                     504            567          1,071
                                                                  ---------      ---------      ---------

       Net income                                                 $     932      $   1,100      $   2,032
                                                                  =========      =========      =========
Earnings per common share:
Basic                                                             $    0.45      $    0.69      $    0.45
                                                                  =========      =========      =========
Diluted                                                           $    0.45      $    0.68      $    0.44
                                                                  =========      =========      =========
Weighted average shares outstanding:
Basic                                                             2,051,215      1,589,940      4,563,320
Diluted                                                           2,066,237      1,617,516      4,621,619

</TABLE>



                                       34
<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>


                                       35
<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>




                                       36
<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>



                                       37
<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 the Company  will
              issue  1.58  shares of  Company  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 the Company and  Rockingham  using the historical
              weighted average shares outstanding, adjusted to equivalent shares
              of Company Common Stock.

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











                                       38
<PAGE>


         (c)      Exhibits.

                  Exhibit No.          Description
                  -----------          -----------

                     2.1        Amended  and  Restated  Agreement  and  Plan  of
                                Merger,  dated as of June 21, 2000, by and among
                                Rockingham,  the Company,  Marathon and Marathon
                                Merger  Bank,   filed  as  Exhibit  2.1  to  the
                                Registration  Statement  on Form S-4  (File  No.
                                333-41844),  dated July 20,  2000,  incorporated
                                herein by reference.

















                                       39
<PAGE>


                                    SIGNATURE

         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended,  the  registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.


                                      PREMIER COMMUNITY BANKSHARES, INC.



Dated:  December 5, 2000              By:  /s/ Donald L. Unger
                                         -------------------------------------
                                           Donald L. Unger
                                           President and Chief Executive Officer





<PAGE>

                                INDEX TO EXHIBITS


No.                 Description
---                 -----------

2.1         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,  filed as
            Exhibit  2.1 to the  Registration  Statement  on Form S-4  (File No.
            333-41844), dated July 20, 2000, incorporated herein by reference.
[{"type": "8-K", "sequence": "1", "filename": "0001.txt", "description": "FORM 8-K", "secsgml_size_bytes": 139700}]
{"company-data": {"conformed-name": "PREMIER COMMUNITY BANKSHARES INC", "cik": "0000854399", "assigned-sic": "6021", "irs-number": "541560968", "state-of-incorporation": "VA", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "000-18868", "film-number": "783684"}, "business-address": {"street1": "4095 VALLEY PIKE", "city": "WINCHESTER", "state": "VA", "zip": "22602", "phone": "5408696600"}, "mail-address": {"street1": "4095 VALLEY PIKE", "city": "WINCHESTER", "state": "VA", "zip": "22602"}, "former-company": {"former-conformed-name": "MARATHON FINANCIAL CORP", "date-changed": "19960618"}}
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   -----------

                                    FORM 8-K

                                 CURRENT REPORT

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

                        Date of Report: November 20, 2000
                        (Date of earliest event reported)

                       PREMIER COMMUNITY BANKSHARES, INC.
             (Exact Name of Registrant as Specified in its Charter)

          Virginia                      0-18868                   54-1560968
(State or Other Jurisdiction    (Commission File Number)        (IRS Employer
      of Incorporation)                                      Identification No.)

            4095 Valley Pike
          Winchester, Virginia                             22602
(Address of Principal Executive Offices)                 (Zip Code)

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

                         Marathon Financial Corporation
          (Former Name or Former Address, if Changed Since Last Report)

================================================================================
Item 2.     Acquisition or Disposition of Assets.

         On November 20, 2000,  Premier  Community  Bankshares,  Inc.  (formerly
Marathon  Financial  Corporation),   a  Virginia  corporation  (the  "Company"),
acquired all of the issued and outstanding  capital stock of Rockingham Heritage
Bank, a Virginia state bank ("Rockingham"),  through a merger by Marathon Merger
Bank, a Virginia state bank and wholly owned subsidiary of the Company, with and
into  Rockingham  (the  "Merger").  The Merger was  consummated  pursuant  to an
Amended and Restated Agreement and Plan of Merger, dated as of June 21, 2000, by
and among Rockingham,  the Company, The Marathon Bank, a Virginia state bank and
a wholly owned subsidiary of the Company ("Marathon"),  and Marathon Merger Bank
(the "Merger Agreement").

         Under the terms of the Merger,  each outstanding  share of Rockingham's
common  stock,  par value  $5.00  per share  ("Rockingham  Common  Stock"),  was
converted  into the right to receive 1.58 shares of the Company's  common stock,
par  value  $1.00  per  share  ("Company  Common  Stock"),  and  cash in lieu of
fractional  shares.  There were  1,589,940  shares of  Rockingham  Common  Stock
outstanding immediately prior to the consummation of the Merger.

         In  connection  with the  Merger,  Rockingham  became  a  wholly  owned
subsidiary  of the Company.  In  addition,  the size of the  Company's  Board of
Directors was reduced from 11 to eight members, and four of the former directors
of Rockingham became directors of the Company.

         Furthermore,  the  Company  changed its name from  "Marathon  Financial
Corporation" to "Premier  Community  Bankshares,  Inc." effective as of November
20, 2000. The Company's subsidiaries,  Marathon and Rockingham, will continue to
operate under their current names for the foreseeable future. Effective November
21, 2000,  shares of Company  Common Stock began trading on The Nasdaq  SmallCap
Market ("Nasdaq") under the symbol "PREM." Prior to that date, shares of Company
Common Stock traded on Nasdaq under the symbol "MFCV."

         For a more  detailed  description  of the  Merger,  see the Joint Proxy
Statement/Prospectus  that was filed with the Securities and Exchange Commission
on August 17, 2000 in connection  with the Company's  Registration  Statement on
Form S-4 (File No. 333-41844), and which is incorporated herein by reference.

                                        2
Item 7.     Financial Statements, Pro Forma Financial Information and Exhibits.

      (a)   Financial Statements of Businesses Acquired.

            The following  financial  statements  of Rockingham  are included in
this report:

               Independent Auditor's Report of McGladrey & Pullen, LLP
               Consolidated Financial Statements
                  Consolidated Balance Sheets as of December 31, 1999 and 1998
                  Consolidated Statements of Income for the years ended December
                     31, 1999 and 1998
                  Consolidated  Statements of Stockholders' Equity for the years
                     ended December 31, 1999 and 1998
                  Consolidated  Statements  of Cash  Flows for the  years  ended
                     December 31, 1999 and 1998
               Notes to Consolidated Financial Statements
               Interim Consolidated Financial Statements (unaudited)
                  Consolidated  Balance  Sheets  as of  September  30,  2000 and
                     December 31, 1999
                  Consolidated  Statements  of Income for the nine months  ended
                     September 30, 2000 and 1999
                  Consolidated  Statements of Stockholders'  Equity for the nine
                     months ended September 30, 2000 and 1999
                  Consolidated  Statements  of Cash  Flows  for the nine  months
                     ended September 30, 2000 and 1999
               Notes to Consolidated Financial Statements (unaudited)

                                       3
[MCGLADREY & PULLEN, LLP LETTERHEAD]

                          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

                                       4
ROCKINGHAM HERITAGE BANK

CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
1999                  1998
---------------------------------------------------------------------------------------------------------------------------
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
                                                                                        ===================================
See Notes to Consolidated Financial Statements.

                                       5
ROCKINGHAM HERITAGE BANK

CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1999 and 1998
1999                 1998
---------------------------------------------------------------------------------------------------------------------------
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
                                                                                        ===================================
See Notes to Consolidated Financial Statements.

                                       6
ROCKINGHAM HERITAGE BANK

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999 and 1998
Accumulated
                                                                     Additional                       Other
                                                        Common        Paid-in        Retained     Comprehensive
                                          Shares         Stock        Capital        Earnings         Income             Total
---------------------------------------------------------------------------------------------------------------------------------
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
                                         ========================================================================================
See Notes to Consolidated Financial Statements.

                                       7
ROCKINGHAM HERITAGE BANK

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999 and 1998
1999                1998
---------------------------------------------------------------------------------------------------------------
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)
                                                                                -------------------------------
(Continued)

                                       8
ROCKINGHAM HERITAGE BANK

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31, 1999 and 1998
1999              1998
---------------------------------------------------------------------------------------------------------------
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
                                                                                ===============================
See Notes to Consolidated Financial Statements.

                                       9
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.

                                       10
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.

                                       11
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:
1999                             1998
                                                ------------------------------    ------------------------------
                                                  Numerator       Denominator       Numerator       Denominator
                                                ----------------------------------------------------------------
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
                                                                  ===========                       ===========
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.

                                       12
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:
Gross           Gross
                                                     Amortized       Unrealized       Unrealized           Fair
                                                        Cost            Gains           Losses             Value
                                                  -----------------------------------------------------------------
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
                                                  =================================================================
13
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.

                                       14
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
                                                 =============

                                       15
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%.

                                       16
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
                                                 ===============================

                                       17
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.
To Be Well Capitalized
                                                                    For Capital          Under Prompt Corrective
                                          Actual                 Adequacy Purposes          Action Provisions
                                    Amount      Ratio           Amount        Ratio        Amount        Ratio
                               ---------------------------------------------------------------------------------
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%
                                                       -                -          -                -
18
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.

                                       19
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):
1999                             1998
                                                      ----------------------------      ---------------------------
                                                         Carrying         Fair            Carrying          Fair
                                                          Amount          Value            Amount           Value
                                                      -------------------------------------------------------------
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
                                                      ============                      ============
20
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.

                                       21
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.

                                       22
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.
Weighted-Average
                                                               Number of Shares       Exercise Price Per Share
                                                            ---------------------     ------------------------
                                                               1999        1998           1999          1998
                                                            ---------------------     ------------------------
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
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.

                                       23
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.

                                       24
ROCKINGHAM HERITAGE BANK

CONSOLIDATED BALANCE SHEETS
September 30,          December 31,
                                                                                      2000                  1999
                                                                                  (unaudited)
---------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks                                                         $     7,038,540       $     3,906,883
Federal funds sold                                                                    3,107,000             7,677,000
                                                                                ---------------       ---------------
                  Cash and cash equivalents                                          10,145,540            11,583,883

Investment securities available-for-sale                                              6,841,090             6,410,053
Investment securities held-to-maturity (fair value September 2000
    $1,367,386; December 1999 $1,941,134)                                             1,367,815             1,948,895
Loans, net                                                                           90,359,556            77,947,154
Bank premises and equipment, net                                                      2,152,739             2,169,319
Accrued income receivable                                                               620,378               532,872
Deferred income taxes                                                                   325,258               342,500
Other assets                                                                            388,424               207,595
                                                                                ---------------       ---------------
                                                                                $   112,200,800       $   101,142,271
                                                                                ===============       ===============

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
    Deposits
         Interest bearing                                                       $    77,958,179       $    75,834,932
         Noninterest bearing                                                         14,464,529            11,975,914
                                                                                ---------------       ---------------
                                                                                     92,422,708            87,810,846

    Borrowed money                                                                    6,525,022             1,302,383
    Accrued interest and other liabilities                                              496,067               401,322
                                                                                ---------------       ---------------
                                                                                     99,443,797            89,514,551
                                                                                ---------------       ---------------

Stockholders' Equity
    Common stock, $5 par value, authorized 2,000,000 shares; issued
      September 2000 1,589,940 shares; December 1999 1,589,843
      shares                                                                          7,949,700             7,949,215
    Additional paid-in capital                                                        1,975,474             1,974,989
    Accumulated other comprehensive loss                                                (31,366)              (64,859)
    Retained earnings                                                                 2,863,195             1,768,375
                                                                                ---------------       ---------------
                                                                                     12,757,003            11,627,720
                                                                                ---------------       ---------------

                                                                                $   112,200,800       $   101,142,271
                                                                                ===============       ===============
See notes to Consolidated Financial Statements.

                                       25
ROCKINGHAM HERITAGE BANK

CONSOLIDATED STATEMENTS OF INCOME
Nine Months ended September 30, 2000 and 1999 (Unaudited)
September 30,       September 30,
                                                                                      2000                1999
--------------------------------------------------------------------------------------------------------------------
Interest income
     Interest and fees on loans                                                 $     5,698,007      $     4,669,923
     Interest and dividends on investment securities                                    426,055              353,514
     Interest on federal funds sold                                                     259,800              206,007
     Interest bearing deposits                                                           37,637                    -
                                                                                ---------------      ---------------
                                                                                      6,421,499            5,229,444
Interest expense
     Interest expense on borrowed money                                                 192,552               51,663
     Interest expense on deposits                                                     2,739,858            2,233,524
                                                                                ---------------      ---------------
                  Net interest income before provision for loan losses                3,489,089            2,944,257
Provision for loan losses                                                                90,000               90,000
                                                                                ---------------      ---------------
                  Net interest income after provision for loan losses                 3,399,089            2,854,257

Noninterest income
     Service fees                                                                       298,994              244,620
     Commissions                                                                         13,564               23,884
                                                                                ---------------      ---------------
                                                                                        312,558              268,504

Noninterest expenses
     Salaries and wages                                                                 981,396              847,878
     Employee benefits                                                                  227,152              183,886
     Occupancy and equipment                                                            296,934              277,580
     Outside services                                                                   296,764              279,550
     Other                                                                              242,404              233,918
                                                                                ---------------      ---------------
                                                                                      2,044,650            1,822,812

                  Income before provision for income taxes                            1,666,997            1,299,949
Provision for income taxes                                                              567,000              442,000

                                                                                ---------------      ---------------
                  Net income                                                    $     1,099,997      $       857,949
                                                                                ===============      ===============
Earnings per common share - Basic                                               $          0.69      $          0.54
                                                                                ===============      ===============

Earnings per common share - Diluted                                             $          0.68      $          0.53
                                                                                ===============      ===============
See notes to Consolidated Financial Statements.

                                       26
Rockingham Heritage Bank

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 2000 and 1999 (Unaudited)
Accumulated
                                                                      Additional                        Other
                                                        Common         Paid-in        Retained      Comprehensive
                                          Shares         Stock         Capital        Earnings      Income(Loss)         Total
-----------------------------------------------------------------------------------------------------------------------------------
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                                                                           857,949                           857,949
    Change in unrealized gain(loss)
    on securities available-for-sale,
    net of taxes of $23,255                                                                                 (45,143)       (45,143)

                                                                                                                     --------------
    Total comprehensive income                                                                                             812,806
                                                                                                                     --------------

Adjustment on partial shares for 5%              32            155             186          (341)                                0
dividend
                                        -------------------------------------------------------------------------------------------

Balance, September 30, 1999               1,589,843    $ 7,570,685     $ 1,596,459    $2,182,448         $  (21,564)   $11,328,028
                                        ===========================================================================================

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                                                                         1,099,997                         1,099,997
    Change in unrealized gain(loss)
    on securities available-for-sale,
    net of taxes of $17,254                                                                                  33,493         33,493
                                                                                                                     --------------
    Total comprehensive income                                                                                           1,133,490
                                                                                                                     --------------

Other                                                                                     (4,207)                           (4,207)
Adjustment on partial shares for 5%              97            485             485          (970)                                0
dividend
                                        -------------------------------------------------------------------------------------------

Balance, September 30, 2000               1,589,940     $7,949,700      $1,975,474    $2,863,195         $  (31,366)   $12,757,003
                                        ===========================================================================================
See notes to Consolidated Financial Statements.

                                       27
Rockingham Heritage Bank

CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2000 and 1999 (Unaudited)
September 30,      September 30,
                                                                              2000               1999
----------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
       Net Income                                                        $    1,099,997     $      857,949
       Adjustments to reconcile net income to net cash provided
          by operating activities:
           Depreciation                                                         160,202            139,891
           Provision for loan losses                                             90,000             90,000
           Increase in accrued income receivable                                (87,506)           (73,035)
           Amortization and accretion of bond premiums and
            discount, net                                                         4,216             (2,581)
           (Increase)decrease in income taxes receivable                         (7,664)            46,500
           (Increase)decrease in other assets                                  (194,725)            48,365
           Increase in deferred income taxes                                       (152)                 -
           Increase in accrued interest and other liabilities                   106,397            105,123
           Decrease in income taxes payable                                     (11,652)                 -
                                                                         --------------     --------------
            Net cash provided by operating activities                         1,159,113          1,212,212
                                                                         --------------     --------------

Cash Flows From Investing Activities
       Available-for-sale securities
          Maturities                                                            238,444          1,409,438
          Purchases                                                            (629,235)        (1,566,038)
       Held-to-maturity securities
          Maturities                                                            583,298            851,641
       Net increase in loans                                                (12,502,402)       (11,933,444)
       Purchases of premises and equipment                                     (122,062)          (294,941)
                                                                         --------------     --------------
            Net cash used in investing activities                           (12,431,957)       (11,533,344)
                                                                         --------------     --------------
(Continued)

                                       28
Rockingham Heritage Bank

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Nine Months Ended September 30, 2000 and 1999 (Unaudited)
September 30,      September 30,
                                                                              2000               1999
----------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
       Net increase in interest bearing liabilities                      $    2,123,247     $   10,406,136
       Net increase in noninterest bearing deposits                           2,488,615          1,525,061
       Increase in borrowed funds                                             5,222,639            225,079
                                                                         --------------     --------------
            Net cash provided by financing activities                         9,834,501         12,156,276
                                                                         --------------     --------------

            Increase(Decrease) in cash and cash equivalents                  (1,438,343)         1,835,144

Cash and cash equivalents
       Beginning                                                             11,583,883          9,422,692
                                                                         --------------     --------------
       Ending                                                            $   10,145,540     $   11,257,836
                                                                         ==============     ==============

Supplemental Disclosures of Cash Flow Information
       Cash payments for:
           Interest paid to depositors                                 $    2,713,509     $    2,221,929
                                                                         ==============     ==============

           Income taxes                                                  $      586,409     $      395,500
                                                                         ==============     ==============

Supplemental Schedule of  Noncash Investing Activities
       Net unrealized gain(loss) on available-for-sale securities        $       33,493     $      (45,143)
                                                                         ==============     ==============
See notes to Consolidated Financial Statements.

                                       29
ROCKINGHAM HERITAGE BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
--------------------------------------------------------------------------------

Note 1. 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  Rockingham  and Augusta.  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.

Note 2. Basis of Presentation

The accompanying  unaudited  consolidated  financial  statements (expect for the
consolidated  balance  sheet at December 31, 1999,  which is audited)  have been
prepared in accordance with generally accepted accounting principles for interim
financial information.  Accordingly,  they do not include all of the information
required by generally  accepted  accounting  principles  for complete  financial
statements.  In the opinion of management,  all adjustments  (none of which were
other than normal recurring  accruals)  necessary for a fair presentation of the
financial position and results of operations for the periods presented have been
included.  The results of operations  for the three and nine month periods ended
September 30, 2000 are not  necessarily  indicative of the results of operations
that may be expected for the Bank's year ending December 31, 2000.

The  accounting  policies  followed  are as set  forth in Note 1 of the Notes to
Consolidated   Financial   Statements  in  the  Bank's  1999  Annual  Report  to
Stockholders.

Note 3. Earnings per 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 three  months and nine  months
ended September 30, 2000 and 1999.
Three months ended 9/30/00           Three months ended 9/30/99
                                                  --------------------------           --------------------------
                                                 Numerator         Denominator        Numerator        Denominator
                                              ----------------- ------------------ ----------------- -----------------
Basic earnings per share
  Income available to stockholders              $     365,490                        $    315,246
  Average shares outstanding                                            1,589,940                           1,589,843
  Effect of dilutive shares                                                25,496                              27,513
                                                                ------------------                   -----------------
Dilutive shares                                                         1,615,436                           1,617,356
                                                                ==================                   =================
30
ROCKINGHAM HERITAGE BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
--------------------------------------------------------------------------------
Nine months ended 9/30/00           Nine months ended 9/30/99
                                                   -------------------------           -------------------------
                                                 Numerator         Denominator        Numerator        Denominator
                                              ----------------- ------------------ ----------------- -----------------
Basic earnings per share
  Income available to stockholders              $   1,099,997                        $     857,949
  Average shares outstanding                                            1,589,940                           1,589,843
  Effect of dilutive shares                                                27,576                              27,513
                                                                ------------------                   -----------------
Dilutive shares                                                         1,617,516                           1,617,356
                                                                ==================                   =================
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 periods  presented to reflect the 5%
stock dividends in 2000 and 1999.

Note 4. 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.  The bank's shareholders approved the merger on September
13, 2000 and the regulatory approval was obtained on November 3, 2000.

Note 5. 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.

                                       31
(b)      Pro Forma Financial Information.

         The following unaudited pro forma condensed  financial  statements have
been  prepared  on a  consolidated  basis  based upon the  historical  financial
statements of the Company 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 Company Common Stock in connection  with
the Merger,  which in turn is based on the number of shares of Rockingham Common
Stock  outstanding at September 30, 2000. The number of shares of Company Common
Stock to be  issued  in  connection  with  the  Merger  is  subject  to  certain
adjustments set forth in the Merger  Agreement.  Any difference in the number of
shares of Company 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
the  Company,  which  have been  filed  with the  Commission,  and  Rockingham's
historical  financial  statements,   which  are  included  in  Item  7(a)  above
(Rockingham's  1997  audited  financial  statements  are  not  included  in this
report). 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 that would  actually have been attained if the Merger
had occurred in the past or that may be attained in the future.

                                       32
MARATHON AND ROCKINGHAM
                        PRO FORMA COMBINED BALANCE SHEET
                               September 30, 2000
Marathon       Rockingham      Adjustments    Consolidated
                                                           --------       ----------      -----------    ------------
                                                                                   (Dollars in thousands)
Assets
Cash and due from banks                                  $      5,836    $      7,039    $         --    $     12,875
Federal funds sold                                             14,337           3,107              --          17,444
Securities                                                     13,274           8,209              --          21,483
Loans held for resale                                             207              --              --             207
Loans, net                                                     86,222          90,360              --         176,582
Bank premises and equipment, net                                2,789           2,153              --           4,942
Accrued interest receivable                                       609             620              --           1,229
Other real estate                                                  --              --              --               -
Other assets                                                      548             713              --           1,261
                                                         ------------------------------------------------------------

Total assets                                             $    123,822    $    112,201    $         --    $    236,023
                                                         ============================================================

Liabilities and Stockholders' Equity
Liabilities:
Deposits
Interest-bearing                                         $     93,721    $     77,958    $         --    $    171,679
Non-interest bearing                                           18,999          14,465              --          33,464
Other borrowed money                                               --           6,525              --           6,525
Accrued interest payable and other liabilities                    438             496              --             934
Capital lease payable                                             213              --              --             213
Dividends payable                                                  --              --              --               -
                                                         ------------------------------------------------------------

Total liabilities                                        $    113,371    $     99,444    $         --    $    212,815
                                                         ------------------------------------------------------------

Commitments                                                        --              --              --              --

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                                                 710           2,863              --           3,573
Accumulated other comprehensive income (loss)                     (81)            (32)             --            (113)
                                                         ------------------------------------------------------------

Total stockholders' equity                               $     10,451    $     12,757    $         --    $     23,208
                                                         ------------------------------------------------------------

Total liabilities and stockholders' equity               $    123,822    $    112,201    $         --    $    236,023
                                                         ============================================================
33
MARATHON AND ROCKINGHAM
                       PRO FORMA COMBINED INCOME STATEMENT
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
Marathon      Rockingham       Combined
                                                                  --------      ----------       --------
                                                               (Dollars in thousands, except per share data)
Interest and dividend income:
Interest and fees on loans                                        $   6,004      $   5,698      $  11,702
Interest and dividends on securities:
  Taxable                                                               432            426            858
  Nontaxable                                                             53             --             53
  Dividends                                                              29             --             29
Interest on deposits in other banks                                      --             38             38
Interest on Federal funds sold                                          498            260            758
                                                                  ---------      ---------      ---------
       Total interest and dividend income                         $   7,016      $   6,422      $  13,438
                                                                  ---------      ---------      ---------
Interest expense:
       Interest on deposits                                       $   2,959      $   2,740      $   5,699
       Interest on short-term borrowings                                 --            193            193
       Interest on capital lease obligations                             13             --             13
                                                                  ---------      ---------      ---------
       Total interest expense                                     $   2,972      $   2,933      $   5,905
                                                                  ---------      ---------      ---------

       Net interest income                                        $   4,044      $   3,489      $   7,533
Provision for loan losses                                               273             90            363
                                                                  ---------      ---------      ---------
       Net interest income after provision for loan losses        $   3,771      $   3,399      $   7,170
                                                                  ---------      ---------      ---------
Non Interest Income:
       Service charges on deposit accounts                        $     608      $     299      $     907
       Commissions and fees                                              28             14             42
       Other                                                             44             --             44
                                                                  ---------      ---------      ---------
       Total Non Interest Income                                  $     680      $     313      $     993
                                                                  ---------      ---------      ---------
Non Interest Expense:
       Salaries and employee benefits                             $   1,446      $   1,209      $   2,655
       Net occupancy expense of premises                                168            130            298
       Furniture and equipment expense                                  230            167            397
       Other operating expense                                        1,171            539          1,710
                                                                  ---------      ---------      ---------
       Total Non Interest Expense                                 $   3,015      $   2,045      $   5,060
                                                                  ---------      ---------      ---------

       Income before income taxes                                 $   1,436      $   1,667      $   3,103
       Income taxes                                                     504            567          1,071
                                                                  ---------      ---------      ---------

       Net income                                                 $     932      $   1,100      $   2,032
                                                                  =========      =========      =========
Earnings per common share:
Basic                                                             $    0.45      $    0.69      $    0.45
                                                                  =========      =========      =========
Diluted                                                           $    0.45      $    0.68      $    0.44
                                                                  =========      =========      =========
Weighted average shares outstanding:
Basic                                                             2,051,215      1,589,940      4,563,320
Diluted                                                           2,066,237      1,617,516      4,621,619
34
MARATHON AND ROCKINGHAM
                     PRO FORMA COMBINED STATEMENTS OF INCOME
                        FOR YEAR ENDED DECEMBER 31, 1999
Marathon            Rockingham           Combined
                                                                               -----------          -----------         -----------
                                                                                    (Dollars in thousands, except per share data)
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
35
MARATHON AND ROCKINGHAM
                     PRO FORMA COMBINED STATEMENTS OF INCOME
                        FOR YEAR ENDED DECEMBER 31, 1998
Marathon            Rockingham           Combined
                                                                               -----------          -----------         -----------
                                                                                 (Dollars in thousands, except per share data)
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
36
MARATHON AND ROCKINGHAM
                     PRO FORMA COMBINED STATEMENTS OF INCOME
                        FOR YEAR ENDED DECEMBER 31, 1997
Marathon            Rockingham            Combined
                                                                                -----------          -----------         -----------
                                                                                   (Dollars in thousands, except per share data)
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
37
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 the Company  will
              issue  1.58  shares of  Company  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 the Company and  Rockingham  using the historical
              weighted average shares outstanding, adjusted to equivalent shares
              of Company Common Stock.

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

                                       38
(c)      Exhibits.

                  Exhibit No.          Description
                  -----------          -----------

                     2.1        Amended  and  Restated  Agreement  and  Plan  of
                                Merger,  dated as of June 21, 2000, by and among
                                Rockingham,  the Company,  Marathon and Marathon
                                Merger  Bank,   filed  as  Exhibit  2.1  to  the
                                Registration  Statement  on Form S-4  (File  No.
                                333-41844),  dated July 20,  2000,  incorporated
                                herein by reference.

                                       39
SIGNATURE

         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended,  the  registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.

                                      PREMIER COMMUNITY BANKSHARES, INC.

Dated:  December 5, 2000              By:  /s/ Donald L. Unger
                                         -------------------------------------
                                           Donald L. Unger
                                           President and Chief Executive Officer
INDEX TO EXHIBITS

No.                 Description
---                 -----------

2.1         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,  filed as
            Exhibit  2.1 to the  Registration  Statement  on Form S-4  (File No.
            333-41844), dated July 20, 2000, incorporated herein by reference.