SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-QSB


[ x ]    QUARTERLY REPORT  UNDER SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

For the quarterly period ended March 31, 1999


[   ]    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
         ACT OF 1934

For the transition period from ___________________ to ___________________


                         Commission file number 0-21285


                            ATLANTIC FINANCIAL CORP.
        (Exact Name of Small Business Issuer as Specified in its Charter)


         VIRGINIA                                       54-1809409
---------------------------------         --------------------------------------
 (State or Other Jurisdiction               (I.R.S. Employer Identification No.)
of Incorporation or Organization) 


                          737 J. Clyde Morris Boulevard
                          Newport News, Virginia 23601
         -------------------------------------------------------------
                    (Address of Principal Executive Offices)


                                 (757) 595-7020
         -------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)


-------------------------------------------------------------------------------
              (Former Name, Former Address and Former Fiscal Year,
                         If Changed Since Last Report)



Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes X . No ___.

State the number of shares outstanding of each of the issuer's classes of common
equity, as of March 31, 1999.


                      Common stock, $5 par value--4,189,385


<PAGE>


                                      INDEX

ATLANTIC FINANCIAL CORP.                                                Page No.

Part I.   Financial Information

          Item 1.  Financial Statements
                   Consolidated Balance Sheets--
                     March 31, 1999 and December 31, 1998                     3

                   Consolidated Statements of Income--
                     Three months ended March 31, 1999 and 1998               4

                   Consolidated Statements of Stockholders' Equity--
                     Three months ended March 31, 1999 and 1998               5

                   Consolidated Statements of Cash Flows--
                     Three months ended March 31, 1999 and 1998               6

                   Notes to Consolidated Financial Statements            7 - 10

          Item 2.  Management's Discussion and Analysis of Financial
                     Condition and Results of Operations                11 - 17

Part II.  Other Information:                                                 18

          Item 1.  Legal Proceedings
          Item 2.  Changes in Securities
          Item 3.  Defaults Upon Senior Securities
          Item 4.  Submission of Matters to a Vote of Security Holders
          Item 5.  Other Information
          Item 6.  Exhibits and Reports on Form 8-K


                                       2
<PAGE>


Item 1. FINANCIAL STATEMENTS

                            ATLANTIC FINANCIAL CORP.
                           CONSOLIDATED BALANCE SHEETS
                            (In Thousands of Dollars)

<TABLE>
<CAPTION>

                                                              March 31,          December 31,
ASSETS:                                                        1999                   1998         
                                                         ----------------     ---------------------

<S>                                                         <C>                   <C>       
    Cash and due from bank                                  $   16,093            $   11,782
    Securities available for sale (at market value)             84,958                80,281
    Securities held to maturity (market value of
        $11,393 and $14,173, respectively)                      11,188                13,926
    Federal funds sold                                          28,242                29,524
    Loans, net                                                 212,828               207,733
    Premises and equipment                                      10,676                10,703
    Other real estate owned                                        212                   212
    Other assets                                                 6,469                 6,142
                                                             ---------             ---------
          TOTAL ASSETS                                       $ 370,666             $ 360,303
                                                             =========             =========

LIABILITIES:
Deposits
    Non-interest bearing                                    $   49,223            $   49,291
    Interest-bearing                                           272,951               263,019
                                                             ---------             ---------
       TOTAL DEPOSITS                                          322,174               312,310
    Short-term debt                                                397                 1,589
    Other liabilities                                            4,543                 3,275
                                                             ---------             ---------
          TOTAL LIABILITIES                                    327,114               317,174
                                                             ---------             ---------

STOCKHOLDERS' EQUITY:
    Preferred stock; $1 par value per share;
     authorized 1,000,000 shares; no shares
     issued and outstanding                                 $       --            $       --
    Common stock; $5 par value per share;
     authorized 20,000,000 shares; issued and
     outstanding 4,189,385 and 4,168,941
     shares, respectively                                       20,951                20,851
    Surplus                                                         --                    --
    Undivided profits                                           21,669                21,048
    Accumulated other comprehensive
      income, net                                                  932                 1,230
                                                             ---------             ---------
          TOTAL STOCKHOLDERS' EQUITY                            43,552                43,129
                                                             ---------             ---------
          TOTAL LIABILITIES AND
            STOCKHOLDERS' EQUITY                            $  370,666            $  360,303
                                                            ==========            ==========
</TABLE>

Notes to financial statements are an integral part of these statements.

                                       3
<PAGE>


                            ATLANTIC FINANCIAL CORP.
                        CONSOLIDATED STATEMENTS OF INCOME
                            (In Thousands of Dollars)

                                                      Three Months Ended
                                                            March 31,
                                                         1999       1998
                                                         ----       ----

INTEREST INCOME:
Loans and Fees                                         $  5079    $  4653
Federal Funds Sold                                         299        276
Investment Securities                                     1377       1282
                                                     ---------   --------
   Total Interest Income                                  6755       6211

INTEREST EXPENSE:
Interest on deposits                                      2957       2683
Interest on federal funds purchased
 and other borrowings                                       16          7
                                                     ---------   --------
   Total Interest Expense                                 2973       2690
                                                     ---------   --------
   Net Interest Income                                    3782       3521

PROVISION FOR LOAN
AND LEASE LOSSES                                            72        110
                                                     ---------   --------
   Net Interest Income After
   Provision for Loan
   and Lease Losses                                       3710       3411

OTHER INCOME:
Service Charges & Fees                                     547        456
Securities Gains (Losses)                                   --          1
                                                     ---------   --------
   Total Other Income                                      547        457

OTHER EXPENSES:
Salaries & Employee Benefits                              1531       1295
Occupancy Expenses                                         230        176
Furniture & Equipment Expenses                             391        236
Other Operating Expenses                                   751        683
                                                     ---------   --------
   Total Other Expenses                                   2903       2390
                                                     ---------   --------
Income Before Income Taxes                                1354       1478
Applicable Income Taxes                                    356        445    
                                                     ---------   --------
   Net Income                                        $     998   $   1033
                                                     =========   ========

    Earnings Per Share, Basic                              .24        .25
                                                     =========   ========
    Earnings Per Share, Assuming
    Dilution                                               .23        .24
                                                     =========   ========

Notes to financial statements are an integral part of these statements.

                                       4
<PAGE>


                            ATLANTIC FINANCIAL CORP.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                    For the three months ended March 31, 1999
                            (In Thousands of Dollars)

<TABLE>
<CAPTION>

                                                                                      Accumulated
                                                                                      Other
                                              Common    Stock              Retained   Comprehensive     Comprehensive 
                                              Stock     Options  Surplus   Earnings   Income            Income          Total
                                              -----     -------  -------   --------   ------            ------          -----

<S>                                            <C>          <C>      <C>    <C>       <C>               <C>            <C>    
Balance, January 1, 1999                       $20,845      $6       - -    $21,048   $1,230                           $43,129
Comprehensive Income:
   Net Income                                      - -     - -       - -        998      - -              $998             998
   Other comprehensive income:
     Unrealized holding gains (losses) on
     securities available for sale arising
     during the period net of tax of $153
                                                                                                          (298)            - -
                                                                                                          ----    
   Other comprehensive income, net of tax          - -     - -       - -        - -                       (298)           (298)  
                                                                                                          ----    
   Total comprehensive income                      - -     - -       - -        - -                       $700             - -
                                                                                                          ====    
Exercise of stock options                          102     (2)       - -        - -       - -                              100
Cash dividends                                     - -     - -       - -       (377)      - -                             (377)  
                                                   ---     ---       ---       -----      ---                             -----
Balance, March 31, 1999                        $20,947      $4    $  - -     $21,669      $932                          $43,552  
                                               ===============================================                          =======
</TABLE>




Notes to financial statements are an integral part of these statements.

                                       5
<PAGE>




                            ATLANTIC FINANCIAL CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In Thousands of Dollars)
<TABLE>
<CAPTION>

                                                                              Three Months Ended
                                                                                  March 31,            

                                                                             1999           1998
                                                                             ----           ----
<S>                                                                       <C>          <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net Income                                                            $        998   $     1,033
Adjustments to reconcile net income to net cash
   provided by operating activities:
     Depreciation                                                                 316           171
     Provision for loan losses                                                     72           110
     Amortization of premiums, net                                                 24            23
     (Gain) on sale of securities available for sale                              - -           (1)
     (Gain) on sale of premises and equipment                                     - -           (3)
     Changes in operating assets and liabilities:
       (Increase) decrease in accrued interest receivable                         110           133
       (Increase) decrease in other assets                                          1         (769)
       Increase in accrued interest payable                                        69            70
       Increase (decrease) in other liabilities                                   249          (53)
                                                                          -----------   -----------
          Net Cash Provided by Operating Activities                       $     1,839  $        714
                                                                          -----------  ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Net (increase) in loans                                                    (5,195)         (949)
   Purchase of securities available for sale                                 (11,506)       (7,387)
   Proceeds from sales of securities available for sale                           502           200
   Proceeds from calls and maturities of securities available for sale          5,469         5,449
   Purchase of securities held to maturity                                        - -       (6,431)
   Proceeds from calls and maturities of securities held to maturity            2,737         2,497
   Purchase of premises and equipment                                           (268)         (906)
   Proceeds from sales of premises and equipment                                  - -             3
                                                                          -----------  ------------
          Net Cash (Used In) Investing Activities                         ($   8,261)  ($    7,524)
                                                                          -----------  ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Increase in deposits                                                   $     9,864  $     12,248
   Issuance of common stock                                                       100           250
   Net increase in short-term borrowings                                          371           112
   Cash dividends paid                                                          (884)         (311)
                                                                          -----------  ------------
            Net Cash Provided by Financing Activities                     $     9,451  $     12,299
                                                                          -----------  ------------

            Net Increase In Cash and Cash Equivalents                     $     3,029         5,489
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD                                41,306        32,550
                                                                          -----------  ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD                                 $    44,335  $     38,039
                                                                          ===========  ============

</TABLE>

Notes to financial statements are an integral part of these statements.


                                       6
<PAGE>


                            ATLANTIC FINANCIAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    General

      The  consolidated  statements  include the accounts of Atlantic  Financial
      Corp. and its subsidiaries,  Peninsula Trust Bank, Inc. (PTB), The Bank of
      Franklin  (BOF) and The Bank of Sussex and Surry  (BSS).  All  significant
      intercompany  balances  and  transactions  have  been  eliminated.  In the
      opinion of management,  the accompanying  unaudited consolidated financial
      statements  contain all adjustments  (consisting of only normal  recurring
      accruals)  necessary to present fairly the financial positions as of March
      31, 1999 and  December 31, 1998,  and the results of  operations  and cash
      flows for the three months ended March 31, 1999 and 1998.

      The results of  operations  for the three  months ended March 31, 1999 and
      1998 are not necessarily  indicative of the results to be expected for the
      full year.

2.    Investment Securities

      Amortized cost and carrying  amount  (estimated  fair value) of securities
      available for sale are summarized as follows:
<TABLE>
<CAPTION>

                                                                      March 31, 1999 
                                                   --------------------------------------------------
                  
                                                                    Gross          Gross    Estimated
                                                   Amortized   Unrealized     Unrealized       Market
                                                        Cost        Gains         Losses        Value
                                                        ----        -----         ------        -----
                                                                (In Thousands of Dollars)

<S>                                                <C>          <C>             <C>         <C>     
US Treasury Securities                                  872             2             --         874
US Government Agencies & Corporations                30,293           171            161      30,304
Obligations of States & Political Subdivisions       29,301           573             80      29,793
Mortgage-backed Securities                           16,203            49             43      16,208
Corporate Debt Obligations                            2,992            --             --       2,992
Restricted Stock                                        702            --             --         702
Other Securities                                      3,183           919             18       4,085
                                                   --------     ---------       --------    --------
                                                   $ 83,546     $   1,714       $    302    $ 84,958
                                                   ========     =========       ========    ========
</TABLE>


    Amortized cost and carrying amount (estimated fair value) of securities held
    to maturity are summarized as follows:

<TABLE>
<CAPTION>

                                                                     March 31, 1999                    
                                                   --------------------------------------------------
                                                                    Gross          Gross    Estimated
                                                   Amortized   Unrealized     Unrealized       Market
                                                        Cost        Gains         Losses        Value
                                                        ----        -----         ------        -----
                                                                (In Thousands of Dollars)

<S>                                                <C>            <C>            <C>         <C>    
US Government Agencies & Corporations                 2,866            25              2       2,890
Obligations of States & Political Subdivisions        6,062           173             11       6,224
Mortgage-backed Securities                            2,260            20             --       2,279
                                                   --------       -------        -------     -------
                                                   $ 11,188       $   218        $    13     $11,393
                                                   ========       =======        =======     =======
</TABLE>


                                       7
<PAGE>


                            ATLANTIC FINANCIAL CORP.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

    Securities available for sale at December 31, 1998 consist of the following:

<TABLE>
<CAPTION>

                                                                    Gross          Gross    Estimated
                                                   Amortized   Unrealized     Unrealized       Market
                                                        Cost        Gains         Losses        Value
                                                        ----        -----         ------        -----
                                                                (In Thousands of Dollars)

<S>                                               <C>              <C>          <C>         <C>     
US Treasury Securities                                  877             9             --         886
US Government & Federal Agencies                     25,938           321           (82)      26,177
States & Local Governments                           28,596           696           (55)      29,237
Mortgage-backed Securities                           15,148            97           (37)      15,208
Corporate Debt Obligations                            3,091            50            (6)       3,135
Restricted Stocks                                       698            --             --         698
Other Securities                                      4,069           881           (10)       4,940
                                                  ---------        ------       --------    --------
                                                  $  78,417        $2,054       $  (190)    $ 80,281
                                                  =========        ======       ========    ========

</TABLE>

    Securities held to maturity at December 31, 1998 consist of the following:

<TABLE>
<CAPTION>

                                                                    Gross          Gross    Estimated
                                                   Amortized   Unrealized     Unrealized       Market
                                                        Cost        Gains         Losses        Value
                                                        ----        -----         ------        -----
                                                                (In Thousands of Dollars)
<S>                                                <C>             <C>           <C>        <C>     
US Government & Federal Agencies                      4,718            41            (4)       4,755
State & Local Governments                             6,493           199           (12)       6,680
Mortgage-backed Securities                            2,715            23             --       2,738
                                                   --------        ------        -------    --------
                                                   $ 13,926        $  263        $  (16)    $ 14,173
                                                   ========        ======        =======    ========
</TABLE>


                                                 Three Months Ended
                                                      March 31,         
                                                 1999           1998    
                                                 ----           ----    
                                             (In Thousands of Dollars)

Gross proceeds from sales of securities            502               200
                                              ========         =========
Gross Gains on Sale of Securities                   --                 1
Gross Losses on Sale of Securities                  --                --
                                              --------         ---------
  Net Securities Gains (Losses)                     --                 1
                                              ========         =========

                                       8
<PAGE>


                            ATLANTIC FINANCIAL CORP.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

3.  Loans

    Major classifications of loans are as follows:

                                                March 31,       December 31,
                                                 1999                1998    
                                                 ----                ----    
                                                 (In Thousands of Dollars)

Commercial                                      33,318               30,105
Agriculture                                      5,204                6,068
Real estate mortgage:
   Construction                                 13,476               13,935
   Residential (1-4 family)                     55,099               52,632
   Home Equity Lines                            15,365               15,939
   Commercial                                   48,650               48,788
   Agricultural                                  4,011                3,044
Loans to individuals for household,
 family and other consumer expenditures         39,256               39,564
All Other Loans                                   1581                  672     
                                             ---------             --------
                                               215,960              210,747
Less Unearned Income                             (577)                (590)
                                             ---------             --------
Less Allowance for Loan Losses                  (2555)               2,424)
                                             ---------             --------
                                              $212,828             $207,733
                                             =========             ========


The  following  schedule  summarizes  the changes in the  allowance for loan and
lease losses:

<TABLE>
<CAPTION>

                                                 Three Months           Three Months
                                                    Ending                 Ending
                                                   March 31,              March 31,       December 31,
                                                     1999                   1998             1998    
                                                     ----                   ----             ----    
                                                                (In Thousands of Dollars)
<S>                                                <C>                  <C>                <C>      
Balance, Beginning                                    2,424                2,430               2,430
Provision Charged Against Income                         72                  110                 477
Recoveries                                              150                   34                 110
Loans Charged Off                                      (91)                (100)               (593)
                                                   --------             --------           ---------
Balance, Ending                                    $  2,555             $  2,474           $   2,424
                                                   ========             ========           =========
</TABLE>

Nonperforming assets consist of the following:
<TABLE>
<CAPTION>

                                                    March 31,         December 31,
                                                      1999                1998                      
                                                      ----                ----                      

                                                    (In Thousands of Dollars)

<S>                                                <C>                  <C>     
Nonaccrual Loans                                   $    479             $    681
Restructured Loans                                       --                   --
                                                   --------             --------
Nonperforming Loans                                     479                  681
Foreclosed Properties                                   212                  212
                                                   --------             --------
Nonperforming Assets                               $    691             $    893
                                                   ========             ========
</TABLE>

Total loans past due 90 days or more and still accruing were $1,645 on March 31,
1999 and $559 on December 31, 1998.

                                       9
<PAGE>


                            ATLANTIC FINANCIAL CORP.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


4.       Earnings Per Share

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

<TABLE>
<CAPTION>
                                                       March 31, 1999                     March 31, 1998
                                                       --------------                     --------------
                                                                 Per Share                          Per Share
                                                    Shares          Amount               Shares        Amount
                                                    ------          ------               ------        ------

<S>                                              <C>               <C>                <C>             <C>    
Basic Earnings Per Share                         4,181,930         $   .24            4,153,532       $   .25

Effect of dilutive securities:
  Nonemployee directors' stock options              24,269                               44,351
  Employee incentive stock options                  59,500                               68,226
                                                 ---------                            ---------

Diluted Earnings Per Share                       4,265,699         $   .23            4,266,109       $   .24
                                                 =========         =======            =========       =======
</TABLE>



5.  Capital Requirements

        A  comparison  of the  Company's  capital as of March 31, 1999 with  the
minimum  requirements  is presented below:

                                                          Minimum
                                     Actual              Requirements
                                     ------              ------------
Tier I Risk-based Capital            17.26%                 4.00  %
Total Risk-based Capital             17.87%                 8.00  %
Leverage Ratio                       11.75%                 4.00  %





                                       10
<PAGE>


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

The following presents management's  discussion and analysis of the consolidated
financial  condition and results of operations of Atlantic  Financial Corp. (the
"Company") as of the dates and for the periods indicated. This discussion should
be read in conjunction with the Company's  Consolidated Financial Statements and
the Notes thereto, and other financial data appearing elsewhere in this report.

Results of Operations

The  Company  experienced  moderate  balance  sheet  expansion  during the first
quarter 1999, with total assets increasing $10.4 million,  or 2.9% over December
31, 1998. Growth was funded with new interest bearing deposits,  which reflected
a $9.9 million, or 3.8% increase, for the three months ending March 31, 1999.

Loan  demand was  moderate  during  the first  quarter,  evidenced  by net loans
increasing $5.1 million, or 2.5%, over December 31, 1998.  Competition for loans
intensified  primarily  relative to pricing as all banks in the Company's  trade
area were experiencing  similar  moderation in overall loan demand.  The Company
has been reluctant to match all competitor  pricing bids when the credit quality
does  not  match  the  pricing  structure.  Put  another  way,  the  risk / rate
relationship  continues  to  represent  a  major  portion  of  the  underwriting
practices of the Company.

Asset  quality  continues to be sound with problem  credits  considered to be at
satisfactory and manageable levels. Total loans past due 30 days or more equaled
$7.6  million  (3.52% of total  outstandings).  Included in the 30 day total are
$1.6 million,  which are 90 days or more past due and still  accruing  interest.
Non-accrual loans totaled $479,000 at March 31, 1999, which represented 0.22% of
total  outstanding  loans  and  18.75%  of the  loan  loss  reserve.  Foreclosed
properties totaled $212,000 at March 31, 1999, with potential losses expected to
be minimal. The provision for loan losses was $72,000 in the first quarter 1999.
Gross  charge-offs  for the quarter were $91,000,  while total  recoveries  were
$151,000.

The Allowance  for Loan and Lease Losses (ALLL)  equaled $2.56 million March 31,
1999,  comfortably  above  the  Company's  overall  target  of  1.10%  of  total
outstanding loans.  Additionally,  the Company has begun a documented system for
internal loan  classifications  to more accurately  identify ongoing credit risk
imbedded within the loan portfolio. Utilizing the results of this system to test
the adequacy of the ALLL also indicates that the ALLL is sufficient to safeguard
the Company in light of known or identified potential loan loss risks.

The Company  maintained its practice during the first quarter of selling Federal
funds,  having sold  continuously  on a daily basis in amounts  averaging  $26.0
million,  7.22% of average total assets.  These figures compare to $20.5 million
and 6.50%, respectively,  for the first quarter 1998. The quarter-end balance of
$28.2 million  represented a $1.3 million (or 4.41%)  decrease from December 31,
1998.

The level of the investment account increased approximately $1.9 million (2.06%)
during the first quarter  1999,  ending the period at $96.1 million or 25.94% of
total assets.  The portfolio was used to absorb some of the rapid deposit growth
which occurred during the first quarter while loan demand,  discussed above, was
too  soft to  fully  employ  all of the  deposit  expansion.  The  portfolio  is
comprised of 1% US Treasuries,  54% US Government  Agencies and  Mortgage-backed
Securities,  37% State, County and Municipal governments,  and 8% other debt and
equity securities.

The Financial Accounting Standards Board (FASB) Statement 115 stipulated the way
in which  banks  must  classify  and  account  for their  securities  portfolio,
beginning  with  the  first  quarter  of  1994.  Securities  are  classified  as
Investment Securities when management has both the intent and the ability at the
time of purchase to hold the securities  until maturity.  Investment  Securities
are carried at cost  adjusted  for  amortization  of premiums  and  accretion of
discounts.  Securities  which  are held  for an  indefinite  period  of time are
classified  as  Securities  Available  for Sale and are marked to market at each
financial  reporting date, or at each month-end.  Securities  Available for Sale
include  securities  that may be sold in 

                                       11
<PAGE>


response  to changes in interest  rates,  changes in the  security's  prepayment
risk,  increases  in loan  demand,  general  liquidity  needs and other  similar
factors.

Management  has  implemented  additional  tools  for the  measurement  of  three
critical  elements in  portfolio  management:  interest  rate risk,  call and/or
extension  risk  and  maturity  distribution.  Activities  of the  Bank's  Asset
Liability  Committee  (ALCO)  will  include  establishing   parameters  for  the
effective  modified duration (EMD) for the portfolio in the future.  With better
tools to monitor duration,  long-term  earnings  performance of the portfolio is
expected to demonstrate  improved  stability over varying  interest rate cycles.
These  parameters  will also draw a tighter  relationship  between  EMD and bond
convexity.   Convexity   measures  the  percentage  amount  of  portfolio  price
appreciation  if  interest  rates fall 1% relative  to the  percentage  of price
depreciation if interest rates rise 1%. The more a bond declines relative to its
depreciation,  the higher the  negative  convexity  and,  consequently  the more
potential call and extension  risk that bond is likely to have.  Relative to the
current EMD,  management is targeting an overall portfolio negative convexity of
not more than .70.  Currently,  the portfolio's  negative  convexity is slightly
below this target level.

Deposits  represent  98.5%  of  total  liabilities  of  the  Company,  including
non-interest  bearing checking  accounts which represent 15.3% of total deposits
on March 31, 1999.

Earnings

Net income  for the first  quarter  1999  decreased  to  $998,000,  compared  to
$1,033,000  for the first  quarter  1998.  Flat  earnings  were  expected due to
several growth  initiatives  occurring in the third and fourth quarters of 1998,
plus several capital investments in the technology area, also in the second half
of 1998.  These are discussed  further below. The negative impact to earnings is
expected to be temporary.

Net interest income for the first quarter 1999 (tax  equivalent  interest income
less  interest  expense)  totaled $3.8 million (a 7.41%  increase over the first
quarter 1998), while the net interest margin (tax equivalent net interest income
expressed as a percentage of average earning assets)  declined from 4.83% in the
first  quarter 1998 to 4.76% in the first  quarter  1999.  The average  yield on
interest  earning assets declined 15 basis points during a time when the average
rate on interest bearing liabilities  declined only 6 basis points. As a result,
the 8.76%  increase in interest  income for the first  quarter 1999  compared to
first quarter 1998 was offset by a 10.55%  increase in interest  expense for the
same  period.  The  challenge  to attract and retain  consumer  certificates  of
deposits  in a falling  interest  rate  environment  has been the major cause of
compression of the net interest  margin.  Non-bank  investment  alternatives for
consumers  result  in  consumers'  reluctance  to accept  the full  brunt of the
decline in interest rates.  Therefore,  the Company cannot always reduce cost of
funds in a one-to-one  relationship  with yield on earning assets during falling
rate cycles.

Non-interest  expense for the first quarter  totaled $2.9  million,  compared to
$2.4  million in the first  quarter  1998.  Installation,  in March and April of
1998, of new item processing  software  utilizing image  technology  resulted in
capitalized   expenditures   approximating  $500,000,   resulting  in  increased
depreciation  of more than $10,000 per month.  New branch  offices opened in the
third and fourth  quarters of 1998 also caused  increases  in  depreciation  and
other occupancy expenses, as well as personnel expense. The computer conversions
of BOF and BSS to the data  processing  center of PTB in the  third  and  fourth
quarters of 1998 further contributed to increased  depreciation  expense through
required upgrades to computer hardware and telecommunications.


                                       12
<PAGE>


Capital and Liquidity

Equity  capital at March 31, 1999 totaled $43.5 million,  representing  11.7% of
total assets. This level is adequate to support both current operations, as well
as asset growth to a level in excess of $450 million.

Liquidity is provided by both excess funds in the form of Federal funds sold and
access to the Federal  funds market  through the purchase of Federal  funds from
correspondent  banks. The Company maintains deposit  relationships  with several
correspondent  banks which include  commitments  through various lines of credit
for short-term borrowing needs. Federal funds sold equaled 24.1% of total demand
deposits at March 31, 1999. The Company, through two of its subsidiary banks, is
a member of the Federal Home Loan Bank of Atlanta.  This membership  affords the
Company  various  credit  vehicles.  The level of balance  sheet  liquidity  and
available credit facilities is considered  adequate to meet anticipated  deposit
withdrawals  and  expected  loan  demand  from normal  operations.  However,  as
discussed  further  below,  liquidity  planning  in  anticipation  of  potential
increased demand for funds in the second half of this year (and more importantly
the fourth  quarter)  will dictate  more  sophisticated  exercises  and possibly
greater levels of liquidity.

Future Plans

The Company continues to explore branch expansion  opportunities for its banking
operations;  however, it has secured only one site for such growth. That site is
located on U. S. Route 17 in  Gloucester  Point,  Virginia.  The Company is also
interviewing  prospective  candidates to staff a new relationship with UVEST for
the sale of fixed and  variable  rate annuity  products to enhance  non-interest
income.

Year 2000 Issue

The Company utilizes and is dependent upon data processing  systems and software
to conduct its business.  The data processing  systems include various  software
packages  licensed to the Company by outside vendors and a mainframe  processing
system,  which are run on in-house computer  networks.  All of these systems are
vulnerable to the Year 2000 (Y2K) issue.  The  Company's  Board of Directors has
addressed the Y2K issue and  identified the  seriousness  of the challenge.  The
Directors  receive routine reports from management of the Company to enable them
to monitor the Company's  progress in its  preparation  for Y2K  readiness.  The
Board  has  passed  a  resolution  authorizing  management  to  commit  the full
financial  and human  resources  of the  Company  to  achieve  satisfactory  Y2K
readiness with a minimum of disruption to ordinary operations. The Company's Y2K
coordinator, who was hired in 1997, commits approximately 75% of her schedule to
the Y2K project. In addition,  a Y2K project team was formed and meets regularly
to review and ensure consistent progress in moving toward Y2K readiness.

In 1997,  the Company  initiated a review and  assessment  of all  hardware  and
software to confirm that it will function properly in the year 2000. The Company
inventoried  more  than 70  applications  on which  it  relies  for its  routine
operations.  The degree of reliance was evaluated,  with each application  being
identified as either mission critical,  mission necessary or mission  desirable.
An  application  was deemed  mission  critical if it is vital to the  successful
continuation of a core business  activity.  The Federal  Financial  Institutions
Examination Council (FFIEC) has issued several inter-agency statements providing
guidance  and/or  requirements of all financial  institutions.  Included in this
guidance was an emphasis that mission  critical  applications  be identified and
related priorities be set by the end of the third quarter of 1998. Based on this
regulatory  guidance,  the Company's inventory process identified twelve mission
critical  applications,  all of which are associated with information technology
(IT). There were no non-IT systems identified as mission critical.  Such systems
might include elevators or other equipment with embedded  micro-controllers that
may be century date  sensitive.  The Company  currently  has only two  elevators
throughout  its  branching  network.  In each of these  locations,  all business
activities  can be  conducted  in the  event  that the  elevators  are  rendered
inoperable.   Other  non-IT  systems  include  electricity  and  telephone  line
communications.  Both of  these  are  necessary  for  daily  operations  but are
considered to be beyond the Company's  control to facilitate Y2K readiness.  The
Company is  communicating  with the providers of these services to monitor their
progress  toward Y2K  readiness.  The Company  possesses and  routinely  tests a
gasoline-powered  generator  for  temporary  electrical  power  for

                                       13
<PAGE>

its primary computer room operations. This form of backup power provides limited
business continuation features to the Company in the area of processing customer
information in its core data processing package. Therefore, the Company believes
that the integrity of critical customer information will be protected.

Based on the assessment  described above, the Company's  mainframe  hardware (an
IBM AS-400) and banking software are currently Y2K compliant. The Company's core
data processing package is currently installed in more than 200 banks across the
country.  The  vendor  of this  software,  Jack  Henry &  Associates  (JHA)  has
completed their testing of the software and distributed the software  release to
provide for Y2K  compliance.  However,  JHA is also  facilitating  a process for
independent  user  group  testing in order for the user banks to test their live
customer data files in a non-production test environment. Members of the Federal
Reserve  System,  FDIC,  and OCC met JHA  management  to discuss  and review the
process of User Group Testing. The regulatory authorities, while unable to issue
an approval of the specific JHA plan, did specify that User Group Testing was an
acceptable  method for testing Y2K  readiness.  The Company was one of the users
selected for the user group  testing.  This test was conducted in December 1998.
Total cost to the Company  including  the  vendor's  certification,  third party
certification  of the  vendor's  testing,  user group  testing  and third  party
certification of the latter's test was less than $10,000.  Considerable planning
went into the writing of test  scripts to assess the impact of the century  date
change on the  processing of  transactions  that affected  date  sensitive  data
fields as well as interest  accruals.  These  transactions  were  processed on a
mainframe on which the system date had been advanced to January 01, 2000. Normal
daily  processing  was conducted  throughout the first quarter of 2000. All test
transactions were considered  successful as related to Y2K. It is also important
to note that JHA Liberty Banking System received an ITAA*2000 certification from
the  Information  Technology  Association  of  America  indicating  it meets the
information  technology  industry's  best  software  development  practices  for
addressing the Year 2000 issue.

Two of the affiliate banks, BOF and BSS, were operating  non-Y2K ready core data
processing  systems  prior to the  merger of UCB and MACB.  These two banks were
converted to the JHA Liberty  product  discussed  above and are processed in the
Company's  centralized  data  center.  For  these  two  banks,  there  was  more
substantial expense associated with Y2K readiness preparation. These accumulated
historical costs  approximated  $100,000,  bringing the total for the Company to
approximately $125,000.

For certain  other  systems,  the Company  has  determined  that it will have to
replace or modify certain pieces of hardware and/or software so that the systems
will  properly  function  in the year  2000.  The third  party  vendors of these
systems have been contacted and have indicated that the hardware and/or software
will  be  Y2K  compliant.   Modifications  and/or  replacements  depend  on  the
individual  vendor and their  respective  products.  During the first quarter of
1999,  the  Company  installed  Y2K  updates  in each of its ATMs  based on each
respective vendor's recommendation.

The Company  utilizes an extensive  network of personal  computers  (PCs) in its
daily operations. With the rapid changes in technology in the past 10 years, the
Company adopted a philosophy more than five years ago that acknowledged that the
average  useful life of PCs was in the  three-to  four-year  time range.  Having
embraced this  philosophy  previously,  replacement  of PCs is a part of routine
hardware planning. Currently,  approximately 30% of the Company's PCs are viewed
as nearing  the end of their  useful  life even  absent any Y2K  considerations.
Throughout  the first quarter of 1999,  the Company has  purchased  hardware and
software upgrades in its PC workstation and network communications area, with an
approximate  capitalized cost of $35,000 and associated increase in depreciation
expense  of  $1,000  per  month  for  the  useful   life  of  the  asset.   This
renovation/replacement   process  also  has  included  one-time  consultant  and
installation costs approximating $5,000.  Additional one-time costs may approach
$20,000  during  the next two  quarters.  Management  considers  that its  total
requirement in hardware expenditure  associated with Y2K readiness will not have
a significant negative effect on the Company's total earnings performance. It is
anticipated that the total future costs directly associated with the Y2K project
will not exceed $250,000 (approximately 6.25% of projected 1999 net income).

The Company has implemented a process by which all significant  loan and deposit
customers  have been  contacted to determine  the extent to which the Company is
vulnerable to those third parties'  failure to 

<PAGE>

remedy their own Y2K issue.  Loan officers  have received  training to include a
Y2K understanding in the credit decision making process. Existing borrowers have
been  evaluated to determine  the risk that Y2K poses to their  respective  cash
flow  capacities or other related factors that may impact their ability to repay
their loans. The Company is also working with borrowers who have current line of
credit  commitments  to  properly  plan for the  liquidity  requirements  of the
Company to fund greater than normal line of credit draw  requests.  In this same
vein, deposit customers are being evaluated to produce some basis for projecting
possible  interruption  to daily  deposit  inflows.  While the Company  does not
intend to abandon  meeting the credit needs of its  community,  it has adopted a
more  conservative  position in its lending  associated  with overall  liquidity
planning  as  well as  credit  evaluation  of  borrowing  requests.  Also in the
interest of  liquidity,  the Company will be more  aggressive  in its pricing of
certificates  of deposit with  maturities that extend beyond the Year 2000. This
position  should  reduce the  possibility  of deposit  runoff  during the fourth
quarter of 1999 and first quarter of the year 2000.

The  Company  plans to  complete  the  majority of the Y2K project by the second
quarter of 1999.  Cash  expenditures  are not expected to have a large  material
effect on the  Company's  consolidated  financial  statements.  The Company will
evaluate before June 30, 1999, the loss of income that may result from increased
liquidity in the form of above normal  levels of cash and  increased  volumes of
lower  yielding  overnight  Fed funds sold.  The  following  tables  present the
Company's overall progress of its mission critical applications.

 Year 2000 Plan - Planned Number of Mission Critical Applications In Each Phase
<TABLE>
<CAPTION>

                                 Year 2000 Plan
--------------------------------------------------------------------------------------------------------------
Phase                12/31/97  3/31/98   6/30/98   9/30/98   12/31/98  3/31/99   6/30/99  9/30/99   12/31/99
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
<S>                     <C>       <C>      <C>       <C>        <C>       <C>      <C>       <C>       <C>
Awareness               -         -         -         -         -         -         -        -         -
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Assessment              9         6         2         1         -         -         -        -         -
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Renovation              3         6         7         8         5         -         -        -         -
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Validation              -         -         3         3         7         9         -        -         -
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Implementation          -         -         -         -         -         3        12        12        12
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
TOTAL                   12        12       12        12         12        12       12        12        12
--------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
           Year 2000 Plan - Planned Percentage of Completion by Phase

                                 Year 2000 Plan
--------------------------------------------------------------------------------------------------------------
Phase                12/31/97  3/31/98   6/30/98   9/30/98   12/31/98  3/31/99   6/30/99  9/30/99   12/31/99
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
<S>                    <C>       <C>       <C>       <C>       <C>       <C>       <C>      <C>       <C>
Awareness               -         -         -         -         -         -         -        -         -
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Assessment              75        50       17         8         -         -         -        -         -
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Renovation              25        50       58        67         42        75        -        -         -
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Validation              -         -        25        25         58        25        -        -         -
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Implementation          -         -         -         -         -         -        100      100       100
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
TOTAL                  100       100       100       100       100       100       100      100       100
--------------------------------------------------------------------------------------------------------------
</TABLE>


The Company has an internal Y2K committee comprised of Senior Management,  other
officers,  and  staff  under  the  direction  of the  Company's  Executive  Vice
President  and  Chief  Financial  Officer.   The  committee  meets  monthly  and
subsequently  reports on its  activities  to the Board of  Directors.  The Board
passed a resolution in 1998  committing all of the financial and human resources
necessary to enable the Company to  satisfactorily  achieve Y2K readiness and to
conduct normal operations beyond the century date change with minimal disruption
to either the quantity or quality of customer service.

The Company is developing contingency plans to address risks associated with Y2K
issues.  These  plans  include  remediation   contingency  plans,  Y2K  business
resumption   contingency   plans,  and  event  


<PAGE>

management  plans.  Remediation  contingency  covers  the  actions  that  may be
required if the current approach to remediating a mission  critical  application
is falling behind  schedule or may not be completed  when required.  The Company
has  substantially  completed its  remediation  contingency  plans.  The Company
already had in place a documented and tested  disaster  recovery plan. This plan
is being expanded and enhanced to incorporate the elements of the Y2K challenge.
The Company will  substantially  complete and implement its business  resumption
contingency  plan by June 30, 1999. The plan,  currently being  developed,  will
identify  core business  processes  and detail each step in these  processes for
identification  of alternate  methods and means of completing  such steps in the
event  of  failure  of  current  systems.  Business  impact  analysis  is  being
accomplished  through the use of risk analysis  worksheets to assess among other
things the  probability  of certain  failures,  the expected  warning time,  the
consequences  of such  failure,  and the weight that should be applied to system
component  failure in the overall  operation of a specific system or department.
An example of a core  business  process is taking a deposit.  Every step of this
process is being flowcharted to establish  rudimentary,  manual  alternatives in
the event of a failure of internal computer  systems,  loss of electrical power,
or loss of telecommunication lines. Business resumption may also be dependent on
backup or saved information from prior to year-end 1999. Therefore, all computer
processing  during  December,  1999 will be amended to include changes in backup
save routines,  printing  hardcopy reports normally only saved to optical disks,
rotation  of  backup  media to name a few.  The  Company  is  continuing  direct
communication  with  customers to minimize  unwarranted  public alarm that could
cause serious problems for financial institutions.

As a part of the Company's normal disaster  recovery plan, it has decided to add
generator power for its two remote item capture / check  processing  centers and
to upgrade its existing  generator power for its Glenns,  Virginia  Operations /
Data  Center.  The  Glenns  site  will be  capable  of  operating  not only data
processing and  bookkeeping  functions,  but also a full service  banking branch
office. These efforts will enable the Company to meet customer needs in the case
of a natural  disaster  with extended  electrical  power  outages.  It will also
complement  Y2K  business  resumption  plans  in  the  case  of  a  Y2K  related
interruption of electricity.

The Company  has  established  a series of trigger  dates  associated  with core
application  products  that govern  primarily the customer loan and deposit data
bases. These applications address production of new and renewal loan and deposit
accounts as well as maintenance of ongoing customer  relationships.  The trigger
dates  started  November 30, 1998 and  concluded on March 31, 1999.  Through the
various  testing  methods that management has selected to validate the readiness
of these  applications,  management has determined that all current vendors will
be Y2K  ready  and that the  Company  will  continue  to  utilize  all  existing
applications.

Worst-case analysis

Until the year 2000 event actually occurs,  and for a period  thereafter,  there
can be no  assurance  that there will be no  problems  related to the year 2000.
Worst-case  scenarios  would  indicate  that if Y2K  issues  are not  adequately
addressed by the Company as well as third parties, the Company could face, among
other things,  business  disruptions,  operational  problems,  financial losses,
legal  liability  and similar  risks,  and the  Company's  business,  results of
operations and financial position could be materially  adversely  affected.  The
Company's  credit risks  associated  with  borrowers  may increase to the extent
borrowers  fail to  prepare  for Y2K in ways  that  impact  their  cash flow and
capacity to repay.  As a result  there may  increases in the  Company's  problem
loans,  non-performing  assets, and credit losses in future years.  Additionally
the  Company  may be  subject  to  increased  liquidity  risks  associated  with
excessive cash withdrawals and/or abnormally high draws against borrowers' lines
of credit. It is not possible to quantify the potential impact of any such risks
or  losses  at  this  time.  Temporary  closings  of  individual  offices  could
materialize,  but would do so only under the allowances  provided by the banking
regulatory  authorities.  Bank  customers  should  note that FDIC  deposits  are
considered safe.

The Company is cognizant of and sensitive to the potential risks associated with
the Year 2000  challenge.  However,  in its efforts to be prepared,  the Company
also sees a social  responsibility  to calm public  anxiety and potential  panic
where verifiable preparedness can be identified.

                                       16
<PAGE>

Forward Looking Statements

The foregoing year 2000 discussion contains "forward-looking  statements" within
the  meaning of the  Private  Securities  Litigation  Reform  Act of 1995.  Such
statements, including, without limitation, anticipated costs, the dates by which
the  Company  expects  to  complete  remediation  and  testing  of  systems  and
contingency planning,  and the impact of the redeployment of existing staff, are
based on  management's  best current  estimates,  which were  derived  utilizing
numerous assumptions about future events,  including the continued  availability
of certain  resources,  representations  received from  third-party  vendors and
other factors.

However,  there can be no guarantee  that these  estimates  will be achieved and
actual results could differ  materially from those plans.  Specific factors that
might  cause such  material  differences  include,  but are not  limited to, the
availability  of  personnel  trained in this area,  the  ability of third  party
vendors to correct  their  software  and  hardware,  the ability of  significant
customers to remedy their Y2K issues, and similar uncertainties.

The foregoing Year 2000 discussion  constitutes a Year 2000 Readiness Disclosure
within the meaning of the Year 2000 Readiness and Disclosure Act of 1998.

Other  information  contained in this report may also  include  "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1995. These  forward-looking  statements are generally  identified by phrases
such as "the  Company  expects,"  "the  Company  believes"  or words of  similar
import.  Such  forward-looking   statements  involve  known  and  unknown  risks
including,  but not  limited  to,  changes  in  general  economic  and  business
conditions, interest rate fluctuations,  competition within and from outside the
banking  industry,  new  products  and  services in the banking  industry,  risk
inherent in making  loans such as  repayment  risks and  fluctuating  collateral
values,  problems with technology  utilized by the Company (as described above),
changing  trends  in  customer  profiles  and  changes  in laws and  regulations
applicable to the Company.  Although the Company  believes that its expectations
with  respect  to  the  forward-looking   statements  are  based  upon  reliable
assumptions  within the bounds of its knowledge of its business and  operations,
there can be no assurance that actual  results,  performance or  achievements of
the Company will not differ  materially from any future results,  performance or
achievements expressed or implied by such forward-looking statements.



                                       17
<PAGE>



                           PART II. OTHER INFORMATION


Item 1.    Legal Proceedings - None

Item 2.    Changes in Securities and Use of Proceeds - None

Item 3.    Defaults Upon Senior Securities - None

Item 4.    Submission of Matters to a Vote of Security Holders - None

Item 5.    Other Information - None

Item 6.    Exhibits and Reports on Form 8-K

           (a)      Exhibits

                    27     Financial Data Schedule (filed electronically only).

           (b)      Reports on Form 8-K.

                  On February 16, 1999,  the Company  filed a Current  Report on
                  Form 8-K/A to amend a Form 8-K dated  December 1, 1998,  which
                  announced the consummation of the Company's merger with United
                  Community  Bankshares,  Inc.  (UCB),  to include the financial
                  statements of UCB and pro forma financial information.


                                       18
<PAGE>



                                   SIGNATURES


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


                            ATLANTIC FINANCIAL CORP.


Date:  May 14, 1999         BY /s/ W. J. Farinholt             
                               ---------------------------------
                            W. J. Farinholt, President & CEO


Date:  May 14, 1999         BY /s/ Kenneth E. Smith            
                               ---------------------------------
                            Kenneth E. Smith, Exec. Vice President
                            & Chief Financial Officer



                                       19