Exhibit 10.4



                              EMPLOYMENT AGREEMENT


         THIS AGREEMENT, entered into as of the 1st day of December 1998, by and
between Atlantic Financial Corp., a Virginia  corporation,  (the "Corporation"),
and Kenneth E. Smith (the "Executive").

                                   WITNESSETH:

         WHEREAS, the Corporation desires to retain the services of Executive on
the terms and  conditions  set forth herein and,  for purpose of  effecting  the
same,  the Board of Directors of the  Corporation  has approved this  Employment
Agreement and authorized its execution and delivery on the Corporation's  behalf
to the Executive; and

         WHEREAS,  the  Executive  is  presently  the duly  elected  and  acting
Executive Vice President and Chief Financial  Officer of the Corporation and, as
such, is a key executive officer of the Corporation whose continued  dedication,
availability,  advice and counsel to the Corporation is deemed  important to the
Board of Directors of the Corporation, the Corporation and its stockholders;

         WHEREAS, the services of the Executive, his experience and knowledge of
the affairs of the Corporation,  and his reputation and contacts in the industry
are extremely valuable to the Corporation; and

         WHEREAS,   the   Corporation   wishes  to  attract   and  retain   such
well-qualified executives and it is in the best interests of the Corporation and
of the Executive to secure the continued services of the Executive; and

         WHEREAS, the Corporation considers the establishment and maintenance of
a sound and vital management to be part of its overall corporate strategy and to
be essential to protecting and enhancing the best  interests of the  Corporation
and its stockholders;

         NOW, THEREFORE,  to assure the Corporation of the Executive's continued
dedication, the availability of his advice and counsel to the Board of Directors
of the  Corporation,  and to induce the  Executive to remain and continue in the
employ of the  Corporation  and for other good and valuable  consideration,  the
receipt and adequacy whereof each party hereby acknowledges, the Corporation and
the Executive hereby agrees as follows:

         1.     EMPLOYMENT:  The Corporation agrees to, and does hereby,  employ
Executive, and Executive agrees to, and does hereby, accept such employment, for
the period  beginning  as of the date  hereof and ending on November  30,  2003,
which period of employment may be extended or terminated only upon the terms and
conditions hereinafter set forth.

         2.     RENEWAL TERM: This Agreement shall be extended for an additional
year annually following the original term unless either party notifies the other
in writing at least three (3) months prior to the end of the original  term,  or
the end of any  additional  one-year  term,  that  the  Agreement  shall  not be
extended beyond its current term.

         3.     EXECUTIVE DUTIES: The Executive agrees to accept and perform the
managerial  duties and  responsibilities  of Executive  Vice President and Chief
Financial Officer of



                                      
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the Corporation and agrees to devote his time and attention on a full-time basis
to the discharge of such duties and  responsibilities  of an executive nature as
may be assigned him by the Board of Directors or the Chief Executive  Officer of
the  Corporation,  including,  subject to the  authority of the Chief  Executive
Officer,   primary   responsibility   for  financial   statements,   reports  to
governmental agencies,  data processing and investment portfolio management.  As
Executive Vice President and Chief Financial  Officer,  the Executive shall have
the duties set forth for such officer in the Corporation's Bylaws. The Executive
also shall serve as a director and as Chief Financial Officer of Peninsula Trust
Bank, Incorporated. The Executive may accept any elective or appointed positions
or  offices  with  any  duly  recognized  associations  or  organizations  whose
activities or purposes are closely  related to the banking  business or purposes
are closely  related to the banking  business or service to which would generate
good will for the Corporation and its subsidiaries.

         4.     COMPENSATION:  (a) The Corporation agrees to pay Executive,  and
Executive agrees to accept,  as compensation for all services rendered by him to
the Corporation  during the period of his employment under this Agreement,  base
salary  at  the  annual  rate  of  One  Hundred  Twenty  Five  Thousand  Dollars
($125,000.00),  which shall be payable in  monthly,  semi-monthly  or  bi-weekly
installments  in  conformity  with  Corporation's  policy  relating  to salaried
employees.  On or before the first  anniversary  of this  Agreement and for each
year  thereafter,  the Corporation  agrees to review the Executive's base salary
and to consider  implementing  increases to such base salary as may be warranted
based  upon  the  performance  of  the  Executive  and  the  performance  of the
Corporation and comparable  data related to similarly sized  institutions as may
be available;  however, such base salary shall not be reduced below the previous
year's base salary without the specific written agreement by the Executive.

         (b)    Executive  shall  receive  only  such  bonuses  as the  Board of
Directors, in its discretion, decides to pay to Executive.

         (c)    The  Executive  shall be entitled to four weeks  vacation  which
shall be without loss of pay.  Attendance at meetings or  conventions of banking
associations  or  organizations  shall not be charged  against  the  Executive's
annual vacation entitlement.

         (d)    The  Executive  shall be paid  all  normal  directors'  fees for
service on the Board of Directors of Peninsula Trust Bank, Incorporated,  or its
successor.

         (e)    During the term of this Agreement, Corporation shall provide the
Executive with an appropriate automobile as determined by the Board of Directors
of the Corporation.

         (f)    The Corporation will pay the Executive's country club initiation
fees and dues on such basis as may be  determined  by the Board of  Directors of
the Corporation from time to time.

         5.     PARTICIPATION  IN  BENEFIT  PLANS,   REIMBURSEMENT  OF  BUSINESS
EXPENSES  AND MOVING  EXPENSES:  (a) During  the term of  employment  under this
Agreement,  Executive  shall be entitled to  participate  in any pension,  group
insurance,  hospitalization,  deferred  compensation or other benefit,  bonus or
incentive  plans of the  Corporation  presently  in effect  (including,  without
limitation,  the  Corporation's  stock option plans) or hereafter adopted by the
Corporation and generally available to any employees of senior executive status,
and, additionally,  Executive shall be entitled to have the use of Corporation's
facilities  and  executive  benefits as are  customarily  made  available by the
Corporation to its executive officers.


                                      
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         (b)    The  Corporation  shall promptly  reimburse the Executive,  upon
presentation of adequate substantiation,  including receipts, for the reasonable
travel,  entertainment,  lodging  and other  business  expenses  incurred by the
Executive,  including,  without  limitation,  those  expenses  incurred  by  the
Executive  and his  spouse  in  attending  trade  and  professional  association
conventions,  meetings  and  other  related  functions  attended  by other  bank
executives and their spouses.

         6.     ILLNESS:  In the event Executive is unable to perform his duties
under  this  Agreement  on a  full-time  basis for the  greater  of ninety  (90)
consecutive  calendar  days or the longest  waiting  period  under any long term
disability  insurance  contract  or program  provided to him as an employee as a
result  of  incapacity  due to mental  or  physical  illness  or  disability  as
determined  by a physician  selected by the  Corporation,  the  Corporation  may
terminate  this Agreement  without  further or additional  compensation  payment
being due the Executive from the Corporation pursuant to this Agreement,  except
benefits  accrued through the date of such  termination  under employee  benefit
plans of the Corporation.  These benefits shall include long-term disability and
other insurance or other benefits then regularly  provided by the Corporation to
disabled employees, as well as any other insurance benefits so provided.

         7.     DEATH: In the event of Executive's death during the term of this
Agreement, his estate, legal representatives or named beneficiaries (as directed
by Executive in writing) shall be paid  Executive's  salary from the Corporation
at the rate in effect at the time of Executive's death for a period of three (3)
months from the date of Executive's death.

         8.     TERMINATION  WITHOUT  CAUSE/RESIGNATION  FOR  GOOD  REASON:  (a)
Notwithstanding  the  provisions of Section 1 hereof,  the Board of Directors of
the  Corporation  may,  without  Cause (as  hereafter  defined),  terminate  the
Executive's  employment under this Agreement at any time in any lawful manner by
giving not less than  thirty  (30) days  written  notice to the  Executive.  The
Executive  may resign  for Good  Reason (as  hereafter  defined)  at any time by
giving not less than thirty (30) days written notice to the Corporation.  If the
Corporation terminates the Executive's employment without Cause or the Executive
resigns  for Good  Reason  before or after a Change  of  Control  (as  hereafter
defined), then in either event:

                (i)     The  Executive  shall be paid for the  remainder  of the
then current term of this Agreement or for a period of one year from the date of
termination,  whichever  is greater,  at such times as payment  was  theretofore
made, the salary  required under Section 4(a) that the Executive would have been
entitled  to  receive  during the  remainder  of the then  current  term of this
Agreement had such termination not occurred (and the Corporation  shall continue
such payments to  Executive's  estate if Executive dies before all such payments
have been made); and

                (ii)    The Corporation  shall maintain in full force and effect
for the continued benefit of the Executive for the remainder of the then current
term of this Agreement,  all employee benefit plans and programs or arrangements
in which the Executive  was entitled to  participate  immediately  prior to such
termination, provided that continued participation is possible under the general
terms and provisions of such plans and programs.  In the event that  Executive's
participation  in any such plan or  program  is barred,  the  Corporation  shall
arrange to provide the Executive  with benefits  substantially  similar to those
which the Executive was entitled to receive under such plans and program.

         (b)    Notwithstanding  the  foregoing,  all such payments and benefits
under  Section  8(a)  otherwise  continuing  for periods  after the  Executive's
termination of employment shall cease to be paid, and the Corporation shall have
no further  obligation  due with  respect  thereto,  in the event


                                      
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the Executive engages in "Competition" or makes any "Unauthorized  Disclosure of
Confidential Information". For purposes hereof:

                (i)     "Competition" means the Executive's  engaging during the
one (1) year period  following  termination of  employment,  without the written
consent of the Board of  Directors  of the  Corporation  or a person  authorized
thereby,  in an activity as an officer,  a director,  an employee,  a partner, a
more than one percent shareholder or other owner, an agent, a consultant, or any
other  individual or  representative  capacity  (unless the Executive's  duties,
responsibilities and activities,  including  supervisory  activities,  for or on
behalf  of such  activity,  are  not  related  in any  way to  such  competitive
activity) if it involves:

                        (A)     engaging  in,  or  entering   into  services  or
providing advice pertaining to, any banking, lending or other financial activity
that the  Corporation  or any of its affiliates  actively  engages in within ten
(10) miles of any branch of the  Corporation or any of its  subsidiaries  at the
time of Executive's termination of employment, or

                        (B)     soliciting  or  contacting,  either  directly or
indirectly,  any of the  customers or clients of the  Corporation  or any of its
affiliates for the purpose of competing  with the products or services  provided
by the Corporation or any of its affiliates, or

                        (C)     employing  or  soliciting   for  employment  any
employees of the Corporation or any of its affiliates.

                (ii)    "Unauthorized  Disclosure of  Confidential  Information"
means  the  disclosure  of  information  in  violation  of  Section  19 of  this
Agreement.

         (c)    For purposes of this Agreement, "Good Reason" shall mean:

                (i)     Prior to a Change of Control (as hereafter  defined) the
assignment  of  duties  to  the  Executive  by the  Corporation  which  (A)  are
materially  different  from the  Executive's  duties on the date hereof,  or (B)
result  in  the   Executive   having   significantly   less   authority   and/or
responsibility  than he has on the date  hereof,  without  his  express  written
consent;

                (ii)    After a Change of Control  (as  hereafter  defined)  the
assignment  of a title or  duties  that are not  commensurate  with  Executive's
seniority and experience;

                (iii)   A reduction by the Corporation of the  Executive's  base
salary, as the same may have been increased from time to time;

                (iv)    The failure of the  Corporation to provide the Executive
with substantially the same fringe benefits (including paid vacations) that were
provided to him immediately prior to the date hereof;

                (v)     The  relocation  of the  Executive to any other  primary
place of  employment  which  requires  him to move his  residence,  without  the
Executive's express written consent to such relocation;

                (vi)    The failure of the  Corporation to obtain the assumption
of and agreement to perform this Agreement by any successor as  contemplated  in
Section 11(b) hereof; or

                (vii)   A material breach of this Agreement by the Corporation.


                                      
<PAGE>

         (d)    Resignation   by  the   Executive   for  Good  Reason  shall  be
communicated by a written Notice of Resignation to the Corporation. A "Notice of
Resignation" shall mean a notice which shall indicate the specific  provision(s)
in this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for a resignation for Good Reason.

         (e)    If within  thirty (30) days after any Notice of  Resignation  is
given the  Corporation  notifies the Executive that a dispute exists  concerning
the resignation for Good Reason and that it is requesting  arbitration  pursuant
to Section 18, the  Corporation  shall  continue to pay the  Executive  his full
salary and benefits as described in Sections  4(a) and 5(a), as and when due and
payable, at least until such time as a final decision is reached by the panel of
arbitrators.  If Good Reason for  termination  by the  Executive  is  ultimately
determined  not to  exist,  then (y) all  sums  paid by the  Corporation  to the
Executive, including but not limited to the cost to the Corporation of providing
the Executive  such fringe  benefits,  from the date of such  resignation to the
date of the resolution of such dispute,  less (z) any sums otherwise owed by the
Corporation  to the Executive  shall be promptly  repaid by the Executive to the
Corporation  with  interest  at the  rate  charged  from  time  to  time  by the
Corporation  to its most  substantial  customers  for  unsecured  extensions  of
credit.

         A failure by the  Corporation  to notify the  Executive  that a dispute
exists  concerning the resignation for Good Reason within thirty (30) days after
any  Notice of  Resignation  is given  shall  constitute  a final  waiver by the
Corporation  of its right to contest either that such  resignation  was for Good
Reason or its obligations to the Executive under Section 8(a) hereof.

         9.     RESIGNATION - TERMINATION FOR CAUSE: (a) The Corporation's Board
of Directors  may terminate the  Executive's  employment  for cause at any time.
Cause shall be defined as the  Executive's  personal  dishonesty,  incompetence,
willful  misconduct,   breach  of  fiduciary  duty  involving  personal  profit,
intentional failure to perform stated duties, willful violation of any law, rule
or regulation  (other than traffic  violations or similar  offenses that have no
material detrimental effect on the Corporation) or final cease-and-desist order,
or a material breach of any provision of this Employment Agreement.

         Notwithstanding the foregoing, the Corporation shall notify and counsel
the Executive as to the nature of any instance of "cause" described above within
30 days of the  Corporation's  discovery of such neglect or misconduct and shall
provide a reasonable  probationary  and cure period from the date of such notice
and counseling,  but this provision shall only apply to the first  occurrence of
any  such  circumstances  and the  Corporation  in good  faith  may  immediately
terminate  the Executive  for such  continued or additional  instance of "cause"
following the initial notice and counseling.

         (b)    Termination of the Executive's employment by the Corporation for
Cause  pursuant  to Section  9(a)  shall be  communicated  by written  Notice of
Termination  to the  Executive.  A "Notice of  Termination"  shall mean a notice
which shall  indicate the specific  termination  provision(s)  in this Agreement
relied upon and shall set forth with  particularity  the facts and circumstances
claimed to provide a basis for  termination  of  employment  for Cause under the
provision so indicated.

         If within thirty (30) days after any Notice of Termination is given the
Executive  notifies  the  Corporation  that  a  dispute  exists  concerning  the
termination for Cause and that he is requesting  arbitration pursuant to Section
18, the  Corporation  shall  continue to pay the  Executive  his full salary and
benefits as described in Sections 4 and 5, as and when due and payable, at least
until such time as a final decision is reached by the panel of arbitrators. If a
termination  for Cause by


                                      
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the Corporation is challenged by the Executive and the termination is ultimately
determined  to be  justified,  then  all  sums  paid by the  Corporation  to the
Executive  pursuant to this Section 9(b),  plus the cost to the  Corporation  of
providing the Executive such fringe  benefits from the date of such  termination
to the date of the resolution of such dispute,  shall be promptly  repaid by the
Executive to the Corporation with interest at the rate charged from time to time
by the  Corporation,  to its most  substantial  customers for unsecured lines of
credit. Should it ultimately be determined that a termination by the Corporation
pursuant Section 9(a) was not justified, then the Executive shall be entitled to
retain all sums paid to him pending the  resolution of such dispute and he shall
be entitled to receive,  in addition,  the payments and other benefits  provided
for in Section 8(a).

         A failure by the  Executive  to notify the  Corporation  that a dispute
exists  concerning the  termination  for Cause within thirty (30) days after the
Notice of Termination is given shall  constitute a final waiver by the Executive
of his right to contest that such termination was for Cause.

         (c)    In  the  event  that   Executive   resigns   from  or  otherwise
voluntarily  terminates his employment by the Corporation,  or his employment by
the Corporation's wholly owned subsidiary,  Peninsula Trust Bank,  Incorporated,
at any time (except a termination for Good Reason pursuant to Section 8 hereof),
or if the  Corporation  rightfully  terminates  the  Executive's  employment for
Cause,  this  Agreement  shall  terminate  upon the date of such  resignation or
termination  of  employment  for  Cause,  and  (subject  to  Section  9(b))  the
Corporation  thereafter  shall have no obligation  to make any further  payments
under this  Agreement,  provided that the Executive shall be entitled to receive
any  benefits,  insured or  otherwise,  that he would  otherwise  be eligible to
receive  under any benefit  plans of the  Corporation  or any  affiliate  of the
Corporation.

         10.    CHANGE OF CONTROL:  (a) At any time  within one  hundred  eighty
(180) days after a Change of Control,  the  Executive  may resign  without  Good
Reason  and on or  before  the  Executive's  last  day of  employment  with  the
Corporation  (in  addition  to all  other  payments  to which the  Executive  is
entitled under this Agreement) the Corporation shall pay to the Executive a cash
amount  (subject  to any  applicable  payroll  or  other  taxes  required  to be
withheld) equal to $200,000,  provided that, at the option of the Executive, the
cash amount required to be paid hereby shall be paid by the Corporation in equal
monthly  installments  over  the  twelve  (12)  months  succeeding  the  date of
termination,  payable on the first day of each such month; provided, however, if
Executive  dies before all  payments to which he is entitled  under this Section
10(a) have been made, then such payments he did not receive shall be made to his
estate.  If the Executive  resigns for Good Reason at any time after a Change of
Control, Section 8(a) shall control.

         For purposes of this  Agreement,  a Change of Control  occurs if, after
the date of this  Agreement,  (i) any person,  including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934 (but excluding any group
of which the Executive is a member),  becomes the owner or  beneficial  owner of
Corporation  securities  having 20% or more of the combined  voting power of the
then outstanding Corporation securities that may be cast for the election of the
Corporation's  directors;  (ii) as the  direct  or  indirect  result  of,  or in
connection  with,  a  tender  or  exchange  offer,  a merger  or other  business
combination, a sale of assets, a contested election, or any combination of these
events,  the persons who were directors of the  Corporation  before the first of
such events cease to constitute a majority of the  Corporation's  Board,  or any
successor's board,  within two years of the last of such transactions;  or (iii)
the shareholders of the Corporation approve (x) a merger, consolidation or other
business  combination of the Corporation  with any other "person" or "group" (as
defined in or pursuant to Sections  13(d) and 14(d) of the  Securities  Exchange
Act of 1934) or affiliate  thereof,  other than a merger or  consolidation  that
would  result in the  outstanding  common stock of the  Corporation  immediately
prior thereto  continuing to represent  (either by remaining  outstanding  or by
being  converted  into  common  stock


                                      
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of the  surviving  entity  or a parent or  affiliate  thereof)  more than  fifty
percent  (50%)  of the  outstanding  common  stock  of the  Corporation  or such
surviving entity or a parent or affiliate thereof outstanding  immediately after
such  merger,  consolidation  or other  business  combination,  or (y) a plan of
complete  liquidation  of the  Corporation  or an  agreement  for  the  sale  or
disposition by the Corporation of all or substantially  all of the Corporation's
assets,  or (iv) any other  event or  circumstance  which is not  covered by the
foregoing  subsections  but  which  the Board of  Directors  of the  Corporation
determines to affect  control of the  Corporation  and with respect to which the
Board  of  Directors   adopts  a  resolution  that  the  event  or  circumstance
constitutes  a Change of Control for purposes of this  Agreement.  The date of a
Change of Control is the date on which an event  described  in items (i) through
(iv) above occurs.

         (b)    If the  Executive  resigns  pursuant to Section  10(a) or if his
employment  terminates  pursuant to Section 8(a) after a Change of Control,  all
stock options  granted to the  Executive  under any of the  Corporation's  stock
option plans shall become immediately exercisable with respect to all the shares
covered thereby regardless of whether such options are otherwise exercisable and
Executive  shall  have  thirty  (30) days after the date of his  resignation  to
exercise such stock options

         11.    CERTAIN   OBLIGATIONS  -  SUCCESSORS:   (a)  The   Corporation's
obligation to pay the Executive  the  compensation  and benefits and to make the
arrangements  provided herein shall be absolute and  unconditional and shall not
be affected by any circumstances,  including,  without limitation,  any set-off,
counterclaim,  recoupment, defense or other right which the Corporation may have
against him or anyone else.  All amounts  payable by the  Corporation  hereunder
shall be paid without notice or demand. Except as expressly provided in Sections
8(d) and 9(b), each and every payment made hereunder by the Corporation shall be
final  and the  Corporation  will  not seek to  recover  all or any part of such
payment from the Executive or from  whosoever may be entitled  thereto,  for any
reason whatsoever. The Executive shall not be required to mitigate the amount of
any payment  provided  for in this  Agreement  by seeking  other  employment  or
otherwise.

         (b)    The  Corporation  will require any successor  (whether direct or
indirect,   by  purchase,   merger,   consolidation  or  otherwise)  to  all  or
substantially  all of the business and/or assets of the  Corporation,  or either
one of them, by agreement in form and substance  satisfactory  to the Executive,
to expressly assume and agree to perform this Agreement in its entirety. Failure
of the  Corporation to obtain such agreement prior to the  effectiveness  of any
such  succession  shall be a breach  of this  Agreement  and shall  entitle  the
Executive  to the  compensation  described  in  Section  8(a).  As  used in this
Agreement,  "Corporation"  shall mean Atlantic Financial Corp. and any successor
to its  respective  business  and/or  assets as  aforesaid  which  executes  and
delivers the  agreement  provided for in this Section  11(b) or which  otherwise
becomes bound by all the terms and  provisions of this Agreement by operation of
law.

         12.    LIMITATION OF BENEFITS:  If the independent  accountants serving
as  auditors  for the  Corporation  on the date of a Change of  Control  (or the
Internal  Revenue Service upon examination of the tax returns of the Corporation
or the  Executive)  determine  that  some  or all of the  payments  or  benefits
scheduled  under  this  Agreement,  as well as any other  payments  or  benefits
contingent  on a Change of Control,  constitute  an "excess  parachute  payment"
within the meaning of Section  280G of the  Internal  Revenue  Code of 1986,  as
amended (the Code) and any regulations  thereunder,  thereby resulting in a loss
of an income tax deduction by the Corporation or the imposition of an excise tax
on the  Executive  under Section 4999 of the Code (the "Excise  Tax"),  then the
payments scheduled under this Agreement shall be reduced to one dollar less than
the maximum amount which may be paid without causing any such payment or benefit
to be


                                      
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nondeductible  and subject to the Excise Tax. The Executive may designate  which
payments or benefits will be reduced.

         13.    NOTICES:  For the  purposes of this  Agreement,  notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or five days after it is mailed
by United States registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:

         If to the Executive:      7083 Tracey Court
                                   Gloucester, Virginia 23061

         If to the Corporation:    7171 George Washington Memorial Highway 
                                   P.O. Box 1310, U.S. Route 17            
                                   Gloucester, Virginia 23061-1310         
                                   
or at such other address as any party may have furnished to the other in writing
in  accordance  herewith,  except  that  notices of change of  address  shall be
effective only upon receipt.

         14.    MODIFICATION  - WAIVERS - APPLICABLE  LAW: No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing,  signed by the  Executive and on behalf of
the Corporation by such officer as may be  specifically  designated by the Board
of Directors of the Corporation. No waiver by either party hereto at any time of
any breach by the other party hereto of, or  compliance  with,  any condition or
provision of this  Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar  provision or conditions at the same or at any
prior or subsequent time. No agreements or  representations,  oral or otherwise,
express or implied,  with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement.  The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Virginia.

         15.    INVALIDITY - ENFORCEABILITY:  The invalidity or unenforceability
of  any  provisions  of  this  Agreement   shall  not  affect  the  validity  or
enforceability  of any other provision of this Agreement,  which shall remain in
full force and effect.  Any provision in this  Agreement  which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability  without invalidating
or affecting  the  remaining  provisions  hereof,  and any such  prohibition  or
unenforceability   in  any   jurisdiction   shall  not   invalidate   or  render
unenforceable such provision in any other jurisdiction.

         16.    SUCCESSOR  RIGHTS:  This Agreement shall inure to the benefit of
and be  enforceable  by  the  Executive's  personal  or  legal  representatives,
executors,   administrators,   successors,  heirs,  distributees,  devisees  and
legatees.  If Executive  should die while any amounts  would still be payable to
him hereunder, all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to his devisee,  legatee or other
designee or, if there is no such designee, to his estate.

         17.    HEADINGS:  Descriptive  headings contained in this Agreement are
for convenience only and shall not control or affect the meaning or construction
of any provision hereof.

         18.    ARBITRATION:  Any dispute, controversy or claim arising under or
in connection with this Agreement  shall be settled  exclusively by arbitration,
conducted  before  a


                                      
<PAGE>

panel of  three  arbitrators,  in  Richmond,  Virginia  in  accordance  with the
Commercial  Arbitration  Rules of the American  Arbitration  Association then in
effect. The Corporation shall pay all  administrative  fees associated with such
arbitration.  Judgement  may be entered on the  arbitrator's  award in any court
having  jurisdiction.  Unless  otherwise  provided in the rules of the  American
Arbitration Association, the arbitrators shall, in their award, allocate between
the parties the costs of arbitration,  which shall include reasonable attorneys'
fees and expenses of the parties, as well as the arbitrator's fees and expenses,
in such proportions as the arbitrators deem just.

         19.    CONFIDENTIALITY: The Executive acknowledges that the Corporation
may disclose certain  confidential  information to the Executive during the term
of this Agreement to enable him to perform his duties  hereunder.  The Executive
hereby  covenants and agrees that he will not, without the prior written consent
of the Corporation, during the term of this Agreement or at any time thereafter,
disclose or permit to be disclosed  to any third party by any method  whatsoever
any of the  confidential  information of the  Corporation.  For purposes of this
Agreement,  "confidential information" shall include, but not be limited to, any
and all records, notes, memoranda, data, ideas, processes,  methods, techniques,
systems,  formulas,  patents,  models,  devices,  programs,  computer  software,
writings,   research,   personnel   information,   customer   information,   the
Corporation's financial information, plans, or any other information of whatever
nature  in the  possession  or  control  of the  Corporation  which has not been
published or disclosed to the general public,  or which gives to the Corporation
an opportunity to obtain an advantage over competitors who do not know of or use
it. The Executive further agrees that if his employment  hereunder is terminated
for any reason,  he will leave with the  Corporation and will not take originals
or  copies of any and all  records,  papers,  programs,  computer  software  and
documents and all matter of whatever  nature which bears secret or  confidential
information of the Corporation.

         The  foregoing  paragraph  shall not be applicable if and to the extent
the  Executive  is required to testify in a judicial  or  regulatory  proceeding
pursuant to an order of a judge or  administrative  law judge  issued  after the
Executive and his legal counsel urge that the aforementioned  confidentiality be
preserved.

         The foregoing covenants will not prohibit the Executive from disclosing
confidential  or other  information to other employees of the Corporation or any
third parties to the extent that such disclosure is necessary to the performance
of his duties under this Agreement.

         IN WITNESS WHEREOF,  the parties have executed this Agreement effective
as of the date first above written.

                                        EXECUTIVE


ATTEST: ____________________            __________________________________
                                        Kenneth E. Smith


                                        ATLANTIC FINANCIAL CORP.


ATTEST: ____________________            By: ______________________________
                                            AUTHORIZED OFFICER