<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   FORM 10-K

(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended         December 31, 1999
                          --------------------------------------

                                       OR

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

For the transition period from                to
                                -------------     --------------

Commission file number        1-10506
                       ---------------------

                              Essex Bancorp, Inc.
            ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                 Delaware                                54-1721085
       -----------------------------                  ----------------
          (State of organization)                     (I.R.S. Employer
                                                      Identification No.)

          Interstate Corporate Center
          Building 9, Suite 200
            Norfolk, Virginia                             23502
            -----------------                           --------
          (Address of principal                       (Zip Code)
          executive offices)

Registrant's telephone number, including area code (757) 893-1300

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, Par Value $.01 Per Share         American Stock Exchange
--------------------------------------         -----------------------
              (Title of Class)               (Exchange on Which Registered)

Securities registered pursuant to Section 12(g) of the Act:

                                      None
                                      ----
                                (Title of Class)

          Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes   X     No ____
                                               -----

          Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained to
the Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [  ]

          The aggregate market value of the Registrant's common stock on the
American Stock Exchange on March 22, 2000 held by nonaffiliates of the
Registrant was $2,179,025.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Stockholders for the year ended December 31,
1999 are incorporated by reference into Parts I and II hereof.
Portions of the Proxy Statement for the Annual Meeting to be held on June 16,
2000 are incorporated by reference into Part III hereof.
<PAGE>

                              Essex Bancorp, Inc.
                       Annual Report on Form 10-K for the
                          Year Ended December 31, 1999

                               Table of Contents
                               -----------------
<TABLE>
<CAPTION>


                                                      Page
                                                      ----
<S>         <C>                                       <C>
Part I
------

Item 1      Business................................     3
Item 2      Properties..............................    36
Item 3      Legal Proceedings.......................    37
Item 4      Submission of Matters to a Vote
            of Security Holders.....................    37


Part II
-------

Item 5      Market for Registrant's Common Equity
            and Related Stockholder Matters.........    37
Item 6      Selected Financial Data.................    38
Item 7      Management's Discussion and
            Analysis of Financial Condition
            and Results of Operations...............    38
Item 7A     Quantitative and Qualitative Disclosures
            About Market Risk.......................    38
Item 8      Financial Statements and
            Supplementary Data......................    38
Item 9      Changes in and Disagreements with
            Accountants on Accounting and
            Financial Disclosure....................    38


Part III
--------

Item 10     Directors and Executive Officers
            of the Registrant.......................    39
Item 11     Executive Compensation..................    40
Item 12     Security Ownership of Certain
            Beneficial Owners and Management........    40
Item 13     Certain Relationships and
            Related Transactions....................    40


Part IV
-------

Item 14   Exhibits, Financial Statement Schedules,
            and Reports on Form 8-K.................    41
</TABLE>
                                       2
<PAGE>

                                     PART I
                                     ------

Item 1.     Business
            --------

Organization and Background

          General.  The following organizational chart depicts Essex Bancorp,
Inc. and its subsidiaries as of December 31, 1999.  It is intended to facilitate
the readers' understanding of the companies discussed in this report.  Following
the chart is a glossary of terms, which are used throughout this report.


                      Essex Bancorp, Inc. and Subsidiaries
                              Organizational Chart

                                   |--------------|
                                   | The Company  |
                                   |--------------|
                                          |
                                          |
                                   |------|-------|
                                   |              |
                                   |  The Bank    |
                                   |--------------|
                                          |
                                          |
                           |--------------|---------------|
                           |                              |
                  |--------|--------|           |---------|--------|
                  |                 |           |                  |
                  |   First Title   |           |    Essex Home    |
                  |-----------------|           |------------------|
                                                          |
                                                          |
                                                |---------|--------|
                                                |                  |
                                                |       EHADC      |
                                                |------------------|




                Each company is owned 100% by its parent entity.

                                       3
<PAGE>

<TABLE>
<CAPTION>
Defined Term                                Formal Name
------------                                -----------
<S>                                         <C>
Company                                     Essex Bancorp, Inc.
Partnership                                 Essex Financial Partners, L.P.
Bancorp                                     Essex Bancorp.
Bank                                        Essex Savings Bank, F.S.B.
Essex First                                 Essex First Mortgage, a division of the Bank
First Title                                 First Title Insurance Agency LLC
Essex Home                                  Essex Home Mortgage Servicing Corporation
EHADC                                       E H Asset Disposition Corporation
</TABLE>

     The Company is a Delaware corporation that is the holding company for the
Bank, a federally-chartered savings bank which operates (i) four retail banking
branches located in North Carolina and Virginia and (ii) Essex First, a division
that engages principally in the origination and sale of residential mortgage
loans, as well as the origination of residential construction loans to
individuals and builders. The Company's other principal operating subsidiary is
Essex Home, a wholly-owned subsidiary of the Bank that is engaged primarily in
the servicing of mortgage loans owned by the Bank, governmental agencies and
third party investors.  At December 31, 1999, the Company had total assets of
$277.7 million, total liabilities of $259.7 million, including total deposits of
$212.2 million, and total shareholders' equity of $18.0 million.

     In January 1995, following approval by the holders of the Partnership's
limited partnership units, both the Partnership and Bancorp were merged with and
into the Company (collectively, the "Merger"), which resulted in a single
holding company structure for the Bank and the other subsidiaries of the
Company.  As a consequence of the Merger, the Company succeeded to all of the
assets and liabilities of the Partnership and Bancorp.  In this report, unless
the context otherwise requires, the term "Company" refers to the Partnership
prior to the Merger and/or the Company subsequent to the Merger, in each case
including all subsidiaries thereof.

     On June 30, 1995, the Company and the Bank signed an Agreement and Plan of
Reorganization with Home Bancorp, Inc. ("Home Bancorp") and its wholly-owned
subsidiary Home Savings Bank, F.S.B. ("Home Savings"), a Norfolk, Virginia based
savings institution.  On September 15, 1995, the Company and the Bank merged
with Home Bancorp and Home Savings (the "Home Acquisition").  In exchange for
all of the outstanding stock of Home Bancorp, the stockholders of Home Bancorp
received 2,250,000 shares of nonvoting perpetual preferred stock of the Company
with an aggregate redemption and liquidation value of $15.0 million and warrants
to purchase 7,949,000 shares of the Company's common stock at a price of $0.9375
per share, which was the price of the Company's Common Stock as of June 30,
1995.  The warrants became exercisable in September 1998 and will expire in
September 2005.

     On May 28, 1998, the Company's shareholders approved an amendment of the
Company's Certificate of Incorporation whereby the Company's total authorized
capitalization increased to 30 million shares, consisting of 20 million shares
of common stock and 10 million shares of preferred stock.  The increase in
authorized capitalization increased the Company's flexibility to issue
additional shares of common stock and preferred stock to enable the Company to
engage in strategic transactions, such as possible mergers or share exchanges
with other entities.  However, the Company has no present plans to issue shares
in connection with any particular transaction.

                                       4
<PAGE>

Business Strategy of the Company and the Bank

     General.  The Company has improved its financial, operational and
competitive position over the past three years.  As of December 31, 1999, the
Company is well-capitalized and profitable on a core basis, experiencing
relatively strong growth in retail deposits and postured to be competitive
within the geographic markets served and the market niches pursued.  The
Company's business strategy is to raise the core earnings level through (i)
continued asset growth, (ii) higher net interest income through continued
emphasis in a broader range of loan and deposit products and (iii) enhanced
noninterest revenues through increased cross-selling and continued growth in
mortgage lending and servicing activities.

     Enhancement of Bank Franchise.  In 1996, the Board of Directors of the
Company formed a Strategic Evaluation Committee (the "Committee") to explore the
possibility of further expansion or contraction by branch sales.  It was
concluded, with assistance from an independent consultant, that selling non-
strategic bank branches and effectively shrinking the size of the asset base by
approximately 50% was a strategy that ultimately would be in the best interests
of the common and preferred shareholders of the Company.  Accordingly, the Bank
sold its branches in Charlotte, Raleigh, Greensboro and Wilmington, North
Carolina and in Norfolk, Portsmouth, Hampton, Newport News and Grafton, Virginia
(collectively, the "Branches") in three separate transactions over a nine-month
period in 1996.  The outcome of this strategy was that the Company retained its
most strategic branches with the greatest potential for significant market share
growth.

     During this downsizing period in 1996, the Bank continued its efforts to
position itself as a service-oriented community-based institution to compete
against the large regional/national banking companies whose orientation is
towards larger accounts, centralized operations and higher service fees.  To
that end, the Bank introduced a wider range of consumer and mortgage loan
products to attract new business, maximize the potential of its existing
customer base and enhance yields.  The Company envisions further improving its
franchise through emphasizing growth at existing branches through increased
cross-selling, increasing market penetration in Tidewater and Richmond, Virginia
and Northeastern North Carolina and opening complementary branches, such as a
new branch site in Ashland, Virginia.  This site was acquired in 1998 and a new
retail bank branch is anticipated to be completed in the spring of 2000.  In
addition, the Bank implemented a telephone information access system for its
deposit customers in 1999.

     Diversification of Loan Products.  The Company continues to emphasize the
origination and purchase of residential construction and consumer loans because
of the shorter-term nature of such loans and the higher yields available thereon
when compared to permanent residential mortgage lending.  However, construction
and consumer lending is generally considered to involve a higher level of risk
as compared to single-family residential lending.  Notwithstanding the higher
risk aspect, the portfolio of residential construction loans has grown steadily
since the product's introduction in 1992 with negligible losses on two
foreclosed properties in 1999 and one foreclosed property in 1998 constituting
the only losses in this portfolio.  At this time, opportunities for consumer
loan origination are limited in the Bank's markets.  Therefore, the Bank
continues to review consumer portfolios in the secondary market that have
acceptable credit risk and yields.  For additional information, see "- Lending
Activities - Construction Loans" and "- Consumer Loans."

     Maintenance of Asset Quality.  The Bank has a multi-faceted program
designed to control and continually monitor the credit risks inherent in the
loan portfolio.  This program consists of, among other things, a structured loan
approval process including a loan committee, the periodic assessment of loan
classifications, an annual review of all commercial real estate and builder
relationships and the periodic evaluation of the adequacy of general loan loss
allowances.  By deploying these processes and adhering to predetermined
underwriting procedures,

                                       5
<PAGE>

management has been successful in reducing previously unacceptable levels of
delinquencies and nonperforming assets. As a result, the .48% ratio of
nonperforming assets to total assets at December 31, 1999 surpasses the previous
record of credit quality levels for the Company.

     Expansion of Subservicing Activities.  In its efforts to generate fee
income, the Bank continues to pursue profitable residential mortgage loan
servicing and subservicing.  Essex Home is a service corporation subsidiary
licensed by the Federal National Mortgage Association ("Fannie Mae"), the
Federal Home Loan Mortgage Corporation ("Freddie Mac") and the Government
National Mortgage Association ("Ginnie Mae").  Essex Home also services and
subservices loans for approximately eight private investors and 77 subservicing
clients.

     Through various networking and referral opportunities and advertising
efforts, Essex Home has attracted other financial institutions and mortgage
banking firms interested in outsourcing their loan servicing function.  By
subservicing loans for others, the Bank will be able to utilize more fully its
available resources in a cost efficient and profitable manner. Essex Home's
largest subservicing contract was terminated effective June 1, 1997, but Essex
Home has rebuilt the portfolio and its nonaffiliated servicing/subservicing
portfolio increased from 5,500 loans totaling $354.2 million as of December 31,
1997 to 15,300 loans totaling $1.5 billion as of December 31, 1999.

     Containment of Operating Expenses.  Historically, the Company's operating
expenses have been high relative to those of other savings institutions of
similar asset size. Significant reductions have been made in operating expenses
and the Company has achieved a level of operating expenses that is appropriate
considering the Company's activities in both loan origination and loan
servicing.  Nevertheless, management continues to evaluate the Bank's personnel
needs and operating requirements in order to identify areas where additional
measures may be taken to reduce costs. Although the Bank is committed to
achieving a lower level of operating expenses relative to the Bank's operations,
management recognizes that operating expenses will remain higher than much of
the Bank's peer group due to the relatively low level of assets of Essex Home.

     Interest Rate Risk Management.  Deposit accounts typically adjust more
quickly to changes in market interest rates than mortgage loans because of the
shorter maturities of deposits.  As a result, significant increases in interest
rates may adversely affect the Bank's earnings.  To reduce the potential
volatility of the Bank's earnings, management has sought to improve the match
between asset and liability maturities and rates, while maintaining an
acceptable interest rate spread.  Pursuant to this strategy, the Bank has (i)
emphasized investment in adjustable-rate single-family residential loans or
shorter-term, fixed-rate single-family residential loans (loans with initial
fixed rate terms of up to seven years), (ii) sold longer-term, fixed-rate
single-family residential loans in the secondary market, (iii) originated and
purchased adjustable or short-term construction and development loans, (iv)
maintained higher liquidity by holding short-term investments and cash
equivalents and (v) focused marketing efforts on increasing term deposits
maturing beyond one year and noninterest-sensitive deposits.

     The interest rate sensitivity gap is defined as the difference between
interest-earning assets and interest-bearing liabilities maturing or repricing
within a given time period.  The Bank's one-year interest rate sensitivity gap
amounted to a negative 19.0% at December 31, 1999, which resulted from increases
in (i) fixed rate assets, which include adjustable-rate loans with initial
repricing periods in excess of five years and (ii) adjustable-rate borrowings
from the FHLB, the impact of which was partially offset by (i) an increase in
adjustable-rate assets, which include construction loan participations and (ii)
the lengthening of average customer deposit maturities.  While the Company
continues to emphasize investment in adjustable-rate loans, customer demand for
such loans is not strong because of the current rising interest rate
environment.  Consequently, within the spectrum of loan products offered by the
Bank, the

                                       6
<PAGE>

percentage of balloon payment and adjustable-rate loans with longer initial
adjustment terms predominate. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Market Risk Management" on pages
16 through 18 of the 1999 Annual Report to Stockholders, which is attached
hereto as Exhibit 13 and incorporated herein by reference.

General

     The Company, as a registered savings and loan holding company, is subject
to regulation by the Office of Thrift Supervision ("OTS") and is subject to
various reporting and other requirements of the Securities and Exchange
Commission (the "Commission").  The Bank, as a federally chartered savings bank,
is subject to comprehensive examination by the OTS, as its chartering authority
and primary regulator, and by the Federal Deposit Insurance Corporation
("FDIC"), which administers the Savings Association Insurance Fund ("SAIF"),
which insures the Bank's deposits to the maximum extent permitted by law.  The
Bank is a member of the Federal Home Loan Bank of Atlanta ("FHLB"), which is one
of 12 regional banks comprising the Federal Home Loan Bank System.  The Bank is
further subject to regulations of the Board of Governors of the Federal Reserve
System ("Federal Reserve Board") governing reserves required to be maintained
against deposits and certain other matters.

     The Company's principal focus is currently on the origination (through
Essex First) of both construction and permanent single-family residential loans
(of which substantially all fixed-rate single-family residential loans with
terms to maturity in excess of seven years are being sold by Essex First in the
secondary market).  Because of borrowers' preferences for fixed-rate mortgage
loans during 1999, the Company also relied upon (i) the acquisition of
adjustable-rate residential loan portfolios to supplement Essex First's
production of loans to be retained by the Bank and (ii) the acquisition of
construction loan participations and consumer loans in order to improve the
Company's net interest margin over the long-term partially through higher-
yielding and adjustable-rate assets.  Moreover, in order to provide a full range
of services to its customers, the Company continues to promote the origination
of various types of consumer loans.  In addition, the Company generates fee
income by providing to third parties residential mortgage loan servicing and
subservicing through Essex Home.

Lending Activities

     General.  At December 31, 1999, the Company's net loan portfolio (excluding
loans classified as held for sale) totaled $238.9 million, representing
approximately 86.0% of its $277.7 million of total assets at that date.  The
principal categories of loans in the Company's portfolio are residential real
estate loans, which are secured by single-family (one-to-four units) residences;
loans for the construction of single-family properties; commercial real estate
loans, which are secured by multi-family (over five units) residential and
commercial real estate; commercial business loans; and consumer loans.
Substantially all of the Company's mortgage loan portfolio consists of
conventional mortgage loans, which are loans that are neither insured by the
Federal Housing Administration ("FHA") nor partially guaranteed by the Veterans
Administration ("VA").

     As a federally chartered savings institution, the Bank has general
authority to originate and purchase loans secured by real estate located
throughout the United States.  The Company currently originates substantially
all of its loans within Virginia and North Carolina.  Nevertheless, the Company
continues to purchase from time to time loans secured by properties located
outside of its market area and continues to hold a relatively diversified
portfolio.

     Federal regulations permit the Bank to invest without limitation in
residential mortgage loans and up to four times its capital in loans secured by
non-residential or commercial real estate.  The Bank is also permitted to invest
in secured and unsecured consumer loans in an

                                       7
<PAGE>

amount not exceeding 35% of the Bank's total assets; however, such 35% limit may
be exceeded for certain types of consumer loans, such as home equity, property
improvement and education loans. In addition, the Bank is permitted to invest up
to 20% of its total assets in secured (by other than real estate) and unsecured
loans for commercial, corporate, business or agricultural purposes, provided
that any investments which in the aggregate total 10% may only be used for small
business loans.

     Since the enactment of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), a savings institution generally may not make
loans to one borrower and related entities in an amount which exceeds 15% of its
unimpaired capital and surplus, although loans in an amount equal to an
additional 10% of unimpaired capital and surplus may be made to a borrower if
the loans are fully secured by readily marketable securities.  See "Regulation -
Regulation of the Bank - General."  At December 31, 1999, the Bank's limit on
loans-to-one borrower was approximately $2.9 million.  The loans-to-one borrower
limitation may restrict the Bank's ability to do business with certain existing
and potential customers.  Partially because of this limitation, the Bank
increased its use of participations in order to expand its builder construction
loan program during 1999.  See "-Construction Loans."

     At December 31, 1999, the Bank's five largest commercial loans-to-one
borrower and their related entities amounted to $1.3 million, $1.1 million,
$491,000, $487,000 and $440,000.  The $1.3 million commercial loan was
classified as of December 31, 1999 based on a rating system adopted by the
Company.  Refer to "-Asset Quality - Classified Assets" for a description of the
classifications for problem assets.  The components of this credit are (i) a
commercial real estate loan of $916,000 as of December 31, 1999, which was
originated in October 1987 in the amount of $1.0 million for the purpose of
refinancing a mini-storage/office facility (76 mini-storage units and 38 office
units) located in Virginia Beach, Virginia, and (ii) a line of credit in the
amount of $600,000 with an outstanding balance of $422,000 as of December 31,
1999.  The Company occupies approximately 12,000 square feet of the office
facility.  The lease payments largely service the principal and interest on the
two loans.  The term of the lease coincides with the maturity of the loans,
which are scheduled to mature on December 31, 2001.  In addition, as of December
31, 1999, the Bank and its subsidiaries leased nine of the mini-storage units.
The property was last appraised in November 1992 for $915,000.  As of December
31, 1999, the Bank had established a $300,000 specific reserve with respect to
the loans and the remaining $1.0 million was classified as substandard.

                                       8
<PAGE>

     Loan Portfolio Composition.  The following table sets forth information
concerning the Company's loan portfolio (excluding loans held for sale) by type
of loan at the dates indicated:
<TABLE>
<CAPTION>

                                                           December 31,
                                     ---------------------------------------------------------
                                           1999                1998                1997
                                     ----------------  --------------------  -----------------
                                        $        %         $          %          $        %
                                     --------  ------  ---------  ---------  ---------  ------
                                                      (dollars in thousands)
<S>                                  <C>       <C>     <C>        <C>        <C>        <C>
Real estate:
 Single-family residential:
  First mortgages..................  $173,372   72.0%  $152,891       78.6%  $130,486    76.8%
  Second mortgages.................     4,268    1.8      7,525        3.9      8,699     5.1
 Construction and development......    42,477   17.7     19,430       10.0     16,583     9.8
 Commercial real estate............     4,645    1.9      6,470        3.3      5,970     3.5
                                     --------  -----   --------   --------   --------   -----
  Total real estate loans..........   224,762   93.4    186,316       95.8    161,738    95.2

Commercial business loans..........     1,626     .7      1,601         .8      1,883     1.1

Consumer loans:
 Other.............................    13,464    5.6      5,984        3.1      5,426     3.2
 Secured by deposits...............       731     .3        621         .3        805      .5
                                     --------  -----   --------   --------   --------   -----
   Total consumer loans............    14,195    5.9      6,605        3.4      6,231     3.7
                                     --------  -----   --------   --------   --------   -----

      Total loans..................   240,583  100.0%   194,522      100.0%   169,852   100.0%
                                               =====              ========              =====
Less:
 Unearned loan fees and discounts..         4                 9                    29
 Allowance for loan losses.........     1,697             1,845                 2,382
                                     --------          --------              --------
                                        1,701             1,854                 2,411
                                     --------          --------              --------

      Net Loans....................  $238,882          $192,668              $167,441
                                     ========          ========              ========


 <CAPTION>
                                                    1996               1995
                                            ------------------   -------------------
                                                $          %        $          %
                                            --------     -----   --------   --------
<S>                                        <C>          <C>       <C>         <C>
Real estate:
 Single-family residential:
  First mortgages..................         $103,643       70.0%  $223,531       82.1%
  Second mortgages.................           12,384        8.3     13,398        4.9
 Construction and development......           17,190       11.6     15,078        5.5
 Commercial real estate............            6,313        4.3     10,611        3.9
                                            --------   --------   --------   --------
  Total real estate loans..........          139,530       94.2    262,618       96.4

Commercial business loans..........            1,915        1.3      2,171         .8

Consumer loans:
 Other.............................            5,828        3.9      6,488        2.4
 Secured by deposits...............              842         .6        994         .4
                                            --------   --------   --------   --------
   Total consumer loans............            6,670        4.5      7,482        2.8
                                            --------   --------   --------   --------

      Total loans..................          148,115      100.0%   272,271      100.0%
                                                       ========              ========
Less:
 Unearned loan fees and discounts..                8                   388
    Allowance for loan losses......            2,556                 5,251
                                            --------              --------
                                               2,564                 5,639
                                            --------              --------

      Net Loans....................         $145,551              $266,632
                                            ========              ========
</TABLE>

                                       9
<PAGE>

     Total loans decreased by an aggregate of $31.7 million or 11.6% from
December 31, 1995 to December 31, 1999 primarily due to the sale of loans in
connection with the sale of the Branches in 1996.  The acquisition of $31.3
million, $32.3 million and $22.2 million of adjustable rate first mortgage loans
in 1999, 1998 and 1997, respectively, and 7.2 million and $3.2 million of fixed
rate home improvement loans in 1999 and 1998, respectively, partially offset the
decline and reflects the Company's strategy of investing proceeds from the
maturities of investment securities and funds provided by the growth in deposits
into higher yielding loans.  Over the five year period ended December 31, 1999,
the Company has placed increased emphasis on single-family first mortgage loans,
which, together with construction loans and participations secured by single-
family residences, increased from 87.6% of total loans held for investment at
December 31, 1995 to 89.7% of total loans held for investment at December 31,
1999.  Single-family second mortgage loans declined substantially from 4.9% of
total loans held for investment at December 31, 1995 to 1.8% of total loans held
for investment at December 31, 1999.  The decline in second mortgage loans
resulted from loan sales undertaken to reduce the regulatory risk-weighting of
the Bank's assets and, thus, improve its risk-based capital ratio, while at the
same time reducing earnings volatility associated with the amortization of
deferred premiums and the increased credit risk associated with second mortgage
loans.  Commercial real estate loans decreased from 3.9% of total loans held for
investment at December 31, 1995 to 1.9% of total loans held for investment at
December 31, 1999, as did commercial business loans.  Consumer loans increased
from 2.8% of total loans held for investment at December 31, 1995 to 5.9% of
total loans held for investment at December 31, 1999.  The Company increased its
emphasis during 1999 and 1998 on the origination and purchase of various types
of consumer loans in order to enable the Company the reposition its balance
sheet to improve its net interest income.

     The following table presents the maturity distribution and interest
sensitivity of selected loan categories (excluding residential mortgage and
consumer loans) at December 31, 1999.  Maturities are presented on a contractual
basis.  Loans having no stated schedule of repayments and no stated maturity are
reported as due in one year or less.  Scheduled contractual principal repayments
do not reflect the actual maturities of loans.
<TABLE>
<CAPTION>

                                          Commercial   Commercial
                            Construction  Real Estate   Business    Total
                            ------------  -----------  ----------  -------
                                       (dollars in thousands)
<S>                        <C>           <C>          <C>         <C>
Amounts due:
 One year or less               $42,268       $   14      $  286  $42,568
 After one year through
   five years                       209        3,480       1,340    5,029
 Beyond five years                    -        1,151           -    1,151
                                -------       ------      ------  -------
    Total                       $42,477       $4,645      $1,626  $48,748
                                =======       ======      ======  =======

Interest rate terms on
 amounts due after one
 year:
   Fixed                        $    40       $1,210      $    -  $ 1,250
                                =======       ======      ======  =======
   Adjustable                   $   169       $3,421      $1,340  $ 4,930
                                =======       ======      ======  =======
</TABLE>

     Origination, Purchase and Sale of Loans.  In earlier years, the Bank
operated as a wholesale financial institution and conducted its deposit
gathering activities through a network of limited service branches that were
designed to primarily accumulate large non-transactional deposit accounts.  The
Bank's lending activities were not generally conducted through its branch
offices.  Instead, substantially all of the Company's loan product was either
originated by Essex First or purchased in the secondary market.

     As part of management's efforts to reposition the Bank's activities along
the lines of a more traditional financial institution, the Bank converted its
existing branch offices into full-

                                      10
<PAGE>

service retail facilities, which has enabled the Bank to, among other things,
increase its (i) origination of both consumer and mortgage loans directly
through its branch network and (ii) deposit share in its primary markets.

     Mortgage Banking Activities.  At December 31, 1999, Essex First conducted
its operations out of four offices, which are located in Norfolk, Richmond, and
Chester, Virginia, and Elizabeth City, North Carolina.  Essex First also accepts
loan applications through the Bank's branch office in Emporia, Virginia.  During
the years ended December 31, 1999, 1998, and 1997, Essex First originated $87.8
million, $98.8 million and $65.6 million of loans (consisting primarily of both
permanent and construction/permanent loans secured by single-family residential
real estate and excluding builder loan advances).  During the same periods,
$32.1 million, $33.5 million and $25.9 million of such loans, respectively, were
sold by Essex First to the Bank, with the remainder being sold by Essex First
primarily to other private investors in the secondary market.

     Although Essex First currently originates the majority of the Bank's loan
product, Essex First was established primarily to increase the volume of loans
being originated for sale to private investors in the secondary market.  Such
loan sales generate fee income, while avoiding the interest rate and credit risk
associated with holding long-term fixed-rate mortgage loans in its portfolio.
Loans originated by Essex First for sale in the secondary market are originated
in accordance with terms, conditions and documentation prescribed by the Freddie
Mac, Fannie Mae and Ginnie Mae.  However, Essex First does not generally sell
mortgage loans to such government agencies and, instead, sells loans to private
investors in the secondary market.  Consequently, loans originated by Essex
First for sale in the secondary market must also comply with any particular
requirements of such private investors.  Upon approval of a particular loan,
Essex First provides an independent title company or attorney instructions to
close the loan.  Loan proceeds are disbursed and funded at the closing by Essex
First.  The loan documents are generally delivered to the private investor
within 10 days of the closing and the price paid by the private investor for
purchasing the loan is generally remitted within five to 10 days after such
delivery.  Although Essex First currently sells substantially all conventional
loans without recourse (so that losses incurred as a result of nonperformance
with respect to the loan become the responsibility of the purchaser of the loan
as of the date of the closing), Essex First has in the past occasionally sold
conventional loans in the secondary market with recourse, and may continue to
sell certain conventional loans in the secondary market with recourse.  As of
December 31, 1999 there were $919,000 of loans outstanding, which were
previously originated and sold by Essex First in the secondary market with
recourse.

     A majority of all residential mortgage loans originated by Essex First for
sale in the secondary market are sold with servicing released to third party
investors.  Substantially all of the loans originated by Essex First and not
sold with servicing released to third party investors are sold to the Bank,
which enables the Company to retain the servicing.  When loans are sold with
servicing rights released to the buyer, the Company recognizes current income
from receipt of servicing release fees.  For additional information, see "- Loan
Fee Income."

     Management of the Bank and Essex First believe that "pipeline risk," which
is created by offering loan applicants agreed-upon interest rates for a future
closing, is currently being minimized because Essex First's loan officers are
compensated in accordance with pricing guidelines which are based on the
purchase price received from the third party investors purchasing the loans.
Therefore, in most cases, the loan officer will lock-in a purchase price with
the third party investor simultaneously with making the rate commitment to the
borrower and eliminate any interest rate risk.  If the loan is not locked-in
simultaneously with the commitment to the borrower, any market movement that
occurs prior to the third party investor locking-in the purchase price is
reflected in the loan officer's compensation and not absorbed by Essex First or
the Bank.

                                      11
<PAGE>

     Loan Purchases and Sales.  The Bank purchases single-family mortgage loans
from Essex First, which generally have adjustable rates or a term to maturity of
seven years or less.  In addition, the Bank continues to purchase first mortgage
loans secured by single-family residential properties from selected financial
institutions and mortgage banking companies in the secondary market.  Such loans
generally consist of ARMs or fixed-rate loans with terms of five, seven, or to a
lesser extent, 15 years.  Such loan purchases are secured by properties located
both within and outside the Bank's primary markets.  During the years ended
December 31, 1999, 1998 and 1997, the Bank purchased $38.5 million, $32.3
million and $22.2 million of loans, respectively, from various nonaffiliated
financial institutions and mortgage banking companies in the secondary market.
In addition, during the year ended December 31, 1999, the Company's construction
loan participations increased $20.8 million.  Acquisition of these
participations is strategically designed to draw upon the construction lending
expertise at Essex First.

     At December 31, 1999, 1998, and 1997, loans classified by the Company as
held for sale amounted to $917,000, $4.5 million and $2.2 million, respectively.
Except for loans originated for sale in the secondary market by Essex First, it
is generally management's intention to hold originated and purchased loans for
investment.  Under certain circumstances, however, the Company may sell loans
originally acquired for investment in order to address needs regarding
liquidity, regulatory capital, interest rate risk, or other objectives.

     Loan Underwriting.  Applications for all types of loans offered by the Bank
are taken at all of the Bank's branch offices.  Whereas Essex First limits its
applications to residential mortgage loans. Residential mortgage loan
applications are generally attributable to referrals from real estate brokers
and builders, existing customers and, to a lesser extent, non-referral
customers.  Essex First also obtains applications for residential mortgage loans
through loan officers who solicit and refer mortgage loan applications to Essex
First.  These loan officers are compensated in part on a commission basis and
provide convenient origination services during banking and nonbanking hours.
Essex First also maintains a wholesale lending program, which consists primarily
of construction/permanent ("C/P") lending.  Approved brokers are responsible for
originating and processing C/P loans and submitting them to the Bank for
underwriting approval and closing.

     Loans purchased by the Bank from Essex First or other nonaffiliated
financial institutions and mortgage banking companies in the secondary market
are underwritten by the Bank in accordance with its underwriting guidelines and
procedures (which generally follow Freddie Mac and Fannie Mae guidelines).  All
loans in excess of an individual's designated limits are referred to an officer
with the requisite authority.  Specifically, when acting individually, the Chief
Executive Officer, Executive Vice President or the Senior Underwriter are
authorized to approve secured loans of up to $300,000 and unsecured loans of up
to $25,000.  When the Senior Underwriter acts together with the Chief Executive
Officer or the Executive Vice President, they are authorized to approve secured
loans of up to $500,000 and unsecured loans of up to $50,000.  All secured loans
greater than $500,000 but not exceeding $1,000,000 require approval by the
Bank's loan committee, which consists of the aforementioned officers.  All
secured loans greater than $1,000,000 and all unsecured loans greater than
$50,000 must be approved by the Bank's loan committee and the Board of Directors
of the Bank.  In addition, all loans committed or approved by the Bank's loan
committee are reported to the Board of Directors on a monthly basis.  Management
of the Bank believes that its relatively centralized approach to approving loan
applications ensures strict adherence to the Bank's underwriting guidelines
while still allowing the Bank to approve loan applications on a timely basis.

                                      12
<PAGE>

     Loan Servicing.  Essex Home services or subservices residential real estate
loans owned by the Bank as well as for other private mortgage investors.  Loan
servicing includes collecting and remitting loan payments, accounting for
principal and interest, making advances to cover delinquent payments, making
inspections as required of mortgaged premises, contacting delinquent mortgagors,
supervising foreclosures and property dispositions in the event of unremedied
defaults and generally administering the loans.  Funds that have been escrowed
by borrowers for the payment of mortgage related expenses, such as property
taxes and hazard and mortgage insurance premiums, are maintained in noninterest-
bearing accounts at the Bank or at nonaffiliated banks if so required by the
mortgage investors.

     Essex Home receives fees for servicing and/or subservicing mortgage loans.
These fees serve to compensate Essex Home for the costs of performing the
servicing/subservicing function.  Other sources of loan servicing revenues
include late charges and other ancillary fees.  Servicing and subservicing fees
are collected by Essex Home out of the monthly mortgage payments made by
borrowers.  For additional information concerning Essex Home and its servicing
and subservicing portfolio, see "- Loan Fee Income."

     Real Estate Lending Standards.  All financial institutions are required to
adopt and maintain comprehensive written real estate lending policies that are
consistent with safe and sound banking practices.  These lending policies must
reflect consideration of the Interagency Guidelines for Real Estate Lending
Policies adopted by the federal banking agencies, including the OTS ("Lending
Guidelines").  The Lending Guidelines set forth, pursuant to the mandates of the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
uniform regulations prescribing standards for real estate lending.  In 1999, the
regulatory agencies issued a joint release of Interagency Guidelines on High LTV
Residential Real Estate Lending, which provides guidance on how financial
institutions should manage high loan-to-value ("LTV") residential real estate
loan programs and how they should be treated under the Lending Guidelines.  Real
estate lending is defined as extensions of credit secured by liens on interests
in real estate or made for the purpose of financing the construction of a
building or other improvements to real estate, regardless of whether a lien has
been taken on the property.

     The policies must address certain lending considerations set forth in the
Lending Guidelines, including supervisory LTV limits, loan portfolio management,
loan administration procedures and underwriting standards.  These policies must
also be appropriate to the size of the institution and the nature and scope of
its operations, and must be reviewed and approved by the institution's board of
directors at least annually.  The LTV ratio, which is the total amount of credit
to be extended divided by the appraised value of the property at the time the
credit is originated, must be established for each category of real estate
loans.  If not a first lien, the lender must include all senior liens when
calculating this ratio.  The Lending Guidelines, among other things, establish
the following supervisory LTV limits: raw land (65%); land development (75%);
construction of commercial, multi-family and nonresidential properties (80%);
improved property (85%); and permanent one-to-four family residential (owner
occupied) and home equity loans (no maximum ratio; however any LTV ratio in
excess of 90% should require appropriate credit enhancement in the form of
mortgage insurance or readily marketable collateral).  The Company's loan
underwriting guidelines with respect to LTV ratios are no less stringent than
the Lending Guidelines set forth above.

     Single-Family Residential Real Estate Loans.  At December 31, 1999, $173.4
million or 72.0% of the Company's total loans held for investment consisted of
permanent loans secured by first liens on single-family residential real estate,
as compared to $152.9 million or 78.6% at December 31, 1998.  The decline in the
concentration of such loans occurred because the lower interest rate
environment, in particular during 1998 and the first half of 1999, resulted in
significant refinancings to lower fixed rate loans with terms to maturity of
over seven years.  The Company generally sells such loans in the secondary
market as market conditions permit.

                                      13
<PAGE>

     In recent years, the Company has been emphasizing for its portfolio single-
family residential mortgage adjustable-rate loans, which provide for periodic
adjustments to the interest rate.  These loans have up to 30-year terms and
interest rates which adjust annually in accordance with a designated index after
a specified period has elapsed.  Depending on the loan product selected by the
borrower, this period can range from one year to seven years.  In order to be
competitive and generate production, the ARMs offered by the Company provide for
initial rates of interest below the rates that would prevail when the index used
for repricing is applied.  However, the Company underwrites certain loans (i.e.,
ARMs with 95% LTV) on a basis that is no less stringent than the underwriting
guidelines of the Fannie Mae.  The Company has not engaged in the practice of
using a cap on the payments that could allow the loan balance to increase rather
than decrease, resulting in negative amortization.  Approximately 45.3% of the
permanent single-family residential loans in the Company's loan portfolio held
for investment at December 31, 1999 had adjustable interest rates.

     The demand for adjustable-rate loans in the Company's primary market area
has been a function of several factors, including the level of interest rates,
the expectations of changes in the level of interest rates and the difference
between the interest rates and loan fees offered for fixed-rate loans and
adjustable-rate loans.  The relative amount of fixed-rate and adjustable-rate
residential loans that can be originated at any time is largely determined by
the demand for each in a competitive environment.

     Adjustable-rate loans decrease the risks associated with changes in
interest rates but involve other risks, primarily because as interest rates rise
and the loan rates adjust upward, the payment by the borrower rises to the
extent permitted by the terms of the loan, thereby increasing the potential for
default.  At the same time, the marketability of the underlying property may be
adversely affected by higher interest rates.  The Company believes that these
risks, which have not had a material adverse effect on the Company to date,
generally are less than the risks associated with holding fixed-rate loans in an
increasing interest rate environment.  In addition, depending on the LTV and the
initial repricing frequency of the ARMs, the Company underwrites certain of
these loans based on a borrower's qualification at a fully-indexed interest
rate.

     The Company continues to originate long-term, fixed-rate loans in order to
provide a full range of products to its customers, but generally only under
terms, conditions and documentation that permit their sale in the secondary
market.  Currently, fixed-rate single-family residential loans with terms to
maturity of seven years or less are generally retained in the Company's
portfolio while fixed-rate single-family residential loans with terms to
maturity of over seven years are generally sold in the secondary market as
market conditions permit.  At December 31, 1999, approximately 54.7% of the
permanent single-family residential loans held by the Company for investment
consisted of loans that provide for fixed rates of interest in excess of five
years.  Although these loans provide for repayments of principal over a fixed
period of up to 30 years, it is the Company's experience that such loans remain
outstanding for a substantially shorter period of time.

     The Company is generally permitted to lend up to 100% of the appraised
value of the real property securing a residential loan (referred to as the LTV
ratio); however, if the amount of a residential loan originated or refinanced
exceeds 90% of the appraised value, the Company is required by federal
regulations to obtain appropriate credit enhancement in the form of either
mortgage insurance or readily marketable collateral.  Pursuant to underwriting
guidelines adopted by the Board of Directors, the Company will lend up to 95% of
the appraised value of the property securing an owner-occupied single-family
residential loan, and generally requires borrowers to obtain private mortgage
insurance on loans that have a principal amount that

                                      14
<PAGE>

exceeds 80% of the appraised value of the security property. The extent of
coverage is dependent upon the LTV ratio at the time of origination.

     The Company generally requires title insurance in order to secure the
priority of its mortgage lien, as well as fire and extended coverage casualty
insurance in order to protect the properties securing its residential and other
mortgage loans.  Borrowers may be required to advance funds, with each monthly
payment of principal and interest, to a loan escrow account from which the
Company makes disbursements for items such as real estate taxes, hazard
insurance premiums and mortgage insurance premiums as they become due.
Substantially all of the properties securing all of the Company's mortgage loans
originated or closed by the Bank and/or Essex First are appraised by independent
appraisers that conform to guidelines established pursuant to FIRREA and
regulations promulgated there under.

     Home equity line of credit loans have a maximum commitment of five years,
which may be extended within the sole discretion of the Bank, and the interest
rate is set at the Bank's prime rate plus a margin.  The Company will lend up to
a 90% LTV ratio and the loan can be secured by a primary or subordinate mortgage
on the property.  The Company will originate the loan even if another
institution holds the first mortgage.

     Construction Loans.  Construction lending activities generally are limited
to the Company's primary market, with particular emphasis in the greater
Richmond, Virginia market, the Tidewater, Virginia area and counties in
northeastern North Carolina.  More recently, the Company has expanded its
construction lending presence into the Raleigh, North Carolina, Northern
Virginia and Maryland markets.  At December 31, 1999, construction loans,
including participations, amounted to $42.5 million or 17.7% of the Company's
total loans held for investment.  As of such date, the Company's entire
portfolio of construction loans consisted of loans for the construction of
single-family residences.

     The Company offers construction loans to individual borrowers as well as to
local real estate builders, contractors and developers for the purpose of
constructing single-family residences.  Substantially all of the Company's
construction lending to individuals is originated on a C/P mortgage loan basis.
C/P loan originations are made by Essex First loan officers or through the
wholesale C/P lending program, which is a network of 89 approved brokers.  C/P
loans are made to individuals who hold a contract with a licensed general
contractor to construct their personal residence.  The construction phase of the
loan currently provides for monthly payments on an interest only basis at a
designated prime rate (plus 100 basis points) for up to six months.  Upon
completion of construction, the loan converts to a permanent loan at either an
adjustable or fixed interest rate, consistent with the Company's policies with
respect to residential real estate financing.  Essex First's construction loan
department approves the proposed contractors and administers the loan during the
construction phase.  The Company's C/P loan program has been successful due to
its ability to offer borrowers a single closing and, consequently, reduced
costs.  At December 31, 1999, the Company's C/P portfolio included 65 C/P loans
with an aggregate principal balance of $8.9 million (and an additional $9.0
million was subject to legally binding commitments but had not been advanced as
of such date).

     The Company also offers construction loans to real estate builders,
contractors and developers for the construction of single-family residences on
both a presold and speculative basis.  Construction loans to builders generally
have a three-year note with annual renewals throughout the term, with payments
being made monthly on an interest only basis (generally, at 75 basis points to
200 basis points over a designated prime rate).  Upon application, credit review
and analysis of personal and corporate financial statements, the Company will
grant builders lines of credit up to designated amounts.  The Company will
generally limit the number of homes that may be built by any individual builder
or developer on a speculative basis depending on the builder's financial
strength and total exposure to other lenders.  In 1999 and 1998, the Company


                                      15
<PAGE>

expanded its builder construction loan portfolio to include participations,
which allows the Bank to leverage its capital in markets where Essex First does
not have a mature builder construction presence.  The Company intends to pursue
more participation arrangements in the future.  Although at December 31, 1999,
the Company did not participate in a significant amount of real estate
acquisition and development loans in its portfolio, the Company may in the
future, on a case-by-case basis, participate in a limited amount of additional
real estate acquisition and development loans.

     At December 31, 1999, the Company's builder construction loan portfolio
included 116 loans to 60 different builders with an aggregate principal balance
of $11.2 million (and an additional $37.8 million was subject to legally binding
commitments but had not been advanced as of such date).  Of this $11.2 million
of builder loans, approximately $8.9 million consisted of construction loans for
which there were no contracts for sale at the time of origination.  In addition,
the builder construction loan portfolio included participations totaling $22.1
million at December 31, 1999 (and an additional $16.9 million was subject to
legally binding commitments but had not been advanced as of such date).

     The Company intends to maintain its involvement in construction lending.
Such loans afford the Company the opportunity to increase the interest rate
sensitivity of its loan portfolio.  Construction lending is generally considered
to involve a higher level of risk as compared to single-family residential
lending, due to the concentration of principal in a limited number of loans and
borrowers and the effects of general economic conditions on real estate
developers and managers.  Moreover, a construction loan can involve additional
risks because of the inherent difficulty in estimating both a property's value
at completion of the project and the estimated cost (including interest) of the
project.  The nature of these loans is such that they are generally more
difficult to evaluate and monitor.  In addition, speculative construction loans
to a builder are not necessarily pre-sold and thus pose a greater potential risk
to the Company than construction loans to individuals on their personal
residences.

     The Company has taken steps to minimize the foregoing risks by, among other
things, limiting its construction lending primarily to residential properties.
In addition, the Company has adopted underwriting guidelines which impose
stringent LTV (80% during the construction phase with respect to single-family
residential real estate), debt service and other requirements for loans which
are believed to involve higher elements of credit risk, by limiting the
geographic area in which the Company will do business and by working with
builders with whom it has established relationships or knowledge thereof.

     Commercial Real Estate Loans.  The Company has also originated mortgage
loans secured by multi-family residential and commercial real estate.  At
December 31, 1999, $4.6 million or 1.9% of the Company's total loans held for
investment consisted of such loans.

     Commercial real estate loans originated by the Company are primarily
secured by office buildings, retail stores, warehouses and general purpose
industrial space.  Commercial real estate loans also include multi-family
residential loans, substantially all of which are secured by small apartment
buildings.  At December 31, 1999, $916,000 or 19.7% of the Company's total
commercial real estate loans were comprised of multi-family residential loans.

     Although terms vary, commercial real estate loans generally are amortized
over a period of up to 20 years and mature in seven years or less.  The Company
will originate these loans either with fixed interest rates or with interest
rates that adjust in accordance with a designated index, which generally is
negotiated at the time of origination.  LTV ratios on the Company's commercial
real estate loans are currently limited to 80% or lower.  As part of the
criteria for underwriting commercial real estate loans, the Company generally
imposes a specified debt coverage ratio (the ratio of net cash from operations
before payment of debt service to debt

                                      16
<PAGE>

service). It is also the Company's general policy to seek additional protection
to mitigate any weaknesses identified in the underwriting process, which may be
provided via mortgage insurance, secondary collateral and/or personal guarantees
from the principals of the borrower.

     Commercial real estate lending entails different and significant risks when
compared to single-family residential lending because such loans typically
involve large loan balances to single borrowers and because the payment
experience on such loans is typically dependent on the successful operation of
the project or the borrower's business.  These risks can also be significantly
affected by supply and demand conditions in the local market for apartments,
offices, warehouses or other commercial space.  The Company attempts to minimize
its risk exposure by limiting the extent of its commercial lending.  In
addition, the Company imposes stringent LTV ratios, requires conservative debt
coverage ratios, and continually monitors the operation and physical condition
of the collateral.

     Commercial Business Loans.  From time to time, and in connection with its
community bank activities, the Company has originated secured or unsecured loans
for commercial, corporate, business and agricultural purposes.  At December 31,
1999, $1.6 million or .7% of the Company's total loans held for investment
consisted of commercial business loans.  The Company's commercial business loans
consist primarily of loans and lines of credit secured by various equipment,
machinery and other corporate assets.

     Consumer Loans.  Subject to restrictions contained in applicable federal
laws and regulations, the Company is authorized to make loans for a wide variety
of personal or consumer purposes.  The Company continues to emphasize the
origination and purchase of consumer loans in order to provide a full range of
financial services to its customers and because such loans generally have
shorter terms and higher interest rates than mortgage loans.  At this time,
however, opportunities for consumer loan origination are limited in the Bank's
markets.  Therefore, the Bank continues to review consumer portfolios in the
secondary market that have acceptable credit risks and yields.  At December 31,
1999, $14.2 million or 5.9% of the Company's total loans held for investment
consisted of consumer loans.  The consumer loans offered by the Company include
home improvement, automobile loans, boat and recreational vehicle loans, mobile
home loans, loans secured by deposit accounts and unsecured personal loans.

     Consumer loans generally have shorter terms and higher interest rates than
mortgage loans and generally involve more credit risk than mortgage loans
because of the type and nature of the collateral and, in certain cases, the
absence of collateral.  In addition, consumer lending collections are dependent
on the borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness and personal bankruptcy.  In
many cases, any repossessed collateral for a defaulted consumer loan will not
provide an adequate source of repayment of the outstanding loan balance because
of improper repair and maintenance of the underlying security.  The remaining
deficiency may not warrant further substantial collection efforts against the
borrower.

     Loan Fee Income.  In addition to interest earned on loans, the Company
receives income through servicing of loans, unamortized loan fees in connection
with loan sales and fees in connection with loan modifications, late payments,
prepayments and miscellaneous services related to its loans.  Income from these
activities varies from period to period with the volume and types of loans made
and competitive conditions.

     In connection with its loan origination activities, the Company often
charges loan origination fees that are calculated as a percentage of the amount
borrowed.  The Company generally charges a borrower on a single-family home loan
a loan origination fee based on the principal amount of the loan, with the
actual amount being dependent upon, among other things,

                                      17
<PAGE>

the interest rate and market conditions at the time the loan application is
taken. These fees are in addition to appraisal and other fees paid by the
borrower to the Company at the time of the application. The Company's policy is
to defer all loan origination fees net of direct origination costs and amortize
those fees over the contractual lives of the related loans. Amortization of loan
fees is included in interest income. Nevertheless, the predominant portion of
the Company's loans are originated for resale and, consequently, related net
loan fees are recognized as mortgage banking income upon consummation of the
loan sales.

     When loans are sold with servicing rights released to the buyer, the
Company also recognizes current income from receipt of servicing release fees in
addition to receiving a premium or deducting a discount based on the market
value of the loan, which is dependent upon, among other things, the interest
rate and market conditions at the time the sales price is locked-in with the
buyer.  Sales prices for loans originated for resale are generally locked-in
with a buyer at the time of origination in order to minimize the Company's
interest rate risk.  When loans are sold with servicing retained, the Company
recognizes additional gains based on the estimated fair value of the servicing
retained.  Recognition of such gains creates originated mortgage servicing
rights ("OMSRs") for the Company, which are capitalized and amortized in
proportion to, and over the period of, the estimated future net servicing income
stream of the underlying mortgage loans.  OMSRs amounted to $272,000, $484,000
and $782,000 at December 31, 1999, 1998 and 1997, respectively.  For additional
information regarding the Company's servicing assets, see Note 12 of the Notes
to Consolidated Financial Statements on pages 41 through 42 of the 1999 Annual
Report to Stockholders, which is attached hereto as Exhibit 13 and incorporated
herein by reference.

     Through Essex Home, the Company services loans that are owned by the Bank
and other investors.  At December 31, 1999, approximately 18,200 loans with
unpaid principal balances of $1.7 billion were serviced or subserviced by Essex
Home as compared to approximately 15,100 loans with unpaid principal balances of
$1.2 billion as of December 31, 1998.  The Company intends to further increase
its servicing volume through the negotiation of new subservicing contracts
(generally for two year terms) and the acquisition of servicing rights.
Purchased mortgage servicing rights ("PMSRs") amounted to $1.7 million, $347,000
and $387,000 at December 31, 1999, 1998 and 1997, respectively.  The increase in
PMSRs during 1999 was attributable to purchases of servicing rights during 1999
for 1,920 loans with unpaid principal balances totaling $159.6 million.  There
are risks, however, associated with the acquisition of servicing rights because
their value (i.e., future servicing revenues) is dependent upon the underlying
loans being serviced.  The Company amortizes its mortgage servicing rights in
proportion to, and over the period of, the estimated future net servicing
revenues of the underlying mortgage loans, taking into consideration market-
based prepayment estimates.  However, there can be no assurance that impairments
will not be required in future periods if prepayment activity exceeds current
expectations.

Asset Quality

     Delinquent Loans.  When a borrower fails to make a required payment on a
loan, the Company attempts to cure the deficiency by contacting the borrower and
seeking payment.  Contacts are generally made on the 15th day after a payment is
due and a late charge is assessed at such time.  In most cases, deficiencies are
cured promptly.  If a delinquency extends beyond 30 days, the loan and payment
history is carefully reviewed, additional notices are sent to the borrower and
additional efforts are made to collect the loan.  While the Company generally
prefers to work with borrowers to resolve such problems, when the account
becomes 90 days delinquent, the Company institutes foreclosure or other
proceedings, as necessary, to minimize any potential loss.

                                      18
<PAGE>

     The following table sets forth information concerning the principal
balances and percent of the total loan portfolio held for investment represented
by delinquent loans at the dates indicated:
<TABLE>
<CAPTION>

                                                December 31,
                            ----------------------------------------------------
                                  1999              1998              1997
                            ----------------  ----------------  ----------------
                            Amount  Percent   Amount  Percent   Amount  Percent
                            ------  --------  ------  --------  ------  --------
                                           (dollars in thousands)
<S>                         <C>     <C>       <C>     <C>       <C>     <C>
     30-59 days...........  $  703      .29%  $  662      .34%  $  645      .38%
     60-89 days (1).......     564      .23       46      .02      295      .17
     90 or more days (2)..     736      .31    1,166      .60    1,577      .93
                            ------      ---   ------      ---   ------     ----
                            $2,003      .83%  $1,874      .96%  $2,517     1.48%
                            ======      ===   ======      ===   ======     ====
</TABLE>
     (1) Includes $148,000 of loans that were in nonaccrual status at December
         31, 1999.
     (2) Includes $21,000 of loans that were accruing interest at December 31,
         1997.  There were no loans 90 days or more past due accruing interest
         at December 31, 1999 or 1998.

     Nonperforming Assets.  All loans are reviewed on a regular basis and are
placed in nonaccrual status based on the loan's delinquency status, an
evaluation of the related collateral, and the borrower's ability to repay the
loan.  Generally, loans past due more than 90 days are placed in nonaccrual
status; however, in instances where the borrower has demonstrated an ability to
make timely payments, loans past due more than 90 days are returned to an
accruing status.  Such loans may be returned to accruing status, even though the
loans have not been brought fully current, provided two criteria are met: (i)
all principal and interest amounts contractually due (including arrearages) are
reasonably assured of repayment within a reasonable period, and (ii) there is a
sustained period of repayment performance (generally a minimum of six months) by
the borrower.  Consumer loans generally are charged-off or fully reserved for
when the loan becomes over 120 days delinquent.  When a loan is placed in
nonaccrual status, interest accruals cease and uncollected accrued interest is
reversed and charged against current income.  Additional interest income on such
loans is recognized only when received.

     In certain circumstances, for reasons related to a borrower's financial
difficulties, the Company may grant a concession to the borrower that it would
not otherwise consider.  Such restructuring of troubled debt may include a
modification of loan terms and/or a transfer of assets (or equity interest) from
the borrower to the Company.

     If a foreclosure action is instituted with respect to a particular loan and
the loan is not reinstated, paid in full or refinanced, the property is sold at
a foreclosure sale in which the Company may participate as a bidder.  If the
Company is the successful bidder, the acquired property is classified as
foreclosed property until it is sold.  Properties acquired in settlement of
loans are initially recorded at fair value less estimated costs to sell.
Valuations are periodically performed by management, and an allowance for losses
is established by a charge to operations if the carrying value of a property
exceeds its fair market value less the estimated costs to sell.  Costs incurred
in connection with ownership of the property, including interest on senior
indebtedness, are expensed to the extent not previously allowed for in
calculating fair value less estimated costs to sell.  Costs relating to the
development or improvement of the property are capitalized to the extent these
costs increase fair value less estimated costs to sell.  Sales of foreclosed
properties are recorded under the accrual method of accounting.  Under this
method, a sale is not recognized unless the buyer has assumed the risks and
rewards of ownership, including an adequate cash down payment.  Until the
contract qualifies as a sale, all collections are recorded as deposits.

                                      19
<PAGE>

     The following table sets forth information regarding nonperforming assets
held by the Company at the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
                                                                December 31,
                                              -----------------------------------------------
                                                   1999            1998             1997
                                              --------------  ---------------  --------------
                                                       % of             % of            % of
                                                      Total            Total           Total
                                              Amount  Loans   Amount   Loans   Amount  Loans
                                              ------  ------  -------  ------  ------  ------
<S>                                           <C>     <C>     <C>      <C>     <C>     <C>
Nonaccrual loans, net:
 Single-family residential..................  $  350    .14%  $   697    .36%  $1,203    .71%
 Construction...............................       -      -         -      -      133    .08
 Commercial.................................     377    .16       328    .17      132    .08
 Consumer...................................     157    .07       141    .07       88    .05
                                              ------  -----   -------  -----   ------  -----
  Total nonaccrual loans....................     884    .37     1,166    .60    1,556    .92

Accruing loans 90 days or more past due.....       -      -         -      -       21    .01

Troubled debt restructurings................       -      -        98    .05      209    .12
                                              ------  -----   -------  -----   ------  -----
  Total nonperforming loans.................     884    .37     1,264    .65    1,786   1.05

Foreclosed properties, net..................     446    .19       571    .29    1,512    .89
                                              ------  -----   -------  -----   ------  -----

  Total nonperforming assets................  $1,330    .56%  $ 1,835    .94%  $3,298   1.94%
                                              ======  =====   =======  =====   ======  =====

Nonperforming loans to total loans..........            .37%             .65%           1.05%
Nonperforming assets to total assets........            .48              .79            1.69
Allowance for loan losses to total loans....            .71              .95            1.40
Allowance for loan losses to nonaccrual
 loans......................................         182.88           158.23          153.09
Allowance for loan losses to nonperforming
 loans......................................         182.88           145.97          133.37

<CAPTION>
                                                   1996            1995
                                               ------------   --------------
                                                      % of             % of
                                                      Total            Total
                                              Amount  Loans   Amount   Loans
                                              ------  -----   -------  -----
<S>                                          <C>      <C>    <C>       <C>
Nonaccrual loans, net:
 Single-family residential..................  $2,513   1.70%  $ 2,959   1.09%
 Construction...............................     220    .15       378    .14
 Commercial.................................      22    .01     2,636    .97
 Consumer...................................     153    .10       108    .04
                                              ------  -----   -------  -----
  Total nonaccrual loans....................   2,908   1.96     6,081   2.24

Accruing loans 90 days or more past due.....      30    .02       177    .06

Troubled debt restructurings................     223    .15       143    .05
                                              ------  -----   -------  -----
  Total nonperforming loans.................   3,161   2.13     6,401   2.35

Foreclosed properties, net..................   2,054   1.39     4,856   1.78
                                              ------  -----   -------  -----

  Total nonperforming assets................  $5,215   3.52%  $11,257   4.13%
                                              ======  =====   =======  =====

Nonperforming loans to total loans..........           2.13%            2.35%
Nonperforming assets to total assets........           2.99             3.32
Allowance for loan losses to total loans....           1.73             1.93
Allowance for loan losses to nonaccrual
 loans......................................          87.90            86.35
Allowance for loan losses to nonperforming
 loans......................................          80.86            82.03
</TABLE>

                                      20
<PAGE>

     For additional information about the Company's nonperforming assets, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition - Nonperforming Assets" on pages 6 and 7 and
Notes 6 and 7 of the Notes to Consolidated Financial Statements on pages 35 and
36 of the 1999 Annual Report to Stockholders, which is attached hereto as
Exhibit 13 and incorporated herein by reference.

     Classified Assets.  Federal regulations require that each insured savings
institution classify its assets on a regular basis.  In addition, in connection
with examinations of insured institutions, federal examiners have authority to
identify problem assets and, if appropriate, classify them.  There are three
classifications for problem assets: "substandard," "doubtful" and "loss."
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected.  Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss.  An
asset classified as loss is considered uncollectible and of such little value
that continuance as an asset of the institution is not warranted.  Another
category designated "special mention" also must be established and maintained
for assets which do not currently expose an insured institution to a sufficient
degree of risk to warrant classification as substandard, doubtful or loss.
Assets classified as substandard or doubtful require the institution to
establish general allowances for loan losses.  If an asset or portion thereof is
classified as loss, the insured institution must either establish specific
allowances for loan losses in the amount of 100% of the portion of the asset
classified loss, or charge-off such amount.  General loss allowances established
to cover possible losses related to assets classified substandard or doubtful
may be included in determining an institution's risk-based capital, while
specific valuation allowances for loan losses do not qualify as regulatory
capital.  Federal examiners may disagree with an insured institution's
classifications and amounts reserved.

     In addition to the nonperforming assets discussed above, at December 31,
1999, the Company had classified for regulatory and internal purposes an
additional $1.7 million of assets, $1.4 million of which were classified
substandard, $35,000 of which were classified doubtful and $322,000 of which
were classified loss.

     Allowance for Losses on Loans and Foreclosed Properties.  An allowance for
loan losses is maintained at a level that management considers adequate to
provide for potential losses based upon an evaluation of the inherent risks in
the loan portfolio.  Management's determination of the adequacy of the allowance
is based on an evaluation of the portfolio, past loss experience, current
economic conditions, volume, growth and composition of the portfolio, and other
relevant factors.  The allowance is increased by provisions for loan losses that
are charged against income.  While management uses the best information
available to make such evaluations, future adjustments to the allowance may be
necessary if economic conditions differ substantially from the assumptions used
in making the evaluations.  For additional information, see Notes 6 and 7 of the
Notes to Consolidated Financial Statements on pages 35 and 36 of the 1999 Annual
Report to Stockholders, which is attached hereto as Exhibit 13 and incorporated
herein by reference.

                                      21
<PAGE>

     The following table sets forth information concerning the activity in the
Company's allowance for loan losses during the years indicated:
<TABLE>
<CAPTION>

                                                              Year Ended December 31,
                                               -----------------------------------------------------
                                                 1999       1998       1997       1996       1995
                                               ---------  ---------  ---------  ---------  ---------
                                                              (dollars in thousands)
<S>                                            <C>        <C>        <C>        <C>        <C>
Loans, net of unearned fees and discounts:
  Year-end...................................  $240,579   $194,513   $169,823   $148,107   $271,883
  Average outstanding during period..........   212,354    172,760    156,217    216,803    251,108

Allowance for loan losses:
  Balance, beginning of year.................     1,845   $  2,382   $  2,556   $  5,251   $  3,429
  Allowance transferred in connection
     with the Home Acquisition...............         -          -          -          -        500
  Provision for loan losses..................       149         13        113      1,411      2,477
                                               --------   --------   --------   --------   --------
                                                  1,994      2,395      2,669      6,662      6,406
  Charge-offs, net of recoveries (1):
     Commercial (2)..........................        65         40       (366)     2,892        644
     Real estate - mortgage..................         9        288        535        894        494
     Real estate - land......................       (14)       133          -          -          -
     Consumer................................       237         89        118        320         17
                                               --------   --------   --------   --------   --------
       Total (2).............................       297        550        287      4,106      1,155
                                               --------   --------   --------   --------   --------
  Balance, end of year.......................  $  1,697   $  1,845   $  2,382   $  2,556   $  5,251
                                               ========   ========   ========   ========   ========

Ratio of net charge-offs to average
  outstanding loans (2)......................       .14%       .32%       .18%      1.89%       .46%
Allowance for loan losses to year-end
  total nonperforming loans..................    182.88%    145.97%    133.37%     80.86%     82.03%
Allowance for loan losses to year-end
  loans, net of unearned fees and discounts..       .71%       .95%      1.40%      1.73%      1.93%
</TABLE>
  (1) Except as noted in (2) below, recoveries of prior loan charge-offs were
      not significant for the periods presented.

  (2) Charge-offs during 1997 include a $329,000 recovery on a loan guarantee
      associated with a Richmond, Virginia multi-family loan and a $39,000
      recovery associated with claims against the estate of a deceased borrower.
      Excluding the impact of these recoveries, the ratio of net charge-offs to
      average outstanding loans for 1997 was .42%.  Charge-offs during 1996
      include the $2.8 million write-off of a Richmond, Virginia multi-family
      loan.  Excluding the impact of this charge-off, the ratio of net charge-
      offs to average outstanding loans for 1996 was .59%.

     The following table sets forth information concerning the allocation of the
Company's allowance for loan losses by loan categories at the dates indicated.
<TABLE>
<CAPTION>

                                                              December 31,
                        ----------------------------------------------------------------------------------------
                             1999              1998              1997              1996              1995
                        ----------------  ----------------  ----------------  ----------------  ----------------
                        Amount  Percent   Amount  Percent   Amount  Percent   Amount  Percent   Amount  Percent
                        ------  --------  ------  --------  ------  --------  ------  --------  ------  --------
                                                         (dollars in thousands)
<S>                     <C>     <C>       <C>     <C>       <C>     <C>       <C>     <C>       <C>     <C>

Residential mortgage    $  632     91.5   $  855     92.5%  $1,139     91.7%  $1,636     89.9%  $2,607     92.5%
Commercial (1)             576      2.6      560      4.1      545      4.6      505      5.6    1,530      4.7
Consumer                   489      5.9      285      3.4      254      3.7      299      4.5      323      2.8
Unallocated                  -        -      145        -      444        -      116        -      791        -
                        ------    -----   ------    -----   ------    -----   ------    -----   ------    -----
                        $1,697    100.0%  $1,845    100.0%  $2,382    100.0%  $2,556    100.0%  $5,251    100.0%
                        ======    =====   ======    =====   ======    =====   ======    =====   ======    =====
</TABLE>
(1) Includes commercial real estate and commercial business loans.

                                      22
<PAGE>

     The Company also maintains an allowance for losses on foreclosed
properties.  The following table sets forth information concerning the activity
in the Company's allowance for losses on foreclosed properties during the
periods indicated:
<TABLE>
<CAPTION>

                                                 Year Ended December 31,
                                                 -----------------------
                                                 1999    1998    1997
                                                 ----    ----    ----
                                                (dollars in thousands)
<S>                                             <C>     <C>     <C>
     Balance at beginning of year....           $ 114   $ 155   $ 179
     Provision for losses on
      foreclosed properties..........              14     126     159
                                                -----   -----   -----
                                                  128     281     338
     Charge-offs, net of recoveries..             (94)   (167)   (183)
                                                -----   -----   -----
     Balance at end of year..........           $  34   $ 114   $ 155
                                                =====   =====   =====

</TABLE>

Investment Activities

          Mortgage-Backed Securities.  Mortgage-backed securities (which also
are known as mortgage participation certificates or pass-through certificates)
represent a participation interest in a pool of single-family or multi-family
mortgages, the principal and interest payments on which are passed from the
mortgage originators, through intermediaries (generally U.S. Government agencies
and government sponsored enterprises) that pool and repackage the participation
interests in the form of securities, to investors such as the Company.  Such
U.S. Government agencies and government sponsored enterprises, which guarantee
the payment of principal and interest to investors, primarily include Freddie
Mac, Fannie Mae and Ginnie Mae.

          Freddie Mac is a public corporation chartered by the U.S. Government
and owned by the 12 Federal Home Loan Banks and federally-insured member
institutions of the Federal Home Loan Bank system.  Freddie Mac issues
participation certificates backed principally by conventional mortgage loans.
Freddie Mac guarantees the timely payment of interest and the ultimate return of
principal.  Fannie Mae is a private corporation chartered by the U.S. Congress
with a mandate to establish a secondary market for conventional mortgage loans.
Fannie Mae guarantees the timely payment of principal and interest on Fannie Mae
securities.  Freddie Mac and Fannie Mae securities are not backed by the full
faith and credit of the United States, but because Freddie Mac and Fannie Mae
are quasi-Government and U.S. Government-sponsored enterprises, respectively,
these securities are considered to be among the highest quality investments with
minimal credit risks.  Ginnie Mae is a government agency within the Department
of Housing and Urban Development which is intended to help finance government-
assisted housing programs.  Ginnie Mae securities are backed by FHA-insured and
VA-guaranteed loans, and the timely payment of principal and interest on Ginnie
Mae securities are guaranteed by Ginnie Mae and backed by the full faith and
credit of the U.S. Government.  Because Freddie Mac, Fannie Mae and Ginnie Mae
were established to provide support for low- and middle-income housing, there
are limits to the maximum size of loans that qualify for these programs.  To
accommodate larger-sized loans, and loans that, for other reasons, do not
conform to the agency programs, a number of independent companies have
established their own home-loan origination and securitization programs.

          Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities.  The
characteristics of the underlying pool of mortgages, i.e., fixed-rate or
adjustable-rate, as well as prepayment risk, are passed on to the certificate
holder.  The life of a mortgage-backed pass-through security thus approximates
the life of the underlying mortgages.

                                      23
<PAGE>

          The Company's mortgage-backed securities include collateralized
mortgage obligations ("CMOs"), which include securities issued by entities that
have qualified under the Internal Revenue Code (the "Code") as Real Estate
Mortgage Investment Conduits ("REMICs").  CMOs and REMICs (collectively, CMOs)
have been developed in response to investor concerns regarding the uncertainty
of cash flows associated with the prepayment option of the underlying mortgagor
and are typically issued by government agencies, government sponsored
enterprises and special purpose entities, such as trusts, corporations or
partnerships, established by financial institutions or other similar
institutions.  A CMO can be collateralized by loans or securities that are
insured or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.  In contrast to
pass-through mortgage-backed securities, in which cash flow is received pro rata
by all security holders, the cash flow from the mortgages underlying a CMO is
segmented and paid in accordance with a predetermined priority to investors
holding various CMO classes.  By allocating the principal and interest cash
flows from the underlying collateral among the separate CMO classes, different
classes of bonds are created, each with its own stated maturity, estimated
average life, coupon rate and prepayment characteristics.

          Mortgage-backed securities generally increase the quality of the
Company's assets by virtue of the insurance or guarantees that back them, are
more liquid than individual mortgage loans and may be used to collateralize
borrowings or other obligations of the Company.

          The following table sets forth the activity in the Company's mortgage-
backed securities portfolio during the periods indicated:
<TABLE>
<CAPTION>

                                        At or For the Year Ended December 31,
                                       ----------------------------------------
                                           1999          1998          1997
                                       ------------  ------------  ------------
                                                (dollars in thousands)
<S>                                    <C>           <C>           <C>
     Balance at beginning of year....       $1,456        $1,905        $1,905
     Repayments......................         (974)         (448)            -
     Amortization....................           (2)           (1)            -
                                            ------        ------        ------
     Balance at end of year..........       $  480        $1,456        $1,905
                                            ======        ======        ======

     Weighted average coupon at end
      of year........................         6.65%         5.90%         6.65%
                                            ======        ======        ======
</TABLE>

  The Company's investment in mortgage-backed securities at December 31, 1999
consists solely of a Fannie Mae guaranteed adjustable rate REMIC.  The Company's
mortgage-backed securities are carried in accordance with generally accepted
accounting principles.  See Note 5 of the Notes to Consolidated Financial
Statements on page 34 of the 1999 Annual Report to Stockholders, which is
attached hereto as Exhibit 13 and incorporated herein by reference.

  Investment Securities.  Federally-chartered savings institutions have
authority to invest in various types of liquid assets, including United States
Treasury obligations, securities of various Federal agencies and of state and
municipal governments, certificates of deposit at federally-insured banks and
savings and loan associations, certain bankers' acceptances and Federal funds.
Subject to various restrictions, federally-chartered savings institutions may
also invest a portion of their assets in commercial paper, corporate debt
securities and mutual funds, the assets of which conform to the investments that
federally-chartered savings institutions are otherwise authorized to make
directly.

  The Bank's investment securities portfolio is managed by the Treasurer of the
Bank in accordance with a comprehensive investment policy which addresses
strategies, types and levels of allowable investments and which is reviewed and
approved by the Board of Directors on an annual basis and by the Asset and
Liability Management Committee as circumstances warrant.  The Bank currently
emphasizes lending activities in order to increase the weighted average yield on
the Bank's interest-earning assets.  The Bank's investment securities are
carried in accordance

                                      24
<PAGE>

with generally accepted accounting principles. See Note 4 of the Notes to
Consolidated Financial Statements on page 34 of the 1999 Annual Report to
Stockholders, which is attached hereto as Exhibit 13 and incorporated herein by
reference.

  The following table sets forth certain information relating to the Company's
investment securities held for investment at the dates indicated:
<TABLE>
<CAPTION>
                                                December 31,
                            ----------------------------------------------------
                                   1999             1998              1997
                            ----------------  ----------------  ----------------
                            Carrying  Market  Carrying  Market  Carrying  Market
                             Value    Value    Value    Value    Value    Value
                            --------  ------  --------  ------  --------  ------
                                           (dollars in thousands)
<S>                         <C>       <C>     <C>       <C>     <C>       <C>
  U.S. Government agency
    securities (1)........    $2,750  $2,713    $2,750  $2,704    $2,299  $2,217
  FHLB stock..............     2,230   2,230     1,549   1,549     1,431   1,431
                              ------  ------    ------  ------    ------  ------
     Total (2)............    $4,980  $4,943    $4,299  $4,253    $3,730  $3,648
                              ======  ======    ======  ======    ======  ======
</TABLE>
  (1) The $2.8 million of U.S. Government agency securities held for investment
      at December 31, 1999 consists of two notes issued by the FHLB.  A $2.0
      million FHLB note adjusts semi-annually based on the yield of three-year
      constant maturity treasury notes and matures in the year 2000.  A $750,000
      fixed-rate FHLB note matures in the year 2002.

  (2) Does not include investment securities classified as available for sale
      that consisted of an $19,000, $18,000 and $17,000 investment in a money
      market mutual fund at December 31, 1999, 1998 and 1997, respectively.

  Information regarding the carrying values, contractual maturities and weighted
average yield of the Company's investment securities held for investment
(excluding FHLB stock) at December 31, 1999 is presented below.  FHLB stock is
neither a debt nor an equity security because its ownership is restricted and it
lacks a market.  FHLB stock can be sold at its par of $100 per share only to the
FHLBs or to another member institution.
<TABLE>
<CAPTION>

                                             One Year         After One to   After Five to   Over 10
                                       or Less   Five Years     10 Years         Years        Total
                                       --------  -----------  -------------  --------------  --------
                                                           (dollars in thousands)
<S>                                    <C>       <C>          <C>            <C>             <C>
  U.S. Government agency securities..   $2,000        $ 750   $          -   $          -     $2,750
                                        ======        =====   ============   =============    ======

  Weighted average yield.............     4.77%        5.03%             -%              -%     4.43%
                                        ======        =====   ============   =============    ======
</TABLE>

Sources of Funds

  General.  Deposits are the primary source of the Company's funds for lending
and other investment purposes.  In addition to deposits, the Company derives
funds from loan principal repayments, prepayments, advances from the FHLB and
other borrowings.  Loan repayments are a relatively stable source of funds,
while deposits inflows and outflows are significantly influenced by general
interest rates and money market conditions.  Borrowings may be used on a short-
term basis to compensate for reductions in the availability of funds from other
sources.  They may also be used on a longer term basis for general business
purposes, including market risk management.

  Deposits.  Deposits obtained through bank branch offices of the Company have
traditionally been the principal source of the Company's funds for use in
lending and for other general business purposes.  The Company's current deposit
products include regular passbook and statement savings accounts, negotiable
order of withdrawal ("NOW") accounts, money market accounts, fixed-rate, fixed-
maturity retail certificates of deposit ranging in terms from 90 days to 60
months, mini-jumbo (generally $25,000 - $99,999) and jumbo (generally equal to
or

                                      25
<PAGE>

greater than $100,000) certificates of deposit and individual retirement
accounts.  A significant component of total noninterest-bearing deposits is
derived from mortgage loan servicing related escrow deposits maintained by Essex
Home at the Bank.  The balance of these accounts has increased proportionately
with the increase in the servicing volume at Essex Home.

  The Bank's deposits are currently obtained primarily from residents in its
primary market area.  The principal methods currently used by the Company to
attract deposit accounts include offering a wide variety of services and
accounts and competitive interest rates.  The Company utilizes traditional
marketing methods to attract new customers and savings deposits, including print
media advertising.  Currently, the Company does not advertise for retail
deposits outside of its local market area or utilize the services of deposit
brokers.  Management estimates that as of December 31, 1999, deposit accounts
totaling $4.4 million or 2.1% of the Bank's total deposits were held by
nonresidents of Virginia or North Carolina.  These out-of-market deposits
include jumbo certificates of deposits owned largely by financial institutions,
which totaled $692,000 at December 31, 1999, and represented a decline from the
$1.2 million of such certificates at December 31, 1998.  These jumbo
certificates of deposit were obtained through the posting of deposit rates on
national computerized bulletin boards at no cost to the Company and were not
obtained through deposit brokers.

  The following table sets forth the average balances and rates of the Company's
deposits for the periods indicated:
<TABLE>
<CAPTION>

                                               Year Ended December 31,
                                  -------------------------------------------------
                                        1999             1998             1997
                                  ---------------  ---------------  ---------------
                                  Average          Average          Average
                                  Balance   Rate   Balance   Rate   Balance   Rate
                                  --------  -----  --------  -----  --------  -----
                                               (dollars in thousands)
<S>                               <C>       <C>    <C>       <C>    <C>       <C>

  Noninterest-bearing deposits..  $ 16,691     -%  $  9,504     -%  $  3,143     -%
  Passbook savings..............     4,753  3.49      4,225  3.49      3,839  3.48
  NOW accounts..................     5,179  2.81      4,361  2.81      4,344  2.83
  Money market accounts.........    33,799  4.72     26,845  4.91     21,401  4.87
  Certificates of deposit:
     Consumer...................    74,211  5.43     51,747  5.68     53,256  5.78
     Mini-jumbo.................    50,483  5.45     55,524  5.65     44,932  5.65
     Jumbo......................    15,954  5.44     14,481  5.73     13,206  5.78
                                  --------         --------         --------
                                  $201,070         $166,687         $144,121
                                  ========         ========         ========
</TABLE>
    The following table shows the interest rate and maturity information for the
Company's time deposits at December 31, 1999:
<TABLE>
<CAPTION>

                                       Maturity Date
                  -----------------------------------------------------
                  One Year                             Over
                  or Less   1-2 Years    2-3 Years    3 Years   Total
                  --------  ---------  -------------  -------  --------
                                 (dollars in thousands)
<S>               <C>       <C>        <C>            <C>      <C>
4.01% to 5.00%..   $23,109    $ 1,870     $   154      $    -  $ 25,133
5.01% to 6.00%..    55,028     34,661       5,378       8,888   103,955
6.01% to 7.00%..     6,317      2,012       7,969         149    16,447
7.01% to 8.00%..     2,563          -           -           -     2,563
8.01% to 9.00%..         6          -           -           -         6
                   -------    -------     -------      ------  --------
                   $87,023    $38,543     $13,501      $9,037  $148,104
                   =======    =======     =======      ======  ========
</TABLE>

                                      26
<PAGE>

          The following table shows the Company's certificates of deposit of
$100,000 or more outstanding at the dates indicated:
<TABLE>
<CAPTION>

                                       December 31,
                                 -------------------------
                                  1999     1998     1997
                                 -------  -------  -------
                                  (dollars in thousands)
<S>                              <C>      <C>      <C>

     3 months or less..........  $ 4,698  $ 3,914  $ 4,624
     Over 3 through 6 months...    5,988    5,002    4,785
     Over 6 through 12 months..    6,696    7,698    3,747
     Over 12 months............   10,946    6,072    5,365
                                 -------  -------  -------
          Total................  $28,328  $22,686  $18,521
                                 =======  =======  =======
</TABLE>

          The ability of the Company to attract and maintain deposits and the
Company's cost of funds on these deposit accounts have been, and will continue
to be, significantly affected by economic and competitive conditions.

          Borrowings.  The Bank is a member of the FHLB System, which consists
of 12 regional FHLBs subject to supervision and regulation by the Federal
Housing Finance Board.  The FHLBs provide a central credit facility primarily
for member institutions.  The Bank, as a member of the FHLB of Atlanta, is
required to hold shares of common stock in that FHLB in an amount at least equal
to 1% of the aggregate principal amount of its unpaid residential mortgage loans
and mortgage-backed securities, 3/10 of 1% of total assets at the end of the
calendar year, or 5% of its advances (borrowings) from the FHLB, whichever is
greater.  The Bank had a $2.2 million investment in stock of the FHLB at
December 31, 1999, which was in compliance with this requirement.

          The following table presents certain information regarding the
Company's FHLB advances at the dates and for the periods indicated:
<TABLE>
<CAPTION>

                                                                                        At or For the Year Ended December 31,
                                                                                       ----------------------------------------
                                                                                           1999          1998          1997
                                                                                       ------------  ------------  ------------
                                                                                                (dollars in thousands)
<S>                                                                                      <C>           <C>           <C>
     Balance at end of period....................................................        $44,600       $24,908       $23,547
     Weighted average interest rate
       at end of period..........................................................           4.72%         5.89%         5.75%
     Maximum amount outstanding
       at any month's end........................................................         44,600       $30,975       $28,118
     Average amount outstanding
       during the period.........................................................         29,233       $21,553       $24,885
     Weighted average interest rate
       during the period..........................................................          5.42%         5.71%         5.92%

     The outstanding FHLB advances at December 31, 1999 mature as follows (in thousands):

          2000.............................................................................      $ 7,600
          2001.............................................................................       37,000
                                                                                                 -------
                                                                                                 $44,600
                                                                                                 =======
</TABLE>

       Other Liabilities.  As of December 31, 1999 and 1998, other liabilities
of the Company included a $703,000 obligation to the Company's Chief Executive
Officer resulting from the exercise of his stock appreciation rights in November
1997.  A determination has not yet been made as to the date and method of
payment to satisfy this obligation.  See Note 15 of the Notes to Consolidated
Financial Statements on pages 43 and 44 of the 1999 Annual Report to
Stockholders, which is attached hereto as Exhibit 13 and incorporated herein by
reference.

                                      27
<PAGE>

Year 2000 Readiness

     For information about the Company's Year 2000 readiness and associated
costs, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Year 2000 Status" on pages 20 and 21 of the 1999 Annual
Report to Stockholders, which is attached hereto as Exhibit 13 and incorporated
herein by reference.

Competition

     The Company faces strong competition both in attracting deposits and making
real estate and other loans.  A major reform hurdle was eliminated with the
passage of financial modernization legislation in 1999 that made it possible for
all financial services to be sold in concert, which coupled with the evolution
of the Internet as a marketing and delivery mechanism for financial products and
services, will impact how effectively the Company competes in the future.  The
Company introduced a web site in 1999 to promote its products and services to a
broad base of consumers through the Internet.  While the Company's plans for the
near term do not include expansion into online banking, the Company is assessing
the viability of online banking within the context of the market characteristics
of its customer base.

     The Company's most direct competition for deposits has historically come
from other savings institutions, credit unions and commercial banks located in
Virginia and North Carolina, including many large financial institutions, which
have greater financial and marketing resources available to them.   In addition,
the Company has faced additional significant competition for investors' funds
from short-term money market securities and other corporate and government
securities.  The ability of the Company to attract and retain deposits depends
not only on its ability to provide a rate of return, liquidity and risk
comparable to that offered by competing investment opportunities, but also on
the Company's ability to promote these products by remote access.

     The Company experiences strong competition for real estate and other loans
principally from other savings institutions, commercial banks, mortgage banking
companies, insurance companies and other institutional lenders.  The Company
competes for loans principally through the interest rates and loan fees it
charges and the efficiency and quality of services it provides borrowers.

Employees

     As of December 31, 1999, the Company employed 115 full-time-equivalent
employees.

Regulation of the Company

          General.  The Company is a savings and loan holding company within the
meaning of the Home Owners' Loan Act ("HOLA").  As such, the Company is subject
to OTS regulations, examinations, supervision and reporting requirements.  As a
subsidiary of a savings and loan holding company, the Bank is subject to certain
restrictions in its dealings with the Company and affiliates thereof.

     Activities Restrictions.  There are generally no restrictions on the
activities of a savings and loan holding company that holds only one subsidiary
savings association.  However, if the Director of the OTS determines that there
is reasonable cause to believe that the continuation by a savings and loan
holding company of an activity constitutes a serious risk to the financial
safety, soundness or stability of its subsidiary savings association, the
Director may impose such restrictions as deemed necessary to address such risk,
including limiting (i) payment of dividends

                                      28
<PAGE>

by the savings association, (ii) transactions between the savings association
and its affiliates and (iii) any activities of the savings association that
might create a serious risk that the liabilities of the holding company and its
affiliates may be imposed on the savings association. Notwithstanding the above
rules as to permissible business activities of unitary savings and loan holding
companies, if the savings association subsidiary of such a holding company fails
to meet a qualified thrift lender ("QTL") test, then such unitary holding
company also shall become subject to the activities restrictions applicable to
multiple savings and loan holding companies and, unless the savings association
requalifies as a QTL within one year thereafter, shall register as, and become
subject to, the restrictions applicable to, a bank holding company. See "-
Regulation of the Bank - Qualified Thrift Lender Test."

          Limitations on Transactions with Affiliates.  Transactions between
savings associations and any affiliate are governed by Sections 23A and 23B of
the Federal Reserve Act.  An affiliate of a savings association is any company
or entity that controls, is controlled by or is under common control with the
savings association.  In a holding company context, the parent holding company
of a savings association (such as the Company) and any companies that are
controlled by such parent holding company are affiliates of the savings
association.  Generally, Sections 23A and 23B (i) limit the extent to which the
savings association or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such association's capital
stock and surplus, and contain an aggregate limit on all such transactions with
all affiliates to an amount equal to 20% of such capital stock and surplus and
(ii) require that all such transactions be on terms substantially the same, or
at least as favorable, to the association or subsidiary as those provided to a
non-affiliate.  The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and similar other types of
transactions between a savings institution and its subsidiaries and an
affiliate.  In addition to the restrictions imposed by Sections 23A and 23B, no
savings association may (i) loan or otherwise extend credit to an affiliate,
except for any affiliate which engages only in activities which are permissible
for bank holding companies or (ii) purchase or invest in any stocks, bonds,
debentures, notes or similar obligations of any affiliate, except for affiliates
which are subsidiaries of the savings association.

          In addition, Sections 22(h) and (g) of the Federal Reserve Act place
restrictions on loans to executive officers, directors and principal
stockholders.  Under Section 22(h), loans to a director, an executive officer
and to a greater than 10% stockholder of a savings association, and certain
affiliated interests of either, may not exceed, together with all other
outstanding loans to such person and affiliated interests, the association's
loans to one borrower limit (generally equal to 15% of the institution's
unimpaired capital and surplus).  Section 22(h) also requires that loans to
directors, executive officers and principal stockholders be made on terms
substantially the same as offered in comparable transactions to other persons
unless the loans are made pursuant to a benefit or compensation program that (i)
is widely available to employees of the institution and (ii) does not give
preference to any director, executive officer or principal stockholder, or
certain affiliated interests of either, over other employees of the savings
institution.  Section 22(h) also requires prior board approval for certain
loans.  In addition, the aggregate amount of extensions of credit by a savings
association to all insiders cannot exceed the association's unimpaired capital
and surplus.  Furthermore, Section 22(g) places additional restrictions on loans
to executive officers.  At December 31, 1999, the Bank was in compliance with
the above restrictions.

          Restrictions on Acquisitions.  Except under limited circumstances,
savings and loan holding companies are prohibited from acquiring, without prior
approval of the Director of the OTS, (i) control of any other savings
association or savings and loan holding company or substantially all the assets
thereof or (ii) more than 5% of the voting shares of a savings association or
holding company thereof which is not a subsidiary.  Except with the prior
approval of the Director of the OTS, no director or officer of a savings and
loan holding company or

                                      29
<PAGE>

person owning or controlling by proxy or otherwise more than 25% of such
company's stock, may acquire control of any savings association, other than a
subsidiary savings association, or of any other savings and loan holding
company.

Regulation of the Bank

          General.  The OTS has extensive authority over the operations of
savings associations.  As part of this authority, savings associations are
required to file periodic reports with the OTS and are subject to periodic
examinations by the OTS and the FDIC.  The investment and lending authority of
savings associations are prescribed by federal laws and regulations and they are
prohibited from engaging in any activities not permitted by such laws and
regulations.  Those laws and regulations generally are applicable to all
federally chartered savings associations and may also apply to state-chartered
savings associations.  Such regulation and supervision is primarily intended for
the protection of depositors.

          FIRREA imposed limitations on the aggregate amount of loans that a
savings association could make to any one borrower, including related entities.
See "- Lending Activities - General" for a discussion of such limitations.

          The OTS's enforcement authority over all savings associations and
their holding companies was substantially enhanced by FIRREA.  This enforcement
authority includes, among other things, the ability to assess civil money
penalties, to issue cease and desist or removal orders and to initiate
injunctive actions.  In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound practices.  Other
actions or inactions may provide the basis for enforcement action, including
misleading or untimely reports filed with the OTS.  FIRREA significantly
increased the amount of and grounds for civil money penalties.  FIRREA requires,
except under certain circumstances, public disclosure of final enforcement
actions by the OTS.

          Insurance of Accounts.  The deposits of the Bank are insured up to
$100,000 per insured member (as defined by law and regulation) by the SAIF
administered by the FDIC and are backed by the full faith and credit of the
United States Government.  As insurer, the FDIC is authorized to conduct
examinations of, and to require reporting by, FDIC-insured institutions.  It
also may prohibit any FDIC-insured institution from engaging in any activity the
FDIC determines by regulation or order to pose a serious threat to the FDIC.
The FDIC also has the authority to initiate enforcement actions against savings
associations, after giving the OTS an opportunity to take such action.

          The FDIC may terminate the deposit insurance of any insured depository
institution, including the Bank, if it determines after a hearing that the
institution has engaged or is engaging in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the FDIC.  It also may suspend deposit insurance temporarily during the hearing
process for the permanent termination of insurance, if the institution has no
tangible capital.  If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined by
the FDIC.  Management is aware of no existing circumstances that could result in
termination of the Bank's deposit insurance.

          Under FDIC regulations, institutions are assigned to one of three
capital groups for insurance premium purposes - "well capitalized," "adequately
capitalized" and "undercapitalized" - which are defined in the same manner as
the regulations establishing the prompt corrective action system under Section
38 of the Federal Deposit Insurance Act ("FDIA"), as discussed under "-Prompt
Corrective Action" below.  These three groups are then

                                      30
<PAGE>

divided into subgroups that are based on supervisory evaluations by the
institution's primary federal regulator, resulting in nine assessment
classifications.

     Both the SAIF and the Bank Insurance Fund ("BIF"), the deposit insurance
fund that covers most commercial bank deposits, are statutorily required to be
recapitalized to a ratio of 1.25% of insured reserve deposits.  The BIF
previously achieved the required reserve ratio, and as a result, the FDIC
reduced the average deposit insurance premium paid by BIF-insured banks to a
level substantially below the average premium paid by savings institutions.
Banking legislation was enacted in 1996 to eliminate the premium differential
between SAIF-insured institutions and BIF-insured institutions.  The legislation
provided that all insured depository institutions with SAIF-assessable deposits
as of March 31, 1995 pay a special one-time assessment to recapitalize the SAIF.
Pursuant to this legislation, the FDIC promulgated a rule that established the
special assessment necessary to recapitalize the SAIF at 65.7 basis points of
SAIF-assessable deposits held by affected institutions as of March 31, 1995.
However, as a result of the Bank's financial condition, on November 8, 1996, the
FDIC notified the Bank that its application for exemption had been approved.  As
a result, the Bank was exempt from paying the special one-time assessment (which
would have amounted to $1.8 million).  Instead, the Bank paid its assessments
through 1999 at the assessment rate schedule in effect as of June 30, 1995.  The
Bank's annual assessment for deposit insurance was 26 basis points of insured
deposits during 1999, but a rate of three basis points of insured deposits (the
assessment rate otherwise charged to "well capitalized" savings institutions
such as the Bank) became effective for the Bank on January 1, 2000.  In
addition, insured depository institutions began paying in 1997 a portion of the
interest due annually on the Financing Corporation ("FICO") bonds issued in the
1980s to provide funding for the SAIF.  Accordingly, an additional assessment
approximating 5.9 basis points was added to the regular SAIF assessment during
1999.  Effective January 1, 2000, the FICO assessment rate for the SAIF began to
be assessed at the same rate as the BIF, effectively reducing the Bank's FICO
assessment to approximately two basis points.

     Another component of the SAIF recapitalization plan provided for the merger
of the SAIF and the BIF on January 1, 1999, provided no insured depository
institution was a savings association on that date.  The merger of the SAIF and
the BIF did not occur on such date because there continue to be savings
associations.  Such a merger of the SAIF and the BIF may occur in the future if
legislation containing such a provision is enacted.  If legislation is enacted
which requires the Bank to convert to a bank charter, the Company would become a
bank holding company.  The Company does not believe that its activities would be
materially affected in the event that it was required to become a bank holding
company.

     Regulatory Capital Requirements.  OTS capital regulations require savings
institutions to satisfy minimum capital standards:  risk-based capital
requirements, a leverage requirement and a tangible capital requirement.
Savings institutions must meet each of these standards in order to be deemed in
compliance with OTS capital requirements.  In addition, the OTS may require a
savings institution to maintain capital above the minimum capital levels.

     All savings institutions are required to meet a minimum risk-based capital
requirement of total capital (core capital plus supplementary capital) equal to
8% of risk-weighted assets (which includes the credit risk equivalents of
certain off-balance sheet items).  In calculating total capital for purposes of
the risk-based requirement, supplementary capital may not exceed 100% of core
capital.  Under the leverage requirement, the most highly-rated institutions
must maintain a minimum Tier 1 leverage ratio of 3%, with all other institutions
required to maintain a minimum leverage ratio of 4%.  A savings institution is
also required to maintain tangible capital in an amount at least equal to 1.5%
of its adjusted total assets.

                                      31
<PAGE>

     At December 31, 1999, the Bank's actual capital ratios and the minimum
requirements under FIRREA were as follows (dollars in thousands):
<TABLE>
<CAPTION>

                                           Minimum
                            Actual        Requirement   Excess
                        ---------------  -------------  -------
<S>                     <C>      <C>     <C>      <C>   <C>
  Tangible capital      $17,353   6.25%  $ 4,166  1.5%  $13,187
  Core capital           17,353   6.25    11,109  4.0     6,244
  Risk-based capital     18,273  11.44    12,782  8.0     5,491
</TABLE>

  For further information regarding the Bank's actual capital ratios and minimum
requirements under FDICIA, see Note 17 of the Notes to Consolidated Financial
Statements on page 46 of the 1999 Annual Report to Stockholders, which is
attached hereto as Exhibit 13 and incorporated herein by reference.  At December
31, 1999, the Bank exceeded all of its capital requirements under FDICIA.

  The foregoing capital requirements are viewed as minimum standards by the OTS,
and most institutions are expected to maintain capital levels well above the
minimum.  In addition, the OTS regulations provide that minimum capital levels
higher than those provided in the regulations may be established by the OTS for
individual savings institutions, upon a determination that the savings
institution's capital is or may become inadequate in view of its circumstances.
The OTS regulations provide that higher individual minimum regulatory capital
requirements may be appropriate in circumstances where, among others:  (i) a
savings institution has a high degree of exposure to interest rate risk,
prepayment risk, credit risk, concentration of credit risk, certain risks
arising from nontraditional activities, or similar risks or a high proportion of
off-balance sheet risk, (ii) a savings institution is growing, either internally
or through acquisitions, at such a rate that supervisory problems are presented
that are not dealt with adequately by OTS regulations and (iii) a savings
institution may be adversely affected by activities or condition of its holding
company, affiliates, subsidiaries or other persons or savings institutions with
which it has significant business relationships.  The Bank is not subject to any
such individual minimum regulatory capital requirement.

  Prompt Corrective Action.  Under Section 38 of the FDIA, as added by the
FDICIA, each federal banking agency was required to implement a system of prompt
corrective action for institutions that it regulates.  Under the regulations
adopted by the OTS, an institution is deemed to be (i) "well capitalized" if it
has total risk-based capital of 10.0% or more, has a Tier I risk-based capital
ratio of 6.0% or more, has a Tier I leverage capital ratio of 5.0% or more and
is not subject to any order or final capital directive to meet and maintain a
specific capital level for any capital measure, (ii) "adequately capitalized" if
it has a total risk-based capital ratio of 8.0% or more, a Tier I risk-based
capital ratio of 4.0% or more and a Tier I leverage capital ratio of 4.0% or
more (3.0% under certain circumstances) and does not meet the definition of
"well capitalized," (iii) "undercapitalized" if it has a total risk-based
capital ratio that is less than 8.0%, a Tier I risk-based capital ratio that is
less than 4.0% or a Tier I leverage capital ratio that is less than 4.0% (3.0%
under certain circumstances), (iv) "significantly undercapitalized" if it has a
total risk-based capital ratio that is less than 6.0%, a Tier I risk-based
capital ratio that is less than 3.0% or a Tier I leverage capital ratio that is
less than 3.0% and does not meet the definition of "critically
undercapitalized," and (v) "critically undercapitalized" if it has a ratio of
tangible equity to total assets that is equal to or less than 2.0%.  Section 38
of the FDIA and the regulations promulgated there under also specify
circumstances under which a federal banking agency may reclassify a well
capitalized institution as adequately capitalized and may require an adequately
capitalized institution or an undercapitalized institution to comply with
supervisory actions as if it were in the next lower category (except that the
FDIC may not reclassify a significantly undercapitalized institution as
critically undercapitalized).  At December 31, 1999, the Bank was considered a
"well capitalized" institution under the prompt corrective action provisions of
FDIA.

                                      32
<PAGE>

  Liquidity Requirements.  All savings associations are required to maintain an
average daily balance of liquid assets (including cash, certain time deposits
and savings accounts, bankers' acceptances, certain government obligations and
certain other investments) equal to a certain percentage of the sum of its
average daily balance of net withdrawable deposit accounts and borrowings
payable in one year or less.  The liquidity requirement may vary from time to
time (between 4% and 10%) depending upon economic conditions and savings flows
of all savings associations.  At the present time, the required minimum liquid
asset ratio is 4%.  The Bank has consistently exceeded such regulatory liquidity
requirement and, at December 31, 1999, had a liquidity ratio of 10.10%.

  Qualified Thrift Lender Test.  All savings associations are required to meet a
QTL test set forth in Section 10(m) of HOLA and regulations of the OTS there
under in order to avoid certain restrictions on their operations.  A savings
association that does not meet the QTL test set forth in the HOLA and
implementing regulations must either convert to a bank charter or comply with
the following restrictions on its operations: (i) the association may not engage
in any new activity or make any new investment, directly or indirectly, unless
such activity or investment is permissible for a national bank, (ii) the
branching powers of the association shall be restricted to those of a national
bank, (iii) the association shall not be eligible to obtain any advances from
its FHLB and (iv) payment of dividends by the association shall be subject to
the rules regarding payment of dividends by a national bank.  Upon the
expiration of three years from the date the association ceases to be a QTL, it
must cease any activity and not retain any investment not permissible for a
national bank and immediately repay any outstanding FHLB advances (subject to
safety and soundness considerations).

  Under applicable regulations, any savings institution is a QTL if (i) it
qualifies as a domestic building and loan association under Section 7701(a)(19)
of the Code (which generally requires that at least 60% of the institution's
assets constitute housing-related and other qualifying assets) or (ii) at least
65% of the institution's "portfolio assets" (as defined) consist of certain
housing and consumer-related assets on a monthly average basis in at least nine
out of every 12 months.  At December 31, 1999, the Bank was in compliance with
the QTL test.

  Restrictions on Capital Distributions.  OTS regulations govern capital
distributions by savings associations, which include cash dividends, stock
redemptions or repurchases, cash-out mergers, interest payments on certain
convertible debt and other transactions charged to the capital account of a
savings association to make capital distributions.

  In January 1999, the OTS amended its capital distribution regulation to bring
such regulations into greater conformity with the other bank regulatory
agencies.  Under the regulation, certain savings associations would not be
required to file with the OTS.  Specifically, savings associations that would be
well capitalized following a capital distribution would not be subject to any
requirement for notice or application unless the total amount of all capital
distributions, including any proposed capital distribution, for the applicable
calendar year would exceed an amount equal to the savings association's net
income for that year to date plus the savings association's retained net income
for the preceding two years.  Because the Bank is a subsidiary of the Company,
the regulation, however, requires the Bank to provide notice to the OTS of its
intent to make a capital distribution, unless an application is otherwise
required.

  Federal Home Loan Bank System.  The Bank is a member of the FHLB of Atlanta,
which is one of 12 regional FHLBs that administers the home financing credit
function of savings associations.  Each FHLB serves as a reserve or central bank
for its members within its assigned region.  It is funded primarily from
proceeds derived from the sale of consolidated obligations of the FHLB System.
It makes loans to members (i.e., advances) in accordance with policies and
procedures established by the Board of Directors of the FHLB.

                                      33
<PAGE>

  As a member, the Bank is required to purchase and maintain stock in the FHLB
in an amount at least equal to 1% of its aggregate unpaid residential mortgage
loans, home purchase contracts or similar obligations, 3/10 of 1% of total
assets at the end of the calendar year, or 5% of its advances from the FHLB,
whichever is greater.  At December 31, 1999, the Bank had $2.2 million in FHLB
stock, which was in compliance with this requirement.

  Federal Reserve System.  The FRB requires all depository institutions to
maintain reserves against their transaction accounts (primarily NOW and Super
NOW checking accounts) and non-personal time deposits.  At December 31, 1999,
the Bank was in compliance with applicable requirements.   However, because
required reserves must be maintained in the form of vault cash or a noninterest-
bearing account at a Federal Reserve Bank, the effect of this reserve
requirement is to reduce an institution's earning assets.

  Financial Modernization.  On November 12, 1999, the Gramm-Leach-Bliley Act
(the "Act") of 1999, financial modernization legislation, was signed into law.
The Act amends numerous banking laws including, but not limited to, (i)
repealing Sections 20 and 32 of the Banking Act of 1933 (Glass-Steagall Act),
which prohibited bank affiliations with securities firms, and amending the Bank
Holding Company Act of 1956 to allow affiliations between insured depository
institutions and any "financial" company, (ii) streamlining the supervision of
bank holding companies, including the creation of "financial holding companies"
as described below, (iii) clarifying national banks' authorization to conduct
financial activities through subsidiaries, (iv) restricting the sale of existing
unitary thrift holding companies to financial companies and limiting the
granting of new unitaries charters to financial companies, (v) permitting
federal savings associations converting to national or state banks to retain the
term "federal" in their names and (vi) repealing the SAIF special reserve for
return to the general reserve.   Further, the Act established (i) "financial
holding companies" to engage in, through affiliates, insurance and securities
underwriting, merchant banking, portfolio investment and title insurance
activities, (ii) the National Association of Registered Agents and Brokers to
set uniform licensing and qualification standards for insurance producers on a
multistate basis, (iii) terms and conditions for a mutual insurance company to
reorganize into a mutual holding company, (iv) the scope of bank disclosure and
sharing of customers' non-public information with nonaffiliated third parties
with an opt-out provision, (v) federal criminal penalties for individuals
seeking to obtain customer financial information through fraud or deceit by
pretext calling and (vi) that all banking agencies must use "plain language" in
proposed and final rulemaking after January 1, 2000.

     Specifically, Title V of the Act contains the most comprehensive financial
consumer privacy restrictions ever written into federal law.  Banks and all
other institutions dealing in financial products and services are required to
have a privacy policy and to disclose it to their customers.  They also must
give customers the right to "opt out" of having nonpublic personal information
shared with certain unaffiliated third parties.  The privacy provisions impose
new administrative and regulatory burdens.  But the extent and severity of these
burdens will not be known until the regulators publish new rules and standards
for compliance with the Act, which are due in May 2000.  Further, the Act states
that if state law affords greater consumer protections than federal law in the
area of third-party information sharing, the state law will supersede federal
law.  As the Bank awaits new rules and standards for compliance with the Act,
the Bank has introduced its privacy principles on the Company's Internet web
site and the Company's board of directors has adopted a corporate policy on
privacy and accuracy of personal customer information.

  Safety and Soundness.  The federal banking regulatory agencies have jointly
implemented Interagency Guidelines Establishing Standards for Safety and
Soundness ("Guidelines") for all insured depository institutions relating to
internal controls, information

                                      34
<PAGE>

systems and internal audit systems, loan documentation, credit underwriting,
interest rate risk exposure, asset growth, compensation, fees and benefits, and
employment contracts and other compensation arrangements of executive officers,
employees, directors and principal stockholders of insured depository
institutions that would prohibit compensation and benefits and arrangements that
are excessive or that could lead to a material financial loss for the
institution. The federal banking regulatory agencies have also adopted asset
quality and earnings standards within the Guidelines. The Interagency Guidelines
Establishing Year 2000 Standards for Safety and Soundness ("Year 2000
Guidelines") were implemented in 1998 and set forth safety and soundness
standards to ensure that insured depository institutions would be able to
successfully continue business operating after January 1, 2000. At December 31,
1999, the Bank was in compliance with the Guidelines and the Year 2000
Guidelines.

Taxation

  Federal Taxation.  The Company and its subsidiaries are subject to those rules
of federal income taxation generally applicable to corporations under the Code.
The Company and its principal subsidiary, the Bank, as members of an affiliated
group of corporations within the meaning of Section 1504 of the Code, file a
consolidated federal income tax return, which has the effect of eliminating or
deferring the tax consequences of intercompany transactions and distributions,
including dividends, in the computation of consolidated taxable income.

  In addition to regular corporate income tax, corporations are subject to an
alternative minimum tax, which generally is equal to 20% of alternative minimum
taxable income (taxable income, increased by certain tax preference items and
determined with adjustments to certain regular tax items).  The adjustments that
are generally applicable include an amount equal to a percentage of the amount
by which a financial institution's adjusted current earnings (generally
alternative minimum taxable income computed without regard to this adjustment
and prior to reduction for alternative tax net operating losses) exceeds its
alternative minimum taxable income without regard to this adjustment.
Alternative minimum tax paid can be credited against regular tax due in later
years.  See Note 11 of the Notes to Consolidated Financial Statements on pages
39 and 40 of the 1999 Annual Report to Stockholders, which is attached hereto as
Exhibit 13 and incorporated herein by reference.

  State Taxation.  The Commonwealth of Virginia imposes a tax at the rate of
6.0% on the combined "Virginia taxable income" of the Bank and its subsidiaries.
Virginia taxable income is equal to federal taxable income with certain
adjustments.  Significant modifications include the subtraction from federal
taxable income of interest or dividends on obligations or securities of the
United States that are exempt from state income taxes, and a recomputation of
the bad debt reserve deduction on reduced modified taxable income.

  Because consolidated or combined income tax returns are not allowed under
North Carolina law, the Bank and its subsidiaries that conduct business in North
Carolina are separately subject to an annual corporate income tax of 7.75% of
their federal taxable income as computed under the Code, subject to certain
prescribed adjustments.  In addition to the state corporate income tax, the Bank
and its subsidiaries are subject to an annual state franchise tax, which is
imposed at a rate of .15% applied to the greater of the respective entity's (i)
capital stock, surplus, and undivided profits, (ii) investments in tangible
property in North Carolina or (iii) appraised valuation of property in North
Carolina.

  Furthermore, the Company is separately subject to an annual state franchise
tax in Delaware.

                                      35
<PAGE>

Item 2.    Properties
           ----------

  The following table sets forth information with respect to offices of the
Company and its subsidiaries as of December 31, 1999.
<TABLE>
<CAPTION>

                                                     Lease          Date         Total          Net Book
                                     Owned/     Expiration Date   Acquired/      Office         Value at
Location                            Leased     Including Options   Leased     Square Ft. (1)  12/31/99 (2)
---------------------------------  ---------   -----------------  ---------  -------------   ------------
<S>                                <C>         <C>               <C>         <C>             <C>
The Company
Executive Office:
Interstate Corporate Center         Leased              01/31/02      10/96          7,328   $     13,615
Building 9, Suite 200
Norfolk, VA  23502

The Bank
Main Office:
400 W. Ehringhaus Street             Owned                     -      11/78          3,805        177,860
Elizabeth City, NC  27906

Branch Offices:
520 South Main Street                Owned                     -      05/86          6,517        656,384
Emporia, VA  23847

1401 Gaskins Road                    Owned                     -      09/98          6,782        646,004
Richmond, VA  23233

2825 Godwin Boulevard                Owned                     -      04/98          3,245        745,147
Suffolk, VA  23434

9695 Sliding Hill Road               Owned                     -      08/98          3,150        431,705(3)
Ashland VA 23005

Essex First
Interstate Corporate Center         Leased              01/31/02      10/96          5,554              -
Building 9, Suite 200
Norfolk, VA  23502

1401 Gaskins Road                   Leased (4)                 -      09/98          3,078              -
Richmond, VA  23233

2430 Southland Drive, 3rd Floor     Leased              06/01/00      06/93          2,000              -
Chester, VA  23831

400 W. Ehringhaus Street            Leased (4)                 -      07/94            750              -
Elizabeth City, NC  27906

Essex Home
2420 Virginia Beach Blvd.           Leased              12/31/01      12/91         11,950          2,759
Virginia Beach, VA  23454
</TABLE>


(1) Total office square feet excludes leased common area.
(2) Consists of the net book value of land and buildings if owned, or leasehold
    improvements if leased.
(3) The Bank's Ashland, Virginia branch is under construction as of December 31,
    1999 with a projected opening in the spring of 2000.  The net book value at
    December 31, 1999 represents land and construction costs incurred through
    December 31, 1999.
(4) Leased from the Bank.

                                      36
<PAGE>

Item 3.   Legal Proceedings
          -----------------

         The Company and its subsidiaries are involved in routine legal
proceedings occurring in the ordinary course of business, which in the aggregate
are believed by management to be immaterial to the financial condition of the
Company.


Item 4.    Submission of Matters to a Vote of Security Holders
           ---------------------------------------------------

         No matters were submitted to a vote of the stockholders of the Company
through the solicitation of proxies, or otherwise, during the fourth quarter of
the year ended December 31, 1999.


                                    PART II
                                    -------


Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters
           ---------------------------------------------------------------------

     The Common Stock is currently traded on the American Stock Exchange
("AMEX") under the symbol "ESX."  The information contained on page 51 of the
1999 Annual Report to Stockholders, which is attached hereto as Exhibit 13,
under the caption "Stock Price Information," is incorporated herein by
reference.  As a company listed on the AMEX, the Company is subject to the AMEX
rules regarding continued listing, and does not fully satisfy those continued
listing guidelines.  Accordingly, there can be no assurance that the listing of
the Common Stock on the AMEX will be continued.  In this regard, however, the
Company believes that its recently improved operating results will favorably
impact the AMEX's evaluation.

     As of March 30, 2000, there were 1,060,642 shares of Common Stock
outstanding, which were held by approximately 1,700 persons.  The number of
persons holding shares of Common Stock reflects an estimate of the number of
persons or entities holding their stock in nominee or "street" name through
various brokerage firms or other entities.

Dividends

     The Company's ability to pay dividends on the Common Stock will depend
primarily on the receipt of dividends from the Bank.  While the Company and the
Bank are not operating under any supervisory agreements, the Bank must seek a
letter of nonobjection from the OTS prior to making dividend payments to the
Company.  The Company does not anticipate the payment of dividends on the Common
Stock in the foreseeable future.

     In connection with the Home Acquisition, the Company issued 2,250,000
shares of nonvoting perpetual preferred stock with an aggregate redemption and
liquidation value of $15.0 million in exchange for all of the outstanding stock
of Home Bancorp.  The preferred stock is redeemable at the option of the
Company.  The 2,125,000 shares of Series B preferred stock bear a cumulative
annual dividend rate of 9.5% (based on redemption value) and the 125,000 shares
of Series C preferred stock bear a cumulative annual dividend rate of 8.0%
(based on redemption value).  The Series C preferred stock is senior to Series B
preferred stock with respect to the payment of dividends, and the holders of the
Series C preferred stock may, in their discretion, from time to time in whole or
in part, elect to convert such shares of Series C preferred stock into a like
amount of Series B preferred stock.  At December 31, 1999, dividends and accrued
interest thereon in arrears on the Series B and Series C preferred stock were
$6,867,869 and $330,763, respectively.

                                      37
<PAGE>

     Also in connection with the Home Acquisition, the stockholders of Home
Bancorp received warrants to purchase 7,949,000 shares of Common Stock at a
price of $0.9375 per share, which was the price of the Common Stock as of June
30, 1995.  The warrants became exercisable beginning in September 1998 and will
expire in September 2005.


Item 6.        Selected Financial Data
               -----------------------

     The selected financial data for the five years ended December 31, 1999,
which appears on page 4 of the 1999 Annual Report to Stockholders attached
hereto as Exhibit 13, is incorporated by reference in this Form 10-K Annual
Report.


Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations
         -----------------------------------------------------------------------

          The information contained on pages 5 through 22 of the 1999 Annual
Report to Stockholders, which is attached hereto as Exhibit 13, under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations" is incorporated herein by reference.


Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
          ----------------------------------------------------------

          The information contained on pages 16 through 18 of the 1999 Annual
Report to Stockholders, which is attached hereto as Exhibit 13, under the
caption "Market Risk Management" is incorporated herein by reference.


Item 8.    Financial Statements and Supplementary Data
           -------------------------------------------

          The consolidated balance sheets of the Company as of December 31, 1999
and 1998 and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1999, along with the related notes to consolidated financial
statements and the report of PricewaterhouseCoopers LLP, independent
accountants, are incorporated herein by reference from pages 23 through 50 of
the Company's 1999 Annual Report to Stockholders, which is attached hereto as
Exhibit 13.


Item 9.    Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure
           -----------------------------------------------------------------

     Not applicable.

                                      38
<PAGE>

                                    PART III
                                    --------


Item 10.  Directors and Executive Officers of the Registrant
          --------------------------------------------------

     Information regarding the directors of the Company is included in the
Company's Proxy Statement for the Annual Meeting to be held on June 16, 2000
under the heading "Information with Respect to Continuing Directors," and the
information included therein is incorporated herein by reference.

     Set forth below is information with respect to the executive officers of
the Company and its subsidiaries who do not serve as directors of the Company.
<TABLE>
<CAPTION>

                  Name                     Age                      Title
-----------------------------------------  ---  ----------------------------------------------
<S>                                        <C>  <C>
Earl C. McPherson                           46  President of Essex First and Executive
                                                Vice President of Loan Production and
                                                Secondary Marketing of the Bank

Roy H. Rechkemmer, Jr.                      37  Senior Vice President of Finance and Treasurer
                                                of the Company and the Bank

Mary-Jo Rawson                              46  Vice President and Chief Accounting
                                                Officer of the Company and the Bank
</TABLE>

  Earl C. McPherson.  Mr. McPherson presently serves as President of Essex First
and as Executive Vice President of Loan Production and Secondary Marketing of
the Bank.  Mr. McPherson served as director, President and Chief Executive
Officer of Essex First Mortgage Corporation until its merger with the Bank on
December 31, 1998.  Mr. McPherson served as President of Essex Industrial Loan
Association/Virginia Beach from January 1992 through May 1992.  From January
1990 through December 1991, Mr. McPherson served as President of Mortgage
Centers, Inc. ("MCI").  Prior to his employment with MCI, Mr. McPherson served
as Divisional, Regional, and Training Director for Security Pacific Financial
Services, Inc.  Mr. McPherson has a Bachelor of Arts from the University of
Richmond.  Mr. McPherson also attended the American Financial Services
Association Management program at the University of North Carolina at Chapel
Hill.

  Roy H. Rechkemmer, Jr.  Mr. Rechkemmer presently serves as Senior Vice
President of Finance and Treasurer of the Company and the Bank.  Mr. Rechkemmer
also serves as chairman of the Bank's Asset and Liability Management Committee,
manager of the Bank's investment portfolio and administrator of the Bank's
branches.  Mr. Rechkemmer received a Bachelor of Science Degree in Finance from
the University of Wisconsin-La Crosse in 1985 and is a Chartered Financial
Analyst.  He has been employed by the Bank and subsidiaries since 1987.

  Mary-Jo Rawson.  Ms. Rawson presently serves as Vice President and Chief
Accounting Officer of the Company and the Bank.  Prior to her employment with
the Company, Ms. Rawson served in various accounting officer positions at
NationsBank Corporation and its predecessor institution C&S/Sovran.  Ms.
Rawson's primary responsibilities emphasized regulatory reporting and accounting
policies and procedures.  At the time of her departure from NationsBank in 1992,
Ms. Rawson was a Senior Vice President and the controller of the Bankcard
Division.  Ms. Rawson received a Bachelor of Science Degree in Business
Administration from Old Dominion University in 1976.

                                      39
<PAGE>

  Information regarding compliance with Section 16(a) of the Securities Exchange
Act is included in the Company's Proxy Statement for the Annual Meeting to be
held on June 16, 2000 under the heading "Compliance with Section 16(a) of the
Exchange Act," and the information included therein is incorporated herein by
reference.


Item 11.  Executive Compensation
          ----------------------

     Information regarding compensation of executive officers and directors is
incorporated herein by reference to the Company's Proxy Statement for the Annual
Meeting to be held on June 16, 2000 under the headings "Directors Fees" and
"Executive Compensation."


Item 12.  Security Ownership of Certain Beneficial Owners and Management
          --------------------------------------------------------------

     Information regarding security ownership of certain beneficial owners and
management is included in the Company's Proxy Statement for the Annual Meeting
to be held on June 16, 2000 under the headings "Securities Ownership of Certain
Beneficial Owners" and "Information with Respect to Continuing Directors," and
the information included therein is incorporated herein by reference.


Item 13.  Certain Relationships and Related Transactions
          ----------------------------------------------

     Information regarding certain relationships and related transactions is
included in the Company's Proxy Statement for the Annual Meeting to be held on
June 16, 2000 under the heading "Transactions with Certain Related Persons," and
the information included therein is incorporated herein by reference.

                                      40
<PAGE>

                                    PART IV
                                    -------


Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K
          ---------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                            Page in
                                                                            Annual
                                                                            Report*
                                                                            -------
<S>                                                                         <C>
(a)       1.  Financial Statements:
               The following documents are filed as part of this report:

               Report of Independent Accountants............................  23

               Consolidated Balance Sheets at December 31, 1999
                and 1998....................................................  24

               Consolidated Statements of Operations for the three
                years ended December 31, 1999...............................  25

               Consolidated Statements of Shareholders' Equity for
                the three years ended December 31, 1999.....................  27

               Consolidated Statements of Cash Flows for the three
                years ended December 31, 1999...............................  28

               Notes to Consolidated Financial Statements...................  30
</TABLE>
               *Incorporated by reference from the indicated pages of the 1999
                Annual Report to Stockholders.

               The financial statements, together with the report thereon of
               PricewaterhouseCoopers LLP dated February 18, 2000, appearing on
               pages 23 through 50 of the accompanying 1999 Annual Report to
               Stockholders are incorporated by reference in this Form 10-K
               Annual Report.  With the exception of the aforementioned
               information and the information incorporated in Items 1, 6, 7, 7A
               and 8, the 1999 Annual Report to Stockholders is not to be deemed
               filed as part of this Form 10-K Annual Report.

          2.  Financial Statement Schedules:

               All schedules are omitted because they are not required or are
               not applicable or the required information is shown in the
               consolidated financial statements or notes thereto.

                                      41
<PAGE>

          3.  Exhibits:

               The following exhibits are either filed as part of this Part IV
               or are incorporated herein by reference:

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

                3.1*        Certificate of Incorporation of Essex Bancorp, Inc.,
                            dated June 21, 1994.  Filed as Exhibit 3.1 to the
                            Registrant's Form S-4 Registration Statement under
                            the Securities Act of 1933 as filed on August 15,
                            1994.

                3.2*        Certificate of Amendment of Essex Bancorp, Inc.,
                            dated August 10, 1994.  Filed as Exhibit 3.2 to the
                            Registrant's Form S-4 Registration Statement under
                            the Securities Act of 1933 as filed on August 15,
                            1994.

                3.3*        Certificate of Amendment to the Certificate of
                            Incorporation of Essex Bancorp, Inc., dated November
                            5, 1998.  Filed as Exhibit 3.3 to the Registrant's
                            Annual Report on Form 10-K for the year ended
                            December 31, 1998.

                3.4*        Bylaws of Essex Bancorp, Inc., effective July 25,
                            1994.  Filed as Exhibit 3.3 to the Registrant's Form
                            S-4 Registration Statement under the Securities Act
                            of 1933 as filed on August 15, 1994.

                4.1*        Certificate of Designation of the Series A Preferred
                            Stock of Essex Bancorp, Inc.  Filed as Exhibit 4.1
                            to the Registrant's Annual Report on Form 10-K for
                            the year ended December 31, 1995.

                4.2*        Certificate of Designations of Cumulative Perpetual
                            Preferred Stock, Series B of Essex Bancorp, Inc.
                            Filed as Exhibit 4.1 to the Registrant's Quarterly
                            Report on Form 10-Q for the quarter ended September
                            30, 1995.

                4.3*        Certificate of Designations of Cumulative Perpetual
                            Preferred Stock, Series C of Essex Bancorp, Inc.
                            Filed as Exhibit 4.2 to the Registrant's Quarterly
                            Report on Form 10-Q for the quarter ended September
                            30, 1995.

                4.4*        Form of Common Stock Purchase Warrant Certificate.
                            Filed as Exhibit 4.3 to the Registrant's Quarterly
                            Report on Form 10-Q for the quarter ended September
                            30, 1995.

                                      42

* Not filed herewith. In accordance with Rule 12b-32 of the General Rules and
  Regulations under the Securities Exchange Act of 1934, reference is made to
  the document previously filed with the Commission.
<PAGE>

                4.5*        Specimen Common Stock Certificate of Essex Bancorp,
                            Inc.  Filed as Exhibit 4.1 to the Registrant's Pre-
                            Effective Amendment No. 1 to Form S-4 Registration
                            Statement under the Securities Act of 1933, as filed
                            on October 12, 1994.

                4.6*        Specimen Series B 9.5% Cumulative Preferred Stock
                            Certificate of Essex Bancorp, Inc.  Filed as Exhibit
                            4.6 to the Registrant's Annual Report on Form 10-K
                            for the year ended December 31, 1995.

                4.7*        Specimen Series C 8% Cumulative Preferred Stock
                            Certificate of Essex Bancorp, Inc.  Filed as Exhibit
                            4.7 to the Registrant's Annual Report on Form 10-K
                            for the year ended December 31, 1995.

                10.1*       Essex Savings Bank, F.S.B. Supplemental Executive
                            Retirement Plan dated August 26, 1993.  Filed as
                            exhibit 10.1 to the Registrant's Annual Report on
                            Form 10-K for the year ended December 31, 1997.

                10.2*       First Amendment to the Essex Savings Bank, F.S.B.
                            Supplemental Executive Retirement Plan dated June 5,
                            1997.  Filed as exhibit 10.2 to the Registrant's
                            Annual Report on Form 10-K for the year ended
                            December 31, 1997.

                10.3*       Second Amendment to the Essex Savings Bank, F.S.B.
                            Supplemental Executive Retirement Plan dated
                            November 1, 1997.  Filed as exhibit 10.3 to the
                            Registrant's Annual Report on Form 10-K for the year
                            ended December 31, 1997.

                10.4*       Third Amendment to the Essex Savings Bank, F.S.B.
                            Supplemental Executive Retirement Plan dated
                            December 1, 1998.  Filed as Exhibit 10.4 to the
                            Registrant's Annual Report on Form 10-K for the year
                            ended December 31, 1998.

                10.5        Fourth Amendment to the Essex Savings Bank, F.S.B.
                            Supplemental Executive Retirement Plan dated October
                            27, 1999.  Filed as an exhibit to this report.

                10.6*       Fannie Mae/Freddie Mac/Private Investor Mortgage
                            Servicing Purchase and Sale Agreement by and between
                            Essex Mortgage Corporation and Chase Home Mortgage
                            Corporation dated June 8, 1993.  Filed as Exhibit
                            10.19 to Essex Financial Partners, L.P.'s Annual
                            Report on the Second Amended and Restated Form 10-K
                            for the year ended December 31, 1992.

                                      43

* Not filed herewith. In accordance with Rule 12b-32 of the General Rules and
  Regulations under the Securities Exchange Act of 1934, reference is made to
  the document previously filed with the Commission.
<PAGE>

                10.7*       Essex Bancorp, Inc. Non-Employee Directors Stock
                            Option Plan.  Filed as Exhibit 10.18 to the
                            Registrant's Form 10-K for the year ended December
                            31, 1994.

                10.8*       First Amendment to the Essex Bancorp, Inc. Non-
                            Employee Directors Stock Option Plan dated July 29,
                            1995.  Filed as Exhibit 10.6 to the Registrant's
                            Annual Report on Form 10-K for the year ended
                            December 31, 1995.

                10.9*       Essex Bancorp, Inc. Stock Option Plan.  Filed as
                            Exhibit 10.19 to the Registrant's Form 10-K for the
                            year ended December 31, 1994.

                10.10*      First Amendment to the Essex Bancorp, Inc. Stock
                            Option Plan dated as of June 29, 1995.  Filed as
                            Exhibit 10.8 to the Registrant's Annual Report on
                            Form 10-K for the year ended December 31, 1995.

                10.11*      Second Amendment to the Essex Bancorp, Inc. Stock
                            Option Plan dated as of May 23, 1996.  Filed as
                            Exhibit 10.6 to the Registrant's Annual Report on
                            Form 10-K for the year ended December 31, 1996.

                10.12*      Essex Bancorp, Inc. Employee Stock Purchase Plan.
                            Filed as Exhibit 10.20 to the Registrant's Form 10-K
                            for the year ended December 31, 1994.

                10.13*      First Amendment to the Essex Bancorp, Inc. Employee
                            Stock Purchase Plan dated as of June 29, 1995.
                            Filed as Exhibit 10.10 to the Registrant's Annual
                            Report on Form 10-K for the year ended December 31,
                            1995.

                10.14*      Second Amendment to the Essex Bancorp, Inc. Employee
                            Stock Purchase Plan dated as of October 1, 1998.
                            Filed as Exhibit 10.13 to the Registrant's Annual
                            Report on Form 10-K for the year ended December 31,
                            1998.

                10.15*      Restated Employment Agreement dated as of January 1,
                            1998 by and among Essex Bancorp, Inc., Essex Savings
                            Bank, F.S.B., Essex Mortgage Corporation and Gene D.
                            Ross.  Filed as exhibit 10.12 to the Registrant's
                            Annual Report on Form 10-K for the year ended
                            December 31, 1997.

                                      44

* Not filed herewith. In accordance with Rule 12b-32 of the General Rules and
  Regulations under the Securities Exchange Act of 1934, reference is made to
  the document previously filed with the Commission.

<PAGE>

                10.16*      First Amendment to the Restated Executive Services
                            Agreement dated as of January 1, 1998 by and among
                            Essex Bancorp, Inc., Essex Savings Bank, F.S.B.,
                            Essex Mortgage Corporation and Gene D. Ross.  Filed
                            as Exhibit 10.14 to the Registrant's Annual Report
                            on Form 10-K for the year ended December 31, 1998.

                10.17       Second Amendment to the Restated Employment
                            Agreement dated as of October 1, 1999 by and among
                            Essex Bancorp, Inc., Essex Savings Bank, F.S.B. and
                            Essex Home Mortgage Servicing Corporation (successor
                            to Essex Mortgage Corporation) and Gene D. Ross.
                            Filed as an exhibit to this report.

                10.18*      Change in Control Agreement dated as of January 1,
                            1998 by and among Essex Bancorp, Inc. and Gene D.
                            Ross.  Filed as Exhibit 10.16 to the Registrant's
                            Annual Report on Form 10-K for the year ended
                            December 31, 1998.

                10.19       Restated Change in Control Agreement dated as of
                            October 1, 1999 by and among Essex Bancorp, Inc. and
                            Gene D. Ross.  Filed as an exhibit to this report.

                10.20*      Restated Executive Services Agreement dated as of
                            January 1, 1998 by and among Essex Savings Bank,
                            F.S.B., Essex First Mortgage Corporation and Earl C.
                            McPherson.  Filed as exhibit 10.13 to the
                            Registrant's Annual Report on Form 10-K for the year
                            ended December 31, 1997.

                10.21*      First Amendment to the Restated Executive Services
                            Agreement dated as of January 1, 1998 by and among
                            Essex Savings Bank, F.S.B., Essex First Mortgage
                            Corporation and Earl C. McPherson.  Filed as Exhibit
                            10.18 to the Registrant's Annual Report on Form 10-K
                            for the year ended December 31, 1998.

                10.22*      Second Amendment to the Restated Executive Services
                            Agreement dated as of January 1, 1999 by and among
                            Essex Savings Bank, F.S.B., Essex First Mortgage
                            Corporation and Earl C. McPherson.  Filed as Exhibit
                            10.19 to the Registrant's Annual Report on Form 10-K
                            for the year ended December 31, 1998.

                10.23*      Change in Control Agreement dated as of January 1,
                            1998 by and among Essex Bancorp, Inc. and Earl C.
                            McPherson.  Filed as Exhibit 10.20 to the
                            Registrant's Annual Report on Form 10-K for the year
                            ended December 31, 1998.

                                      45

* Not filed herewith. In accordance with Rule 12b-32 of the General Rules and
  Regulations under the Securities Exchange Act of 1934, reference is made to
  the document previously filed with the Commission.

<PAGE>

                10.24*      First Amendment to Change in Control Agreement dated
                            as of January 1, 1999 by and among Essex Bancorp,
                            Inc. and Earl C. McPherson.  Filed as Exhibit 10.21
                            to the Registrant's Annual Report on Form 10-K for
                            the year ended December 31, 1998.

                10.25       Restated Change in Control Agreement dated as of
                            November 22, 1999 by and among Essex Bancorp, Inc.
                            and Earl C. McPherson.  Filed as an exhibit to this
                            report.

                10.26*      Subservicing Agreement between Essex Home Mortgage
                            Servicing Corporation and Continental Capital Corp.
                            dated as of April 15, 1998.  Filed as Exhibit 10.22
                            to the Registrant's Annual Report on Form 10-K for
                            the year ended December 31, 1998.

                11          Statement re Computation of Per Share Earnings.
                            Filed as an exhibit to this report.

                13          The 1999 Annual Report is attached as Exhibit 13.
                            Portions of the 1999 Annual Report are incorporated
                            by reference into this Form 10-K.

                21          Subsidiaries of the Registrant.  Filed as an exhibit
                            to this report.

                27          Financial Data Schedule.

* Not filed herewith. In accordance with Rule 12b-32 of the General Rules and
  Regulations under the Securities Exchange Act of 1934, reference is made to
  the document previously filed with the Commission.

                                      46
<PAGE>

(b)       Reports on Form 8-K Filed in the Fourth Quarter of 1999

          Not applicable.

(c)       Exhibits

          See Exhibit Index contained herein.

(d)       Financial Statements Excluded from Annual Report to Shareholders
          Pursuant to Rule 14a3(b)

          Not applicable.


                             [intentionally blank]

                                      47
<PAGE>

                                   SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) 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.

                                Essex Bancorp, Inc.


                                By: /s/ Gene D. Ross
                                    ----------------
                                    Gene D. Ross
                                    Chairman, President,
                                    and Chief Executive
                                    Officer

                                        March 30, 2000
                                        --------------
                                            (Date)

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.


By:  /s/ Gene D. Ross                       March 30, 2000
     ----------------                       --------------
   Gene D. Ross                               (Date)
   Chairman, President, Chief
   Executive Officer and
   Principal Financial Officer


By:  /s/ Mary-Jo Rawson                     March 30, 2000
     ------------------                     --------------
   Mary-Jo Rawson                             (Date)
   Chief Accounting Officer


By:  /s/ Robert G. Hecht                    March 30, 2000
     -------------------                    --------------
   Robert G. Hecht                            (Date)
   Director


By:  /s/ Roscoe D. Lacy, Jr.                March 30, 2000
     -----------------------                --------------
   Roscoe D. Lacy, Jr.                        (Date)
   Director


By:  /s/ Harry F. Radcliffe                 March 30, 2000
     ----------------------                 --------------
   Harry F. Radcliffe                         (Date)
   Director

                                      48
<PAGE>

                                  Exhibit Index
                                  -------------

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

            3.1*         Certificate of Incorporation of Essex Bancorp, Inc.,
                         dated June 21, 1994.

            3.2*         Certificate of Amendment of Essex Bancorp, Inc., dated
                         August 10, 1994.

            3.3*         Certificate of Amendment to the Certificate of
                         Incorporation of Essex Bancorp, Inc., dated November 5,
                         1998.

            3.4*         Bylaws of Essex Bancorp, Inc., effective July 25, 1994.

            4.1*         Certificate of Designation of the Series A Preferred
                         Stock of Essex Bancorp, Inc.

            4.2*         Certificate of Designations of Cumulative Perpetual
                         Preferred Stock, Series B of Essex Bancorp, Inc.

            4.3*         Certificate of Designations of Cumulative Perpetual
                         Preferred Stock, Series C of Essex Bancorp, Inc.

            4.4*         Form of Common Stock Purchase Warrant Certificate.

            4.5*         Specimen Common Stock Certificate of Essex Bancorp,
                         Inc.

            4.6*         Specimen Series B 9.5% Cumulative Preferred Stock
                         Certificate of Essex Bancorp, Inc.

            4.7*         Specimen Series C 8% Cumulative Preferred Stock
                         Certificate of Essex Bancorp, Inc.

           10.1*         Essex Savings Bank, F.S.B. Supplemental Executive
                         Retirement Plan, dated August 26, 1993.


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* For exhibit reference see Item 14(c) for statement of location of exhibits
  incorporated by reference

                                      E-1
<PAGE>

                                 Exhibit Index
                                 -------------

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

            10.2*        First Amendment to the Essex Savings Bank, F.S.B.
                         Supplemental Executive Retirement Plan, dated June 5,
                         1997.

            10.3*        Second Amendment to the Essex Savings Bank, F.S.B.
                         Supplemental Executive Retirement Plan, dated November
                         1, 1997.

            10.4*        Third Amendment to the Essex Savings Bank, F.S.B.
                         Supplemental Executive Retirement Plan, dated December
                         1, 1998.

            10.5         Fourth Amendment to the Essex Savings Bank, F.S.B.
                         Supplemental Executive Retirement Plan, dated October
                         27, 1999.

            10.6*        Fannie Mae/Freddie Mac/Private Investor Mortgage
                         Servicing Purchase and Sale Agreement by and between
                         Essex Mortgage Corporation and Chase Home Mortgage
                         Corporation, dated June 8, 1993.

            10.7*        Essex Bancorp, Inc. Non-Employee Directors Stock Option
                         Plan.

            10.8*        First Amendment to the Essex Bancorp, Inc. Non-Employee
                         Directors Stock Option Plan, dated July 29, 1995.

            10.9*        Essex Bancorp, Inc. Stock Option Plan.

            10.10*       First Amendment to the Essex Bancorp, Inc. Stock Option
                         Plan, dated as of June 29, 1995.

            10.11*       Second Amendment to the Essex Bancorp, Inc. Stock
                         Option Plan, dated as of May 23, 1996.

            10.12*       Essex Bancorp, Inc. Employee Stock Purchase Plan.


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* For exhibit reference see Item 14(c) for statement of location of exhibits
  incorporated by reference

                                      E-2
<PAGE>

                                   Exhibit Index
                                   -------------

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

            10.13*       First Amendment to the Essex Bancorp, Inc. Employee
                         Stock Purchase Plan, dated as of June 29, 1995.

            10.14*       Second Amendment to the Essex Bancorp, Inc. Employee
                         Stock Purchase Plan, dated as of October 1, 1998.

            10.15*       Restated Employment Agreement by and among Essex
                         Bancorp, Inc., Essex Savings Bank, F.S.B., Essex
                         Mortgage Corporation and Gene D. Ross, dated as of
                         January 1, 1998.

            10.16*       First Amendment to the Restated Executive Services
                         Agreement by and among Essex Bancorp, Inc., Essex
                         Savings Bank, F.S.B., Essex Mortgage Corporation and
                         Gene D. Ross, dated as of January 1, 1998.

            10.17        Second Amendment to the Restated Executive Services
                         Agreement by and among Essex Bancorp, Inc., Essex
                         Savings Bank, F.S.B., Essex Mortgage Corporation and
                         Gene D. Ross, dated as of October 1, 1999.

            10.18*       Change in Control Agreement by and among Essex Bancorp,
                         Inc. and Gene D. Ross, dated as of January 1, 1998.

            10.19        Restated Change in Control Agreement by and among Essex
                         Bancorp, Inc. and Gene D. Ross, dated as of October 1,
                         1999.

            10.20*       Restated Executive Services Agreement by and among
                         Essex Savings Bank, F.S.B., Essex First Mortgage
                         Corporation and Earl C. McPherson, dated as of January
                         1, 1998.


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* For exhibit reference see Item 14(c) for statement of location of exhibits
  incorporated by reference


                                      E-3
<PAGE>

                                   Exhibit Index
                                   -------------

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

            10.21*       First Amendment to the Restated Executive Services
                         Agreement by and among Essex Savings Bank, F.S.B.,
                         Essex First Mortgage Corporation and Earl C. McPherson,
                         dated as of January 1, 1998.

            10.22*       Second Amendment to the Restated Executive Services
                         Agreement by and among Essex Savings Bank, F.S.B.,
                         Essex First Mortgage Corporation and Earl C. McPherson,
                         dated as of January 1, 1999.

            10.23*       Change in Control Agreement by and among Essex Bancorp,
                         Inc. and Earl C. McPherson, dated as of January 1,
                         1998.

            10.24*       First Amendment to the Change in Control Agreement by
                         and among Essex Bancorp, Inc. and Earl C. McPherson,
                         dated as of January 1, 1999.

            10.25        Restated Change in Control Agreement by and among Essex
                         Bancorp, Inc. and Earl C. McPherson, dated as of
                         November 22, 1999.

            10.26*       Subservicing Agreement between Essex Home Mortgage
                         Servicing Corporation and Continental Capital Corp.,
                         dated as of April 15, 1998.

            11           Statement re Computation of Per Share Earnings.

            13           The 1999 Annual Report is attached as Exhibit 13.
                         Portions of the 1999 Annual Report are incorporated by
                         reference into this Form 10-K.

            21           Subsidiaries of the Registrant.

            27           Financial Data Schedule.


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* For exhibit reference see Item 14(c) for statement of location of exhibits
  incorporated by reference

                                      E-4