If Gene D. Ross had known two-and-a-half years ago what he knows now about Essex Financial Partners L.P. in Virginia Beach, Va., he never would have taken over as its president.

The 48-year-old, slightly built thrift turnaround expert was living happily in Atlanta with his wife and two daughters back in the winter of 1992. That's when a nervous PaineWebber Inc., a special limited partner at Essex, called.

"If the level of stress had been described to me, I would have said, 'You have to be crazy,' " said Mr. Ross, in his precise, soft-spoken manner. "It's been very challenging, very stimulating, but no, probably not. I wouldn't have done it."

Mr. Ross has been trying to revive a company that could have been compared to a mangled, but still breathing, dog that's been repeatedly blindsided by rush-hour traffic.

In the case of this company - founded with such high hopes in 1989 - the relentless pounding came in the form of a recession, bank fraud, bad loans, changing regulations, and, ultimately, lawsuits. Nearly everything that could have gone wrong for this company did, until it was very nearly left for dead in 1992.

But it has survived, and Mr. Ross believes the company has healed enough to begin realizing its potential.

The resuscitation program to date has included cutting personnel by half, merging its three thrift charters into one holding company, and building up an array of services at its eight offices in North Carolina and Virginia, under the Essex Savings Bank name. He envisions a "boring" but successful plain-vanilla thrift holding company.

While losses still plague Essex, most recently in the third quarter when it posted a $4.4 million deficit due mostly to legal expenses associated with a lawsuit, the company's officials are still confident.

Put into the context of the company's horrific past - which includes losses totaling close to $38 million, a hostile ouster of its initial president, and nearly being seized by regulators - the most recent data don't look so bad.

For example, other third-quarter numbers, such as a 50% reduction in nonperforming assets since 1991, bolster Mr. Ross' belief that the company is headed in the right direction.

His plans for the company differ dramatically from those of its founders back in the heady days of 1988. Essex Financial was meant to be an $800 million company owning thrifts throughout the Southeast. The plan, envisioned primarily by longtime Virginia banker Lawrence N. Smith and PaineWebber Inc., was to buy undercapitalized but generally clean thrifts, revitalize them, then sell them for three times book value to a larger investor.

"It was unusual, maybe one of a kind," said Mr. Smith, the original president at Essex, until PaineWebber forcibly replaced him with Mr. Ross in 1992. "If it had worked, you would have seen a new trend. But it didn't, and it probably won't be done again."

Essex, structured as a limited partnership in order to save on taxes, raised $32 million in a public offering in the fall of 1989 and bought three thrifts in the next six months to become a $500 million company. It appeared Mr. Smith and his general partnership were on their way.

Then the bottom fell out.

The initial blows came mainly from external forces. In particular, increased capital requirements under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 meant that the $32 million Essex had raised in its public offering was not enough to get it to the $800 million plateau it had planned.

The next blow came from the dramatic decline in interest rates beginning in 1991. That hurt because the company had just bought $20.9 million in purchased mortgage servicing rights with capital raised by a PaineWebber debt offering. When interest rates sank, the mortgages were paid off more quickly than anticipated, causing a massive erosion in the value of the servicing rights.

Stirred into this brew of trouble, the company's asset quality deteriorated rapidly. In the fourth quarter of 1990, it declared loan-loss provisions of $1.9 million. Shortly thereafter, the North Carolina thrift fell below the new risk-based capital requirements by $680,000, and the Office of Thrift Supervision moved in to take a closer look.

"Once the asset quality went down, then we were fighting too many Indians to be able to reconfigure the fort," Mr. Smith says. "If there had been a better relationship between us and PaineWebber, though, things would've been a whole lot easier."

PaineWebber became increasingly displeased with what was happening at Essex and with Mr. Smith. Eventually, it replaced him with Mr. Ross in May 1992, in an ouster described by Mr. Smith as "bloody and distasteful."

The move came as a complete surprise to Mr. Smith, who filed for an injunction in court the next day to stop it. He gave up control several days later.

"The majority of problems were associated with market conditions, but we were also generally dissatisfied with the management," said J. Richard Sipes, an executive vice president at PaineWebber who was on the Essex oversight committee.

At this point, the company had lost more than $20 million. Its stock, which had opened on the American Stock Exchange in 1990 at $20 a share, had sunk to $9. Return on assets was skidding below negative 4%.

The company was headed for bankruptcy, according to Mr. Ross and PaineWebber executives.

"Mr. Smith told me I was walking into an excellent opportunity," said Mr. Ross. "He told me that most of the problems had been resolved. I can't tell you how far that was from the truth. The company was paralyzed."

Mr. Smith, however, contends to this day that most of the company's current problems came after he left Essex in 1992. Among other things, he pointed to an audit stating that the value of the servicing rights stood at $21 million when he left. He believes they could have been sold for that amount.

But Mr. Ross and PaineWebber state that their value was well below that - closer to $14 million, in fact. If they had been sold at the time, it would have created a shortfall of about $7 million, which would have led quickly to bankruptcy.

In any case, the company could not have sold the servicing rights because they were being used as collateral for the bond issued by PaineWebber, Mr. Ross said.

He moved quickly to sever the "umbilical cord" with previous management. In the past two years, he has streamlined the unwieldy company by consolidating it under a holding company. This will be complete in January, when shareholders vote on merging the partnership out of existence.

To generate much-needed capital, the company sold its Florida branches in July, and last week, it registered with the Securities and Exchange Commission to begin a public offering through which it hopes to raise $12 million.

For most of the past two years, however, the future didn't look so bright.

Among other setbacks that befell the new management, the Virginia thrift president, William F. Powell, was investigated and subsequently imprisoned for fraud in the spring of 1993. That episode paled in comparison to the news that hit Mr. Ross's desk several months later.

Last December, the several thousand original investors sued Essex, PaineWebber, and others connected with the company, charging them with mismanagement and improper sales techniques used in encouraging them to invest. The charges against Essex applied to the period before Mr. Ross took over.

The suit was officially settled two months ago, when PaineWebber paid the investors $20.5 million. Legal fees amounted to $2.4 million, contributing to another quarter in the red for the battered Essex.

"We've been going through a corporate exorcism for two years," Mr. Ross said. "We've been distracted to say the least. But with it coming to a conclusion, we'll be able to concentrate on the business full-time."

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