Online consumer-direct lender E-Loan’s profit plunged from $5 million in the fourth quarter of 2002 to just to $200,000 in the fourth quarter of last year due to a rapid decline in the mortgage refinance business, the company said today. The lender also announced the resignation and replacement of president and COO Joe Kennedy.

E-Loan CEO Chris Larsen said the company didn’t anticipate the severity of the decline in refinance demand, industry over-capacity and intense price competition that resulted last quarter. All those factors produced a very rocky road for the lender.

“We were not satisfied with our progress in transitioning to a post-refinance environment,” Larsen said. “Looking forward, the company requires a new set of skills and experience to ensure that we fully optimize the level of cost efficiency and scalability our model is designed to achieve.”

Fourth-quarter revenue in 2003 declined 17 percent to $27.4 million compared with fourth-quarter revenue in 2002. Total annual revenue in 2003 was $153 million, an increase of 48 percent compared with $103 million in 2002. E-Loan’s primary sources of revenue included gains on purchase mortgages, home equity and auto loans.

Net income per share for the fourth-quarter of 2003 was zero compared with $0.08 per share for the fourth quarter the 2002.

The Mortgage Bankers Association earlier predicted the refinance mortgage market will shrink 71 percent this year. That loss of business opportunities will force E-Loan to focus more on purchase mortgages, home equity and auto loans.

The company expects refinance revenue to decline to about 25 percent of total revenue in 2004 compared with 48 percent in 2003. E-Loan reported $6.7 million in fourth-quarter refinance mortgage revenue in 2003, down from nearly $17 million in the third-quarter of 2003 and nearly $16 million in the fourth quarter of 2002.

The lender was in the black for 2003, despite its fourth-quarter difficulties. Net income for 2003 was $22.6 million, up from $10.7 million in 2002.

“We’re still very much about growth and continuing to gain market share, but we definitely want to be laser-focused on costs,” Larsen said.

Whether that cost focus will include cutting staff is yet to be determined. Larsen said newly appointed COO Mark Lefanowicz will make that decision.

Lefanowicz was appointed today to replace Kennedy, who resigned. Lefanowicz brings two decades of experience in operational and financial executive positions E-Loan. He’s served on the company’s board of directors for the past 15 months.

E-Loan’s focus going forward will be to streamline operations, maximize secondary marketing opportunities and maintain its customer focus. The company has no plans to expand its on-the-ground physical presence, Larsen said.

“We don’t think that’s the right focus for the company,” he said. “We think resources are better spent in trying to lower the costs of processing, streamlining and the direct-to-consumer approach.”

E-Loan will keep its alliance with online realty brokerage ZipRealty, but locking in more brokerage alliances isn’t part of E-Loan’s strategy to capture market share. Instead, the lender plans to keep perfecting its online consumer-direct lending channel because it believes that will lead to lower costs and that’s what borrowers want.

“If you can drive costs lower, more people can buy homes,” Larsen said. “We think that’s good for everybody.”

E-Loan (Nasdaq: EELN) shares traded at $2.70 this afternoon, down nearly 20 percent from yesterday’s closing price of $3.37.

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