Prism Financial Corp. late last week showed the market its mettle, chalking up relatively positive financial results for 1999, when the eight-year-old mortgage company tackled extraordinary challenges.

But rough times still lie ahead, analysts say, and the Chicago company indicates that it is continuing to modify its tactics to match market conditions. For Prism, not only was 1999 a miserable time for the mortgage business, but it was also the year in which the company subjected itself to the scrutiny of an initial public offering and suffered the suicide of its chief executive officer.

However, Prism found an unconventional route to expansion and was able, in its earnings announcement Thursday, to report increases in both originations and revenues for 1999.

It also had a 20% drop in net income, dragged down by a $4.75 million loss in the fourth quarter. Most analysts say they believe hard times lie ahead for Prism.

In finding a silver lining, the company has impressed many. Bradley A. Berning, a senior research analyst for U.S. Bancorp Piper Jaffray, said Prism deserves praise for making "a successful transfer in a difficult environment."

Amid an industrywide refinancing crisis, Prism last year shifted its focus to the purchase origination market. It acquired several companies to support this effort, including three mortgage companies and a tax credit syndication; entered into agreements with Internet lenders such as, GetSmart, and Microsoft Home Advisors; and expanded its branch network by more than 67%, from 95 to 159 nationwide.

The effect of this shift in focus is clear in the numbers. Refinancing accounted for 36% of Prism's mortgage originations last year, down from 54% in 1998. Meanwhile, the company's shift to the purchase segment showed up strong in the fourth quarter with $1.2 billion in purchase activity, an increase of 31% over the fourth quarter of 1998.

Still, 1999 was a year that Prism would like to forget. The company went public in May, with a $32 million offering. Opening at around $20, its share price inched to a high of almost $29 on July 15, then settled back to the low $20s in August and September.

In late September the decline grew alarming. The stock declined to dismal levels after Bruce C. Abrams - a co-founder of the company and its president and CEO -plunged to his death from the 18th floor of his condominium Dec. 12. The next day Prism lost 59% of its market value, amid heavy trading. The stock has not recovered; it was trading below $4 late last week.

Though Prism's overall originations increased more than 50% for the year, a fourth-quarter drop of 35% may portend a difficult 2000.

The company cited rising interest rates and "seasonal factors" in explaining its lackluster fourth quarter. David Fisher, chief financial officer, said that despite making cost reductions early in the quarter, "industry conditions deteriorated further and more quickly than anticipated."

Mr. Fisher said Prism has "intensified" efforts to slash expenses. For instance, it cut its non-loan-officer ranks by 24% in the third quarter and 13% in the fourth.

Nonetheless, the total number of employees skyrocketed 43% in 1999, to 2,101. A spokeswoman attributed the increase to four full acquisitions and one partial purchase and said those deals followed a pair of acquisitions in September 1998 that doubled Prism's size.

Several analysts criticized the strategy as the wrong way to increase production at a time when other banks were closing branches and trimming their payrolls. Prism defended itself by saying it was exploiting a buyer's market.

Mr. Berning of U.S. Bancorp Piper Jaffray, who noted that Prism made no acquisitions in the fourth quarter, said the success of its acquisition strategy depends on the accuracy of the acquired companies' business assumptions. That accuracy is especially important with interest rates rising, he said. The analyst argued that the mortgage industry desperately needs consolidation, but Mark Filler, president and CEO of Prism, indicated that his company's buying spree may be over. It is "focusing on controlling costs and increasing our operational efficiencies," he said.

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