Colorado Federal Savings: lean mortgage machine. (Top Community Banks).

Sometimes numbers do lie. Colorado Federal Savings had an efficiency ratio of 744% last year. Yet the Denver mortgage specialist is highly profitable with minimal overhead, earning it the number three spot on our under $100 million ranking, with a 2002 ROAE of 30.08%

The solution to

President Patrick Dalrymple explains that with net branches the branch manager derives his or her profit from the net income of the branch after all expenses and minus a fee paid to the parent company. In principle it operates like a franchise, although in fact all branch personnel are W-2 employees.

Colorado Federal Savings has 11 net branches around the country--several in Colorado, others in Hawaii, Texas, Arkansas, California, and Maryland. This structure results in large number of employees for the bank's asset size (about $47 million as of early June). Whereas in terms of actual overhead, the company is managed by about eight people in the Greenwood Village (Denver) main office.

Further confusing the issue is that the Office of Thrift Supervision, reports CFS' numbers as if it were a traditional thrift. Thus the data for 2002 shows an operating loss. The parent company makes its money largely from the fees paid by the branches, but these fees show up in OTS data as sales of securities.

CFS is not a retail bank. It only makes mortgage loans funded by short-term jumbo CDs and Federal Home Loan Bank advances. This was not always the case.

Dalrymple and two partners bought a failed savings and loan of the same name from the Resolution Trust Co. in 1990. The "old' CFS was a traditional savings institution. The partners had a vision of turning it into a mortgage machine, but it took them nearly eight years to get the configuration working.

Aided by the highly favorable rate environment of the past couple of years, things have been humming--to the tune of a 56% growth rate (assets) from 2001 to 2002.

Virtually all loans are sold into the secondary market--not directly but through other financial institutions, according to Dalrymple. A few loans that cannot be sold are held in portfolio. Recently between 60-70% of the bank's loans have been refinancings.

If you're looking to park some funds m a jumbo CD, you won't find CFS listed on any of the usual websites. Colorado Federal's chief operating officer runs a money desk, Dalrymple explains. When funding is needed, the officer has a stable of investors he calls with the latest rate offering.