Market Overview

HF Financial Corp. Fourth Quarter Earnings Increased 33% to $0.28 Per Diluted Share From Prior Year

Share:

Pierre Branch Sale Completed on July 24 for a $2.8 million Pre-tax Net Gain

Net Interest Margin Expands 20 Basis Points to 3.53% in FY 4Q15

Loans Grow 12.6% Year-Over-Year

Declares Regular Quarterly Dividend of $0.1125 per Share

SIOUX FALLS, S.D., July 27, 2015 (GLOBE NEWSWIRE) -- HF Financial Corp. (Nasdaq: HFFC) today reported fourth quarter earnings increased 33% to $2.0 million, or $0.28 per share, compared to $1.5 million, or $0.21 per share one year earlier and from $719,000, or $0.10 per share, one quarter earlier. The quarter's earnings reflect a stronger net interest margin resulting from previously disclosed early repayment of Federal Home Loan Bank advances and significant loan growth. Additionally, the Company realigned its branch office network to generate better operating efficiencies. The Pierre branch office, with approximately $23 million in deposits, was sold for a deposit premium on July 24, 2015 and will be reflected in the fiscal first quarter of 2016 earnings. For the year ended June 30, 2015, earnings totaled $3.6 million compared to $6.6 million for the year ended June 30, 2014. The current year earnings were largely impacted by a one-time charge related to loss on the extinguishment of debt, losses on the sale of securities and costs associated with branch closures.

Loan balances continued growing to $914.4 million, up 4.9% compared to $871.6 million the previous quarter and increasing 12.6% from $811.9 million one year earlier. Total assets increased to $1.19 billion at June 30, 2015, from $1.14 billion the previous quarter and tangible book value per share increased to $14.07 from $13.93 the previous quarter. Asset quality remains strong with nonperforming assets as a percentage of total assets at 1.12% at June 30, 2015, compared to 1.37% one year earlier.

"In fiscal 2015, we accomplished many objectives including substantially improving our net interest margin, increasing tangible capital ratios, generating strong loan growth, engineering a more efficient branch office network and improving asset quality. Our banking platform is now better positioned to generate stronger earnings, which will further support growth in our tangible book value, payment of dividends and other capital management strategies. Our first quarter of fiscal 2016 will begin with a $2.8 million pre-tax gain from the sale of our Pierre branch. We look forward to continuing to improve our franchise value in fiscal 2016," said Stephen Bianchi, President and Chief Executive Officer.

Fiscal 2015 Fourth Quarter Financial Highlights: (at or for the periods ended June 30, 2015, compared to March 31, 2015, and/or June 30, 2014.)

  • Net income was $2.0 million for the fourth quarter, or $0.28 per share, versus $0.10 per share the previous quarter and $0.21 per share one year earlier.
  • The net interest margin expressed on a fully taxable equivalent basis ("NIM, TE"), a non-GAAP measure, increased to 3.53% for the fiscal fourth quarter 2015 compared to 3.33% the previous quarter.
  • Total loans increased to $914.4 million at June 30, 2015, from $871.6 million at March 31, 2015, and from $811.9 million one year earlier, or a 12.6% increase year over year.
  • Nonperforming assets totaled $13.3 million, or 1.12% of total assets at quarter end compared to $13.1 million or 1.15% of total assets one quarter earlier. One year earlier, nonperforming assets totaled $17.5 million, or 1.37% of total assets. Nonperforming assets at June 30, 2015, include $9.5 million of non-accruing troubled debt restructured loans that are compliant with their restructured terms.
  • Net charge-offs were $412,000 for the fiscal fourth quarter and $1.1 million in fiscal 2015 or just 0.13% of the average total loans.
  • Loan and lease losses allowance totaled 1.23% of total loans at June 30, 2015, compared to 1.26% one quarter earlier. The Company has no direct exposure to the oil & gas industry.
  • As previously announced, the Bank sold its branch office in Pierre, SD with approximately $23 million in deposits on July 24, 2015, for approximately a $2.8 million net gain. This gain will be reflected in the first fiscal quarter of 2016.
  • Bank capital ratios as of June 30, 2015, continued to remain well above the newly implemented regulatory "well-capitalized" minimum levels and includes the newly implemented common equity tier 1 capital to risk-weighted assets ratio.
    • Total risk-based capital to risk-weighted assets was 13.29% versus 13.64% at March 31, 2015.
    • Tier 1 capital to risk-weighted assets was 12.16% versus 12.50% at March 31, 2015.
    • Tier 1 capital to total adjusted assets was 10.39% versus 10.23% at March 31, 2015.
    • Common equity tier 1 capital to risk-weighted assets was 12.16% versus 12.50% at March 31, 2015.
  • The most recent dividend of $0.1125 per share represents 2.96% current yield at recent market prices.
  • Tangible book value was $14.07 per share at June 30, 2015, compared to $13.72 per share one year earlier.

Balance Sheet and Asset Quality Review

HF Financial's total asset base was $1.19 billion at June 30, 2015, compared to $1.14 billion one quarter earlier. HF Financial continues to grow its loan portfolio and fund new loans, in part, with new deposits. In the fourth fiscal quarter of 2015, total loans increased $42.8 million to $914.4 million from the end of the previous quarter and $102.5 million, or 12.6% from a year ago. The increase in the loan balance reflected an increased balance of commercial real estate and agricultural loans. Commercial real estate loans were the largest portion of the portfolio, which totaled 53.1% of total loans at June 30, 2015, followed by agricultural loans totaling 24.1%.

Total deposits increased to $963.2 million at June 30, 2015, from $934.3 million one quarter earlier. Non-certificate accounts represented 67.2% of total deposits, while certificates of deposit represented 32.8% of total deposits at June 30, 2015.

"Our loan growth, combined with the use of liquid investments used to previously fund the advanced repayment of FHLB advances, has necessitated the Bank's use of out-of-market certificates of deposits in the fourth quarter. Our lenders are working to garner full banking relationships with our borrowers, including their deposit accounts to replace out-of-market deposits. We do not expect this funding source to increase materially," stated Bianchi.

FHLB advances and other borrowings increased during the fourth fiscal quarter of 2015 to $65.6 million compared to $41.2 million in the previous quarter. At period end June 30, 2015, the weighted average cost of short-term advances totaling $55.3 million were 0.26% and the weighted average cost of $10.0 million in longer-term FHLB borrowings was 1.17%.

Nonperforming assets ("NPAs"), which included $9.5 million of nonaccruing troubled debt restructurings that are in compliance with their restructured terms, totaled $13.3 million at June 30, 2015 compared to $17.5 million one year earlier. At June 30, 2015, NPAs represented 1.12% of total assets and included only $157,000 in foreclosed assets.

The allowance for loan and lease losses at June 30, 2015, totaled $11.2 million and represented 1.23% of total loans and leases. Total allowance relative to total nonperforming loans was 85.7% at June 30, 2015, compared to 60.7% one year earlier.

Tangible common stockholders' equity was 8.41% of tangible assets at June 30, 2015 compared to 7.62% one year earlier. Tangible book value per common share was $14.07 at June 30, 2015, up from $13.72 one year earlier.

Capital ratios continued to remain well above regulatory requirements with Tier 1 capital to risk-weighted assets of 12.16% at June 30, 2015, while the ratio of Tier 1 capital to total adjusted assets was 10.39%. These regulatory ratios were higher than the required minimum levels of 6.00% and 4.00%, respectively.

Review of Operations

For the fourth fiscal quarter ending June 30, 2015, HF Financial's operations reflected the benefit of prior restructuring activities, as the net interest margin has increased through lower cost funding sources and increased yields on earning assets. Net interest income increased 6.9% to $9.5 million for the fourth fiscal quarter of fiscal 2015 compared to $8.8 million the previous quarter and 15.8% from $8.2 million one year earlier. The NIM, TE expanded to 3.53% for the fiscal fourth quarter compared to 3.33% the previous quarter and 2.80% one year earlier.

"Our larger loan portfolio fueled the expansion of our net interest margin as lower yielding investments were redeployed into higher yielding loans. Additionally, our smaller investment portfolio has resulted in less variability in our mark-to-market adjustments and the resulting impact on other comprehensive income and tangible book value per share," stated Brent Olthoff, Chief Financial Officer and Treasurer.

Provision for loan losses reflect reserves established for the larger loan portfolio, environmental conditions and historical charge-off activity. Provisions totaled $630,000 for the fourth fiscal quarter of 2015, compared to $282,000 for the third fiscal quarter of 2015 and $328,000 for the year ago quarter.

Noninterest income totaled $3.7 million for the fiscal fourth quarter of 2015 compared to $2.1 million in the previous quarter. The previous quarter was impacted by the sale of investment securities used to fund the repayment of FHLB advances and resulted in a loss of $1.1 million in addition to a loss on disposal of closed branch fixed assets of $298,000. Mortgage activity produced $1.1 million in servicing and gains on loan sales revenue in the fourth fiscal quarter of 2015 compared to $776,000 in the previous quarter. Fees on deposits totaled $1.4 million for the fourth quarter of fiscal 2015 which was similar to the previous quarter. Other noninterest income for the fiscal fourth quarter included a $195,000 net gain on the sale of a property.

Total noninterest expense was $9.7 million compared to $9.8 million in the previous quarter. Compensation and employee benefits increased to $6.0 million from $5.7 million the previous quarter. The fourth quarter reflects additional costs associated with performance incentives, health care and variable pay increases related to increased mortgage activity.

For a reconciliation of core earnings and core diluted earnings per share to accounting principles generally accepted in the United States ("GAAP") for net income and GAAP diluted earnings per share, please refer to the tables in the section titled "Reconciliation of GAAP Earnings and Core Earnings."

These financial results are preliminary until the Form 10-K is filed in September 2015.

Quarterly Dividend Declared

The board of directors declared a regular quarterly cash dividend of $0.1125 per common share for the fourth fiscal quarter 2015. The dividend is payable August 14, 2015 to stockholders of record August 7, 2015.

Use of Non-GAAP Financial Measures

This press release contains financial measures that are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). "Net Interest Margin, TE" and "Core Earnings" are non-GAAP financial measures. Information regarding the usefulness of Net Interest Margin, TE and Core Earnings appear in the notes to the attached financial statements. The Company believes that the presentation of non-GAAP financial measures will permit investors to assess the Company's core operating results on the same basis as management. Non-GAAP financial measures should be considered supplemental to, not a substitute for or superior to, financial measures calculated in accordance with GAAP. As other companies may use different calculations for these measures, these presentations may not be comparable to other similarly titled measures reported by other companies. Reconciliation of the non-GAAP measures to the most comparable GAAP measures are set forth in the notes to the attached financial statements.

About HF Financial Corp.

HF Financial Corp., based in Sioux Falls, SD, is the parent company for financial services companies, including Home Federal Bank, Mid America Capital Services, Inc., dba Mid America Leasing Company, Hometown Investment Services, Inc. and HF Financial Group, Inc. As a publicly traded savings association headquartered in South Dakota, HF Financial Corp. operates with 23 offices in 17 communities, throughout Eastern South Dakota, Minnesota and North Dakota. The Company operates a branch in the Twin Cities market as Infinia Bank, a Division of Home Federal Bank of South Dakota, and a full service branch in Fargo, North Dakota. Internet banking is also available at www.homefederal.com and www.infiniabank.com.

This news release and other reports issued by the Company, including reports filed with the Securities and Exchange Commission, contain "forward-looking statements" that deal with future results, expectations, plans and performance. In addition, the Company's management may make forward-looking statements orally to the media, securities analysts, investors or others. These forward-looking statements might include one or more of the following:

  • Projections of income, loss, revenues, earnings or losses per share, dividends, capital expenditures, capital structure, adequacy of loan loss reserves, tax benefit or other financial items.
  • Descriptions of plans or objectives of management for future operations, products or services, transactions, investments and use of subordinated debentures payable to trusts.
  • Forecasts of future economic performance.
  • Use and descriptions of assumptions and estimates underlying or relating to such matters.

Forward-looking statements can be identified by the fact they do not relate strictly to historical or current facts. They often include words such as "optimism," "look-forward," "bright," "pleased," "believe," "expect," "anticipate," "intend," "plan," "estimate" or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could," or "may".

Forward-looking statements about the Company's expected financial results and other plans are subject to certain risks, uncertainties and assumptions. These include, but are not limited to the following: possible legislative changes and adverse economic, business and competitive conditions and developments (such as shrinking interest margins and continued short-term environments); deposit outflows, reduced demand for financial services and loan products; changes in accounting policies or guidelines, or in monetary and fiscal policies of the federal government; changes in credit and other risks posed by the Company's loan and lease portfolios; the ability or inability of the Company to manage interest rate and other risks; unexpected or continuing claims against the Company's self-insured health plan; the ability or inability of the Company to successfully enter into a definitive agreement for and close anticipated transactions; technological, computer-related or operational difficulties; adverse changes in securities markets; results of litigation; and the other risks detailed from time to time in the Company's SEC filings, including but not limited to, its annual report on Form 10-K for the fiscal year ending June 30, 2014, and its subsequent quarterly reports on Form 10-Q.

Forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. Although the Company believes its expectations are reasonable, it can give no assurance that such expectations will prove to be correct. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described in any forward-looking statements.

HF Financial Corp.
Selected Consolidated Operating Highlight
(Dollars in Thousands, except share data)
(Unaudited)
 
  Three Months Ended Twelve Months Ended
  June 30, March 31, June 30, June 30,
  2015 2015 2014 2015 2014
Interest, dividend and loan fee income:          
Loans and leases receivable  $ 9,897  $ 9,197  $ 8,801  $ 38,446  $ 34,541
Investment securities and interest-earning deposits  766  863  1,504  3,894  5,603
   10,663  10,060  10,305  42,340  40,144
Interest expense:          
Deposits  835  846  940  3,496  3,936
Advances from Federal Home Loan Bank and other borrowings  367  365  1,196  2,884  5,151
   1,202  1,211  2,136  6,380  9,087
Net interest income  9,461  8,849  8,169  35,960  31,057
Provision for losses on loans and leases  630  282  328  1,831  607
Net interest income after provision for losses on loans and leases  8,831  8,567  7,841  34,129  30,450
Noninterest income:          
Fees on deposits  1,447  1,375  1,544  5,971  6,271
Loan servicing income, net  318  319  341  1,352  2,473
Gain on sale of loans  751  457  358  2,227  2,117
Earnings on cash value of life insurance  208  204  204  827  817
Trust income  171  234  222  853  864
Commission and insurance income  534  438  385  1,758  1,420
Gain on sale of securities, net  18  (1,076)  62  (1,099)  653
Loss on disposal of closed-branch fixed assets  —  (298)  —  (461)  —
Other  289  402  101  829  396
   3,736  2,055  3,217  12,257  15,011
Noninterest expense:          
Compensation and employee benefits  5,952  5,675  5,399  22,386  21,424
Occupancy and equipment  996  1,330  1,025  4,377  4,165
FDIC insurance  194  221  205  821  866
Check and data processing expense  767  815  780  3,230  3,077
Professional fees  609  447  512  2,121  2,145
Marketing and community investment  316  444  320  1,508  1,255
Foreclosed real estate and other properties, net  39  24  16  100  322
Loss on early extinguishment of debt  —  —  —  4,065  —
Other  818  824  711  3,033  2,738
   9,691  9,780  8,968  41,641  35,992
Income before income taxes  2,876  842  2,090  4,745  9,469
Income tax expense  913  123  610  1,119  2,867
Net income  $ 1,963  $ 719  $ 1,480  $ 3,626  $ 6,602
           
Basic earnings per common share:  $ 0.28  $ 0.10  $ 0.21  $ 0.51  $ 0.94
Diluted earnings per common share:  $ 0.28  $ 0.10  $ 0.21  $ 0.51  $ 0.94
Basic weighted average shares:  7,054,451  7,054,197  7,055,440  7,054,609  7,055,302
Diluted weighted average shares:  7,061,927  7,061,035  7,058,630  7,060,377  7,058,613
Outstanding shares (end of period):  7,054,451  7,054,451  7,055,440  7,054,451  7,055,440
Number of full-service offices  23  23  27    
 
HF Financial Corp.
Consolidated Statements of Financial Condition
(Dollars in Thousands, except share data)
 
  June 30, 2015 June 30, 2014
  (Unaudited) (Audited)
ASSETS    
Cash and cash equivalents  $ 21,476  $ 24,256
Investment securities available for sale  158,806  348,878
Investment securities held to maturity  20,156  19,507
Correspondent bank stock  4,177  6,367
Loans held for sale  9,038  6,173
     
Loans and leases receivable  914,419  811,946
Allowance for loan and lease losses  (11,230)  (10,502)
Loans and leases receivable, net  903,189  801,444
     
Accrued interest receivable  5,414  5,407
Office properties and equipment, net of accumulated depreciation  15,493  13,805
Foreclosed real estate and other properties  157  180
Cash value of life insurance  21,320  20,644
Servicing rights, net  10,584  11,218
Goodwill and intangible assets, net  4,737  4,830
Other assets  10,830  12,020
Total assets  $ 1,185,377  $ 1,274,729
LIABILITIES AND STOCKHOLDERS' EQUITY    
Liabilities    
Deposits  $ 963,229  $ 999,174
Advances from Federal Home Loan Bank and other borrowings  65,558  120,643
Subordinated debentures payable to trusts  24,837  24,837
Advances by borrowers for taxes and insurance  14,197  13,683
Accrued expenses and other liabilities  13,579  14,740
Total liabilities  1,081,400  1,173,077
Stockholders' equity    
Preferred stock, $.01 par value, 500,000 shares authorized, none outstanding  —  —
Series A Junior Participating Preferred Stock, $1.00 stated value, 50,000 shares authorized, none outstanding  —  —
Common stock, $.01 par value, 10,000,000 shares authorized, 9,137,906 and 9,138,895 shares issued at June 30, 2015 and 2014, respectively  91  91
Additional paid-in capital  46,320  46,218
Retained earnings, substantially restricted  90,145  89,694
Accumulated other comprehensive (loss), net of related deferred tax effect  (1,682)  (3,454)
Less cost of treasury stock, 2,083,455 shares at June 30, 2015 and 2014  (30,897)  (30,897)
Total stockholders' equity  103,977  101,652
Total liabilities and stockholders' equity  $ 1,185,377  $ 1,274,729
 
HF Financial Corp.
Selected Consolidated Financial Condition Data
(Dollars in Thousands)
(Unaudited)
 
  Three Months Ended Twelve Months Ended
  June 30, March 31, June 30, June 30,
Allowance for Loan and Lease Loss Activity 2015 2015 2014 2015 2014
Balance, beginning  $ 11,012  $ 10,933  $ 10,346  $ 10,502  $ 10,743
Provision charged to income  630  282  328  1,831  607
Charge-offs  (448)  (268)  (198)  (1,290)  (1,292)
Recoveries  36  65  26  187  444
Balance, ending  $ 11,230  $ 11,012  $ 10,502  $ 11,230  $ 10,502
       
       
Asset Quality June 30, 2015 March 31, 2015 June 30, 2014
Nonaccruing loans and leases  $ 13,107  $ 13,043  $ 17,306
Accruing loans and leases delinquent more than 90 days  —  —  —
Foreclosed assets  157  27  180
Total nonperforming assets  $ 13,264  $ 13,070  $ 17,486
       
General allowance for loan and lease losses  $ 10,951  $ 10,491  $ 10,019
Specific impaired loan valuation allowance  279  521  483
Total allowance for loans and lease losses  $ 11,230  $ 11,012  $ 10,502
       
Ratio of nonperforming assets to total assets at end of period (1) 1.12% 1.15% 1.37%
Ratio of nonperforming loans and leases to total loans and leases at end of period (2) 1.43% 1.50% 2.13%
Ratio of net charge-offs to average loans and leases for the year-to-date period (3) 0.13% 0.11% 0.11%
Ratio of allowance for loan and lease losses to total loans and leases at end of period 1.23% 1.26% 1.29%
Ratio of allowance for loan and lease losses to nonperforming loans and leases at end of period (2) 85.7% 84.4% 60.7%
_____________________________________________      
(1)  Nonperforming assets include nonaccruing loans and leases, accruing loans and leases delinquent more than 90 days and foreclosed assets. Includes nonaccruing troubled debt restructured loans compliant with their restructured terms of $9.5 million, $8.7 million, and $15.4 million, for the respective quarters.
(2)  Nonperforming loans and leases include both nonaccruing and accruing loans and leases delinquent more than 90 days.
(3)  Percentages for the nine months ended March 31, 2015 have been annualized.
       
Troubled Debt Restructuring Summary June 30, 2015 March 31, 2015 June 30, 2014
Nonaccruing troubled debt restructurings-non-compliant (1)(2)  $ —  $ 52  $ 6
Nonaccruing troubled debt restructurings-compliant (1)(2)(3)  9,499  8,664  15,445
Accruing troubled debt restructurings (4)  2,767  2,788  1,717
Total troubled debt restructurings  $ 12,266  $ 11,504  $ 17,168
_____________________________________________      
(1)  Non-compliant and compliant refer to the terms of the restructuring agreement.  
(2)  Balances are included in nonaccruing loans as part of nonperforming loans.
(3)  Interest received but applied to the principal balance was $156, $189, and $250 for the periods presented, respectively.
(4)  None of the loans included are 90 days past due and are not included in the nonperforming loans.
       
HF Financial Corp.
Selected Capital Composition Highlights
(Unaudited)
 
  June 30, 2015 March 31, 2015 June 30, 2014
Common stockholders' equity before OCI (1) to consolidated assets 8.95% 9.22% 8.27%
OCI components to consolidated assets:      
Net changes in unrealized gains and losses:      
Investment securities available for sale (0.02) 0.03 (0.11)
Defined benefit plan (0.09) (0.12) (0.11)
Derivatives and hedging activities (0.03) (0.04) (0.05)
Goodwill and intangible assets, net to consolidated assets (0.40) (0.42) (0.38)
Tangible common equity to tangible assets 8.41% 8.67% 7.62%
       
       
Tangible book value per common share (2)  $ 14.07  $ 13.93  $ 13.72
       
       
Tier I capital (to adjusted total assets) (3) 10.39% 10.23% 9.49%
Tier I capital (to risk-weighted assets) (3) 12.16 12.50 13.38
Common equity tier I capital (to risk-weighted assets) (3)(4) 12.16 12.50 NA
Total risk-based capital (to risk-weighted assets) (3) 13.29 13.64 14.54
_____________________________________________      
(1)  Accumulated other comprehensive income (loss).
(2)  Common equity reduced by goodwill and intangible assets, net and divided by number of shares of outstanding common stock.
(3)  Capital ratios for Home Federal Bank.
(4)  Common equity tier I capital ratio is a regulatory ratio reporting requirement effective beginning March 31, 2015.
 
HF Financial Corp.
Selected Consolidated Financial Condition Data
(Dollars in Thousands)
(Unaudited)
 
Loan and Lease Portfolio Composition        
  June 30, 2015 June 30, 2014
  Amount Percent Amount Percent
Residential:        
One-to four-family  $ 55,572 6.1%  $ 47,886 5.9%
Construction  6,308 0.7  3,838 0.5
Commercial:        
Commercial business (1)  78,493 8.6  82,459 10.2
Equipment finance leases  158  847 0.1
Commercial real estate:        
Commercial real estate  325,453 35.6  294,388 36.3
Multi-family real estate  111,354 12.2  87,364 10.7
Construction  48,224 5.3  22,946 2.8
Agricultural:        
Agricultural real estate  96,952 10.6  79,805 9.8
Agricultural business  123,988 13.5  115,397 14.2
Consumer:        
Consumer direct  14,837 1.6  17,449 2.1
Consumer home equity  50,377 5.5  56,666 7.0
Consumer overdraft & reserve  2,703 0.3  2,901 0.4
Total (2)  $ 914,419 100.0%  $ 811,946 100.0%
_____________________________________________        
(1)  Includes $1,377 and $1,645 tax exempt leases at June 30, 2015 and June 30, 2014, respectively.        
(2)  Exclusive of undisbursed portion of loans in process and net of deferred loan fees and discounts.          
         
Deposit Composition        
  June 30, 2015 June 30, 2014
  Amount Percent Amount Percent
Noninterest-bearing checking accounts  $ 171,064 17.8%  $ 164,918 16.5%
Interest-bearing checking accounts  185,075 19.2  173,879 17.4
Money market accounts  198,000 20.5  238,507 23.9
Savings accounts  93,053 9.7  160,277 16.0
In-market certificates of deposit  242,036 25.1  236,026 23.6
Out-of-market certificates of deposit  74,001 7.7  25,567 2.6
Total deposits  $ 963,229 100.0%  $ 999,174 100.0%
 
HF Financial Corp.
Selected Consolidated Financial Condition Data
(Dollars in Thousands)
(Unaudited)
         
Average Balance, Interest Yields and Rates Three Months Ended
  June 30, 2015 March 31, 2015
  Average
Outstanding
Balance


Yield/
Rate

Average
Outstanding
Balance


Yield/
Rate

Interest-earning assets:        
Loans and leases receivable(1)(3)  $ 910,757 4.36%  $ 861,736 4.33%
Investment securities(2)(3)  185,571 1.66  239,105 1.46
Total interest-earning assets  1,096,328 3.90%  1,100,841 3.71%
Noninterest-earning assets  75,668    78,432  
Total assets  $ 1,171,996    $ 1,179,273  
Interest-bearing liabilities:        
Deposits:        
Checking and money market  $ 380,230 0.23%  $ 391,645 0.23%
Savings  116,390 0.20  99,196 0.20
Certificates of deposit  289,084 0.77  294,573 0.79
Total interest-bearing deposits  785,704 0.43  785,414 0.44
FHLB advances and other borrowings  80,220 0.38  90,707 0.35
Subordinated debentures payable to trusts  24,837 4.68  24,837 4.67
Total interest-bearing liabilities  890,761 0.54%  900,958 0.55%
Noninterest-bearing deposits  146,183    141,370  
Other liabilities  31,777    34,495  
Total liabilities  1,068,721    1,076,823  
Equity  103,275    102,450  
Total liabilities and equity  $ 1,171,996    $ 1,179,273  
Net interest spread(4)   3.36%   3.16%
Net interest margin(4)(5)   3.46%   3.26%
Net interest margin, TE(6)   3.53%   3.33%
Return on average assets(7)   0.67%   0.25%
Return on average equity(8)   7.62%   2.85%
_____________________________________________        
(1)  Includes loan fees and interest on accruing loans and leases past due 90 days or more. 
(2)  Includes federal funds sold and interest earning reserve balances at the Federal Reserve Bank.
(3)  Yields do not reflect the tax-exempt nature of loans, equipment leases and municipal securities.
(4)  Percentages for the three months ended June 30, 2015 and March 31, 2015 have been annualized.
(5)  Net interest income divided by average interest-earning assets. 
(6)  Net interest margin expressed on a fully taxable equivalent basis ("Net Interest Margin, TE") is a non-GAAP financial measure. See the following Non-GAAP Disclosure Reconciliation of Net Interest Income (GAAP) to Net Interest Margin, TE (Non-GAAP). The tax-equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets and adjusting for federal and state exemption of interest income and certain other permanent income tax differences. We believe that it is a standard practice in the banking industry to present net interest margin expressed on a fully taxable equivalent basis, and accordingly believe the presentation of this non-GAAP financial measure may be useful for peer comparison purposes. As a non-GAAP financial measure, Net Interest Margin, TE should be considered supplemental to and not a substitute for or superior to, financial measures calculated in accordance with GAAP. As other companies may use different calculations for Net Interest Margin, TE, this presentation may not be comparable to similarly titled measures reported by other companies.
(7)  Ratio of net income to average total assets.
(8)  Ratio of net income to average equity.
 
HF Financial Corp.
Selected Consolidated Financial Condition Data
(Dollars in Thousands)
(Unaudited)
 
Average Balance, Interest Yields and Rates Twelve Months Ended
  June 30, 2015 June 30, 2014
  Average
Outstanding
Balance


Yield/
Rate

Average
Outstanding
Balance


Yield/
Rate

Interest-earning assets:        
Loans and leases receivable(1)(3)  $ 859,190 4.47%  $ 755,222 4.57%
Investment securities(2)(3)  282,711 1.38  421,324 1.33
Total interest-earning assets  1,141,901 3.71%  1,176,546 3.41%
Noninterest-earning assets  78,650    73,054  
Total assets  $ 1,220,551    $ 1,249,600  
Interest-bearing liabilities:        
Deposits:        
Checking and money market  $ 391,684 0.24%  $ 370,984 0.26%
Savings  118,061 0.20  148,944 0.24
Certificates of deposit  282,615 0.83  262,431 1.00
Total interest-bearing deposits  792,360 0.44  782,359 0.50
FHLB advances and other borrowings  118,466 1.44  155,392 2.47
Subordinated debentures payable to trusts  24,837 4.73  24,837 5.29
Total interest-bearing liabilities  935,663 0.68%  962,588 0.94%
Noninterest-bearing deposits  148,288    158,616  
Other liabilities  34,825    30,446  
Total liabilities  1,118,776    1,151,650  
Equity  102,775    97,950  
Total liabilities and equity  $ 1,221,551    $ 1,249,600  
Net interest spread   3.03%   2.47%
Net interest margin(4)   3.15%   2.64%
Net interest margin, TE(5)   3.21%   2.70%
Return on average assets(6)   0.30%   0.53%
Return on average equity(7)   3.53%   6.74%
         
_____________________________________________
(1)  Includes loan fees and interest on accruing loans and leases past due 90 days or more.
(2)  Includes federal funds sold and interest earning reserve balances at the Federal Reserve Bank.
(3)  Yields do not reflect the tax-exempt nature of loans, equipment leases and municipal securities.
(4)  Net interest income divided by average interest-earning assets.  
(5)  Net interest margin expressed on a fully taxable equivalent basis ("Net Interest Margin, TE") is a non-GAAP financial measure. See the following Non-GAAP Disclosure Reconciliation of Net Interest Income (GAAP) to Net Interest Margin, TE (Non-GAAP). The tax-equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets and adjusting for federal and state exemption of interest income and certain other permanent income tax differences. We believe that it is a standard practice in the banking industry to present net interest margin expressed on a fully taxable equivalent basis, and accordingly believe the presentation of this non-GAAP financial measure may be useful for peer comparison purposes. As a non-GAAP financial measure, Net Interest Margin, TE should be considered supplemental to and not a substitute for or superior to, financial measures calculated in accordance with GAAP. As other companies may use different calculations for Net Interest Margin, TE, this presentation may not be comparable to similarly titled measures reported by other companies.
(6)  Ratio of net income to average total assets.
(7)  Ratio of net income to average equity.
 
HF Financial Corp.
Age Analysis of Past Due Loans and Leases Receivables
(Dollars in Thousands)
(Unaudited)
 
June 30, 2015 Accruing and Nonaccruing Loans Nonperforming Loans
  30 - 59
Days
Past
Due


60 - 89
Days
Past
Due



Greater
Than
89 Days



Total
Past
Due





Current


Recorded
Investment >
90 Days and
Accruing (1)




Nonaccrual
Balance





Total


Residential:                
One-to four-family  $ —  $ —  $ —  $ —  $ 55,572  $ —  $ 112  $ 112
Construction  4  —  —  4  6,304  —  —  —
Commercial:                
Commercial business  26  —  485  511  77,982  —  2,398  2,398
Equipment finance leases  —  —  —  —  158  —  —  —
Commercial real estate:                
Commercial real estate  23  —  —  23  325,430  —  359  359
Multi-family real estate  —  —  —  —  111,354  —  —  —
Construction  —  —  —  —  48,224  —  —  —
Agricultural:                
Agricultural real estate  375  139  1,203  1,717  95,235  —  4,482  4,482
Agricultural business  720  521  1,206  2,447  121,541  —  5,474  5,474
Consumer:                
Consumer direct  18  3  3  24  14,813  —  45  45
Consumer home equity  190  —  135  325  50,052  —  237  237
Consumer OD & reserve  5  —  —  5  2,698  —  —  —
Total  $ 1,361  $ 663  $ 3,032  $ 5,056  $ 909,363  $ —  $ 13,107  $ 13,107
                 
                 
June 30, 2014 Accruing and Nonaccruing Loans Nonperforming Loans
  30 - 59
Days
Past
Due


60 - 89
Days
Past
Due



Greater
Than
89 Days



Total
Past
Due





Current


Recorded
Investment >
90 Days and
Accruing (1)




Nonaccrual
Balance





Total


Residential:                
One-to four-family  $ 430  $ 125  $ —  $ 555  $ 47,331  $ —  $ 125  $ 125
Construction  208  —  —  208  3,630  —  —  —
Commercial:                
Commercial business  —  —  431  431  82,028  —  3,462  3,462
Equipment finance leases  —  —  —  —  847  —  —  —
Commercial real estate:                
Commercial real estate  96  11  —  107  294,281  —  972  972
Multi-family real estate  —  —  27  27  87,337  —  27  27
Construction  —  —  —  —  22,946  —  —  —
Agricultural:                
Agricultural real estate  —  —  —  —  79,805  —  7,933  7,933
Agricultural business  194  —  316  510  114,887  —  3,797  3,797
Consumer:                
Consumer direct  21  8  6  35  17,414  —  49  49
Consumer home equity  59  79  271  409  56,257  —  941  941
Consumer OD & reserve  4  —  —  4  2,897  —  —  —
Total  $ 1,012  $ 223  $ 1,051  $ 2,286  $ 809,660  $ —  $ 17,306  $ 17,306
_____________________________________________                
(1)  Loans accruing and delinquent greater than 90 days have government guarantees or acceptable loan-to-value ratios.                
 
HF Financial Corp.
Non-GAAP Disclosure Reconciliation
Net Interest Margin to Net Interest Margin-Tax Equivalent Yield
(Dollars in Thousands)
(Unaudited)
 
Reconciliation of Net Interest Margin to Net Interest Margin-Tax Equivalent Yield
           
  Three Months Ended Twelve Months Ended
  June 30, March 31, June 30, June 30,
  2015 2015 2014 2015 2014
Net interest income  $ 9,461  $ 8,849  $ 8,169  $ 35,960  $ 31,057
Taxable equivalent adjustment  174  183  181  735  668
Adjusted net interest income  9,635  9,032  8,350  36,695  31,725
Average interest-earning assets  1,096,328  1,100,841  1,197,625  1,141,901  1,176,546
Net interest margin, TE 3.53% 3.33% 2.80% 3.21% 2.70%

Reconciliation of GAAP Earnings and Core Earnings

Although core earnings are not a measure of performance calculated in accordance with GAAP, the Company believes that its core earnings are an important indication of performance through ongoing operations. The Company believes that core earnings are useful to management and investors in evaluating its ongoing operating performance, and in comparing its performance with other companies in the banking industry. Core earnings should not be considered in isolation or as a substitute for GAAP earnings. During the periods presented, the Company calculated core earnings by adding back or subtracting, net of tax, net gain or loss recorded on the sale of securities, the charges incurred from the prepayment of borrowings, the net gain or loss recorded on the sale of property, and costs incurred for branch closures.

  Three Months Ended Twelve Months Ended
  June 30, March 31, June 30, June 30,
  2015 2015 2014 2015 2014
GAAP earnings before income taxes  $ 2,876  $ 842  $ 2,090  $ 4,745  $ 9,469
Net loss (gain) on sale of securities  (18)  1,076  (62)  1,099  (653)
Charges incurred from prepayment of borrowings (1)  —  —  —  4,065  —
Net (gain) loss on sale of property  (195)  (313)  —  (444)  —
Costs incurred for branch closures (2)  1  695  —  897  —
Core earnings before income taxes  2,664  2,300  2,028  10,362  8,816
Provision for income taxes for core earnings  832  677  586  3,253  2,619
Core earnings  $ 1,832  $ 1,623  $ 1,442  $ 7,109  $ 6,197
           
GAAP diluted earnings per share  $ 0.28  $ 0.10  $ 0.21  $ 0.51  $ 0.94
Net loss (gain) on sale of securities, net of tax  —  0.10   (0.01)  0.10   (0.06)
Charges incurred from prepayment of borrowings, net of tax  —  —  —  0.36   —
Net (gain) loss on sale of property, net of tax  (0.02)  (0.03)  —  (0.04)  —
Costs incurred for branch closures, net of tax  —  0.06   —  0.08   —
Core diluted earnings per share  $ 0.26  $ 0.23  $ 0.20  $ 1.01  $ 0.88
           
(1)  Charges incurred from prepayment of borrowings is included as Other noninterest expense on the income statement.
(2)  Branch closure costs include loss on disposal of closed branch fixed assets in noninterest income and other costs associated with the closure and are included in the respective categories within noninterest expenses.
CONTACT: HF Financial Corp. Stephen Bianchi, President and Chief Executive Officer (605) 333-7556
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