Market Overview

HF Financial Corp. Reports Fiscal First Quarter Core Earnings of $0.30 Per Diluted Share and GAAP Earnings of $0.55 Per Diluted Share

Share:

Branch Sale Generates $2.8 Million Pre-tax Gain

Declares Regular Quarterly Dividend of $0.1125 per Share

SIOUX FALLS, S.D., Oct. 26, 2015 (GLOBE NEWSWIRE) -- HF Financial Corp. (Nasdaq: HFFC) today reported fiscal first quarter 2016 earnings increased 113% to $3.9 million, or $0.55 per diluted share, compared to $1.8 million, or $0.26 per diluted share one year earlier and from $2.0 million, or $0.28 per diluted share, one quarter earlier. The quarter's earnings reflect a pre-tax gain of $2.8 million on the previously announced sale of the Pierre branch with total deposits of approximately $21.4 million. Core earnings, a non-GAAP measure, were $2.1 million, or $0.30 per diluted share for the first fiscal quarter of 2016, as compared to core earnings of $1.7 million, or $0.24 per diluted share, for the first fiscal quarter a year ago. Core earnings were supported by a stronger tax equivalent net interest margin of 3.55% for the first quarter compared to 2.84% one year earlier.

Total assets were $1.17 billion at September 30, 2015, compared to $1.19 billion the previous quarter and tangible book value per share increased to $14.61 from $14.07 the previous quarter. Loan balances declined slightly reflecting $24.2 million in loan balances sold associated with the Pierre branch. Excluding loans sold in this branch sale, loans increased by $16.2 million compared to the previous quarter. Asset quality remains strong with nonperforming assets as a percentage of total assets at 1.04% at September 30, 2015, compared to 1.21% one year earlier.

"Over the past two years, we have better positioned our banking franchise to generate stronger returns on equity with healthier net interest margins, a branching platform that delivers quality service to our customers more efficiently, and a lending team with better coordination for reaching our customers. We also continue to improve workflows and examine our cost structure to maximize efficiencies," said Stephen Bianchi, President and Chief Executive Officer.

Fiscal 2016 First Quarter Financial Highlights: (at or for the periods ended September 30, 2015, compared to June 30, 2015, and/or September 30, 2014.)

  • Core earnings, a non-GAAP measure, were $2.1 million, or $0.30 per diluted share, for the first quarter of fiscal 2016. GAAP earnings increased 113% to $3.9 million for the first quarter, or $0.55 per diluted share, from earnings of $1.8 million, or $0.26 per diluted share in the prior year first quarter.
  • The net interest margin expressed on a fully taxable equivalent basis ("NIM, TE"), a non-GAAP measure, increased to 3.55% for the fiscal first quarter 2016 compared to 3.53% the previous quarter and 2.84% one year ago.
  • Total loans decreased to $906.3 million at September 30, 2015, from $914.4 million at June 30, 2015, and increased 10.9% from $817.3 million a year ago. The quarterly decrease included the sale of $24.2 million of loans associated with the Pierre branch. Excluding the loans sold with the Pierre branch, the loan balance expanded $16.2 million, or 1.8% in the quarter.
  • Nonperforming assets declined to $12.1 million, or 1.04% of total assets at quarter end compared to $13.3 million or 1.12% of total assets one quarter earlier. One year earlier, nonperforming assets totaled $15.2 million, or 1.21% of total assets. Nonperforming assets at September 30, 2015, include $9.9 million of non-accruing troubled debt restructured loans that are compliant with their restructured terms.
  • Net charge-offs were $152,000 for the fiscal first quarter or just 0.07% annualized of the average total loans.
  • Loan and lease losses allowance totaled 1.24% of total loans at September 30, 2015, compared to 1.23% 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 $21.4 million in deposits on July 24, 2015, for a $2.8 million net pre-tax gain.
  • Bank capital ratios as of September 30, 2015, continued to remain well above the newly implemented regulatory "well-capitalized" minimum levels and include the newly implemented common equity tier 1 capital to risk- weighted assets ratio:
    • Total risk-based capital to risk-weighted assets was 13.64% versus 13.29% at June 30, 2015.
    • Tier 1 capital to risk-weighted assets was 12.50% versus 12.16% at June 30, 2015.
    • Tier 1 capital to total adjusted assets was 10.62% versus 10.39% at June 30, 2015.
    • Common equity tier 1 capital to risk-weighted assets was 12.50% versus 12.16% at June 30, 2015.
  • The most recent dividend of $0.1125 per share represents a 2.74% current yield at recent market prices.
  • Tangible book value was $14.61 per share at September 30, 2015, compared to $13.86 per share a year ago. This increase in tangible book value combined with a total dividend of $0.45 results in an intrinsic return of 8.66% for the past twelve month period.

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."

Balance Sheet and Asset Quality Review

HF Financial's total asset base was $1.17 billion at September 30, 2015, compared to $1.19 billion one quarter earlier. Assets declined slightly related to the branch sale and seasonal outflow of public funds. Total loans decreased to $906.3 million at September 30, 2015, impacted by the $24.2 million in loans sold with the Pierre branch sale. The loan composition after the first fiscal quarter reflects slightly less agricultural and commercial loans and a larger balance of commercial real estate loans when compared to the prior quarter end. At September 30, 2015, commercial real estate totaled 49.7%, agricultural loans totaled 21.4%, commercial business loans were 7.9%, consumer were 7.7% and construction and residential loans totaled 7.2% and 6.1%, respectively.

Total deposits decreased to $916.3 million at September 30, 2015, from $963.2 million one quarter earlier. The deposit decline reflects both the sale of $21.4 million of deposits related to the Pierre branch and a seasonal decline in public funds. Non-certificate accounts represented 66.9% of total deposits, while certificates of deposit represented 33.1% of total deposits at September 30, 2015. Non-interest bearing deposits represent 16.0% of total deposits.

FHLB advances and other borrowings increased during the first fiscal quarter of 2016 to $92.6 million compared to $65.6 million in the previous quarter, primarily consisting of shorter-term borrowing. For the quarter ended September 30, 2015, the weighted average cost of the FHLB borrowing portfolio was 0.39% compared to 0.40% the previous quarter.

Nonperforming assets ("NPAs"), which included $9.9 million of nonaccruing troubled debt restructurings that are in compliance with their restructured terms, totaled $12.1 million at September 30, 2015 compared to $15.2 million one year earlier. At September 30, 2015, NPAs represented 1.04% of total assets and included only $272,000 in foreclosed assets.

The allowance for loan and lease losses at September 30, 2015, totaled $11.3 million and represented 1.24% of total loans and leases. Total allowance relative to total nonperforming loans was 95.0% at September 30, 2015, compared to 68.7% one year earlier.

Tangible common stockholders' equity was 8.83% of tangible assets at September 30, 2015 compared to 7.81% one year earlier. Tangible book value per common share was $14.61 at September 30, 2015, up from $13.86 one year earlier.

Capital ratios continued to remain well above regulatory requirements with Tier 1 capital to risk-weighted assets of 12.50% at September 30, 2015, while the ratio of Tier 1 capital to total adjusted assets was 10.62%. These regulatory ratios were higher than the required minimum levels of 6.00% and 4.00%, respectively.

Review of Operations

For the first fiscal quarter ending September 30, 2015, HF Financial's operations reflected improved core earnings with expanding net interest margin, growing noninterest income and improving asset quality. Net interest income increased 1.5% to $9.6 million for the first fiscal quarter of fiscal 2016 compared to $9.5 million the previous quarter and 15.9% from $8.3 million one year earlier. The NIM, TE expanded to 3.55% for the fiscal first quarter compared to 3.53% the previous quarter and 2.84% one year earlier.

"The sale of our Pierre branch in the first quarter allowed us to realize a net premium on a single office with deposits of $21.4 million. In addition, the net interest margin continues to benefit from net loan growth against a lower cost of funding base, while our banking teams remain focused on developing deeper client relationships to drive fee income opportunities," stated Brent Olthoff, Chief Financial Officer and Treasurer.

Provision for loan losses reflect reserves established for the expanding loan portfolio, economic conditions and historical charge-off activity. Provisions totaled $178,000 for the first fiscal quarter of 2016 compared to $630,000 for the fourth fiscal quarter of 2015. Gross charge-offs were $193,000 for the first quarter versus $448,000 in the prior quarter.

Noninterest income totaled $6.4 million for the fiscal first quarter of 2016 compared to $3.7 million in the previous quarter. The first quarter was impacted by the sale of a bank branch for a pre-tax gain of $2.8 million. Mortgage activity produced $1.1 million in servicing and gains on loan sales revenue in the first fiscal quarter of 2016, a similar level to the prior quarter. Fees on deposits totaled $1.5 million for the first quarter of fiscal 2016 which was similar to the previous quarter.

Total noninterest expense was $9.9 million compared to $9.7 million in the previous quarter. Compensation and employee benefits increased to $6.1 million from $6.0 million the previous quarter and $5.3 million one year earlier. The most recent quarters reflect additional costs associated with health care costs, performance incentives, and variable pay increases related to increased mortgage activity and investment sales commissions, when compared to the same quarter one year ago. One-time retention and severance pay of $98,000 was also incurred due to the Pierre branch sale and additional internal staffing restructuring completed during the first quarter.

These financial results are preliminary until the Form 10-Q is filed in November 2015.

Quarterly Dividend Declared

The board of directors declared a regular quarterly cash dividend of $0.1125 per common share for the first fiscal quarter 2016. The dividend is payable November 13, 2015 to stockholders of record November 6, 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, 2015, 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 Highlights
(Dollars in Thousands, except share data)
(Unaudited)
 
  Three Months Ended
  September 30, June 30, September 30,
  2015 2015 2014
Interest, dividend and loan fee income:      
Loans and leases receivable $10,085 $9,897 $9,160
Investment securities and interest-earning deposits 746 766 1,206
  10,831 10,663 10,366
Interest expense:      
Deposits 845 835 916
Advances from Federal Home Loan Bank and other borrowings 379 367 1,164
  1,224 1,202 2,080
Net interest income 9,607 9,461 8,286
Provision (benefit) for losses on loans and leases 178 630 (22)
Net interest income after provision for losses on loans and leases 9,429 8,831 8,308
Noninterest income:      
Fees on deposits 1,461 1,447 1,599
Loan servicing income, net 335 318 370
Gain on sale of loans 773 751 547
Earnings on cash value of life insurance 210 208 207
Trust income 214 171 223
Commission and insurance income 491 534 419
Gain on sale of securities, net 5 18 34
Gain on sale of bank branch 2,847
Loss on disposal of closed-branch fixed assets (163)
Other 109 289 105
  6,445 3,736 3,341
Noninterest expense:      
Compensation and employee benefits 6,059 5,952 5,251
Occupancy and equipment 1,046 996 1,043
FDIC insurance 190 194 215
Check and data processing expense 865 767 833
Professional fees 675 609 640
Marketing and community investment 274 316 372
Other 823 857 667
  9,932 9,691 9,021
Income before income taxes 5,942 2,876 2,628
Income tax expense 2,090 913 816
Net income $3,852 $1,963 $1,812
       
Basic earnings per common share: $0.55 $0.28 $0.26
Diluted earnings per common share: $0.55 $0.28 $0.26
Basic weighted average shares: 7,054,451 7,054,451 7,055,440
Diluted weighted average shares: 7,064,924 7,061,927 7,060,042
Outstanding shares (end of period): 7,054,451 7,054,451 7,055,440
Number of full-service offices 23 23 26

 

HF Financial Corp.
Consolidated Statements of Financial Condition
(Dollars in Thousands, except share data)
     
  September 30, 2015 June 30, 2015
  (Unaudited) (Audited)
ASSETS    
Cash and cash equivalents $18,941 $21,476
Investment securities available for sale 154,170 158,806
Investment securities held to maturity 20,042 20,156
Correspondent bank stock 5,261 4,177
Loans held for sale 9,027 9,038
     
Loans and leases receivable 906,280 914,419
Allowance for loan and lease losses (11,256) (11,230)
Loans and leases receivable, net 895,024 903,189
     
Accrued interest receivable 6,486 5,414
Office properties and equipment, net of accumulated depreciation 16,306 15,493
Foreclosed real estate and other properties 272 157
Cash value of life insurance 21,491 21,320
Servicing rights, net 10,457 10,584
Goodwill and intangible assets, net 4,725 4,737
Other assets 9,358 10,648
Total assets $1,171,560 $1,185,195
LIABILITIES AND STOCKHOLDERS' EQUITY    
Liabilities    
Deposits $916,328 $963,229
Advances from Federal Home Loan Bank and other borrowings 92,647 65,558
Subordinated debentures payable to trusts, net of unamortized debt issuance costs 24,657 24,655
Advances by borrowers for taxes and insurance 16,576 14,197
Accrued expenses and other liabilities 13,548 13,579
Total liabilities 1,063,756 1,081,218
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 9,137,906 shares issued at September 30, 2015 and June 30, 2015, respectively 91 91
Additional paid-in capital 46,373 46,320
Retained earnings, substantially restricted 93,204 90,145
Accumulated other comprehensive (loss), net of related deferred tax effect (967) (1,682)
Less cost of treasury stock, 2,083,455 shares at September 30, 2015 and June 30, 2015 (30,897) (30,897)
Total stockholders' equity 107,804 103,977
Total liabilities and stockholders' equity $1,171,560 $1,185,195

 

HF Financial Corp.
Selected Consolidated Financial Condition Data
(Dollars in Thousands)
(Unaudited)
   
  Three Months Ended
  September 30, June 30, September 30,
Allowance for Loan and Lease Loss Activity 2015 2015 2014
Balance, beginning $11,230 $11,012 $10,502
Provision charged to income 178 630 (22)
Charge-offs (193) (448) (141)
Recoveries 41 36 40
Balance, ending $11,256 $11,230 $10,379

 

Asset Quality September 30,
2015
June 30,
2015
September 30,
2014
Nonaccruing loans and leases $11,854 $13,107 $15,098
Accruing loans and leases delinquent more than 90 days
Foreclosed assets 272 157 124
Total nonperforming assets (1) $12,126 $13,264 $15,222
       
General allowance for loan and lease losses $11,007 $10,951 $9,941
Specific impaired loan valuation allowance 249 279 438
Total allowance for loans and lease losses $11,256 $11,230 $10,379
       
Ratio of nonperforming assets to total assets at end of period (1) 1.04% 1.12% 1.21%
Ratio of nonperforming loans and leases to total loans and leases at end of period (2) 1.31% 1.43% 1.85%
Ratio of net charge-offs to average loans and leases for the year-to-date period (3) 0.07% 0.13% 0.05%
Ratio of allowance for loan and lease losses to total loans and leases at end of period 1.24% 1.23% 1.27%
Ratio of allowance for loan and lease losses to nonperforming loans and leases at end of period (2) 95.0% 85.7% 68.7%
_____________________________________________
 
(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 $9.9 million, $9.5 million, and $13.5 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 three months ended September 30, 2015 and September 30, 2014 have been annualized.

 

Troubled Debt Restructuring Summary September 30,
2015
June 30,
2015
September 30,
2014
Nonaccruing troubled debt restructurings-non-compliant (1)(2) $113 $— $5
Nonaccruing troubled debt restructurings-compliant (1)(2)(3) 9,905 9,499 13,491
Accruing troubled debt restructurings (4) 2,545 2,767 1,861
Total troubled debt restructurings $12,563 $12,266 $15,357
______________________________________________
 
(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 $136, $156, and $250, for the respective quarters.
(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)
 
  September 30,
2015
June 30,
2015
September 30,
2014
Common stockholder's equity before OCI (1) to consolidated assets 9.31% 8.95% 8.47%
OCI components to consolidated assets:      
Net changes in unrealized gains and losses:      
Investment securities available for sale 0.04 (0.02) (0.13)
Defined benefit plan (0.09) (0.09) (0.11)
Derivatives and hedging activities (0.03) (0.03) (0.04)
Goodwill and intangible assets, net to consolidated assets (0.40) (0.40) (0.38)
Tangible common equity to tangible assets 8.83% 8.41% 7.81%
       
Tangible book value per common share (2) $14.61 $14.07 $13.86
Tier I capital (to adjusted total assets) (3) 10.62% 10.39% 9.70%
Tier I capital (to risk-weighted assets) (3) 12.50 12.16 13.36
Common equity tier I capital (to risk-weighted assets) (3)(4) 12.50 12.16 NA
Total risk-based capital (to risk-weighted assets) (3) 13.64 13.29 14.50
______________________________________________
 
(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        
  September 30, 2015 June 30, 2015
  Amount Percent Amount Percent
Residential:        
One-to four-family $55,125 6.1% $55,572 6.1%
Construction 9,194 1.0 6,308 0.7
Commercial:        
Commercial business (1) 71,466 7.9 78,493 8.6
Equipment finance leases 130 158
Commercial real estate:        
Commercial real estate 335,685 37.0 325,453 35.6
Multi-family real estate 115,268 12.7 111,354 12.2
Construction 56,527 6.2 48,224 5.3
Agricultural:        
Agricultural real estate 88,024 9.7 96,952 10.6
Agricultural business 106,550 11.7 123,988 13.5
Consumer:        
Consumer direct 14,983 1.7 14,837 1.6
Consumer home equity 50,786 5.7 50,377 5.5
Consumer overdraft & reserve 2,542 0.3 2,703 0.3
Total (2) $906,280 100.0% $914,419 100.0%
_________________________________________________
 
(1) Includes $1,376 and $1,377 tax exempt leases at September 30, 2015 and June 30, 2015, respectively.
(2) Exclusive of undisbursed portion of loans in process and net of deferred loan fees and discounts.
         
Deposit Composition        
  September 30, 2015 June 30, 2015
  Amount Percent Amount Percent
Noninterest-bearing checking accounts $146,799 16.0% $171,064 17.8%
Interest-bearing checking accounts 178,475 19.5 185,075 19.2
Money market accounts 194,249 21.2 198,000 20.5
Savings accounts 93,317 10.2 93,053 9.7
In-market certificates of deposit 219,594 24.0 242,036 25.1
Out-of-market certificates of deposit 83,894 9.1 74,001 7.7
Total deposits $916,328 100.0% $963,229 100.0%

 

HF Financial Corp.
Selected Consolidated Financial Condition Data
(Dollars in Thousands)
(Unaudited)
   
Average Balance, Interest Yields and Rates Three Months Ended
  September 30, 2015 June 30, 2015
  Average
Outstanding
Balance


Yield/

Rate
Average
Outstanding
Balance


Yield/

Rate
Interest-earning assets:        
Loans and leases receivable(1)(3) $913,277 4.39% $910,757 4.36%
Investment securities(2)(3) 183,346 1.62 185,571 1.66
Total interest-earning assets 1,096,623 3.93% 1,096,328 3.90%
Noninterest-earning assets 74,964   75,668  
Total assets $1,171,587   $1,171,996  
Interest-bearing liabilities:        
Deposits:        
Checking and money market $374,980 0.24% $380,230 0.23%
Savings 95,996 0.25 116,390 0.20
Certificates of deposit 299,554 0.75 289,084 0.77
Total interest-bearing deposits 770,530 0.44 785,704 0.43
FHLB advances and other borrowings 81,852 0.41 80,220 0.38
Subordinated debentures payable to trusts 24,656 4.74 24,837 4.68
Total interest-bearing liabilities 877,038 0.56% 890,761 0.54%
Noninterest-bearing deposits 155,703   146,183  
Other liabilities 32,706   31,777  
Total liabilities 1,065,447   1,068,721  
Equity 106,140   103,275  
Total liabilities and equity $1,171,587   $1,171,996  
Net interest spread(4)   3.37%   3.36%
Net interest margin(4)(5)   3.49%   3.46%
Net interest margin, TE(6)   3.55%   3.53%
Return on average assets(7)   1.31%   0.67%
Return on average equity(8)   14.44%   7.62%
_____________________________________
 
(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 September 30, 2015 and June 30, 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 Three Months Ended      
  September 30, 2015 September 30, 2014     
  Average
Outstanding
Balance


Yield/

Rate
Average
Outstanding
Balance


Yield/

Rate
Interest-earning assets:        
Loans and leases receivable(1)(3) $913,277 4.39% $818,100 4.44%
Investment securities(2)(3) 183,346 1.62 365,880 1.31
Total interest-earning assets 1,096,623 3.93% 1,183,980 3.47%
Noninterest-earning assets 74,964   73,181  
Total assets $1,171,587   $1,257,161  
Interest-bearing liabilities:        
Deposits:        
Checking and money market $374,980 0.24% $400,864 0.25%
Savings 95,996 0.25 147,952 0.21
Certificates of deposit 299,554 0.75 256,168 0.91
Total interest-bearing deposits 770,530 0.44 804,984 0.45
FHLB advances and other borrowings 81,852 0.41 136,731 2.49
Subordinated debentures payable to trusts 24,656 4.74 24,837 4.90
Total interest-bearing liabilities 877,038 0.56% 966,552 0.85%
Noninterest-bearing deposits 155,703   156,070  
Other liabilities 32,706   32,534  
Total liabilities 1,065,447   1,155,156  
Equity 106,140   102,005  
Total liabilities and equity $1,171,587   $1,257,161  
Net interest spread(4)   3.37%   2.62%
Net interest margin(4)(5)   3.49%   2.78%
Net interest margin, TE(6)   3.55%   2.84%
Return on average assets(7)   1.31%   0.57%
Return on average equity(8)   14.44%   7.05%
_____________________________________
 
(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 September 30, 2015 and September 30, 2014 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.
Age Analysis of Past Due Loans and Leases Receivables
(Dollars in Thousands)
(Unaudited)
     
September 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 $— $144 $113 $257 $54,868 $— $113 $113
Construction 9,194
Commercial:                
Commercial business 123 123 71,343 1,590 1,590
Equipment finance leases 130
Commercial real estate:                
Commercial real estate 159 159 335,526 476 476
Multi-family real estate 115,268
Construction 56,527
Agricultural:                
Agricultural real estate 1,342 1,342 86,682 4,396 4,396
Agricultural business 27 1,959 1,986 104,564 5,036 5,036
Consumer:                
Consumer direct 2 2 14,981 33 33
Consumer home equity 145 8 166 319 50,467 210 210
Consumer OD & reserve 2,542
Total $145 $338 $3,705 $4,188 $902,092 $— $11,854 $11,854
     
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
____________________________________
 
(1) Loans accruing and delinquent greater than 90 days have government guarantees or acceptable loan-to-value ratios.
 
HF Financial Corp.
Non-GAAP Disclosure Reconciliations
(Dollars in Thousands, except share data)
(Unaudited)
 
Reconciliation of Net Interest Margin to Net Interest Margin-Tax Equivalent Yield
   
  Three Months Ended
  September 30, June 30, September 30,
  2015 2015 2014
Net interest income $9,607 $9,461 $8,286
Taxable equivalent adjustment 170 174 187
Adjusted net interest income 9,777 9,635 8,473
Average interest-earning assets 1,096,623 1,096,328 1,183,980
Net interest margin, TE 3.55% 3.53% 2.84%

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
  September 30, June 30, September 30,
  2015 2015 2014
GAAP earnings before income taxes $5,942 $2,876 $2,628
Net (gain) on sale of securities (5) (18) (34)
Net (gain) on sale of bank branch (2,847)
Net (gain) on sale of property (195)
Costs incurred for branch closures (1) 1 (201)
Core earnings before income taxes 3,090 2,664 2,393
Provision for income taxes for core earnings 1,006 832 727
Core earnings $2,084 $1,832 $1,666
       
GAAP diluted earnings per share $0.55 $0.28 $0.26
Net (gain) on sale of securities, net of tax
Net (gain) on sale of bank branch, net of tax (0.25)
Net (gain) on sale of property, net of tax (0.02)
Costs incurred for branch closures, net of tax (0.02)
Core diluted earnings per share $0.30 $0.26 $0.24
       
(1) 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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