Market Overview

HF Financial Corp. Reports Fiscal Second Quarter Core Earnings of $0.27 Per Diluted Share, Up From $0.24 Per Diluted Share One Year Earlier; GAAP Earnings Were $1.5 million, or $0.21 Per Diluted Share

Share:

 Declares Regular Quarterly Dividend of $0.1125 per Share

Definitive Merger Agreement with Great Western Bancorp, Inc.

SIOUX FALLS, S.D., Jan. 25, 2016 (GLOBE NEWSWIRE) -- HF Financial Corp. (Nasdaq: HFFC) today reported fiscal second quarter 2016 core earnings of $1.9 million, or $0.27 per diluted share compared to $0.24 per diluted share one year earlier.  GAAP earnings were $1.5 million, or $0.21 per diluted share compared to a loss of $868,000, or ($0.12) per diluted share one year earlier. Professional fees were higher in the most recent period related to the pending acquisition by Great Western Bancorp, Inc. announced on November 30, 2015.

Total assets were $1.17 billion at December 31, 2015, which was the same as the previous quarter and slightly lower than the $1.26 billion one year earlier.  Tangible book value per share was $14.55 per share versus $13.76 per share one year earlier.  Loan balances declined slightly reflecting the seasonal repayment of agriculture related loans offset partially by an increase in commercial real estate loans.  Asset quality remains strong with nonperforming assets as a percentage of total assets at 0.95% at December 31, 2015, compared to 1.04% one quarter earlier.

On November 30, 2015, HFFC announced its entry into a definitive merger agreement with Great Western Bancorp, Inc. ("Great Western").  Under the terms of the merger agreement, 75% of HFFC's common stock will be converted into Great Western common stock and the remaining 25% will be exchanged for cash. HFFC stockholders will have the option to elect to receive either 0.6500 shares of Great Western common stock or $19.50 in cash for each HFFC common share, subject to proration to ensure that, in the aggregate, 75% of HFFC shares will be converted into stock. The merger has been unanimously approved by the Board of Directors of both Great Western and HFFC and is expected to close in the second quarter of calendar 2016, subject to certain conditions, including the approval by HFFC's stockholders and customary regulatory approvals.

"As we work to obtain all the necessary approvals, we will continue to focus on serving our customers with our professional team at Home Federal Bank while we also work to ensure a smooth transition into the Great Western Bank organization expected to occur during the second quarter of calendar 2016. The merger will benefit our clients through an expanded product offering, higher lending limits and a seven state branch network," said Stephen Bianchi, President and Chief Executive Officer.

Fiscal 2016 Second Quarter Financial Highlights: (at or for the periods ended December 31, 2015, compared to September 30, 2015, and /or December 31, 2014.)

  • Core earnings were $0.27 per diluted share for the second fiscal quarter of 2016 versus $0.30 per diluted share the previous quarter and $0.24 per diluted share one year earlier.
  • Earnings were $1.5 million, or $0.21 per diluted share, for the second quarter of fiscal 2016.  For the six months ended December 31, 2015, earnings were $5.3 million, or $0.75 per diluted share compared to $0.13 per diluted share for the comparable period one year earlier.
  • The net interest margin expressed on a fully taxable equivalent basis ("NIM, TE"), a non-GAAP measure, was 3.51% for the fiscal second quarter 2016 compared to 3.55% the previous quarter and 3.19% one year ago.
  • Total loans decreased slightly to $905.6 million at December 31, 2015, from $906.3 million at September 30, 2015. Despite the decrease in total loans, total commercial real estate loans expanded to $515.0 million at December 31, 2015 from $507.5 million at September 30, 2015.
  • Nonperforming assets declined to $11.1 million, or 0.95% of total assets at quarter end compared to $12.1 million or 1.04% of total assets one quarter earlier. Nonperforming assets at December 31, 2015, include $9.6 million of non-accruing troubled debt restructured loans that are compliant with their restructured terms.
  • Loan loss recoveries exceeded charge-offs by $11,000 for the fiscal second quarter.
  • Loan and lease losses allowance totaled 1.27% of total loans at December 31, 2015, compared to 1.24% one quarter earlier. The Company has no direct exposure to the oil & gas industry.
  • Bank capital ratios as of December 31, 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 13.68% versus 13.64% at September 30, 2015.
    • Tier 1 capital to risk-weighted assets was 12.52% versus 12.50% at September 30, 2015.
    • Tier 1 capital to total adjusted assets was 10.69% versus 10.62% at September 30, 2015.
    • Common equity tier 1 capital to risk-weighted assets was 12.52% versus 12.50% at September 30, 2015.
  • The most recent dividend of $0.1125 per share represents a 2.75% current yield at recent market prices.
  • Tangible book value was $14.55 per share at December 31, 2015, compared to $13.76 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 9.01% 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 December 31, 2015, compared to $1.17 billion at the end of the previous quarter and slightly lower than the $1.26 billion one year earlier. Assets declined slightly over the past year related to a branch sale. Total loans decreased slightly to $905.6 million at December 31, 2015 due largely to the pay-down of seasonal agricultural loans. The loan composition after the second fiscal quarter reflects less agricultural and commercial loans and a larger balance of commercial real estate loans when compared to the prior quarter end.  At December 31, 2015, commercial real estate totaled 49.0%, agricultural loans totaled 20.5%, commercial and residential construction were 8.7%, commercial business loans were 7.7%, consumer and residential loans totaled 7.5% and 6.6%, respectively.

Total deposits increased to $941.7 million at December 31, 2015, from $916.3 million one quarter earlier. Non-certificate accounts represented 72.3% of total deposits, while certificates of deposit represented 27.7% of total deposits at December 31, 2015.  Non-interest bearing deposits represent 15.0% of total deposits.

FHLB advances and other borrowings decreased during the second fiscal quarter of 2016 to $73.4 million compared to $92.6 million in the previous quarter, primarily consisting of shorter-term borrowing. For the quarter ended December 31, 2015, the average cost of the FHLB and other borrowings portfolio was 0.53% compared to 0.41% the previous quarter.

Nonperforming assets ("NPAs"), which included $9.6 million of nonaccruing troubled debt restructurings that are in compliance with their restructured terms, totaled $11.1 million at December 31, 2015 compared to $12.8 million one year earlier. At December 31, 2015, NPAs represented 0.95% of total assets and included only $229,000 in foreclosed assets.

The allowance for loan and lease losses at December 31, 2015, totaled $11.5 million and represented 1.27% of total loans and leases. Total allowance relative to total nonperforming loans was 105.2% at December 31, 2015, compared to 85.3% one year earlier.

Tangible common stockholders' equity was 8.80% of tangible assets at December 31, 2015 compared to 7.72% one year earlier. Tangible book value per common share was $14.55 at December 31, 2015, up from $13.76 one year earlier.

Capital ratios continued to remain well above regulatory requirements with Tier 1 capital to risk-weighted assets of 12.52% at December 31, 2015, while the ratio of Tier 1 capital to total adjusted assets was 10.69%. These regulatory ratios were higher than the required minimum levels of 6.00% and 4.00%, respectively.

Review of Operations

For the second fiscal quarter ending December 31, 2015, HF Financial's operations reflected improved core earnings relative to one year earlier.  Net interest income increased 1.3% to $9.5 million for the second fiscal quarter of fiscal 2016 compared to $9.4 million one year earlier. Relative to the previous quarter, net interest income was slightly lower to the first fiscal quarter's net interest income of $9.6 million.  The NIM, TE was 3.51% for the fiscal second quarter compared to 3.55% the previous quarter and 3.19% one year earlier.

Provision for loan losses reflect reserves established for the expanding loan portfolio, economic conditions and historical charge-off activity. Provisions totaled $192,000 for the second fiscal quarter of 2016 compared to $178,000 for the first fiscal quarter of 2016.  Gross charge-offs were $187,000 for the second quarter versus $193,000 in the prior quarter.  Recoveries totaled $198,000 in the second fiscal quarter of 2016 versus $41,000 the prior quarter.

Noninterest income totaled $3.4 million for the fiscal second quarter of 2016 compared to $6.4 million in the previous quarter. The previous quarter was impacted by the sale of a bank branch for a pre-tax gain of $2.8 million.  Mortgage activity produced $999,000 in servicing and gains on loan sales revenue in the second fiscal quarter of 2016, a level slightly lower than the $1.1 million in the prior quarter. Fees on deposits totaled $1.4 million for the second quarter of fiscal 2016 versus $1.5 million the previous quarter.

Total noninterest expense was $10.5 million compared to $9.9 million in the previous quarter. The current quarter included approximately $700,000 in merger related costs. Compensation and employee benefits remained flat at $6.1 million relative to the previous quarter.

These financial results are preliminary until the Form 10-Q is filed in February 2016.

Quarterly Dividend Declared

The board of directors declared a regular quarterly cash dividend of $0.1125 per common share for the second fiscal quarter 2016.  The dividend is payable February 19, 2016 to stockholders of record February 12, 2016.

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 Great Western Bancorp, Inc.

Great Western Bancorp, Inc. is the holding company for Great Western Bank, a full-service regional bank focused on relationship-based business and agribusiness banking. Great Western Bank offers small and mid-sized businesses a focused suite of financial products and a range of deposit and loan products to retail customers through several channels, including the branch network, online banking system, mobile banking applications and customer care centers. The bank services its customers through 158 branches in seven states: South Dakota, Iowa, Nebraska, Colorado, Arizona, Kansas and Missouri. To learn more about Great Western Bank visit www.greatwesternbank.com.
  
About HF Financial Corporation

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 bank holding company 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. To learn more about Home Federal Bank, visit www.homefederal.com.

No Offer or Solicitation

This communication is not a solicitation of a proxy from any stockholder of HF Financial Corp. This communication is for informational purposes only and is neither an offer to purchase, nor a solicitation of an offer to sell, any securities in any jurisdiction pursuant to the proposed transaction or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of any applicable law. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933.

Important Additional Information and Where to Find It

In connection with the Agreement and Plan of Merger by and between Great Western Bancorp, Inc. ("Great Western") and HF Financial Corp., Great Western will file with the Securities and Exchange Commission ("SEC") a Registration Statement on Form S-4 that will contain a proxy statement of HF Financial Corp. and a prospectus of Great Western, as well as other relevant documents concerning the proposed transaction. STOCKHOLDERS OF HF FINANCIAL CORP. ARE URGED TO READ THE REGISTRATION STATEMENT AND THE PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED TRANSACTION WHEN IT BECOMES AVAILABLE AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT GREAT WESTERN, HF FINANCIALCORP. AND THE PROPOSED TRANSACTION. The Registration Statement, including the proxy statement/prospectus, and other relevant materials (when they become available), and any other documents filed by Great Western and HF Financial Corp. with the SEC, may be obtained free of charge at the SEC's website at www.sec.gov. Documents filed by Great Western with the SEC, including the Registration Statement, may also be obtained free of charge from Great Western's website (www.greatwesternbank.com) under the "Investor Relations" heading and the "SEC Filings" sub-heading, or by directing a request to Great Western's Investor Relations contact, David Hinderaker at David.Hinderaker@greatwesternbank.com. Documents filed by HF Financial Corp. with the SEC may also be obtained free of charge from HF Financial Corp. website (www.homefederal.com) under the "Investor Relations" heading and the "SEC Filings" sub-heading, or by directing a request to HF Financial Corp. Investor Relations contact, Pamela F. Russo at prusso@homeferal.com.

Participants in the Solicitation

Great Western, HF Financial Corp., and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of HF Financial Corp., in connection with the proposed merger transaction. Information about the directors and executive officers of Great Western is available in Great Western's definitive proxy statement for its 2016 annual meeting of stockholders as previously filed with the SEC on January 4, 2016, and other documents subsequently filed by Great Western with the SEC. Information about the directors and executive officers of HF Financial Corp., is available in HF Financial Corp.'s, definitive proxy statement, for its 2015 annual meeting of stockholders as previously filed with the SEC on October 16, 2015. Other information regarding the participants and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the Registration Statement and including the proxy statement/prospectus, and other relevant documents regarding the transaction filed with the SEC when they become available.

Forward-Looking Statements

This document contains forward-looking statements. You can generally identify forward-looking statements by the use of forward-looking terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "explore," "evaluate," "intend," "may," "might," "plan," "potential," "predict," "project," "seek," "should," or "will," or the negative thereof or other variations thereon or comparable terminology. These forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond GWB's and HF Financial Corp's control.

Statements in this document regarding Great Western, HF Financial Corp., and the proposed merger that are forward-looking, including projections as to the anticipated benefits of the proposed transaction, the impact of the proposed transaction on anticipated financial results, the synergies from the proposed transaction, and the closing date for the proposed transaction, are based on management's estimates, assumptions and projections, and are subject to significant uncertainties and other factors, many of which are beyond the control of Great Western and HF Financial Corp. In particular, projected financial information for the combined company is based on management's estimates, assumptions and projections and has not been prepared in conformance with the applicable accounting requirements of Regulation S-X relating to pro forma financial information, and the required pro forma adjustments have not been applied and are not reflected therein. None of this information should be considered in isolation from, or as a substitute for, the historical financial statements of Great Western or HF Financial Corp. Important risk factors could cause actual future results and other future events to differ materially from those currently estimated by management, including, but not limited to: the timing to consummate the proposed transaction; the risk that a condition to closing of the proposed transaction may not be satisfied and the transaction may not close; the risk that a regulatory approval that may be required for the proposed transaction is delayed, is not obtained or is obtained subject to conditions that are not anticipated; the combined company's ability to achieve the synergies and value creation contemplated by the proposed transaction; management's ability to promptly and effectively integrate the businesses of the two companies; the diversion of management time on transaction-related issues; change in national and regional economic conditions; the effects of governmental regulation of the financial services industry; industry consolidation; technological developments and major world news events.

For more discussion of important risk factors that may materially affect Great Western and HF Financial Corp., please see the risk factors contained in Great Western's Annual Report on Form 10-K for its fiscal year ended September 30, 2015 and HF Financial Corp. Annual Report on Form 10-K for its fiscal year ended June 30, 2015, both of which are on file with the SEC and available through the SEC's website at www.sec.gov

No assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do occur, what impact they will have on the results of operations, financial condition or cash flows of Great Western, HF Financial Corp. or the combined company. None of Great Western nor HF Financial Corp. assumes any duty to update or revise forward-looking statements, whether as a result of new information, future events or otherwise, as of any future date.


HF Financial Corp.
Selected Consolidated Operating Highlights
(Dollars in Thousands, except share data)
(Unaudited)
     
  Three Months Ended Six Months Ended
  December 31, September 30, December 31, December 31,
  2015 2015 2014 2015 2014
Interest, dividend and loan fee income:          
Loans and leases receivable $9,978  $10,085  $10,192  $20,063  $19,352  
Investment securities and interest-earning deposits 807  746  1,059  1,553  2,265  
  10,785  10,831  11,251  21,616  21,617  
Interest expense:          
Deposits 928  845  899  1,773  1,815  
Advances from Federal Home Loan Bank and other borrowings 371  379  988  750  2,152  
  1,299  1,224  1,887  2,523  3,967  
Net interest income 9,486  9,607  9,364  19,093  17,650  
Provision for losses on loans and leases 192  178  941  370  919  
Net interest income after provision for losses on loans and leases 9,294  9,429  8,423  18,723  16,731  
Noninterest income:          
Fees on deposits 1,366  1,461  1,550  2,827  3,149  
Loan servicing income, net 329  335  345  664  715  
Gain on sale of loans 670  773  472  1,443  1,019  
Earnings on cash value of life insurance 212  210  208  422  415  
Trust income 235  214  225  449  448  
Commission and insurance income 432  491  367  923  786  
Gain (loss) on sale of securities, net 15  5  (75) 20  (41) 
Gain on sale of bank branch   2,847    2,847    
Loss on disposal of closed-branch fixed assets         (163) 
Other 93  109  33  202  138  
  3,352  6,445  3,125  9,797  6,466  
Noninterest expense:          
Compensation and employee benefits 6,119  6,059  5,508  12,178  10,759  
Occupancy and equipment 1,083  1,046  1,008  2,129  2,051  
FDIC insurance 148  190  191  338  406  
Check and data processing expense 865  865  815  1,730  1,648  
Professional fees 909  675  425  1,584  1,065  
Marketing and community investment 345  274  376  619  748  
Loss on early extinguishment of debt     4,065    4,065  
Other 1,006  823  761  1,829  1,428  
  10,475  9,932  13,149  20,407  22,170  
Income (loss) before income taxes 2,171  5,942  (1,601) 8,113  1,027  
Income tax expense (benefit) 693  2,090  (733) 2,783  83  
Net income (loss) $1,478  $3,852  $(868) $5,330  $944  
           
Basic earnings (loss) per common share: $0.21  $0.55  $(0.12) $0.76  $0.13  
Diluted earnings (loss) per common share: $0.21  $0.55  $(0.12) $0.75  $0.13  
Basic weighted average shares: 7,055,058  7,054,451  7,054,340  7,054,755  7,054,890  
Diluted weighted average shares: 7,069,954  7,064,924  7,059,032  7,067,303  7,059,538  
Outstanding shares (end of period): 7,056,492  7,054,451  7,054,352  7,056,492  7,054,352  
Number of full-service offices 23  23  26      


HF Financial Corp.
Consolidated Statements of Financial Condition
(Dollars in Thousands, except share data)
    
 December 31, 2015 June 30, 2015
 (Unaudited) (Audited)
ASSETS   
Cash and cash equivalents$22,613  $21,476 
Investment securities available for sale153,075  158,806 
Investment securities held to maturity20,022  20,156 
Correspondent bank stock4,491  4,177 
Loans held for sale7,970  9,038 
    
Loans and leases receivable905,570  914,419 
Allowance for loan and lease losses(11,459) (11,230)
Loans and leases receivable, net894,111  903,189 
        
Accrued interest receivable6,258  5,414 
Office properties and equipment, net of accumulated depreciation16,511  15,493 
Foreclosed real estate and other properties229  157 
Cash value of life insurance21,661  21,320 
Servicing rights, net10,321  10,584 
Goodwill and intangible assets, net4,938  4,737 
Other assets9,685  10,648 
Total assets$1,171,885  $1,185,195 
LIABILITIES AND STOCKHOLDERS' EQUITY       
Liabilities       
Deposits$941,682  $963,229 
Advances from Federal Home Loan Bank and other borrowings73,378  65,558 
Subordinated debentures payable to trusts, net of unamortized debt issuance costs24,660  24,655 
Advances by borrowers for taxes and insurance11,663  14,197 
Accrued expenses and other liabilities12,901  13,579 
Total liabilities1,064,284  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, 9,139,947 and 9,137,906 shares issued at December 31, 2015 and June 30, 2015, respectively91  91 
Additional paid-in capital46,413  46,320 
Retained earnings, substantially restricted93,888  90,145 
Accumulated other comprehensive (loss), net of related deferred tax effect(1,894) (1,682)
Less cost of treasury stock, 2,083,455 shares at December 31, 2015 and June 30, 2015(30,897) (30,897)
Total stockholders' equity107,601  103,977 
Total liabilities and stockholders' equity$1,171,885  $1,185,195 


HF Financial Corp.
Selected Consolidated Financial Condition Data
(Dollars in Thousands)
(Unaudited)
     
  Three Months Ended Six Months Ended
Allowance for Loan and Lease December 31, September 30, December 31, December 31,
Loss Activity 2015 2015 2014 2015 2014
Balance, beginning $11,256  $11,230  $10,379  $11,230  $10,502 
Provision charged to income 192  178  941  370  919 
Charge-offs (187) (193) (433) (380) (574)
Recoveries 198  41  46  239  86 
Balance, ending $11,459  $11,256  $10,933  $11,459  $10,933 


  December 31, September 30, December 31,
Asset Quality 2015 2015 2014
Nonaccruing loans and leases $10,888  $11,854  $12,811 
Accruing loans and leases delinquent more than 90 days         
Foreclosed assets  229   272   2 
Total nonperforming assets (1) $11,117  $12,126  $12,813 
             
General allowance for loan and lease losses $11,215  $11,007  $10,473 
Specific impaired loan valuation allowance 244  249  460 
Total allowance for loans and lease losses $11,459  $11,256  $10,933 
       
Ratio of nonperforming assets to total assets at end of period (1) 0.95% 1.04% 1.01%
Ratio of nonperforming loans and leases to total loans and leases at end of period (2) 1.20% 1.31% 1.50%
Ratio of net charge-offs to average loans and leases for the year-to-date period (3) 0.03% 0.07% 0.12%
Ratio of allowance for loan and lease losses to total loans and leases at end of period 1.27% 1.24% 1.28%
Ratio of allowance for loan and lease losses to nonperforming loans and leases at end of period (2) 105.2% 95.0% 85.3%

_____________________________________________
(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 $9.6 million, $9.9 million, and $9.3 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 the six months ended December 31, 2015 and December 31, 2014 have been annualized.


  December 31, September 30, December 31,
Troubled Debt Restructuring Summary 2015 2015 2014
Nonaccruing troubled debt restructurings-non-compliant (1)(2) $108  $113  $182 
Nonaccruing troubled debt restructurings-compliant (1)(2)(3) 9,560  9,905  9,339 
Accruing troubled debt restructurings (4) 2,035  2,545  1,633 
Total troubled debt restructurings $11,703  $12,563  $11,154 

______________________________________________
(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 $166, $136, and $196, 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)
      
 December 31, September 30, June 30,
 2015 2015  2015
Common stockholder's equity before OCI (1) to consolidated assets9.38% 9.31% 8.95%
OCI components to consolidated assets:           
Net changes in unrealized gains and losses:           
Investment securities available for sale(0.05) 0.04  (0.02)
Defined benefit plan(0.09) (0.09) (0.09)
Derivatives and hedging activities(0.02) (0.03) (0.03)
Goodwill and intangible assets, net to consolidated assets(0.42) (0.40) (0.40)
Tangible common equity to tangible assets8.80% 8.83% 8.41%
            
Tangible book value per common share (2)$14.55  $14.61  $14.07 

______________________________________________
(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.


 December 31, September 30, June 30,
Home Federal Bank Capital Ratios:2015 2015  2015
Tier I capital (to adjusted total assets)10.69% 10.62% 10.39%
Tier I capital (to risk-weighted assets)12.52  12.50  12.16 
Common equity tier I capital (to risk-weighted assets)12.52  12.50  12.16 
Total risk-based capital (to risk-weighted assets)13.68  13.64  13.29 
         
HF Financial Corp. Capital Ratios:        
Tier I capital (to adjusted total assets)11.05% 11.02% 10.73%
Tier I capital (to risk-weighted assets)12.95  12.98  12.58 
Common equity tier I capital (to risk-weighted assets)10.54  10.55  10.17 
Total risk-based capital (to risk-weighted assets)14.10  14.11  13.70 


HF Financial Corp.
Selected Consolidated Financial Condition Data
(Dollars in Thousands)
(Unaudited)
        
Loan and Lease Portfolio Composition       
 December 31, 2015 June 30, 2015
 Amount Percent Amount Percent
Residential:       
One-to four-family$59,911  6.6% $55,572  6.1%
Construction7,336  0.8  6,308  0.7 
Commercial:       
Commercial business (1)69,547  7.7  78,493  8.6 
Equipment finance leases101    158   
Commercial real estate:       
Commercial real estate334,600  37.0  325,453  35.6 
Multi-family real estate108,816  12.0  111,354  12.2 
Construction71,629  7.9  48,224  5.3 
Agricultural:       
Agricultural real estate85,451  9.4  96,952  10.6 
Agricultural business100,434  11.1  123,988  13.5 
Consumer:       
Consumer direct14,477  1.6  14,837  1.6 
Consumer home equity50,734  5.6  50,377  5.5 
Consumer overdraft & reserve2,534  0.3  2,703  0.3 
Total (2)$905,570  100.0% $914,419  100.0%

_________________________________________________
(1) Includes $1,238 and $1,377 tax exempt leases at December 31, 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       
 December 31, 2015 June 30, 2015
 Amount Percent Amount Percent
Noninterest-bearing checking accounts$140,853  15.0% $171,064  17.8%
Interest-bearing checking accounts225,328  23.9  185,075  19.2 
Money market accounts195,341  20.7  198,000  20.5 
Savings accounts119,635  12.7  93,053  9.7 
In-market certificates of deposit203,193  21.6  242,036  25.1 
Out-of-market certificates of deposit57,332  6.1  74,001  7.7 
Total deposits$941,682  100.0% $963,229  100.0%


HF Financial Corp.
Selected Consolidated Financial Condition Data
(Dollars in Thousands)
(Unaudited)
  
Average Balance, Interest Yields and RatesThree Months Ended
 December 31, 2015 September 30, 2015
 Average   Average  
 Outstanding Yield/ Outstanding Yield/
 Balance Rate Balance Rate
Interest-earning assets:       
Loans and leases receivable(1)(3)$916,495  4.33% $913,277  4.39%
Investment securities(2)(3)178,635  1.80  183,346  1.62 
Total interest-earning assets1,095,130  3.92% 1,096,623  3.93%
Noninterest-earning assets77,470     74,957    
Total assets$1,172,600     $1,171,580    
Interest-bearing liabilities:         
Deposits:         
Checking and money market$395,012  0.26% $374,980  0.24%
Savings109,930  0.16  95,996  0.25 
Certificates of deposit281,826  0.88  299,554  0.75 
Total interest-bearing deposits786,768  0.47  770,530  0.44 
FHLB advances and other borrowings74,214  0.53  81,852  0.41 
Subordinated debentures payable to trusts24,658  4.39  24,656  4.74 
Total interest-bearing liabilities885,640  0.58% 877,038  0.56%
Noninterest-bearing deposits150,422     155,703    
Other liabilities28,921     32,699    
Total liabilities1,064,983     1,065,440    
Equity107,617     106,140    
Total liabilities and equity$1,172,600     $1,171,580    
Net interest spread(4)  3.34%   3.37%
Net interest margin(4)(5)  3.45%   3.49%
Net interest margin, TE(6)  3.51%   3.55%
Return on average assets(7)  0.50%   1.31%
Return on average equity(8)  5.46%   14.44%

_____________________________________
(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 December 31, 2015 and September 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 RatesSix Months Ended
 December 31, 2015 December 31, 2014
 Average   Average  
 Outstanding Yield/ Outstanding Yield/
 Balance Rate Balance Rate
Interest-earning assets:       
Loans and leases receivable(1)(3)$914,886  4.36% $832,438  4.61%
Investment securities(2)(3)180,991  1.71  354,066  1.27 
Total interest-earning assets1,095,877  3.92% 1,186,504  3.61%
Noninterest-earning assets76,210     75,495    
Total assets$1,172,087     $1,261,999    
Interest-bearing liabilities:         
Deposits:         
Checking and money market$384,963  0.25% $397,257  0.24%
Savings102,963  0.20  128,115  0.20 
Certificates of deposit290,695  0.81  273,574  0.88 
Total interest-bearing deposits778,621  0.45  798,946  0.45 
FHLB advances and other borrowings78,089  0.47  150,968  2.04 
Subordinated debentures payable to trusts24,657  4.57  24,837  4.78 
Total interest-bearing liabilities881,367  0.57% 974,751  0.81%
Noninterest-bearing deposits153,053    153,725   
Other liabilities30,921    30,939   
Total liabilities1,065,341    1,159,415   
Equity106,746    102,584   
Total liabilities and equity$1,172,087    $1,261,999   
Net interest spread(4)  3.35%   2.80%
Net interest margin(4)(5)  3.47%   2.95%
Net interest margin, TE(6)  3.53%   3.01%
Return on average assets(7)  0.90%   0.15%
Return on average equity(8)  9.93%   1.83%

_____________________________________
(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 six months ended December 31, 2015 and December 31, 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)
    
December 31, 2015Accruing and Nonaccruing Loans Nonperforming Loans
 30 - 59 60 - 89       Recorded    
 Days Days Greater Total    Investment >    
 Past Past Than Past   90 Days and Nonaccrual  
 Due Due 89 Days Due Current Accruing (1) Balance Total
Residential:               
One-to four-family$  $  $  $  $59,911  $  $108  $108 
Construction        7,336       
Commercial:               
Commercial business  476  3  479  69,068    1,495  1,495 
Equipment finance leases        101       
Commercial real estate:               
Commercial real estate    247  247  334,353    522  522 
Multi-family real estate        108,816       
Construction        71,629       
Agricultural:               
Agricultural real estate    767  767  84,684    3,900  3,900 
Agricultural business    772  772  99,662    4,626  4,626 
Consumer:               
Consumer direct37  40  156  233  14,244    30  30 
Consumer home equity        50,734    207  207 
Consumer OD & reserve4      4  2,530       
Total$41  $516  $1,945  $2,502  $903,068  $  $10,888  $10,888 


September 30, 2015Accruing and Nonaccruing Loans Nonperforming Loans
 30 - 59 60 - 89       Recorded    
 Days Days Greater Total    Investment >    
 Past Past Than Past   90 Days and Nonaccrual  
 Due Due 89 Days Due Current Accruing (1) 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 equity145  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 

____________________________________
(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 Six Months Ended
 December 31, September 30, December 31, December 31,
 2015 2015 2014 2015 2014
Net interest income$9,486  $9,607  $9,364  $19,093  $17,650 
Taxable equivalent adjustment172  170  191  342  378 
Adjusted net interest income9,658  9,777  9,555  19,435  18,028 
Average interest-earning assets1,095,130  1,096,623  1,189,023  1,095,877  1,186,504 
Net interest margin, TE3.51% 3.55% 3.19% 3.53% 3.01%


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 on the sale of securities, charges incurred from prepayment of borrowings, gain on sale of bank branch, merger related costs, and costs incurred for branch closures.

 Three Months Ended Six Months Ended
 December 31, September 30, December 31, December 31,
 2015 2015 2014 2015 2014
GAAP earnings before income taxes$2,171  $5,942  $(1,601) $8,113  $1,027 
Net (gain) loss on sale of securities(15) (5) 75  (20) 41 
Charges incurred from prepayment of borrowings (1)    4,065    4,065 
Gain on sale of bank branch  (2,847)   (2,847)  
Merger related costs (2)712      712   
Costs incurred for branch closures (3)    2    201 
Core earnings before income taxes2,868  3,090  2,541  5,958  5,334 
Provision for income tax on core earnings958  1,006  841  1,964  1,720 
Core earnings$1,910  $2,084  $1,700  $3,994  $3,614 
          
GAAP diluted earnings per share$0.21  $0.55  $(0.12) $0.75  $0.13 
Charges incurred from prepayment of borrowings, net of tax    0.36    0.36 
Gain on sale of bank branch, net of tax  (0.25)   (0.25)  
Merger related costs, net of tax0.06      0.06   
Costs incurred for branch closures, net of tax        0.02 
Core diluted earnings per share$0.27  $0.30  $0.24  $0.56  $0.51 

(1) Charges incurred from prepayment of borrowings is included as Other noninterest expense on the income statement.
(2) Costs incurred are included as professional fees, compensation and employee benefits and other noninterest expense on the income statement.
(3) 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.

 

HF FINANCIAL CORP. Media Contact: Stephen Bianchi, 605-333-7556 sbianchi@homefederal.com Investor Relations Contact: Pamela F Russo, 605-333-7558 prusso@homefederal.com
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