News Column

HF Financial Corp. Reports Earnings of $0.31 Per Share in Second Fiscal Quarter

January 27, 2014

An Expanding Margin and Expense Efficiencies Highlight Quarter Results Declares Regular Quarterly Dividend of $0.1125 per Share SIOUX FALLS, S.D. , Jan. 27, 2014 (GLOBE NEWSWIRE) -- HF Financial Corp. (Nasdaq:HFFC) today reported earnings of $2.2 million , or $0.31 per diluted share, for the second quarter of fiscal 2014, compared to $1.0 million , or $0.14 per diluted share, for the first quarter. The net interest margin increased 30 basis points to 2.62% and added $1.0 million to pre-tax earnings in the second quarter relative to the first quarter. Meanwhile, noninterest expenses declined $550,000 relative to the previous quarter. "Our core operations continue to improve. Margin expansion resulted from higher loan balances over the past six months and a slight uptick in yields on our shorter-term investments," said Stephen Bianchi , President and Chief Executive Officer. "Credit quality improvements and our investment in sales staffing and technology to enhance sales opportunities also contributed to stronger earnings." Fiscal Second Quarter Financial Highlights: (at or for the periods ended December 31, 2013 , compared to September 30, 2013 and/or December 31 , 2012.) -- Earnings per diluted share for the second fiscal quarter of 2014 were $0.31 compared to $0.14 the previous quarter and $0.15 one year earlier. The increase in earnings in the most recent quarter reflects a stronger net interest margin, net recoveries in loan provisions and lower overhead expenses. -- The net interest margin expressed on a fully taxable equivalent basis ("NIM, TE") was 2.66% for the second quarter of 2014 compared to 2.36% the first quarter. Prepayment activity in mortgage-backed securities led to a lower margin in the previous quarter. -- Gross loans declined slightly to $745.8 million at December 31, 2013 , from $760.4 million at September 30, 2013 , due in part to seasonal decline in agricultural lending. Relative to the balance of loans at fiscal year-end 2013, loan balances are up by approximately $50.0 million . -- Deposit balances continued to expand reaching $964.2 million in the second quarter versus $944.3 million in the previous quarter, while interest-bearing deposit costs decreased four basis points compared to the previous quarter. -- Nonperforming assets remained flat at $21.4 million at December 31, 2013 , or 1.71% of total assets. -- Mortgage banking revenue totaled $1.4 million ( $621,000 in gain on sale of loans and $809,000 for net loan servicing income) for the second quarter ended December 31, 2013 . The most recent quarter reflects a mortgage servicing rights valuation recovery of approximately $500,000 . -- Total past due loans 30 days or greater declined 30.5% to $1.8 million at December 31, 2013 from $2.5 million at September 30, 2013 . -- Capital levels at December 31, 2013 continued to remain well above the regulatory "well-capitalized" minimum levels: Total risk-based capital to risk-weighted assets was 15.30% versus 14.92% at September 30, 2013 . Tier 1 capital to risk-weighted assets was 14.05% versus 13.67% at September 30, 2013 . Tier 1 capital to total adjusted assets was 9.42% versus 9.32% at September 30, 2013 . -- The most recent dividend of $0.1125 per share represents the twenty-third consecutive quarter at this level and provides a 3.40% current yield at recent market prices. -- Tangible book value per share was $13.15 per share at December 31, 2013 compared to $12.92 per share the previous quarter. "Margin expansion, combined with improved efficiencies, is the foundation of our strategic initiative. Our economic climate is strong in South Dakota with the second lowest unemployment rate in the nation through December 2013 . The unemployment rate of our northern neighbor of North Dakota remains the lowest in the nation prompting our interest in opening a loan production office in Fargo, North Dakota in November 2013 . We expect lending opportunities to remain stable and our company branding will provide us with a stronger reach into the communities we serve," stated Bianchi. Balance Sheet and Asset Quality Review HF Financial's total asset base was flat relative to the first quarter, though funding sources reflect more deposit growth. Total assets at December 31, 2013 and September 30, 2013 were $1.25 billion . The loan portfolio reflects a slight decline in residential, commercial, agricultural and consumer balances. Meanwhile, commercial real estate, multi-family and construction lending were up relative to the previous period. Commercial and multi-family real estate loans continue to represent the largest portion of the loan portfolio, totaling 43.6% of the loan portfolio at December 31, 2013 . Total deposits increased to $964.2 million at December 31, 2013 versus $944.3 million at September 30, 2013 . Our deposit composition reflected an increase in interest-bearing checking accounts, money market accounts and savings accounts while noninterest-bearing deposits and certificates of deposit decreased. Certificates of deposit represent only 26.8% of total deposits at December 31, 2013 . Borrowings decreased during the second fiscal quarter and were replaced with core deposits. At December 31, 2013 , advances from the Federal Home Loan Bank and other borrowings totaled $138.3 million compared to $151.9 million the preceding quarter. Nonperforming assets ("NPAs"), which include $18.5 million of restructured loans that are in-compliance with their restructured terms and payments due, decreased to $21.4 million at December 31, 2013 from $21.5 million the preceding quarter. At December 31, 2013 , NPAs represented 1.71% of total assets. Classified assets totaled $27.5 million at December 31, 2013 , compared to $31.0 million at September 30, 2013 and $43.4 million at December 31, 2012 . Troubled debt restructurings remained unchanged at $19.7 million at December 31, 2013 . The allowance for loan and lease losses at December 31, 2013 , totaled $10.6 million and represented 1.42% of total loans, similar to the percentage at September 30, 2013 . For the quarter ended December 31, 2013 , recoveries exceeded charge-off activity which, when combined with a reduction in the amount of specific allowance attributed to impaired loans, resulted in a reversal in loan loss allowances and a credit to loan loss provisions. For the second quarter of fiscal 2014, loan charge-offs totaled $212,000 compared to $319,000 the previous quarter and $627,000 for the quarter ended one year earlier. Tangible common shareholders' equity increased to 7.43% of tangible assets at December 31, 2013 , compared to 7.32% at September 30, 2013 . The increase was due largely to a higher level of retained earnings. Tangible book value per common share was $13.15 at December 31, 2013 , up from $12.92 per share at the end of the previous quarter. Capital ratios continued to remain well above regulatory requirements with Tier 1 capital to risk-weighted assets of 14.05% at December 31, 2013 , while the ratio of Tier 1 capital to total adjusted assets was 9.42%. These regulatory ratios were higher than the required minimum levels of 6.00% and 5.00%, respectively. Review of Operations For the quarter ended December 31, 2013 , HF Financial's earnings reflect an improved net interest margin, a reversal of mortgage servicing rights impairment and lower overhead expenses. "In the first quarter, our margin reflected accelerated prepayments in our mortgage backed security investments which had a negative impact on our net interest margin. During the second quarter of fiscal 2014, our margin returned to a more normalized level, and we remained positioned for a rise in short-term interest rates," said Brent Olthoff , Chief Financial Officer and Treasurer. Net interest income totaled $7.8 million for the second fiscal quarter of 2014 compared to $6.8 million for the first quarter and $7.2 million in the second quarter of fiscal 2013. The NIM, TE was 2.66% for the second quarter compared to 2.36% for the first quarter. Provisions for losses was a credit for the quarter ended December 31, 2013 of $257,000 compared to a provision of $276,000 for the first quarter and a provision of $128,000 one year earlier. Gain on the sale of loans declined from previous periods as refinancing activity has shown signs of slowing due to a slight uptick in mortgage rates. Mortgage activity produced $621,000 in gains during the second fiscal quarter compared to $794,000 the preceding quarter and $1.4 million a year ago. Net loan servicing income totaled $809,000 for the quarter compared to $620,000 the first quarter. Fees on deposits totaled $1.6 million for the second quarter of fiscal 2014 versus $1.7 million the first quarter and $1.5 million the second quarter in fiscal 2013. Total noninterest income was $3.9 million for the second fiscal quarter of 2014 compared to $4.2 million in the first quarter, and $3.1 million a year ago. Noninterest expense decreased to $8.8 million in the second fiscal quarter from $9.3 million the previous quarter. The second quarter reflects less professional fees associated with year-end audit and legal services. These financial results are preliminary until the Form 10-Q is filed in February 2014 . Quarterly Dividend Declared The board of directors declared a regular quarterly cash dividend of $0.1125 per common share for the second fiscal quarter 2014. The dividend is payable February 14, 2014 to stockholders of record February 7, 2014 . 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" is a non-GAAP financial measure. Information regarding the usefulness of Net Interest Margin, TE appears 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, this presentation 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 the largest publicly traded savings association headquartered in South Dakota , HF Financial Corp. operates with 27 offices in 18 communities, throughout Eastern South Dakota and Minnesota. HF Financial Corp. recently added a loan production office in Fargo , North Dakota. The Company operates a branch in the Twin Cities market as Infinia Bank , a Division of Home Federal Bank of South 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, 2013, 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 Six Months Ended December 31, September 30, December 31, December 31, 2013 2013 2012 2013 2012 Interest, dividend and loan fee income: Loans and leases receivable $ 8,657 $ 8,302 $ 8,804 $ 16,959 $ 17,810 Investment securities and interest-earning deposits 1,486 897 1,028 2,383 2,265 10,143 9,199 9,832 19,342 20,075 Interest expense: Deposits 1,020 1,016 1,199 2,036 2,605 Advances from Federal Home Loan Bank and other borrowings 1,336 1,407 1,463 2,743 2,952 2,356 2,423 2,662 4,779 5,557 Net interest income 7,787 6,776 7,170 14,563 14,518 Provision for losses on loans and leases (257) 276 128 19 (172) Net interest income after provision for losses on loans and leases 8,044 6,500 7,042 14,544 14,690 Noninterest income: Fees on deposits 1,587 1,668 1,464 3,255 3,560 Loan servicing income, net 809 620 (450) 1,429 (490) Gain on sale of loans 621 794 1,411 1,415 2,433 Earnings on cash value of life insurance 207 205 206 412 411 Trust income 210 203 190 413 384 Commission and insurance income 308 323 125 631 319 Gain on sale of securities, net 85 273 358 1,822 Other 102 95 106 197 (1,261) 3,929 4,181 3,052 8,110 7,178 Noninterest expense: Compensation and employee benefits 5,237 5,490 4,784 10,727 9,715 Occupancy and equipment 1,040 1,042 1,002 2,082 2,071 FDIC insurance 234 207 201 441 411 Check and data processing expense 778 735 762 1,513 1,579 Professional fees 405 726 536 1,131 1,179 Marketing and community investment 306 314 304 620 672 Foreclosed real estate and other properties, net 121 135 206 256 309 Other 657 679 661 1,336 1,341 8,778 9,328 8,456 18,106 17,277 Income before income taxes 3,195 1,353 1,638 4,548 4,591 Income tax expense 1,025 374 605 1,399 1,481 Net income $ 2,170 $ 979 $ 1,033 $ 3,149 $ 3,110 Basic earnings per common share: $ 0.31 $ 0.14 $ 0.15 $ 0.45 $ 0.44 Diluted earnings per common share: $ 0.31 $ 0.14 $ 0.15 $ 0.45 $ 0.44 Basic weighted average shares: 7,055,312 7,055,020 7,055,591 7,055,166 7,053,380 Diluted weighted average shares: 7,057,233 7,057,438 7,057,261 7,057,211 7,055,133 Outstanding shares (end of period): 7,055,440 7,055,020 7,054,875 7,055,440 7,054,875 Number of full-service offices 27 27 28 HF Financial Corp. Consolidated Statements of Financial Condition (Dollars in Thousands, except share data) December 31, 2013 June 30, 2013 (Unaudited) (Audited) ASSETS Cash and cash equivalents $ 26,188 $ 21,352 Investment securities available for sale 396,468 424,481 Investment securities held to maturity 15,593 Correspondent bank stock 7,031 8,936 Loans held for sale 3,969 9,169 Loans and leases receivable 745,795 695,771 Allowance for loan and lease losses (10,605) (10,743) Loans and leases receivable, net 735,190 685,028 Accrued interest receivable 6,446 5,301 Office properties and equipment, net of accumulated depreciation 13,568 13,853 Foreclosed real estate and other properties 320 564 Cash value of life insurance 20,309 19,965 Servicing rights, net 11,365 10,987 Goodwill and intangible assets, net 4,883 4,938 Other assets 13,028 12,938 Total assets $ 1,254,358 $ 1,217,512 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits $ 964,186 $ 898,761 Advances from Federal Home Loan Bank and other borrowings 138,323 167,163 Subordinated debentures payable to trusts 24,837 24,837 Advances by borrowers for taxes and insurance 15,022 12,595 Accrued expenses and other liabilities 14,293 16,885 Total liabilities 1,156,661 1,120,241 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, 9,138,895 and 9,138,475 shares issued at December 31, 2013 and June 30, 2013 , respectively 91 91 Additional paid-in capital 46,135 46,096 Retained earnings, substantially restricted 87,828 86,266 Accumulated other comprehensive (loss), net of related deferred tax effect (5,460) (4,285) Less cost of treasury stock, 2,083,455 shares at December 31, 2013 and June 30, 2013 (30,897) (30,897) Total stockholders' equity 97,697 97,271 Total liabilities and stockholders' equity $ 1,254,358 $ 1,217,512 HF Financial Corp. Selected Consolidated Financial Condition Data (Dollars in Thousands) (Unaudited) Three Months Ended Six Months Ended Allowance for Loan and Lease Loss Activity December 31, 2013 September 30, 2013 December 31, 2012 December 31, 2013 December 31, 2012 Balance, beginning $ 10,763 $ 10,743 $ 10,809 $ 10,743 $ 10,566 Provision charged to income (257) 276 128 19 (172) Charge-offs (212) (319) (627) (531) (1,030) Recoveries 311 63 470 374 1,416 Balance, ending $ 10,605 $ 10,763 $ 10,780 $ 10,605 $ 10,780 Asset Quality December 31, 2013 September 30, 2013 December 31, 2012 Nonaccruing loans and leases 21,110 21,258 15,980 Accruing loans and leases delinquent more than 90 days 40 209 Foreclosed assets 320 226 890 Total nonperforming assets 21,430 21,524 17,079 General allowance for loan and lease losses 9,112 8,806 8,064 Specific impaired loan valuation allowance 1,493 1,977 2,716 Total allowance for loans and lease losses 10,605 10,783 10,780 Ratio of nonperforming assets to total assets at end of period (1) 1.71% 1.72% 1.40% Ratio of nonperforming loans and leases to total loans and leases at end of period (2) 2.83% 2.80% 2.39% Ratio of net charge-offs (recoveries) to average loans and leases for the year-to-date period (3) 0.04% 0.14% (0.11)% Ratio of allowance for loan and lease losses to total loans and leases at end of period 1.42% 1.42% 1.59% Ratio of allowance for loan and lease losses to nonperforming loans and leases at end of period (2) 50.24% 50.54% 66.59% (1) Nonperforming assets include nonaccruing loans and leases, accruing loans and leases delinquent more than 90 days and foreclosed assets. (2) Nonperforming loans and leases include both nonaccruing and accruing loans and leases delinquent more than 90 days. (3) Percentages for the six months ended December 31, 2013 and December 31, 2012 and the three months ended September 30, 2013 have been annualized. Troubled Debt Restructuring Summary December 31, 2013 September 30, 2013 December 31, 2012 Nonaccruing troubled debt restructurings-non-compliant (1)(2) $ 4 $ 140 $ 223 Nonaccruing troubled debt restructurings-compliant (1)(2)(3) 18,481 18,307 8,643 Accruing troubled debt restructurings (4) 1,245 1,266 1,300 Total troubled debt restucturings $ 19,730 $ 19,713 $ 10,166 (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 $349 , $198 , and $110 , 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, 2013 September 30, 2013 June 30, 2013 Common stockholder's equity before OCI (1) to consolidated assets 8.26% 8.17% 8.37% OCI components to consolidated assets: Net changes in unrealized (losses) gains on securities available for sale (0.22) (0.23) (0.11) Net unrealized losses on defined benefit plan (0.16) (0.16) (0.16) Net unrealized losses on derivatives and hedging activities (0.06) (0.07) (0.08) Goodwill and intangible assets, net to consolidated assets (0.39) (0.39) (0.41) Tangible common equity to tangible assets 7.43% 7.32% 7.61% Tangible book value per common share (2) $ 13.15 $ 12.92 $ 13.09 Tier I capital (to adjusted total assets) (3) 9.42% 9.32% 9.56% Tier I capital (to risk-weighted assets) (3) 14.05 13.67 14.58 Total risk-based capital (to risk-weighted assets) (3) 15.3 14.92 15.83 (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. HF Financial Corp. Selected Consolidated Financial Condition Data (Dollars in Thousands) (Unaudited) Loan and Lease Portfolio Composition December 31, 2013 June 30, 2013 Amount Percent Amount Percent Residential: One-to four-family $ 47,063 6.3% $ 46,738 6.7% Construction 3,255 0.4 2,360 0.4 Commercial: Commercial business (1) 65,802 8.8 75,555 10.9 Equipment finance leases 1,061 0.2 1,633 0.2 Commercial real estate: Commercial real estate 261,569 35.1 239,057 34.4 Multi-family real estate 63,632 8.5 49,217 7.1 Construction 32,731 4.4 12,879 1.8 Agricultural: Agricultural real estate 82,321 11.0 77,334 11.1 Agricultural business 105,580 14.2 100,398 14.4 Consumer: Consumer direct 19,401 2.6 21,219 3.1 Consumer home equity 60,066 8.1 66,381 9.5 Consumer overdraft & reserve 3,312 0.4 2,995 0.4 Consumer indirect 2 5 Total (2) $745,795 100.0% $ 695,771 100.0% (1) Includes $1,774 and $2,024 tax exempt leases at December 31, 2013 and June 30, 2013, respectively. (2) Exclusive of undisbursed portion of loans in process and net of deferred loan fees and discounts. Deposit Composition December 31, 2013 June 30, 2013 Amount Percent Amount Percent Noninterest-bearing checking accounts $156,339 16.2% $ 156,896 17.5% Interest-bearing checking accounts 147,743 15.3 151,359 16.8 Money market accounts 232,073 24.1 212,817 23.7 Savings accounts 169,994 17.6 115,573 12.9 In-market certificates of deposit 230,987 24.0 239,521 26.6 Out-of-market certificates of deposit 27,050 2.8 22,595 2.5 Total deposits $964,186 100.0% $ 898,761 100.0% HF Financial Corp. Selected Consolidated Financial Condition Data (Dollars in Thousands) (Unaudited) Average Balance, Interest Yields and Rates Three Months Ended December 31, 2013 September 30, 2013 Average Average Outstanding Yield/ Outstanding Yield/ Balance Rate Balance Rate Interest-earning assets: Loans and leases receivable (1)(3) $761,491 4.51% $726,345 4.53% Investment securities (2)(3) 419,335 1.41 434,369 0.82% Total interest-earning assets 1,180,826 3.41% 1,160,714 3.14% Noninterest-earning assets 74,250 72,158 Total assets $1,255,076 $1,232,872 Interest-bearing liabilities: Deposits: Checking and money market $363,665 0.26% $347,036 0.27% Savings 153,448 0.25 110,970 0.20 Certificates of deposit 269,476 1.01 271,864 1.06 Total interest-bearing deposits 786,589 0.51 729,870 0.55 FHLB advances and other borrowings 155,341 2.51 188,067 2.22 Subordinated debentures payable to trusts 24,837 5.64 24,837 5.64 Total interest-bearing liabilities 966,767 0.97% 942,774 1.02% Noninterest-bearing deposits 164,215 163,785 Other liabilities 27,350 30,359 Total liabilities 1,158,332 1,136,918 Equity 96,744 95,954 Total liabilities and equity $1,255,076 $1,232,872 Net interest spread (4) 2.44% 2.12% Net interest margin (4)(5) 2.62% 2.32% Net interest margin, TE (6) 2.66% 2.36% Return on average assets (7) 0.69% 0.32% Return on average equity (8) 8.90% 4.05% (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 December 31, 2013 and September 30, 2013 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 Six Months Ended December 31, 2013 December 31, 2012 Average Average Outstanding Yield/ Outstanding Yield/ Balance Rate Balance Rate Interest-earning assets: Loans and leases receivable (1)(3) $ 743,919 4.52% $ 701,287 5.04% Investment securities (2)(3) 426,852 1.11 379,809 1.18 Total interest-earning assets 1,170,771 3.28% 1,081,096 3.68% Noninterest-earning assets 73,331 81,119 Total assets $ 1,244,102 $ 1,162,215 Interest-bearing liabilities: Deposits: Checking and money market $ 355,357 0.26% $ 346,982 0.37% Savings 132,209 0.23 111,366 0.26 Certificates of deposit 270,665 1.03 275,963 1.30 Total interest-bearing deposits 758,231 0.53 734,311 0.70 FHLB advances and other borrowings 171,706 2.35 139,328 2.99 Subordinated debentures payable to trusts 24,837 5.64 27,837 6.08 Total interest-bearing liabilities 954,774 0.99% 901,476 1.22% Noninterest-bearing deposits 163,989 132,053 Other liabilities 28,948 30,370 Total liabilities 1,147,711 1,063,899 Equity 96,391 98,316 Total liabilities and equity $ 1,244,102 $ 1,162,215 Net interest spread (4) 2.29% 2.46% Net interest margin (4)(5) 2.47% 2.66% Net interest margin, TE (6) 2.51% 2.70% Return on average assets (7) 0.50% 0.53% Return on average equity (8) 6.48% 6.27% _____________________________________ (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, 2013 and December 31, 2012 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, 2013 Accruing and Nonaccruing Loans Nonperforming Loans Recorded 30 - 59 60 - 89 Greater Investment > Days Days Than Total 90 Days and Nonaccrual Past Due Past Due 89 Days Past Due Current Accruing (1) Balance Total Residential: One-to four-family $ $ $ 162 $ 162 $ 46,901 $ $ 162 $ 162 Construction 3,255 Commercial: Commercial business 254 51 305 65,497 3,919 3,919 Equipment finance leases 1,061 Commercial real estate: Commercial real estate 102 199 55 356 261,213 1,051 1,051 Multi-family real estate 27 27 63,605 27 27 Construction 32,731 Agricultural: Agricultural real estate 217 217 82,104 11,208 11,208 Agricultural business 6 6 105,574 3,634 3,634 Consumer: Consumer direct 42 1 5 48 19,353 5 5 Consumer home equity 116 27 495 638 59,428 1,104 1,104 Consumer OD & reserve 4 4 3,308 Consumer indirect 2 Total $ 741 $ 227 $ 795 $ 1,763 $ 744,032 $ $ 21,110 $ 21,110 September 30, 2013 Accruing and Nonaccruing Loans Nonperforming Loans Recorded 30 - 59 60 - 89 Greater Investment > Days Days Than Total 90 Days and Nonaccrual Past Due Past Due 89 Days Past Due Current Accruing (1) Balance Total Residential: One-to four-family $ 56 $ $ 280 $ 336 $ 49,233 $ $ 280 $ 280 Construction 4,897 Commercial: Commercial business 202 292 120 614 75,644 4,246 4,246 Equipment finance leases 1,328 Commercial real estate: Commercial real estate 181 230 44 455 267,560 866 866 Multi-family real estate 27 27 59,755 27 27 Construction 23,531 Agricultural: Agricultural real estate 37 40 77 82,015 40 11,108 11,148 Agricultural business 6 8 14 108,346 3,639 3,639 Consumer: Consumer direct 26 5 31 20,727 5 5 Consumer home equity 255 156 570 981 61,724 1,087 1,087 Consumer OD & reserve 2 1 3 3,077 Consumer indirect 4 Total $ 765 $ 687 $ 1,086 $ 2,538 $ 757,841 $ 40 $ 21,258 $ 21,298 ____________________________________ (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) Three Months Ended Six Months Ended December 31, September 30, December 31, December 31, 2013 2013 2012 2013 2012 Net interest income $ 7,787 $ 6,776 $ 7,170 $ 14,563 $ 14,518 Taxable equivalent adjustment 142 118 109 259 194 Adjusted net interest income 7,929 6,894 7,279 14,822 14,712 Average interest-earning assets 1,180,826 1,160,714 1,078,895 1,170,771 1,081,096 Net interest margin, TE 2.66 % 2.36% 2.68% 2.51% 2.70% CONTACT: HF Financial Corp. Stephen Bianchi , President and Chief Executive Officer (605) 333-7556 The Cereghino Group IR CONTACT: 206-388-5785 Source: HF Financial Corp.


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