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

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

Net Interest Margin, TE Expands 20 Basis Points to 3.53% in FY 4Q15
Loans Grow 12.6% Year-Over-Year
Declares Regular Quarterly Dividend of $0.1125 per Share

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

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

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

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

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

Balance Sheet and Asset Quality Review

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

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

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

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

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

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

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

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

Review of Operations

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

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

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

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

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

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

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

Quarterly Dividend Declared

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

Use of Non-GAAP Financial Measures

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

About HF Financial Corp.

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

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

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

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

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

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

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.