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HF Financial Corp. EPS Increases 23% to $0.48 in First Nine Months of FY2012

Operating Efficiencies Gain Traction, Credit Quality Improvement Continues and Capital Ratios Remain Strong

Third Quarter Earnings More Than Double to $1.2 Million

Declares Regular Quarterly Dividend of $0.1125 per Share


News provided by

HF Financial Corp.

30 Apr, 2012, 05:00 ET

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SIOUX FALLS, S.D., April 30, 2012 /PRNewswire/ -- HF Financial Corp. (Nasdaq: HFFC) today reported it earned $1.2 million, or $0.17 per diluted share for the third fiscal quarter ended March 31, 2012, compared to $459,000, or $0.07 per diluted share for the prior year's third fiscal quarter. Lower loan loss provisions, improving asset quality and reduced operating expenses more than offset lower net interest income. For the first nine months of fiscal 2012, HF Financial's earnings increased to $3.4 million, or $0.48 per diluted share compared to $2.7 million, or $0.39 per diluted share earned in the first nine months a year ago. 

Credit quality continues to improve with nonperforming assets declining 12% in the quarter and 29% year-over-year.  Nonperforming assets were down to $24.5 million or 2.05% of assets at March 31, 2012, from 2.26% at the end of the preceding quarter and from 2.85% for the third quarter of the prior fiscal year.  Capital ratios continued to remain well above minimum regulatory requirements as a result of continued profitability and the addition of lower risk assets.

"Reduced operating expenses are contributing to better profitability and strong resiliency in the face of one-time events," said Stephen Bianchi, President and Chief Executive Officer.  "In the last two quarters, we consolidated two branch offices into nearby offices to improve the efficiencies of our operations without noticeably reducing convenience to our customers.  On March 29, we also announced a plan to consolidate four branch offices in the fourth fiscal quarter.  The rapid adoption of electronic services has allowed customers to bank when and how they find it convenient and lessened the need for branch redundancy.  Our customer retention efforts are exceeding expectations as we adjust our distribution network. Fiscal third quarter costs for the streamlining included $233,000 for the disposition of one closed-branch's fixed assets. Fiscal fourth quarter streamlining costs are estimated to include one-time expenses of $550,000 for severance and lease terminations and $230,000 for the disposition of four closed-branches fixed assets.  In return, we anticipate annual cost savings of all announced branch closures to approach $1.3 million."

Fiscal Third Quarter and YTD Financial Highlights (at or for the period ended March 31, 2012, compared to December 31, 2011, and June 30, 2011.)

  • Earnings for the fiscal third quarter were $0.17 per diluted share versus $0.10 per diluted share in the preceding quarter.  Year-to-date, earnings grew 25% to $3.4 million, or $0.48 per diluted share compared to $2.7 million, or $0.39 per diluted share earned in the first nine months a year ago.
  • The net interest margin, expressed on a fully taxable equivalent basis ("NIM, TE"), was 3.09% year-to-date compared to 3.32% in the first nine months of fiscal 2011.  In the third fiscal quarter, it was 2.84% versus 3.16% the previous quarter and 3.31% a year ago.  In the third quarter of fiscal 2012, an interest reversal of $526,000 on tax increment financing ("TIF") loans reduced net interest margin by approximately 19 basis points in the quarter and six basis points year-to-date.
  • Operating expenses decreased by $393,000 for the third fiscal quarter relative to the same quarter one year earlier, reflecting lower compensation and benefit expenses, lower FDIC insurance premiums, and the ongoing emphasis to improve operating efficiencies.
  • Loan loss provisions were $264,000 for the third fiscal quarter, and $2.9 million year-to-date as credit quality improves.  Loan recoveries help support a solid allowance for loan losses relative to total loans at 1.48% compared to 1.45% at the end of December and 1.61% a year ago.
  • Nonperforming assets ("NPAs") improved further, decreasing to $24.5 million, or 2.05% of total assets from $27.7 million, or 2.26%, of total assets at the end of the preceding quarter.  This is the third consecutive quarter nonperforming assets have trended down.  Dairy-related credit balances have trended lower and accounted for 43.5% of NPAs. 
  • Capital levels at March 31, 2012 continued to remain well above the regulatory "well-capitalized" minimum levels of 10.00%, 6.00% and 5.00%, respectively:
    • Total risk-based capital to risk weighted assets was 15.16% versus 14.41% at December 31, 2011.
    • Tier 1 capital to risk-weighted assets was 13.92% versus 13.17% at December 31, 2011.
    • Tier 1 capital to total adjusted assets was 9.50% versus 9.30% at December 31, 2011.
  • The most recent dividend of $0.1125 per share represents the sixteenth consecutive quarter at this level and provides a 3.79% current yield at recent market prices.
  • Deposits continued to flow into transaction accounts as time certificates of deposit decreased to 32.4% of total deposits from 40.9% at June 30, 2011. 
  • Tangible book value per share increased to $13.10 per share, compared to $12.92 per share at June 30, 2011.
  • Total loans have decreased to $711.0 million at March 31, 2012, as business and agricultural borrowers have deleveraged and the demand for quality loans has slowed.

Balance Sheet and Asset Quality Review

Total assets at March 31, 2012, declined slightly to $1.20 billion relative to $1.23 billion the previous quarter.  The loan portfolio decreased during the quarter as agricultural and commercial business lending continued to retract, due partially to seasonal demands.  "With demand for quality loans continuing at a slower pace, our initiatives to contain expenses through our funding sources and our delivery methods remain important tools to sustain profitability and deliver acceptable returns to shareholders," noted Bianchi. 

"The loan portfolio has declined 16.5% since the end of 2009 for two primary reasons," noted Bianchi. "First, our credit functions have been reorganized where loan originators have been separated in the origination process from credit underwriting and a Chief Credit Officer was put in place to oversee all credit administration.  These actions were designed with the intent of assuring quality loans are held in portfolio and, as the economy slowed, marketing efforts were curtailed and attention was directed at classified assets in the loan portfolio with specific action plans developed to resolve these credits as quickly as possible. Second, a material number of our loan customers have been substantially deleveraging during the last three years as they have been reducing their debt while waiting for better or less risky opportunities for their businesses. We believe this phenomenon may be starting to change back to a more normal situation as the economy recovers, but we cannot precisely predict when or by how much our loan portfolio will start to grow due to existing customer demand." 

Total loans decreased to $711.0 million from $759.5 million during the most recent quarter.  Agricultural borrowers typically pay down seasonal balances in the winter, and this year has not been an exception.  Agricultural loans represent 23.2% of the total loan portfolio and are well diversified between livestock, grains, dairy and other commodities.  Commercial real estate lending activity remains solid in our local markets and accounts for 41.6% of the loan portfolio.  Commercial business loans continue to decline as a percent of total loans to 11.6% at March 31, 2012 versus 13.4% at June 30, 2011.  The remainder of the loan portfolio consists of consumer loans representing 15.3% of total loans and residential loans equaling 8.3% of the portfolio.

Deposit balances decreased in the third quarter from the preceding quarter due in part to a decrease in municipal deposits.  Total deposits were $892.8 million at March 31, 2012.  Deposit accounts, excluding time certificate of deposits, have increased to 67.6% of total deposits at March 31, 2012 from 67.4% a quarter earlier.  Time certificates declined to $289.6 million at March 31, 2012, from $303.3 million a quarter earlier.  "Our total deposit costs, including noninterest bearing deposits, are now approximately 0.75% and our overall interest bearing cost of funds was 1.40% for the three months ended March 31, 2012," said Brent Olthoff, Chief Financial Officer and Treasurer. 

Nonperforming assets decreased to $24.5 million at March 31, 2012, from $27.7 million the previous quarter.  Total NPAs were 2.05% of total assets at the end of the third quarter of fiscal 2012, compared to 2.26% at December 31, 2011.  The problem credits remain largely related to stress in the dairy sector.  Nonperforming dairy loans totaled $10.7 million at March 31, 2012, or 43.5% of total nonperforming assets.  Foreclosed real estate and other properties increased $1.2 million during the quarter. Approximately $1.0 million of the increase in foreclosed real estate was sold at public auction on March 28, 2012, and the Bank expects settlement of proceeds to occur in the fourth fiscal quarter with no additional loss expected.

The allowance for loan and lease losses at March 31, 2012, totaled $10.5 million, representing 1.48% of total loans outstanding, up from 1.45% the previous quarter.  Net charge-offs in the quarter totaled $745,000, which included loan recoveries of $546,000. With the decline in loan balances and continuing improvement in overall credit quality, the loan loss provision declined significantly to $264,000 for the third quarter versus $1.9 million the same quarter of the previous year.  Year-to-date, the loan loss provision was $2.9 million compared to $6.6 million a year ago.

Tangible common shareholders' equity increased to 7.74% of tangible assets at March 31, 2012 compared to 7.43% at December 31, 2011.  Tangible book value per common share was $13.10 at March 31, 2012. 

Capital ratios continued to remain strong and the Bank remains well-capitalized with Tier 1 capital to risk-weighted assets of 13.92% at March 31, 2012, while its Tier 1 capital to adjusted total assets was 9.50%.  These regulatory ratios were much higher than the required minimum levels of 6.00% and 5.00%, respectively.

Review of Operations

HF Financial's earnings reflect lower noninterest expenses, lower provisions for loan losses, lower net interest income, larger gains on the sale of securities and higher expenses related to branch closures compared to the prior quarter.

Net interest income totaled $7.7 million for the third fiscal quarter 2012 compared to $8.7 million for the previous fiscal quarter, and $9.0 million in the year ago quarter.  The most recent quarter reflects an interest reversal of approximately $526,000 on two loans to one borrower that became impaired.  The loan balances totaled $1.9 million.  The loans were TIF loans where interest is earned based on incremental tax revenues generated by the project.  While the loans are not currently past due, the project has not met projections for lot sales.  The Bank is working with the guarantor to resolve the loan status.

Without the interest reversal, the net interest margin on a fully taxable equivalent basis would have been 3.03% for the third quarter and 3.15% for the nine months ended March 31, 2012.   However due to the reversal, the NIM, TE as a percentage of average earning assets decreased 32 basis points to 2.84% for the third quarter of fiscal 2012 compared to 3.16% for the previous quarter.  For the nine months ended March 31, 2012, the NIM, TE was 3.09% versus 3.32% for the same period one year earlier. 

Fiscal third quarter noninterest income was $3.0 million, which was lower than the preceding quarter of $3.4 million.  The decline was primarily related to the $233,000 loss realized on the disposal of fixed assets related to the branch closure and $330,000 of provision for valuation allowance on the mortgage loan servicing portfolio due to increased repayment activity, partially offset by gains on the sale of loans and securities.  Relative to one year earlier, noninterest income increased by $433,000, which primarily reflects less impairment losses and gains on the sale of securities.   

Noninterest expenses decreased to $8.7 million in the third fiscal quarter from $9.0 million in the preceding quarter, primarily reflecting lower professional fees.  Relative to one year earlier, noninterest expense has decreased by $393,000 due primarily to lower compensation and employee benefit costs and lower FDIC insurance premiums.  Management has made a concerted effort to seek operational efficiencies resulting in considerable cost savings.

These financial results are preliminary until the Form 10-Q is filed in May 2012.

Quarterly Dividend Declared

The board of directors declared a regular quarterly cash dividend of $0.1125 per common share for the third fiscal quarter 2012.  The dividend is payable May 18, 2012 to stockholders of record May 11, 2012.

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 32 offices in 19 communities, throughout Eastern South Dakota and one location in Marshall, Minnesota.  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.

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, 2011, 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


Nine Months Ended



March 31,


December 31,


March 31,


March 31,



2012


2011


2011


2012


2011












Interest, dividend and loan fee income:











     Loans and leases receivable


$      9,833


$          11,114


$    11,781


$ 32,513


$ 37,029

     Investment securities and interest-earning deposits

1,184


1,104


1,396


3,591


4,350



11,017


12,218


13,177


36,104


41,379

Interest expense:











     Deposits


1,664


1,871


2,280


5,692


7,320

     Advances from Federal Home Loan Bank











         and other borrowings


1,608


1,602


1,851


4,824


5,747



3,272


3,473


4,131


10,516


13,067

                 Net interest income


7,745


8,745


9,046


25,588


28,312












Provision for losses on loans and leases


264


2,120


1,949


2,906


6,584












                 Net interest income after provision











                      for losses on loans and leases


7,481


6,625


7,097


22,682


21,728












Noninterest income:











     Fees on deposits


1,360


1,539


1,399


4,528


4,598

     Loan servicing income, net


8


394


306


873


1,225

     Gain on sale of loans


671


837


624


1,884


2,474

     Earnings on cash value of life insurance


168


173


165


512


499

     Trust income


206


188


170


560


486

     Gain on sale of securities, net


539


34


132


874


623

     Loss on disposal of closed-branch fixed assets


(233)


(12)


- - - -


(245)


- - - -












         Total other-than-temporary impairment losses


- - - -


- - - -


(399)


- - - -


(399)

         Portion of loss recognized in other











             comprehensive income


- - - -


- - - -


(150)


- - - -


(150)

     Net impairment losses recognized in earnings


- - - -


- - - -


(549)


- - - -


(549)












     Other


288


279


327


818


841



3,007


3,432


2,574


9,804


10,197












Noninterest expense:











     Compensation and employee benefits


4,910


4,904


5,400


15,532


16,479

     Occupancy and equipment


1,076


1,069


1,185


3,269


3,462

     FDIC insurance


261


263


471


796


1,222

     Check and data processing expense


728


726


719


2,169


2,085

     Professional fees


560


1,015


499


2,464


1,663

     Marketing and community investment


323


370


215


1,087


1,090

     Foreclosed real estate and other properties, net


137


42


31


222


166

     Other


701


654


569


1,989


1,990



8,696


9,043


9,089


27,528


28,157












                Income before income taxes


1,792


1,014


582


4,958


3,768

Income tax expense


580


299


123


1,590


1,076












                Net income


$      1,212


$               715


$         459


$   3,368


$   2,692












     Basic earnings per common share:


$        0.17


$              0.10


$        0.07


$     0.48


$     0.39

     Diluted earnings per common share:


$        0.17


$              0.10


$        0.07


$     0.48


$     0.39

     Basic weighted average shares:


6,992,886


6,972,762


6,978,561


6,979,858


6,965,120

     Diluted weighted average shares:


6,996,215


6,972,762


6,981,533


6,980,280


6,966,878

     Outstanding shares (end of period):


7,038,537


6,972,709


6,978,561


7,038,537


6,978,561












Number of full-service offices 


32


33


34





HF Financial Corp.

Consolidated Statements of Financial Condition

(Dollars in Thousands, except share data)










March 31, 2012


June 30, 2011




(Unaudited)


(Audited)

ASSETS





Cash and cash equivalents


$               70,002


$            55,617

Securities available for sale


337,912


234,860

Correspondent bank stock


8,065


8,065

Loans held for sale 


8,561


11,991







Loans and leases receivable


711,016


825,493

Allowance for loan and lease losses


(10,540)


(14,315)


Net loans and leases receivable


700,476


811,178







Accrued interest receivable 


5,744


7,607

Office properties and equipment, net of accumulated depreciation


15,234


14,969

Foreclosed real estate and other properties


2,611


712

Cash value of life insurance


16,133


15,704

Servicing rights, net


12,632


12,952

Goodwill, net


4,366


4,366

Other assets


14,390


13,300


Total assets


$          1,196,126


$       1,191,321







LIABILITIES AND STOCKHOLDERS' EQUITY











LIABILITIES





Deposits 


$             892,833


$          893,157

Advances from Federal Home Loan Bank and other borrowings


147,399


147,395

Subordinated debentures payable to trusts


27,837


27,837

Advances by borrowers for taxes and insurance


18,719


11,587

Accrued expenses and other liabilities


12,788


16,899


Total liabilities


1,099,576


1,096,875







STOCKHOLDERS' EQUITY 





Preferred stock, $.01 par value, 500,000 shares authorized,






none outstanding


- - - -


- - - -

Common stock, $.01 par value, 10,000,000 shares authorized,






9,121,992 and 9,057,727 shares issued






at March 31, 2012 and June 30, 2011, respectively


91


91

Additional paid-in capital


45,504


45,116

Retained earnings, substantially restricted


82,566


81,554

Accumulated other comprehensive (loss), net






of related deferred tax effect


(714)


(1,418)

Less cost of treasury stock, 2,083,455 and 2,083,455 shares






at March 31, 2012 and June 30, 2011, respectively


(30,897)


(30,897)


     Total stockholders' equity


96,550


94,446


          Total liabilities and stockholders' equity


$          1,196,126


$       1,191,321

HF Financial Corp


Selected Consolidated Financial Condition Data


(Dollars in Thousands)


(Unaudited)












Allowance for Loan and Lease Loss Activity


Three Months Ended


Nine Months Ended




3/31/2012


3/31/2011


3/31/2012


3/31/2011












Balance, beginning


$                11,021


$        13,049


$        14,315


$          9,575


    Provision charged to income


264


1,949


2,906


6,584


    Charge-offs


(1,291)


(1,531)


(7,421)


(2,818)


    Recoveries


546


28


740


154


Balance, ending


$                10,540


$        13,495


$        10,540


$        13,495






















Asset Quality




3/31/2012


12/31/2011


3/31/2011












Nonaccruing loans and leases




$        20,770


$        24,156


$        27,084


Accruing loans and leases delinquent more than 90 days


1,136


2,160


6,608


Foreclosed assets




2,611


1,394


664


  Total nonperforming assets




$        24,517


$        27,710


$        34,356












General allowance for loan and lease losses




$          8,213


$          8,278


$          8,692


Specific impaired loan valuation allowance




2,327


2,743


4,803


  Total allowance for loans and lease losses




$        10,540


$        11,021


$        13,495












Ratio of nonperforming assets to total assets at end of period (1)


2.05

%

2.26

%

2.85

%

Ratio of nonperforming loans and leases to total loans and 








  leases at end of period (2)




3.08

%

3.47

%

4.02

%

Ratio of net charge offs to average loans and leases for








  the year-to-date period (3)




1.12

%

1.45

%

0.40

%

Ratio of allowance for loan and lease losses to total loans and








  leases at end of period




1.48

%

1.45

%

1.61

%

Ratio of allowance for loan and lease losses to nonperforming








  loans and leases at end of period (2)




48.11

%

41.88

%

40.05

%











(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 nine months ended March 31, 2012 and March 31, 2011, and the six months




       period ended December 31, 2011 have been annualized




























Troubled Debt Restructuring Summary




3/31/2012


12/31/2011


3/31/2011












Nonaccruing troubled debt restructurings-non-compliant (1) (2)

$          4,758


$          4,771


$                  -


Nonaccruing troubled debt restructurings-compliant (1) (2)

10,295


11,221


11,952


Accruing troubled debt restructurings (3)

1,458


2,623


3,905


Total troubled debt restructurings

$        16,511


$        18,615


$        15,857












(1)  Non-compliant and compliant in regards to the terms of the restructuring agreement




(2)  Balances are included in nonaccruing loans as part of nonperforming loans






(3)  None of the loans included are 90 days past due or greater and are not included in the nonperforming loans


HF Financial Corp.

Selected Capital Composition Highlights

(Unaudited)









3/31/2012


12/31/2011


6/30/2011









Common stockholder's equity before OCI (1) to consolidated assets

8.17

%

7.91

%

8.08

%

  OCI components to consolidated assets:







     Net changes in unrealized gain (loss) on securities available 







        for sale

0.22


0.18


0.14


     Net unrealized losses on defined benefit plan

(0.05)


(0.05)


(0.05)


     Net unrealized losses on derivatives and hedging activities

(0.23)


(0.25)


(0.21)


  Goodwill to consolidated assets

(0.37)


(0.36)


(0.37)


Tangible common equity to tangible assets

7.74

%

7.43

%

7.59

%















Tangible book value per common share (2)

$   13.10


$     13.03


$   12.92









Tier I capital (to adjusted total assets) (3)

9.50

%

9.30

%

9.44

%

Tier I capital (to risk weighted assets) (3)

13.92

%

13.17

%

12.43

%

Total risk-based capital (to risk-weighted assets) (3)

15.16

%

14.41

%

13.28

%








(1)  Accumulated other comprehensive income (loss). 







(2)  Common equity reduced by goodwill 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












March 31, 2012


June 30, 2011




Amount


Percent


Amount


Percent











Residential:










One-to four-family


$          56,133


7.9%


$          57,766


7.0%


Construction


3,089


0.4%


4,186


0.5%

Commercial:










Commercial business (1)


78,527


11.0%


104,227


12.6%


Equipment finance leases


3,771


0.5%


6,279


0.8%

Commercial real estate:










Commercial real estate


236,859


33.3%


219,800


26.6%


Multi-family real estate


44,479


6.3%


49,307


6.0%


Construction


14,351


2.0%


13,584


1.7%

Agricultural:










Agricultural real estate


81,018


11.4%


111,808


13.5%


Agricultural business


83,665


11.8%


138,818


16.8%

Consumer:










Consumer direct


20,379


2.9%


20,120


2.4%


Consumer home equity


85,408


12.0%


94,037


11.4%


Consumer overdraft & reserve


2,897


0.4%


3,426


0.4%


Consumer indirect


440


0.1%


2,135


0.3%












     Total loans and leases receivable (2) 


$        711,016


100.0%


$        825,493


100.0%











(1) Includes $2,377 and $2,377 tax exempt leases at March 31, 2012 and June 30, 2011, respectively.



(2) Net of undisbursed portion of loans in process and deferred loan fees and discounts.























Deposit Composition












March 31, 2012


June 30, 2011




Amount


Percent


Amount


Percent











Noninterest bearing checking accounts


$        130,645


14.63%


$        132,389


14.82%

Interest bearing checking accounts


143,348


16.06%


113,367


12.69%

Money market accounts


208,936


23.40%


197,624


22.13%

Savings accounts


120,256


13.47%


84,449


9.46%

In-market certificates of deposit


276,991


31.02%


349,606


39.14%

Out-of-market certificates of deposit


12,657


1.42%


15,722


1.76%

    Total deposits


$        892,833


100.00%


$        893,157


100.00%

HF Financial Corp.

Selected Consolidated Financial Condition Data

(Dollars in Thousands)

(Unaudited)









Average Balances, Interest Yields and Rates









Three Months Ended


March 31, 2012


December 31, 2011


 Average 


 Yield/Rate 


 Average 


 Yield/Rate 

Interest-earning assets:








     Loans and leases receivable (1) (3)

$    743,977


5.32%


$    800,869


5.52%

     Investment securities (2) (3)

364,504


1.31%


311,192


1.41%

Total interest-earning assets

1,108,481


4.00%


1,112,061


4.37%

     Noninterest-earning assets 

84,723




87,377



Total assets 

$ 1,193,204




$ 1,199,438











Interest-bearing liabilities:








Deposits:








     Checking and money market 

$    334,647


0.56%


$    330,229


0.64%

     Savings 

133,518


0.27%


125,328


0.25%

     Certificates of deposit 

297,306


1.49%


322,279


1.56%

          Total interest-bearing deposits

765,471


0.87%


777,836


0.96%

FHLB advances and other borrowings 

147,401


3.02%


147,413


3.03%

Subordinated debentures payable to trusts

27,837


7.22%


27,837


6.86%

Total interest-bearing liabilities

940,709


1.40%


953,086


1.45%

     Noninterest-bearing deposits 

125,909




120,945



     Other liabilities 

31,057




30,407



Total liabilities 

1,097,675




1,104,438



     Equity 

95,529




95,000



Total liabilities and equity 

$ 1,193,204




$ 1,199,438











Net interest spread (4)



2.60%




2.92%

Net interest margin (4) (5)



2.81%




3.13%

Net interest margin, TE (6) 



2.84%




3.16%

Return on average assets (7)



0.41%




0.24%

Return on average equity (8)



5.10%




2.99%

















(1)  Includes loan fees and interest on accruing loans and leases past due 90 days or more.



(2)  Includes federal funds sold and Federal Home Loan Bank stock.





(3)  Yields do not reflect the tax exempt nature of loans, equipment leases and municipal securities.



(4)  Percentages for the three months ended March 31, 2012 and December 31, 2011 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.  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 Balances, Interest Yields and Rates









Nine Months Ended


March 31, 2012


March 31, 2011


 Average 


 Yield/Rate 


 Average 


 Yield/Rate 

Interest-earning assets:








     Loans and leases receivable (1) (3)

$    792,551


5.46%


$    877,233


5.62%

     Investment securities (2) (3)

321,360


1.49%


273,515


2.12%

Total interest-earning assets

1,113,911


4.31%


1,150,748


4.79%

     Noninterest-earning assets 

83,472




83,924



Total assets 

$ 1,197,383




$ 1,234,672











Interest-bearing liabilities:








Deposits:








     Checking and money market 

$    323,823


0.63%


$    277,647


0.53%

     Savings 

125,585


0.26%


82,543


0.33%

     Certificates of deposit 

323,466


1.61%


423,409


1.89%

          Total interest-bearing deposits

772,874


0.98%


783,599


1.24%

FHLB advances and other borrowings 

147,918


3.05%


188,635


3.09%

Subordinated debentures payable to trusts

27,837


6.86%


27,837


6.56%

Total interest-bearing liabilities

948,629


1.48%


1,000,071


1.74%

     Noninterest-bearing deposits 

122,153




104,126



     Other liabilities 

31,644




36,036



Total liabilities 

1,102,426




1,140,233



     Equity 

94,957




94,439



Total liabilities and equity 

$ 1,197,383




$ 1,234,672











Net interest spread (4)



2.83%




3.05%

Net interest margin (4) (5)



3.06%




3.28%

Net interest margin, TE (6) 



3.09%




3.32%

Return on average assets (7)



0.37%




0.29%

Return on average equity (8)



4.72%




3.80%









(1)  Includes loan fees and interest on accruing loans and leases past due 90 days or more.



(2)  Includes federal funds sold and Federal Home Loan Bank stock.





(3)  Yields do not reflect the tax exempt nature of loans, equipment leases and municipal securities.



(4)  Percentages for the nine months ended March 31, 2012 and March 31, 2011 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.  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 Financing Receivables

(Dollars in Thousands)

(Unaudited)



















At March 31, 2012














Nonperforming Loans














Recorded


















Investment








Accruing and Nonaccruing Loans


> 90 Days








30-59 Days


60-89 Days


Greater Than


Total




and


Nonaccrual






Past Due


Past Due


89 Days


Past Due


Current


Accruing (1)


Balance


Total

Residential:


















One-to four-family


$          25


$        204


$        904


$     1,133


$   55,000


$        107


$        826


$        933


Construction


- - - -


- - - -


- - - -


- - - -


3,089


- - - -


- - - -


- - - -

Commercial:


















Commercial business


142


34


599


775


77,752


- - - -


685


685


Equipment finance leases

27


11


- - - -


38


3,733


- - - -


28


28

Commercial real estate:


















Commercial real estate


81


346


117


544


236,315


- - - -


1,834


1,834


Multi-family real estate


- - - -


- - - -


32


32


44,447


- - - -


32


32


Construction


- - - -


- - - -


- - - -


- - - -


14,351


- - - -


- - - -


- - - -

Agricultural:


















Agricultural real estate


- - - -


611


3,177


3,788


77,230


396


12,470


12,866


Agricultural business


1,341


- - - -


5,052


6,393


77,272


633


4,613


5,246

Consumer:


















Consumer direct


27


2


- - - -


29


20,350


- - - -


21


21


Consumer home equity

444


263


242


949


84,459


- - - -


260


260


Consumer OD & reserve

3


4


- - - -


7


2,890


- - - -


- - - -


- - - -


Consumer indirect


5


1


1


7


433


- - - -


1


1


Total


$     2,095


$     1,476


$   10,124


$   13,695


$ 697,321


$     1,136


$   20,770


$   21,906



















(1)  Loans accruing which are delinquent greater than 90 days have either government guarantees or acceptable loan-to-value ratios



















At December 31, 2011














Nonperforming Loans














Recorded


















Investment








Accruing and Nonaccruing Loans


> 90 Days








30-59 Days


60-89 Days


Greater Than


Total




and


Nonaccrual






Past Due


Past Due


89 Days


Past Due


Current


Accruing (1)


Balance


Total

Residential:


















One-to four-family


$     - - - -


$     - - - -


$     1,470


$     1,470


$   58,445


$        256


$     1,411


$     1,667


Construction


- - - -


- - - -


- - - -


- - - -


2,656


- - - -


- - - -


- - - -

Commercial:


















Commercial business


196


27


499


722


78,794


95


433


528


Equipment finance leases

27


11


- - - -


38


4,363


- - - -


46


46

Commercial real estate:


















Commercial real estate


- - - -


- - - -


- - - -


- - - -


238,237


- - - -


315


315


Multi-family real estate


- - - -


- - - -


32


32


47,815


- - - -


32


32


Construction


- - - -


- - - -


- - - -


- - - -


11,052


- - - -


- - - -


- - - -

Agricultural:


















Agricultural real estate


1,169


762


407


2,338


93,742


670


12,803


13,473


Agricultural business


- - - -


86


3,071


3,157


101,012


1,139


8,835


9,974

Consumer:


















Consumer direct


12


13


- - - -


25


20,351


- - - -


28


28


Consumer home equity

422


68


- - - -


490


90,608


- - - -


248


248


Consumer OD & reserve

1


- - - -


- - - -


1


3,357


- - - -


- - - -


- - - -


Consumer indirect


13


- - - -


- - - -


13


762


- - - -


5


5


Total


$     1,840


$        967


$     5,479


$     8,286


$ 751,194


$     2,160


$   24,156


$   26,316



















(1)  Loans accruing which are delinquent greater than 90 days have either government guarantees or acceptable loan-to-value ratios

HF Financial Corp.



Non-GAAP Disclosure Reconciliation



Net Interest Margin, TE to Net Interest Margin, TE before Interest Reversal



(Dollars in Thousands)



(Unaudited)
















Three Months Ended


Nine Months Ended




March 31,


December 31,


March 31,