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HF Financial Corp. Reports Fiscal Third Quarter Profit, Declares Regular Quarterly Dividend of $0.1125 per Share

Capital Ratios Strengthened


News provided by

HF Financial Corp.

Apr 25, 2011, 04:30 ET

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SIOUX FALLS, S.D., April 25, 2011 /PRNewswire/ -- HF Financial Corp. (Nasdaq: HFFC) today reported it earned $459,000, or $0.07 per diluted share in the fiscal third quarter ended March 31, 2011, down from $1.7 million, or $0.25 per diluted share in the fiscal second quarter of 2011.  Net income for the fiscal third quarter a year ago was $1.8 million, or $0.26 per diluted share.  In the first nine months of fiscal 2011, net income totaled $2.7 million, or $0.39 per diluted share, compared to $4.6 million, or $0.86 per diluted share in the first nine months of fiscal 2010 when it had 1.6 million fewer diluted weighted average shares than it did at March 31, 2011.

"We have grown our capital, maintained our uninterrupted payment of dividends and continue our efforts to build shareholder value and leverage our platform as we expand into the Twin Cities," said Curt Hage, Chairman, President and Chief Executive Officer.  "Our dairy portfolio continues to experience stress, though we believe we are moving efficiently towards resolution of the non-performing loans in that category.  Our reserves remain strong and the non-dairy portion of our loan portfolio is performing well.  Loan diversification has been an important part of our success and has enabled us to weather the economic downturn better than many of our peers."

Fiscal Third Quarter Financial Highlights (at or for the period ended March 31, 2011)

  • Capital levels well exceeded the regulatory required levels of 10%, 6% and 5%, respectively, to meet the well-capitalized requirement established by regulators:
    •  Total risk-based capital to risk weighted assets was 12.60%
    •  Tier 1 capital to risk-weighted assets was 11.71%
    •  Tier 1 capital to total adjusted assets was 9.39%.
  • Cash dividends, paid for over 18 years, are an important part of building shareholder value.  The most recent dividend of $0.1125 per share generates a current annualized yield of 4.10% at recent market prices.
  • Nonperforming assets (NPAs) increased to $34.4 million, or 2.85% of total assets in the third fiscal quarter, from $31.7 million, or 2.58% of total assets in the previous quarter, with the majority of NPAs linked to the dairy industry.  Classified assets declined to $74.5 million at March 31, 2011 from $81.8 million at December 31, 2010.
  • Total adjusted revenue for the three quarters ended March 31, 2011, which excludes other-than-temporary impairment credit loss and net gains on the sale of securities, increased 7.5% compared to the same period in the prior fiscal year due to the combination of increases in net interest income and noninterest income.  Adjusted revenue is a non-GAAP financial measure.  
  • The net interest margin expressed on a fully taxable equivalent basis ("NIM, TE") maintained its stability at 3.31% in the fiscal third quarter compared to 3.32% in the previous quarter.  For the nine months ended March 31, 2011, the NIM, TE remained steady at 3.32%.  NIM, TE is a non-GAAP financial measure.
  • Due largely to the seasonal outflow of public funds, total deposits decreased $21.9 million compared to the previous quarter.  In-market deposits excluding public funds increased $3.9 million from December 31, 2010.  
  • Borrowings declined as loan repayments were deployed to reduce external borrowings.
  • Tangible common equity ratio increased from the previous quarter to 7.58% and tangible book value increased to $13.06 per share.

Economic Update

In March, South Dakota's unemployment rate was 4.9%, down from 5.1% in March 2010.  "This year there were 2,900 more employed workers in the state than a year ago, whereas a year ago South Dakota saw a year-over-year loss of 5,200 workers," according to Pam Roberts, State Labor and Regulation Secretary.  

"Our economy is picking up as many major companies have call centers here and we have not been dependent on the depressed construction market," said Hage.  "We remain focused on providing banking services to the greater Sioux Falls market and meeting the borrowing needs of our community.  Additionally, we see opportunities in the Twin Cities market where many banks have been weakened by the economic recession and borrowers are looking for strong financial institutions like HF Financial."  

Expansion into the Twin Cities

HF Financial Corp. will be opening a new branch at 3601 Minnesota Drive in Bloomington, MN in the spring of 2011.  The branch will operate under the identity of Infinia Bank, a Division of Home Federal Bank of South Dakota.  The name change is for the purpose of distinguishing the branch operations from other financial institutions in the Twin Cities market with a similar name as Home Federal.  Stephen Bianchi, President-Twin Cities, who has extensive experience in Minnesota banking, will lead the Twin Cities initiative.  "The Twin Cities provides considerable opportunities for a strong bank franchise.  The large metropolitan area will allow us to leverage our strong platform established in South Dakota where personnel and franchise costs are less expensive," said Bianchi.  "Our focus will be on business banking until we identify additional opportunities that could help us build out the full-service community bank presence."

Asset Quality and Balance Sheet Review

"Loans and leases declined primarily from pay down activity within the commercial and ag real estate loan categories, which contributed to the decline in total assets since December 31, 2010," noted Darrel Posegate, President of Home Federal Bank.  Also impacting the balance sheet were the increases in lower cost funding sources and the repayment of external borrowings.  Loans and leases receivable, net declined by $22.3 million to $825.3 million at March 31, 2011 from the preceding quarter, while loans held for sale declined by $10.3 million from the preceding quarter.  Liquidity continues to remain high, both on balance sheet and through off-balance sheet access to funds.

Largely because of the outflow of seasonal public funds, deposits decreased to $888.4 million from $910.3 million at December 31, 2010.  Noninterest-bearing demand deposits totaled $108.9 million at March 31, 2011, or 12.3% of the deposit portfolio.  Total low-cost deposits (excluding all time deposits) were $500.5 million or 56.3% of the deposit portfolio compared to $444.2 million or 52.9% of total deposits a year ago when certificates of deposits were a higher percentage of total deposits.  "We continue transitioning from a thrift balance sheet -- where a large amount of deposits consisted of certificates of deposit -- to a bank balance sheet with a greater portion of our deposits in transaction accounts," said Hage.

Nonperforming assets (NPAs) increased to $34.4 million at March 31, 2011, from $31.7 million the previous quarter.  Total NPAs were 2.85% of total assets at the end of March, compared to 2.58% at December 31, 2010.  As noted in the previous quarter, the problem credits are primarily related to the deterioration in dairy farming.  Dairy loans totaled approximately $44.5 million at March 31, 2011, with $17.3 million in nonperforming status.  "We are beginning to see some resolution in the non-performing status of our dairy loans through foreclosures and improved dairy prices which we expect will support our current valuations," Hage said.   Nonperforming assets consist of non-accruing loans, accruing loans 90 days or more past due and foreclosed assets.  

The allowance for loan losses at March 31, 2011 totaled $13.5 million, representing 1.61% of total loans outstanding and 40.1% of nonperforming loans, compared to $13.1 million, or 1.52% of total loans and 41.4% of nonperforming loans at December 31, 2010.  Non-accruing loans and leases totaled $27.1 million, compared to $26.9 million in the preceding quarter.  Net charge-offs in the quarter totaled $1.5 million, or 0.71%, annualized, of average loans outstanding, compared to $538,000, or 0.24%, annualized, of average loans outstanding the fiscal second quarter.  At March 31, 2011, the total amount of restructured loans that are performing is $4.3 million while restructured loans in nonaccrual status was $12.0 million.  Restructured loans consist primarily of agricultural loans.

The investment securities portfolio held six trust preferred pools at an adjusted cost basis of $8.8 million and a fair value of $3.4 million.  The Company recorded a $549,000 net impairment credit loss on these investments for the quarter, compared to no adjustments for the previous quarter.  

Tangible common shareholders' equity to tangible assets increased to 7.58% at March 31, 2011 compared to 7.37% at December 31, 2010.  Tangible book value per common share increased to $13.06, compared to $12.90 in the previous quarter.  

Capital ratios continued to strengthen and as a result, HF Financial remains well-capitalized with Tier 1 Capital to Risk Weighted Assets of 11.71% at March 31, 2011, while its Tier 1 Capital to Adjusted Total Assets was 9.39%.  These regulatory ratios were much higher than the required minimum levels of 6.00% and 5.00%, respectively.

Review of Operations  

The provision for loan losses increased from the preceding quarter by $681,000, gain on sale of loans decreased by $479,000, net impairment credit losses increased $549,000, and noninterest expense decreased $552,000.  These were the primary factors which resulted in a decreased net income, before income taxes, of $2.0 million when compared to the linked-quarter ended December 31, 2010.

Third quarter fiscal 2011 net interest income, before the provision for loan losses, decreased by $595,000 on a linked-quarter basis and decreased $307,000 from the same period in fiscal 2010.  Net interest income totaled $9.0 million for the third quarter of fiscal 2011 compared to $9.6 million for the second quarter of fiscal 2011, and $9.4 million in the year ago quarter.  

The NIM, TE, as a percentage of average earning assets was 3.31% for the third quarter of fiscal 2011 compared to 3.32% for the previous quarter.  Year-to-date, the NIM, TE remained at 3.32% and the same as in the first nine months of fiscal 2010.  

Fiscal third quarter noninterest income was $2.6 million, or a $1.3 million decrease from the preceding quarter. This reduction was due primarily to a decrease in single-family mortgage activity from the record levels experienced in the second quarter of fiscal 2011, while a seasonal reduction in interchange income also affected fees on deposits.  The Company also recorded a $549,000 net impairment credit loss on investments for the quarter, compared to no adjustments for the previous quarter.  On a fiscal year-to-date basis, noninterest income has increased by $2.4 million to $10.2 million when compared to the same period of the prior fiscal year.

Noninterest, or operating, expenses decreased to $9.1 million in the third quarter of fiscal 2011 from $9.6 million in the second quarter of fiscal 2011, primarily reflecting lower compensation expenses, marketing fees and professional fees.  On a fiscal year-to-date basis, noninterest expense has increased by $1.9 million to $28.2 million when compared to the same period of the prior fiscal year.

Quarterly Dividend Declared

The board of directors has declared another regular quarterly cash dividend of $0.1125 per common share for the third quarter of fiscal 2011.  The dividend is payable May 13, 2011 to stockholders of record May 6, 2011.

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). "Adjusted Revenue," which excludes other-than-temporary impairment charges and net gain on the sale of securities, and "Net Interest Margin, TE" are non-GAAP financial measures. The Company believes Adjusted Revenue is useful to investors because it allows for greater transparency, facilitates comparison to prior periods and peer results and assists in forecasting performance for future periods.  Further 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.  The largest publicly traded savings association headquartered in South Dakota, HF Financial Corp. operates with 33 offices in 19 communities, throughout Eastern South Dakota and one location in Marshall, Minnesota.  The Company has secured a location in the Twin Cities market to establish a new branch bank to be operated 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); additional other-than-temporary impairment credit loss incurred in the Company's trust preferred securities portfolio; 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, 2010, 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,



2011


2010


2010


2011


2010












Interest, dividend and loan fee income:











    Loans and leases receivable


$   11,781


$          12,540


$   12,192


$ 37,029


$ 36,887

    Investment securities and interest-earning deposits


1,396


1,471


1,928


4,350


6,213



13,177


14,011


14,120


41,379


43,100

Interest expense:











    Deposits


2,280


2,428


2,826


7,320


9,682

    Advances from Federal Home Loan Bank











        and other borrowings


1,851


1,942


1,941


5,747


6,456



4,131


4,370


4,767


13,067


16,138

                Net interest income


9,046


9,641


9,353


28,312


26,962












Provision for losses on loans and leases


1,949


1,268


981


6,584


1,748












                Net interest income after provision











                     for losses on loans and leases


7,097


8,373


8,372


21,728


25,214












Noninterest income:











    Fees on deposits


1,399


1,590


1,293


4,598


4,142

    Loan servicing income


306


417


527


1,225


1,506

    Gain on sale of loans, net


624


1,103


369


2,474


1,402

    Earnings on cash value of life insurance


165


168


161


499


489

    Trust income


170


162


173


486


637

    Gain on sale of securities, net


132


94


229


623


1,365












        Total other-than-temporary impairment losses


(399)


- - - -


59


(399)


(2,022)

        Portion of loss recognized in other











            comprehensive income


(150)


- - - -


(263)


(150)


(380)

    Net impairment losses recognized in earnings


(549)


- - - -


(204)


(549)


(2,402)












    Other


327


307


262


841


622



2,574


3,841


2,810


10,197


7,761












Noninterest expense:











    Compensation and employee benefits


5,400


5,532


5,078


16,479


15,380

    Occupancy and equipment


1,185


1,138


1,161


3,462


3,345

    FDIC insurance


471


407


325


1,222


985

    Check and data processing expense


719


660


659


2,085


2,034

    Professional fees


499


573


338


1,663


1,275

    Marketing and community investment


215


469


319


1,090


1,284

    Foreclosed real estate and other properties, net


31


110


34


166


101

    Other


569


752


609


1,990


1,847



9,089


9,641


8,523


28,157


26,251












               Income before income taxes


582


2,573


2,659


3,768


6,724

Income tax expense


123


830


868


1,076


2,117












               Net income


$        459


$            1,743


$     1,791


$   2,692


$   4,607












    Basic earnings per common share:


$       0.07


$              0.25


$       0.26


$     0.39


$     0.86

    Diluted earnings per common share:


$       0.07


$              0.25


$       0.26


$     0.39


$     0.86

    Basic weighted average shares:


6,978,561


6,970,787


6,938,538


6,965,120


5,378,964

    Diluted weighted average shares:


6,981,533


6,973,214


6,940,628


6,966,878


5,384,144

    Outstanding shares (end of period):


6,978,561


6,978,561


6,938,538


6,978,561


6,938,538

HF Financial Corp.

Selected Consolidated Financial Condition Data

(Dollars in Thousands, except share data)

(Unaudited)









3/31/2011


12/31/2010


6/30/2010









Balance Sheet Data







Total assets

$ 1,207,283


1,226,033


$ 1,253,015


Cash and cash equivalents

30,890


18,995


20,805


Securities available for sale

263,943


260,664


264,442


Loans and leases receivable, net

825,257


847,530


862,704


Loans held for sale

6,669


17,013


25,287


In-Market Deposits

870,773


890,913


891,360


Out-of-Market Deposits

17,625


19,403


22,904


Advances from Federal Home Loan Bank and other borrowings

162,386


167,362


190,719


Subordinated debentures payable to trusts

27,837


27,837


27,837


Stockholders' equity

95,536


94,400


94,435
















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

8.20

%

8.09

%

7.83

%

 OCI components to consolidated assets:







    Net changes in unrealized gain (loss) on securities available







       for sale

(0.05)


(0.13)


(0.05)


    Net unrealized losses on defined benefit plan

(0.06)


(0.06)


(0.06)


    Net unrealized losses on derivatives and hedging activities

(0.15)


(0.17)


(0.16)


 Goodwill to consolidated assets

(0.36)


(0.36)


(0.35)


Tangible common equity to tangible assets

7.58

%

7.37

%

7.21

%















Tangible book value per common share (2)

$        13.06


$      12.90


$   12.97









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

9.39

%

9.13

%

8.69

%

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

11.71

%

11.31

%

10.79

%

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

12.60

%

12.22

%

11.68

%








Number of full-service offices

33


33


33









(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, Except per Share Data)

(Unaudited)










Loan and Lease Portfolio Composition











March 31, 2011


June 30, 2010



Amount


Percent


Amount


Percent










One-to four-family (1)


$   60,518


7.21%


$   72,392


8.30%

Commercial real estate


221,874


26.45%


216,479


24.82%

Commercial business (2)


96,591


11.52%


99,892


11.45%

Multi-family real estate


47,619


5.68%


50,064


5.74%

Equipment finance leases


7,149


0.85%


10,642


1.22%

Consumer direct (3)


120,240


14.34%


122,832


14.08%

Consumer indirect (4)


3,089


0.37%


8,186


0.94%

Agricultural


263,848


31.46%


270,568


31.02%

Construction


17,824


2.12%


21,225


2.43%

    Total loans and leases receivable (5)


$ 838,752


100.00%


$ 872,280


100.00%










(1) Excludes $5,723 and $20,394 loans held for sale at March 31, 2011 and June 30, 2010, respectively.

(2) Includes $2,489 and $2,599 tax exempt leases at March 31, 2011 and June 30, 2010, respectively.

(3) Excludes $946 and $4,893 student loans held for sale at March 31, 2011 and June 30, 2010, respectively.

(4) The Company announced Consumer Indirect originations ceased during the first quarter of Fiscal 2008.

(5) Includes deferred loan fees and discounts.










Deposit Composition











March 31, 2011


June 30, 2010



Amount


Percent


Amount


Percent










Noninterest bearing checking accounts


$ 108,943


12.26%


$ 117,139


12.81%

Interest bearing checking accounts


$ 125,322


14.11%


100,231


10.96%

Money market accounts


$ 183,091


20.61%


189,821


20.76%

Savings accounts


$   83,169


9.36%


83,136


9.09%

In-market certificates of deposit


$ 370,248


41.68%


401,033


43.86%

Out-of-market certificates of deposit


$   17,625


1.98%


22,904


2.51%

   Total deposits


$ 888,398


100.00%


$ 914,264


100.00%

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



3/31/2011


3/31/2010


3/31/2011


3/31/2010


Balance, beginning

$ 13,049


$                    8,512


$     9,575


$   8,470


     Provision charged to income

1,949


981


6,584


1,748


     Charge-offs

(1,531)


(602)


(2,818)


(1,416)


     Recoveries

28


44


154


133


Balance, ending

$ 13,495


$                    8,935


$   13,495


$   8,935














3/31/2011


12/31/2010


3/31/2010











Asset Quality









Nonaccruing loans and leases



$                  27,084


$   26,859


$   4,849


Accruing loans and leases delinquent more than 90 days



6,608


4,638


4,994


Foreclosed assets



664


164


1,294


   Total nonperforming assets



$                  34,356


$   31,661


$ 11,137











FAS Statement No. 5 Allowance for loan and lease losses



$                    8,692


$     9,101


$   8,653


FAS Statement No. 114 Impaired loan valuation allowance



4,803


3,948


282


   Total allowance for loans and lease losses



$                  13,495


$   13,049


$   8,935











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



2.85

%

2.58

%

0.90

%

Ratio of nonperforming loans and leases to total loans and









 leases at end of period (2)



4.02

%

3.66

%

1.16

%

Ratio of net charge offs to average loans and leases for









 the year-to-date period



0.40

%

0.26

%

0.20

%

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









 leases at end of period



1.61

%

1.52

%

1.05

%

Ratio of allowance for loan and lease losses to nonperforming









 loans and leases at end of period (2)



40.05

%

41.43

%

90.78

%










(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, 2011 and March 31, 2010, and the six months ended December 31, 2010 have been annualized.

HF Financial Corp.

Selected Consolidated Financial Condition Data

(Dollars in Thousands)

(Unaudited)









Average Balances, Interest Yields and Rates









Nine Months Ended


March 31, 2011


March 31, 2010


Average


Yield/Rate


Average


Yield/Rate

Interest-earning assets:








    Loans and leases receivable (1) (3)

$    877,233


5.62%


$    852,249


5.77%

    Investment securities (2) (3)

273,515


2.12%


247,056


3.35%

Total interest-earning assets

1,150,748


4.79%


1,099,305


5.22%

    Noninterest-earning assets

83,924




77,148



Total assets

$ 1,234,672




$ 1,176,453











Interest-bearing liabilities:








Deposits:








    Checking and money market

$    277,647


0.53%


$    230,015


0.56%

    Savings

82,543


0.33%


72,158


0.36%

    Certificates of deposit

423,409


1.89%


432,630


2.62%

         Total interest-bearing deposits

783,599


1.24%


734,803


1.76%

FHLB advances and other borrowings

188,635


3.09%


205,067


3.30%

Subordinated debentures payable to trusts

27,837


6.56%


27,837


6.57%

Total interest-bearing liabilities

1,000,071


1.74%


967,707


2.22%

    Noninterest-bearing deposits

104,126




93,956



    Other liabilities

36,036




33,526



Total liabilities

1,140,233




1,095,189



    Equity

94,439




81,264



Total liabilities and equity

$ 1,234,672




$ 1,176,453











Net interest spread (4)



3.05%




3.00%

Net interest margin (4) (5)



3.28%




3.27%

Net interest margin, TE (6)



3.32%




3.32%

Return on average assets (7)



0.29%




0.52%

Return on average equity (8)



3.80%




7.55%









(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, 2011 and March 31, 2010 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









Three Months Ended


March 31, 2011


December 31, 2010


Average


Yield/Rate


Average


Yield/Rate

Interest-earning assets:








    Loans and leases receivable (1) (3)

$    852,532


5.60%


$    885,970


5.62%

    Investment securities (2) (3)

271,829


2.08%


279,694


2.09%

Total interest-earning assets

1,124,361


4.75%


1,165,664


4.77%

    Noninterest-earning assets

91,326




80,328



Total assets

$ 1,215,687




$ 1,245,992











Interest-bearing liabilities:








Deposits:








    Checking and money market

$    293,567


0.53%


$    270,665


0.51%

    Savings

91,433


0.33%


79,883


0.33%

    Certificates of deposit

403,093


1.83%


429,799


1.86%

         Total interest-bearing deposits

788,093


1.17%


780,347


1.23%

FHLB advances and other borrowings

165,654


3.43%


204,532


2.87%

Subordinated debentures payable to trusts

27,837


6.56%


27,837


6.56%

Total interest-bearing liabilities

981,584


1.71%


1,012,716


1.71%

    Noninterest-bearing deposits

103,120




104,485



    Other liabilities

35,810




34,810



Total liabilities

1,120,514




1,152,011



    Equity

95,173




93,981



Total liabilities and equity

$ 1,215,687




$ 1,245,992











Net interest spread (4)



3.04%




3.06%

Net interest margin (4) (5)



3.26%




3.28%

Net interest margin, TE (6)



3.31%




3.32%

Return on average assets (7)



0.15%




0.55%

Return on average equity (8)



1.96%




7.36%









(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, 2011 and December 31, 2010 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.

Non-GAAP Disclosure Reconciliation

Net Interest Margin to Net Interest Margin-Tax Effective Yield

(Dollars in Thousands)

(Unaudited)












Three Months Ended


Nine Months Ended


March 31,


December 31,


March 31,


March 31,


2011


2010


2010


2011


2010











Net interest income

$      9,046


$            9,641


$      9,353


$    28,312


$    26,962

Taxable equivalent adjustment

131


117


139


377


429

Adjusted net interest income

9,177


9,758


9,492


28,689


27,391

Average interest-earning assets

1,124,361


1,165,664


1,126,939


1,150,748


1,099,305

Net interest margin, TE

3.31%


3.32%


3.42%


3.32%


3.32%

HF Financial Corp.

Non-GAAP Disclosure Reconciliation

Revenue to Adjusted Revenue

(Dollars in Thousands)

(Unaudited)












Three Months Ended


Nine Months Ended


March 31,


December 31,


March 31,


March 31,


2011


2010


2010


2011


2010











Net interest income

$     9,046


$            9,641


$     9,353


$ 28,312


$ 26,962

Noninterest income

2,574


3,841


2,810


10,197


7,761

   Total revenue

11,620


13,482


12,163


38,509


34,723

      Gain on sale of securities, net

(132)


(94)


(229)


(623)


(1,365)

      Net impairment losses recognized in earnings

549


- - - -


204


549


2,402

   Adjusted revenue

$   12,037


$          13,388


$   12,138


$ 38,435


$ 35,760

SOURCE HF Financial Corp.

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