HF Financial Corp. Reports 85% Increase in Fiscal First Quarter 2015 Earnings

First Quarter Earnings Total $1.8 Million, or $0.26 per Share;
Loan Growth Contributes to Margin Expansion;
Declares Regular Quarterly Dividend of $0.1125 per Share

SIOUX FALLS, S.D., Oct. 27, 2014 (GLOBE NEWSWIRE) -- HF Financial Corp. (Nasdaq:HFFC) today reported fiscal first quarter earnings increased 85.1% to $1.8 million, or $0.26 per diluted share, compared to $979,000, or $0.14 per diluted share, for the quarter ended September 30, 2013. For the previous quarter ended June 30, 2014, earnings were $1.5 million, or $0.21 per diluted share. Net loans increased by $5.4 million, or 0.7%, from the previous quarter. Nonperforming assets as a percentage of total assets declined to 1.21% at September 30, 2014, from 1.37% one quarter earlier.

"Our 2015 fiscal first quarter reflects continued improvement in our core earnings. We have made efforts to improve our net interest margin, expand our lending, and improve asset quality while reducing the costs to deliver our services. During the first quarter, we closed the Parker office and consolidated the deposit and lending relationships in nearby offices. Meanwhile, loan growth has exceeded 7% over the past year. These initiatives should continue to enhance our shareholder returns," said Stephen Bianchi, President and Chief Executive Officer.

Fiscal 2015 First Quarter Financial Highlights: (at or for the periods ended September 30, 2014, compared to June 30, 2014 and/or September 30, 2013.)

• Earnings per diluted share for the fiscal first quarter 2015 were $0.26 compared to $0.21 the previous quarter and $0.14 the previous year.
• Total loans increased to $817.3 million at September 30, 2014, from $811.9 million at June 30, 2014, and $760.4 million one year earlier, or a 7.5% increase year over year.
• The net interest margin expressed on a fully taxable equivalent basis ("NIM, TE") increased to 2.84% for the fiscal first quarter 2015 compared to 2.80% for the previous quarter and 2.36% one year earlier.
• Nonperforming assets continued to decline and totaled $15.2 million at September 30, 2014, or 1.21% of total assets compared to $17.5 million at June 30, 2014, or 1.37% of total assets. One year earlier, nonperforming assets totaled $21.5 million, or 1.72% of total assets.
• For the first fiscal quarter ended September 30, 2014, mortgage banking revenue (gains on sale of loans and loan servicing income, net) totaled $917,000 compared to $699,000 the previous quarter and $1.4 million one year earlier.
• The Bank closed an office in Parker, South Dakota during the fiscal first quarter resulting in nonrecurring losses on the disposal of fixed assets of $163,000. Lease termination expense totaled $25,000. Annual anticipated cost savings of approximately $200,000 are related to this efficiency action.
• Capital levels at September 30, 2014, continued to remain well above the regulatory "well-capitalized" minimum levels:
  • Total risk-based capital to risk-weighted assets was 14.50% versus 14.54% at June 30, 2014.
  • Tier 1 capital to risk-weighted assets was 13.36% versus 13.38% at June 30, 2014.
  • Tier 1 capital to total adjusted assets was 9.70% versus 9.49% at June 30, 2014.
• The most recent dividend of $0.1125 per share represents the twenty-sixth consecutive quarter at this level and provides a 3.35% current yield at recent market prices.
• Tangible book value was $13.86 per share at September 30, 2014, compared to $12.92 per share one year earlier. This increase in tangible book value combined with a total dividend of $0.45 results in an intrinsic return of 10.76% for the past twelve month period.

Balance Sheet and Asset Quality Review

HF Financial's total asset base declined slightly from the previous quarter to $1.26 billion from $1.27 billion. One year earlier, total assets were $1.25 billion. Though the asset base has reflected minimal growth, HF Financial has continued to grow its loan portfolio and funded new loans in part with proceeds from short-term, liquid investments. In the first fiscal quarter of 2015, total loans increased to $817.3 million from $811.9 million at the end of the previous quarter. Total loans one year earlier were $760.4 million. The increase in the loan balance reflected an increased balance of commercial real estate and agricultural loans. Commercial real estate loans continued to represent the largest portion of the loan portfolio, which totaled 51.8% of the loan portfolio at September 30, 2014, followed by agricultural loans totaling 24.2%.

"Over the past two years, we have expanded our lending team and reached into new markets. Additionally, we have refocused our lending efforts at the branch locations to better penetrate the communities we serve. We are now seeing tangible results of our initiatives," stated Bianchi.

Total deposits increased to $954.3 million at September 30, 2014 from $944.3 million one year earlier and decreased from $999.2 million at the end of the fiscal fourth quarter. The decline from the prior quarter reflects seasonal outflow of public funds. Non-certificate accounts represented 73.5% of total deposits while certificates of deposit represented 26.5% of total deposits at September 30, 2014.

Borrowings increased during the first fiscal quarter of fiscal 2015 to $142.9 million compared to $120.6 million in the previous quarter, due to an increase in the utilization of overnight federal funds purchased.

Nonperforming assets ("NPAs"), which included $13.5 million of troubled debt restructurings that are in-compliance with their restructured terms and payments due, decreased to $15.2 million at September 30, 2014, from $17.5 million the preceding quarter and $21.5 million one year earlier. At September 30, 2014, NPAs represented 1.21% of total assets and included only $124,000 in foreclosed assets.

The allowance for loan and lease losses at September 30, 2014, totaled $10.4 million and represented 1.27% of total loans and leases. Total allowance relative to total nonperforming loans was 68.7% at September 30, 2014, compared to 60.7% the previous quarter and 50.5% one year earlier.

Tangible common stockholders' equity increased to 7.81% of tangible assets at September 30, 2014, compared to 7.62% at June 30, 2014. Tangible book value per common share was $13.86 at September 30, 2014, up from $13.72 per share at the end of the previous quarter and $12.92 one year earlier.

Capital ratios continued to remain well above regulatory requirements with Tier 1 capital to risk-weighted assets of 13.36% at September 30, 2014, while the ratio of Tier 1 capital to total adjusted assets was 9.70%. These regulatory ratios were higher than the required minimum levels of 6.00% and 5.00%, respectively.

Review of Operations

For the first fiscal quarter ending September 30, 2014, HF Financial's earnings reflected an improved net interest margin, a small provision benefit due in part to improved asset quality, offset partially by expenses associated with a branch closure. Net interest income increased to $8.3 million for the first fiscal quarter of 2015 compared to $8.2 million the previous quarter and $6.8 million one year earlier. The NIM, TE expanded to 2.84% for the fiscal first quarter compared to 2.80% the previous quarter and 2.36% one year earlier. "We remain committed to improving our net interest margin and are realizing the results of an improved mix of earning assets. We continue to examine yields in our investment portfolio and the costs of our funding sources for opportunities to improve our net interest margin while also maintaining interest rate risk at acceptable levels," stated Brent Olthoff, Chief Financial Officer and Treasurer.

Provision for loan losses reflected a benefit of $22,000 for the first fiscal quarter of 2015, compared to provisions of $328,000 and $276,000 for the previous quarter and one year earlier, respectively. "Lower charge-offs and improved asset quality decreased the need to add to our reserve balances," continued Olthoff.

Noninterest income totaled $3.3 million for the fiscal first quarter of 2015 compared to $3.2 million in the previous quarter and $4.2 million one year earlier. Mortgage activity produced $917,000 in servicing and gains on loan sales in the first fiscal quarter of 2015 compared to $699,000 in the previous quarter and $1.4 million the previous year. Fees on deposits totaled $1.6 million for the first quarter of fiscal 2015 versus $1.5 million the previous quarter and $1.7 million the first quarter in fiscal 2014. Offsetting noninterest income was a loss on disposal of fixed assets associated with a branch closure of $163,000.

Noninterest expense was similar to the previous quarter and lower than one year earlier. Noninterest expenses totaled $9.0 million for the first fiscal quarter of 2015 and the fourth quarter of fiscal 2014 compared to $9.3 million one year earlier. The primary difference is lower compensation expenses and lower expenses related to foreclosed real estate.

These financial results are preliminary until the Form 10-Q is filed in November 2014.

Quarterly Dividend Declared

The board of directors declared a regular quarterly cash dividend of $0.1125 per common share for the first fiscal quarter 2015. The dividend is payable November 14, 2014 to stockholders of record November 7, 2014.

Use of Non-GAAP Financial Measures

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

About HF Financial Corp.

HF Financial Corp., based in Sioux Falls, SD, is the parent company for financial services companies, including Home Federal Bank, Mid America Capital Services, Inc., dba Mid America Leasing Company, Hometown Investment Services, Inc. and HF Financial Group, Inc. As a publicly traded savings association headquartered in South Dakota, HF Financial Corp. operates with 27 offices in 18 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 loan production office 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.