The largest shareholder at HF Financial Corp. has nominated its own slate of directors to challenge the candidates being backed by the management of the Sioux Falls, S.D., thrift company.

PL Capital Group, a Naperville, Ill., a bank investment firm with a reputation for waging proxy battles, announced late Friday that it has nominated one of its principals, John Palmer, and a local businessman, Kevin Schieffer, to serve on the board of the $1.2 billion-asset HF Financial. In a news release, PL Capital's other principal, Richard Lashley, said that his firm is challenging the company-backed slate on behalf of shareholders who have been "disappointed by HF Financial's failure to perform" since the company raised more than $20 million of capital in a stock offering in late 2009.

"HF Financial's results have steadily deteriorated in the past two fiscal years, despite the fact that HF Financial operates in one of the strongest local economies in the U.S.," Lashley said. "It's time for a change in the board room."

HF Financial is the parent of Home Federal Bank. In the fiscal year that ended June 30, the company reported earnings of $679,000, compared to a profit of $5.7 million in fiscal year 2010 and $7.8 million in fiscal year 2011.

In an earnings announcement last month, HF Financial attributed the drop in its 2011 profits largely to a $3.9 million after-tax charge relating to the liquidation of its trust-preferred securities portfolio. The company also cited a decrease in loan demand and an increase in problem loans to the dairy industry. At June 30, 4.4% of its loans were not performing, up from 0.94% a year earlier.

Still, HF Financial remains very well capitalized and is eyeing expansion opportunities. In May, the company opened its first branch in the Minneapolis area under the name Infinia Bank.

"We believe a great opportunity exists for a strong franchise to move into the Minneapolis market, where distressed banks have been unable to meet the banking needs of the local community," said Curt Hage, HF Financial's chairman, president and chief executive in a news release last month.

PL Capital, which owns a 9.9% stake in HF Financial, intends to file documents with the Securities and Exchange Commission asking shareholders to vote for its nominees at the company's annual meeting, which will be held in the fourth quarter.

PL Capital is an active investor in community banks and Palmer and Lashley are well known for pressuring management to make changes to increase shareholder value. In recent months, the firm has won a seat on the board of Baltimore-area thrift that the Palmer and Lashley believe has underperformed its peers and was successful in pressuring a Pennsylvania mutual holding company to pursue a second-step conversion.

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