Race, Family Income, and Test Scores: A New Study

The New York Times features a new study of the intersection of race, family income, and test scores by Sean Reardon, Demetra Kalogrides, and Kenneth Shores.


It shows beyond doubt that family income and test scores are tightly correlated. A chart of educational attainment in school districts, arrayed by family income, shows that: “Sixth graders in the richest school districts are four grade levels ahead of children in the poorest districts.”


That is a huge test score gap.


We’ve long known of the persistent and troublesome academic gap between white students and their black and Hispanic peers in public schools.


We’ve long understood the primary reason, too: A higher proportion of black and Hispanic children come from poor families. A new analysis of reading and math test score data from across the country confirms just how much socioeconomic conditions matter.


Children in the school districts with the highest concentrations of poverty score an average of more than four grade levels below children in the richest districts.


Even more sobering, the analysis shows that the largest gaps between white children and their minority classmates emerge in some of the wealthiest communities, such as Berkeley, Calif.; Chapel Hill, N.C.; and Evanston, Ill. The study, by Sean F. Reardon, Demetra Kalogrides and Kenneth Shores of Stanford, also reveals large academic gaps in places like Atlanta and Menlo Park, Calif., which have high levels of segregation in the public schools….



Why racial achievement gaps were so pronounced in affluent school districts is a puzzling question raised by the data. Part of the answer might be that in such communities, students and parents from wealthier families are constantly competing for ever more academic success. As parents hire tutors, enroll their children in robotics classes and push them to solve obscure math theorems, those children keep pulling away from those who can’t afford the enrichment.


“Our high-end students who are coming in are scoring off the charts,” said Jeff Nash, executive director of community relations for the Chapel Hill-Carrboro City Schools.


The school system is near the flagship campus of the University of North Carolina, and 30 percent of students in the schools qualify for free and reduced-price lunch, below the national average.


The wealthier students tend to come from families where, “let’s face it, both the parents are Ph.D.s, and that kid, no matter what happens in the school, is pressured from kindergarten to succeed,” Mr. Nash said. “So even though our minority students are outscoring minority students in other districts near us, there is still a bigger gap here because of that.”


By contrast, the communities with narrow achievement gaps tend to be those in which there are very few black or Hispanic children, or places like Detroit or Buffalo, where all students are so poor that minorities and whites perform equally badly on standardized tests….


What emerges clearly in the data is the extent to which race and class are inextricably linked, and how that connection is exacerbated in school settings.


Not only are black and Hispanic children more likely to grow up in poor families, but middle-class black and Hispanic children are also much more likely than poor white children to live in neighborhoods and attend schools with high concentrations of poor students.


One school district stood out as a district that beat the odds: Union City, New Jersey.


David Kirp wrote a book about Union City, called Improbable Scholars: The Rebirth of a Great American School System and a Strategy for America’s Schools.  


What did they do in Union City? Time to read Kirp’s book and start implementing real education reform.


Or read an article by Kirp about what he discovered. No charter schools. No Teach for America. Steady work, careful planning, collaboration, no heroics.








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Richard Phelps: The Education Writers Association is Biased re Common Core

Richard Phelps is a testing expert who is skeptical about the Common Core standards. He thinks that policymakers swallowed the sales pitch without asking for evidence. As he explains in this article, what rankles him is that the Education Writers Association has become part of the campaign to promote the Common Core. Instead of providing unbiased information, the EWA offers a platform for CC advocates, many of them paid to be advocates.


EWA will meet in Boston this weekend. The keynote speaker is Secretary of Education John King, a strong supporter of CC. As usual, the panels will consist of CC advocates, with very few critics.


Phelps writes:


“Too many of our country’s most influential journalists accept and repeat verbatim the advertising slogans and talking points of Common Core promoters. Too many of their stories source information from only one side of the issue. Most annoying, for those of us eager for some journalistic balance, has been some journalists’ tendency to rely on Common Core promoters to identify the characteristics and explain the motives of Common Core opponents.


“An organization claiming to represent and support all US education journalists sets up shop in Boston next week for its annual “National Seminar”. The Education Writers Association’s (EWA’s) national seminars introduce thousands of journalists to sources of information and expertise. Many sessions feature journalists talking with other journalists. Some sessions host teachers, students, or administrators in “reports from the front lines” type panel discussions. But, the remaining and most ballyhooed sessions feature non-journalist experts on education policy fronting panels with, typically, a journalist or two hosting. Allegedly, these sessions interpret “all the research”, and deliver truth, from the smartest, most enlightened on earth.


“Given its central role, and the profession it represents, one would expect diligence from EWA in representing all sides and evidence. Indeed, EWA claims a central purpose “to help journalists get the story right.”


“Rummaging around EWA’s web site can be revealing. I located the website material classified under their “Common Core” heading: 192 entries overall, including 6 EWA Radio broadcast transcripts, links to 19 research or policy reports, 69 posts in the “Educated Reporter” Blog, 1 “Story Lab”, 8 descriptions of and links to organizations useful for reporters to know, 5 seminar and 3 webinar agendas, 11 links to reporters’ stories, and 42 links to relevant multimedia presentations.


“I was interested to learn the who, what, where, and how of EWA sourcing of education research and policy expertise. In reviewing the mass of material the EWA classifies under Common Core, then, I removed that which was provided by reporters and ignored that which was obviously purely informational, provided it was unbiased (e.g., non-interpretive reporting of poll results, thorough listing of relevant legislative actions). What remains is a formidable mass of material—in the form of reports, testimonies, interviews, essays, seminar and webinar transcripts, and so on.


“So, whom does the EWA rely on for education policy expertise “to help journalists get the story right”? Which experts do they invite to their seminars and webinars? Whose reports and essays do they link to? Whose interviews do they link to or post? Remember, journalists are trained to represent all sides to each story, to summarize all the evidence available to the public.


“That’s not how it works at the Education Writers Association, however. Over the past several years, EWA has provided speaking and writing platforms for 102 avowed Common Core advocates, 7 avowed Common Core opponents, 12 who are mostly in favor, and one who is mostly opposed.[i] Randomly select an EWA Common Core “expert” from the EWA website, and the odds exceed ten to one the person will be an advocate and, more than likely, a paid promoter.


“Included among the 102 Common Core advocates for whom the EWA provided a platform to speak or write, are officials from the “core” Common Core organizations, the Council of Chief State School Officers (CCSSO), the National Governors Association (NGA), the Partnership for Assessment of Readiness for College and Careers (PARCC), and the Smarter-Balanced Assessment Consortium (SBAC). Also included are representatives from research and advocacy organizations paid by the Bill and Melinda Gates Foundation and other funding sources to promote the Common Core Standards and tests: the Thomas P. Fordham Institute, the New America Foundation, the Center for American Progress, the Center on Education Policy, and the Business Roundtable. Moreover, one finds ample representation in EWA venues of organizations directly profiting from PARCC and SBAC test development activity, such as the Center for Assessment, WestEd, the Rand Corporation, and professors from the Universities of North Carolina and Illinois, Harvard and Stanford Universities, UCLA, Michigan State, and Southern Cal (USC).


“Most of the small contingent of Common Core opponents does not oppose the Common Core initiative, standards, or tests per se but rather tests in general, or the current quantity of tests. Among the seven attributions to avowed opponents, three are to the National Center for Fair and Open Testing (a.k.a., FairTest), an organization that opposes all meaningful standards and assessments, not just Common Core.


“The seven opponents comprise one extreme advocacy group, a lieutenant governor, one local education administrator, an education graduate student, and another advocacy group called Defending the Early years, which argues that the grades K–2 Common Core Standards are age-inappropriate (i.e., too difficult). No think tank analysts. No professors. No celebrities.


“Presumably, this configuration of evidence and points of view represents reality as the leaders of EWA see it (or choose to see it):


“102 in favor and 7 opposed; several dozen PhDs from the nation’s most prestigious universities and think tanks in favor and 7 fringe elements opposed. Accept this as reality and pro-CCI propaganda characterizations of their opponents might seem reasonable. Those in favor of CCI are prestigious, knowledgeable, trustworthy authorities. Those opposed are narrow minded, self-interested, uninformed, inexpert, or afraid of “higher, deeper, tougher, more rigorous” standards and tests. Those in favor of CCI want progress; those opposed do not.


“In a dedicated website section, EWA describes and links to eight organizations purported to be good sources for stories on the Common Core. Among them are the core CCI organizations Achieve, CCSSO, NGA, PARCC, and SBAC; and the paid CC promoters, the Fordham Institute. The only opposing organization suggested? — FairTest.


“There remain two of the EWA’s favorite information sources, the American Enterprise Institute (AEI) and the American Federation of Teachers (AFT) that I have categorized as mostly pro-CCI. Both received funding from the Gates Foundation early on to promote the Initiative. When the tide of public opinion began to turn against the Common Core, however, both organizations began shuffling their stance and straddling their initial positions. Each has since adopted the “Common Core is a great idea, but it has been poorly implemented” theme.


“So, what of the great multitude who desire genuinely higher standards and consequential tests and recognize that CCI brings neither? …who believe Common Core was never a good idea, never made any sense, and should be completely dismantled? Across several years, categories and types of EWA coverage, one finds barely a trace of representation.


“The representation of research and policy expertise at EWA national seminars reflects that at its website. Keynote speakers include major CCI advocates College Board President David Coleman (twice), US Education Secretary Arne Duncan (twice), Secretary John King, Governor Bill Haslam, and “mostly pro” AFT President Randi Weingarten, along with the unsure Governor Charlie Baker. No CCI opponents.


“Among other speakers presented as experts in CCI related sessions at the Nashville Seminar two years ago were 14 avowed CCI advocates[ii], one of the “mostly pro” variety, and one critic, local education administrator Carol Burris. At least ten of the 14 pro-CCI experts have worked directly in CCI-funded endeavors. Last year’s Chicago Seminar featured nine CCI advocates[iii] and one opponent, Robert Schaeffer of FairTest. Five of the nine advocates have worked directly in CCI-funded endeavors.


“In addition to Secretary John King’s keynote, this year’s Boston Seminar features a whopping 16 avowed CCI proponents, two of the “mostly pro” persuasion, and one opponent, Linda Hanson, a local area educator and union rep. At least ten of the 16 proponents have worked in CCI-funded activities.”





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Nikhil Goyal Interviews Jane Sanders about Education Issues

Nikhil Goyal is a precocious college student at Goddard College who wrote a book about education (“One Size Does Not Fit All”) while he was in a public high school on Long Island. He understood at an early age that standardized testing was ruining his education. His second book “Schools on Trial” was recently published by Doubleday.


In this article, he interviews Jane Sanders, wife and advisor to Bernie Sanders. He asks her about her views, and Bernie’s too, on the education issues of the day. It is clear that she is a progressive educator, that she values experiential learning, and she knows that NCLB was a disaster.


A typical comment:


“SANDERS: We don’t really believe in standardized testing. I think our purpose would be, schooling is meant to help people be creative, to have their curiosity stimulated, and have them be actively thinking whatever they’re thinking about—whether it’s the stars, the universe, climate change, anything. Having them be able to feel they can explore anything, learn anything.”””


She he seems to be completely in the dark about the corporates education reform movement. When asked about Gates, Broad, and Walton, she responds that she is sure that the Gateses have pure motives. There motives don’t matter; their actions do.



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Low-Performing Students Decline Most on NAEP Test of Seniors

The recent release of the test scores of seniors on the National Assessment of Educational Progress reported that low-performing students suffered the biggest declines.

“Much like their 4th and 8th grade peers, high school seniors have lost ground in math over the last two years, according to the most recent scores on a national achievement test.

“In reading, 12th grade scores remained flat, continuing a trend since 2009.

“Perhaps the most striking detail in the test data, though, is that the lowest achievers showed large score drops in both math and reading. Between 2013 and 2015, students at or below the 10th percentile in reading went down an average of 6 points on the National Assessment for Educational Progress—the largest drop in a two-year period since 1994. The high achievers, on the other hand—those at or above the 90th percentile—did significantly better in reading, gaining two points, on average, while staying stagnant in math.”

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Rutgers Has an Answer to Harvard: Scholars, Not Politicians, Speak about School Reform

I earlier posted about a reformy conference at Harvard Graduate School of Education where corporate reformers have the platform to themselves, to praise the measure-and-punish-and-privatize strategies that have failed for more than a decade.


Here is good news if you are in the New York-New Jersey-Pennsylvania area. Rutgers University is sponsoring a conference on May 20 to take a close look at what is being done in the name of “reform” and what should be done instead. The panels are the polar opposite of the workshops at the Harvard Graduate School of Education.


Here is a thumbnail sketch:


Session 1
There will be two concurrent sessions. Click a paper to see abstracts.
Session 1.1: Choice, Charters and Segregation

The Effect of Charter Schools on Neighborhood and School Segregation: Evidence from New York City (Sarah A. Cordes, Temple University, and Augustina Laurito, NYU)
The Untold Story of the Morris School District and the Quest for Educational Diversity (Paul Tractenberg, Rutgers -Newark Law School)
Evaluation of Charter School Impacts: The Cases of Newark and Trenton (Maia de la Calle, Rutgers University)
Charter School Effectiveness Research: Do We Really Know if “Successful” Charters are, in Fact, Successful (Mark Weber, Rutgers University)
Do No-Excuses Disciplinary Practices Promote Success? (Joanna Golann, Princeton University, and Chris Torres, Montclair State University)
Charting School Discipline (Susan DeJarnatt, Temple University, and Kerrin Wolf, Stockton University)

Session 1.2: Standards and Assessment

Misinformation and Misconceptions about PARCC, College Readiness and Mathematics Education (Eric Milou, Rowan University)
More [Time] is Better or Less is More (Allison Roda, Rutgers University-Newark)
What Happens to Students When Corporate Reform Fails?: Oklahoma City as a Case Study of the Test and Sort School Reform Experiment (John Thompson)
Problems with High Stakes Testing: Exploring the Gap Between Citizen Concerns and Government Recommendations (Sue Altman)
Hacking Away at Pearson & the Corporate Octopus (Alan Singer, Hofstra University)

Session 2

Session 2.1: Finance, Private Investment and the State

The Business of Charter Schooling: Understanding the Policies that Charter Operators Use for Financial Benefit (Bruce Baker, Rutgers University, and Gary Miron, Western Michigan University)
The Impact of Charter Schools on Suburban Districts: The Case of Red Bank, NJ (Julia Sass Rubin, Rutgers University)
Planning School Improvement Districts (Ken Steif, University of Pennsylvania)
TFA’s Leadership Model and Neoliberal Education Reform (Leah Z. Owens, Rutgers University – Newark)
Poverty, Student Achievement and Union-Management Collaboration in Public School Reform (Saul A. Rubinstein, Rutgers University)

Session 2.2: Schools and Neighborhoods

Making the Public Choice: How Parents in Philadelphia’s Gentrifying (and Gentrified) Neighborhoods are Choosing Neighborhood Schools (Katharine Nelson, Rutgers University)
Altering the Relationship between Neighborhood and School to Improve Life Chances (Ryan Coughlan, Rutgers-Newark)
A Community Good? Developers, New Schools and Gentrification (Molly Vollman Makris, Guttman Community College/City University of New York, and Elizabeth Brown, William Paterson University)
The School Choice Decision for 70 Families with Diverse Backgrounds in Oakland (Carrie Makarewicz, University of Colorado Denver)
School Choice and Latina/o Students: Misappropriating the Notion of Diversity (Michael Scott, University of Texas at Austin)
“Opt-Out” as Democratic Civic Engagement (Monica Clark, Temple University)


Session 3.1: Democracy and Education

A Tale of Two Cities: Education in Global Chicago (Constance A. Mixon, Elmhurst College)
Democracy and National Education Standards (Nicholas Tampio, Fordham University)
The Renaissance will be Technocratic: Contrasting Community Voice with Educational Leaders in Camden, NJ (Stephen Danley, Rutgers University – Camden)
Fighting Against Their Just Prescriptions and Fighting for Our Visions for Educational Justice (Liza Pappas and Zakiyah Ansari, Alliance for Quality Education)
Better for Whom? Community Perspectives on State-Mandated Charters (Keith Benson, Rutgers University – Camden)

Session 3.2: Closing Schools

Using National Data to Understand School Closures (Megan Gallagher, Rolf Pendall, Sierra Latham, and Tanaya Srini, The Urban Institute)
Constructing Students as Targets: Racial Differences in Attitudes Towards Public School Closure (Sally Nuama, Northwestern University)
Injustice and School Closure (Jacob Fay, Harvard University)
Neighborhoods, Schools and Economic Landscapes: Rooting Schools in Place in Philadelphia’s School Closure Debate (Ryan Good, Rutgers University)
A City Reimagined: Baltimore’ s School Closings (Jessica Shiller, Towson University)
Branding Against Closure: Philadelphia Neighborhood Schools and the Management of Risky Futures (Julia McWilliams, University of Pennsylvania)


An interesting contrast: The Harvard Graduate School of Education conference is peppered with politicians and media celebrities.


The Rutgers conference features scholars who have actually studied the subjects they are writing and speaking about.


Isn’t that amazing?



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California: One Student Starts Huge Opt Out in Burbank

Sam Gorman, a junior at Burbank High School, started an opt out movement that was joined by 40% of the students in his class. He demonstrates the power of a single individual to make a difference. I happily add him to this blog’s honor roll for his intelligence and leadership.

“Students began taking state standardized exams in Burbank earlier this month, but about 40% of Burbank High’s junior class chose to opt out of the process, according to Burbank Unified Supt. Matt Hill.

“There were 269 out of 656 juniors at Burbank High who opted out of taking the exam after getting a parent to sign off on the request.

“For Burbank High student Sam Gorman, the choice to opt out signifies his stance against a test that is based on “big data and redundant standards instead of the acquisition of long-lasting knowledge,” he said in an email.

“He learned he could skip the exam last summer in Switzerland, where he attended a student leader summit hosted by Education First, an international company that runs study-abroad programs.

“Working with progressive education experts like Sir Ken Robinson and Nikhil Goyal helped open my eyes to the exciting possibilities of an educational system that treats students more like the individuals they are and less like the raw data they’ve become,” he said.

“The state exam tests students on California State Standards, which until recently were called Common Core standards.

“The computerized exam made its debut in California two years ago. It replaced the STAR exam, which students took by filling in bubbles on paper tests that asked multiple-choice questions.

“The new computerized exam tests students in math and language arts and is used by educators to gauge high school juniors’ preparedness for college. Students in third through eighth grades are also tested to give educators insight into their grasp of state standards.

“Sam wrote about Common Core testing on his website, YoungchangeBestchange.org, and then in mid-March, he tweeted a link that explained how students could opt out.

“Juniors needed to make the request in a letter, provide a parent’s signature and date, and submit it to their school principal.

“It was around mid-March, still a few weeks before testing began on April 7, when junior Daniel Park was asked by a classmate if he would opt out.

“People everywhere were just asking, ‘Are you opting out?’” he recalled by phone this week.

“Daniel is a college-bound student who is enrolled in five AP classes — U.S. history, English, calculous, psychology and physics.”

Daniel opted out, along with 40% of his class.

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HTBK: Maintaining at “Outperform,” Price Target at $12.00 As Loan Growth Outpaces Expectations


“Outperform” Rated / $12.00 Price Target / HQ=San Jose, CA / $335 Mil. Mkt. Cap.

We are maintaining our rating on HTBK-Heritage Commerce Corp at “Outperform” and holding our Price Target at $12.00.  Our Price Target is equivalent to 15.2x forward EPS ($0.79) and 198% of forward tangible book value ($6.07).  These implied multiples are premiums to the stock’s current trading range to reflect our expectations for continued strong fundamental performance.

We are revising our EPS estimates to $0.19 for 2Q-16 (from $0.18), $0.75 for 2016 (from $0.73) and $0.86 for 2017 ($0.85).  We are also forecasting tangible book values of $5.67 for 2Q-16, $5.94 for 2016 and $6.52 for 2017.  Our tangible book value estimates include continuation of the current quarterly cash dividend of $0.08 per share.  The dividend is equivalent to a payout ratio of 41% on our forward EPS estimate and yield of 2.67% on our Price Target.

Despite significant exposure to businesses serving the tech industry of Silicon Valley, HTBK’s 1Q-16 results showed very limited reason for concern regarding a potential slowdown in the tech industry.  Gross loans increased $32 Million, or 2.3%, in the quarter with strong gains in C&I-Commercial & Industrial loans.  C&I loans increased by $35.6 Mil as utilization rates on lines of credit increased to 44% from the 39% in the previous quarter.  Commercial lending to professional service firms in the San Jose-Sunnyvale market account for 42% of the company’s loan portfolio.

The loan growth, which combined with seasonal weakness in deposit growth, resulted in an improved earning asset mix.  Loans accounting for 63% of earning assets, compared to less than 62% the previous quarter.  Also notable was the significant decline in average cash balances that declined ~$225 Mil in the quarter to 10% of earning assets.  Management plans to further reduce those balances — into loans or securities — in 2Q-16, which we believe could result in additional NIM-Net Interest Margin expansion to ~4.30%.  NIM expanded 9bps sequentially in 1Q-16 to 4.22%.

The company’s focus on holding expense growth rates has resulted in an efficiency ratio of less 60% for the second consecutive quarter.  We believe that trend can continue, although expense trends could be volatile if important lenders are added to the team.

We forecast ROA-Return on Assets in excess of 1% and ROTCE-Return on Tangible Common Equity of near 15% for 2016.  in that light, we believe our forward P/E multiple of 15.2x is appropriate.

Please see our report for more information.


The post HTBK: Maintaining at “Outperform,” Price Target at $12.00 As Loan Growth Outpaces Expectations appeared first on FIG Partners.

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HEOP: Maintaining at “Market-Perform,” Price Target at $8.00 on Limited Foreward Earnings Growth, Current Valuation


“Market-Perform” Rated / $8.00 Price Target / HQ=Paso Robles, CA / $282 Mil. Mkt. Cap.

We are maintaining our rating on HEOP-Heritage Oaks Bancorp at “Market-Perform” and holding our Price Target at $8.00.  Oure Price Target is equivalent to 15.8x forward EPS ($0.51) and 144% of forward tangible book value ($5.56).  While our Price Target is currently below the stock’s trading price, we believe our implied multiples represent a full valuation on prevailing fundamentals.

We are revising our EPS estimates to $0.11 for 2Q-16 (from $0.12), $0.49 for 2016 (from $0.51) and $0.61 for 2017 (from $0.63).  We are also forecasting tangible book values of $5.31 for 2Q-16, $5.47 for 2016 and $5.87 for 2017.  Our tangible book value estimates include continuation of the quarterly cash dividend of $0.06 per share.  The dividend equates to a payout ratio of 47% to our forward EPS estimate and yield of 3.0% on our Price Target.

Our lowered EPS estimates — however modest — reflect slight contraction in spread income, which accounts for 85% of operating revenues.  We anticipate lower margin from 1Q-16 due to fewer prepayment fees and accelerated accretion on purchased loans.  In the most recent quarter, the drop in both items accounted for 10bps of the 11bps sequential compression in NIM-Net Interest Margin.  We also anticipate spread income could contract due to slower loan growth in 2Q-16 compared to 1Q-16 of $41 Million, which was exceptionally strong in a seasonally weak quarter.  Our spread income outlook could turn out to be excessively conservative if loan growth exceeds our estimate of $26 Mil, or 8% annualized, and/or the mix of earning assets dramatically improves.

While we continue to forecast improvements in the company’s efficiency ratio, we do not foresee significant improvements.  We anticipate non-interest expenses to remain above $12 Mil per quarter, or ~2.40% of average assets through year end.  That outlook combined with our expectations for spread income should result in an efficiency ratio of more than 60% for much of 2016.

Against the backdrop of slower growth in spread income and nominal adjustments to operating costs, we do not forecast ROAA-Return on Average Assets exceeding 1% in the next four quarters.  Our ROAA forecasts of 0.85% to 0.95% are in-line with the company’s reported results over the last several quarters.  As a result, we do not forecast multiple expansion to the P/E ratio in the near-term.  The company could be considered an acquisition target, in which case we estimate the stock could be worth 20% more than the current price.  Excluding a takeout valuation, we believe 15.8x forward EPS is reasonable.

Please see our report for more information.


The post HEOP: Maintaining at “Market-Perform,” Price Target at $8.00 on Limited Foreward Earnings Growth, Current Valuation appeared first on FIG Partners.

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PUB Update: 1Q16 Final Review – Solid Start to the Year; Forward Estimates Mostly Unchanged; Maintain ‘Mkt-Perform’ Rating


“Market-Perform” / Price Target: $18 / HQ= American Fork, UT  / $290 Mil. Mkt. Cap.

We are maintaining our ‘Market-Perform’ rating on PUB-People’s Utah Bancorp shares and increasing our price target by $1 to $18/share. Our updated EPS estimates are: FY16 $1.18 (vs. $1.15 before); and FY17 $1.25 (no change). The price target adjustment is driven by the general increase in bank stock valuations over the past couple months as well as somewhat better earnings visibility at the Company. Our $18 target assumes the shares trade at ~14.4x our FY17 EPS estimate and ~140% of forward TBV (1-year out). These multiples compare to our current FIG Bank peer group medians of ~14x and 175%, respectively.

Earnings Estimates: Taking into account the 1Q16 results we are increasing our FY16 EPS estimate by $0.03 to $1.18. This is primarily driven by the 1Q16 results and the last three quarters remain unchanged. And for FY17 our estimate is unchanged at $1.25. While our forward estimates are mostly unchanged there was some movement in the line items with somewhat higher net interest income (vs. prior estimates) being offset by modestly higher operating expenses.

1Q16 Review: PUB reported 1Q16 EPS of $0.29 vs. $0.27 in 4Q15. Core EPS were also $0.29 and compared to our estimate and the consensus of $0.27. Overall, this was a solid quarter for PUB as higher spread income drove the difference vs. our estimate.

1Q16 Highlights/Takeaways: (1) loan growth was better than expected increasing 2.1% Q/Q vs. 1.5% estimate. This quarter’s growth was driven by commercial, CRE and construction loans. The Company’s Utah markets remain relatively strong and loan demand remains solid too. For FY16, we are still modeling loan growth of ~9%; (2) the NIM was up 16 bps Q/Q to 4.65% vs. 4.49% estimate. Yield accretion was stable with last quarter adding ~6 bps. Over the next few quarters we expect the NIM to remain in the 4.60% area driven in-part by continued growth in CRE and construction loans; (3) credit quality showed added improvement with NPAs down 27% to $5.8 million (ex-performing TDRs). NPA+90/Loans+OREO = 0.54% vs. 0.76% at YE15. The provision was $0.2 million vs. $0.3 million estimate and our model has it in the $0.2-0.3 million/qtr. range for the rest of the year with the reserve approaching 1.40% of loans by YE16 (vs. 1.47% at 3/31); (4) operating expenses were slightly higher in 1Q16 at $12.1 million vs. $12.0 million estimate. For FY16 we still expect modest growth in the expense base (~5% vs. 4% before) as PUB continues to grow leasing and add branches. The FY16 ER is projected to be 58-59%; and (5) capital levels remain strong with TCE at 13.8% vs. 13.4% at YE15. PUB continues to evaluate potential acquisition opportunities but at this time nothing appears imminent.

Relative to our estimate the 1Q16 results were as follows: NII was up 1.5% Q/Q to $16.9 million vs. $16.5 million estimate (+.02/share). This was driven by a higher NIM at 4.65% vs. 4.49% estimate while the level of AEA was lower by $25 million; fee income was also slightly better than expected on higher mortgage banking; the provision was slightly lower than forecasted at $0.2 million vs. $0.3 million estimate and NCOs of $34k; and operating expenses were slightly higher at $12.1 million vs. $12.0 million estimate. The actuals vs. estimates for the provision, fee income and operating expenses were all less than a penny per share.

The post PUB Update: 1Q16 Final Review – Solid Start to the Year; Forward Estimates Mostly Unchanged; Maintain ‘Mkt-Perform’ Rating appeared first on FIG Partners.

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SBCF: Core EPS Beats Street. Strong New Business Pipelines, Raising Estimate & Target

PDF ATTACHED: SBCF Update 4-29-16 – 1Q16 EPS

“Outperform” / Price Target: $19 / HQ= Stuart, FL / $612 Mil. Mkt. Cap.

We are increasing our Price Target on SBCF-Seacoast Banking Corporation to $19.00 from $17.50 and raising our EPS estimates to $0.97 in 2016 (+$0.02 from prior estimate) and to $1.12 in 2017 (+0.04 from our last report).  The company reported $0.19 in operating EPS which met Street consensus on the surface but the quarter includes provision expenses above net charge-offs.  Core EPS were $0.21 when considering the excess provision.  We consider this a “beat” on the Street and it also exceeded FIG’s projection at $0.20.  We note these fundamental trends at SBCF:

  • Organic Loans rose 1.9% or 7.6% annualized. This excludes the impact of the Floridian Bank merger on March 11th that partially impacted the quarter.
  • Core ROA-Return on Assets was 0.80% up from 0.73% in 4Q15, this includes the adding back of excess provision (adds 4 basis points to ROA).
  • Spread income was 3.9% better thanks to the Loan growth plus a one(1) basis point improvement in the NIM-Net Interest Margin.
  • Expense Efficiency was 71%, still high but future quarters are expected to show positive operating leverage as the company integrates the recent Floridian Bank merger and closes on 14 branches with $350 Mil. in Deposits located in Central Florida. We expect cost rationalization from the combined efforts to push the expense ratio into the upper 60s in the next few quarters and then the mid-60s or better in 2017.
  • Loan pipelines remain strong at $165 Mil of Commercial and $124 Mil. in Residential, both relative to the $2.45 Billion portfolio. Loan mix includes strong C&I Loans (11% of the Total) and Construction (6% of all Loans), and Consumer and CRE remain solid contributors of ongoing demand.
  • Deposits rose 11% from 4Q, including 7% higher Demand accounts excluding the small M&A deal in 1Q16. Core DDAs are 33% of Total Deposits and 56% of Total (with interest checking/NOW).
  • SBCF continues to make progress on “digital banking” or originating new Loans and Deposit transactions outside of a traditional branch. This should acceleration cost reductions in the branch system.

Our forward EPS estimates factor lower costs and ongoing growth of Earning Assets and a NIM above 3.60%.  Tangible book value is expected to decline modestly in 2Q16 from the branch purchase in Central FL but recover to $9.60+ by year-end 2016 and exceed $9.75 by late 2017.  SBCF shares are very valuable as Page 2 illustrates.

The post SBCF: Core EPS Beats Street. Strong New Business Pipelines, Raising Estimate & Target appeared first on FIG Partners.

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