First-quarter earnings now being reported by businesses in metro Detroit show the initial impact of the COVID-19 pandemic, and so far, the news isn’t as bad as projected. Profits reported through March 31 show an economy growing rapidly in the first two months of the year, followed by a slowdown last month.
DTE Energy Co. in Detroit today reported first quarter 2020 earnings of $340 million, or $1.76 per diluted share, compared with $401 million, or $2.19 per diluted share in 2019.
Operating earnings for the first quarter were $320 million, or $1.66 per diluted share, compared with 2019 operating earnings of $374 million, or $2.05 per diluted share. Operating earnings exclude non-recurring items, certain mark-to-market adjustments, and discontinued operations.
“DTE has a proud heritage of rallying at the toughest of times. Whether we’re dealing with catastrophic storms or economic crisis, in every case, we’ve emerged a better, stronger company. There is no doubt that the work required of us today will set us up for another successful decade,” says Jerry Norcia, president and CEO of DTE Energy.
Drilling down, DTE Electric posted reported earnings of $94 million in the first quarter, down from $147 million in the first quarter of 2019. At DTE Gas, first quarter reported earnings was $121 million, down from $151 million in the same period of 2019. The losses, in part, reflect idle manufacturing and other large-scale operations due to COVID-19 — among the largest class of energy users in the marketplace.
Energy trading showed a slight increase in reported earnings — $34 million in the most recent quarter over $32 million in the same period of 2019. DTE’s Power and Industrial Projects also rose — $30 million over $26 million a year ago.
The biggest jump in first-quarter reported earnings came from Gas Storage and Pipelines — $72 million in the most recent quarter as compared to $48 million for Jan-Mar 2019.
In a February call to discuss its fourth-quarter activity, Garcia addressed the prospects for future growth through acquisitions. “Our Gas Storage and Pipeline business completed three acquisitions and two organic expansions in 2019,” said Garcia. “We significantly increased our ownership in Link. We acquired a generation pipeline, and we completed the acquisition of the Blue Union and LEAP pipelines in the Haynesville Basin (southwest Arkansas, northwest Louisiana, and East Texas).
“With LEAP, construction teams (were) mobilized in December and are currently clearing the right of way along the pipeline route, and I would say, construction is progressing on plan and on schedule. We expect this pipeline to be in service in the third quarter (of 2020). This is a 150-mile, 36-inch pipeline delivering into Southeast interstate system and the Gulf Coast LNG export markets.
“For the Blue Union system, we are on track with our financial goals. As we acquired these assets, we discussed how much due diligence was done to confirm that all of these assets were highly accretive, connected to large demand centers, and supported by strong resources, contracts, and credit. These assets provide contracted long-term growth and will deliver compelling value to our shareholders.”
In turn, another reason for the increase has to do with the declines in production from oil wells and their associated gas, says Peter Ternes, director of communications at DTE Energy. “The reduction in supply will positively affect DTE in the dry natural gas market,” he says.
Moving to TCF Financial Corp. in Detroit, which includes TCF Bank, the institution today reported net income of $51.9 million, or diluted earnings per common share of $0.32, for the first quarter of 2020, compared with $112.4 million, or diluted earnings per common share of $0.72, for the fourth quarter of 2019.
Adjusted net income was $89.9 million, or $0.57 per diluted common share for the first quarter of 2020, compared with $161.6 million, or $1.04 per diluted common share, for the fourth quarter of 2019. (see “Reconciliation of GAAP to Non-GAAP Financial Measures” tables).
“We entered the year with momentum across the company and in January and February, we saw strong business performance that reflected the opportunity we see in our markets as a result of our merger of equals, including robust loan and deposit growth, stable credit quality, and on-time execution of our integration initiatives,” says Craig R. Dahl, president and CEO of TCF Financial.
“With the arrival of COVID-19, we quickly took numerous actions to prioritize the well-being of those we work with, both from a health and economic perspective. This included transitioning our branch services to drive-up only where possible, closing select other nearby branches, and implementing a work-from-home approach for many of our team members, all of which were designed to protect the health and safety of our employees. In addition, we are offering relief programs for impacted customers and we have deployed substantial resources to support applications for the Paycheck Protection Program.
“As we look ahead, our focus will remain on managing the impact of COVID-19 across the organization, completing our integration activities and capturing the related cost synergies, and continuing to actively manage the business in this volatile and fluid environment. We are operating with robust capital and liquidity levels, strong diversification across our portfolios as a result of the merger of equals (with Chemical Bank last year), and an experienced management team that is providing strong leadership as we support our customers and employees in these difficult times.”
At Flagstar Bancorp Inc. in Troy, the holding company for Flagstar Bank FSB, today reported first quarter 2020 net income of $46 million, or $0.80 per diluted share, compared to fourth quarter 2019 net income of $58 million, or $1.00 per diluted share and first quarter 2019 net income of $36 million, or $0.63 per diluted share.
“On the business side, we’re supporting our customers by providing needed payment relief as we partner with them through this health crisis,” says Alessandro DiNello, president and CEO of Flagstar Bancorp. “On the community side, we have adjusted our giving priorities to support the fight against COVID-19, including nearly $1 million in financial support from the Flagstar Foundation. We are also participating in the SBA’s Paycheck Protection Program to support small business and nonprofit partners.
“Turning to our financial performance, we demonstrated the underlying strength of our diversified business model as our mortgage business was a standout, servicing was solid, and banking held its own against headwinds. Compared to the fourth quarter 2019, net interest income fell $4 million, or 3 percent, reflecting only a 10-basis-point decrease in net interest margin, despite a full quarter’s impact from prior rate cuts and the partial impact of March rate cuts. Margin compression was partially cushioned by growth in interest earnings assets. We also adopted CECL during the quarter, which increased our credit reserves by almost 40 percent to $152 million.
“We closed the quarter servicing or subservicing nearly 1.1 million loans, consistent with the prior quarter. Despite the high prepayment activity driven by lower interest rates, we held our ground in servicing which is a testament to our capability to leverage our mortgage origination business to replace loans that prepaid.
“Our mortgage team had a strong quarter, with mortgage revenues of $96 million, driven by a 36 percent increase in fallout adjusted locks and a $9 million increase in return on our mortgage servicing rights. Our gain on sale margin was 80 basis points, a strong first quarter performance despite the impact that the unprecedented Federal Reserve purchases of agency mortgage-backed securities had on our hedge effectiveness.
“Our results this quarter show the power of our business model and the reason we remain so committed to it. Thanks to our mortgage and warehouse businesses, we are uniquely positioned among banks to take advantage of the strong refinance market to carry us through what is likely to be a challenging credit and rate cycle. We understand that the rest of the year, and possibly beyond, may be like nothing we’ve ever experienced before. We are a strong company, with great people, a resilient business strategy, and an unerring commitment to do what is right, which will serve us well as we head into uncharted territory.”