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Civista Bancshares Inc (NASDAQ:CIVB)
Q1 2020 Earnings Call
Apr 24, 2020, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. Welcome to the Civista Bancshares First Quarter 2020 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] I would now like to turn the conference over to Mr. Dennis Shaffer, President and CEO. Please go ahead.

Dennis G. Shaffer -- Chief Executive Officer and President

Good afternoon. This is Dennis Shaffer, and I would like to thank you for joining us for our first quarter 2020 earnings call. I am joined today by Rich Dutton, SVP of the Company and Chief Operating Officer of the Bank; Chuck Parcher, SVP of the Company and Chief Lending Officer of the Bank; and other members of our executive team.

Before we begin, I would like to remind you that this conference call contains forward-looking statements with respect to the future performance and financial condition of Civista Bancshares, Inc. that involves risks and uncertainties. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in the Company's SEC filings, which are available on the Company's website. The Company disclaims any obligation to update any forward-looking statements made during the call.

Additionally, management may refer to non-GAAP measures, which are intended to supplement, but not substitute the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP to non-GAAP measures. We will record this call and make it available on Civista Bancshares website at www.civb.com. Again, welcome to Civista Bancshares first quarter 2020 earnings call.

At the conclusion of my remarks, we will take any questions you may have.

Before we get into the results of the quarter, I would like to take a moment to acknowledge the healthcare providers, first responders, essential workers and everyone on the front lines of this battle we find ourselves in. I would also like to acknowledge the way our Civista team has risen to the challenge by assisting retail and small business customers across our footprint. We began this year expecting one of our biggest challenges would be the uncertain interest rate environment and the pressure it would place on our margin. The COVID-19 pandemic has introduced additional challenges that the banking industry could not have anticipated. Civista is meeting these challenges from a position of excellent asset quality, strong capital levels and a diverse revenue stream. While the length and the depth of the economic uncertainty across our footprint in the country is unclear, I'm confident in our ability to meet these challenges from a position of strength.

This morning, we reported net income of $7.8 million or $0.47 per diluted share. This is a direct result of our strong net interest margin, our continued focus on our -- on growing and diversifying non-interest income streams and our disciplined approach in managing the Company. Our continued ability to generate core earnings allowed our Board of Directors to approve our quarterly dividend during the first quarter of $0.11 per share, which represents a dividend payout ratio of 23%. In these uncertain economic times, it is difficult to predict future performance, but our strong capital and liquidity should allow Civista to maintain this dividend level, unless we experience a further deterioration in the economy for an extended period of time. Our return on average assets was 1.22% for the quarter compared to 1.37% for the linked quarter, and our return on average equity was 9.47% for the quarter compared to 9.44% for the linked quarter.

Net interest income increased $893,000 or 4.2% over the linked quarter and $396,000 or 1.8% year-over-year. Given the changes that were occurring in the interest rate environment, our net interest margin remained strong at 4.10% compared to 4.18% for the linked quarter and 4.45% year-over-year. The increase in net interest income as a result of an increase in average earning assets was partially offset by a decrease in average yield. Additionally, our cost of interest-bearing liabilities decreased compared to the linked quarter and increased year-over-year. Interest income increased $481,000 or 2% over the linked quarter and $418,000 or 1.7% year-over-year. During the first quarter, the non-interest-bearing deposits related to our tax refund processing program averaged over $311 million, which allowed us to pay down $84.5 million in FHLB borrowings that were outstanding at year-end. Also included in our margin are 15 basis points of accretion in the quarter compared to 14 basis points for the linked quarter and 22 basis points year-over-year.

As part of our normal ALCO process, we periodically model non-parallel shifts in interest rates. Given the recent drop in the Fed's target rate, we reran those models to see what the impact of a 150 basis point decline in rates might have on our margin. That modeling indicates a 35 basis point contraction in our margin. To put this in perspective, during 2019, the Fed cut their target rate 50 basis points over a 10-month period and our margin, excluding accretion, contracted 9 basis points.

During the quarter, non-interest income increased $1.2 million or 22.2% in comparison to the fourth quarter of 2019 and increased $592,000 or 9.4% year-over-year. One of the largest drivers of the increase is mortgage banking. Our first quarter gains represent a $496,000 or 150% increase over the previous year as the strong mortgage demand that we saw during the previous quarter continued. During the quarter, we sold $18.9 million more mortgage loans than the first quarter of 2019. The average premium on the sale of loans also increased 34 basis points. Service charge revenue declined by $194,000 or 11.7% compared to our linked quarter and is comparable to our first quarter of last year. As expected, interchange revenue declined $149,000 or 15.2% compared to the linked quarter with the post holiday season decline in debit card activity. Our interchange revenue was comparable to our first quarter of last year.

Wealth management revenue increased $69,000 or 7.4% compared to the linked quarter and $159,000 or 18.8% year-over-year as the assets under management declined by 14.1% to $495.4 million. This was during a period when the S&P 500 Index declined 20%. While we continue to view the expenses of these services across our footprint as an opportunity to diversify and grow non-interest income, our fees are primarily based on the value of our clients' portfolios and are impacted by the greater economy. Our income tax refund processing program continues to be an important contributor to our non-interest income and is concentrated in the first and second quarters of each year. Income from that program during the first quarter was $1.9 million. That was a reduction of $300,000 from the prior year, which is in line with what we indicated during our previous call. Swap fees increased $108,000 compared to the linked quarter and $265,000 year-over-year as commercial borrowers took advantage of the interest rate environment to lock in lower rates.

Non-interest expense increased $728,000 or 4.3% compared to the linked quarter and $1.4 million or 8.6% year-over-year. In both cases, the increases are primarily the result of increased compensation expense. While our headcount remained stable when comparing linked quarters, it did increase by 22 FTEs or 5% from the first quarter of 2019. Our average merit increases, which occur each year in April, averaged 3% in 2019 and account for $186,000 of the year-over-year increase and our employee health insurance for 2020 increased by 9%, which accounts for $131,000 of the year-over-year increase.

Our efficiency ratio was 60.7% compared to 62.9% for the linked quarter and 58% year-over-year. Our loan portfolio grew by $34.2 million or at an annualized rate of 8% with the majority of the growth coming from both owner and non-owner occupied commercial real estate and real estate construction loans. While we saw growth in virtually every market, the Cleveland, Columbus and Cincinnati MSAs continued to be strong drivers of our growth.

We were pleased with loan production across our footprint during the first quarter. Looking forward to the rest of the year, it will be difficult to project how our loan portfolio will grow until we begin to see some normalization of our markets. Our growth in essentially our entire portfolio comes from organic production. We have no exposure to nationally syndicated loans. We like knowing who our customers are and having the ability to work directly with our borrowers should conditions dictate. We believe that we have greatly enhanced our credit underwriting over the last 10 years. Our loan portfolio has diversified throughout our footprint with none of our operating markets holding more than 25% of our assets. Furthermore, there is no one industry that represents concentration risk. That said, as a percentage of total loans, 7.04% of our portfolios and guests lodging, 2.01% in restaurants, 2.85% in entertainment and recreation, in a broad sense, 19.03% of our portfolio is in retail with 4.03% of that mixed retail office, 2.3% mixed retail residential and the remaining 12.7% being strictly retail. We have no exposure to what we call big box retail.

On the funding side, our deposits increased $313.2 million or 18.7% since the beginning of the year. The primary driver for the increase was deposits related to our tax refund program, which increased $307.5 million during the quarter. As I mentioned in discussing our margin, we manage our wholesale funding in anticipation of the free funding we've taken during the tax refund processing season. We use the tax funds to pay down our wholesale funding and other short-term borrowings.

Our non-performing loans were $8.6 million at the end of the first quarter compared to $9.1 million at the end of 2018, which represents a 0.33% of total assets. The ratio of our allowance for loan losses to loans increased to 0.97% from year-end, which was 0.86%. While our allowance for loan losses to non-performing loans also increased 197.97% at the end of the first quarter from 161.95% at the end of 2019. While these reflect very strong credit metrics by historical standards, given the uncertain nature of our current economy, we will continue to monitor our portfolio and the economy and make further adjustments as our model dictates in future quarters. Given the uncertainty currently being driven by COVID-19 and its impact on the economy, we did make adjustments to qualitative factors in our allowance for loan loss model. As a result, we recorded a $2.1 million provision expense for the quarter. We were fortunate to meet the guidelines for the delayed implementation of CECL and will not be required to adopt it until 2023.

We did repurchase 646,703 shares of our common stock during the quarter for $11 million ending the quarter with tangible common equity ratio of 9.82% compared to 11.08% at December 31, 2019. The extra $311 million of liquidity that our income tax refund processing business generated during the quarter reduced our tangible common equity ratio by 140% or 1.4%. The statement is often made and capital is changed. We have performed some stress test on our capital and feel that we are in a strong position.

In spite of the challenges of our current environment, we are pleased with another quarter fueled by solid core earnings. The COVID-19 pandemic has had a rippling effect across the nationwide economy. In Ohio, we are currently in a stay-at-home order until at least May 1. Many of our employees have been working in either split operations or from home and our branches and then at a drive-up only status for some time. And for Civista, we have a long history of working with our customers in good times and in challenging time. That philosophy has served us well over time and is still prevailing today. We have been assisting our customers through payment deferrals, SBA PPP loans and other accommodations. To date, we have 432 loans totaling $262 million that have been modified as part of our COVID-19 relief efforts. Nearly 90% of those loans are receiving a 90-day deferral of both principal and interest. All of these deferrals meet the requirements to not be treated as troubled debt restructurings.

Through the first round of the SBA Payment Protection Program, we processed and received approval for 1,271 loans totaling nearly $187 million. While this will provide us with approximately 7 million in fee income, the more important statistic is that it allows approximately 26,500 employees to keep their jobs. We will continue to prudently work with our customers to help them where we can, we feel that is part of being a community bank as the slogan says we are all in this together. While the next few months will undoubtedly test the banking industry in the larger business world, Civista is entering this period with excellent asset quality, strong capital levels and a diverse revenue stream.

Thank you for your attention this afternoon. And now, we'll will be happy to address any questions that you may have.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Nick Cucharale from Piper Sandler. Go ahead.

Nicholas Anthony Cucharale III -- Sandler O'Neill & Partners LP -- Analyst

Good afternoon.

Dennis G. Shaffer -- Chief Executive Officer and President

Hi, Nick.

Nicholas Anthony Cucharale III -- Sandler O'Neill & Partners LP -- Analyst

So I wanted to start with the loan modification, I appreciate the additional disclosure this quarter. More of a clarification, there's obviously a lot of uncertainty given that pandemic. But of the $411 million in deferral request since March 31, is it your expectation that substantially all of these requests are granted?

Dennis G. Shaffer -- Chief Executive Officer and President

Yes, I would -- yeah, we've kind of took the stance. We're going to give most of our customers that 90-day kind of carte blanche on that, Nick and then, review it at the end of 90 days to see where they stand and what we're going to do from there. So we're pretty much set up to do that.

Richard J. Dutton -- Senior Vice President and Chief Operating Officer

Nick. It's Rich. The only thing I'd add to that is that they have to be current in order for us to do that. And then, all of the ones we have modified to date have been current.

Nicholas Anthony Cucharale III -- Sandler O'Neill & Partners LP -- Analyst

Yes. Okay, great. And then secondly, on the non-interest bearing deposits, they got the typical boost from the tax business as you mentioned. Just looking at the end of period numbers that looks to be about $308 million this quarter versus $189 million in the first quarter of '19. Is this a structural change in the business or more just a timing issue?

Richard J. Dutton -- Senior Vice President and Chief Operating Officer

Fairly timing issue Nick. I don't see a full-on change in this tax season from the last tax season. Again, the tax payers is taking advantage of that program. Both of them file early quick once the money clicks. And it happens of the extension of the tax season, if you will, to July. Really it shouldn't have much of any impact on our cash flow from that program.

Nicholas Anthony Cucharale III -- Sandler O'Neill & Partners LP -- Analyst

Okay. I appreciate the color. And then, in terms of the NIM, the Dennis, the 35 basis points of contraction you're referring to, I just wanted to gauge what the time period was there?

Richard J. Dutton -- Senior Vice President and Chief Operating Officer

So this is Rich. And what we did is, we went back and looked at where we were sitting in first quarter and say OK, let's take a 150 basis points contraction in the lowest and do the non-parallel shift and that came out again at about 35 basis point contraction. And that would be if it all happened at once an instantaneous.

Nicholas Anthony Cucharale III -- Sandler O'Neill & Partners LP -- Analyst

Yeah. Okay. And then, the accretion income has been relatively steady since you change your modeling assumptions a few quarters ago. How are you thinking about the NIM in the coming quarters?

Richard J. Dutton -- Senior Vice President and Chief Operating Officer

I mean I think for the balance of this year at 15 basis points a quarter is probably what we expect. And again, the only wildcard would be prepayments, but again, I think it's been 14 basis points, 15 basis points for the last two or three quarters, and that's kind of what we see over the next two or three quarters.

Nicholas Anthony Cucharale III -- Sandler O'Neill & Partners LP -- Analyst

Okay. But referring to the core margin, what is your outlook for that?

Richard J. Dutton -- Senior Vice President and Chief Operating Officer

Okay. I'm sorry I answered the wrong question. But I did a pretty good job.

Nicholas Anthony Cucharale III -- Sandler O'Neill & Partners LP -- Analyst

You did, you did.

Richard J. Dutton -- Senior Vice President and Chief Operating Officer

So if we ended the quarter at, I got flip to a different page.

Dennis G. Shaffer -- Chief Executive Officer and President

14.

Richard J. Dutton -- Senior Vice President and Chief Operating Officer

Yeah. So if it was 14 basis points for the quarter, I think over the balance of the year, something approaching 30 basis points of the contraction not out of the realm.

Nicholas Anthony Cucharale III -- Sandler O'Neill & Partners LP -- Analyst

Okay. And that's point to point from the first quarter to the fourth quarter, you're saying?

Richard J. Dutton -- Senior Vice President and Chief Operating Officer

Yes, yes.

Nicholas Anthony Cucharale III -- Sandler O'Neill & Partners LP -- Analyst

Okay, great. And then lastly and then I'll jump out. I see you are pretty active on the buyback this quarter and exhausted the repurchase program shortly after quarter-end. Is it your expectation that you reup the authorization or is it more of a wait-and-see approach?

Dennis G. Shaffer -- Chief Executive Officer and President

It is our expectation that we do reup it. That being said that I think that there'll probably be a suspension there for a period of time until we get a better handle on the overall credit portfolio. We want to get some comfort level and see -- get a clearer picture as to what's going on with the economy. Right now, as businesses still being shut, we don't know how long that's going to the last half or what impact these relief programs are going to have. So I do expect it though to be -- to reup it, but there is going to be probably a pause until we have that comfort level with one, the economy and two, the credits in our portfolio.

Nicholas Anthony Cucharale III -- Sandler O'Neill & Partners LP -- Analyst

Great, thanks for taking all my questions.

Dennis G. Shaffer -- Chief Executive Officer and President

You bet.

Operator

Our next question is from Michael Perito from KBW. Go ahead.

Michael Perito -- Keefe Bruyette & Woods Inc. -- Analyst

Hey, good afternoon guys. How is everyone doing?

Dennis G. Shaffer -- Chief Executive Officer and President

Good. How are you doing?

Michael Perito -- Keefe Bruyette & Woods Inc. -- Analyst

Yeah. We're hanging in doing best we can. Thank you. Thanks for the time this quarter with always the extra disclosures. I did want to ask on the credit side. The hotel and restaurant exposure that you outlined, Dennis, how much of that it is going to be in deferral by your estimation in the next week or so? I mean is it majority or how does that look at this point?

Dennis G. Shaffer -- Chief Executive Officer and President

I'll let Chuck answer, but I would assume...

Charles A. Parcher -- Senior Vice President and Chief Lending Officer

I would tell you the majority for sure. As we're looking through it, yes. I don't have an exact percentage on that, but it is going to -- it is a majority, if I look through the list.

Michael Perito -- Keefe Bruyette & Woods Inc. -- Analyst

And are you guys making any assumptions at this point or any specific reserves against that portfolio as it seems to be kind of particularly stressed, even if there is some type of recovery? I mean, there's still kind of questions as to how fast those guys will be able to return to some type of normal operating period. What are you guys thinking at this point in that regard?

Charles A. Parcher -- Senior Vice President and Chief Lending Officer

Yeah. Paul Stark is on the line and I'll have Paul give his thoughts -- couple of thoughts. Go ahead, Paul.

Paul J. Stark -- Senior Vice President

Yeah, the answer is that I think it's really early to tell. And some of that's going to depend on the financial reserves that the sponsors have to keep this moving. But I think our assumption is, it will be a little bit longer build-back period. What we did is we didn't expect -- we ran a couple of different scenarios. But right now, given the deferrals and the cash that's being put out there, we just increased our key factors for that as opposed to trying to make any specific allocations. As we get more information over the next 90 days, we will be better positioned to do that.

Dennis G. Shaffer -- Chief Executive Officer and President

Yeah. Mike, most of our provision expense was really -- we just adjusted the qualitative factor surrounding the economy itself. So as Paul says, I think we'll gain a little bit more clarity as we go along here and we see what opens and what doesn't.

Michael Perito -- Keefe Bruyette & Woods Inc. -- Analyst

Okay. So the majority of -- the whole reserve build rather in the first quarter was really general reserve build. And I guess what were some of the economic assumptions that you guys made to drive those qualitative changes?

Dennis G. Shaffer -- Chief Executive Officer and President

Well, I think some of them were businesses that have -- they don't have any income and there's no income for businesses. Businesses have additional expense related to the COVID-19. The unemployment rate is extremely high. And then the amount of payment deferrals or the requests that were coming in for relief, I think those were really the four driving factors behind that.

Charles A. Parcher -- Senior Vice President and Chief Lending Officer

As well as first lack of personal travel because of the closing down and being -- people being homebound.

Michael Perito -- Keefe Bruyette & Woods Inc. -- Analyst

Are you guys able -- just as -- the reason for the question is, we're trying to compare kind of what your reserve trajectory, how it compares to ours? Are you guys able to share some of the GDP endpoint unemployment assumptions that you guys leverage in making those decisions?

Charles A. Parcher -- Senior Vice President and Chief Lending Officer

I don't -- I can tell you right now, these are general allocations based on the overall numbers. We've got some localized information but, I don't think it's that precise given the huge influx and most of these people went from standard revenue in good years to pretty much a significant drop in revenue and a lot of restaurants with no revenue. So again, I don't think we have our normal pattern. So I think as we look at the risk and how these people would be stressed, we decided it would be better to try to estimate less than -- I mean, if you go back to take a look at unemployment and the losses that you could derive out of that in the past under normal scenario, that's pretty predictable. Unfortunately, given where you are today, it's really a lot harder to do. So yeah, it was difficult as we went into there, but I don't think we're in a position to really spell that out. It's more of a -- there was an estimate.

Dennis G. Shaffer -- Chief Executive Officer and President

The reserve build was Mike was about 8 times what was a year ago. So again, just so much uncertainty around where that number is needed to be, but we felt that was pretty appropriate for the first quarter, given that we were the stay-at-home has only been in fact, two to three weeks.

Michael Perito -- Keefe Bruyette & Woods Inc. -- Analyst

Yeah. That's fair. Okay. And moving on, just one last question, just on any -- on expenses rather, any thoughts, Dennis or Rich, on kind of expenses in the near term here? I mean, my guess if there is some elevated personnel and stuff like that type cost, especially with the stress the PPP lending is putting on the franchise. But any thoughts on kind of where the near-term expense trajectory to go in the second quarter, and I guess, I'll just leave it there.

Richard J. Dutton -- Senior Vice President and Chief Operating Officer

Yeah, Mike, this is Rich. So if our non-interest expense for the first quarter was about $17.8 million. Part of our normal business processes is that we do merit increases April 1. You can add about $200,000 number to that, they get to $18 million. That's the only thing I know for sure. Again, I think we've got some elevated expenses relevant to COVID. We've got some expenses that are going the other way, because obviously, nobody is traveling anywhere and lodging is not -- we're not spending the night anywhere. Somewhere probably between $18 million for year four is kind of what we modeled. But boy, I mean you're going to hear unsure I think a lot -- on a lot of these calls, and that's kind of where we're at right now.

Dennis G. Shaffer -- Chief Executive Officer and President

Yeah, Mike, the PPP stuff, we didn't really incur a lot of additional expense to process those loans. So we've really used people from our retail section, because we have closed some of the branches and stuff and really across all of our business lines. So we didn't really incur a ton of additional expense from the PPP loans. The mortgage volume is pretty high. So, we have added some processors. We've added those in the last year and obviously, you'll see that the full year effect of that moving forward, but our mortgage volume is nearly double where it was before, so...

Richard J. Dutton -- Senior Vice President and Chief Operating Officer

Okay. I mean..

Michael Perito -- Keefe Bruyette & Woods Inc. -- Analyst

Great. Thank you, guys. Sorry, go ahead.

Richard J. Dutton -- Senior Vice President and Chief Operating Officer

No, I think that they want to find out what the exact forgiveness rules are. There probably will be some small incremental expense because people do work on the loan portfolio, but that should be covered by the revenue that we're taking in from PPP.

Michael Perito -- Keefe Bruyette & Woods Inc. -- Analyst

Right. Okay, great. Thank you, guys. I appreciate the color this afternoon and stay well.

Dennis G. Shaffer -- Chief Executive Officer and President

You too, Mike.

Richard J. Dutton -- Senior Vice President and Chief Operating Officer

Thanks, Mike.

Operator

Our next question is from Russell Gunther from DA Davidson. Go ahead.

Russell Gunther -- DA Davidson -- Analyst

Hi, good afternoon guys.

Dennis G. Shaffer -- Chief Executive Officer and President

Hello, Russell.

Richard J. Dutton -- Senior Vice President and Chief Operating Officer

Hey, Russell.

Russell Gunther -- DA Davidson -- Analyst

I just wanted to follow up on your comments with regard to internal stress test that you've been running. You said you're -- it gives you comfort in the capital position, which certainly seems in excess, but if you could just share some of the related assumptions that you're performing and perhaps what you consider or model there with regard to potential stress loss rates within those hotel and restaurant segment.

Richard J. Dutton -- Senior Vice President and Chief Operating Officer

Well, on the -- when we ran and when we've been doing on our capital plan and stress test, we really look back that the last recession took the amount of charge-offs that we had during that time. And over a four-year period, we have incurred about $54 million in losses. We really doubled that and assumed that we were still paying a dividend, assumed that there were some loan growth really, and we did it over a two-year period, we condensed the period of time. And that really shows that we could keep a capital level, a Tier 1 level above 8%, so it could -- so as we could sustain about $110 million of losses and our Tier 1 capital would still be above 8%. So that's double the losses that we had during the last economic recession, condensed under a shorter period of time without us really pulling some levers that you would typically pull, you may slow loan growth, you may furlough employees, you may cease your dividend. And we didn't really -- we assume that, that was also taking place and obviously, losses build, those levers are going to pull. So we felt pretty comfortable about that.

Russell Gunther -- DA Davidson -- Analyst

I appreciate the comments there, guys. And then kind of a ticky-tacky question, but the loan loss reserve is at 97 basis points today and if you consider marks taken in prior deals, is there much of a lift to that, where would that number stand?

Richard J. Dutton -- Senior Vice President and Chief Operating Officer

It's about 17 basis points, the credit mark for our last -- really our last acquisition that we did about 18 months ago. So the credit mark on that has about 17 basis points. Paul, anything you want to add on that?

Paul J. Stark -- Senior Vice President

No. If you're talking about future, I think the -- we don't know yet. I mean, we really are going to -- we've started the process with the testing on a credit-by-credit basis. And I think everybody is going to be impacted differently on that, but if we find that this is prolonged, I'm not sure what the definition of temporary is anymore. But basically, as we look forward, we may have to increase that depending on what we see.

Russell Gunther -- DA Davidson -- Analyst

Got it.

Richard J. Dutton -- Senior Vice President and Chief Operating Officer

Yeah. So the credit mark, on that last acquisition, it was about 17 bps, which takes us with the 97, we're 114 or so. We do expect provision to be elevated maybe moving forward, but -- or at this elevated level that we're at today. Again because of all the uncertainty, we just don't know yet.

Russell Gunther -- DA Davidson -- Analyst

Understood. I appreciate that. Thank you for the help there. And then, last question I had guys, is there much in the way of overlap between the roughly $400 million of deferrals and $187 million of PPP?

Charles A. Parcher -- Senior Vice President and Chief Lending Officer

Yeah, this is Chuck, Russell. Yeah, I would say that the bulk of it is probably overlap. To be honest, we kind of took the -- we took the taking care of our customer first motto on the PPP program. So we really got through almost all of our clients that asked for it in that first wave. And I would tell you that I don't have a cross-reference totally. But I would tell you it's pretty close to most of the people who took deferral took the PPP loan.

Russell Gunther -- DA Davidson -- Analyst

Okay, got it. That it guys. Thanks for all the help. I appreciate it.

Dennis G. Shaffer -- Chief Executive Officer and President

Thank you, Russell.

Operator

Our next question is from Kevin Swanson from Hovde Group. Go ahead.

Kevin Swanson -- Hovde Group -- Analyst

Hi guys.

Dennis G. Shaffer -- Chief Executive Officer and President

Hi, Kevin.

Kevin Swanson -- Hovde Group -- Analyst

Hey, most of my question are answered. I just want to throw one more out there. Obviously, prior to COVID, you guys had a nice growth plan, it was working well. Obviously, right now, the stance is kind of changed a little bit to sustaining businesses and helping the community. But how do you think about positioning for offense as the tide stars to turn? Thanks.

Charles A. Parcher -- Senior Vice President and Chief Lending Officer

Yeah, this is Chuck, Kevin. And it's been interesting as we went through this PPP program, we've actually -- because we were so successful in implementing it, we have started to see some nice loan demand and some nice customer relation piece of that from actually beating the -- I would call the regionals and the national guys to the punch. And even as we're looking into this -- into the second wave, we've picked up -- even more people have asked us to implement it for them as compared to their normal bank. The other thing that I think that I've got -- I feel good about looking forward is, right now, the CMBS market seems to be a little bit in disarray, some loan to values, etc. have been pushed down. We're seeing a few of our really successful projects that probably would have went out to that marketplace and then taken off our books, coming to us and asking for some 10-year swap money and leaving them on balance sheet was I think will help us growth-wise through the balance of the year as well. Now, hard to predict what total demand is going to be looking forward 90 days from now as we come out the other side of this, but I'm still optimistic that we'll have some growth looking forward.

Kevin Swanson -- Hovde Group -- Analyst

Okay, great. Thanks. So maybe just a follow-up to that. Obviously, I appreciate some of the uncertainties still remain. Have you thought about any changes to credit structure and underwriting given what we've learned so far from the impact and maybe on some of the growth that you guys are seeing?

Dennis G. Shaffer -- Chief Executive Officer and President

We have, we've talked quite a bit about it. And I guess, I'll let Paul Stark jump in as well, but obviously working everything a touch differently. Obviously, we're not going to jump into the hotel market anytime soon or anything like that, but Paul you want to talk a little bit about what we're looking at going forward.

Paul J. Stark -- Senior Vice President

I think the immediate need is to really have -- I mean we are looking at every deal as they come through. And so, the biggest issue really is understanding any of these projects or customers as to what kind of impact they've had, what kind of liquidity they have, which is ever more important as well as do they have a plan and a strategy to work their way through this thing. There is still a lot of customers out there who have not been affected too much and -- but there is also some projects out there that I think when they first came to us, we're expecting more of a normalized environment. So we've been very cautious as we approach those things. So in terms of wholesale underwriting changes, I don't think we've made any. I think it's really focusing on deal-by-deal at this point in time.

Dennis G. Shaffer -- Chief Executive Officer and President

Yeah. Just to reiterate what Chuck said too, the hotels, restaurants, those would all be tough deal, we wouldn't be looking at today.

Charles A. Parcher -- Senior Vice President and Chief Lending Officer

Yeah. The one thing that was interesting through this, Kevin. I know some other banks have seen different results. We have not seen really any excessive draws on any of our lines of credit. Nobody has come in, in any type of panic and try to draw our commercial lines up, our home equity lines up, those balances have been pretty flat from the start of this announcement of the pandemic.

Kevin Swanson -- Hovde Group -- Analyst

Okay. Thanks guys. Stay healthy.

Dennis G. Shaffer -- Chief Executive Officer and President

Okay. You too. Thanks.

Operator

[Operator Instructions] Our next question is from Scott Beury from Boenning & Scattergood. Go ahead.

Scott Beury -- Boenning & Scattergood -- Analyst

Hi.

Dennis G. Shaffer -- Chief Executive Officer and President

Hi, Scott.

Scott Beury -- Boenning & Scattergood -- Analyst

All the detail regarding your COVID-related programs and most of my questions have already been answered. I just was curious to kind of see if you had any guidance regarding the tax rate. I know that it dipped down a little bit this quarter below kind of your prior guidance, but yeah, I just wanted to see what the impact would be there regarding the CARES Act and what you expect going forward?

Richard J. Dutton -- Senior Vice President and Chief Operating Officer

Sure, Scott. This is Rich. And really, I don't know that CARES Act had a whole lot of bearing on our effective rate. It was a whole lot more to do with the elevated provision, and then the percentage of kind of tax preference revenue that we generate regularly. So I think going forward, we've been kind of run it at about 16% effective tax rate. Todd and Mike and I have been talking about it. And given what we think we're going to do for the rest of the year, probably 16% is the high end of what we would guide you to, probably 14% or 15% effective rate that's probably not a bad rate and I had a lost money if you'd asked me that a quarter ago.

Scott Beury -- Boenning & Scattergood -- Analyst

I know there are a lot of moving parts. I appreciate the help there. And yeah, thanks for all the helpful insights.

Richard J. Dutton -- Senior Vice President and Chief Operating Officer

Sure.

Dennis G. Shaffer -- Chief Executive Officer and President

Thanks, Scott.

Operator

This concludes our question-and-answer session. I would now like to turn the conference back to Dennis Shaffer for closing remarks.

Dennis G. Shaffer -- Chief Executive Officer and President

Thank you. Well, in closing, I just want to thank everyone for listening in. Thanks those who participated on the call. Again, we are very pleased with our first quarter results. The balance of 2020 will likely be a challenge. We know that. We do look forward to meeting those challenges and to talking to you again in the few months to share our second quarter results. So thank you for your time today.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

Dennis G. Shaffer -- Chief Executive Officer and President

Richard J. Dutton -- Senior Vice President and Chief Operating Officer

Charles A. Parcher -- Senior Vice President and Chief Lending Officer

Paul J. Stark -- Senior Vice President

Nicholas Anthony Cucharale III -- Sandler O'Neill & Partners LP -- Analyst

Michael Perito -- Keefe Bruyette & Woods Inc. -- Analyst

Russell Gunther -- DA Davidson -- Analyst

Kevin Swanson -- Hovde Group -- Analyst

Scott Beury -- Boenning & Scattergood -- Analyst

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