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First Midwest Bancorp Inc (NASDAQ:FMBI)
Q3 2019 Earnings Call
Oct 23, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the First Midwest Bancorp 2019 Third Quarter Earnings Conference Call. Following the close of the market yesterday, the Company released its earnings results for the third quarter of 2019 and also issued presentation materials that will be referred to during the call today. These provide both historical, financial information and the Company's outlook for 2019.

During the course of the discussion today, management's comments and the presentation materials may include forward-looking statements. These statements are based upon the Company's current beliefs and are not historical facts or guarantees of future performances or outcomes.

Actual results or outcomes may differ. The risks, uncertainties and safe harbor information contained in the Company's most recent 10-K and other filings with the SEC as well as the forward-looking statement, non-GAAP and other legends included in the Company's earnings release and presentation materials should be considered for the call today.

Finally, the Company will not be updating any forward-looking statements after this call is being recorded and all participants are in a listen-only mode. Following the presentations by Mike Scudder, Chairman and Chief Executive Officer; Mark Sander, President and Chief Operating Officer; and Pat Barrett, Executive Vice President and Chief Financial Officer, the call will be open for question-and-answers for analysts only. I will now turn the call over to Mr. Scudder. Please go ahead.

Michael L. Scudder -- Chairman of the Board and Chief Executive Officer

Good morning, everybody. Thanks for joining us today. It's great to be with you. Overall, it was a record quarter for us against what we described as a tougher rate backdrop as we shared in the opening introduction for the call, I remind you, we do have a supplemental presentation to follow along with as we move through our remarks. As is our custom, I'll cover the highlights and then leave it to Mark and Pat to walk you through the components. So let me start with the highlights. As I suggested, we closed the quarter with a -- having generated a record levels of earnings $54.5 million. Total assets stood at $18 billion, that's up 3% from last quarter and 20% from a year ago.

Adjusted for the impact of acquisitions, Delivering Excellence and that's for all periods and Delivering Excellence implementation costs from prior periods, our EPS was up, a robust 4% versus last quarter and 13% from a year ago. As a result, our return on tangible common equity improved to 16.1% even as our common equity Tier 1 ratio to risk weighted assets expanded 25 basis points again all versus a year ago.

Operationally, we had a full quarter Bridgeview with the systems conversions having completed, been completed and integration and onboarding activity going well and on track.

Our loans were up 8% annualized from last quarter as we follow through on our guidance that we were looking to add both diversification, duration and yield through our consumer portfolio responsive to the rate backdrop. C&I growth was also solid while CRE continues to see heavier pay downs. We continue to hold our own there and we're maintaining our underwriting discipline. As from my perspective, and Mark and I've talked about this in this environment, this is where you really have to be careful, as the rate environment sometimes will lead others to chase volume. Deposits also held up very nicely increasing on average 4% and 16% linked quarter and from a year ago respectively while our mix was relatively unchanged.

Net interest income remained stable as average earning assets grew 6% essentially holding our revenues as margins declined to 3.82%, reflective of both the rate environment and change in mix. Also offsetting the impact of lower margins was improved fee-based revenues which increased 12% from last quarter and 20% from last year. It was nice from our perspective to see the investments that we've made, both in our mortgage platform as well as our sales of derivative products in prior years, both of which benefited from lower rates and those were big contributors to drive the increase this quarter. Operating efficiency continues to remain a focus for us coming in at 54% for the quarter improved from last quarter's 55% and 2 percentage points better than where we were a year ago.

And then, last but certainly not least, credit which align for our growth was generally stable and in line with prior quarters.

So with that let me turn it over to Mark and Pat for some additional color.

Mark G. Sander -- President and Chief Operating Officer

Thanks, Mike and good morning all. Overall, loan growth came in as expected in Q3 at $250 million as shown on Page 3 of our presentation deck. Our commercial and consumer teams all had solid to strong production in the quarter, which allowed us to grow in line with expectations despite continued and in fact, elevated payoff activity.

We've seen and talked about high payoff levels in CRE from longer term financings and property sales all year and again in this quarter. Fortunate for borrowers, but a headwind for us. These dynamics also developed in our C&I book in Q3, such that very strong C&I production resulted in modest overall growth of about $50 million, given some elevated pay-offs for reasons that were favorable to our clients. Our consumer businesses had a good quarter across the board, led by mortgage. The rate environment certainly drove volumes higher across the industry. Importantly, we also expanded our teams earlier this year as noted in previous calls, so together, this allowed us to retain mortgages to grow earning assets while also expanding fee income.

Elsewhere, our consumer direct business again grew at a nice pace organically. Looking forward, we expect more of the same story in Q4. We think commercial will be flat to up modestly this quarter given certain asset sales we foresee and credit market dynamics that may stretch beyond our comfort level. Conversely, our consumer businesses look to again post solid results. In total then, we expect low-to-mid single digit annualized loan growth this quarter.

Turning to asset quality on Page 4, results in Q3 were right in line with our guidance. Charge-offs fell modestly to 29 basis points, a level we expect to be near in Q4 as well. Non-performing assets were slightly elevated reflecting normal quarter-to-quarter fluctuations. But this was more than offset by a 13% drop in adverse performing loans. Thus, our outlook remains unchanged. Provision going forward should approximate charge-offs plus enough to cover loan growth, such that we maintain our allowance near current levels.

Deposit growth closely match loan growth as shown on Page 5, we remain competitive on rates and markets have thus far not reacted meaningfully to interest rate cuts. Fortunately, whatever the rate environment, our strong core deposit base continues to result in a cost advantage versus our peers. So, Pat will now discuss net interest income and margin.

Patrick S. Barrett -- Executive Vice President and Chief Financial Officer

Thanks, Mark. Turning to net interest income and margin on Slide 6, net interest income was up modestly compared to the prior quarter and up $19 million or 14% compared to the same period in 2018. Compared to both prior periods, the acquisition of Bridgeview which closed mid second quarter of this year, securities purchases combined with loan growth were partly offset by higher funding costs. In addition, the increase compared to the second quarter benefited from an extra day, while the increase compared to the same period a year ago was impacted by the acquisition of NorStates Bank.

Acquired loan accretion contributed $9 million to the quarter in line with expectations and down $1 million from the prior quarter, up $4.7 million compared to the same period a year ago.

Moving to net interest margin, tax equivalent NIM for the current quarter of 3.82% was down 24 basis points linked quarter and 10 basis points from prior year, excluding accretion, margin was 3.59% for the quarter, down 19 basis points linked and 20 basis points from the same period a year ago.

Margin compression reflected the impact of lower market rates on loan yields compared to the prior quarter and compression related to the mix of interest earning assets acquired in the Bridgeview transaction compared to a year ago. In addition, actions we've taken to reduce rate sensitivity and higher cost of funds impacted the current quarter compared to both prior periods.

Overall margin compression was nearly double our expectations as a result of lower than expected market rates as well as modestly higher funding costs due to balance sheet mix.

Turning to earning assets and funding sources. Average earning assets were up $850 million linked quarter and $2.3 billion compared to the prior year, reflecting earning assets from the Bridgeview acquisition, loan growth and securities purchases. In addition, assets acquired in the NorStates transaction impacted earning asset growth compared to the prior year.

Average funding sources were up over $850 million linked quarter and $2.3 billion from the prior year, reflecting the impact of acquisitions, organic growth and Federal Home Loan Bank advances.

Moving to our fourth quarter of 2019, NII outlook, we expect a flat to modest NII decrease from the third quarter, assuming further rate cuts occur, every 25 basis points, downward adjustment by the Fed would likely result in approximately a $2 million decline in NII per quarter.

Our accretion guidance is unchanged with approximately $7 million expected in the fourth quarter. Overall, this guidance is in line with the full-year guidance for 2019 that we previously provided.

From a NIM outlook perspective, we expect continued compression in the high single-digit range in the fourth quarter assuming further rate cuts by year-end. But we do expect this compression to slow as interest rates stabilize.

Once again, I want to remind you that projections are subject to volatility due to movements in interest rates, pace of loan growth and the impact of acquisitions.

With that, I'll turn it back over to Mark to talk about non-interest income on Slide 7.

Mark G. Sander -- President and Chief Operating Officer

Thanks. As you can see, non-interest income was up dramatically, it exceeded our expectations in Q3, 11% higher versus last quarter and 20% higher than a year ago. Mortgage had a strong quarter as I previously mentioned and the outlook remains positive there given interest rate levels. The uptick in commercial loan production and a desire to take advantage of this rate environment to lock in fixed rates led to a record swaps quarter, nearly double linked quarter.

Elsewhere in core services, we had solid gains as well. As a result, our $43 million of non-interest income was above our guidance. Assuming swap income holds at current levels, we expect to post similar fee results in Q4. Now back over to Pat to talk about expenses and capital.

Patrick S. Barrett -- Executive Vice President and Chief Financial Officer

Moving to expenses on Slide 8, please note that the current quarter includes $4 million of acquisition and integration-related expenses associated with the Bridgeview acquisition and to a lesser extent, the residual Delivering Excellence implementation costs. Both of which we believe will remain at or better than original expectations for the full year. Away from these items, total expenses were in line with the second quarter and up 11% compared to the same quarter a year ago. The increase compared to prior year was driven by increased operating costs associated with acquisitions combined with higher staff cost reflecting merit increases. Our efficiency ratio of 54% improved from 55% linked quarter and 56% a year ago. Our outlook for 2019 legacy expenses remains unchanged, as we continue to expect expenses to average around $106 million per quarter for the second half of the year. Said another way, we expect the fourth quarter to be up modestly from the third quarter.

Last note on taxes before I leave this slide. Our effective tax rate for the quarter was approximately 25% in line with our guidance and remains our expectation for the fourth quarter.

Moving to capital on Slide 9. We continue to maintain capital at strong levels and are pleased with our track record of rapidly earning back to the capital we've deployed. Capital accretion from excess earnings continues to provide us with flexibility to fund both growth and continued share repurchases although note that we are currently constrained on repurchase activity until we closed the Park acquisition.

During the quarter, we repurchased 645,000 shares and paid a dividend to shareholders that represents nearly a 30% increase from the same period a year ago. We expect continued capital accretion from excess earnings providing further flexibility to fund growth or continued share repurchases once we close Park and for that we have remaining Board approved repurchase capacity of approximately $145 million.

Looking ahead on Slide 10, we've summarized our current estimated range of impact both capital and the allowance for credit losses with the adoption of CECL standard on January 1st of 2020.

Overall and as we expected, the estimated impact to our Tier 1 capital is relatively limited at approximately 25 basis points to 40 basis points or approximately $35 million to $55 million which can be earned back with our typical quarterly earnings accretion rate in one quarter to two quarters.

Excluding the impact of acquired loans, we expect the allowance will increase by 20% to 40% or approximately $20 million to $45 million. Building allowance for acquired loans will add an additional 45% to the allowance or approximately $50 million, but the majority of this represents the mark on purchased credit impaired loans, which will transition to the title purchase credit deteriorated or PCD loans as an allowance with no capital impact.

As a reminder, these are estimates and the extent of the increase will depend on the composition of the loan portfolio as well as economic conditions and forecast as of the adoption date.

And finally, note that for your convenience, we have summarized our outlook. The announced details of the Park acquisition as well as our current quarter's earnings on Slides 11 through Slide 13 respectively. Now, I'll turn it back over to Mike for final remarks.

Michael L. Scudder -- Chairman of the Board and Chief Executive Officer

Thanks, Pat. So just to recap, obviously, it's a tough rate backdrop, but that's really true for the short term. As we look to the longer term, we really like our positioning. We continue to execute on our priorities and as we say in this type of environment that also creates opportunities that we believe will accrue to our long-term benefit.

Included among those is our teams continue to work hard and have built a tremendous core deposit foundation which can be undervalued amid today's short term noise. Our credit capabilities are broader and more diverse. Our acquisition of Park Bank will add an additional $1 billion in assets, a talented team and broader access to what we believe is a very attractive Milwaukee marketplace. As we await an expected first quarter close, the team is locked and loaded and we look forward to competing in the marketplace. We're very thrilled with our progress to-date there.

Our earnings remain very strong. As we continue to organically build capital, this gives us tremendous flexibility to leverage the environment, grow capital as well as optimize our mix. Operationally, we remain very much focused on our efforts to leverage technology and process improvement, all with an eye toward driving a better and more efficient client experience. Today's environment makes that even more important. So with that, let's open it up for your questions.

Questions and Answers:

Operator

Thank you, sir. The question and answer session will begin at this time. [Operator Instructions] The first question comes from Michael Young with SunTrust. Please state your question.

Michael Young -- SunTrust -- Analyst

Hey, good morning, everyone.

Michael L. Scudder -- Chairman of the Board and Chief Executive Officer

Good morning.

Michael Young -- SunTrust -- Analyst

Wanted to start just with the mortgage loan purchases in the quarter. Can you just tell us how much of that was with purchase volume and then maybe give us an update on kind of where we stand in that process of reducing asset liability, sensitivity and where that kind of stands today from an NII at risk perspective?

Patrick S. Barrett -- Executive Vice President and Chief Financial Officer

Hey, Mike. This is Pat, I'll take that. I would say that the majority of the mortgage purchases during the quarter were under the banner of extending our duration, but we have pretty tight guidelines on both credit quality and yield. So we continue to make sure that we're getting paid for the incremental risk over what we would get if we just bought mortgage-backed securities for example, which we're pretty comfortable with. Away from the purchased mortgages, we still had pretty solid origination activity. I don't know, it was probably 25% of our increase was origination and 75% of our increase were repurchases, right Mark?

Mark G. Sander -- President and Chief Operating Officer

That's right.

Patrick S. Barrett -- Executive Vice President and Chief Financial Officer

Yeah. Going forward, we feel, well we hit our objective that we set out about three quarters ago from a extending duration perspective, but frankly, with the market behaving the way it is and with the continued origination of a predominantly floating-rate loans that we still see, I think that that might be something that we could continue into next year, modestly, but I think that we got the lion's share of what we were looking to do this year, done this year.

Michael Young -- SunTrust -- Analyst

Okay and so future kind of purchases will be more of a pacing with what's going on in the commercial portfolio, is that kind of the right way to think about it if that's stronger growth and we'll see less purchases next year?

Mark G. Sander -- President and Chief Operating Officer

I think that's exactly the way to think about it, Michael. This is Mark, yeah.

Michael Young -- SunTrust -- Analyst

And Mark. Just on kind of the activity you're seeing, I think you called out specifically C&I, you're now [Phonetic] seeing higher pay-offs and pay-downs. Do you expect that to persist in the fourth quarter? Do you get the sense that a lot of clients are looking to liquidate or sell businesses, ahead of a Presidential cycle or capturing this favorable tax environment, etc?

Mark G. Sander -- President and Chief Operating Officer

We do see a little bit more in the fourth quarter and I'll say it this way, this has been a trend in CRE for a number of quarters as you know, across the industry and certainly for us and we've got some visibility to that and I think that will continue in Q4. C&I, this is the first time we've seen a dramatic increase in payoffs in C&I, in some time. And it was largely assets, company sales, but there is also a credit component of that that you just see there are stuff we didn't want to do or stuff that we had that we didn't want to continue doing, I guess, I would say. And so I see a little bit of -- we got short-term visibility to a few more of those in Q4. I'm not ready to call that a trend, but there is a couple, a little bit more of that pressure in Q4. So therefore, as I said, commercial in total will be flat to up very modestly in Q4.

Michael Young -- SunTrust -- Analyst

Okay and one last one if I could just sneak it in. Just on hiring, I mean, given some of those dynamics that you're seeing. Does that make you kind of more aggressive to hire -- to try to get more production or kind of given where we are in the cycle, are you kind of easing off and just saying, the markets moving away from us, maybe we just, we wait for a little bit and buy back more stock?

Mark G. Sander -- President and Chief Operating Officer

I'll say it this way, Michael. Our production is not the issue. We had a really nice production quarter. And so, and I think we'll have a nice production quarter in Q4. So I don't feel a need to go higher at all. On the other hand, as we've always said opportunistically and just as part of a normal course, we have to stay in touch with high quality bankers in our markets and if some of them want to join us and some did in Q3, we're happy to make room, even if we don't have a spot, so good bankers pay for themselves quickly.

Michael L. Scudder -- Chairman of the Board and Chief Executive Officer

And Michael, this is Mike. If you picked it up in my comments, this is also an environment where you want to maintain your underwriting disciple. Because you can see some in the market start to chase that growth to the detriment of long-term performance in our judgment, so.

Michael Young -- SunTrust -- Analyst

Okay, thanks. I appreciate all the color.

Michael L. Scudder -- Chairman of the Board and Chief Executive Officer

Thank you.

Operator

The next question comes from Chris McGratty with KBW. Please go ahead.

Chris McGratty -- KBW -- Analyst

Great, good morning. Pat, maybe start with the margin or the NII guide. The -- down high single-digit basis points but slight flat to down modestly NII would imply continuation of kind of the securities purchases in the quarter. I mean, could you provide an update on where you are in terms of adding securities and borrowings at this point. And maybe what you're buying at these levels?

Patrick S. Barrett -- Executive Vice President and Chief Financial Officer

Well, at current -- fourth quarter, we are not really in the market too much. I think the bulk of what we did, we finished up mid -- mid way in this -- in the third quarter, call it late July and other than just reinvesting cash flows, we are not really aggressively looking to buy. So our NIM guidance for the fourth quarter presumes, what we've assumed for the last, actually since -- since the downward expectation for interest rates is that we're assuming an October rate cut 25 basis points and in December, which will have a modest impact if we get both of those, then our revenues will come down maybe $2.5 million and the bulk of that, call it $2 million would be the October rate cut. So we're not anticipating that adding duration, asset sensitivity will have anywhere near the impact that it did this quarter which was probably half of our compression was due to that.

Chris McGratty -- KBW -- Analyst

Okay. So the bond portfolio will kind of stay at current levels is kind of what I'm hearing?

Patrick S. Barrett -- Executive Vice President and Chief Financial Officer

Yeah.

Chris McGratty -- KBW -- Analyst

Maybe little bit of -- OK.

Michael L. Scudder -- Chairman of the Board and Chief Executive Officer

Depending on what tomorrow brings. So I mean it's a volatile environment, so.

Chris McGratty -- KBW -- Analyst

No. Totally get it. Maybe a little bit on credit, the two commercial credits you call out in the press release, could you provide a little detail, were these loans previously on non-accrual, did they pop up kind of unexpectedly and maybe what industry they might be in?

Mark G. Sander -- President and Chief Operating Officer

Yeah. They were criticized and classified, but not non-accrual, so they moved to non-accrual this quarter. They were both in the $8 million to $10 million range. One was in the services business and one was in manufacturing. So no real trend there. And they've been on the radar screen as again they were criticized and classified. So they've been on the radar screen for some time. That said, had a nice decrease in our criticized and classified overall. So we don't see any change in the credit outlook as a result of this.

Chris McGratty -- KBW -- Analyst

Okay, great. And then maybe a housekeeping one. Pat, the -- a lot of banks you said have had that FDIC insurance benefit in the quarter, could you specify what that might have been?

Patrick S. Barrett -- Executive Vice President and Chief Financial Officer

Sure. Yeah. We got it like a lot of people did, it was a little over $1 million, which drove for the most part drove our beat on expenses versus our guidance. So that we weren't sure about the timing that we would get that, but we did get that during the quarter.

Chris McGratty -- KBW -- Analyst

Great, thank you all.

Patrick S. Barrett -- Executive Vice President and Chief Financial Officer

You also telegraphed a couple of quick questions on other income. I think on BOLI and that's BOLI is about three quarters of our other income non-fee-based revenue and that was pretty stable linked quarter. So there wasn't a big hit on that.

Chris McGratty -- KBW -- Analyst

Great, thanks for the color.

Operator

The next question is from Terry McEvoy with Stephens. Please go ahead.

Terry McEvoy -- Stephens -- Analyst

Good morning, everyone.

Michael L. Scudder -- Chairman of the Board and Chief Executive Officer

Hi Terry, good morning.

Terry McEvoy -- Stephens -- Analyst

Thanks for all the disclosure on CECL and the day one impact. I guess I'm thinking about 2020 and if I build the reserve say $80 million, I come up with the reserve to loan ratio of 120 to 125 [Phonetic] and I understand your economic assumptions will change, the portfolio will change but all things being equal, within 2020 is that the ratio I should hold to on a quarterly basis as we think about charge offs. loan growth and ultimately the provision?

Patrick S. Barrett -- Executive Vice President and Chief Financial Officer

I'd say 130 [Phonetic] would be a good handle.

Terry McEvoy -- Stephens -- Analyst

Okay, thank you. On the deposit side, your margin outlook for the fourth quarter, does that assume continued increase in your deposit costs or do you see some sort of plateau or potentially a decline in the fourth quarter?

Patrick S. Barrett -- Executive Vice President and Chief Financial Officer

I'll say that we are certainly hopeful that it won't go up. We -- I could see it coming down modestly. A lot will depend on what the market competitive dynamics do. We're still running money market promotion and a seven month CD promotion just so that we are competitive with what the market is offering. And to the extent we have those there, then that could keep us from dropping cost that as much as we would prefer to. We obviously don't have a lot of room on the retail side to drop just because we have such a large non-interest bearing or low-interest bearing retail deposit base. So that the bigger opportunity would be in the municipal borrowings and to a certain extent in the corporate, in the corporate money markets, but we'd love to bring them down. So I think if you look at our quarterly interest expense, we're now down to about $27 million, under $30 million a quarter. So and that's all in with borrowings and deposits. So there's only so much room that we have to bring interest expense down. It also, this is the curse of having such a great core deposit base is when interest rates go down, we don't have as much room to drop the costs.

Michael L. Scudder -- Chairman of the Board and Chief Executive Officer

Let me add that that again philosophically, we're not operating quarter-to-quarter. We're competitive in the marketplace and we will be. We continue to -- we don't set the market rates for deposits. We continue to take advantage of those and continue to look at -- to grow the franchise.

Terry McEvoy -- Stephens -- Analyst

Maybe a quick one for Mark, I'm not sure if you have it, but the size of your shared national credit portfolio, do you have that handy, as well as your leverage loan portfolio? And I'm not quite sure how you describe leverage lending but if you have that handy, it would be great?

Mark G. Sander -- President and Chief Operating Officer

Yeah, our cyc [Phonetic] portfolio is really very modest, Terry, so, it's really -- a relatively small number. Our leverage portfolio is -- leverage loan structure tranches, we call it is in the range of about $400 million.

Terry McEvoy -- Stephens -- Analyst

Thanks everyone.

Operator

[Operator Instructions] The next question comes from Nathan Race with Piper Jaffray. Please state your question.

Nathan Race -- Piper Jaffray -- Analyst

Hi guys, good morning.

Michael L. Scudder -- Chairman of the Board and Chief Executive Officer

Good morning.

Nathan Race -- Piper Jaffray -- Analyst

Question on the buyback from here. I think Pat, you mentioned, volume [Phonetic] will be constrained in the fourth quarter as the Park deal nears closing. So just curious on maybe the appetite for buybacks into 2020, assuming maybe the stock remains near the current levels, and it seems like the seasonal impacts can be fairly digestible. So just curious to kind of get your thoughts on the buyback as you enter 2020?

Patrick S. Barrett -- Executive Vice President and Chief Financial Officer

Yeah, so we like our capital levels where they are. So we're not in a big hurry to lower them, but absent other -- either higher organic growth or other acquisition or capital deployment alternatives, we are accreting 70% of our earnings every quarter. And so the philosophy behind the buyback, if you will, was to be able to eat up that excess earnings accretion over time as we earned it. We like the stock at today's price as a buyer, we would like it probably a good bit higher quite frankly to Mike's prepared remarks on the value of our stock. So we think that it will continue to be a good buy for the foreseeable future and you should expect us to be more programmatic with that as we earn and accrete excess capital.

Nathan Race -- Piper Jaffray -- Analyst

Okay, got it.

Michael L. Scudder -- Chairman of the Board and Chief Executive Officer

Again we -- let me helpful with there as well. We manage our capital consistent with what our long-term goals and priorities are. So as we look to determine how we're going to manage that we look at what provides, we think the strongest return to our shareholders, and that's where we will ultimately drive it. So how we ultimately deploy it will really be dependent on the environment and what the choices are as we go through and do that. Consistent with the capital plans that we talk about with our Board and then consistent with the feedback that we get from our investors, we are talking consistently with them as well.

Nathan Race -- Piper Jaffray -- Analyst

Understood. That's helpful color. And I guess within that context, Mike, curious to get an update just in terms of what you're seeing in terms of the flow of M&A opportunities at this point. I can imagine the size of the Park deal will put you guys on the sideline near term. So just curious if you're seeing increased activity flow across your desk or if it's kind of a steady state versus what we've seen recently?

Michael L. Scudder -- Chairman of the Board and Chief Executive Officer

I would say the environment generally reflects the M&A environment just reflects the environment around us. So right now, there's just a lot of noise and a lot of volatility around the market. So I would assume that would slow things down to a degree but there is always some steady stream of dialog that's out there at any one point in time. I would say our focus as we think about it certainly here in the short run is we want to make sure that we put our best foot forward as we go through and integrate Park and that's really where our point of emphasis is. To the extent opportunities become available, we're always ready to consider those and be proactive there.

Nathan Race -- Piper Jaffray -- Analyst

Okay, thanks for the color.

Operator

[Operator Instructions] The next question is from Daniel Tamayo with Raymond James. Please go ahead.

Daniel Tamayo -- Raymond James -- Analyst

Good morning, guys.

Michael L. Scudder -- Chairman of the Board and Chief Executive Officer

Good morning.

Mark G. Sander -- President and Chief Operating Officer

Good morning.

Daniel Tamayo -- Raymond James -- Analyst

This is just a little bit of a clean up question here. You mentioned the employee expense had some commissions related to the higher loan sales. Do you have that number in terms of the change between the second quarter and the third quarter?

Michael L. Scudder -- Chairman of the Board and Chief Executive Officer

I don't have that tip of fingers, but we can follow up with you on that.

Daniel Tamayo -- Raymond James -- Analyst

Okay, sounds good. And then the decline in professional services fees. It was impacted by timing differences. The second quarter and there was a $10.5 million, is that a better jumping-off point then going forward?

Michael L. Scudder -- Chairman of the Board and Chief Executive Officer

No, I think that timing would be sort of delayed and deferred. So that could tick up modestly.

Daniel Tamayo -- Raymond James -- Analyst

Okay. So somewhere in between. All right. That's all I had, everything else was asked. Thank you.

Michael L. Scudder -- Chairman of the Board and Chief Executive Officer

Great.

Mark G. Sander -- President and Chief Operating Officer

Thank you.

Operator

[Operator Instructions] If there are no further questions, I will now turn the call back over to Mr. Scudder for closing comments.

Michael L. Scudder -- Chairman of the Board and Chief Executive Officer

Great, thank you. So in closing, I just want to take the opportunity as we always do to thank all of our colleagues, many of whom listen to this call for their many contributions and investment in our performance. It's their engagement that drives our success. I also want to take the opportunity to thank all of you for listening and for your interest in and investment in First Midwest. Have a great day everybody.

Operator

[Operator Closing Remarks]

Duration: 34 minutes

Call participants:

Michael L. Scudder -- Chairman of the Board and Chief Executive Officer

Mark G. Sander -- President and Chief Operating Officer

Patrick S. Barrett -- Executive Vice President and Chief Financial Officer

Michael Young -- SunTrust -- Analyst

Chris McGratty -- KBW -- Analyst

Terry McEvoy -- Stephens -- Analyst

Nathan Race -- Piper Jaffray -- Analyst

Daniel Tamayo -- Raymond James -- Analyst

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