KEY KeyCorp

Regional lender KeyCorp said its second-quarter profit declined as expenses increased on its coming acquisition of First Niagara Financial Group Inc.

The Ohio-based regional bank, which outlined plans in October to buy First Niagara for about $4.1 billion, said it still expects the deal to close in August. Merger-related costs cut earnings by 4 cents a share in the quarter.

In all, the Cleveland-based bank reported a profit of $202 million, or 23 cents a share, down from $238 million, or 27 cents a share, a year earlier.

Revenue fell 0.1% to $1.08 billion. Analysts projected 27 cents in per-share profit on $1.09 billion in revenue, according to Thomson Reuters.

Noninterest income fell 3.1% to $473 million, hurt by lower investment banking and debt placement fees and by a decline in operating lease income.

The bank said average loans grew 5.5% and deposits increased 5.2% from a year earlier.

Like many other lenders, Key has moved to cut costs and has closed some branches. Still, noninterest expenses rose 5.6% from the year-earlier period as it spent more on salaries and other costs related to the First Niagara deal. Deal-related costs added up to $45 million in the quarter.

KeyCorp's net-interest margin, a gauge of lending profitability that measures how much a bank earns from the difference between what it pays on deposits and what it takes in on loans and investments, declined. The metric fell to 2.74%, down from 2.83% in the prior quarter and from 2.85% a year prior.

KeyCorp shares, down 7% over the past three months, were inactive in premarket trading.

Write to Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

July 26, 2016 09:55 ET (13:55 GMT)

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