(Bloomberg) — Abu Dhabi Commercial Bank, which completed a three-way merger in May, reported an 11% decline in second-quarter profit as the cost of funds rose.

Pro-forma net income of the combined bank fell to 1.45 billion dirhams ($394 million) from 1.62 billion dirhams a year earlier, according to a statement on Sunday.

Net interest and Islamic financing income dropped 7% as funding costs climbed due to higher costs of holding low-yielding liquid assets.

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Abu Dhabi Commercial Bank combined with local rivals Union National Bank PJSC and Al Hilal Bank PJSC to create the Gulf region’s fifth-biggest lender with $114 billion in assets. The merger is expected to deliver cost savings of about $167 million annually.

• Profit also impacted by lower non-interest income
• Net interest and Islamic financing income 2.6 billion dirhams vs 2.79 billion
• Non-interest income 656 million dirhams vs 718 million
• Impairment allowances 429 million dirhams vs 602 million
• Net loans and advances 251 billion dirhams vs 260 billion at end-December
  • Loans fell primarily due to corporate repayments
• Customer deposits 273 billion dirhams vs 285 billion at end-December
• Full systems and operational integration is expected to be delivered by 4Q 2020
• Initiatives launched to achieve 222 million dirhams a year of cost synergies of the 615 million dirhams run rate target to be reached by 2021
• One-off integration costs of 87 million dirhams are in line with planned expenditure of 800 million dirhams to complete integration
• Integration of Al Hilal Bank close to completion
• Abu Dhabi Ex: Abu Dhabi Commercial Bank Management Discussion and Analysis Report for the Period Ended June 30,2019 – 7/28/2019

As a legal entity, Abu Dhabi Commercial Bank reported a profit of 1.18 billion dirhams for the second quarter, which included two months of operations as a combined bank. The three-way merger was effective May 1.