Net profit up 10% Q-o-Q, beats estimate. ADCB reported net profit of AED1,125mn for 2Q16 (EPS: AED0.22), +10% Q-o-Q and -12% Y-o-Y. Earnings beat our estimate of AED949mn (Bloomberg consensus AED1,048mn).   Our view of the results: Overall a good set of results. Earnings surprised positively driven by gains on derivatives (typically non-recurring) and good cost control (likely to be sustainable). Operating costs were down 10% Q-o-Q, driven by a cut in staff costs. Provisioning (cost of risk 88bps) was within guidance of c90bps for 2016. ADCB’s credit quality metrics depicted an improvement in 2Q16. The NPL ratio dropped to 2.7% from 3.0% in 4Q15, while the NPL coverage improved to 133% from an already solid 129% in 4Q15. ADCB’s deposit growth continues to be decent at 1% Q-o-Q. During the quarter, ADCB reclassified loans and advances to banks to “Deposits and balances due from banks” so a Q-o-Q analysis is not possible. ADCB’s loans grew 13% Y-o-Y and 6% YTD.  Spreads were the key weak area as they contracted 15bps Q-o-Q to 2.64% primarily due to sector wide pressure on cost of funding.   Main positives: i) Improved credit quality metrics (NPL ratio eased to 2.7% from 3.0% in 4Q15; NPL coverage rose to 133% from 129% in 4Q15); ii) Strong fee income (+5% Q-o-Q, +10% Y-o-Y); iii) Good cost control (-10% Q-o-Q, -1% Y-o-Y). Main negatives: i) Pressure on spreads (-15bps Q-o-Q to 2.64%) (Shabbir Malik, Murad Ansari)   ADCB: AED6.11 as of 18 July 2016, Rating: Buy, FV: AED7.30 per share, MCap: USD9,316mn, ADCB UH / ADCB.AD