First Gulf Bank (FGB) reported net profit of AED1,305mn (EPS: AED0.29) for 2Q16, -2% Q-o-Q and -10% Y-o-Y. The bank’s earnings came in line with our estimate of AED1,319mn and consensus estimate of AED1,324mn.   Our view of the results: Earnings came in line with estimate, as strong fee income was balanced by higher-than-expected operating costs. Spreads showed signs of stability as they weakened just 3bps Q-o-Q in 2Q16 to 2.85% compared to a contraction of 16bps in 1Q16. FGB was able to bring its cost of funds down, which helped partially offset weakness in asset yield. Management attributed the weakness in asset yield to competitive pressures. Loan growth was subdued at 1% Q-o-Q and 3% Y-o-Y. Management, however, raised its full-year guidance to mid-single digit from low single digit, in anticipation of improved growth in 2H16. Credit quality metrics deteriorated (NPL ratio rose to 3.1% from 2.6% in 1Q16), owing to a downgrade of a corporate exposure. Management, however, anticipates improvement in credit quality in 2H16, and it reduced its NPL ratio guidance from < 3.5% to <3.0%. (Earnings release, Shabbir Malik, Murad Ansari)   First Gulf Bank (AD): AED12.10 as of 27 July 2016, Rating: Neutral, FV: AED13.70 per share, MCap: USD14,837mn, FGB UH / FGB.AD