Samba Financial Group (Samba) reported 2% Q-o-Q growth in 3Q16 net income to SAR1,341mn. Earnings were slightly higher than our estimates of SAR1,304mn.   Main positives: i) Improvement in net interest spreads (+20bps Q-o-Q); ii) Growth in deposits (1% Q-o-Q)   Main negatives: i) Weaker non-interest income (-20% Q-o-Q); ii) Slight uptick in credit costs (est. cost of risk of 21bps); iii) Decline in loans (-0.8% Q-o-Q)   Our take on the results: Spreads improved for the third consecutive quarter, with momentum improving over the previous quarter. We estimate that asset yields improved by 27bps Q-o-Q, while funding cost increase was limited to only 7bps Q-o-Q, despite an increase in deposits. However, spread improvement was largely offset by weaker non-interest income (due to seasonality). Provisioning costs were slightly higher, but remained below normalised levels - we estimate cost of risk of 21bps for 3Q16. Loans declined for the second consecutive quarter, suggesting that the bank is focusing on managing and reducing credit risk exposures.   Samba remains our top pick amongst Saudi banks. Our preference is driven by the bank’s strong balance sheet liquidity levels, which allow the bank to manage funding cost pressures, leverage to higher interest rates, and strong credit quality management track record. (Earnings release, Murad Ansari)   Samba Financial Group: SAR16.35 as of 17 October 2016, Rating: Buy, FV: SAR25.00 per share, MCap: USD8,720mn, SAMBA AB / 1090.SE