Incident On August 27, the Bank of Xi'an released its 2020 semi-annual report. Among them, operating income decreased by 0.79% year on year, and net profit increased 1.12% year on year. Brief review 1. Net profit increased slightly, and the decline in non-interest income dragged down revenue. Revenue for the first half of 2020 was 3.365 billion yuan, a decrease of 0.79% over the previous year. Net profit of the mother was 1,348 billion yuan, up 1.12% year on year. Profit before provision for the first half of the year was 2,514 billion yuan, a year-on-year decrease of 0.55%. Looking at a single quarter, 2Q revenue fell 5.14% year on year, and the growth rate was down 8.69 percentage points from the previous quarter; 2Q net profit fell 8.80% year on year, and the previous quarter was up 10.10% year over year. In terms of revenue structure, net interest income increased 3.85% year on year, and net non-interest income fell 22.36% year on year. Overall, the main reason for the slight year-on-year decline in revenue in the first half of the year was a sharp decline in non-interest income, which offset the positive impact of interest income growth. The weighted annualized ROE was 11.16%, down 1.08 percentage points from the same period last year. EPS was 0.30 yuan, a decrease of 0.01 yuan from the same period last year. BVPS was 5.41 yuan, an increase of 0.33 yuan over the same period last year. 2. The pressure on net interest spreads mainly comes from deposit costs, net interest income for the first half of 2020 was 2,899 billion yuan, an increase of 3.85% over the previous year; accounting for 86.15% of total revenue, up 3.85 percentage points from the same period last year. The net interest spread for the first half of the year was 2.09%, down 17 bps from the beginning of the year and 21 bps from the same period last year, mainly due to the increase in debt-side deposit costs. The average yield of interest-bearing assets fell 7 bps year on year. Among them, the average loan yield increased by 1 bps mainly due to the increase in the share of personal loans with higher loan interest rates, which increased by 48.3% year on year; while the scale of decline in the share of public loans fell 4.6% year on year. The average yield of bond investments fell by 24 bps. The comprehensive cost ratio of interest-paying debt increased by 13 bps over the same period last year. Among them, the average cost rate of customer deposits increased by 51 bps (+41 bps for the public, +48 bp for individuals), mainly promoting higher-cost personal deposit absorption in the first half of the year. Meanwhile, the average cost ratio of interbank debt fell by 86 bps, and the average cost ratio of issued debt securities fell by 75 bps. Non-interest net income for the first half of 2020 was 466 million yuan, a year-on-year decrease of 22.36%, mainly due to the positive impact of the decline in net income from fees and commissions and the net loss of fair value offsetting the growth in investment income. Among them, net income from fees and commissions was $247 million, down 14.73% year on year. Among them, advisory, settlement and settlement, trade finance and guarantee fees all experienced a year-on-year decline of more than 40%; investment income of $325 million, up 24.02% year on year; and net loss of fair value of $114 million, compared to net income of $37 million for the same period last year. The sharp decline in the growth rate of non-interest income was the main reason for the decline in revenue growth in the first half of the year. Continued improvement in intermediary business revenue is needed in the second half of the year. 3. The non-performing rate declined slightly, and the provision coverage rate continued to increase. The total loan amount at the end of the first half of 2020 was 165.042 billion yuan, up 7.85% from the beginning of the year; the balance of non-performing loans was 1,926 billion yuan, up 123 million yuan from the beginning of the year, up 6.84%, the non-performing loan ratio was 1.17%, down 1 bps from the end of the previous year, and the asset quality remained stable; and the balance of concerned loans was 4,348 billion yuan. It accounted for 2.63%, and the total value of the non-performing rate at the beginning of the year and the total share of concerned loans showed a significant recovery from the beginning of the year. There is still pressure on stock risk, and there is still a possibility that risk will continue to be released in the future. At the same time, efforts to deal with bad risks need to be accelerated to fully resolve potential risk gaps. Loans overdue for 90 days or more accounted for 97.27% of non-performing loans, an increase of 89 bps over the previous year. The non-performing loan aid coverage rate was 268.03%, up 5.62 percentage points from the end of the previous year. The provision coverage rate was further increased: the loan reporting rate was 3.12%, up 4 bps from the end of the previous year. The ability to complement risks continues to increase. 4. The capital adequacy ratios of the three major capital ratios remained at a high level. At the end of the first half of the year, the core Tier 1 capital adequacy, and capital adequacy were 12.37%, 12.37%, and 14.57% respectively. The capital adequacy ratio remained at a high level compared to the beginning of the year. Risk-weighted assets totaled $194.2 billion, up 3.77% from the beginning of the year. 5. Investment suggests that Bank of Xi'an's Nim dropped sharply by 17 bps in the first half of the year compared to the beginning of the year, mainly due to debt-side cost pressure. This directly affected the growth rate of its net interest income, and also led to a sharp decline in revenue from part of the intermediary business, which also led to a sharp negative increase in non-interest income. These two aspects have overshadowed the growth rate of revenue in the first half of the year, and the Bank of Xi'an's non-performing ratio and the total share of concerned loans have rebounded sharply from the beginning of the year. Stock risk pressure is still high. In the future, there is still a need to speed up efforts to deal with bad problems and effectively mitigate risks. But we are also seeing the company continue to deepen its zero-complaint transformation. Judging from the balance of loans issued, the balance of retail loans increased by 10.87% from the end of the previous year, accounting for 1 percentage point. Among them, the balance of personal real estate mortgage loans and personal consumption loans increased by 12 bps and 95 bps respectively. Loan investment continued to increase, and the share of retail loans in total loans was 36.7%, up from the beginning of the year. In terms of deposits, personal savings increased by 16.71% compared to the end of the previous year, accounting for an increase of 1.18 percentage points compared to the beginning of the year. Maintaining a high growth rate, we predict that Bank of Xi'an's operating income in 2020/2021 will increase 6.68%/14.25% year on year, net profit will increase 5.05%/13.48% year on year, PE is 8.87.7, and PB is 1.06.0.97, maintaining an increase in holdings rating and maintaining a target price of 6.6 yuan.