Iceland's Landsbanki, the island's third-biggest bank by market capitalisation, posted a 4 percent fall in first-quarter net profit, mainly due to higher operating expenses and lower portfolio gains.

The bank, which like its Icelandic peers has been expanding overseas in recent years, reported a first-quarter net profit of 13.8 billion Icelandic crowns ($215 million), down from 14.3 billion in the same period of last year.

The firm said its net interest income rose 22 percent year-on-year to 10.9 billion crowns while net commission income rose 42 percent to 9.8 billion crowns. The bank saw net gains on financial assets at fair value fall 94 percent to 436 million crowns from 7.7 billion in the same period the previous year. Operating expenses at the group rose, climbing 54 percent to 12.4 billion crowns in the quarter.

In brief:

• After-tax return on equity (ROE) in Q1 was 45.2% as compared with a ROE of 36.3% for 2006 as a whole.
• The group's core income (interest margin plus commission income) was ISK 20.6bn (EUR 230m), a YoY quarterly increase of ISK 4.8bn (EUR 54m) or 31%, and an increase of ISK 3.1bn (EUR 35m) or 17% from Q4 2006.
• Revenue from operations abroad was ISK 12.3bn (EUR 137m), or 42% of total operating revenue.
• Core income from operations abroad was ISK 10.7bn (EUR 119m) or 52% of the Group's core income in Q1 2007.
• The cost-income ratio for the period was 42.2%. 
• Trading gains and investment income amounted to ISK 8.8bn (EUR 98m), as compared to ISK 11.2bn in Q1 2006.
• Landsbanki's total assets amounted to ISK 2,317bn as of the end of March 2007. Converted to EUR, the bank's total assets amounted to EUR 26.4bn at the end of March, up from EUR 23.2bn at the beginning of the year.
• Customer deposits grew by 34% in Q1 2007 to total ISK 913bn (EUR 10.4bn) at the end of March. They represent 62% of total customer lending as compared to 48% at the beginning of this year.
• The bank's capital adequacy ratio ( CAD ) was 13.4% at the end of March. Tier 1 capital was 11.7%.

CEO Sigurjón Þ. Árnason:
 
"Landsbanki's performance in the first quarter of 2007 was very gratifying. The bank's after-tax profit was around ISK 14bn and its ROE 45%. Income generation comes from a solid and broad base, as reflected in the strong growth of core income, which was up 17% from the previous quarter and 31% over the same period of the previous year. Integration of our subsidiaries and establishment abroad has progressed rapidly and supports the bank's successful international strategy aimed at serving mid-cap companies. Strong deposit growth continued this past quarter, in particular through Icesave. Currently 62% of Group lending is funded by deposits, reinforcing its balance sheet considerably. It's no exaggeration to say that the year has begun well at Landsbanki."     
 
CEO Halldór J. Kristjánsson:
 
"The Q1 results, with very high profit and profitability, clearly reflect Landsbanki's strong position. The turbulence of past quarters concerning Icelandic financial enterprises appears to have subsided. Moody's has upgraded Landsbanki's ratings following its adoption of new JDA methodology. As a result, the bank's rating rose by two notches, from A2 to Aa3, and its financial strength outlook was changed from negative to stable. CDS spreads on Landsbanki's bonds have been dropping and currently range around 20-22 bp for a 5Y maturity. An improved rating, high growth of overseas deposits and strong liquidity, together with continuing very credible growth of net interest and commission income, are all indicative of this quarter's positive outcome."

Further information:

• Landsbanki Consolidated Interim Financial Statements Q1 2007
• Press Release - 3 May 2007
• Landsbanki Results Presentation
• Webcast of the performance presentation in London