The National Australia Bank Ltd (ASX: NAB) share price is crashing deep into the red on Wednesday.

At the time of writing, the banking giant's shares are down over 7% to $36.45.

This follows the release of its first quarter update.

NAB share price crashes on quarterly update

• Revenue up 3% versus second half quarterly average
• Expenses up 2%
• Cash earnings down 2%
• CET1 ratio 11.6%

What happened during the quarter?

For the three months ended 31 December, NAB reported a 3% increase in revenue. This was largely driven by stronger Markets & Treasury (M&T) income.

Outside of M&T, NAB's revenue was broadly stable, with volume growth being counterbalanced by continued margin pressures.

The bank's net interest margin (NIM) saw a small decline, weighed down by higher funding costs, competitive lending conditions, and deposit pricing, though benefits from the higher interest rate environment and a slightly positive contribution from M&T provided some support.

On the expense front, NAB's costs rose 2%, with management blaming higher personnel expenses, financial crime-related costs, and increased technology investments. These were partially offset by productivity gains and lower AUSTRAC-related compliance costs.

This ultimately led to NAB reporting a 2% decline in cash earnings for the quarter. It notes that while underlying profit grew 4%, this was offset by higher credit impairment charges and tax expenses.

This appears to have disappointed investors and led to many hitting the sell button this morning.

Asset quality

NAB recorded a $267 million credit impairment charge (CIC) for the quarter. This included $152 million in individually assessed charges, mainly linked to Australian business lending and unsecured retail portfolios.

Collective charges totalled $115 million, reflecting asset quality deterioration and business lending volume growth. Despite these provisions, NAB has made no changes to its economic assumptions or scenario weightings in its provisioning models.

The ratio of non-performing exposures to total loans rose 4 basis points (bps) to 1.43%, driven by deterioration in business lending and higher mortgage arrears. However, gross impaired assets remained steady at 0.20% of total loans. Meanwhile, NAB's collective provision coverage ratio fell by 2 bps to 1.45%, reflecting credit risk-weighted asset growth.

Management commentary

NAB's CEO, Andrew Irvine, appeared to be pleased with the quarter. He said:

We have started FY25 well. Our 1Q25 performance is sound and execution of our refreshed strategy is underway. Over the December quarter, our focus on improving deposit performance has supported good growth of 2% in deposit balances.

Australian home lending grew 1% and we have seen improved momentum versus system of 0.9x compared with 2H24 and increased drawdowns through our proprietary channels. Business lending balances rose 2% including 1% growth in SME business lending.

Irvine advised that he was "optimistic" on the bank's outlook, stating:

Our refreshed strategy is focused on becoming the most customer centric company in Australia and New Zealand. While still early days, we have made good progress during 1Q25 laying the foundations required to successfully execute our strategy. We remain optimistic about the outlook and are well placed to manage our business for the long term and deliver sustainable growth and returns for shareholders.