The Westpac Banking Corp (ASX: WBC) share price is sinking on Monday.

At the time of writing, the big four bank's shares are down almost 5% to $33.04.

Why is the Westpac share price sinking?

Investors have been selling the banking giant's shares this morning following the release of its first quarter update.

According to the release, net interest income fell 6% for the three months ended 31 December including notable items but rose 1% excluding them. Non-interest income was up 9% excluding notable items thanks to higher financial market revenue.

As for earnings, the bank recorded an unaudited net profit of $1.7 billion during the quarter.

And excluding notable items, Australia's oldest bank posted a net profit of $1.9 billion. This represents a 3% increase on the quarterly average during the second half of FY 2024.

This was despite Westpac revealing that its core net interest margin (NIM) was down 2 basis points to 1.81%. Management notes that a provision release in second half of FY 2024 contributed 1 basis point to the margin decline.

The balance reflects ongoing mortgage competition and further deposit mix shift towards lower spread savings and term deposits. Higher earnings on capital and hedged deposits partly offset these impacts.

Judging by the performance of the Westpac share price today, it seems that the market was expecting a stronger start to FY 2025.

Management commentary

Westpac's CEO, Anthony Miller, was pleased with the solid quarter. He said:

This has been a solid first quarter performance, reflecting our strong financial position, balance sheet growth and service excellence. The unaudited net profit was $1.7 billion. The impact of Notable Items, related solely to hedge accounting which will reverse over time, drove the 9% decline in both net profit and pre-provision profit compared to the second half 2024 quarterly average.

Excluding Notable Items, unaudited net profit increased 3% to $1.9 billion. Pre-provision profit grew 3% with revenue increasing 2% and expenses rising 1%. Operating momentum was pleasing with customer deposit growth of $14.4 billion and loan growth of $13.4 billion. This includes Australian housing loan growth excluding RAMS of 2%, business loan growth of 3% and institutional loan growth of 6%.

Speaking about the economic outlook, Miller adds:

We continue to prioritise financial strength with capital, funding and liquidity remaining comfortably above regulatory minimums. Cost of living pressures and high interest rates remain challenging for some customers while many businesses face cost pressures and lower demand. Encouragingly, inflation has eased and we could see the Reserve Bank of Australia reduce the cash rate as early as tomorrow. This should provide some relief to households and, over time, support business activity.

The Westpac share price remains up more than 30% over the past 12 months.