National Australia Bank Ltd. (ASX: NAB) has today released a first-quarter trading update, revealing another lift in cash profit during the period. The bank’s shares rose as much as 1.8% after the results, but have since retreated and are trading 2.1% lower.

Unlike Commonwealth Bank of Australia (ASX: CBA), which released its first-half results on Wednesday last week, NAB’s update is simply reflecting its performance during the first quarter. Therefore, there was less information provided and the bank did not declare a dividend (that will happen in May).

The Results

During the quarter, NAB reported cash earnings of $1.7 billion, representing an 8% gain on the prior corresponding period and mostly in line with the market’s expectations.

Here are some of the other highlights:

  • Statutory, unaudited net profit of $1.5 billion
  • Underlying revenue up 4% on higher lending volumes and a higher net interest margin (NIM)
  • Expenses rose 5%, mostly due to the timing of higher personnel costs. However, full-year cash expense growth is expected to be less than financial year 2015 expense growth of 4.1%
  • Charge for bad and doubtful debts down 52% to $84 million, which NAB said was partially due to improved asset quality
  • Common Equity Tier 1 (CET1) ratio was 10.1% as at 31 December 2015

What was worth noting was that the bank’s ratio of 90+ days past due and gross impaired assets to gross loans and acceptances rose to 0.68% at the end of the quarter, up from 0.63% three months earlier. This was due to its exposure to a small number of New Zealand dairy exposures totalling NZ$420 million as impaired assets, although no loss is currently expected.

Commenting on the results, NAB’s CEO Andrew Thorburn said (emphasis my own):

“In our core business, investment in priority segments is delivering improving results. This is particularly the case in Australian Banking which this period recorded improved revenue growth on higher volumes and stronger margins, and improved pre-provision profit. While competition in Business Banking remains intense and funding costs have risen, we have a strong franchise and pleasingly the rate of business lending margin decline is moderating.”

He added: “Importantly, our asset quality and balance sheet remain strong, notwithstanding recent volatility in markets and commodity prices. Staying focused on these basics of banking is a priority for us.”

What happens now?

Like many other banks around the world, National Australia Bank’s shares have been slammed this year. Currently trading for $24.22, the shares have fallen 16.8% since the beginning of the year and more than 38% since peaking in April 2015.

Despite the heavy fall however, NAB, together with its big bank peers, is facing a number of strong headwinds which could drag the shares even lower. Although it has now become a more focused bank following its demerger of the Clydesdale and Yorkshire Banking Group (ASX: CYB), I still think there are better opportunities for investors to chase than NAB’s shares right now.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.