Westpac Banking Corp Ltd (ASX:WBC), Australia’s second-biggest lender, has posted approximately $1.55 billion cash earnings, on an unaudited basis for the three months to 31 December 2010.

Chief Executive, Gail Kelly, said the group's first quarter performance was a solid start to the year with cash earnings up 5 per cent over the last two quarters of 2010, which averaged $1.47 billion.

The higher 1Q11 result was due to improved operating income, slightly lower expenses and a continuing improvement in impairment charges to $280 million.

It was lower than the $1.6 billion cash earnings reported in 1Q10 as that quarter was boosted by high Treasury and Markets income, the Sydney-based bank said.

"Across the group underlying momentum is building as our customer focussed strategy begins to deliver," according to Mrs Kelly.

"We are seeing improved customer metrics across our businesses and the earnings trends are solid. At the same time, we are making excellent progress on the major investments and productivity initiatives we announced in 2010. The group's Strategic Investment Priorities program is progressing to plan, with major milestones being achieved, " she said.

Lending increased 0.3 per cent over the quarter with growth in Australian mortgages offset by institutions and large corporates continuing to pay down debt. Lending in the institutional bank was around $2.5 billion lower over the quarter.

"The operating environment is positive, although the recent natural disasters and subdued consumer sentiment are likely to see businesses remaining cautious. The Group has a leading position in business customer advocacy and satisfaction across divisions, and as a result, we are very well placed to support increased customer activity as sentiment improves."

For Westpac, the initial impact of Queensland floods was around $50 million in pre-tax earnings for 1Q11. This comprised an economic overlay of around $40 million, and General Insurance claims costs of around $10 million.

As the impact of the December quarter floods is more fully assessed, combined with the impact of the Brisbane floods, Victorian floods and cyclone Yasi, insurance claims are expected to increase. Additional claims costs will be mitigated by the Group's conservative reinsurance arrangements and are estimated to be an additional $30 million in 2Q11.

"From a credit quality perspective, we expect that by the end of March 2011 we will have assessed the impact of natural disasters more fully. It is anticipated that following this assessment an overall increase in the economic overlay in 1H11 may not be required given other offsetting factors and the group's already very strong provisioning cover," Westpac said.

At 1214 AEDT shares in Westpac had lifted 0.28 per cent to $24.49, against a 0.12 per cent dip in the benchmark index.