ANZ missed its target of funding all lending growth through deposit growth in the December 2011 quarter because of a strong pick up in institutional lending.Group loan growth in the quarter was up by 2.5 per cent, while deposits grew by only 2.2 per cent.ANZ chief executive Mike Smith said: "We need to self-fund lending growth. Institutional [banking] had a big build up in lending in the first quarter. They are catching up on deposits now.""We are watching that part of our business," he said.The bank's loan-to-deposit ratio has come down from its pre-crisis level of 175 per cent to 135 per cent.ANZ released its first-quarter trading update on Friday. It reported an unaudited underlying profit of A$1.48 million for the December quarter - an increase of five per cent on the September quarter and four per cent on the previous corresponding period.The group net interest margin fell three basis points. The Australian margin was down nine points.Smith said the nine point drop was due to competitive pressure for deposits and the bank's "inability to move mortgage rates more quickly than we would have liked."He said the bank would continue to aim for growth in mortgage market share, despite the recent lack of profitability of the product. "We recognised that we needed to re-price. We have done that. We have made the change to more flexible interest-rate setting."The bank is also reducing its reliance on mortgage sales through brokers. In the December quarter, 44 per cent of mortgage sales were through third parties. That figure has come down from 54 per cent at its peak. "We would like to see that continue," said Smith.The result was helped by the strong performance of the bank's global markets' operation. But Smith said he was still cautious about the outlook for this business.-- Mike Smith, meanwhile, has told the Financial Review that "seven to eight years" is a suitable tenure for a chief executive, and that after that period it's "nice to have a refresh".Smith began work at ANZ four and a half years ago.