Westpac chief executive Gail Kelly yesterday rejected suggestions that her aggressive push for customer acquisition and mortgage lending share in recent months has left the bank with a funding gap that was being filled at the cost of lower margins.Westpac reported on its December 2009 quarter performance yesterday. Cash earnings for the quarter were $1.6 billion, which was about double the cash earnings for December 2008.A lot of the earnings performance is coming from a significant reduction in impairment charges.Residential mortgage exposures were up from $200 billion in December 2008 to $237 billion in the latest quarter - an increase of 18.5 per cent. Over the quarter the growth in home loans was 4.7 per cent.Westpac's mortgage lending grew at 1.5 times system growth throughout the 2008/09 financial year and the growth rate picked up to 1.8 times system in the December 2009 quarter.Funding costs have also increased. Westpac was in the market in December 2009 and January 2010 offering a market-leading eight per cent for a five-year term deposit.Chief financial officer Phil Coffey was coy about the impact of this sort of fund raising strategy on margins. He said the bank's "reported margin" was little changed but its "customer margins" were down five basis points.Kelly was in her highly rehearsed presentation mode. She said the bank had played its role by being open for business.And she said all the new mortgage customers were prospects for product cross-sell - an area where the bank was lifting its game.However, the term open for business only actually applies to mortgage business. The bank's December quarter Pillar 3 disclosure, also released yesterday, shows that corporate loans (exposure at default) fell from $103 billion in December 2008 to $83 billion in the latest quarter.Business lending fell from $45.2 billion to $44.8 billion over the same period, small business lending fell from $9.3 billion to $8.6 billion, specialised lending (which includes property) fell from $30.4 billion to $28.2 billion and credit card exposures were flat at $14 billion.Over the December quarter lending to business actually fell (under the "exposure at default") measure, while there was growth of only $1 billion in the level of overall lending by the bank, using the measure of risk-weighted assets.The bank says its funding costs will continue to increase. It has lengthened the average tenor of its term wholesale funding to 4.8 years and this has pushed up costs. Deposit costs are also higher.On the falling margin, Kelly said there were always leads and lags. "We want to see those costs pass through but the pace will vary."We have had to raise more funding.  We have done that in a very sensible fashion."