First Hawaiian Bank’s earnings were flat in the third quarter, but President and CEO Bob Harrison was encouraged after deposits reached a record level, loans grew and delinquencies fell.

"The way we look at it, we’re continuing to perform at a very high level, especially considering today’s low-interest-rate environment and the slow economic recovery," Harrison said ahead of the bank’s earnings report, due out today. "Our efficiency ratio (how much it costs the bank to make a dollar of revenue) is among the best in the industry."

While net income edged up just 0.6 percent to $50.6 million from $50.4 million a year ago, total loans and leases grew 5.9 percent to $8.7 billion from $8.2 billion.

"The biggest surge — and Hawaii is no different than the mainland — is in residential mortgages," Harrison said. "People are taking advantage of the low rates. They’re refinancing existing mortgages and there’s certainly some new activity out there from first-time homebuyers. You’re also starting to see some of the larger corporations take advantage of that as well."

Banking analyst Joe Gladue said low interest rates are going to be pressuring all banks’ earnings for the next several years as net interest margins — the spread between a bank’s lending rates and deposit rates — are squeezed. Last quarter, First Hawaiian’s net interest margin decreased to 3.4 percent from 3.8 percent in the year-earlier period.

Gladue said how banks perform is going to depend on their ability to generate loan growth, as well as their ability to shift their mix of assets from lower-yielding securities such as government bonds and mortgage-backed securities into higher-yielding loans to their customers.

"That’s the only way to battle the low-interest-rate environment and the narrow spread between short-term and long-term interest rates," said Gladue of Haverford, Pa.-based B. Riley & Co.

Gladue said that in some respects Hawaii’s economy is healthier than the mainland’s.

"Tourism still seems to be showing some strength and rebounding, and that should help the overall economy," he said. "Banks are very dependent on the local economy. An improving economy certainly helps out in reducing problem loans and hopefully leads to long-term growth eventually."

First Hawaiian, the state’s largest bank, boosted its assets 4.7 percent last quarter to $16.1 billion from $15.4 billion in the year-ago period, while deposits gained 4.3 percent to a record $12.7 billion from $12.2 billion.

The bank’s percentage of nonperforming assets — loans overdue by 90 days or more — to total assets remained one of the lowest in the United States at 0.21 percent compared with 0.26 percent a year ago.

"It was very good before and getting a little better," Harrison said. "Actually, across the whole portfolio we’re seeing improvement from an already low level of nonperforming assets."

At the end of the second quarter, nonperforming assets for U.S. banks with assets greater than $3 billion was 1.58 percent, according to the Federal Deposit Insurance Corp.

"Deposits grew, loans grew and nonperformingassets dropped," Harrison said. "Those are all really good things. We continue to look closely at our relationship strategy, and that’s what’s leading to that growth. What we don’t control, obviously, is interest rates."

It cost the bank slightly more to make a dollar in revenue as its efficiency ratio edged up to 44 cents from 43.5 cents a year ago. The national peer group average at the end of the second quarter was $61.59, according to the FDIC.

Net interest income fell 7 percent to $116.6 million from $124.9 million but noninterest income, which includes service charges and fees, rose 9 percent to $44.5 million from $40.8 million

First Hawaiian, founded in 1858, has 58 branches in Hawaii, three on Guam and two on Saipan.