American Savings Bank is finding it tough to increase net income in this low-interest-rate environment.

But despite a flat July-September earnings period, the state’s third-largest bank enlarged its loan portfolio for the eighth straight quarter.

"We were pretty happy with the results," American Savings President and CEO Richard Wacker said Tuesday. "In this environment it was a pretty good performance for the team."

While the bank’s net income slipped 0.8 percent to $14.2 million from $15.5 million a year earlier, loans rose 2.5 percent over the same period on the strength of residential mortgage production that more than doubled from a year ago.

"Loan growth is pretty important to partially offset that margin decline," Wacker said.

All banks nationwide are seeing their net interest margins — the spread between lending and deposit rates — squeezed by low interest rates. American Savings’ net interest margin decreased to 3.92 percent in the third quarter from 3.97 percent in the second quarter and 4.11 percent in the third quarter of 2011.

To compensate for shrinking margins, banks need to increase their lending.

"What’s important is we’ve been doing that in a way that maintains discipline for both interest rate risk and credit risk," Wacker said.

American Savings’ loans rose last quarter to $3.76 billion from $3.67 billion a year earlier, while residential mortgage production, which includes new loans and refinancings, more than doubled to $272 million from $123 million in the year-earlier period.

"We’ve done particularly well on the home equity side where we’re leading the market, (according to Title Guaranty) and in residential mortgage we’re showing strong share gains as well," Wacker said. "So our customers like what we’re offering."

Wacker said American Savings has been able to grow on neighbor islands, add products and has hired more loan officers.

"I think we’re able to penetrate the market better this year than last year," he said.

Wacker said low- to mid-single-digit percentage increases in total loans is a good range for American Savings until the economy picks up.

"The market is still heavily refinancing-dominated," Wacker said. "We’re starting to see positive signs in housing, particularly on Oahu. But outside of tourism, the business side is still looking for more revenue growth. We’re not seeing that outside of specific development projects or clean energy projects where we’re making good new loans. General consumer demand is not growing too quickly."

In other categories, total assets edged up 1.1 percent to $4.95 billion from $4.90 billion, while deposits rose 1.6 percent to $4.12 billion from $4.06 billion. The bank set aside $3.6 million for potential loan losses last quarter compared with $3.8 million a year ago.

Hawaiian Electric Industries Inc., the parent company of American Savings, will report its earnings Nov. 7.