Northwest Farm Credit Services, of Spokane, has reported third-quarter net income of $39 million, up from $28.4 million in the year-earlier quarter.

The federally chartered ag-lending cooperative says its earnings through the first nine months totaled $97.9 million, up from $80.6 million, and its net loans surged by 21.4 percent, to $7.8 billion as of Sept. 30, from $6.4 billion a year earlier.

"Northwest Farm Credit Services continues having excellent growth and earnings," says President and CEO Jay Penick.

Yet, with loan growth so high, the organization is challenged as it seeks to maintain the 13 percent capital ratio its board has set as a target, which is almost twice as high as the 7 percent capital ratio regulators require it to maintain, Penick says. Its capital ratio is its permanent capital divided by its risk-weighted assets.

"We're right at 13 percent," he says. Penick says that rapid loan growth, such as the organization has had, makes it harder for it to maintain its capital ratio at desired levels, even though its permanent capital increased by 9 percent, to $1.1 billion, at the end of the third quarter.

"I would guess our loan growth will drop down to 10 percent next year," Penick says.

Even though the agricultural sector isn't as robust as it was some months ago, when most producers were enjoying strong markets, it's still "very solid," Penick says. The parts of the timber and nursery industries that are tied to housing still are experiencing weakness, and Northwest Farm Credit is starting to see some slowdown and deterioration in the dairy industry, he says.

Some grain growers also are combating issues, he says, adding, "We had areas that did not have a very good crop because of the dry weather. We had some really warm days and dry weather right when the crop was heading up."

Wheat growers' results this year will depend to some extent on how much of their crops they sold forward in the market while prices remained high, and whether their crops were sufficient to cover those futures contracts, he says. Because cash prices remained high late in the year in 2007, some growers elected this year to sell less of their crop in the futures market and might have to settle for the lower prices that are prevailing now, Penick says.

"Most of them will be OK, because most of them had crop insurance and were coming off a pretty good year" last year, he says. Much of the Inland Northwest's wheat is grown for export, but the factors that have led to high world grain prices—the weak U.S. dollar, a robust global economy, and a rapid increase in living standards in developing countries—have turned around, Penick says.

"Prices have come off a bunch in the last 60 days," he says.

Even though agriculture faces challenges, Northwest Farm Credit will remain focused on serving it, Penick says.

"Although some other lenders may be reducing their exposure in the natural resource industries, we are committed to rural America and the producers that make agriculture successful," he says. "Strong working capital and liquidity should help producers weather this current economic downturn."

Northwest Farm Credit's assets shot up to almost $8.3 billion at the end of the third quarter, from just under $6.9 billion a year earlier. It set aside just less than $7.8 million in the quarter to cover potential loan losses, compared with $3.4 million in the year-earlier quarter. Penick says that increase in its provision for credit losses "has almost 100 percent to do with loan growth. We've had a good year in terms of charge-offs."

Northwest Farm Credit operates 45 offices in Washington, Oregon, Idaho, Montana, and Alaska.