Bankers detail stable conditions in new survey

Bankers tend to have a strong sense of what’s happening in their local economies—it’s part of the job.

That’s why the Federal Reserve Bank of Minneapolis launched a survey of Ninth District bankers to get a ground-level view of regional loan demand, credit standards, deposit activity, and other key trends.

The inaugural Survey of Ninth District Banking Conditions was conducted between June 15 and June 26, and captures insights from 84 bankers across Montana, North and South Dakota, Minnesota, northwestern Wisconsin, and Michigan's Upper Peninsula.

These findings represent a critical new data stream that will inform the Beige Book and provide the Federal Open Market Committee and the public with granular intelligence on Ninth District banking conditions.

Key insights

Loan demand grew modestly in the Ninth District between April and June this year. Most bankers reported only small shifts in borrowing activity. However, agricultural lending, particularly for row crops, emerged as a concern.

Multiple respondents identified several factors that could reduce borrowing in the months ahead: growing uncertainty about commodity prices, input costs, and farm profitability. Other factors included broader economic concerns from the ongoing conflict in the Middle East and possible ripple effects on businesses and consumers in the district.

On the funding side, bankers reported more competition for deposits from credit unions and nontraditional financial institutions. Fintech firms and online-only banks are seeking to grow their customer base and, in doing so, add pressure to traditional banks. Even in this competitive environment, overall deposits were stable: 73 percent of bankers reported they maintained or slightly increased their deposit levels during the survey period.

Loan demand

Most bankers reported few or no changes to loan activity for commercial and industrial (C&I), residential real estate, and consumer loans. Agricultural and commercial real estate (CRE) loan demand shifted more noticeably: 20 percent of bankers saw an increase in ag lending, and 16 percent saw lower demand. In CRE lending, 28 percent of bankers saw an increase and 20 percent reported declining demand.

The mixed picture in agriculture reflects divergent situations across farming operations. According to one banker, “Strong cow/calf operations are borrowing less. This has caused a decrease in our ag lending due to the borrowers being able to liquidate small amounts of cattle to operate without borrowing.”

For institutions experiencing shifts in loan demand, bankers pointed to a changing economic outlook for ag and consumer lending. However, in CRE, banking competition was just as big a reason, where banks competed for deals in an active but increasingly selective market (see Figure 1).

Bankers reported a cautiously optimistic outlook for the year ahead. Forty-one percent of respondents anticipated moderate loan demand over the next 12 months and 40 percent expected demand to remain steady. But this sentiment varied across lending categories.

Ag and CRE were expected to experience the highest growth, with 35 percent and 36 percent of respondents, respectively, anticipating increased demand. This reflects continued investment in farmland and farming operations, even in the face of uncertainty. There were also expectations of steady development of commercial property in the district’s urban and suburban areas.

However, consumer and C&I lending were expected to experience flat growth. Sixty-seven percent of bankers expected consumer loan demand to remain unchanged, and 56 percent anticipated flat C&I borrowing over the next year. Households and businesses may be taking a more conservative approach to lending in the face of economic uncertainty and higher interest rate environments.

Lending standards and credit quality

Lending standards were largely stable from April to June, and most categories showed minimal change. But C&I lending proved the exception. Twenty-one percent of bankers reported tightening standards. When asked to explain these standards changes, bankers overwhelmingly pointed to shifts in their economic outlook rather than changes in risk appetite or competitive positioning.

Most bankers anticipated loan quality to remain stable. But agriculture, consumer, and CRE stand out as areas needing attention (see Figure 2). According to one banker, “Stress in the ag sector will result in operating loan renewals heading into 2027 being more closely scrutinized.” In fact, 41 percent of respondents flagged potential decline in agricultural loan quality.

On the consumer side, another banker noted a shift in perspective. “We are more concerned about unsecured and auto lending than in the past. We have had some small losses in this area in the last couple of years.” This is signaling heightened attention to credit performance in these historically lower-risk portfolios.

Deposits

Unlike the relative stability of loan demand, deposits showed more movement as bankers reported growth across their institutions (see Figure 3). The difference between loan and deposit dynamics suggests that even with higher competition from credit unions and nontraditional financial institutions, community banks are attracting and retaining customer deposits. This provides a stable funding base even as lending activity is steady.

Drivers of deposit changes during the survey period proved more complex than shifts in loan demand. Banking competition and seasonal factors emerged as the primary reasons for movement in funding levels (see Figure 4). The competitive landscape revealed itself in unexpected ways, with market consolidation creating opportunities for some institutions for deposit growth. As one banker explained, “A local community bank competitor was purchased by a large regional bank. We have seen an influx of deposits from customers that were upset with the change.”

Competition appeared differently across market types. One banker said, “In the metropolitan markets, rate competition is keen, and we have observed some banks compromising on structure. Deposits remain sound, and rate competition is typically more associated with broker rates than in-market competition.” This more detailed view shows that urban banks feel pressure from brokered deposit platforms, not just from nearby competitors.

However, the most consistent competition came from credit unions and nontraditional financial institutions. Multiple bankers noted that certificate of deposit rates offered by these competitors exceeded what traditional banks were willing or able to provide. This causes a pricing dynamic that continues to reshape deposit growth strategies across the district.