The 2025 Financial Institutions Virtual Symposium from Forvis Mazars provided insights into issues affecting the industry. This webinar summary covers topics such as accounting and tax updates, credit trends and risks, regulatory compliance, fraud, and artificial intelligence (AI).
Financial Services Industry Outlook
Topics of interest to financial institutions include a shift to loan growth, regulatory requirements, credit quality, cybersecurity risks, merger and acquisition (M&A), and non-bank competition.
Profitability Plateau & Strategic Shift
In 2024, banks achieved record revenues and net income, driven by high-interest rate margins and low-risk costs. However, 2025 marked a shift as margins tightened despite declining interest rates. Clients are pivoting from margin expansion to loan growth, which is surpassing expectations. While profitability remains stable, it has plateaued, signaling a strategic shift in growth drivers.
Regulatory & Political Alignment
President Donald Trump’s second term has ushered in deregulation efforts, including the rollback of environmental, social, and governance (ESG) requirements; eased merger scrutiny; and rescinded updates to the Community Reinvestment Act (CRA). Despite this lighter regulatory tone, banks still face supervisory remediation obligations. A critical question remains: How much deregulation should occur in anticipation of future regulatory changes? The ESG retreat is evident as major agencies, including the SEC, are rescinding ESG-related requirements. The Federal Reserve and the FDIC have also stepped back from climate-focused networks. ESG impacts are now deprioritized in U.S. banking policy, except for limited rules in California and foreign banking operations.
Emerging Risks of Credit Quality & Cybersecurity
Early indicators show stress in certain loan portfolios, with a modest rise in delinquencies nationwide. Banks are responding with tighter underwriting and enhanced risk monitoring. Incremental credit stress observed in Q3 is pressuring net interest margins. On the cybersecurity front, threats are escalating, including AI-driven phishing, ransomware as a service, and risks from quantum computing. Banks are heavily investing in cloud security and generative AI for advanced threat detection.
M&A & Non-Bank Competition Accelerate
Through Q3 2025, U.S. bank deals surged by 35%, with 126 deals announced compared to 93 in the same period last year, with substantial increases in average deal price. Regulatory de-escalation has enabled non-bank players to expand their lending activities, with private credit growing. To remain competitive, banks are forming partnerships with non-bank competitors.
Accounting Updates
Financial institutions should be aware of recent updates from FASB and the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA).
FASB ASU 2025-08
Accounting Standards Update (ASU) 2025-08 was issued in November 2025. In this update, FASB released an update to Accounting Standards Codification (ASC) 326, Financial Instruments—Credit Losses, to address concerns regarding complexity and lack of comparability in the accounting for purchased loans under the current credit loss standard (Topic 326). The ASU removes the previous distinction in accounting between purchased credit-deteriorated (PCD) assets and non-PCD assets by applying the “gross-up” accounting method, formerly used only for PCD assets, to most acquired loans. These loans will now be designated as “purchased seasoned loans” (PSLs). This change eliminates the Day 1 credit loss expense on PSLs, which the industry considered a “double-count” of expected losses on acquired performing loans, by instead recognizing expected credit losses at acquisition without immediate impact on earnings.
FDICIA Threshold Changes
The FDIC has approved its final rule on threshold changes. The final rule adjusts and modernizes Part 363 of its regulations, which governs audit and reporting requirements for insured depository institutions (IDIs). The updates increase various historically static asset-based thresholds, which will be indexed to changes in the Consumer Price Index going forward. The new thresholds are effective as of January 1, 2026; however, to provide immediate burden relief, an IDI does not have to comply with Part 363 requirements in effect as of December 31, 2025 if the IDI will not be subject to Part 363 requirements under the updated thresholds in effect as of January 1, 2026. Under the final rule, IDIs are no longer subject to Part 363 requirements until they reach the $1 billion consolidated asset threshold. The most high-impact changes will now require an independent financial statement audit at $1 billion in consolidated assets, up from $500 million, and an audit of internal controls over financial reporting at $5 billion in consolidated assets, increased from $1 billion.
Auditing Standards & Quality Management Enhancements
For 2025, there was an increased focus on Quality Management (QM) for auditors. Both the American Institute of CPAs (AICPA) and the PCAOB have issued QM standards to create alignment with previously issued international QM standards. These standards shift from static, policy-based quality control to dynamic, risk-based QM systems. Entities will notice increased scrutiny on audit quality and internal controls, with new requirements taking effect in 2025 and 2026.
Tax
There are a number of tax issues that financial institutions should keep on their radar.
One Big Beautiful Bill Act Introduces Tax Exclusion for Rural & Agricultural Loans
The One Big Beautiful Bill Act (OB3) established a 25% interest exclusion for qualified real estate loans secured by rural or agricultural real estate, as outlined in Section 139L. This exclusion applies to loans made after July 4, 2025 but excludes refinanced loans and loans to foreign entities. However, there are areas requiring further clarification, such as the definition of “agricultural products” and the interaction with §265, which imposes a disallowance on interest expense deemed to be incurred to invest in assets generating tax-exempt interest. Concerns have been raised about the potential negative interaction of this exclusion, which may mitigate the goal of increasing rural and agricultural lending. While the U.S. Department of the Treasury is aware of these issues, a resolution remains uncertain due to potential limitations in authority and the impact of government shutdowns.
Major Changes in Information Reporting for Digital Assets & Auto Loans
The IRS has introduced Form 1099-DA to report proceeds from digital asset transactions, alongside a new W-9 certification specifically for U.S. digital asset brokers. This change may necessitate banks to update W-9 forms for all customers, even those not engaged in digital asset activities.
New Information Reporting Requirement for Auto Loans
The OB3 provided a new interest expense deduction for individuals purchasing new cars. As part of the legislation, starting in 2025, lenders must report vehicle loan interest exceeding $600 from individuals. This requirement generally applies to loans for new qualified passenger vehicles purchased on or after January 1, 2025, with the stipulation that the vehicle’s final assembly occurs in the United States. While the 1098-VLI form itself is not mandatory for 2025, lenders are required to provide borrowers with a statement detailing deductible interest.
State Tax Issues & Federal Conformity Remain Complex
State tax implications are closely tied to state revenue and budgetary needs. States may choose to either decouple from or conform to federal tax changes, depending on the anticipated impact on their revenue. This dynamic adds complexity to the interplay between state and federal tax systems, as states weigh the financial implications of aligning with or diverging from federal tax policies. Pending court cases and uncertainties regarding OB3 conformity add to the challenges for financial institutions.
Fraud
The past year has seen an alarming rise in online job and business opportunity scams, the exploitation of AI and deepfake technology in fraud schemes, and an increasing prevalence of peer-to-peer (P2P) payment fraud alongside heightened regulatory scrutiny.
Online Job & Task Scams
The Federal Trade Commission (FTC) has reported a massive surge in online job and business opportunity scams, climbing from the fifth to the third most common type of fraud. The scams include “task scams” that lure victims with small payouts before demanding money up front—often paid in cryptocurrency. These scams disproportionately target younger demographics, particularly individuals age 20 to 29, who now report monetary losses more frequently than older age groups, such as those age 70 to 79. This shift underscores the growing vulnerability of younger populations to these schemes.
AI & Deepfake Technology in Fraud
The rise of AI and deepfake technology has introduced a new level of sophistication to fraud schemes. Scammers are leveraging AI to fabricate convincing identities and documents, as well as to generate realistic voice prints, enabling them to deceive victims with unprecedented precision. A notable example from May 2024 involved a $25.6 million fraud case where an employee was duped during a Zoom call featuring AI-generated participants. These advancements not only erode consumer trust but also present significant challenges for financial institutions, which must adapt their detection and prevention strategies to counter these evolving threats.
P2P Payment Fraud & Regulatory Scrutiny
P2P payment fraud is another growing concern, with tens of thousands of complaints filed annually. In the first nine months of 2023 alone, the FTC received 48,835 reports of fraud involving payment apps or services. In addition, complaints to the Consumer Financial Protection Bureau (CFPB) regarding payment apps surged by 164% between 2019 and 2021. Common fraud methods include phishing and unauthorized money transfers, which have prompted increased regulatory scrutiny. Financial institutions are now under pressure to enhance error resolution procedures and take greater responsibility for addressing unauthorized transactions to better protect consumers from P2P scams.
The symposium underscored the urgent need for financial institutions to address these escalating fraud trends. The rise in online job scams, the misuse of AI and deepfake technology, and the surge in P2P payment fraud demand robust strategies to help safeguard consumers and restore trust in financial systems.
Credit Trends
It’s important for financial institutions to have vigilance, accurate risk assessments, and proactive strategies in navigating the challenges posed by economic uncertainty and elevated refinancing risks.
Factors Affecting Borrowers
Credit quality has generally remained stable; however, several factors, including elevated interest rates, inflation, labor costs, and economic uncertainty, are negatively impacting borrowers’ repayment ability. These challenges have led to an increase in watchlist borrowers and troubled loan modifications. Some risk rate changes have not yet been fully recognized by clients due to outdated financial information or reviews. Financial institutions are engaging in more discussions to obtain current and detailed financial data, which is critical for monitoring trends and helping ensure accurate risk ratings within their portfolios.
Repricing Risk
Repricing risk remains a significant concern, particularly in the commercial real estate (CRE) sector. A maturity wall of more than $500 billion in CRE loans is expected to mature in 2026, creating refinancing pressure. The maturity wall highlights the ongoing challenges posed by elevated refinancing risks. Higher cap rates are reducing property values, further complicating the refinancing landscape. Loans originated during periods of lower interest rates or those with interest-only terms converting to permanent loans are particularly vulnerable, as increased debt service requirements can strain cash flow and elevate risk ratings.
Accurate & Timely Risk Ratings
Accurate and timely risk ratings are essential for financial institutions to help mitigate or prevent credit losses. Institutions must make sure that loans migrate through risk rates as new financial information becomes available. Revisiting risk rate matrices and appropriately weighting them based on repayment sources, global cash flow, and guarantor support are critical. Proactive measures, such as staying on top of annual reviews and covenant testing, are necessary to help identify and address potential problems. Early detection allows institutions to take timely action, such as restructuring loans, obtaining additional collateral, or implementing forbearance agreements, to help protect their financial position. Involving legal counsel early and documenting covenant violations can further safeguard institutions. Timely and proactive responses to emerging risks can save money and provide more opportunities to prevent losses through measures like principal reduction or debt service reserves.
Artificial Intelligence
As AI becomes more prevalent in businesses, it’s important for organizations to think about AI as not just technology, but a layered ecosystem that connects their strategies to execution.
Foundational Concepts & Terminology
AI adoption in financial institutions requires a clear grasp of foundational concepts, including distinctions between AI, machine learning, generative AI, and automation. AI serves as the overarching umbrella for systems mimicking human intelligence, while machine learning focuses on pattern recognition and learning from data. Generative AI, often powered by large language models (LLMs), specializes in creating new content, like text and images, while automation is not inherently AI-driven and can handle rule-based, repetitive tasks without learning capabilities. Understanding these distinctions is critical when considering opportunities and risks, helping ensure that AI initiatives align with business objectives and regulatory requirements.
Strategic Alignment & Use Case Selection
Successful AI initiatives hinge on strategic alignment, careful use case selection, and a dual focus on enhancement and transformation. Financial institutions are leveraging AI across various domains, including:
- Enterprise Knowledge & Search: AI-powered search tools enable employees to retrieve policies, procedures, and client insights instantly with natural language queries, helping to accelerate decision making and break down knowledge silos.
- Coding & Developer Productivity: AI-assisted coding helps accelerate development, automate testing and documentation, and reduce errors, freeing engineering resources for strategic initiatives.
- Analytics & Insights: AI-driven analytics help forecast trends, segment customers, and personalize offerings, enabling faster, data-driven decisions and proactive risk management.
- Customer Support & Contact Centers: AI helps enhance customer service through chatbots, real-time agent assistance, and call transcription, improving response times and providing actionable insights.
- Content & Communication Automation: Generative AI creates presentations, drafts communications, summarizes meetings, and personalizes outreach at scale, helping improve productivity and consistency.
- Finance, Operations, Compliance, & Risk: AI significantly automates financial reporting, account reconciliation, compliance reviews, and fraud monitoring, helping to reduce manual effort and improve accuracy.
- HR & Recruiting: AI enables efficiency in onboarding, manages documentation, identifies skill gaps, and recommends tailored training plans to enhance workforce development.
Practical examples include automating accounts reconciliation across multiple systems, using AI to extract structured data from contracts and financial statements for faster processing, and deploying compliance review tools that flag gaps in real time.
Addressing Challenges for Responsible Innovation
Successful AI adoption requires a holistic approach that goes beyond technology. Organizations must help ensure data readiness through robust governance, quality controls, and clear ownership, as high-quality data is essential for reliable outcomes. Technology infrastructure should align with existing systems and support scalability, integration, and maintenance. Equally important are people and talent, with cross-functional teams, ongoing training, and a culture of responsible innovation. Clear process transparency helps map workflows and identify where AI adds value without unnecessary complexity. Strong internal governance and clear policies, including documented use cases, approval protocols, and regular strategy reviews, help ensure alignment with business objectives and support safe and scalable deployment. Finally, regulatory compliance demands explainable AI, regular audits, and collaboration with legal teams to meet evolving laws and regulations. Addressing these considerations upfront helps reduce risk and set the stage for sustainable, responsible AI integration.
How Forvis Mazars Can Help
Forvis Mazars has extensive experience with regulators and in serving large financial institutions. If you have any questions or need assistance with any of the topics detailed in this summary, please reach out to one of our professionals.