When Donald Trump returned to the White House in January 2025, community bankers anticipated a swift rollback of regulatory burdens and a more business-friendly environment. Nine months later, at the NEXT Forum in Philadelphia, the mood was more cautious. “The tone at the top has changed,” observed Joseph “Joe” Thomas, President and CEO of Freedom Financial Holdings in Fairfax, VA, “but it hasn’t trickled down yet to the staff running examinations.”
While regulatory relief has been slow to show up in some regards, there are signs of encouragement. Meanwhile, banks face more immediate challenges: squeezed margins, aggressive pricing competition, aging leadership, and the question of whether artificial intelligence represents revolution or hype. From the stage, three industry leaders — a CFO from New Jersey, a CEO from Virginia, and an investment banker who advises community banks nationwide — offered their unvarnished assessment of banking in 2025 across four critical areas.
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1. Regulatory relief slow to arrive, but showing signs of progress
Despite the tempered expectations around regulatory relief, there are encouraging signs. The approval process for straightforward M&A has quickened dramatically. To start, deals that would have taken six months to close are now completed in two or three. Panelist Gary Svec, Managing Director of Investment Banking at Performance Trust Capital Partners, noted that approvals appear to be more pragmatic. When healthy institutions step in to acquire troubled ones, Svec says, “that approval process is even faster,” as if the healthy bank is doing regulators a favor by taking a problem off their hands.
Regulatory easing discussions are also happening around increasing the small bank holding company threshold from $3 billion in assets (a House bill aims to raise it to $25 billion) and increasing FDIC insurance limits for community banks. Earlier this month, the OCC raised its community bank asset threshold to $30 billion from $10 billion for the banks it regulates.
Beyond that, the improved tone has also emboldened fintechs. Svec shared that a number of fintechs have approached his firm for guidance on acquiring bank charters due to what they see as a more “business-minded leadership in Washington D.C.” Svec assessed the opportunity saying, “… virtually all the fintechs said in the last administration it was going to be near impossible for them to acquire a bank or be in the banking business. They feel that, under this administration, it’s going to be loosened up… they feel like the approval process is more likely in this administration than it was in the last.” Conversely, at a later point in the discussion, Svec noted that there’s also a growing pool of fintech lenders who may be looking for bank buyers in the near term as they struggle to build in profitability after stripping out all the margin from their business to compete on loans.
2. The Scale Imperative
Thomas put a fine point on the state of play in community bank M&A, stating that it’s “become a necessity to navigate through an increasingly challenging business model where scale matters. Access to new customers matters.”
With margins compressed and operating costs rising, scale is becoming imperative to manage upward pressure on the efficiency ratio. Heavy investments in technology will continue to add to operating costs — especially as technological functionality becomes table stakes to remain relevant — but the banks that maintain their independence will wring out more productivity from every dollar spent. Svec noted that “the one thing that determines a great performing institution for the future is the efficiency ratio. You hear about fintech, AI, stablecoin, all these things that are going to be attacking our industry. That will not stop; it’s going to drive margins down. We have got to become more efficient, and one way to do that is by getting bigger.”
The final factor forcing more M&A is a familiar refrain: increasingly, deals are driven by aging leadership. Svec warned that “our management teams are getting older. Our boards of directors are getting older. Our shareholders are getting older. That is not changing. That is a massive problem.” Svec shared the story of an exemplary bank that maintains a named replacement for each key executive. That kind of organizational clarity is rare but needed. “If you want to keep young, smart talent,” Svec said, “you give them a role, more responsibility, and a path to the C-suite over time.”
3. The Importance of Discipline Under Different Interest Rate Environments
The FOMC’s 25-basis-point rate cut last month was its first for 2025, and it came with signals that more cuts are likely, at least on the short end of the curve. Liability sensitive banks have moved quickly to lower deposit rates, with many reducing rates more aggressively than the Fed move would suggest, including Thomas’s Freedom Bank. Even so, the competitive environment in some markets could limit the benefits of lower rates, such as in the northern New Jersey area where CFO Steve Fusco’s Spencer Savings Bank operates.
While reducing deposit rates after the Fed cut wasn’t a surprise, a shocking comment came from Svec, who said he is seeing “loans in some markets [with yields] in the fives,” calling it “a one directional interest rate bet.” As we saw in the spring of 2023, directional interest rate bets can get you into a lot of trouble. Svec cautioned that the industry has to “look at a multiple interest rate scenarios whenever we’re thinking about any decision.”
4. AI: Game Changer or Glorified Spreadsheet?
Bankers’ opinions on AI tend to be as varied as the unique institutions they serve, and the discussion at the NEXT Forum was no exception.
Fusco called artificial intelligence a “game changer” that will transform banking from front-line operations to governance. But he caveated his position, warning “[i]f you have bad processes or bad information, you’re going to get hyper speed on bad processes and bad information.”
Svec was more measured, saying that AI will eliminate administrative grunt work — spreading financial statements, moving numbers from point A to point B — but won’t replace human judgment. “Hopefully the credit decision is still being borne by the people in this room,” he told the audience, “But the analysis on how to get there is going to be lightning fast and better.” His prediction: fewer support staff, more emphasis on skilled decision-makers.
Both agreed on one point: implementation is harder than the sales pitch. “All too often technology companies meet with banks and are showing us the Ferrari,” Fusco said. “It’s going to do all these great things. And you’re going to pay a lot of money for that Ferrari. And you sign the contract — they deliver a car kit.” His advice? Banks need strong internal project management and clear strategic planning before signing any contracts, because the technology is only as good as the data and processes behind it.
Amid a wide range of opinions and business models, the one factor that all panelists agreed was essential to staying independent was good talent. Once again, Thomas delivered a brilliant summary: “You can design the perfect strategy, but if you don’t have the right people, you’ll never be successful. And that’s more important now than ever.”
