Five Star Bank to begin “orderly wind down” of BaaS offerings
Financial Institutions, Inc. (FII), the parent company of New York-based Five Star Bank and Courier Capital, says it is to commence an “orderly wind down” of the Banking-as-a-Service (BaaS) offerings it operates through Five Star.
Five Star Bank to wind down BaaS offerings
The company says the decision follows “a careful review” conducted by FII’s executive management and board of directors and was “undertaken in conjunction with its annual strategic planning process”.
“Since our entry into BaaS, we have moved forward at a measured and conservative pace to balance growth with effective risk management. Following an internal review that considered many factors, including the contribution of BaaS to our core financial results, evolving regulatory expectations and a proposed rule regarding the re-classification of BaaS deposits as brokered, in addition to the future investments in talent and technology necessary to achieve scale, we are prioritising our core community banking franchise and intend to begin winding down our BaaS offerings,” says Martin Birmingham, president and CEO of Five Star Bank and FII.
“We see significant opportunity and growth potential for our retail banking, commercial banking and wealth management business lines within our existing geographic markets. This decision allows us to continue to nurture those lines of business and drive value into the company for the benefit of our shareholders, customers, associates and communities.”
As of 30 June 2024, FII’s balance sheet reflected approximately $108 million of deposits, accounting for about 2% of total deposits, and $31 million of loans, representing less than 1% of total loans, related to its BaaS offering.
As such, FII says it expects the financial impact of the offering’s closure to be “immaterial” due to the operation’s “modest size”.
Of the 12 BaaS partnerships maintained by Five Star Bank, four are currently live, while four have not yet begun testing, two are quoted as being “in onboarding”, and the remaining two have “already been in the process of offboarding”.
With the offering’s planned closure, the bank will now work to support the “orderly transitions” of its partner firms, and is “preliminarily targeting completion of the wind down of its BaaS business sometime in 2025”.
The company adds: “The bank expects to retain all personnel positions supporting the BaaS line of business, both through the wind down period and beyond, refocusing those roles on supporting the growth of its core banking operations.”
