Financial Institutions, Inc. is the parent company for Five Star Bank, SDN Insurance Agency, LLC, Courier Capital, LLC and HNP Capital, LLC, which we collectively refer to in the proxy statement as the “company,” “we” or “us.” Throughout the proxy statement, we refer to Five Star Bank as the “Bank.”

Our Corporate Governance Guidelines and other key governance policies and documents, including the charters for each of our standing Board committees, stock ownership requirements and our codes of conduct, are available on our website at www.fiiwarsaw.com by clicking on “Governance,” then on “Governance Documents.” Information available on our website is not a part of, and is not incorporated into, this proxy statement.

SEPARATE CHAIR AND CHIEF EXECUTIVE OFFICER

The Board believes that effective corporate governance is best accomplished if the roles of Chair of the Board and Chief Executive Officer (“CEO”) are separated. The Board believes that separating these two positions allows each person to focus on his or her individual responsibilities, which is essential in the current business and economic environment. Under this structure, our CEO can focus his attention on the day-to-day operations and performance of the company and work to implement our long-term strategic plan. At the same time, our non-executive Chair of the Board can focus his attention on long-term strategic issues, setting the agenda for and presiding at Board meetings, working collaboratively with other Board members, and providing insight and guidance to our CEO through their regular interaction.

BOARD OF DIRECTORS ROLE IN RISK OVERSIGHT

The Board is actively engaged in the oversight and appropriate management of risk and ensures strategic objectives are aligned with our risk appetite. The Board approves our risk appetite statement, enterprise risk management program, BSA-AML Program and underlying risk and compliance programs. Our Board committees conduct primary oversight of certain risks that may affect us. The Board’s Risk Oversight Committee has oversight of our credit, capital, liquidity and funding, operational,

compliance, legal, cybersecurity and electronic data processing risks, among others. The Board’s Audit Committee focuses on oversight of financial risks, including those that could arise from our accounting and financial reporting processes. The Board’s Management Development & Compensation (“MD&C”) Committee oversees risks arising from our compensation policies and programs.

SUCCESSION PLANNING

The Board’s MD&C Committee actively participates in an ongoing review of our succession plan, including discussion regarding the company’s leadership team with a focus on key positions at the senior and executive officer level. The plan and resulting actions reflect our strong commitment to recruiting and retaining highly qualified executives, and our support for employee development and internal succession opportunities. The plan provides organization alternatives in the event of both planned and unplanned succession needs.

SHAREHOLDER ENGAGEMENT

We believe that strong corporate governance includes consistent engagement with our shareholders. We engage with shareholders on a variety of topics throughout the year to ensure that we are addressing questions and concerns and to seek input on policies and practices. Our management team, including our CEO, Chief Financial Officer and Treasurer (“CFO”) and Chief Community Banking Officer, regularly engage in meaningful dialogue with our shareholders through quarterly earnings calls, industry conferences and other channels of communication.

In addition, we conduct an annual outreach to our largest shareholders and have conversations with corporate governance teams regarding executive compensation, corporate governance, performance and other topics of interest to our shareholders. Our most recent outreach effort, completed in early 2021, included 22 of our largest shareholders representing 49% of our outstanding shares. Shareholder feedback is regularly reviewed and considered by the Board and the Board’s Nominating and Governance (“NG”) Committee and is reflected in adjustments to policies and practices.

DIRECTOR RESIGNATION POLICY

Our Board has adopted a director resignation policy for director nominees who receive a majority of WITHHELD votes. The policy is incorporated into our Corporate Governance Guidelines. If the election is uncontested (the number of director nominees does not exceed the number of Board seats up for election and proxies are not being solicited by anyone other than us), once the vote has been tabulated and certified and it is established that a director nominee received more WITHHELD votes than FOR votes (with abstentions and broker non-votes not counted as either), the director must immediately submit his or her resignation to the Board.

On receipt of the resignation, the Board’s NG Committee will evaluate what is in the best interests of the company and its shareholders and will make a recommendation to the independent directors of the Board. The recommendation may include accepting or rejecting the resignation or taking other appropriate action, which may include addressing the perceived cause of the WITHHELD votes or determining that the director should not stand for renomination in the future. Within 90 days of the annual meeting, the independent directors will determine the action to be taken and a public announcement will be promptly made. Directors do not participate in deliberations or determinations relating to matters in which they have an interest.

Directors and EMC members are required to achieve their stock ownership requirement within five years from their election as director or, in the case of an executive, from the date they were named a member of the EMC. Those subject to the requirements must retain at least 75% of shares we issued to them until they fulfill the ownership requirements above. Once these individuals achieve the required ownership levels, they must maintain that ownership for as long as they serve as directors or members of the EMC.

Pursuant to this policy, directors and EMC members are deemed the owner of: shares they own outright, shares owned by immediate family members residing in the same household, shares of our stock held in the company stock fund of our 401(k) plan, shares acquired upon stock option exercises, shares held in trust for the benefit of the person and unvested time-based restricted shares or units.

In 2020, all directors and EMC members met their stock ownership requirement or are within their five-year window to reach the requirement.

Clawback Provision

Our executive incentive compensation plan documents and award agreements incorporate a clawback provision to ensure that incentive compensation is paid based on accurate financial and operating data and the correct calculation of performance against incentive targets. This provision authorizes us to seek recovery of any payment, bonus, retention award or incentive compensation award that was determined using materially inaccurate information. To date, no clawback action has been required.

Derivatives, Pledging and Hedging Policy

Our Insider Trading Policy prohibits all employees and members of our Board of Directors from pledging shares on margin, trading in derivative securities of our common stock or engaging in the purchase or sale of any other financial instruments (including forward contracts, equity swaps, collars and exchange funds) that are designed to hedge or offset any decrease in the market value of our common stock.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Our Related Party Transactions Policy provides for the oversight of related party transactions, as defined under Item 404(a) of Regulation S-K. Our Chief Risk Officer is notified when a potential related party transaction is being contemplated. Potential transactions are referred to the Board’s Audit Committee to determine whether the transaction is a related party transaction. If the Audit Committee determines that the potential transaction would be a related party transaction, the committee decides whether to approve or decline the proposed transaction. The Audit Committee has not established a written policy regarding the factors it considers in deciding whether to approve a potential related party transaction. Instead, the Audit Committee considers regulatory requirements and all other factors it deems appropriate using its business judgment.

During 2020, we were not a party to any transaction or series of transactions in which the amount involved exceeded $120,000 and which any director, executive

officer or related party had or will have a direct or indirect material interest other than:

During 2020, certain of our directors and executive officers and their respective affiliates were customers of and had loans and/or other transactions with us and/or our subsidiaries. All such loans and other transactions were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time they were made for comparable loans and other transactions with persons not related to us. These loans and other transactions did not involve more than the normal risk of collectability or present other unfavorable features to the company.

All loans to our directors and executive officers are subject to limitations contained in and made in conformity with the Federal Reserve Act and applicable regulations. Presently, we have such loans and expect to have similar loans with our directors, executive officers, substantial shareholders and their affiliates in the future.

CORPORATE RESPONSIBILITY AND SUSTAINABILITY

Corporate Citizenship

Our company’s commitment to corporate citizenship and Environmental, Social and Corporate Governance (ESG) starts at the top. As reflected in committee charters, three of our Board committees, each composed of independent directors, are specifically charged with relevant ESG oversight:

Culture

Our company is mission-based — committed to the promise to put our customers’ financial well-being at the heart of everything we do. We work to build relationships that make a difference and we come to work every day empowered to help our customers, each other and the communities we serve. Our success in maintaining this promise is rooted in our culture, developed to guide our associates in living our promise.

In an ever-evolving world, and in an industry where we are steadily changing to bring our associates and customers into tomorrow, our culture is rooted in basic core values that empower our team to:

Our culture and values are memorialized and reinforced in a variety of ways throughout the year and we dedicate time and energy to upholding our commitment to our associates and communities, reinforcing our values through meetings, recognition events and various other channels.

By putting our associates first and working to create an active and engaged workforce, we know our customers will be taken care of. Immersing our associates in our culture of integrity, trust and respect, allows us to acquire, grow and maintain meaningful consumer and business relationships across our communities.

We take great pride in offering a comprehensive and competitive total rewards package to our associates. The term “Total Rewards” encompasses the tangible value of a career with us — including base pay, health and welfare benefits, retirement planning, learning and career development opportunities, performance recognition programs, flexible work arrangements, company culture and more.

Advancing Inclusion and Diversity

We believe that maintaining a diverse, inclusive workforce drives our success. Developing and retaining a diverse workforce increases employee engagement, and by reflecting the communities we serve, we more effectively and competitively market ourselves to all segments of our community. We believe that our employees are our most important asset and we celebrate the rich diversity of thought, talent and experiences contributed by all.

Diversity and Inclusion Advisory Council

To further advance our inclusion and diversity goals, we have established the D&I Council to foster an environment that values and welcomes the diversity of perspectives and life-experiences. The D&I Council informs the Director of Human Relations on employment related initiatives and reports directly to the company’s EMC chaired by the Company’s CEO. The D&I Council uses a combination of internal and external points of view to better evaluate effective diversity and inclusion practices across the enterprise. The council is also focused on providing learning opportunities to educate, build inclusion acumen, foster a sense of belonging, motivate positive behavior and attitudes, and provide the skills necessary to address bias constructively.

Gender and Racial Diversity

We are making significant progress toward achieving a gender-balanced workforce. We are pleased to report that at the end of 2020, approximately 70% of our workforce, more than 50% of our officers and 30% of our independent directors were women. Currently, more than 60% of the company’s Operating Committee, a management committee comprised of key senior and emerging company leaders, reflects gender or racial diversity. Additionally, we strive to ensure that all associates are compensated fairly and equitably throughout their career. If we see a disparity for any of our people, we strive to fix it.

Equally important, the Board is composed of Directors with diverse backgrounds and the company’s governance framework is designed to maintain diverse leadership reflective of the communities we serve. Pursuant to our Corporate Governance Guidelines, the NG Committee includes female and racially/ethnically diverse candidates in the pool of candidates from which it recommends nominees, either directly or through any third-party search

firm. Our Corporate Governance Guidelines also reflect that the NG Committee will identify, recommend and recruit candidates for nomination to the Board considering the diversity of Board members’ skills, experiences, age, race, ethnicity, gender and sexual orientation. Assuming shareholders approve the slate of candidates recommended for election at the 2021 annual meeting, 30% of the company’s independent directors will be women and 20% will represent racial/ethnic minorities.

Ethics

Code of Ethics

Our company has worked diligently to establish and maintain a strong culture of ethical behavior. Through strong engagement, oversight, communication and training, we set a high expectation of ethical behavior. Expectations for our directors, officers and employees are also memorialized in our Code of Business Conduct and Ethics Policy (“Code of Ethics”) that is annually approved by our Board of Directors. New employees and existing employees (on an annual basis) are required to acknowledge receipt of and compliance with the Code of Ethics.

Additionally, we have a Code of Ethics for the CEO, CFO and senior financial officers that sets additional expectations for honest and ethical conduct and compliance with applicable laws, rules, and regulations applicable to financial related matters (this code of ethics and the Code of Ethics collectively are referred to as “Ethics Codes”). Each applicable employee must annually review and affirm their intent to comply with the Ethics Codes.

Current versions of these codes may be viewed on our website at www.fiiwarsaw.com by clicking on “Governance,” then on “Governance Documents.” Exceptions to any provision of the Ethics Codes must be approved by the Chief Compliance Officer. We intend to notify shareholders of any exceptions granted on our website at www.fiiwarsaw.com. We did not grant any exceptions during 2020.

Associates apply the principles of the Ethics Codes into every interaction with other associates, senior leaders, directors, clients, customers, community members and shareholders. The Code of Ethics is applicable to all employees and covers professional conduct, including conflicts of interest, safeguarding of confidential information, financial responsibility, diversity and inclusion.

Red Flag Reporting

We encourage associates to raise any ethical concerns they may have with their managers, our Chief Risk Officer, Chief Ethics Officer or Director of Human Resources. We also provide a secure channel for employees to anonymously raise financial or ethical concerns through Red Flag Reporting. Red Flag Reporting is a third-party company, independent from the company, that allows a safe, secure and confidential way for employees to report unethical behavior within the organization. The system allows employees to report issues twenty-four hours a day by either phone or online and employees can choose to remain completely anonymous.

Whistleblower Policy

Associates may choose to raise concerns through various other channels as outlined in our Whistleblower Policy. The Whistleblower Policy outlines the receipt, review, investigation, response, retentions and treatment of complaints or concerns received by the company involving serious ethical or financial concerns. The policy provides associates the ability to report concerns through the Human Resources Department, Office of the General Counsel and the Red Flag Reporting independent hotline. It provides ways in which reports may be made anonymously and how certain reports will be escalated to the Board’s Audit Committee.

Supporting Our Communities

Our company has a long and proud history in Western New York that goes back to 1817. Our predecessor banks each operated in a rural area and played important roles in helping to meet the deposit and credit needs of traditionally underserved markets. We continue that mission today — across our entire operating footprint.

We know that as an employer, neighbor and steward of the communities where we operate, doing business extends beyond the delivery of banking, insurance and investment solutions. We continually seek ways to serve our communities because we understand that healthy communities support our ability to be successful. Accordingly, we invest in and support the communities we serve through product offerings, financial investments and volunteer activities.

We have made significant investments in products and people to ensure the availability and accessibility of safe, transparent and fair financial products. Offerings include a suite of products tailored to meet the needs of unbanked, underbanked and low-to-moderate income individuals in the communities we serve, as well as programs to assist home buyers with grants and savings programs.

Our Community Development Officer and team of community development loan officers build relationships and partnerships with community groups, civic and governmental leaders to identify and strive to meet the community’s needs for banking services. Our team of community development loan officers provides guidance on the path to homeownership in our urban markets, providing vital home buyer education and financial literacy training.

Our commercial lending team pursues opportunities throughout our footprint for financing affordable housing with debt and equity financing, as well as historic tax credit community development investments. Our goal is to advance housing opportunities and local community development by subsidizing projects for very low, low and moderate-income families.

We support organizations by investing in communities through donations, community sponsorships and grants. We provide financial support for numerous community events, festivals, youth sporting events and school functions. Through the award of grant dollars, we support programs and organizations that empower individuals and neighborhoods in the communities we serve. The focus areas for support are affordable housing, economic development, neighborhood revitalization and stabilization, and community services targeted to low-to-moderate income individuals.

Our associates give freely of their time, talent and financial resources, and many participate as volunteers, trustees and committee members of charitable organizations. Giving back is a high priority for all of us at Five Star Bank, Courier Capital, HNP Capital and SDN Insurance.

Additional details of our community support initiatives are provided in the 2020 Five Star Bank Community Report, available on the Five Star Bank and Financial Institutions, Inc. Investor Relations websites.

Environmental Sustainability

We are committed to continuously improving the environmental sustainability of our business by promoting sustainable and environmentally friendly practices. We strive to reduce the impact of our operations through decreased energy consumption, increased recycling and the thoughtful use of resources and materials.

Green Construction

Two new bank branch locations are under construction in Buffalo, New York and we are committed to the use of green and energy efficient materials in our new office construction. Materials sourced for these locations have received certifications from Cradle to Cradle, Declare, Forest Stewardship Council, Green Square, and GreenGuard. Additionally, we are committed to the use of materials with a high percentage of recycled content when possible.

Paper Policy

We strive to reduce the use and increase the recycling of paper across our operations. In 2020, we reduced our consumption of printer paper by approximately 30% compared to 2019. Additionally, 100% of the printer paper we purchased in 2020 was certified by the Sustainable Forestry Initiative.

Impact of Annual Meeting of Shareholders

In 2020, we adopted the notice and access method to deliver proxy materials over the Internet instead of mailing paper copies. This action significantly reduced the number of annual reports and proxy statements printed and decreased the environmental impact of our proxy materials. In addition, the paper used for printing the reduced quantity of annual reports and proxy statements was certified by the Forest Stewardship Council (FSC). These actions will be taken for the 2021 Annual Meeting of Shareholders as well.

Corporate Strategy and Enterprise Risk Management

Our Board of Directors regularly reviews our strategy, the environment in which we operate and the progress we are making toward the goals we set. Our strategy clearly defines strategic priorities and contains annual and multi-

year plans to deliver on these priorities. We remain committed to an effective and efficient risk and control environment and our long-term strategy is firmly linked to an enterprise risk management (“ERM”) program.

Risk is an inherent part of our daily business and activities as a financial services institution. The company’s success and reputation depend on effectively managing all risks it faces to the benefit of our shareholders, customers and other stakeholders. We do this through robust, comprehensive risk management policies, controls and training. The company’s risk management philosophy focuses on achieving risk-adjusted returns through prudent risk-taking that is intended to protect shareholder value, manage unpredictability of risks and minimize potential adverse impact on operating performance and financial condition.

Effective risk management, which is further supported by our company-wide ERM framework, is a priority for the company’s leadership, and senior management requires thorough and frequent communication and the appropriate escalation of risk matters. Accordingly, the ERM framework integrates risk management into a comprehensive company-wide structure that facilitates the incorporation of risk assessments into strategic planning and decision-making processes across the company. The company’s risk management and compliance functions, respectively, operate independently from the lines of business, enabling them to effectively challenge business leaders. They are responsible for the definition of policies and frameworks for the management of risk across the company.

Given the complex and evolving nature of our lines of business, we invest time and resources in maintaining a risk-management culture that is incisive and knowledgeable and subject to ongoing review and enhancement.

Our Board of Directors oversees the ERM framework, fulfilling this responsibility through the Risk Oversight Committee, which is composed of independent directors. The Board’s MD&C Committee reviews our Chief Risk Officer’s annual evaluation and certification of the design and operation of all incentive compensation plans prior to any award grant discussion. The MD&C Committee ensures that incentive compensation arrangements for all employees do not encourage inappropriate risk-taking.

BOARD COMPOSITION AND DIRECTOR NOMINEES

Director Independence and Qualifications

Our Corporate Governance Guidelines require that a majority of our directors be independent under the listing standards of the Nasdaq Stock Market (“Nasdaq”). Only one management director, generally the CEO, will be permitted to serve on our Board at any given time. A director will not be considered “independent” unless our Board affirmatively determines that the director meets the applicable requirements of the Securities and Exchange Commission (the “SEC”) and Nasdaq and has no relationship with us that would interfere with the exercise of his or her independent judgment. The Board and its NG Committee have determined that each of our directors, except for President and CEO Martin K. Birmingham, and each of our director nominees is independent in accordance with the standards set forth by the SEC and Nasdaq.

One of the Board’s most important responsibilities is identifying, evaluating and selecting Board candidates. The Board’s NG Committee is responsible for reviewing the qualifications of potential candidates and making recommendations to the Board regarding candidates for election and to fill vacancies that may occur between annual meetings of shareholders. The committee is also responsible for reviewing with the Board, on an annual basis, the appropriate skills and characteristics required of directors.

The NG Committee intends to select nominees for director based on character, expertise, sound judgment, ability to make independent analytical inquiries, business experiences, understanding of the company’s business environment, ability to make time commitments to the company, demonstrated teamwork and ability to bring unique and diverse perspectives and understandings to the Board.

The Board is committed to diversity in terms of the individual members, their experiences and areas of expertise. The pool of candidates from which the NG Committee recommends nominees will include female and racially/ethnically diverse candidates, and the NG

Committee will instruct any third-party search firm it engages to include female and racially/ethnically diverse candidates in such pool. The NG Committee will identify, recommend and recruit candidates for nomination to the Board considering the diversity of Board members’ skills, experiences, age, race, ethnicity, gender and sexual orientation in addition to the qualities highlighted above. The Board seeks to balance the value that longevity of director service can bring to the company with the value of new ideas, perspectives and insights that come with the addition of new members to the Board.

Board Self-Assessment

The Board is committed to regularly assessing its own performance to identify its strengths as well as areas in which it may improve performance. The self-evaluation process, which is established by the Board’s NG Committee, involves the completion of annual written evaluations for each director and the full Board, review and discussion of the results of the evaluations by both the committee and full Board and the consideration of actions to address any issues. In addition, as part of the evaluation process of director, board and committee performance, the Chair of the Board meets with each director individually.

Shareholder Nominees

The NG Committee will consider nominees for the Board recommended by shareholders. Information regarding this process is provided in our Corporate Governance Guidelines and Amended and Restated Bylaws (our “Bylaws”) and is further discussed in “Committees of the Board — Nominating and Governance Committee” on page 22.

COMMUNICATION WITH OUR BOARD

Shareholders may communicate with the Board of Directors or any individual director by sending the communication to the attention of our Corporate Secretary at our corporate headquarters at 220 Liberty Street, Warsaw, NY 14569. Any communication received will be forwarded to the Board or individual directors, as appropriate.

Dawn H. Burlew

Prior Business Experience

Current Nonprofit Boards

Education

Robert N. Latella

Prior Business Experience

Past Public Company Boards

Past Other Company Boards

Current Nonprofit Boards

Past Nonprofit Boards

Education

Mauricio F. Riveros

Prior Business Experience

Current Nonprofit Boards

Education

Mark A. Zupan, PhD

Prior Business Experience

Past Public Company Boards

Current Nonprofit Boards

Past Nonprofit Boards

Education

Martin K. Birmingham

Prior Business Experience

Current Nonprofit Boards

Past Nonprofit Boards

Education

Donald K. Boswell

Prior Business Experience

Current Private Company Boards

Past Other Company Boards

Current Nonprofit Boards

Education

Andrew W. Dorn Jr.

Prior Business Experience

Past Public Company Boards

Current Nonprofit Boards

Past Nonprofit Boards

Education

Robert M. Glaser

Prior Business Experience

Former Appointed Positions

Current Private Company Boards

Past Nonprofit Boards

Education

Samuel M. Gullo

Prior Business Experience

Current Nonprofit Boards

Past Nonprofit Boards

Education

Susan R. Holliday

Prior Business Experience

Past Public Company Boards

Current Private Company Boards

Past Other Company Boards

Current Nonprofit Boards

Past Nonprofit Boards

Education

Kim E. VanGelder

Prior Business Experience

Current Nonprofit Boards

Past Nonprofit Boards

Education

Karl V. Anderson Jr.

Prior Business Experience

Past Non-Profit Boards

Education

COMMITTEES OF THE BOARD

Audit Committee

The Audit Committee assists the Board in fulfilling its oversight and fiduciary responsibilities over the company and its subsidiaries relative to financial controls and disclosures. The primary roles of the Audit Committee are to:

The Audit Committee is required to meet at least four times annually. In carrying out its responsibilities, the committee seeks, in its sole discretion and authority, appropriate third-party counsel and advisors and approves the associated fees and terms of engagement. The Board has affirmatively determined that all Audit Committee members are independent as defined by SEC rules and Nasdaq listing standards applicable to audit committees.

Mr. Glaser is an “audit committee financial expert” within the meaning of SEC regulations.

Executive Committee

The Executive Committee is charged with assisting the Board of Directors in fulfilling its oversight and fiduciary responsibilities over the company and its subsidiaries relative to strategic planning. The Executive Committee’s primary roles are to:

The Executive Committee is required to meet at least four times annually.

Management Development & Compensation Committee

The MD&C Committee assists the Board in fulfilling its oversight and fiduciary responsibilities over the company and its subsidiaries relative to the attraction and retention of the company’s senior leadership and the company’s management compensation policies and practices. The MD&C Committee’s primary roles are to:

The MD&C Committee is required to meet at least four times annually. In carrying out its responsibilities, the committee seeks, in its sole discretion and authority, appropriate third-party counsel and advisors and approves the associated fees and terms of engagement. The Board has affirmatively determined that all MD&C Committee members are independent as defined by Nasdaq listing standards applicable to compensation committees.

Nominating and Governance Committee

The NG Committee assists the Board in fulfilling its oversight and fiduciary responsibilities over the company

and its subsidiaries relative to governance matters. The NG Committee’s primary roles are to:

The NG Committee considers recommendations for director candidates made by shareholders. Such recommendations should be sent to the attention of our Corporate Secretary at our corporate headquarters. The NG Committee evaluates all director candidates on the same basis, provided that current directors may be evaluated primarily based on their record of performance as a director of the company. All nominees should possess personal and professional integrity, good business judgment, and experience and skills that will enable them, in conjunction with current Board members, to effectively serve the long-term interests of the company and its shareholders.

The NG Committee considers whether the candidate is “independent” under applicable SEC rules and Nasdaq listing standards and whether the candidate fits the Board’s current needs for diversity, geographic connections to the company’s market region and professional expertise in its process of evaluating director candidates. The NG Committee investigates and interviews director candidates as it deems necessary to make a fair evaluation. If a majority of the NG Committee determines a candidate is qualified, the committee may propose the candidate to the Board as a nominee for election, to fill a vacancy, or to be held in reserve in a prospective director pool.

Our Corporate Governance Guidelines task the NG Committee with composing a Board of Directors that reflects diverse experience, gender, race, personal qualities and accomplishments. The committee

implements this policy through discussions and deliberations among committee members and assesses its effectiveness annually as part of its self-evaluation process. Pursuant to our Corporate Governance Guidelines, the NG Committee includes female and racially/ethnically diverse candidates in the pool of candidates from which it recommends nominees, either directly or through any third-party search firm.

The NG Committee believes the years of service provided by our continuing directors have given them extensive knowledge of our business and the banking industry. The committee engages in a thorough vetting process of director nominees and an annual evaluation of each of our directors. This process helps provide for a Board that is engaged and refreshed when appropriate. The NG Committee has discussed implementing age and term limits for members of our Board of Directors and determined that such limits are not currently needed.

Risk Oversight Committee

The Risk Oversight Committee assists the Board in fulfilling its oversight and fiduciary responsibilities over the company and its subsidiaries relative to risk oversight. The Risk Oversight Committee’s primary roles are to provide oversight of:

The Risk Oversight Committee assists the Board in its oversight of our risk appetite statement, including risk tolerance levels and limits consistent with our strategic

objectives, reviewing our enterprise risk management framework and processes, including those policies, procedures and practices employed to identify, measure, monitor and control our risk profile.

In performance of its oversight functions, the committee meets at least quarterly with our risk management leaders. At these meetings, the committee receives quarterly updates from management on our cybersecurity risk profile and cybersecurity program initiatives.

Technology & Data Committee

The Technology & Data Committee assists the Board in fulfilling its oversight and fiduciary responsibilities over the company and its subsidiaries relative to technology and enterprise data management. The Technology & Data Committee’s primary role is to oversee major technology investment, strategy, operational performance and trends that might affect our operations.

The Committee’s responsibilities include:

The Technology & Data Committee is required to meet at least four times annually.

INTRODUCTION

This Compensation Discussion and Analysis, which we refer to as the CD&A, provides a description of the material elements of our compensation programs as well as perspective and context for the 2020 compensation decisions for our executive officers named in the Summary Compensation Table and referred to in this CD&A and in the subsequent tables as our named executive officers (“NEOs”). These NEOs are:

The CD&A is organized into the following sections:

EXECUTIVE SUMMARY

Business Performance Highlights

2020 was a year of strong performance across an array of key outcomes despite the challenges presented by the COVID-19 pandemic.

We have delivered uninterrupted critical banking services to our customers and continue to modify operations to keep our customers and associates safe. Early in the pandemic, a series of solutions was implemented to support our customers, which included the temporary waiving or elimination of fees and the opportunity for loan payment relief or deferrals. We also helped 1,700 small businesses obtain approximately $270 million of Paycheck Protection Program (“PPP”) loans in 2020, preserving an estimated 18,000 jobs in our markets. Our strong community support continued as well through grants, donations and investments.

Significant progress was achieved on fundamental strategic objectives in 2020.

We took two actions during the fourth quarter to provide important flexibility in managing our balance sheet. A $35 million subordinated debt offering was completed in October to provide capital for use in serving our customers, taking advantage of growth opportunities and strengthening Five Star Bank’s capital ratios. In November, a stock repurchase program was established for up to approximately 5% of outstanding common shares.

Key statistics for 2020 include:

2020 Executive Compensation Program Highlights

Our compensation philosophy focuses on attracting and retaining high-performing talent through market-competitive compensation programs that properly incentivize sustained business growth, operational excellence and alignment with shareholder interests. We believe our programs accomplish this by:

The coronavirus (“COVID-19”) pandemic significantly impacted our Company throughout 2020. Our NEOs proactively navigated the public health, economic and social disruptions that impacted our business, employees and customers. Our NEOs and management teams also effectively implemented government financial aid and customer loan accommodations.

Given the unprecedented nature of the pandemic, the MD&C Committee decided to regularly assess and monitor the impact on compensation programs throughout 2020 to ensure any decisions for discretion or adjustment consider the full scope of pandemic impact over time. At the onset of the pandemic, the MD&C Committee discussed COVID-19 matters as standing agenda items at each regularly scheduled Committee

meeting. With guidance from our independent compensation consultant, the MD&C Committee developed and abided by a framework for evaluating the COVID-19 impact and response strategies to foster robust discussion and analysis of material factors impacting compensation programs.

The MD&C Committee partnered with our independent compensation consultant and management throughout 2019 and 2020 to inform 2020 executive compensation program decisions. Details of 2020 compensation program decisions implemented by the MD&C Committee are discussed throughout the CD&A. These highlights include:

Our executive compensation program design consists of the elements below at target level performance:

CEO Compensation Mix

Other NEO Average(1) Compensation Mix