COMMITMENT TO AND OVERSIGHT OF ESG

Our commitment to corporate citizenship and ESG starts at the top with sustainable business practices serving as a core pillar of our Board-approved three-year strategic plan. Our strategic plan is directly linked to our Board approved Risk Appetite Statement to ensure that execution of it is done prudently and mindful of evolving risks that impact our company. Additionally, ESG-related risks have been integrated into our Board approved Enterprise Risk Management (“ERM”) Program, which facilitates direct periodic tracking and monitoring of these risks by our Board and Management team.

The company is committed to ensuring that the Board is properly informed of relevant ESG-related risks and opportunities. The Board and its Executive Committee regularly oversee the status and progress of ESG-related initiatives and objectives through the review of the execution of our three-year strategic plan. Additionally, as reflected in Board committee charters available on our investor website, four of our Board committees—each composed entirely of independent directors—are specifically charged with relevant ESG oversight over matters within their subject matter expertise.

ESG is also woven into our enterprise-wide operations. Day-to-day leadership of ESG rests with an executive who reports directly to our President and Chief Executive Officer. Because ESG spans across all aspects of our operations, we also established an internal cross-functional working group of senior leaders that is tasked with driving additional progress on initiatives that promote sustainability and further transparency.

Our ESG Program is documented and has been provided to all of our employees (“associates”) to memorialize our enterprise-wide commitment to it and to create transparency around our expectations. Our ESG expectations are also set forth in underlying Human Rights and Environmental Responsibility policies. We also implemented and administer a Third-Party Vendor Code of Conduct that lays out our ESG expectations of company vendors.

Our ESG Program and ESG-related activities are also posted on our company and investor websites to provide public transparency on our commitment to and work in this important area.

We regularly monitor best practices, trends, and investor and community perspectives relative to ESG, and continue to engage with our shareholders to better understand their ESG views. We carefully consider the feedback we receive, adjust our focus and work as needed, and report on relevant ESG matters through internal and public channels, such as our annual proxy statement and financial disclosures.

We believe in focusing our efforts on where we can have the most impact and that our attention to key ESG priorities can help drive business practices that are crucial to our long-term growth. Against this backdrop, and guided by the sustainability principles set out in the Sustainability Accounting Standards Board (“SASB”), our areas of ESG focus include:

Associates		Community		Environmental Responsibility		Governance

		Our Five Star Promise is the shared commitment by the company and all Five Star associates to building a culture of teamwork, excellence and integrity consistent with our corporate values. We are committed to continually nurturing an environment where everyone feels welcome, valued, respected and appreciated. We empower our associates to live the Five Star Promise and be an active part of evolving our culture. Some examples include:

Our strong commitment and work in these areas led to Five Star Bank being recognized by both The Rochester Democrat & Chronicle Top Workplaces and The Buffalo News Top Workplaces in their respective geographies. Also, Five Star Bank recently became Great Place to Work^(TM) certified, which recognizes employers globally who achieve an outstanding culture based on anonymous survey data collected from their own employees.

We transformed and modernized our culture and talent management practices by implementing Human Capital Management reporting and practices. This strategy established a foundation that enables leaders to better manage teams and hire talent, further advancing an inclusive culture and building a more diverse workforce. Earlier this year, we invested in and implemented a new peer-to-peer recognition system to strengthen internal communication and celebrate successes, in recognition of our core values.

As our employees returned to the office after the pandemic, we thoughtfully assessed and updated our remote work practices and implemented “Five Star Fulfilled”, a comprehensive set of practices around work-styles, hybrid-work, office standards, and meeting etiquette, along with “Dress for your Day”, an initiative that empowers our associates to dress in comfortable but professional attire that is appropriate for the type of day they will have in the office. We also invested in technology to support our associates’ work-styles and grow effective teams across our footprint, including providing company-issued laptops to associates, launching collaborative software and upgrading a number of our systems to enable virtual groups to work more effectively.

In 2022, we also improved upon the standards for setting goals, conducting quality performance evaluations, succession planning, and learning and development, including conducting annual talent calibration of our senior leadership team. In support of creating a learning culture while also thoughtfully developing our talent, we introduced formal Career Success Plans (“CSPs”) for setting and achieving professional development objectives. Our focus on developing people has allowed us to reach several milestones including:

Our Compensation Policy, which is reviewed and approved by our Board each year, memorializes our commitment to fair and equitable compensation. We regularly review our compensation programs to ensure fair and inclusive pay practices across our business within our compensation philosophy. To help our associates and communities thrive, we provide a $15.00 per hour starting minimum wage for all company associates, $0.80 per hour above the New York State minimum wage.

We continue our commitment to equal employment opportunity through a robust affirmative action plan which includes annual compensation analyses and ongoing reviews of our selection and hiring practices alongside a continued focus on building and maintaining a diverse workforce. Each year, the Board’s Management Development & Compensation (“MD&C”) Committee reviews Management’s performance of our affirmative action plan.

The health and wellbeing of our colleagues is a top priority and in recognition of this, we provide our employees a robust health and wellness package. We continually evolve our benefits plans to remain competitive and meet the needs of our workforce. Our benefits package includes:

We support the wellness of all colleagues through various programs including health seminars and education programs with our expert employee benefits partners.

Diversity, Equity, & Inclusion (“DEI”)

We remain committed to providing equal employment opportunities for hiring, training, compensation, transfer, promotion, and other aspects of employment for all qualified applicants and employees without regard to race, religion, color, national origin, citizenship, sex, sexual orientation, gender identity, age, veteran status, disability, genetic information, or any other protected characteristic.

A diverse and inclusive workplace aligns with our core values. Our goal is to attract, retain and develop a workforce that is diverse in background, knowledge, skill and experience. As of December 31, 2022, women represented approximately 62% of our workforce, and self-identified racial and/or ethnic minorities represented approximately 11% of the company’s workforce.

We strive toward having a diverse and inclusive team of employees, knowing that we are better together with our combined wisdom and intellect. With a commitment to equality, inclusion, and workplace diversity, we focus on understanding, accepting, and valuing the differences between people. To further advance our diversity and inclusion goals, the D&I Council was formed in 2021 to foster an environment that values, welcomes, and facilitates the exchange of diverse perspectives and life experiences. Our D&I Council continues to inform our Chief Human Resources Officer on employee initiatives to further our inclusive culture and is charged with supporting sustainable and impactful D&I practices, including:

The D&I Council reports directly to our Executive Management Committee (the “EMC”) and met regularly throughout 2022 to provide feedback and ideas that guide our DEI strategy. To encourage productive conversations within our organization, we held regular meetings in 2022 to provide opportunities for participants to engage in discussions on

DEI education and initiatives. Additional accomplishments of the D&I Council include conducting a company-wide survey to understand and measure internal opportunities for growth and conducting training sessions on unconscious bias. The company also facilitated DEI awareness through periodic updates delivered by the D&I Council on all-company calls, in our company newsletter, and through posts on our internal website.

Our Board-approved anti-discrimination, anti-harassment, whistleblower, and anti-retaliation policies are updated and reviewed annually. We also make available to our associates an HR hotline where associates can make confidential and anonymous reports of misconduct.

We conduct intentional, strategic hiring to supplement the organization with new skill sets and perspectives. Our talent acquisition team uses internal and external resources to source diverse slates of talent for every opening, enabling us to hire highly skilled and talented workers. We engage employees by offering referral bonuses for open positions.

		Our company has a long and proud history in supporting communities in Western New York State that goes back to 1817. Our commitment to our communities continues to this day through our support of community organizations, volunteer work across our footprint, and our dedication to improving consumer financial literacy and supporting the underbanked.

Each year, our Board approves a Marketing and Community Outreach Plan to ensure that the needs of the communities that we serve are being met. Leaders in Marketing, Community Development, Compliance, and Community Reinvestment Act (“CRA”) each report on performance of this Plan to our Board.

We are focused on supporting various organizations through fundraising efforts, educational sponsorships, community development efforts, food drives, and partnerships. A sample of the organizations for which we provided financial support sponsorships in 2022 includes:

Company volunteerism is another area in which we take great pride. Our associates give freely of their time, talent, and financial resources, and many participate as volunteers, trustees, and committee members of civic and charitable organizations. This year, we worked on strengthening our partnerships with many of our CRA Grantees by also providing our associates opportunities to volunteer or give with these organizations. In 2022:

In the wake of the tragic mass shooting at Tops Markets in Buffalo on May 14, 2022, we supported the impacted neighborhood by partnering with FeedMore WNY, the organization that was meeting many of the needs of the neighborhood while the grocery store was closed. We made a company contribution, associates volunteered to sort and distribute meals, and we partnered with YouGiveGoods so that associates across our footprint were able to donate thousands of pounds of fresh groceries to the community.

In addition to supporting our communities through volunteerism, Five Star’s predecessor banks have played important roles in helping to meet the deposit and credit needs of traditionally underserved markets since our formation in 1817. We continue that mission today across our entire operating footprint.

Consistent with our Board approved Marketing and Community Outreach Plan, our Community Development Director and community development loan officers build relationships and partnerships with community groups and civic and governmental leaders. Together, they identify and work to meet the community’s needs for banking services. Another key focus of their work is delivering guidance on the path to homeownership, providing vital home buyer education and financial literacy training. In 2022, we:

Our Community Bank markets and sells a robust suite of deposit and lending products tailored to meet the needs of unbanked, under-banked, and low-and moderate-income individuals in the communities we serve. We also partner with the Allpoint Network to make cash access quick, easy, and surcharge-free to our customers at more than 43,000 ATMs nationwide. We also offer our Progress Checking program, an electronic checking account with no monthly fee, no minimum monthly deposit, and no overdraft charges. It includes Digital Banking with mobile check deposit, bill pay, and person-to-person payments. Our Marketing and Community Outreach Plan, the execution of which is overseen by our Compliance and Company Risk Committees and the Board, helps to ensure that we are meeting the needs of all segments of the communities that we serve.

Coupled with the work of our Community Bank, our commercial lending team pursues opportunities throughout our footprint to 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 low and moderate-income families. In 2022, we:

Through our Banking-as-a-Service (“BaaS”) business, we are now the sponsor bank for Vesti, an immigrant neobank, founded by two brothers who emigrated to the United States, that focuses on providing appropriate banking products and services to first generation immigrants. Similarly, we entered an agreement to be the sponsor bank for Obsidian Banking, a community bank focused on meeting the needs of under- and unbanked-neighborhoods comprised predominantly by African Americans. Currently, we are working with Obsidian to launch appropriate banking products.    

You can learn more about our community initiatives in the Five Star Bank 2022 Community Report, available on our website under News & Events.

		Grounded in the legacy of our community-oriented traditions representing Western New York State for more than 200 years, we are committed to environmentally conscious activity. We believe that a successful future for our business and the customers and communities that we serve is dependent on the sustainability of our environment. Environmental challenges, in general, and climate change, in
particular, present significant threats to the stability of the financial markets we participate in, and a corresponding societal impact on the communities that we serve. We believe that doing our part to address these threats is not only the right thing to do but also our corporate responsibility.

We remain committed to minimizing the impact of our operations on the environment and demonstrating leadership by incorporating environmental considerations into our business practices. Through our dynamic strategic planning and robust risk and governance frameworks, which directly link our three-year strategic plan to our Risk Appetite Statement and the administration or our ERM Program, we strive to seize upon prudent new business opportunities arising from the transition to a low carbon society and address environmental risks to manage them appropriately.

We also believe that we can make a positive contribution by following prudent business practices that protect and conserve our natural resources. We embed the principles of advancing a circular economy into our practices through green investments and long-term implementation of new technologies and look for these commitments in the clients and businesses we serve. Our eco-friendly decisions led to the recycling of 114.76 US Short Tons (104.11 Metric Tons) of paper in 2022.

Separately, in June 2022, the company initiated an additional waste reduction, recycling, and responsible disposal program to further our efforts to conserve our natural resources. Our efforts for the initial six months of the program resulted in eliminating 72 metric tons of greenhouse gas that would have otherwise represented the footprint of our garbage. By recycling what we can and sending the remainder to a state-of-the-art landfill that turns gas into electricity which contributed to reduction in extraction of new resources, the net benefit is -50 metric tons of greenhouse gas.

We continue our work to reduce our impact on the environment and promote environmentally friendly projects and practices. Five Star Bank Centre, the new home of our Western New York regional administrative office, opened following environmentally conscious renovations. It features an internal design maximizing natural light, utilizes live plants to enhance air quality, and has lighting sensors to promote energy conservation. Furthermore, in 2022, we:

We continue to invest in technological advancements focused on increasing efficiencies, lowering operating costs, optimizing capital expenditures, and adding value for our customers. We are continuously researching innovative ways to boost efficiency, such as utilizing high-efficiency electrical equipment including LED and motion-activated lighting, solar panels, and high-efficiency HVAC units. We encourage environmentally friendly practices at our offices to reduce water waste and the use of paper and plastics. We believe that our focus on environmental sustainability, with the objective of reducing costs and improving sustainability of our operations, provides a strategic benefit to the company.

We are also following sound change management practices to prepare for the finalization and implementation of The Enhancement and Standardization of Climate-Related Disclosures for Investors rule proposed by the SEC. The proposed rule, if finalized in its current form, would require several new disclosures, including:

Internally, we continue to monitor the status and progress of the implementation of this rule and will proactively build a framework and appropriate internal control to address disclosure related duties that are implemented. Under our robust governance framework, we will implement appropriate controls to ensure the reliability of data, with disclosures overseen by Management’s Disclosure Committee and the Board’s Audit Committee. Through this process, we will further enhance our robust governance and sustainability practices and will be better positioned to generate long-term value for our shareholders.

		As a publicly-traded financial institution, we are mindful of the importance of maintaining a governance framework that provides appropriate oversight, transparency, and accountability of our operations. We are committed to achieving excellence in our sustainability governance practices and establishing a strong foundation for the long-term success of the company. We routinely engage with our shareholders to better understand their ESG views, carefully consider the feedback we receive, and continue to maintain strong governance and risk management frameworks that are reflective of evolving risks.

We intend to conduct our business in a manner that is fair, ethical, and responsible to earn and maintain the trust of our customers, employees, investors, partners, and regulators.

Our Code of Business Conduct and Ethics requires that our directors, officers, and colleagues comply with all applicable rules and regulations. Our Board of Directors, consisting of 11 independent directors plus our CEO, is responsible for oversight of the management of the company and its business for the long-term benefit of our shareholders. Our corporate governance policies and practices include evaluations of the Board and its committees and continuing director education. Our documented ESG Program, Environmental Responsibility Policy, Human Rights Policy, Third-Party Vendor Code of Conduct and ERM Program further support our stated ESG goals within our governance structure.

Our governance framework deploys cross-functional management-level committees that have requisite subject matter expertise and control to regularly oversee important matters like risk management and compliance, financial disclosure and internal control, projects, new or modified products and services, management of the assets and liabilities of the Bank, and governance. Each management committee reports to a Board Committee comprised of independent Directors, which also has requisite subject matter expertise and focus to ensure Board oversight over significant matters.

Core governance documentation—Board and management-level committee charters, Corporate Governance Guidelines and other company policies—are reviewed and updated at least annually to ensure that they remain current and are reflective of internal and external factors impacting our operations. To promote public transparency, core Board governance documentation is posted on our investor website.

We deploy a three-lines of defense model that complies with regulatory guidance. Our internal risk management teams oversee compliance with applicable laws and regulations and coordinate with subject matter experts throughout the business to identify, monitor and mitigate risk including, among other things: operational, compliance, legal, information security/cyber security, credit, liquidity, market, ESG, and strategic risks. These teams regularly provide updates to the Board’s Risk Oversight Committee as well as the Board. Further, as a component of our Compliance Management System, the Compliance Department conducts annual training in the areas of Bank Secrecy Act and Anti-Money Laundering (“BSA-AML”), Fair Lending, Privacy, and Unfair, Deceptive or Abusive Acts and Practices (“UDAAP”), among others.

We have a robust information security and cyber defense program that incorporates multiple layers of physical, logical and written controls. We leverage industry-standard encryption configurations and technologies on our systems, devices and third-party connections and further vet third-party vendors’ encryption, as required, through our vendor management process. Our information security department maintains a risk assessment that is approved by the Board on an annual basis. Information security and cyber security training are conducted annually, and all employees are subject to simulated phishing attempts on an ongoing basis with results reported to the Risk Oversight Committee.

Our Board believes that director refreshment is an important component of good corporate governance. In the past two years, three new directors were added to our Board. Additionally in the past two years, the Board elected new leaders to four of the Board’s six Committees: the Executive, Nominating and Governance, Risk Oversight, and Technology and Data Committees. Each of these Committees is led by an independent director reflective of gender or ethnic diversity. In 2021, the Board also elected a new Board chair.

Several of our governance practices, including the Board’s role in risk oversight, stock ownership policies, corporate strategy and ERM, board composition and director nominees are summarized in the Corporate Governance and Board Matters section that follows.

CORPORATE GOVERNANCE AND BOARD MATTERS

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 and ethics, are available on our website at www.fiiwarsaw.comwww.FISI-Investors.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”)CEO are separated. The Board believes that separating these two positions allows each person to focus on his or hertheir 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 appropriateprudent management of risk, and ensures strategic objectives are aligned with our risk appetite. The Board approves our risk appetite statement, enterprise risk management program, Risk Appetite Statement, ERM Program, BSA-AML Policy and Program, Codes of Conduct and Ethics, Compliance Management Program and underlyingPolicy, Information Security Program and Framework, and Risk Management Policy and reviews and updates each annually to ensure that our risk framework remains relevant and compliance programs.current to address evolving risk. Our Board committees conduct primary oversight of certain risks that may affect us.us, including ESG-related risks as detailed above in “ESG and Corporate Responsibility—Commitment to and Oversight of ESG.” The Board’s Risk Oversight Committee has oversight of our credit, capital, liquidity and funding, operational,

In addition, we conduct an annual outreach to our largest shareholders and have conversations with corporate governance teams regarding executive compensation, corporate governance, financial performance, executive compensation, and other topics of interest to our shareholders. Our most recent outreach effort, completed in early 2021,2023, included 2229 of our largest shareholders representing 49%53% of our outstanding shares. Shareholder feedback is regularly reviewed and considered by the Board and the Board’s Nominating and Governance (“NG”) Committeeits committees and is reflected in adjustments to our policies and practices.

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 NGGovernance 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 committeeBoard’s Governance Committee and full Board, and the consideration of actions to address any issues. In addition, as part of the evaluation process of director and board and committee performance, the Chair of the Board meets with each director individually.individually and shares constructive feedback received with the Board’s Governance Committee and the Board.

Shareholder Nominees

The NGBoard’s Governance Committee will consider nominees for the Board recommended by shareholders. Information regarding this process is provided in our Corporate Governance Guidelines and in our Amended and Restated Bylaws (our “Bylaws”) and is further discussed in “Committees of the Board — Board—Nominating and& Governance Committee” on page 22.36.

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.