These consolidated financial statements and notes thereto are presented in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States of America (GAAP)(“GAAP”). In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and consolidated results of operations have been made. The unaudited interim consolidated financial statements included in this Form 10-Q should be read in conjunction with the consolidated financial statementsConsolidated Financial Statements and notesNotes to the consolidated financial statementsConsolidated Financial Statements included in BancShares'BancShares’ Annual Report on Form 10-K for the year ended December 31, 2018.2019.

In certain instances, amounts reported in prior years'periods’ consolidated financial statements have been reclassified to conform to the current financial statement presentation. Such reclassifications had no effect on previously reported cash flows, shareholders'shareholders’ equity or net income.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions thatwhich affect the amounts reported. Actual results could differ from those estimates. The estimates that BancShares considers significant are the allowance for loan and leasecredit losses, fair value measurements, Federal Deposit Insurance Corporation (FDIC) shared-loss payable, pension plan assumptions, goodwill and other intangible assets, and income taxes.

The sharesshare repurchases in the third quarter ofduring 2020 and 2019 included 45,000 shares and 50,000 shares, respectively, of Class A common stock purchasedrepurchased from Ella Ann Holding, as trustee of her revocable trust. Mrs. Holding is the widow of BancShares’ former Executive Vice Chairman, Frank B. Holding, and the mother of Frank B. Holding, Jr. and Hope H. Bryant, BancShares’ Chairman and Chief Executive Officer and Vice Chairman, respectively. Pursuant to the existing share purchaserepurchase authorization and BancShares’ related person transaction policy, the board’sBoard of Director’s (the “Board”) independent Audit Committee reviewed and approved the repurchase of up to 250,000 shares held by Mrs. Holding on or before April 30, 2020.

Upon expiration of the most recent share repurchase authorization on July 31, 2020, pursuantshare repurchase activity has ended and will be reevaluated in subsequent periods.

This ASU modifies the disclosure requirements on fair value measurements by eliminating the requirements to disclose (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy (2) the policy for timing of transfers between levels and (3) the valuation processes for Level 3 fair value measurements. This ASU also added specific disclosure requirements for fair value measurements for public business entities including the requirement to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

The amendments inBancShares adopted this ASU are effective for all entities for fiscal years beginning after December 15, 2019, and all interim periods within those fiscal years. Early adoption is permitted upon issuance of the ASU. Entities are permitted to early adopt amendments that remove or modify disclosures and delay the adoption of the additional disclosures until their effective date. BancShares will adopt all applicable amendments and update the disclosures as appropriate during the first quarter of 2020.2020 and have made all applicable updates to the disclosure within the Notes to the Unaudited Consolidated Financial Statements.

This ASU eliminates Step 2 from the goodwill impairment test. Under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This ASU eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative test.

ThisBancShares adopted this ASU will be effective for BancShares' annual or interim goodwill impairment tests for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We expect to adoptduring the guidance for our annual impairment test in fiscal year 2020. BancShares does not anticipate anyfirst quarter 2020 with no impact to our consolidated financial position or consolidated results of operations as a result of the adoption. There was 0 impairment recorded as a result of our annual assessment during the third quarter of 2020.

This ASU introduces(and all subsequent ASUs on this topic) introduce the current expected credit loss (“CECL”) model, a new credit loss methodology, which requires earlier recognition of credit losses, replacing multiple existing impairment methods in current GAAP, which generally require that a loss be incurred before it is recognized. The amendments in this ASU require loss estimates be determined over the lifetime of the asset and broaden the information that an entity must consider in developing its expected credit losses. The ASU does not specify a method for measuring expected credit losses and allows an entity to apply methods that reasonably reflect its expectations of the credit loss estimate based on the entity's size, complexity and risk profile. In addition, the disclosures of credit quality indicators in relation to the amortized cost of financing receivables, a current disclosure requirement, are further disaggregated by year of origination.

For AFS securities, management performs a quarterly analysis of the investment portfolio to evaluate securities currently in an unrealized loss position for potential credit-related impairment. If BancShares intends to sell a security, or does not have the standard will applyintent and ability to loans, unfunded loan commitmentshold a security before recovering the amortized cost, the entirety of the unrealized loss is immediately recorded in earnings. For the remaining securities, an analysis is performed to determine if any portion of the unrealized loss recorded relates to credit impairment. If credit related impairment exists, the amount is recorded through the ACL and related provision. This review includes indicators such as changes in credit rating, delinquency, bankruptcy or other significant news event impacting the issuer.

BancShares’ portfolio of HTM debt securities. A cross-functional team co-ledsecurities is made up of mortgage-backed securities issued by Corporate Financegovernment agencies and Risk Management is in place to implementgovernment sponsored entities. Given the new standard. We have completed initial currenthistorically strong credit rating of the U.S. Treasury and the long history of no credit losses on debt securities issued by government agencies and government sponsored entities, we determined 0 expected credit losses (CECL) modelson the HTM portfolio.

BancShares’ accounting interpretations. Wemethods for loans and leases depends on whether they are originated or purchased, and if purchased, whether or not the loans reflect more than insignificant credit deterioration since origination as of the date of acquisition.

Upon adoption of ASC 326, owner occupied and non-owner occupied commercial real estate were segregated into separate classes within the commercial segment. Similarly, consumer auto was segregated into its own class within the consumer segment. These enhancements were made to capture the unique credit characteristics used in our CECL models. Information for reporting periods beginning after January 1, 2020 are presented in accordance with ASC 326 and reflect changes to the respective classes, while prior period amounts continue to refinebe reported in accordance with previously applicable GAAP and testhave not been reclassified to conform to the current financial statement presentation.

The following represent our models, estimation techniques, operational processesclasses of loans as of January 1, 2020 upon adoption of ASC 326 (with the exception of SBA-PPP, which was added during second quarter 2020):

Securities are also classified as past due when the payment of principal and interest based upon contractual terms is greater than 30 days delinquent. Missed interest payments on securities are rare. We review all securities with delinquent interest and immediately charge off any accrued interest determined to be useduncollectible.

The ACL for SBA-PPP loans originated during 2020 are separately evaluated given the explicit government guarantee. This analysis, which incorporated historical experience with similar SBA guarantees and underwriting, concluded the likelihood of loss was remote and therefore these loans were assigned a 0 expected credit loss in preparing CECL loss estimatesthe ACL.

The ACL represents management’s best estimate of credit losses expected over the life of the loan, adjusted for expected contractual payments and related financial statement disclosures. We have also begun evaluating our debt securities portfolio to determine the impact of adoptionprepayment expectations. Prepayment assumptions were developed through a review of CECL. We expectBancShares’ historical prepayment activity and began with a review of prepayment assumptions utilized in other modeling activities. Estimates for loan losses are determined by analyzing quantitative and qualitative components present as of the evaluation date. Adjustments to the ACL are recorded with a corresponding entry to provision for credit losses. Loan balances considered uncollectible are charged-off against the ACL. Recoveries of amounts previously charged-off are credited to the ACL.

A primary component of determining the ACL on loans is the actual net loss history of the various loan pools. For commercial pools, key factors utilized in the models include delinquency trends as well as macroeconomic variables such as unemployment and commercial real estate price index. For consumer pools, key factors include delinquency trends and the borrower’s original credit score, as well as other macroeconomic variables such as unemployment, gross domestic product, home price index, and commercial real estate index. As the models project losses over the life of the loans, prepayment assumptions also serve as significant portioninputs. Model outputs may be adjusted through a qualitative assessment to reflect economic conditions and trends not captured within the models including credit quality, concentrations, and significant policy and underwriting changes.

Within our ACL model, TDRs meet the definition of default and are given a 100% probability of default rating. TDRs are not individually evaluated unless determined to be collateral-dependent. Therefore, loss given default is calculated based on the individual risk characteristics of the loan as defined in the model.

BancShares has elected not to measure an ACL for accrued interest receivable and has excluded it from the amortized cost basis of loans and held to maturity debt securities as our securities portfolioaccounting policies and credit monitoring provide that uncollectible accrued interest is reversed or written off against interest income in a timely manner.

A reserve for unfunded commitments is established for off-balance sheet exposures such as unfunded balances for existing lines of credit, commitments to have anextend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e. commitment cannot be canceled at any time). These unfunded commitments are assessed to determine both the probability of funding as well the expectation of zero losses and therefore have no initial impact at adoption.

Upon adoption, BancShares recorded a net decrease of relevant economic conditions and other factors. Bancshares intends to use a two-year reasonable and supportable forecast period that incorporates one economic forecast, with a 12-month straight-line reversion period to historical averages. The outstanding loans are bifurcated between commercial and non-commercial portfolios and then further segmented into pools with similar risk characteristics. The commercial portfolio, comprising$37.9 million in the majority of Bancshares’ total loans, primarily consists of loans with short contractual maturities that are expected to result inACL which included a reduction toof $56.9 million in the allowance for credit losses. This reduction is expected to be partiallyACL on non-PCD loans, offset by an increase of $19.0 million in the allowance for credit lossesACL on PCD loans. The $56.9 million reduction in the non-commercial portfolio given its longer contractual maturities. The Company is still evaluating the credit loss models for purchase credit impairedACL on non-PCD loans, (PCI) to determine the appropriate amount required to be added to the allowance for credit losses.

BancShares adopted this ASU using the prospective transition approach for PCD loans previously accounted for under ASC 310-30. In accordance with the standard, we did not assess whether purchased credit impaired (“PCI”) loans met the criteria of PCD as of the date of adoption and all loans previously classified as PCI were updated to the PCD classification. Pools utilized for PCI accounting under ASC 310-30 were dissolved upon adoption. Loans from performing PCI pools, not previously considered nonaccrual of $47.0 million, were reclassified into nonaccrual status as a result of adoption. PCD loans were assessed using the loan level probability of default and loss given default models, usedas well as utilizing prior specific loan reviews to inform the initial PCD loan ACL. The ACL for PCD loans increased as a result of adoption and forecaststhe amortized cost basis of these loans was adjusted to reflect the transfer of this amount from credit discount to ACL. The remaining noncredit discount will be accreted into interest income at the effective interest rate as of January 1, 2020. At the date of adoption, no securities were determined to be PCD.

This ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by eliminating the requirement to disclose the amounts in place at that time. Based on current factors, the overall allowance for credit losses isaccumulated other comprehensive income expected to decrease in aggregate, butbe recognized as components of net periodic benefit cost over the magnitudenext fiscal year and adding a requirement to disclose an explanation of the change is not anticipatedreasons for significant gains and losses related to be materialchanges in relation to total assets, retained earnings or regulatory capital.the benefit obligation for the period.

On September 24, 2019, FCBOctober 15, 2020, BancShares and Community Financial Holding Co.CIT Group Inc. (Community Financial), a Delaware corporation (“CIT”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among BancShares, FCB, FC Merger Subsidiary IX, Inc., a definitive merger agreement fordirect, wholly owned subsidiary of FCB (“Merger Sub”), and CIT, the acquisition by FCBparent company of Duluth, Georgia-based Community Financial and its bank subsidiary, Gwinnett Community Bank. UnderCIT Bank, N.A., a national banking association (“CIT Bank”). Pursuant to the terms of the agreement, total cash consideration of $2.3 million will paid to the shareholders of Community Financial. The transaction is anticipated to close during the first quarter of 2020,and subject to the receiptconditions set forth in the Merger Agreement, Merger Sub will merge with and into CIT, with CIT as the surviving entity (the “First-Step Merger”), and as soon as reasonably practicable following the effective time of regulatory approvalsthe First-Step Merger, CIT will merge with and into FCB, with FCB as the satisfactionsurviving entity (together with the First-Step Merger, the “Mergers”). The Merger Agreement further provides that immediately following the consummation of otherthe Mergers, CIT Bank will merge with and into FCB, with FCB as the surviving bank (together with the Mergers, the “Transaction”).

The Merger Agreement was unanimously approved by the Board of Directors of each of BancShares and CIT. Subject to the fulfillment of customary closing conditions. Asconditions, the parties anticipate that the Transaction will close in the first half of September 30, 2019, Community Financial reported $223.5 million in consolidated assets, $211.3 million in deposits and $147.0 million in loans.2021.

In addition, at the Effective Time, each share of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share, of CIT and 5.625% Non-Cumulative Perpetual Preferred Stock, Series B, par value $0.01 per share, of CIT issued and outstanding will automatically be converted into the right to receive one share of a cash payment. newly created series of preferred stock, Series B, of BancShares and one share of a newly created series of preferred stock, Series C, of BancShares, respectively.

The total transaction value is estimated to be approximately $219.8 million. The transaction is anticipated to close during the fourth quarter of 2019 or first quarter of 2020, subject to the receipt of regulatory approvals and the satisfaction of other customary closing conditions. FCB will be required to divest certain branches or other assets and liabilities in order to obtain regulatory approval for the transactions contemplated by the merger agreement. Any divestiture plan is subject to approval by the Federal Reserve Board in conjunction with the Department of Justice and has not been finalizedMerger Agreement requires that, effective as of the dateEffective Time, the Boards of this filing. As of September 30, 2019, Entegra Bank reported $1.70 billion in total assets, $1.28 billion in deposits and $1.09 billion in loans.