What changed in this filing

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Item 4. Controls and Procedures

2023-12-22 compared with 2013-12-30 · 28 added, 19 removed, 8 unchanged (85% of the section changed)

Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that Shore Bancshares, Inc.

files under the Securities Exchange Act of 1934 with the SEC, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in those rules and forms, and that such information is accumulated and communicated to management, including Shore Bancshares, Inc.’s principal executive officer (“CEO”) and its principal accounting officer (“PAO”), as appropriate, to allow for timely decisions regarding required disclosure.

Item 4 – Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) with the SEC, such as this Amended Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in those rules and forms, and that such information is accumulated and communicated to management, including Shore Bancshares, Inc.’s principal executive officer (“PEO”) and its principal financial officer (“PFO”), as appropriate, to allow for timely decisions regarding required disclosure.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

3 unchanged sentences

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions;

over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

Prior to November 14, 2013, an evaluation of the effectiveness of these disclosure controls as of September 30, 2013 was carried out under the supervision and with the participation of management, including the CEO and the PAO.

Based on that evaluation, management, including the CEO and the PAO, concluded and disclosed in the original report to which this amendment relates that our disclosure controls and procedures were, in fact, effective at the reasonable assurance level.

As discussed in the Explanatory Note to this amended report and in Note 14 to the financial statements presented herein, however, management subsequently became aware that income taxes receivable did not reflect what the Company would receive through carryback claims.

In light of this discovery, our disclosure controls and procedures as of September 30, 2013 have since been re-evaluated under the supervision and with the participation of management, including the CEO and the PAO.

Based on such re-evaluation, such officers have now determined that our disclosure controls and procedures were not, in fact, effective at the reasonable assurance level as of September 30, 2013.

Management has taken steps which it believes will ensure, to the extent reasonably possible, that this type of error will not occur in the future.

There was no change in our internal control over financial reporting during the third quarter of 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

An evaluation of the effectiveness of these disclosure controls and procedures as of September 30, 2023 was carried out under the supervision and with the participation of management, including the PEO and the PFO.

Based on the evaluation at the time of the Company’s Original Quarterly Report, the Company’s management, including the PEO and the PFO, concluded that our disclosure controls and procedures were, in fact, effective at the reasonable assurance level at September 30, 2023.

Subsequent to that evaluation and as a result of the identification of the material weakness in the Company’s internal control over financial reporting as further discussed in the Explanatory Note of this Form 10-Q/A and below in this Part I, Item 4, the Company’s management, including the PEO and PFO, concluded that our disclosure controls and procedures were not effective at the reasonable assurance level at September 30, 2023.

Material Weakness in Internal Control Over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

In connection with the evaluation of the error identified in the Company’s Unaudited Financial Statements and restatement of the Unaudited Financial Statements, as more fully described in the Explanatory Note of this Form 10-Q/A and Note 1A.

Restatement of Previously Issued Financial Statements of the Notes to the consolidated financial statements included in Part I, Item 1 of this Amended Quarterly Report, the Company’s management concluded that a material weakness in the Company’s internal control over financial reporting existed as of September 30, 2023.

Specifically, the Company did not maintain effective controls over the recording of the net deferred tax assets attributable to the merger and failed to detect the misstatement due to the non-performance of a quarterly book to tax roll-forward reconciliation.

The roll-forward reconciliation includes a review of the activity that occurs between beginning and ending book and tax basis differences, including acquired basis differences and other current period changes.

Management’s performance of a roll-forward reconciliation subsequent to the filing of the Original Quarterly Report confirmed that had this key control been in place on a quarterly basis for the three months ended September 30, 2023, and been properly executed the misstatement would have been timely identified prior to the filing of the Original Quarterly Report.

Accordingly, the Company’s management has determined that the Company’s financial reporting controls and procedures were not operating effectively for the quarter ended September 30, 2023.

Remediation Plan to Address the Material Weakness

Management, with the oversight of the Audit Committee, is actively engaged in remediating the material weakness in internal control over financial reporting that existed as of September 30, 2023.

The misstatement in the recording of the net deferred tax assets attributable to the merger was identified prior to the Company’s annual year-end roll-forward reconciliation and review of book to tax basis differences in the Company’s deferred tax asset and liability categories.

The year-end reconciliation and review have been an established and effective key control designed to ensure deferred tax basis items are properly recorded.

Due to the significance of the merger, which required the

addition of deferred tax items, the Company should have performed this key control in the third quarter when the merger was consummated.

Beginning in the fourth quarter of 2023, management has revised the frequency of the roll-forward reconciliation and review control from an annual key control to a quarterly key control.

Management believes this change in the design of the control of performing a quarterly reconciliation of deferred tax book/tax basis differences will remediate future quarter material weaknesses in our deferred tax control procedures.

The weakness will be considered remediated when management has concluded, through testing, that the quarterly reconciliation of book to tax basis differences in the Company’s deferred tax assets and liabilities is operating effectively.

Management intends to report the results of the quarterly roll-forward reconciliation and review to the Audit Committee for the period ended December 31, 2023 and assess the status of the remediation plan.

Changes in Internal Control Over Financial Reporting

Other than the material weakness and remediation plan discussed above, there were no changes in our internal control over financial reporting (as such term is defined by Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Legal Proceedings

Item 1 – Legal Proceedings

From time to time the Company may become involved in legal proceedings.

At the present time, there are no proceedings which the Company believes will have a material adverse impact on the financial condition or earnings of the Company.

The risks and uncertainties to which our financial condition and operations are subject are discussed in detail in Item 1A of Part I of the Annual Report of Shore Bancshares, Inc.

on Form 10-K for the year ended December 31, 2012.

Management does not believe that any material changes in our risk factors have occurred since they were last disclosed.

Unregistered Sales of Equity Securities and Use of Proceeds

Defaults Upon Senior Securities

Mine Safety Disclosures

Not Applicable

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q/A

Item 4. Controls and Procedures