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Item 9A. Controls and Procedures

2025-03-10 compared with 2024-03-15 · 31 added, 51 removed, 133 unchanged (38% of the section changed)

9 unchanged sentences

An evaluation of the effectiveness of these disclosure controls and procedures as of December 31, 2024 was carried out under the supervision and with the participation of management, including the PEO and the PFO.

Based on the evaluation, the Company’s management, including the PEO and the PFO, concluded that our disclosure controls and procedures were not effective at the reasonable assurance level at December 31, 2023 due to a material weakness in the Company’s internal control over financial reporting described below.

Material Weaknesses in Internal Control Over Financial Reporting

Management assessed the Company’s system of internal control over financial reporting as of December 31, 2023 This assessment was conducted based on the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission “Internal Control – Integrated Framework (2013).” Based on this assessment, management has concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2023 due to the material weaknesses identified below.

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.

Management identified a material weakness associated with ineffective input review controls relating to specific aspects of the Company’s ACL model and previously disclosed a material weakness in relation to deferred income taxes discussed in Part I, Item 4 of the Company’s Form 10-Q/A for the quarter ended September 30, 2023 (the “amended Form 10-Q”).

Concerning the identified material weakness with respect to the ACL, management has concluded that the issue resulted from an insufficient validation of key loan payment and projected historical loss variable inputs in the post-merger ACL model.

The lack of sufficient data validation did not require a restatement of previously reported ACL balances, nor did it materially impact the December 31, 2023 ACL balance.

Concerning the material weakness identified in the Company’s amended Form 10-Q, management has concluded that the issue resulted from not performing a key control that was previously only performed in the fourth quarter on annual basis, which was 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.

Management concluded that the Company should have performed this key control in the third quarter of 2023 when the merger was consummated.

Remediation Plan to Address the Material Weaknesses

Management, with the oversight of the Audit Committee, is actively engaged in remediating the material weaknesses in internal control over financial reporting that existed as of December 31, 2023.

In response to the material weaknesses identified above, the Company is in the process of implementing changes to its internal control over financial reporting.

Specifically in relation to the allowance for credit losses, management is in the process of completing a detailed inventory covering select inputs to the allowance for credit losses calculation, a re-evaluation of SOX control design and operation, and determine the appropriate frequency and precision of controls to ensure all significant inputs to the allowance for credit losses calculation are addressed.

management expects to conduct a detailed data audit to effectively ensure the completeness and accuracy of select inputs to the allowance for credit losses calculation.

Specifically, in relation to the Company’s remediation plan for the error in deferred taxes, management has continued to follow the remediation plans outlined in the Company’s amended Form 10-Q.

This plan includes a quarterly reconciliation of book to tax basis differences to ensure deferred tax basis items are properly recorded.

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

Management will consider the material weaknesses remediated once the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

We expect that the remediation of the allowance for credit losses material weakness will be completed prior to the end of 2024.

We expect that the remediation of the deferred tax material weakness will be completed with the filing of the Company’s 10-Q for quarter ended March 31, 2024.

Based on the evaluation, the Company’s management, including the PEO and the PFO, concluded that our disclosure controls and procedures were effective at the reasonable assurance level at December 31, 2024.

Changes in Internal Control Over Financial Reporting

Except as described above, there was no change in the Company’s 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 fourth quarter of 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

There was no change in the Company’s 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 fourth quarter of 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

As required by Section 404 of the Sarbanes-Oxley Act of 2002, management has performed an evaluation and testing of the Company’s internal control over financial reporting as of December 31, 2024.

Management’s report on the Company’s internal control over financial reporting is included in Item 8 of Part II of this Annual Report on Form 10-K.

Yount, Hyde & Barbour, P.C.

the independent registered public accounting firm that audited the Company’s financial statements included in this Annual Report on Form 10-K, issued an audit report on the Company’s internal control over financial reporting as of December 31, 2023.

Such attestation report expresses an adverse opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023 and is included in Item 8 of Part II of this Annual Report on Form 10-K.

Management’s report on the Company’s internal control over financial reporting is included in Part II, Item 8.

of this Annual Report on Form 10-K.

Crowe, LLP, the independent registered public accounting firm that audited the Company’s financial statements included in this Annual Report on Form 10-K, issued an audit report on the Company’s internal control over financial reporting as of December 31, 2024.

Such attestation report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024 is included in Part II, Item 8.

of this Annual Report on Form 10-K.

OTHER INFORMATION

During the fourth quarter of 2023, no officer or director of the Company adopted or terminated any contract, instruction, or written plan for the purchase or sale of securities of the Company’s common stock that is intended to satisfy the affirmative defense conditions of Securities Exchange Act Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement as defined in 17 CFR § 229.408(c).

During three months ended December 31, 2024, no officer or director of the Company adopted or terminated any contract, instruction, or written plan for the purchase or sale of securities of the Company’s common stock that is intended to satisfy the affirmative defense conditions of Securities Exchange Act Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement as defined in 17 CFR § 229.408(c).

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

18 unchanged sentences

(a)(1), (2) and (c) Financial statements and schedules:

Report of Independent Registered Public Accounting Firm 64

Reports of Crowe LLP, Independent Registered Public Accounting Firm 62

Report of Yount, Hyde & Barbour, P.C., Independent Registered Public Accounting Firm 64

Consolidated Balance Sheets at December 31, 2024 and 2023

16 unchanged sentences

Articles Supplementary relating to the reclassification of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, as common stock (incorporated by reference Exhibit 3.1(i) of the Company’s Form 8-K filed on June 17, 2009 ).

3.2 Second Amended and Restated By-Laws, dated July 1, 2023 (incorporated by reference to Exhibit 3.2 of the Company’s Form 8-K filed on July 3, 2023)

4.1 Description of Registrant’s Securities (filed herewith)

3.2 Second Amended and Restated By-Laws (incorporated by reference to Exhibit 3.2 of the Company’s Form 10 - Q filed on August 9 , 202 4 ).

4.1 Description of Registrant’s Securities ( incorporated by reference to Exhibit 4.1 of the Company ’ s Form 10-K filed on March 15, 202 4 ).

4.2 Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Company’s Form S-3 filed on June 25, 2010 ).

16 unchanged sentences

10.11 Supplemental Executive Retirement Plan for Lloyd L.

(Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on July 25, 2019).

( i ncorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on July 25, 2019).

10.12 Supplemental Executive Retirement Plan for Donna J.

Stevens (Incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on July 25, 2019).

Stevens ( i ncorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on July 25, 2019).

10.13 2019 Deferred Compensation Plan (incorporated by reference to Exhibit 10.16 to the Company’s Form 10-K filed on March 13, 2020).

12 unchanged sentences

10.21 The Community Financial Corporation 2015 Equity Compensation Plan (as assumed by the Company effective July 3, 2023) (incorporated by reference to Appendix A in the Definitive Proxy Statement of The Community Financial Corporation filed with the Commission on March 25, 2015 ).

10.22 Change in Control Agreement, dated November 22, 2021, by and between Vance W.

Adkins and Shore Bancshares, Inc.

(incorporated by reference to Exhibit 10.18 of the Company Annual Report on Form 10-K for the year ended December 31, 2022)

10.22 First Amendment to Supplemental Executive Retirement Plan for Donna J.

Stevens (filed herewith ).

19 Insider Trading Policy (filed herewith ).

21 Subsidiaries of the Company (included in the “BUSINESS—General” section of Item 1 of Part I of this Annual Report on Form 10-K ).

23.1 Consent of Crowe LLP.

23.2 Consent of Yount, Hyde & Barbour, P.C.

(filed herewith)

31.1 Certifications of the PEO pursuant to Section 302 of the Sarbanes-Oxley Act (filed herewith ).

2 unchanged sentences

97.0 Shore Bancshares, Inc.

C lawba ck Policy (filed here with)

Clawback Policy ( incorporated by reference to Exhi bit 9 7.0 of the Company ’ s Form 10-K filed on March 15, 2024).

101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).

35 unchanged sentences

March 10, 2025 March 10, 2025

Mason, III /s/ James A.

Mason, III, Director James A.

Judge, Director

March 15, 2024 March 15, 2024

/s/ William E.

Esham, III /s/ Konrad M.

Esham, Director Konrad M.

Mason, III /s/ Konrad M.

Mason, III, Director Konrad M.

Wayson, Director

March 10, 2025 March 10, 2025

/s/ Esther A.

Streete /s/ Louis P.

Streete, Director Louis P.

/s/ William E.

Esham, III /s/ Louis P.

Esham, Director Louis P.

Jenkins, Jr., Director

March 10, 2025 March 10, 2025

/s/ Rebecca Middleton McDonald /s/ Mary Todd Peterson

Rebecca Middleton McDonald, CPA, Director Mary Todd Peterson, Director

/s/ Esther A.

Streete /s/ Rebecca Middleton McDonald

Streete, Director Rebecca Middleton McDonald, CPA, Director

March 10, 2025 March 10, 2025

Larry Sanders, III /s/ Joseph V.

Larry Sanders, III, Director Joseph V.

Stone, Jr., Director

/s/ Mary Todd Peterson /s/ E.

Larry Sanders, III

Mary Todd Peterson, Director E.

Larry Sanders, III, Director

March 10, 2025 March 10, 2025

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-K

Item 9A. Controls and Procedures