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Basis of Presentation | 9 Months Ended
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Sep. 30, 2023
Accounting Policies [Abstract] |
Basis of Presentation | Basis of Presentation The consolidated financial statements include the accounts of Shore Bancshares, Inc. and its subsidiaries with all significant intercompany transactions eliminated. The consolidated financial statements conform to accounting principles generally accepted in the United States of America (“GAAP”) and to prevailing practices within the banking industry. The accompanying interim financial statements are unaudited; however, in the opinion of management all adjustments necessary to present fairly the consolidated financial position at September 30, 2023, the consolidated results of income and comprehensive income for the three and nine months ended September 30, 2023 and 2022, changes in stockholders’ equity for the three and nine months ended September 30, 2023 and 2022 and cash flows for the nine months ended September 30, 2023 and 2022, have been included. All such adjustments were of a normal recurring nature. The amounts as of December 31, 2022 were derived from the 2022 audited financial statements. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for any other interim period or for the full year. This Quarterly Report on Form 10-Q/A (the “Amended Quarterly Report” or “10-Q/A”) to the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (the “SEC”) on November 14, 2023 (the “Original Quarterly Report”) should be read in conjunction with the Annual Report of Shore Bancshares, Inc. on Form 10-K for the year ended December 31, 2022. For purposes of comparability, certain immaterial reclassifications have been made to amounts previously reported to conform with the current period presentation. When used in these notes, the term the “Company” refers to Shore Bancshares, Inc. and, unless the context requires otherwise, its consolidated subsidiaries, Shore United Bank, N.A. (the “Bank”) and Mid-Maryland Title Company, Inc. (the “Title Company”). Note 1A. Restatement of Previously Issued Financial Statements The Company has restated previously issued financial statements and related disclosures as of and for the three and nine months ended September 30, 2023 (the “Unaudited Financial Statements”) included in the Original Quarterly Report. The applicable Notes to Condensed Financial Statements were also updated to reflect the restatement. Impact of Restatement On December 13, 2023, the Company determined that the error in the Company’s Unaudited Financial Statements was due to improper recording of net deferred tax assets attributable to the Company’s acquisition of The Community Financial Corporation (“TCFC”) on July 1, 2023 (the “Merger”). This error resulted in an overstatement of $3.4 million of the reported bargain purchase gain for the three and nine months ended September 30, 2023 and the balance of deferred tax assets initially recorded in the acquisition of TCFC. This error did not have a material impact on the reported income tax provisions for either the three- or nine-month periods ended September 30, 2023, as the bargain purchase gain was treated as a non-taxable item. This error did have corresponding effects on the Consolidated Balance Sheets, Consolidated Statements of Income/(Loss), Consolidated Statements of Comprehensive Income/(Loss), Consolidated Statements of Changes in Stockholders’ Equity, and the Consolidated Statements of Cash Flows as of and for the three and nine months ended September 30, 2023. As more fully described in Part I, Item 4 of this Amended Quarterly Report, and discussed in the Explanatory Note of this Form 10-Q/A the Company’s management concluded that as a result of the error our disclosure controls and procedures were not effective at the reasonable assurance level at September 30, 2023 and that a material weakness existed at September 30, 2023. 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. 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. 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. The following tables reflect the impact of the restatement adjustments to the specific line items presented in our previously reported Unaudited Financial Statements for the periods indicated, except for the Consolidated Statements of Changes in Stockholders’ Equity since the impact is reflected in the Consolidated Balance Sheet. The amounts originally reported were derived from the Original Quarterly Report (in thousands, except per share amounts):
Condensed Consolidated Balance Sheet (Unaudited) |  | September 30, 2023
|  | As Originally Reported |  | Adjustments |  | As Restated
Assets |  |  |  |  |  |
Deferred income taxes |  | $ | 48,699 |  |  | $ | (3,353) |  |  | $ | 45,346 |
Total assets |  | 5,708,725 |  |  | (3,353) |  |  | 5,705,372 |
Liabilities and Stockholders' Equity |  |  |  |  |  |
Retained earnings |  | 159,134 |  |  | (3,353) |  |  | 155,781 |
Total stockholders' equity |  | 504,931 |  |  | (3,353) |  |  | 501,578 |
Total liabilities and stockholders' equity |  | 5,708,725 |  |  | (3,353) |  |  | 5,705,372 |
Condensed Consolidated Statement of (Loss)/Income (Unaudited) |  | Three Months Ended September 30, 2023
|  | As Originally Reported |  | Adjustments |  | As Restated
Noninterest Income |  |  |  |  |  |
Bargain purchase gain |  | $ | 12,169 |  |  | $ | (3,353) |  |  | $ | 8,816 |
Total noninterest income |  | 18,337 |  |  | (3,353) |  |  | 14,984 |
Loss before income taxes |  | (11,375) |  |  | (3,353) |  |  | (14,728) |
Net loss |  | (6,384) |  |  | (3,353) |  |  | (9,737) |
Basic and diluted net loss per common share |  | (0.19) |  |  | (0.10) |  |  | (0.29) |
Condensed Consolidated Statement of (Loss)/Income (Unaudited) |  | Nine Months Ended September 30, 2023
|  | As Originally Reported |  | Adjustments |  | As Restated
Noninterest Income |  |  |  |  |  |
Bargain purchase gain |  | $ | 12,169 |  |  | $ | (3,353) |  |  | $ | 8,816 |
Total noninterest income |  | 28,966 |  |  | (3,353) |  |  | 25,613 |
Loss before income taxes |  | 3,031 |  |  | (3,353) |  |  | (322) |
Net income |  | 4,091 |  |  | (3,353) |  |  | 738 |
Basic and diluted net income per common share |  | 0.17 |  |  | (0.14) |  |  | 0.03 |
Condensed Consolidated Statement of Comprehensive (Loss)/Income (Unaudited) |  | Three Months Ended September 30, 2023
|  | As Originally Reported |  | Adjustments |  | As Restated
Net loss |  | $ | (6,384) |  |  | $ | (3,353) |  |  | $ | (9,737) |
Comprehensive loss |  | (7,932) |  |  | (3,353) |  |  | (11,285) |
Condensed Consolidated Statement of Comprehensive (Loss)/Income (Unaudited) |  | Nine Months Ended September 30, 2023
|  | As Originally Reported |  | Adjustments |  | As Restated
Net income |  | $ | 4,091 |  |  | $ | (3,353) |  |  | $ | 738 |
Comprehensive income/(loss) |  | 3,003 |  |  | (3,353) |  |  | (350) |
Condensed Consolidated Statement of Cash Flows (Unaudited) |  | Nine Months Ended September 30, 2023
|  | As Originally Reported |  | Adjustments |  | As Restated
Cash flows from operating activities: |  |  |  |  |  |
Net income |  | $ | 4,091 |  |  | $ | (3,353) |  |  | $ | 738 |
Bargain purchase gain |  | (12,169) |  |  | 3,353 |  |  | (8,816) |
Net cash used in operating activities |  | (13,356) |  |  | — |  |  | (13,356) |
Pending Recent Accounting Standards ASU No. 2022-03 - In June 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company does not expect the adoption of ASU 2022-03 to have a material impact on its consolidated financial statements.

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- Definition The entire disclosure for the basis of presentation and significant accounting policies concepts. Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS). Accounting policies describe all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 235 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//235/tableOfContent + Details
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