Contract analysis

I. Executive Summary This joint attorney work-product memorandum has been prepared by Calderwood & Harkness LLP ("Calderwood & Harkness" or "Firm") and Brindoval Analytic Partners LLC ("Brindoval") to analyze the reasonableness of Belmont Ridge Bank National Association's ("BRB" or the "Bank") allowance for credit losses ("ACL") methodology as applied to the BridgeFin digital lending portfolio (the "BridgeFin Portfol

II. Background A. Belmont Ridge Bank NA — Overview Belmont Ridge Bank National Association is a national banking association organized and existing under the laws of the United States, operating pursuant to Charter No. 24891 issued by the Office of the Comptroller of the Currency ("OCC"). The Bank is headquartered at 200 Park Avenue South, 38th Floor, New York, New York 10003. BRB operates as a wholly owned subsidiar

1. Unsecured Personal Loans. Consumer personal loans originated through BridgeFin's online and mobile application platforms, with an average loan size of approximately $18,400. These loans are typically offered with fixed interest rates and terms ranging from 24 to 60 months. Borrower eligibility and pricing are determined through a proprietary AI-driven underwriting model (the "BridgeFin Underwriting Engine") that e

2. Small-Business Microloans. Unsecured and lightly secured microloans extended to small businesses and sole proprietors, with an average loan size of approximately $42,000 and terms generally ranging from 12 to 36 months. These loans are also originated through digital channels and evaluated by the BridgeFin Underwriting Engine, with additional business-specific financial data incorporated into the credit decision.

III. Framework: CECL (ASC 326) and Applicable Accounting Standards A. Overview of ASC 326 — Financial Instruments: Credit Losses The current expected credit losses model, codified at ASC 326, Financial Instruments — Credit Losses, was issued by the Financial Accounting Standards Board ("FASB") in June 2016 as Accounting Standards Update ("ASU") 2016-13. ASC 326 fundamentally altered the accounting for credit losses o

IV. BRB's CECL Model — Structure and Key Inputs A. Model Architecture BRB's CECL model for the BridgeFin Portfolio is a vintage-cohort loss-rate model that incorporates three primary segmentation dimensions:

1. Product Type. Loans are first segmented by product type: unsecured consumer personal loans and small-business microloans. This segmentation reflects the distinct risk characteristics, borrower profiles, and loss behaviors of the two product lines.

2. Origination Quarter (Vintage). Within each product type, loans are grouped into vintage cohorts based on the quarter in which they were originated. Each vintage cohort tracks the performance of all loans originated during a given quarter, allowing the model to observe and compare loss emergence patterns across cohorts and over time.

3. Internal Credit-Risk Grade. Within each vintage cohort, loans are further stratified by the internal credit-risk grade assigned at origination by the BridgeFin Underwriting Engine. The AI-driven underwriting model assigns each loan a numeric risk score (on a scale of 1 to 10, with 1 being the highest credit quality and 10 being the lowest), which is mapped to one of five risk-grade categories: Prime (scores 1–2),

V. SEC Staff's Preliminary View — Analysis and Response A. Staff's Contention Through investigative correspondence dated November 14, 2023 and supplemented by Staff Accountant Diane Milosevic's written analysis provided to Calderwood & Harkness on November 28, 2023 (the "Staff Analysis"), the SEC Staff has communicated its preliminary view that BRB's ACL for the BridgeFin Portfolio should have been approximately $180

1. Vintage Retention for Modified Loans. The Staff contends that the 12,847 modified BridgeFin loans ($236.4 million in aggregate outstanding balance) should have been retained in their original vintage delinquency buckets for loss-rate estimation purposes, rather than reclassified to "current" status and migrated to a new MC cohort. The Staff's position is that the pre-modification delinquency history of these loans

2. Recalculated Delinquency and Charge-Off Metrics. Under the Staff's vintage-retention approach, the BridgeFin Portfolio's key credit-quality metrics would be recalculated as follows:

3. Alleged Masking of Credit Deterioration. The Staff further contends that BRB's re-aging practice had the effect of masking deteriorating credit-quality trends in the BridgeFin Portfolio, particularly in the earlier vintages (Q3 2020 through Q4 2021) that had experienced the highest delinquency rates. By removing the most troubled loans from these vintages and reclassifying them as "current," BRB's model allegedly

4. Disclosure Deficiency. The Staff has also raised concerns that BRB's FY 2022 Form 10-K and Q1-Q2 2023 Forms 10-Q did not adequately disclose the magnitude of the re-aging practice or its impact on reported credit-quality metrics, thereby depriving investors of material information necessary to evaluate the BridgeFin Portfolio's credit risk. We address each of these contentions below and in the sections that follow

VI. Peer Bank Comparison A. Methodology To provide additional context for the reasonableness of BRB's ACL methodology and reported coverage ratio, Brindoval identified and analyzed a peer group of twelve financial institutions with significant digital or fintech-originated consumer lending portfolios and comparable CECL disclosures. Peer institutions were selected based on the following criteria: (i) publicly traded