Contract analysis

I. EXECUTIVE SUMMARY Calderwood & Harkness LLP ("C&H" or the "Firm") was engaged on September 20, 2023, by Belmont Ridge Bank National Association ("BRB" or the "Bank"), a Nasdaq-listed (ticker: BRDG) national banking association (OCC Charter No. 24891) headquartered at 200 Park Avenue South, 38th Floor, New York, New York 10003, in connection with an inquiry by the Division of Enforcement of the United States Securi

II. BACKGROUND ON BELMONT RIDGE BANK NA AND BRIDGEFIN A. BRB Corporate Overview Belmont Ridge Bank National Association is a national banking association organized and existing under the laws of the United States, chartered by the Office of the Comptroller of the Currency ("OCC") under Charter No. 24891. The Bank's principal executive offices are located at 200 Park Avenue South, 38th Floor, New York, New York 10003.

1. Unsecured Personal Loans: Consumer installment loans originated through BridgeFin's mobile application and web platform, with an average loan size of approximately $18,400. These loans are typically extended to borrowers with near-prime to prime credit profiles, with stated terms generally ranging from 24 to 60 months.

2. Small-Business Microloans: Working capital and small-business purpose loans originated to sole proprietors and small businesses, with an average loan size of approximately $42,000. These microloans are generally underwritten using a combination of traditional financial statement analysis and BridgeFin's proprietary AI-driven underwriting model, with terms generally ranging from 12 to 36 months. BridgeFin's princip

III. ANALYSIS OF THE VOLUNTARY REQUEST LETTER A. Scope and Specific Document Requests The Voluntary Request Letter sets forth approximately fifteen (15) categories of documents and information that the SEC Staff has requested from BRB. These categories are broad in scope and collectively encompass the full spectrum of documentation that would be relevant to an evaluation of BRB's ACL methodology, the accuracy of its

1. CECL Model Documentation: All documentation relating to BRB's CECL model for the BridgeFin loan portfolio, including the model's design specifications, assumptions, inputs, and outputs, as well as all model validation reports and model risk management assessments conducted during the relevant period.

2. ACL Calculation Workpapers: All workpapers, spreadsheets, memoranda, and supporting documentation relating to the calculation of BRB's allowance for credit losses for the BridgeFin portfolio for fiscal year 2022 and the first and second quarters of fiscal year 2023, including all quantitative analyses, qualitative factor assessments, and management overlay adjustments.

3. BridgeFin Loan-Level Data: Comprehensive loan-level data for the BridgeFin portfolio, including vintage cohort performance data, delinquency aging schedules, modification histories, re-aging records, and information regarding BRB's policies and procedures for the modification and re-aging of delinquent loans within the BridgeFin portfolio.

4. Internal Credit Risk Committee Materials: All minutes, agendas, presentations, reports, and supporting materials from meetings of BRB's internal credit risk committee (or any similarly constituted body with oversight responsibility for credit risk in the BridgeFin portfolio) during the relevant period.

5. Communications with Auditor Regarding ACL: All communications — whether oral or written — between BRB management and Whitfield Keane LLP regarding the Bank's ACL estimates, CECL methodology, credit loss assumptions, and related accounting judgments for the BridgeFin portfolio during the relevant period, including but not limited to management representation letters, audit inquiry response letters, and any communic

6. Board and Audit Committee Materials: All board of directors and Audit Committee minutes, agendas, presentations, and reports relating to credit risk, credit quality trends, and the allowance for credit losses for the BridgeFin portfolio during the relevant period.

7. SOX Certification Packages: All sub-certification packages and supporting documentation prepared in connection with the Sarbanes-Oxley Act Section 302 and Section 906 certifications executed by BRB's CEO and CFO for the FY 2022 Form 10-K and the Q1 and Q2 2023 Forms 10-Q, including any questionnaires, checklists, and disclosure committee materials.

8. OCC Communications: All communications with the Office of the Comptroller of the Currency regarding BridgeFin credit quality, the BridgeFin loan portfolio, or BRB's allowance for credit losses for BridgeFin during the relevant period, including OCC examination reports, matters requiring attention ("MRAs"), and related correspondence. The remaining categories encompass additional supporting documentation, including

IV. POTENTIAL ENFORCEMENT THEORIES Based on our analysis of the Voluntary Request Letter and the scope of the Staff's inquiry, the following are the principal enforcement theories that the SEC Staff may be evaluating. We address each in turn, including an assessment of the elements of each potential claim and the likely factual predicates the Staff would need to establish. A. Section 13(a) of the Securities Exchange

Section 13(a) of the Exchange Act, 15 U.S.C. § 78m(a), requires every issuer of a security registered pursuant to Section 12 of the Exchange Act to file with the Commission such periodic reports as the Commission shall prescribe by rule. BRB's common stock is registered under Section 12(b) of the Exchange Act by virtue of its listing on the Nasdaq Stock Market, and BRB is therefore subject to the periodic reporting r

Section 13(b)(2)(A) of the Exchange Act, 15 U.S.C. § 78m(b)(2)(A), requires every issuer with securities registered pursuant to Section 12 to "make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer." The Staff could contend that BRB's internal ACL calculations and supporting workpapers — the "books, records,

V. KEY FACTUAL AND ACCOUNTING ISSUES A. The ACL Dispute — BRB's Reported Figures vs. SEC Staff's Likely Concerns The substantive core of the SEC's inquiry is the adequacy of BRB's allowance for credit losses for the BridgeFin loan portfolio. As reported in BRB's FY 2022 Form 10-K, the key credit quality and loss reserve metrics for BridgeFin were as follows: We anticipate that the SEC Staff will scrutinize whether th

VI. MATERIALITY ANALYSIS Materiality is the threshold question for any SEC enforcement action based on alleged misstatements in periodic filings. Under the Supreme Court's articulation in TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976), and Basic Inc. v. Levinson, 485 U.S. 224 (1988), a fact is material if there is a substantial likelihood that a reasonable investor would consider it important in making a

VII. PRELIMINARY DEFENSE STRATEGY A. Cooperation Posture As discussed in Section III.B above, we recommend that BRB adopt a posture of full and proactive cooperation with the SEC Staff throughout this investigation. This recommendation is consistent with BRB's obligations as a publicly traded national bank, its institutional interest in maintaining a constructive relationship with its securities regulators, and the w