Contract analysis

I. Executive Summary Calderwood & Harkness LLP ("C&H" or "the Firm") was retained on September 20, 2023 to represent Belmont Ridge Bank National Association ("BRB" or the "Bank") (Nasdaq: BRDG) in connection with an inquiry initiated by the Division of Enforcement (the "Division" or "Enforcement") of the U.S. Securities and Exchange Commission (the "SEC" or the "Commission") into BRB's public disclosures concerning t

II. Background: BRB and the BridgeFin Portfolio A. The Bank Belmont Ridge Bank National Association is a national banking association organized and existing under the laws of the United States, operating under Office of the Comptroller of the Currency ("OCC") Charter No. 24891. The Bank's principal executive offices are located at 200 Park Avenue South, 38th Floor, New York, NY 10003. BRB operates 127 retail banking

III. The SEC Inquiry A. Voluntary Request Letter The Voluntary Request was dated September 18, 2023 and was received by Caldwell Pratt & Stein LLP on the same date. CPS promptly forwarded the letter to BRB General Counsel Derek Sung, who in turn communicated the matter to CEO Marcus Ellingham and Audit Committee Chair Gwendolyn Prescott. The Voluntary Request was issued by Senior Staff Attorney Andrea Felton of the D

IV. Potential Legal Exposure A. Statutory and Regulatory Framework The Staff's inquiry implicates several provisions of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules promulgated thereunder. Based on the nature and scope of the Voluntary Request, the most directly relevant provisions are as follows:

Section 13(a) of the Exchange Act (15 U.S.C. § 78m(a)). Section 13(a) requires every issuer of a security registered under Section 12 of the Exchange Act to file with the Commission, in accordance with such rules and regulations as the Commission may prescribe, such annual reports, quarterly reports, and other periodic reports as the Commission may require. BRB's common stock is registered under Section 12, and the B

Section 13(b)(2)(A) of the Exchange Act (15 U.S.C. § 78m(b)(2)(A)). Section 13(b)(2)(A) requires every issuer that has a class of securities registered under 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. If BRB's internal books and records — including the CECL model outputs, loss-rate c

1. No Action. The Staff concludes, following its review of documents and analysis, that BRB's CECL methodology was within the range of reasonable judgments under ASC 326, and that the reported ACL was not materially misstated. The investigation is terminated with no further action. This outcome would be reflected in a closing letter from the Staff (or, more commonly in recent practice, a verbal notification that the

2. Staff Comment / No Formal Action. The Staff determines that certain aspects of BRB's ACL methodology or disclosure practices could be improved, and issues informal guidance or comments to that effect, but does not pursue formal enforcement action. This outcome may be accompanied by a request that BRB enhance its disclosures in future filings or make prospective changes to its CECL model.

3. Cease-and-Desist Proceeding. The Staff recommends, and the Commission authorizes, an administrative proceeding under Section 21C of the Exchange Act seeking a cease-and-desist order directing BRB to cease and desist from committing or causing violations of Sections 13(a) and/or 13(b)(2)(A). Such a proceeding could result in prospective relief (i.e., an order prohibiting future violations) and could also involve th

4. Civil Injunctive Action. In a more aggressive posture, the Staff could recommend, and the Commission could authorize, a civil action in federal court seeking a permanent injunction against future violations and the imposition of civil penalties. This outcome is less likely in a non-scienter case involving accounting estimates, but cannot be entirely excluded if the Staff develops evidence suggesting intentional ma

5. Monetary Penalties. Across the range of enforcement outcomes involving formal action (scenarios 3 and 4 above), civil penalties for non-scienter-based Section 13 violations can range from approximately $10,000 to several million dollars per violation under the current penalty tiers, which are adjusted periodically for inflation. In recent enforcement actions involving books-and-records violations by financial inst

V. Engagement of Calderwood & Harkness and Related Advisors A. Calderwood & Harkness LLP Engagement Calderwood & Harkness LLP was retained on September 20, 2023 as defense counsel for BRB the entity in connection with SEC Investigation File No. HO-14287. The engagement has been assigned C&H Matter No. SC-MAT-2023-4172. The C&H team assigned to this matter includes the following attorneys: The fee arrangement provides

VI. D&O Insurance Coverage BRB maintains directors' and officers' liability insurance (the "D&O Program") to protect the Bank, its directors, and its officers against liability arising from claims alleging wrongful acts in their capacities as such. The D&O Program is structured as a tower of coverage consisting of a primary layer and one excess layer, as summarized below: The combined D&O tower thus provides aggregat

VII. Privilege and Confidentiality Considerations The preservation of applicable privileges and the maintenance of confidentiality are of paramount importance throughout the course of this investigation. An inadvertent disclosure of privileged information could result in a waiver of privilege with respect to the disclosed materials — and potentially related materials — significantly undermining the Bank's defense pos

VIII. Recommended Course of Action A. Immediate Steps (Completed or In Progress) Based on our assessment of the investigation and the applicable legal and practical considerations, C&H has taken or is in the process of taking the following immediate steps:

1. Engagement and Upjohn Protocols. C&H's engagement as defense counsel was completed on September 20, 2023. Upjohn corporate-client protocols have been established and documented, and the form Upjohn warning for employee interviews has been prepared and approved by Mr. Sung.

2. Litigation Hold. A comprehensive litigation hold and document preservation memorandum was issued to all relevant BRB custodians on September 22, 2023. Confirmation of receipt and compliance has been obtained from all custodians, and IT department coordination for the suspension of automatic deletion protocols is complete.

3. Initial Response to SEC Staff. C&H has prepared an initial response letter to the SEC Staff, to be transmitted on or about September 29, 2023. The letter will (a) formally enter C&H's appearance as counsel for BRB in connection with SEC Investigation File No. HO-14287; (b) confirm that BRB intends to cooperate with the Staff's inquiry; and (c) request a meet-and-confer to discuss the scope, custodians, date ranges

4. D&O Insurance Tender. C&H has prepared a formal tender letter to Northcastle Mutual Assurance Company, tendering the SEC investigation as a "Claim" under BRB's primary D&O policy. The tender letter is expected to be transmitted on or about October 5, 2023.

5. Brindoval Analytic Partners Engagement. C&H has initiated the engagement of Brindoval Analytic Partners LLC as a forensic accounting consultant. The engagement letter is expected to be executed on or about October 10, 2023, and Brindoval is prepared to commence its analysis promptly thereafter. B. Near-Term Steps (October–November 2023) In the October through November 2023 timeframe, C&H plans to undertake the fol

1. Internal Fact-Gathering. Conduct interviews of key BRB personnel — including Ms. Navarrete, Mr. Hu, Mr. Chakravarti, and Ms. Kowalski — under Upjohn protocols to develop a thorough understanding of the ACL estimation process, the re-aging policies and their rationale, the internal deliberations regarding the treatment of modified loans, and any internal concerns or dissenting views that may have been expressed reg

2. Document Collection and Privilege Review. Commence systematic collection of potentially responsive documents from the identified custodians and data repositories. C&H will oversee the collection, processing, and review of documents, including the application of search terms and other culling methodologies, and will conduct a privilege review to identify and withhold privileged and work-product-protected materials.

3. Staff Engagement. Engage with the SEC Staff — initially through the meet-and-confer requested in C&H's initial response letter, and thereafter through ongoing dialogue — to negotiate the scope of the investigation, the number and identity of custodians, the applicable date ranges, the production format (including any requirements for structured data or database productions), and the timeline for rolling production

4. Forensic Accounting Analysis. Work with Brindoval Analytic Partners to conduct a rigorous, independent analysis of BRB's CECL model and the BridgeFin loss-rate modeling. This analysis will include a review of the model's inputs, assumptions, and outputs; an assessment of the reasonableness of the re-aging treatment under applicable accounting standards and regulatory guidance; a recalculation of the ACL under alte

5. Coordination with Auditor's Counsel. Through appropriate channels and subject to the privilege protocols discussed in Section VII above, coordinate with Hargrove & Millstein LLP (counsel to Whitfield Keane) to ensure that BRB's and Whitfield Keane's positions are aligned to the extent appropriate, while maintaining the independence of each party's legal strategy and defense. C&H will evaluate whether a common-inte

6. Monitoring for Formal Order. Continuously monitor for any indication that the Staff is seeking or has obtained a Formal Order of Investigation from the Commission. A Formal Order would expand the Staff's authority to issue subpoenas for documents and testimony and could signal an escalation of the investigation. C&H will promptly notify the Audit Committee and Mr. Sung if a Formal Order is issued. C. Ongoing Oblig

1. Regular Updates to the Audit Committee. C&H will provide regular updates to the Audit Committee regarding the status of the investigation, any significant developments, and any changes in our assessment of the Bank's legal exposure. Updates will be provided at least quarterly, or more frequently as developments warrant. Updates will be delivered through secure, privilege-protected channels, and written reports wil

2. Public Disclosure Considerations. BRB should carefully evaluate whether the existence of the SEC investigation triggers any public disclosure obligations. Specifically, the Bank should consider whether an immediate report on Form 8-K is warranted and, in any event, whether the risk factors section or legal proceedings disclosure in the Bank's next periodic report (the Q3 2023 10-Q, expected to be filed in November