Contract analysis

I. Executive Summary The purpose of this memorandum is to provide the Audit Committee of the Board of Directors of Belmont Ridge Bank National Association ("BRB" or the "Bank") with a comprehensive final report on the investigation conducted by the Division of Enforcement (the "Staff") of the U.S. Securities and Exchange Commission (the "SEC" or the "Commission") into BRB's public disclosures regarding the allowance

II. Background A. Belmont Ridge Bank NA — Overview Belmont Ridge Bank National Association is a national banking association chartered by the Office of the Comptroller of the Currency under OCC Charter No. 24891. BRB's common stock is listed on the Nasdaq Stock Market under the ticker symbol "BRDG." The Bank is headquartered at 200 Park Avenue South, 38th Floor, New York, NY 10003. As of December 31, 2022, BRB report

III. Chronology of the Investigation The following section provides a detailed chronological account of the SEC investigation from the pre-investigation period through the termination letter. A full chronological timeline in tabular format is maintained in the matter file and cross-referenced as Appendix A to this memorandum. A. Pre-Investigation Period (Through September 17, 2023) BRB's fiscal year 2022 ended on Dec

1. Document Subpoena and Production Protocol On October 15, 2023, the SEC issued a document subpoena to BRB (Subpoena No. HO-14287-001), requiring the production of documents relating to a broad range of topics including, without limitation, BRB's CECL methodology, BridgeFin loan-level data, loan modification and re-aging policies and procedures, internal credit-quality reports, communications between BRB management

2. Document Productions BRB produced documents in six rolling productions over the course of approximately four months: The total production comprised approximately 1.42 million pages of documents. The productions encompassed internal memoranda, email communications, board and committee materials, CECL model documentation, loan-level data extracts, credit-quality dashboards and reports, auditor communications, and re

3. Privilege Log C&H prepared and submitted a privilege log identifying 1,847 documents that were withheld in whole or redacted in part on the basis of the attorney-client privilege, the work-product doctrine, and/or the bank-examination privilege. The privilege log was submitted on a rolling basis in connection with the document productions and was finalized concurrently with the final production on March 1, 2024. T

4. Testimony Subpoenas and Investigative Testimony The SEC Staff issued testimony subpoenas to two BRB officers during the formal investigation phase: • November 22, 2023: Testimony subpoena issued to Patricia Navarrete, Chief Financial Officer. • December 5, 2023: Testimony subpoena issued to Naveen Chakravarti, Senior Vice President and BridgeFin Division Head. A third witness, Raymond Hu, Chief Accounting Officer,

5. Internal Analysis and Audit Committee Reporting On December 22, 2023, C&H and Brindoval completed a joint attorney work-product memorandum analyzing BRB's CECL methodology in detail. The memorandum concluded that BRB's vintage-cohort approach, including the treatment of re-aged/modified loans, fell within the range of reasonable estimates permitted under ASC 326, though it identified certain areas where documentat

1. Wells Call On March 8, 2024, Branch Chief Renata Moss and Assistant Director Gregory Bonham conducted a Wells call with Victoria Chambers and Jasmine Thornton of Calderwood & Harkness. During the call, the Staff advised that it was considering recommending that the Commission authorize an enforcement action against Belmont Ridge Bank NA for violations of Sections 13(a) and 13(b)(2)(A) of the Securities Exchange Ac

2. Internal Strategy and Audit Committee Authorization On March 10, 2024, C&H prepared an internal analysis memorandum assessing the Wells notice, evaluating the strength of the Staff's position, and outlining potential response strategies, including a detailed risk matrix weighing the probability of various outcomes and a litigation-cost projection comparing the costs and risks of contesting an enforcement action ve

3. Extension of Deadline C&H requested an extension of the Wells Submission deadline from March 29, 2024 to April 5, 2024, to allow sufficient time to finalize the Brindoval expert report and compile supporting exhibits. The SEC Staff granted the requested extension.

4. Wells Submission On April 5, 2024, C&H filed a comprehensive Wells Submission on behalf of BRB. The submission was 42 pages in length and was accompanied by seven exhibits (Exhibits A through G). The principal arguments advanced in the Wells Submission were as follows: (a) Reasonableness of CECL Methodology. BRB's vintage-cohort approach to CECL estimation, including the treatment of re-aged and modified loans, wa

5. Supplemental Letter On April 22, 2024, C&H transmitted a supplemental letter to the SEC Staff providing updated credit-quality data for the BridgeFin portfolio as of the fourth quarter of 2023. The supplemental data demonstrated improving credit metrics: the 90+ day delinquency rate had declined to 1.48%, and BRB had voluntarily increased its BridgeFin ACL to $156.2 million in its FY 2023 Form 10-K, filed with the

IV. Analysis of Key Factors Contributing to Favorable Outcome The favorable termination of the investigation without any enforcement action was the product of several interrelated factors. C&H believes it is important for the Audit Committee to understand these factors both to appreciate the strength of BRB's position and to identify areas where the Bank's practices can be further fortified to minimize the risk of fu

V. Financial Summary of the Investigation A. Legal Fees and Costs Total defense costs incurred in connection with the SEC investigation amounted to $4,466,022, broken down as follows:

1. Calderwood & Harkness LLP Calderwood & Harkness's total fees for the engagement were $3,847,622, reflecting 5,614.5 total billable hours across the engagement team. The fee breakdown by timekeeper is as follows: Pursuant to the fee arrangement between BRB and Calderwood & Harkness, gross fees were subject to a negotiated fee cap that produced a 19.3% reduction from the gross amount. Accordingly, the total invoiced

2. Brindoval Analytic Partners LLC Brindoval Analytic Partners' fees for forensic accounting analysis and the preparation of the expert report totaled $618,400. Dr. Franklin Osei served as the lead engagement partner, and his team performed detailed analyses of BRB's CECL model, the BridgeFin portfolio's credit-quality data, the re-aging treatment, qualitative overlay adjustments, and the peer comparison.

3. Total Defense Costs B. D&O Insurance Recovery BRB's D&O insurance claim was tendered to Northcastle Mutual Assurance Company on October 5, 2023, under Policy No. NMA-DO-2023-11847. After review by claims counsel Thornfield & Rowe LLP (Brenda Alvaro), Northcastle Mutual acknowledged coverage for defense costs under the entity coverage provisions of the policy, subject to the $2,500,000 entity retention. The D&O rec

VI. Lessons Learned While the investigation resulted in a fully favorable outcome, it nonetheless exposed several areas where BRB's practices and procedures can be strengthened. The Audit Committee should consider these lessons learned in conjunction with the specific recommendations set forth in Section VII below. A. CECL Methodology Documentation The investigation exposed the need for more robust contemporaneous do

VII. Recommended Enhancements to Disclosure Controls and Procedures Based on the lessons learned from the investigation and the analysis set forth above, Calderwood & Harkness recommends that the Audit Committee consider adopting the following enhancements to BRB's disclosure controls and procedures, CECL model governance, and regulatory-inquiry response infrastructure. An implementation timeline with suggested respo

1. Quarterly CECL Model Review Committee. BRB should establish a formal quarterly CECL Model Review Committee, chaired jointly by the Chief Risk Officer (Annette Kowalski) and the Chief Accounting Officer (Raymond Hu), with a dedicated mandate to review and document key estimation judgments made in the ACL estimation process. The Committee's charter should specifically require the review and documentation of decision

2. Written Memoranda for Qualitative Overlay Adjustments. BRB should require that all material qualitative overlay adjustments to the ACL be supported by written memoranda prepared by the relevant subject-matter experts and signed off by both the CRO and the CAO. Each memorandum should document the nature and magnitude of the adjustment, the analytical basis for the adjustment, the alternatives considered, and the ra

3. Independent Model Validation. BRB should implement independent model validation of the BridgeFin CECL sub-model on an annual basis, engaging an external model risk advisor. This validation should be conducted in addition to — and independently of — the OCC-mandated model risk management reviews. The independent validation should assess the conceptual soundness of the model, the appropriateness of the model's assum

1. Vintage-Level Delinquency Disclosures. BRB should maintain the vintage-level delinquency disclosure format introduced in the Q3 2023 Form 10-Q as a permanent feature of all future Forms 10-K and 10-Q. This disclosure provides investors with the granularity necessary to assess the credit quality of the BridgeFin portfolio at the vintage-cohort level and directly addresses the type of transparency concern that motiv

2. Expanded MD&A Discussion. BRB should include in each periodic filing an expanded MD&A discussion of BridgeFin credit-quality trends, loan modification and re-aging activity (including both the number of loans modified/re-aged and the aggregate dollar volume), and net charge-off rates broken down by vintage cohort. This expanded discussion should provide investors with a clear understanding of the dynamics driving

3. CECL Model Methodology Disclosure. BRB should add explicit disclosure of the methodology used to treat modified loans in the CECL model, including whether delinquency clocks are reset upon modification and the accounting rationale for the selected treatment. This disclosure should appear in the critical accounting estimates section of the MD&A and should be reviewed and updated quarterly to reflect any changes in

1. Automated Data Feed. BRB should establish a direct, automated data feed from BridgeFin's credit analytics platform to BRB's centralized ACL estimation system. This automated feed should reduce or eliminate the lag between real-time BridgeFin credit data and the quarterly ACL estimation inputs, ensuring that the ACL estimation process is informed by the most current credit-quality information available.

2. Division Head Certification. BRB should require the BridgeFin Division Head to certify, on a quarterly basis, the accuracy and completeness of the credit-quality data submissions provided to the centralized accounting team for use in the ACL estimation process. This certification should be documented in writing and retained as part of the ACL governance record. D. Regulatory Inquiry Escalation Protocol

1. Written Escalation Protocol. BRB should develop a formal, written escalation protocol for the receipt of any SEC, OCC, or other regulatory inquiry. The protocol should require immediate notification of the General Counsel (Derek Sung), the Chair of the Audit Committee, and outside investigation counsel upon receipt of any voluntary request letter, formal subpoena, comment letter, or other communication from a regu

2. Pre-Designation of Investigation Counsel. BRB should pre-designate investigation counsel for SEC enforcement matters. Currently, Calderwood & Harkness LLP serves in this capacity. Pre-designation will avoid any delay in the initial response to a regulatory inquiry and will ensure that investigation counsel is engaged from the earliest possible moment, facilitating privilege protection and strategic coordination. E

1. Enterprise-Wide Litigation Hold Management System. BRB should implement an enterprise-wide litigation hold management system with automated hold-notice distribution, acknowledgment tracking, and periodic compliance reminders. Such a system will ensure that document-preservation obligations are communicated promptly and comprehensively to all relevant custodians and that compliance with litigation holds is monitore

2. Communication Segregation Protocols. BRB should establish clear email and communication protocols to segregate privileged attorney-client communications from business-as-usual communications, particularly with respect to communications between BRB personnel and Whitfield Keane LLP or any successor independent auditor. These protocols should include the use of dedicated communication channels (e.g., separate email

3. Annual Privilege Training. BRB should provide annual training to all BRB officers and relevant personnel on privilege concepts, including the attorney-client privilege, the work-product doctrine, and the bank-examination privilege, as well as document-retention obligations. The training should emphasize the importance of maintaining the confidentiality of privileged communications, the risks of inadvertent waiver,

1. Standing Quarterly Reporting. BRB should institute standing quarterly reporting from the General Counsel to the Audit Committee on any pending or threatened regulatory inquiries, including SEC, OCC, FDIC, or other governmental investigations, examinations, or enforcement proceedings. This reporting should occur as a standing agenda item at each regular quarterly meeting of the Audit Committee and should include a

2. Five-Business-Day Briefing Trigger. BRB should adopt a policy requiring that any SEC Staff comment, voluntary request letter, or formal inquiry trigger a briefing to the Audit Committee within five business days of receipt. This policy will ensure that the Audit Committee is informed of potential regulatory matters at the earliest practicable time and is positioned to exercise its oversight function effectively. G

1. Semi-Annual Peer Benchmarking. BRB should institute a semi-annual peer benchmarking analysis of BridgeFin's ACL coverage ratio, charge-off rates, and delinquency disclosures against comparable digital-lending institutions. This analysis should be conducted by the Chief Risk Officer's team, in consultation with outside advisors as appropriate, and should be presented to the Audit Committee. The purpose of the bench

VIII. Residual Considerations A. Statute of Limitations No tolling agreement was executed at any point during the investigation. The five-year statute of limitations under 28 U.S.C. § 2462 applies to the relevant filings. The earliest of the filings at issue — the FY 2022 Form 10-K — was filed on February 28, 2023, and