Contract analysis

I. Introduction and Purpose of This Report A. Engagement and Scope Brindoval Analytic Partners LLC ("Brindoval") was retained by Calderwood & Harkness LLP ("Calderwood & Harkness"), counsel for Belmont Ridge Bank National Association ("BRB" or the "Bank"), pursuant to an engagement letter dated October 10, 2023. The engagement was executed under the Kovel doctrine and the protections afforded by the attorney work-pro

1. BRB's reported ACL of $143.5 million (3.50% of $4.1 billion in outstanding BridgeFin loans as of December 31, 2022) falls within the reasonable range of estimates permissible under ASC 326 (Financial Instruments — Credit Losses), commonly referred to as CECL. BRB's vintage-cohort loss-rate methodology, its qualitative factor overlays, and its underlying assumptions were reasonable, internally consistent, and appro

2. BRB's treatment of 12,847 re-aged/modified loans with an aggregate outstanding principal balance of $236.4 million was methodologically supportable and consistent with OCC supervisory guidance. BRB's practice of reclassifying modified loans that demonstrated sustained re-performance (defined as three consecutive on-time payments) from their original delinquency cohorts to performing cohorts was grounded in empiric

3. The SEC Staff's preliminary view that the ACL should have been approximately $180.8 million (4.41% of outstanding BridgeFin loans) reflects an alternative but not exclusively correct methodological approach. The $37.3 million difference between the Staff's preliminary figure and BRB's reported ACL ($180.8 million minus $143.5 million) reflects the inherent range of reasonable estimates under CECL and the exercise

4. BRB's reported net charge-off rate of 2.14% is supportable under BRB's methodology. The Staff's alternative figure of approximately 3.05% results from a different treatment of re-aged loan vintages and does not invalidate BRB's approach. BRB's reported figure accurately reflects the actual credit losses realized during the reporting period.

5. BRB's 90+ day delinquency rate of 1.72%, as reported in the FY 2022 10-K, reflects standard banking-industry practice of classifying loans based on current payment status at the reporting date. The Staff's alternative figure of 2.38% retroactively imputes delinquency to loans that were performing as of the balance-sheet date.

6. There is no basis to conclude that BRB's ACL judgments were made other than in good faith by qualified professionals operating within established internal controls and subject to external audit oversight. BRB's methodology, assumptions, and resulting estimates were reviewed and approved by the ACL Governance Committee, the Chief Financial Officer, the Board Audit Committee, and BRB's independent external auditor.

7. Peer comparison analysis confirms that BRB's ACL coverage ratio, charge-off rates, and delinquency metrics fall within the interquartile range of similarly situated digital-lending banks, further supporting the reasonableness of BRB's estimates. C. Materials Reviewed In forming my opinions, I reviewed and considered, among other things, the following materials: • BRB's Form 10-K for the fiscal year ended December

II. Background: Belmont Ridge Bank and the BridgeFin Portfolio A. Overview of BRB Belmont Ridge Bank National Association is a national banking association organized and existing under the laws of the United States, operating under OCC Charter No. 24891. The Bank is headquartered at 200 Park Avenue South, 38th Floor, New York, New York 10003. BRB's common stock is publicly traded on the Nasdaq Stock Market under the

III. Applicable Accounting Framework: ASC 326 (CECL) A. Overview of CECL ASC 326, Financial Instruments — Credit Losses, was promulgated by the Financial Accounting Standards Board ("FASB") through Accounting Standards Update No. 2016-13, Measurement of Credit Losses on Financial Instruments (the "CECL Standard"), issued on June 16, 2016. The CECL Standard became effective for SEC filing entities for fiscal years beg

IV. BRB's ACL Methodology for the BridgeFin Portfolio A. Vintage-Cohort Loss-Rate Model — Structure BRB's ACL for the BridgeFin Portfolio was calculated using a vintage-cohort loss-rate model. The model segments the portfolio into quarterly origination vintage cohorts based on the quarter in which each loan was originated. Because the BridgeFin division launched in Q3 2020 and the analysis date is December 31, 2022,

V. Analysis of SEC Staff's Preliminary View A. Staff's Alternative Methodology Based on my review of the Staff's preliminary analysis, as communicated during the Wells process, I understand that Staff Accountant Diane Milosevic and her colleagues contend that BRB's treatment of the 12,847 re-aged/modified loans ($236.4 million in aggregate outstanding principal balance) was improper and that those loans should have r

1. ASC 326 Permits Multiple Approaches to Modified Loan Treatment The CECL Standard does not mandate a specific treatment for modified or re-aged loans within loss-rate estimation models. The standard's principles-based framework requires entities to measure expected credit losses based on the best available information, using reasonable and supportable judgments, but it does not prescribe the mechanical steps by whi

2. BRB's Re-Aging Practice Was Data-Driven BRB's decision to reclassify re-performing modified loans was not based on intuition, convenience, or a desire to minimize the ACL. It was grounded in rigorous empirical analysis of borrower behavior. As discussed in Section IV.B above, BRB's internal analysis demonstrated that modified loans with three consecutive on-time payments had a 12-month re-default rate of approxima

3. OCC Supervisory Guidance Supports BRB's Approach The OCC Comptroller's Handbook — Allowance for Credit Losses provides guidance on the estimation of credit losses for national banks and federal savings associations. While the Handbook does not have the force of an accounting standard, it reflects the OCC's supervisory expectations for how banks should implement CECL and is relevant to assessing the reasonableness

4. The Staff's Methodology Overstates Losses Finally, I note that the Staff's alternative methodology—retaining re-aged loans in their original distressed vintage for loss-rate projection purposes—introduces a systematic upward bias into the ACL estimate. Under the Staff's approach, the original vintage loss rate already reflects the proportion of loans in that vintage that became delinquent. By retaining re-aged loa

VI. Comparison of BRB's Net Charge-Off Rate: 2.14% vs. Staff's 3.05% A. Derivation of BRB's 2.14% Net Charge-Off Rate BRB calculated the net charge-off rate for the BridgeFin Portfolio for fiscal year 2022 by dividing total net charge-offs (gross charge-offs less recoveries) by the average outstanding loan balance for the year. This is the standard methodology for calculating net charge-off rates in the banking indus

VII. 90+ Day Delinquency Rate Analysis: 1.72% vs. 2.38% A. BRB's Reported 1.72% BRB reported a 90+ day delinquency rate for the BridgeFin Portfolio of 1.72% as of December 31, 2022. This rate was calculated by dividing the aggregate outstanding principal balance of BridgeFin loans that were 90 or more days past due as of the reporting date by the total outstanding principal balance of the BridgeFin Portfolio ($4.1 bi

VIII. Peer Comparison Analysis A. Methodology To provide context for evaluating the reasonableness of BRB's ACL and credit metrics, Brindoval identified and analyzed 12 peer institutions with digital-lending platforms of comparable scale, product mix, and vintage. Peer institutions were selected based on the following criteria: (a) Portfolio scale: Outstanding digital-lending loan portfolios between $1.5 billion and