Contract analysis

I. PRELIMINARY STATEMENT Calderwood & Harkness LLP represents Belmont Ridge Bank National Association ("BRB" or the "Bank") in connection with the above-referenced investigation, File No. HO-14287, conducted pursuant to Formal Order of Investigation No. EN-2023-0947. BRB respectfully submits this Wells Submission in response to the notification the Bank received on March 8, 2024 from Branch Chief Renata Moss and Assi

II. FACTUAL BACKGROUND A. BRB and the BridgeFin Division Belmont Ridge Bank National Association is a national banking association organized under the laws of the United States, headquartered at 200 Park Avenue South, 38th Floor, New York, New York 10003. The Bank's common stock is listed on the Nasdaq Stock Market under the ticker symbol "BRDG." BRB holds OCC Charter No. 24891 and is supervised by the Office of the

1. The risk analytics team generates the quantitative model outputs, including vintage-level loss rates, projected cumulative losses, and the resulting quantitative ACL estimate for each product segment.

2. The Chief Accounting Officer, Raymond Hu, reviews the model outputs, evaluates the proposed qualitative overlay adjustments, and prepares the recommended ACL for management approval.

3. The Chief Risk Officer, Annette Kowalski, independently reviews the credit-quality inputs, delinquency data, and loss-rate trends that feed the model, and provides her concurrence or recommendations for adjustment.

4. The Chief Financial Officer, Patricia Navarrete, reviews the recommended ACL in the context of the Bank's overall financial reporting, including its effect on the provision for credit losses, net income, and regulatory capital ratios.

5. The Audit Committee of the Board of Directors, chaired by independent director Gwendolyn Prescott, receives a quarterly presentation from management on credit quality, ACL methodology, and the basis for the period's ACL estimate. The Audit Committee reviews and approves the ACL as part of its oversight of the Bank's financial reporting process. This multi-layered governance process was in place and operating effec

III. LEGAL STANDARDS A. Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 13a-1 and 12b-20

Section 13(a) of the Exchange Act, 15 U.S.C. § 78m(a), requires every issuer of a security registered under Section 12 of the Exchange Act to file periodic and other reports with the Commission in conformity with the Commission's rules and regulations. Rule 13a-1, 17 C.F.R. § 240.13a-1, implements this requirement by mandating the filing of annual reports on Form 10-K. Similarly, Rule 13a-13 requires the filing of qu

Section 13(b)(2)(A) of the Exchange Act, 15 U.S.C. § 78m(b)(2)(A), requires every issuer 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." This provision was enacted as part of the Foreign Corrupt Practices Act of 1977 but has been broadly construed to apply to any failure to maintain accurate book

1. Whether the misstatement arises from an item capable of precise measurement or from an estimate and, if so, the degree of imprecision inherent in the estimate. The alleged understatement arises entirely from a difference in the estimation methodology for expected credit losses under CECL—an inherently imprecise exercise that the FASB and the Commission have acknowledged involves significant judgment and a range of

2. Whether the misstatement masks a change in earnings or other trends. BRB's overall profitability was robust and transparent. The Bank's pre-tax income of $612 million and net income of $471.2 million for FY 2022 were clearly disclosed, and there was no attempt to mask a deterioration in earnings performance or a change in earnings trends.

3. Whether the misstatement hides a failure to meet analysts' consensus expectations. The $37.3 million difference was below any single analyst's forecast variance for BRB's provision expense. BRB's reported earnings per share of $6.14 exceeded the consensus analyst estimate at the time of filing.

4. Whether the misstatement changes a loss into income or vice versa. It does not. BRB was solidly profitable in FY 2022 under either methodology.

5. Whether the misstatement concerns a segment or other portion of the registrant's business that has been identified as playing a significant role in the registrant's operations or profitability. While BridgeFin is a growing division, the $37.3 million difference represents less than 0.10% of BRB's total assets and approximately 0.93% of shareholders' equity. These percentages are well below any conventional materia

6. Whether the misstatement affects the registrant's compliance with regulatory requirements. The alleged understatement had no effect on BRB's regulatory capital compliance. The Bank's Tier 1 capital ratio of 11.4% was well in excess of the "well capitalized" threshold, and a $37.3 million increase in the ACL (and corresponding reduction in equity) would have had a de minimis effect on the capital ratio.

7. Whether the misstatement affects the registrant's compliance with loan covenants or other contractual requirements. BRB has identified no loan covenants or other contractual obligations that would have been triggered or affected by the alleged understatement.

8. Whether the misstatement has the effect of increasing management's compensation. There is no evidence that the ACL treatment had any effect on management compensation. BRB's executive compensation is determined by the Compensation Committee of the Board based on range performance metrics, and the ACL for a single portfolio segment is not a direct input to compensation determinations.

9. Whether the misstatement involves concealment of an unlawful transaction. There is no allegation or evidence of any unlawful transaction. In sum, the quantitative exceedance is marginal—$6.7 million above the threshold in absolute terms, or approximately 1.1% of pre-tax income—and every relevant qualitative factor weighs against a finding of materiality. Under the SAB No. 99 framework, the alleged understatement i

IV. ARGUMENT A. BRB's CECL Methodology Was Reasonable and Within the Range of Acceptable Estimates Under ASC 326 The Staff's potential recommendation rests on the premise that BRB's reported ACL of $143.5 million for the BridgeFin portfolio was materially understated. As demonstrated below, however, BRB's ACL estimate was reasonable, was produced by an appropriate methodology, was supported by robust internal governa