Contract analysis

I. Executive Summary Raymond Hu, Chief Accounting Officer of Belmont Ridge Bank National Association ("BRB" or the "Bank"), testified under oath on February 14, 2024, before staff of the United States Securities and Exchange Commission ("SEC") Division of Enforcement, pursuant to the Formal Order of Investigation No. EN-2023-0947 (the "Formal Order"). The testimony was conducted at the SEC Division of Enforcement off

II. Witness Background and Preparation A. Professional Background Raymond Hu has served as Chief Accounting Officer of BRB since June 2019. Prior to joining BRB, Hu spent fourteen years at Whitfield Keane LLP (PCAOB Registration No. 2847), BRB's independent auditor, where he held positions of increasing responsibility within the firm's audit practice. During his tenure at Whitfield Keane, Hu rose to the level of Seni

1. CECL model architecture and documentation — A comprehensive review of BRB's CECL model, including the probability-of-default / loss-given-default ("PD/LGD") framework, vintage-cohort segmentation methodology, and the specific parameters and assumptions applied to the BridgeFin portfolio.

2. Vintage cohort treatment and re-aging/modification practices — Detailed discussion of BRB's accounting treatment for modified and re-aged BridgeFin loans, including the reassignment of modified loans to new vintage cohorts, the rationale for this treatment, and the documentary support in BRB's model governance materials.

3. Quarterly true-up procedures and qualitative overlay adjustments — Review of BRB's process for quarterly recalibration of the CECL model, including the role of the Credit Loss Estimation Committee, the qualitative overlay factors applied, and the magnitude of overlay adjustments in the relevant periods.

4. Communications with Whitfield Keane LLP — Discussion of the cadence and substance of Hu's interactions with Whitfield Keane LLP engagement partner Lorraine Dupont and her audit team, particularly with respect to the FY 2022 year-end audit and the interim reviews for Q1 and Q2 2023.

5. Anticipated SEC focus areas — Identification of likely Staff focus areas based on the questioning observed during the Navarrete testimony (January 18, 2024) and the Chakravarti testimony (January 30, 2024), including the re-aging issue, the limited historical loss data for BridgeFin, the macroeconomic scenario weightings, and the potential materiality of the ACL difference.

6. Document familiarity — Review of key documents from BRB's production that we anticipated the Staff would use as exhibits during the testimony, including model governance memoranda, Credit Loss Estimation Committee meeting minutes, qualitative overlay documentation, and selected email communications. During the preparation sessions, Hu was reminded of the Upjohn admonitions — specifically, that Calderwood & Harknes

III. Summary of Testimony — Key Topics and Q&A The following is a detailed summary of the testimony organized by substantive topic area. The summary is based on the contemporaneous notes taken by Liam Donahue during the testimony and supplemented by the recollections of Victoria Chambers and Jasmine Thornton. This summary does not purport to be a verbatim transcript and should be supplemented and, where necessary, co

1. Model Governance Framework. BRB maintains a formal model governance framework, overseen by the Credit Loss Estimation Committee (chaired by Chief Risk Officer Annette Kowalski), that establishes policies and procedures for the development, validation, monitoring, and use of the CECL model. The framework includes requirements for documentation of model assumptions, approval of parameter changes, and periodic backte

2. Independent Model Validation. BRB's internal model risk management team conducts an annual independent validation of the CECL model. The validation is performed by personnel independent of the credit analytics team that builds and operates the model. Validation results are reported to the Credit Loss Estimation Committee and the Audit Committee.

3. Segregation of Duties. Hu described the segregation of duties between BridgeFin loan operations (managed by Naveen Chakravarti's team) and accounting/ACL estimation (managed by Hu's team). He explained that the individuals responsible for originating and servicing BridgeFin loans are different from the individuals responsible for estimating the ACL, and that this segregation is designed to ensure that operational

4. Audit Committee Oversight. The Audit Committee, chaired by Gwendolyn Prescott, receives quarterly reports on the ACL methodology, model outputs, qualitative overlays, and any significant changes to assumptions. The Audit Committee also meets periodically with Whitfield Keane LLP without management present. Hu confirmed that BRB's management assessment of ICFR for FY 2022, as reported in the Form 10-K, identified n

IV. Assessment of SEC Staff's Focus and Understanding Based on the questioning observed during Hu's testimony, and considered in light of the two prior testimonies, the following assessment of the Staff's investigative focus and current understanding is offered: Diane Milosevic's Technical Proficiency. Milosevic demonstrated a strong and detailed understanding of ASC 326 / CECL mechanics, vintage-cohort modeling tech

V. Witness Performance and Credibility Assessment Hu was an excellent witness. He was measured in his pace, precise in his language, and technically fluent in a manner that was authoritative without being condescending or evasive. His fourteen years at Whitfield Keane LLP — including extensive experience with financial institution audits and credit-loss accounting — were clearly evident in his command of the relevant

VI. Comparison with Prior Witness Testimonies A principal objective in preparing for Hu's testimony was to ensure consistency across the three investigative testimonies. Having now completed all three, we assess the testimonies to be fully consistent and mutually reinforcing. The key points of comparison are as follows: Patricia Navarrete (January 18, 2024). Navarrete testified to the CFO-level oversight of the ACL e

VII. Implications for Defense Strategy Hu's testimony reinforces and strengthens the core defense position that BRB's reported ACL of $143.5 million for the BridgeFin portfolio as of December 31, 2022, reflected a reasonable exercise of management judgment under ASC 326, even if the Staff believes that a higher figure — specifically, $180.8 million, or $37.3 million more — would have been more appropriate. The defens

VIII. Open Items and Next Steps The following items require attention in the near term:

1. Transcript Review. Request and review the transcript of Hu's testimony upon availability from the court reporter. Compare the transcript against Liam Donahue's contemporaneous notes for any discrepancies or areas where corrections may be appropriate. Submit any necessary corrections in accordance with the SEC's standard transcript correction procedures. Responsible: Liam Donahue. Target: Upon receipt of transcript

2. Final Document Production. Finalize the sixth and final rolling document production to the SEC, which is scheduled for completion on March 1, 2024. The final production will encompass approximately 38,912 documents. Coordinate with BRB's e-discovery vendor (Axion Data Solutions) and BRB's internal IT and legal teams to ensure timely completion. Responsible: Liam Donahue (coordination); Jasmine Thornton (review and

3. Interim Status Memorandum to Client. Prepare an interim status memorandum for Audit Committee Chair Gwendolyn Prescott and General Counsel Derek Sung, incorporating findings and assessments from all three investigative testimonies (Navarrete, Chakravarti, Hu). The memorandum should provide a consolidated assessment of the Staff's investigative focus, the consistency of the testimony record, the anticipated enforce

4. Brindoval Analytic Partners Expert Report. Continue coordinating with Brindoval Analytic Partners (Dr. Franklin Osei) on the forensic accounting analysis and expert report. In light of Milosevic's questioning, the expert engagement should place particular emphasis on: (a) the vintage-cohort sensitivity analysis demonstrating BRB's ACL within a reasonable range of estimates under alternative re-aging assumptions; (

5. Wells Submission Preparation. Continue preparation of the Wells Submission in parallel. The submission should be substantially drafted and ready for finalization promptly upon receipt of the anticipated Wells call. The submission should incorporate the key defense themes reinforced by the three testimonies, the Brindoval expert analysis, and any additional arguments identified through ongoing research and analysis