Contract analysis

I. Executive Summary Raymond Hu, Chief Accounting Officer of Belmont Ridge Bank National Association ("BRB" or the "Bank"), is scheduled to provide investigative testimony before the Staff of the Division of Enforcement of the U.S. Securities and Exchange Commission ("SEC" or the "Commission") on February 14, 2024, at 9:30 a.m. EST. This testimony is being conducted pursuant to the Formal Order of Investigation No. E

II. Background on the Witness A. Professional Background Full Name: Raymond Hu Current Title: Chief Accounting Officer, Belmont Ridge Bank National Association Reporting Structure: Mr. Hu reports directly to Patricia "Trish" Navarrete, Chief Financial Officer. Ms. Navarrete, in turn, reports to BRB's Chief Executive Officer, Douglas Wellman. Tenure at BRB: Mr. Hu joined Belmont Ridge Bank in March 2015 as Vice Presid

1. Direct Oversight of ACL Estimation. Mr. Hu has direct oversight of the allowance for credit losses estimation for all BRB loan portfolios. This includes the BridgeFin consumer personal-loan sub-segment and the BridgeFin micro-business loan sub-segment, which together constitute the BridgeFin portfolio at issue in this investigation. Mr. Hu's team within the Controller's office — consisting of approximately eight a

2. Quarterly ACL True-Up Process. Mr. Hu is responsible for the quarterly ACL true-up process, which involves reviewing updated quantitative model outputs, refreshing macroeconomic forecast assumptions, analyzing current portfolio conditions (including delinquency trends and charge-off activity), and calibrating qualitative overlay adjustments. This quarterly process is the mechanism by which BRB updates its ACL to r

3. Primary Contact for Whitfield Keane LLP on ACL Matters. Mr. Hu serves as BRB's primary point of contact with the Bank's independent auditor, Whitfield Keane LLP, on all matters related to the ACL audit procedures. He has had regular and ongoing communications with Lorraine Dupont, the audit engagement partner, as well as with various members of the Whitfield Keane engagement team, regarding the CECL methodology, m

4. Sign-Off on ACL Schedules. Mr. Hu is a signatory on the ACL schedules that support BRB's periodic financial reporting. Specifically, he signed off on the ACL schedules underlying the Forms 10-K for fiscal year 2022 (filed February 28, 2023), the Form 10-Q for Q1 2023 (filed May 10, 2023), and the Form 10-Q for Q2 2023 (filed August 9, 2023). His sign-off indicates his concurrence that the ACL estimate has been pre

5. Credit Loss Committee Participation. Mr. Hu is a standing member of BRB's Credit Loss Committee, the internal governance body that meets quarterly to review, challenge, and approve the ACL estimates for all loan portfolios. Other members of the Credit Loss Committee include Ms. Navarrete (Chair), Annette Kowalski (Chief Risk Officer), Marcus Jennings (Chief Credit Officer), and representatives from the business li

III. Anticipated Areas of SEC Staff Questioning Based on our review of the Formal Order of Investigation, the Staff's document requests and subpoenas, the areas of focus during the Navarrete and Chakravarti testimonies, and the general scope of the investigation as communicated by Staff, we anticipate that the questioning of Mr. Hu will concentrate on the following areas. This section is organized to track the likely

IV. Key Documents for Preparation Session A. Documents Hu Should Review During the preparation sessions on February 12 and 13, 2024, Mr. Hu should review the following categories of documents. These documents represent the core documentary record that the Staff is likely to reference during the testimony, and Mr. Hu must be thoroughly familiar with their contents.

1. BRB FY 2022 Form 10-K (filed February 28, 2023). Mr. Hu should focus on the ACL-related footnotes to the consolidated financial statements (specifically, Note 5 — Loans and Allowance for Credit Losses), the Management's Discussion and Analysis section addressing credit quality, loan portfolio composition, and the ACL methodology, and the CECL methodology disclosures in Note 1 (Summary of Significant Accounting Pol

2. BRB Q1 2023 Form 10-Q (filed May 10, 2023) and Q2 2023 Form 10-Q (filed August 9, 2023). Mr. Hu should review the same sections as identified above for the 10-K, focusing on any changes in the ACL estimate, credit quality trends, and updated disclosures regarding the BridgeFin portfolio.

3. ACL Calculation Workpapers for Q4 2022, Q1 2023, and Q2 2023 (Bates range BRB-SEC-078000 through BRB-SEC-082500). These workpapers are the most detailed documentary evidence of the ACL estimation process and include the vintage-cohort loss-rate schedules, macroeconomic forecast inputs, qualitative overlay calculations, and the summary ACL roll-forward. Mr. Hu should be prepared to walk through these workpapers in

4. Credit Loss Committee Meeting Minutes for Q4 2022, Q1 2023, and Q2 2023. These minutes document the Committee's review and approval of the ACL estimate for each period. Mr. Hu should be familiar with the questions and challenges raised by Committee members, the responses provided, and the basis for the Committee's approval.

5. BridgeFin Vintage-Cohort Loss-Rate Schedules. These schedules present the historical loss experience for each vintage cohort of BridgeFin loans and form the core quantitative input to the CECL model. Mr. Hu should be able to discuss trends in vintage-level performance, including the divergence in credit performance between earlier and later vintage cohorts.

6. Re-Aged/Modified Loan Policy Documentation. BRB's internal policy governing the re-aging and modification of BridgeFin loans, including the criteria for re-aging eligibility, the required number of consecutive on-time payments, and the reporting and monitoring requirements following re-aging.

7. Emails Between Hu and Lorraine Dupont (Whitfield Keane LLP). Communications between Mr. Hu and the audit engagement partner regarding the FY 2022 ACL audit procedures, the vintage-cohort methodology, the re-aging treatment, and the qualitative overlay approach. Mr. Hu should review these emails carefully to ensure that his testimony is fully consistent with the contemporaneous documentary record.

8. CECL Model Governance Framework Document. The comprehensive governance document that Mr. Hu authored, setting forth the policies and procedures governing the CECL model's development, validation, use, and change management.

9. Qualitative Overlay Documentation and Supporting Analyses. The documentation supporting each qualitative overlay applied to the FY 2022 ACL estimate, including the analytical basis for each overlay, the magnitude determinations, and any sensitivity analyses or scenario testing performed.

10. Brindoval Analytic Partners LLC Forensic Analysis Memorandum (Dr. Franklin Osei, dated December 22, 2023). This memorandum, prepared at C&H's direction, provides a forensic accounting analysis of BRB's ACL methodology and the Staff's alternative calculation. It is attorney work product and was prepared in anticipation of this investigation. Mr. Hu should review it for background understanding of the defense posit

1. ACL Summary Schedules. Documents showing the $143.5 million reported ACL and the 3.50% coverage ratio as of December 31, 2022. The Staff may present its own alternative calculation of $180.8 million / 4.41% and ask Mr. Hu to react to specific line items.

2. BridgeFin Delinquency and Charge-Off Trend Reports. Reports showing delinquency migration, roll rates, and charge-off trends for the BridgeFin portfolio, potentially highlighting the divergence between delinquency rates as reported by BRB (1.72% for 90-plus days) and the Staff's calculation (2.38% including re-aged loans).

3. Internal Emails Discussing Re-Aging Treatment. Emails among BRB personnel — potentially including Mr. Hu's own communications — that discuss the re-aging treatment of modified loans, its impact on delinquency statistics, or any internal views about whether the treatment was appropriate. The Staff may attempt to use these emails to suggest that BRB was aware of, or should have been aware of, concerns about the re-a

4. Credit Loss Committee Presentations. Slide decks and presentations from Credit Loss Committee meetings showing vintage-cohort performance deterioration for post-Q2 2021 originations. The Staff may use these materials to argue that the Committee was presented with evidence of worsening credit conditions but did not increase the ACL sufficiently.

5. Internal Communications Reflecting Concerns About ACL Adequacy. Any internal emails, memoranda, or other communications in which BRB personnel — including but not limited to Mr. Hu — expressed concerns about the sufficiency of the ACL estimate. These documents could be used to suggest that the ACL was known to be insufficient at the time it was reported. During the preparation sessions, we will walk Mr. Hu through

V. Testimony Guidelines and Instructions A. General Conduct The following guidelines govern Mr. Hu's conduct during the investigative testimony. These guidelines are standard for witness testimony before the SEC Division of Enforcement and will be reviewed with Mr. Hu during both preparation sessions.

1. Listen Carefully. Mr. Hu should listen carefully and attentively to each question before answering. He should ensure that he fully understands the question being asked. He should not anticipate or finish the questioner's sentences.

2. Answer Only the Question Asked. Mr. Hu should answer only the specific question that is posed. He should not volunteer information beyond what is necessary for a truthful and complete response to the question. The temptation to "explain" or to provide background context should be resisted unless the question specifically calls for such information. Short, direct answers are almost always preferable to lengthy narr

3. Ask for Clarification. If Mr. Hu does not understand a question — whether because it is ambiguous, compound, or uses unfamiliar terminology — he should ask the questioner to rephrase or clarify the question before attempting to answer. There is no penalty for asking for clarification, and it avoids the risk of answering a question that was not actually asked.

4. Do Not Speculate. If Mr. Hu does not recall a fact, a date, a number, or the substance of a conversation, he should say so truthfully rather than speculate or guess. Appropriate responses include "I don't recall," "I would need to review my records to confirm that," or "I don't have a specific recollection of that." Mr. Hu should not guess at numbers, dates, or other precise details unless he is confident in his r

5. Do Not Guess at Numbers or Dates. The ACL calculation involves numerous specific dollar amounts, percentages, dates, and other precise figures. It is perfectly acceptable — and in fact preferable — for Mr. Hu to say "I would need to check my records to confirm the precise figure" rather than to offer an approximate number that could later be used to impeach him or to establish an unfavorable factual premise.

6. Truthful Testimony Is Mandatory. Mr. Hu must testify truthfully at all times. Any materially false statement made during SEC investigative testimony could constitute a violation of 18 U.S.C. § 1001 (false statements to a federal agency) and/or 18 U.S.C. § 1621 (perjury), both of which are federal criminal offenses carrying significant penalties. There is no exception to this requirement. If the truthful answer to

7. Pace and Demeanor. Mr. Hu should maintain a calm, professional demeanor throughout the testimony. He should speak clearly and at a measured pace, both to ensure accuracy and to allow counsel time to evaluate each question and interpose objections or instructions where appropriate. He should not exhibit frustration, impatience, or combativeness, even if the questioning becomes repetitive or confrontational.

8. Breaks. Mr. Hu may request a break at any time. If he feels fatigued, confused, or uncertain about how to respond to a particular line of questioning, he should request a brief recess. He may also confer with counsel during breaks, although he may not confer with counsel to discuss a pending question that has already been asked. B. Privilege Instructions The following privilege instructions are critical and will b

1. Attorney-Client Privilege. Mr. Hu must not disclose the substance of any communications with Calderwood & Harkness LLP attorneys — including Victoria Chambers, Jasmine Thornton, Howard Quinn, Liam Donahue, or any other C&H attorney — regarding legal advice provided in connection with this investigation or any related matters. Similarly, Mr. Hu must not disclose the substance of any communications with Caldwell Pra

2. Attorney Work Product. Mr. Hu must not disclose the substance of any analysis, memoranda, or findings prepared by Brindoval Analytic Partners LLC (Dr. Franklin Osei) or by any other consultant retained at the direction of C&H or CPS in connection with this investigation. These materials are protected attorney work product and are not subject to disclosure. If the Staff asks whether any outside analysis has been pe

3. Response to Privilege Questions. If the Staff asks Mr. Hu about the content of communications with counsel, he should respond: "I was advised by counsel not to disclose privileged communications." He should not elaborate or provide a partial description of the communication. Counsel will assert the privilege on the record as necessary.

4. Counsel Will Assert Privilege. Counsel for BRB will be present throughout the testimony and will assert privilege as necessary. If counsel instructs Mr. Hu not to answer a question on privilege grounds, he should comply with the instruction and should not attempt to answer the question over counsel's instruction.

5. Bank-Examination Privilege. Mr. Hu should not volunteer any information about OCC supervisory communications, examination findings, reports of examination, or matters requiring attention ("MRAs"). If the Staff asks about BRB's interactions with the OCC related to the BridgeFin portfolio or the ACL methodology, counsel will evaluate on a question-by-question basis whether to assert the bank-examination privilege an

1. Calderwood & Harkness LLP represents Belmont Ridge Bank National Association, the corporate entity. C&H does not represent Raymond Hu in his individual capacity.

2. Mr. Hu's communications with C&H in the course of this representation are protected by the attorney-client privilege. However, the privilege belongs to BRB — not to Mr. Hu personally. BRB may, at its sole discretion, choose to waive the privilege and disclose the substance of communications with Mr. Hu to the SEC or to other parties. Mr. Hu cannot independently assert or waive the privilege.

3. There may be situations in which the interests of BRB as an entity diverge from Mr. Hu's individual interests. In such circumstances, C&H's duty of loyalty runs to BRB.

4. Mr. Hu has the right to retain his own individual counsel at his own expense at any time. He may also request that BRB advance legal fees for individual representation pursuant to the applicable provisions of BRB's certificate of incorporation, bylaws, and directors' and officers' liability insurance policy. The decision to advance fees is within BRB's discretion, subject to the terms of the governing documents.

5. If Mr. Hu has any questions about the scope of the representation or his right to individual counsel, he should raise them with C&H or with independent counsel of his choosing before the testimony takes place. We recommend documenting the re-administration of the Upjohn warning in a contemporaneous memorandum to the file following the February 13 preparation session. D. Handling Difficult Questions Certain categor