PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 1285 Avenue of the Americas, 40th Floor New York, New York 10019
INTERNAL MEMORANDUM
Matter No.: 1045-00002
Date: February 10, 2025
From: Marcus Delgado, Partner (Billing Partner, intellectual Property Practice Group)
To: Philip Hartmann, Partner (Responsible Partner, Banking & Finance Practice Group)
CC: Yuki Nakamura, Associate; Carlos Espinoza, Associate; Firm Finance/Billing Department
Re: Fee Arrangement, Budget, and Billing Protocols — Belmont Ridge Bank NA BSA/AML and Sanctions Compliance-Program Uplift (OCC Consent Order No. OCC-2025-003)
Classification: Internal — Not for Distribution to Client or Third Parties Without Approval of Responsible Partner
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I. PURPOSE AND BACKGROUND
The purpose of this memorandum is to memorialize the fee arrangement, budget structure, billing protocols, and financial controls governing the firm's engagement by Belmont Ridge Bank National Association ("BRB" or the "Bank") in connection with the BSA/AML and sanctions compliance-program uplift mandated by OCC Consent Order No. OCC-2025-003 (the "Consent Order"), issued on January 15, 2025. This memorandum is intended for internal Calderwood & Harkness LLP ("C&H" or the "Firm") use only and serves as the authoritative reference document for all billing and budgetary matters arising out of this engagement. It should be read in conjunction with the executed engagement letter and the Firm's standard billing policies and procedures.
Client. The client is Belmont Ridge Bank National Association (OCC Charter No. 48271; FDIC Certificate No. 31845), a national banking association organized and existing under the laws of the United States and headquartered at 680 Lexington Avenue, 22nd Floor, New York, New York 10022. BRB is a wholly owned subsidiary of Belmont Ridge Financial Group, Inc. ("BRFG"), a Delaware corporation and registered bank holding company whose common stock is listed on the New York Stock Exchange under the ticker symbol BRFG. BRB operates approximately 214 retail branches across the northeastern United States and maintains a growing Banking-as-a-Service ("BaaS") platform through which it sponsors fintech partners for the provision of deposit, payment, and lending products to end users.
Client Contact. The primary client contact for billing, fee, and financial matters is Gregory Nardone, General Counsel and Corporate Secretary of both BRB and BRFG. Mr. Nardone is the designated individual with authority to approve fee-related matters, including any fees exceeding the upper threshold of the fee collar mechanism described in Section IV below.
Engagement Letter. The engagement letter governing this matter is dated February 10, 2025, and was executed by Philip Hartmann on behalf of Calderwood & Harkness LLP and by Gregory Nardone on behalf of BRB. The engagement letter sets forth the scope of the engagement, the applicable fee terms, the retainer arrangement, and the standard terms and conditions of the representation. This memorandum supplements the engagement letter with additional internal detail regarding budget management and billing protocols.
Conflicts Check. A conflicts check was completed under reference number CC-2025-01124. No disqualifying conflicts were identified. The conflicts analysis included a review of the Firm's current and historical representations involving BRB, BRFG, the OCC, and the third-party vendors and consultants expected to be involved in the remediation effort, including Thornfield Consulting Group LLC, Veridian Analytics Inc., Ridgeline Data Systems LLC, Pinnacle Compliance Solutions LLC, and Caldera & Pope LLP.
Billing Partner Cross-Staffing. Marcus Delgado serves as the billing partner on this engagement. Mr. Delgado is a partner in the intellectual Property Practice Group and has been cross-staffed to this matter due to the significant fintech patent and licensing compliance overlap arising in connection with BRB's Banking-as-a-Service arrangements with fintech partners. BRB's BaaS platform relies on proprietary and third-party technology that is subject to complex licensing agreements, and certain of the compliance deficiencies identified in the Consent Order relate to the manner in which BaaS partner transactions are screened (or, in some cases, not screened) against OFAC sanctions lists. Mr. Delgado's expertise in technology licensing and intellectual property matters is directly relevant to the assessment and remediation of these issues. His substantive time on the engagement is expected to be concentrated in Phase 1, with a reduced advisory role in Phase 2.
Engagement Context. The engagement arises from BRB's receipt of Consent Order No. OCC-2025-003, issued by the Office of the Comptroller of the Currency on January 15, 2025. The Consent Order cites significant deficiencies across multiple dimensions of BRB's BSA/AML compliance program, including but not limited to: (i) failures in OFAC sanctions screening, particularly with respect to transactions originated through BaaS partner channels; (ii) deficiencies in Suspicious Activity Report ("SAR") filing timeliness and quality, including a backlog of approximately 2,400 unresolved alerts; (iii) inadequate Customer Due Diligence ("CDD") and Enhanced Due Diligence ("EDD") procedures, particularly for an identified population of approximately 47,000 high-risk accounts; (iv) deficiencies in transaction monitoring model validation and tuning, including reliance on an outdated version of BRB's primary transaction monitoring system (Veridian TMS v.8.3); and (v) insufficient board-level oversight and governance of the BSA/AML compliance program. In connection with the Consent Order, the OCC assessed a civil money penalty of $14,500,000 against BRB.
BRB's prior outside regulatory counsel, Drayton Mercer LLP (Helen Frazier, lead partner), was terminated by BRB in January 2025 following the issuance of the Consent Order. Calderwood & Harkness was subsequently engaged to provide comprehensive legal advice and representation in connection with the Bank's remediation of the Consent Order deficiencies. The termination of Drayton Mercer and the engagement of this Firm were approved by BRB's Board of Directors on February 5, 2025.
The remediation effort is substantial in scope and will require coordinated legal, consulting, technology, and staffing resources over a period of approximately twelve months. The total board-approved remediation budget, exclusive of the civil money penalty, is $42,500,000, of which C&H's estimated fees of $8,000,000 represent approximately 18.8%. The balance of the budget encompasses independent consultant fees, technology upgrades, temporary staffing, lookback projects, and other remediation costs, as described in greater detail in Section VIII below.
II. ENGAGEMENT STRUCTURE — TWO-PHASE APPROACH
The engagement is structured in two distinct phases, reflecting the natural progression of the remediation effort from an initial period of intensive assessment and planning to a subsequent period of implementation and monitoring. The phased structure facilitates budget management, resource allocation, and quarterly reconciliation, and provides a natural inflection point at which the engagement team and the client can assess progress and adjust course if necessary.
A. Phase 1: Assessment & Remediation Plan
Engagement Period. Phase 1 commences on February 10, 2025 and extends through May 15, 2025, a period of approximately ninety-five (95) calendar days. This phase is defined by the critical regulatory deadline for submission of the comprehensive Remediation Action Plan ("RAP") to the OCC, which the Consent Order requires to be filed no later than May 15, 2025.
Estimated Fees. The estimated fees for Phase 1 are $4,800,000. This estimate is based on the projected hours allocation set forth in Section III.C below and the applicable billing rates set forth in Section III.A.
Key Deliverables. The following is a summary of the principal deliverables and work product expected to be generated during Phase 1. This list is not exhaustive and is subject to refinement as the engagement progresses:
1. Consent Order Analysis. Preparation of a comprehensive analysis of OCC Consent Order No. OCC-2025-003, including an annotated article-by-article breakdown of each provision, identification of specific compliance obligations and deadlines, and assessment of the Bank's current posture relative to each requirement. This analysis will serve as the foundational reference document for the remediation effort.
2. Regulatory Risk Assessment. Preparation of a multi-agency regulatory risk assessment addressing: (a) FinCEN enforcement exposure, including the risk of a separate FinCEN enforcement action based on the same underlying BSA/AML deficiencies; (b) Department of Justice criminal referral risk, including analysis of the factors that historically influence the OCC's referral decisions and the current enforcement posture of the DOJ's Money Laundering and Asset Recovery Section; (c) OFAC enforcement exposure arising from the NovaPay sanctions screening gaps described below; and (d) state regulatory risk, including potential actions by the New York Department of Financial Services and other state banking regulators with jurisdiction over BRB's operations.
3. Prior Examination Findings Comparison. Preparation of a detailed comparison mapping the findings in the prior Matter Requiring Attention ("MRA") issued in June 2022 and the Matter Requiring Immediate Attention ("MRIA") issued in November 2023 against the deficiencies cited in the Consent Order. This analysis will identify areas where prior supervisory concerns were not adequately addressed, which is a factor that is likely to be considered by the OCC and other regulators in assessing the Bank's remediation efforts.
4. Privilege Protocol. Development and implementation of an attorney-client privilege protocol governing communications related to the remediation effort. Given the involvement of multiple parties — including outside counsel, the independent consultant, internal compliance personnel, the Board, and technology vendors — it is essential to establish clear guidelines regarding the creation, handling, and protection of privileged communications and attorney work product. The privilege protocol will address, among other things, the proper channeling of communications through counsel, the use of privilege legends, the treatment of Thornfield Consulting Group's work product, and the procedures for maintaining privilege in connection with OCC submissions.
5. Board Resolution and Compliance Committee. Drafting of a Board Resolution for Consent Order acknowledgment and establishment of a dedicated Compliance Committee of the Board, with a target completion date of February 28, 2025. This deliverable includes the preparation of a Compliance Committee charter that defines the Committee's mandate, membership, meeting cadence, reporting obligations, and authority with respect to the remediation effort.
6. Board Presentation. Preparation and delivery of a comprehensive Board presentation on the BSA/AML remediation overview, including the scope of the Consent Order, the proposed remediation strategy, the timeline, the budget, and the roles and responsibilities of the various parties involved.
7. Independent Consultant Engagement. Legal support for the selection and engagement of the independent consultant required by the Consent Order, including: (a) analysis of potential candidates and preparation of a recommendation memorandum; (b) preparation of the OCC non-objection letter for the selected consultant; and (c) negotiation, drafting, and finalization of the engagement agreement with Thornfield Consulting Group LLC. The Thornfield engagement has been structured as a $6,500,000 fixed-fee arrangement plus a $400,000 expense cap, with monthly installments of $541,666.67 over a twelve-month period commencing February 2025 (engagement reference TCG-BRB-2025-001).
8. Comprehensive Remediation Action Plan. Preparation of the Comprehensive Remediation Action Plan for submission to the OCC by the May 15, 2025 deadline. The RAP will encompass five integrated workstreams:
Workstream 1 — OFAC Sanctions Screening Remediation. Remediation of deficiencies in OFAC sanctions screening, with particular emphasis on the BaaS partner channels through which a significant volume of transactions were processed without adequate screening.
Workstream 2 — SAR Backlog Clearance and Process Improvement. Disposition of the existing backlog of approximately 2,400 unresolved alerts and implementation of enhanced SAR filing processes to prevent future backlogs from developing.
Workstream 3 — CDD/EDD Remediation. Remediation of CDD/EDD deficiencies for the identified population of approximately 47,000 high-risk accounts, including re-verification of customer identity information, risk re-rating, and implementation of enhanced ongoing monitoring.
Workstream 4 — Transaction Monitoring Model Validation and Tuning. Upgrade of BRB's primary transaction monitoring system from Veridian TMS v.8.3 to v.10.0, including system implementation, model validation, and tuning to ensure that transaction monitoring scenarios are appropriately calibrated for BRB's risk profile and transaction volumes.
Workstream 5 — BSA/AML Program Governance and Training. Comprehensive enhancement of BSA/AML program governance, including strengthened board oversight, enhanced reporting frameworks, updated policies and procedures, and a bank-wide training program.
9. Technology Vendor Analysis. Preparation of a comparative analysis of the two principal technology alternatives under consideration: (a) upgrade of the existing Veridian Analytics Inc. transaction monitoring system from v.8.3 to v.10.0; and (b) full replacement with Ridgeline Data Systems LLC's competing platform. This analysis will address functionality, implementation risk, timeline, cost, regulatory considerations, and the implications for the Consent Order remediation schedule.
10. Vendor Agreements. Negotiation, drafting, and finalization of the following vendor agreements:
(a) Veridian Analytics Inc. — Amendment to the existing Master Services Agreement (Contract No. VA-BRB-2023-0044) to incorporate the TMS v.10.0 upgrade scope of work, with implementation costs of $2,800,000 and incremental annual licensing fees of $1,900,000 per year (bringing total annual contract value from $4,100,000 to $6,000,000).
(b) Pinnacle Compliance Solutions LLC — Managed services agreement for the provision of thirty (30) temporary compliance analysts for the duration of the remediation effort, at a cost of $10,000 per full-time equivalent per month for twelve months, for a total engagement value of $3,600,000 (SOW Ref: PCS-BRB-2025-0012).
11. Interim SAR Backlog Status Report. Preparation of an interim status report on SAR backlog clearance for submission to the OCC on or before March 31, 2025. This report will address the status of the alert backlog, the triage methodology being employed, the staffing resources deployed, and the projected timeline for full disposition.
12. CMP Payment Logistics Memorandum. Preparation of a memorandum addressing the logistics and legal considerations associated with the payment of the $14,500,000 civil money penalty, which is due on March 16, 2025 pursuant to the terms of the Consent Order. This memorandum will address payment mechanics, tax treatment, accounting classification, and any related disclosure obligations.
13. OFAC Compliance Analysis. Preparation of a comprehensive OFAC compliance gap analysis, including: (a) assessment of the current state of OFAC screening across all BRB channels, with particular emphasis on BaaS partner channels; (b) drafting of a revised OFAC policy; and (c) analysis of whether a voluntary self-disclosure to OFAC is advisable in connection with the NovaPay sanctions screening gaps, which resulted in approximately 3.8 million transactions being processed without OFAC screening during calendar year 2023. The voluntary self-disclosure analysis will assess the potential benefits and risks of disclosure, the applicable OFAC enforcement guidelines, and the interaction between a potential OFAC voluntary self-disclosure and the ongoing OCC remediation process.
14. Securities Disclosure Obligations Analysis. Preparation of a memorandum analyzing BRFG's securities disclosure obligations arising from the Consent Order, including Form 8-K filing requirements, the treatment of the Consent Order and related remediation costs in BRFG's Annual Report on Form 10-K, and any required disclosure in the proxy statement. This analysis will be coordinated with BRFG's securities counsel as necessary.
15. Shareholder Communication Talking Points. Preparation of talking points for use by BRB/BRFG management in communications with significant shareholders, with particular focus on Brindoval Capital Partners LP, which holds an approximately 8.3% stake in BRFG. These talking points will be designed to provide factual, non-misleading information regarding the Consent Order and remediation efforts while maintaining appropriate legal and regulatory boundaries.
Billing Intensity. Phase 1 is the most resource-intensive period of the engagement due to the simultaneous demands of regulatory analysis, document production, consultant engagement, vendor negotiation, and RAP drafting, all under compressed deadlines. The average monthly burn rate during Phase 1 is projected at approximately $1,520,000 per month (approximately $4.8 million over approximately 3.15 months). The engagement team should anticipate sustained high-volume billing during this period, with particular intensity in the weeks leading up to the May 15, 2025 RAP submission deadline.
B. Phase 2: Implementation & Monitoring
Engagement Period. Phase 2 commences on May 16, 2025 and extends through February 15, 2026, a period of approximately nine (9) months or 276 calendar days. This phase covers the implementation of the Remediation Action Plan approved by the OCC and the ongoing monitoring of remediation workstream execution through the target completion date of the independent consultant's final validation report.
Estimated Fees. The estimated fees for Phase 2 are $3,200,000. This estimate reflects the anticipated shift from an intensive document production and strategic advisory posture to a more advisory and monitoring-oriented role, with periodic spikes in activity around key milestones and OCC reporting deadlines.
Key Deliverables. The following is a summary of the principal deliverables and work product expected to be generated during Phase 2:
1. Thornfield Consulting Group Oversight. Ongoing oversight of Thornfield Consulting Group LLC's independent assessment and validation activities. Thornfield's on-site assessment commenced on March 1, 2025, with its preliminary gap assessment report due on or about April 15, 2025 and its final validation report due on or about February 15, 2026. C&H's role will include reviewing Thornfield's work product, advising BRB on any issues or findings raised by Thornfield, and ensuring that BRB's remediation efforts are responsive to the independent consultant's observations.
2. Remediation Workstream Monitoring. Ongoing monitoring of and advising on remediation workstream execution across all five workstreams identified in the Remediation Action Plan. This includes regular engagement with BRB's internal remediation project management team, the BSA/AML compliance function, the technology team, and the Pinnacle Compliance Solutions temporary staff.
3. SAR Backlog Clearance Support. Continued legal support for the SAR backlog clearance effort, with a target of full disposition of all 2,400 alerts by June 30, 2025. This includes advising on alert triage methodology, SAR filing quality, and any unusual or complex investigative findings that arise during the lookback and disposition process.
4. CDD/EDD Remediation Oversight. Oversight of the CDD/EDD remediation project for the population of 47,000 high-risk accounts, with a 50% milestone target of 23,500 accounts completed by July 15, 2025 and 100% completion of all 47,000 accounts by January 15, 2026. C&H's role will include advising on the remediation methodology, reviewing statistical sampling of remediated accounts, and assisting with any account exits or relationship terminations that may arise during the process.
5. Veridian TMS v.10.0 Deployment Support. Legal and regulatory advisory support for the deployment of Veridian TMS v.10.0, including review of the upgraded system's compliance with BSA/AML regulatory requirements, oversight of the user acceptance testing process (UAT targeted for completion by August 1, 2025), and coordination with the independent model validation (targeted for completion by October 1, 2025).
6. OFAC Screening Operationalization. Advisory support for the full operationalization of OFAC screening across all BaaS channels, with a target completion date of November 1, 2025. This includes reviewing the screening logic, advising on the treatment of historical screening gaps, and supporting any interactions with OFAC that may arise.
7. Quarterly OCC Progress Reports. Preparation and submission of quarterly progress reports to the OCC as required by the Consent Order:
(a) First quarterly progress report — due September 15, 2025.
(b) Second quarterly progress report — due December 15, 2025.
8. Compliance Self-Certification. Drafting of the compliance self-certification to be submitted to the OCC on or about February 15, 2026, certifying BRB's compliance with the requirements of the Consent Order and requesting termination or modification of the Order as appropriate.
9. BaaS Partner Compliance. Preparation and delivery of compliance remediation letters to BRB's BaaS partner fintech companies, and implementation of an ongoing fintech oversight framework designed to ensure that BaaS partner activities are subject to appropriate BSA/AML and sanctions compliance controls going forward.
10. Training and Policy Finalization. Advisory support for the finalization and rollout of BRB's updated BSA/AML training program and comprehensive policy suite, including review and approval of training materials, policy documents, and procedures manuals.
11. OCC Examination Preparedness. Guidance and preparation for anticipated OCC examinations during the remediation period, including preparation of examination-ready documentation, mock examination exercises, and advice on interactions with examination staff.
12. FinCEN Coordination. Ongoing monitoring of FinCEN's posture with respect to BRB and coordination with FinCEN as appropriate. The Firm's primary liaison at FinCEN for this matter is Angela Drummond, Associate Director, Enforcement Division. C&H will monitor for any indications that FinCEN may pursue a separate enforcement action and will advise BRB accordingly.
Billing Intensity. Phase 2 is characterized by a lower average monthly burn rate than Phase 1, projected at approximately $356,000 per month (approximately $3.2 million over approximately 9 months), reflecting the shift from intensive document production to an advisory and monitoring posture. However, the engagement team should anticipate periodic billing spikes around the following events: (i) the quarterly OCC reporting deadlines in September and December 2025; (ii) the Veridian TMS v.10.0 UAT and deployment milestones in August through October 2025; (iii) the CDD/EDD remediation milestones in July 2025 and January 2026; (iv) the OFAC screening operationalization target in November 2025; and (v) the preparation of the compliance self-certification in January and February 2026.
C. Total Estimated Fees
The combined estimated fees for Phase 1 and Phase 2 are as follows:
It must be emphasized that these figures are estimates only. Actual fees will be determined by the hours worked by each timekeeper at the applicable billing rates set forth in Section III below. The estimates are based on the engagement team's assessment of the likely scope, complexity, and duration of the work required, informed by the Firm's experience with comparable BSA/AML remediation engagements.
The fee estimate assumes the scope of work as currently defined in the engagement letter and this memorandum. Any material expansion of scope — including, without limitation, the commencement of a separate FinCEN enforcement action, a DOJ criminal referral or investigation, shareholder derivative litigation, securities class action litigation, or additional regulatory proceedings by state banking regulators — would require a revised budget and potentially a supplemental engagement agreement or addendum to the existing engagement letter.
III. BILLING RATES — ENGAGEMENT TEAM
A. 2025 Hourly Rates
The following table sets forth the hourly billing rates for the members of the engagement team currently assigned to this matter. These rates are effective for calendar year 2025.
B. Rate Notes
The rates set forth above are the Firm's standard 2025 rates for each timekeeper. No discount, reduction, or alternative fee arrangement has been applied to this engagement. The rates were communicated to and accepted by BRB in the engagement letter.
In the event that additional timekeepers are staffed on this matter — including, but not limited to, additional associates, of counsel, counsel, or paralegals — their rates will be at the Firm's then-current standard rates for the applicable calendar year. The billing partner and responsible partner will be informed of the identity and rate of any additional timekeeper before that timekeeper's time is included on an invoice to BRB. The engagement letter provides that C&H will notify the client of any material staffing changes.
Marcus Delgado's cross-staffing from the intellectual Property Practice Group reflects the fintech patent and licensing compliance dimension of BRB's BaaS arrangements. His time is expected to be concentrated in Phase 1, with a focus on the review of BaaS partner technology licensing terms, the assessment of how those licensing arrangements intersect with BRB's BSA/AML compliance obligations, and the analysis of intellectual property considerations arising in connection with the Veridian TMS upgrade and the potential Ridgeline Data Systems replacement. In Phase 2, Mr. Delgado's role is expected to be substantially reduced, limited to targeted advisory work on fintech oversight framework implementation and any residual licensing matters.
Paralegal and legal assistant time, if utilized on this engagement, will be billed at the Firm's standard rates, which typically range from $350 to $475 per hour for paralegals depending on seniority and specialization. Legal assistant time, if billed, is typically at rates ranging from $250 to $325 per hour. The engagement team does not currently anticipate significant paralegal or legal assistant utilization on this matter, but will deploy such resources if doing so is more efficient than utilizing associate-level timekeepers for appropriate tasks.
C. Projected Hours Allocation (Illustrative)
The following projected hours allocations are illustrative only and are provided to give a sense of the anticipated distribution of work among the engagement team members. Actual hours will depend on the specific demands of each workstream, the pace of the remediation effort, and the complexity of issues as they arise.
Phase 1 ($4,800,000 estimated over approximately 3.15 months):
The above ranges total approximately $3,932,500 to $4,541,500 at the midpoints for identified timekeepers, with the balance of up to approximately $258,500 to $867,500 attributable to other support staff, paralegal time, or variance in the allocation among the identified timekeepers. Phase 1 contemplates an extremely high level of activity, and the projected hours for associates Nakamura and Espinoza reflect sustained, intensive workloads during this period.
Phase 2 ($3,200,000 estimated over approximately 9 months):
The reduced allocation for Mr. Delgado in Phase 2 reflects the anticipated narrowing of the fintech licensing and IP dimensions of the engagement as Phase 1 deliverables are completed. The Phase 2 allocation for Mr. Hartmann reflects his continuing role as responsible partner, with time concentrated around quarterly OCC reporting deadlines, key remediation milestones, and client and regulatory interactions.
These projections are internal planning estimates and should not be communicated to the client or treated as commitments. Actual allocation will depend on workstream demands, evolving regulatory requirements, and the specific circumstances of the remediation effort as it unfolds.
IV. FEE COLLAR MECHANISM
The fee estimates set forth in this memorandum are subject to a ±15% variance (the "Fee Collar") without requiring re-approval from the client. The Fee Collar provides a zone of flexibility around the $8,000,000 aggregate estimate to accommodate the inherent uncertainty in projecting fees for a complex, multi-workstream regulatory remediation engagement of this nature.
Upper Threshold. The upper threshold of the Fee Collar is $8,000,000 × 1.15 = $9,200,000. Cumulative attorney fees exceeding $9,200,000 in the aggregate across Phase 1 and Phase 2 combined require prior written approval from Gregory Nardone, General Counsel of BRB and BRFG, before additional fees may be incurred. This threshold represents the maximum amount of attorney fees that may be billed under the current engagement letter without supplemental client authorization.
Lower Threshold (Informational). The lower threshold of the Fee Collar is $8,000,000 × 0.85 = $6,800,000. This threshold is informational only and does not create any obligation to achieve a minimum billing level. If cumulative fees track materially below the $8,000,000 estimate — suggesting that the remediation effort is proceeding more efficiently than anticipated or that the scope of required work is narrower than initially projected — the Firm will advise the client of the favorable variance as a matter of good practice and client relations.
Scope of Fee Collar. The Fee Collar applies exclusively to attorney fees billed by Calderwood & Harkness. It does not encompass the separately tracked expense cap of $250,000 described in Section VI, nor does it encompass third-party expert or consultant costs that are billed directly to BRB. Specifically, the following costs are excluded from the Fee Collar calculation: (i) Thornfield Consulting Group fees of $6,900,000 (inclusive of expenses); (ii) Pinnacle Compliance Solutions staffing costs of $3,600,000; (iii) Veridian Analytics upgrade costs of $4,700,000; and (iv) any other third-party professional or vendor costs borne directly by BRB.
Procedure for Fee Overrun Approval. In the event that the engagement team projects that cumulative fees will exceed $9,200,000, the following procedure shall be followed:
(a) Philip Hartmann, as responsible partner, will provide Gregory Nardone with a written explanation of the factors driving the projected overrun, including any scope changes, unanticipated issues, or increased complexity that have contributed to the variance.
(b) Mr. Hartmann will provide a revised budget estimate reflecting the projected total fees through the completion of the engagement.
(c) Mr. Hartmann will request written authorization from Mr. Nardone to proceed with work that would result in cumulative fees exceeding $9,200,000.
(d) No work that would cause cumulative fees to exceed $9,200,000 will be billed to BRB without prior written authorization from Mr. Nardone, except to the extent necessary to protect BRB's interests in an emergency or time-sensitive situation, in which case authorization will be sought as promptly as practicable after the fact.
Fee Collar Resets. No resets of the Fee Collar are contemplated under the current engagement terms. The $9,200,000 upper threshold governs the entire engagement through the anticipated completion date of February 15, 2026. If the engagement is extended beyond that date, or if a material expansion of scope occurs, a new fee estimate and collar would be established as part of the supplemental engagement terms.
V. RETAINER
Amount. BRB has deposited an evergreen retainer in the amount of $500,000 with Calderwood & Harkness.
Deposit Date. The retainer was deposited on February 12, 2025, and its receipt into the Firm's client trust account (an Interest on Lawyer Account, or "IOLA" account, maintained in compliance with New York Judiciary Law § 497 and the applicable rules of the Appellate Division) has been confirmed by the Firm's Finance Department.
Application. The retainer will be held in trust for the duration of the engagement. Consistent with the terms of the engagement letter, the retainer will not be applied against monthly invoices during the ordinary course of the engagement. Rather, the retainer will be applied against final invoices upon the completion or termination of the engagement, or against any outstanding balance in the event that BRB fails to pay invoices in accordance with the payment terms set forth in Section VII below. The specific circumstances under which the retainer may be applied are set forth in the engagement letter.
Evergreen Mechanism. The retainer is structured as an evergreen retainer. If the retainer balance falls below $250,000 at any time during the engagement — whether due to application against outstanding invoices or otherwise — BRB will replenish the retainer to the full $500,000 amount within fifteen (15) business days of receipt of written notice from Calderwood & Harkness requesting such replenishment. The evergreen mechanism ensures that the Firm maintains a minimum level of security for fees and expenses incurred on the engagement.
Interest. Interest earned on retainer funds held in the Firm's IOLA account, if any, will be handled in accordance with New York IOLA rules. Under the IOLA program, interest earned on qualifying client trust deposits is remitted to the Interest on Lawyer Account Fund of the State of New York for the purpose of funding legal services for the poor. BRB acknowledges and agrees to this treatment as set forth in the engagement letter.
VI. EXPENSE REIMBURSEMENT AND CAP
Expense Cap. Total reimbursable expenses for the duration of the engagement (Phase 1 and Phase 2 combined) are subject to a cap of $250,000. This cap covers Calderwood & Harkness's out-of-pocket costs and disbursements incurred in connection with the engagement and passed through to BRB on monthly invoices.
Covered Expenses. The following categories of expenses are included within the $250,000 expense cap:
• Travel expenses, including airfare, rail transportation, hotel accommodations, and ground transportation incurred in connection with on-site work at BRB's headquarters in New York, meetings at OCC offices in Washington, D.C. or elsewhere, and other travel required by the engagement;
• Document reproduction, printing, and binding costs;
• Overnight courier and delivery service charges;
• Database and legal research charges, including Westmark Data Systems, Sundial Solutions, and regulatory database access fees attributable to this matter;
• Telecommunication charges, including conference call and videoconference platform costs attributable to this matter; and
• Other customary out-of-pocket disbursements incurred in the ordinary course of the engagement.
Excluded from Expense Cap. The following categories of costs are expressly excluded from the $250,000 expense cap and are borne directly by BRB under separate contractual arrangements:
• Fees and expenses of independent consultants, including Thornfield Consulting Group LLC ($6,500,000 fixed fee + $400,000 expense cap);
• Technology vendor costs, including Veridian Analytics Inc. (TMS v.10.0 upgrade: $2,800,000 implementation + $1,900,000/year incremental licensing) and, if applicable, Ridgeline Data Systems LLC;
• Temporary staffing provider costs, including Pinnacle Compliance Solutions LLC ($3,600,000);
• Fees and expenses of any other third-party experts, professionals, or service providers engaged directly by BRB in connection with the remediation effort; and
• The civil money penalty of $14,500,000.
These third-party costs are not C&H pass-through expenses and are not included in the Firm's fee estimate or expense cap.
Expense Approval. Individual expense items exceeding $5,000 will be flagged in the applicable monthly invoice with a brief description of the expense. No pre-approval from BRB is required for individual expenses under $5,000, and no pre-approval is required for expenses of $5,000 or more, although such items will be highlighted for the client's review. If cumulative expenses approach the $250,000 cap, the billing partner will notify the responsible partner and, at the responsible partner's discretion, the client.
Expense Reporting. All expenses will be itemized on monthly invoices with reasonable supporting detail, including the date, description, and amount of each expense item. Receipts and supporting documentation will be retained in the Firm's files and made available to BRB upon request.
VII. BILLING CADENCE AND PAYMENT TERMS
A. Monthly Billing Cycle
Calderwood & Harkness will issue invoices on a monthly basis, on or about the tenth (10th) business day following the close of each calendar month. This billing cadence is consistent with the Firm's standard practice and provides sufficient time for pre-bill review and approval by the billing partner before invoices are issued.
First Invoice. The first invoice will cover the partial-month period of February 10, 2025 through February 28, 2025. Given the compressed nature of this initial billing period and the intensity of activity expected during the first weeks of the engagement, this invoice is expected to be issued on or about March 14, 2025.
Subsequent Invoices. Subsequent invoices will cover full calendar months, commencing with the March 2025 billing period (invoice expected on or about April 14, 2025) and continuing through the February 2026 billing period (invoice expected on or about March 12, 2026). The final invoice will include any remaining unbilled fees and expenses through the conclusion of the engagement.
B. Payment Terms
Net 30 Days. All invoices are due and payable within thirty (30) days from the date of the invoice. This payment term is consistent with the engagement letter and with the Firm's standard billing practices for matters of this nature and size.
Invoice Address. Invoices will be addressed and delivered to:
Gregory Nardone General Counsel & Corporate Secretary Belmont Ridge Bank National Association 680 Lexington Avenue, 22nd Floor New York, New York 10022
Payment Method. Payment may be made by wire transfer or check in accordance with the payment instructions provided on each invoice. Wire transfer is the preferred method of payment for amounts exceeding $100,000.
Late Payment Interest. In the event that any invoice remains unpaid beyond thirty (30) days from its date, interest will accrue on the unpaid balance at the rate of 1.0% per month (12.0% per annum), as specified in the engagement letter. The Firm reserves the right to apply payments received against the oldest outstanding invoices first, including any accrued interest.
C. Invoice Detail
Invoices will include the following information for each billing period:
• The name of each timekeeper who billed time during the period;
• The number of hours billed by each timekeeper;
• The hourly rate applicable to each timekeeper;
• The total fees attributable to each timekeeper;
• Narrative task descriptions for each time entry, providing sufficient detail to identify the nature of the work performed;
• An itemization of all expenses incurred during the billing period, with date, description, and amount; and
• The cumulative total of fees and expenses billed to date on the engagement.
Calderwood & Harkness will maintain contemporaneous time records in accordance with the Firm's timekeeping policy, which requires all timekeepers to record their time on a daily basis. Time entries will be recorded in increments of one-tenth of an hour (six minutes).
The client may request reasonable additional detail or task-code breakdowns (e.g., UTBMS or LEDES coding) at any time, and C&H will accommodate such requests to the extent practicable. If BRB implements or modifies its outside counsel billing guidelines during the engagement, C&H will endeavor to comply with such guidelines, subject to reasonable discussion regarding any requirements that may conflict with the Firm's standard practices.
VIII. BUDGET CONTEXT — BRB'S TOTAL REMEDIATION EXPENDITURE
For context and to assist the engagement team in understanding the Firm's fees within the broader framework of BRB's remediation expenditures, this section summarizes BRB's total board-approved remediation budget.
Calderwood & Harkness's estimated fees of $8,000,000 represent one component of BRB's board-approved total remediation budget of $42,500,000, which is exclusive of the $14,500,000 civil money penalty assessed under the Consent Order. Including the civil money penalty, BRB's total outlay in connection with the Consent Order and the related remediation effort is projected to be $57,000,000.
The breakdown of the $42,500,000 remediation budget (exclusive of the civil money penalty) is as follows:
C&H's estimated fees of $8,000,000 represent approximately 18.8% of the remediation budget (excluding the civil money penalty) and approximately 14.0% of the total outlay ($8,000,000 ÷ $57,000,000).
BRB Financial Capacity. BRB's capacity to fund the remediation effort is supported by the Bank's financial position. As of the most recent publicly available financial data, BRB reported total assets of approximately $38.7 billion, net income for fiscal year 2024 of approximately $412 million, and a Tier 1 capital ratio of 11.2%. The total remediation outlay of $57,000,000 represents approximately 13.8% of BRB's FY 2024 net income. While significant, this expenditure level is within the range that a well-capitalized institution of BRB's size can absorb without material impairment to its capital position or ongoing operations. The engagement team should nonetheless remain mindful of BRB's financial sensitivity to cost overruns and the importance of budget discipline throughout the engagement.
IX. BUDGET MONITORING AND QUARTERLY RECONCILIATION
A. Internal Tracking
Marcus Delgado, as billing partner, will maintain a running budget tracker that is updated on a monthly basis following the close of each billing period. The budget tracker will compare actual fees and expenses billed to date against the Phase 1 and Phase 2 estimates, and will project the remaining fees and expenses through the anticipated completion of the engagement. The budget tracker will be maintained in a format suitable for sharing with the responsible partner and, at his direction, with the Firm's Finance Department.
In addition, Yuki Nakamura will assist with work allocation tracking at the workstream level. Ms. Nakamura will track the distribution of hours across the five remediation workstreams identified in the Remediation Action Plan, enabling the engagement team to identify any workstream-level variances — for example, a concentration of effort in the OFAC remediation workstream that is disproportionate to the initial allocation, or an unanticipated reduction in the CDD/EDD remediation workstream. Workstream-level tracking will provide an early warning mechanism for potential budget variances and will inform staffing and resource allocation decisions.
B. Quarterly Budget Reconciliation
At the close of each fiscal quarter during the engagement period, the billing partner will prepare a formal budget reconciliation memorandum. The quarterly reconciliation will summarize the following:
1. Cumulative Fees vs. Budget. A comparison of cumulative fees billed to date against the estimated budget for Phase 1 and Phase 2, expressed in both dollar and percentage terms.
2. Cumulative Expenses vs. Cap. A comparison of cumulative expenses incurred to date against the $250,000 expense cap, including an assessment of whether the cap is at risk of being exceeded.
3. Forward Projection. A projection of remaining fees and expenses through the anticipated completion of the engagement on February 15, 2026, based on current staffing levels, billing rates, and the anticipated pace of work.
4. Fee Collar Assessment. An assessment of whether the ±15% Fee Collar is at risk of being exceeded, including identification of any trends or factors that could drive cumulative fees above the $9,200,000 upper threshold.
5. Scope Change Identification. Identification of any scope changes, unanticipated issues, or new matters that have arisen during the quarter and that may affect the fee estimate, including any matters that could trigger the scope change protocol described in Section IX.C below.
The quarterly reconciliation memorandum will be shared with Philip Hartmann, as responsible partner. At Mr. Hartmann's discretion, the reconciliation may also be shared, in whole or in summary form, with Gregory Nardone as part of the ongoing client relationship management process. The first quarterly reconciliation is expected to be prepared approximately in May 2025, coinciding with the conclusion of Phase 1 and the commencement of Phase 2, providing a natural opportunity to assess the accuracy of the Phase 1 estimate and to validate or adjust the Phase 2 estimate as necessary.
C. Scope Change Protocol
Regulatory remediation engagements of this nature are inherently susceptible to scope expansion, whether due to the emergence of related enforcement actions, the discovery of additional compliance deficiencies, or the commencement of litigation. If circumstances arise that materially expand the engagement scope beyond what is contemplated in the engagement letter and this memorandum, the following protocol shall be followed:
(a) Calderwood & Harkness will promptly notify BRB (through Gregory Nardone) of the scope change and the anticipated impact on the fee estimate and engagement timeline.
(b) C&H will provide a supplemental budget estimate for the additional scope of work, including the anticipated staffing requirements, hourly rates, and timeline.
(c) The supplemental scope work will be subject to a separate fee arrangement or an addendum to the existing engagement letter, to be agreed in writing by C&H and BRB (through Mr. Nardone) before work on the supplemental scope commences.
(d) The supplemental scope will be tracked separately from the original engagement scope for budget monitoring and reconciliation purposes.
Examples of circumstances that would trigger the scope change protocol include, but are not limited to: (i) the commencement of a separate FinCEN enforcement action against BRB; (ii) a DOJ criminal referral or investigation arising from the BSA/AML deficiencies; (iii) the filing of shareholder derivative litigation or a securities class action related to the Consent Order or the underlying compliance failures; (iv) the commencement of additional regulatory proceedings by state banking regulators (e.g., the New York Department of Financial Services); and (v) a material expansion of the Consent Order requirements by the OCC.
X. RELATIONSHIP TO THIRD-PARTY COSTS
This memorandum addresses only Calderwood & Harkness's professional fees and out-of-pocket expenses. It does not govern, and should not be read to encompass, the fees and costs of third-party professionals, consultants, technology vendors, or service providers that BRB has engaged or will engage in connection with the remediation effort. BRB has entered into, or is in the process of entering into, separate engagement or service agreements with the following third parties, each of which has its own independent fee arrangement:
Thornfield Consulting Group LLC. Thornfield has been engaged as the independent consultant required by the Consent Order. The engagement is structured as a $6,500,000 fixed fee plus a $400,000 expense cap, for a total engagement value of $6,900,000. Fees are payable in monthly installments of $541,666.67 over a twelve-month engagement period commencing February 2025 and concluding February 2026. The engagement reference is TCG-BRB-2025-001. Thornfield's outside counsel for purposes of the engagement is Hargrove & Stein PC. C&H negotiated the Thornfield engagement agreement on behalf of BRB and will continue to advise on the relationship throughout the engagement, but Thornfield's fees are billed directly to BRB.
Veridian Analytics Inc. Veridian is BRB's current transaction monitoring system vendor. BRB's existing contract with Veridian (Contract No. VA-BRB-2023-0044) provides for an annual contract value of $4,100,000 for the current TMS v.8.3 platform. The planned upgrade to TMS v.10.0 will require a $2,800,000 implementation fee and will increase annual licensing fees by $1,900,000, bringing the total annual contract value to $6,000,000. C&H is advising BRB on the amendment to the Veridian MSA to incorporate the upgrade terms.
Ridgeline Data Systems LLC. Ridgeline is under evaluation as a potential alternative to Veridian for BRB's transaction monitoring needs. Ridgeline's proposal contemplates a $7,200,000 annual fee for a five-year term, representing a total contract value of $36,000,000. A final decision on whether to proceed with the Veridian upgrade or the Ridgeline replacement has not yet been made; C&H's technology vendor analysis (a Phase 1 deliverable) will inform this decision.
Pinnacle Compliance Solutions LLC. Pinnacle has been engaged to provide thirty (30) temporary compliance analysts to support the remediation effort. The engagement is structured at a rate of $10,000 per full-time equivalent per month for twelve months, for a total engagement value of $3,600,000 (SOW Ref: PCS-BRB-2025-0012). C&H reviewed and advised on the Pinnacle SOW terms.
Caldera & Pope LLP. Caldera & Pope serves as BRB's BSA/AML independent testing firm (annual fee of $1,100,000 based on the 2024 engagement) and as BRB's external financial statement auditor (annual audit fee of $3,400,000 based on the 2024 engagement). Caldera & Pope's fees are governed by its separate engagement letters with BRB and are not within the scope of this memorandum.
Calderwood & Harkness will review and advise on the terms of these third-party engagements as part of its advisory scope under the engagement letter, but the costs of these engagements are borne directly by BRB and are not included in C&H's $8,000,000 fee estimate or $250,000 expense cap.
XI. BILLING PARTNER RESPONSIBILITIES
Marcus Delgado, as billing partner on this engagement, is responsible for the following administrative and financial functions:
1. Pre-Bill Review and Approval. Monthly review and approval of pre-bills before invoices are issued to BRB. Pre-bill review includes verification that all time entries contain appropriate narrative detail, that rates are correctly applied, that any necessary write-downs or adjustments are identified, and that the invoice is consistent with the engagement letter terms.
2. Fee Collar Compliance. Ensuring ongoing compliance with the engagement letter fee terms, including monitoring cumulative fees against the ±15% Fee Collar and the $9,200,000 upper threshold. If cumulative fees approach the upper threshold, the billing partner will promptly notify the responsible partner and initiate the overrun approval process described in Section IV.
3. Expense Cap Monitoring. Monitoring cumulative expenses against the $250,000 expense cap and advising the engagement team if expenses are approaching the cap, so that appropriate measures can be taken to manage costs or, if necessary, to seek an increase in the cap.
4. Quarterly Budget Reconciliation. Preparation of the quarterly budget reconciliation memoranda described in Section IX.B, including the analysis of actual-to-budget variances, forward projections, and fee collar assessments.
5. Retainer Management. Coordination with the Firm's Finance Department on retainer management and trust account administration, including monitoring the retainer balance, initiating replenishment requests when the balance falls below $250,000, and ensuring compliance with IOLA requirements.
6. Client Billing Inquiries. Serving as the primary point of contact for any billing inquiries or disputes raised by BRB, through Gregory Nardone or his designee. The billing partner will work with the responsible partner and the Firm's Finance Department to resolve any billing issues promptly and professionally.
7. Time Entry Quality. Ensuring that all time entries on the engagement contain sufficient narrative detail to satisfy client billing guidelines and to withstand potential scrutiny in the event of a fee dispute. Time entries should describe the specific task performed (e.g., "Drafted Section 3 of the OFAC compliance gap analysis addressing NovaPay screening deficiencies") rather than generic descriptions (e.g., "Research and drafting").
Philip Hartmann, as responsible partner, retains full authority over all substantive engagement decisions, including matter strategy, staffing, work allocation, and client relationship management. The billing partner's responsibilities are administrative and financial in nature and do not extend to the substantive direction of the engagement. In the event of any conflict between the billing partner's administrative recommendations and the responsible partner's substantive judgment regarding staffing or resource allocation, the responsible partner's decision shall govern.
XII. KEY FINANCIAL CONTROLS — SUMMARY TABLE
The following table summarizes the key financial parameters governing this engagement for ease of reference:
XIII. CONCLUSION AND DISTRIBUTION
This memorandum has been prepared to provide a comprehensive internal reference for the fee arrangement, budget structure, billing protocols, and financial controls governing the Firm's engagement by Belmont Ridge Bank National Association in connection with the BSA/AML and sanctions compliance-program uplift mandated by OCC Consent Order No. OCC-2025-003. It is intended to ensure that all members of the engagement team and the Firm's Finance and Billing Department have a clear and consistent understanding of the financial parameters of the engagement.
This memorandum is for internal Calderwood & Harkness LLP use only and should be maintained in the matter file under Matter No. 1045-00002. Distribution is limited to the following individuals:
• Philip Hartmann, Partner (Responsible Partner)
• Marcus Delgado, Partner (Billing Partner)
• Yuki Nakamura, Associate
• Carlos Espinoza, Associate
• Firm Finance/Billing Department (designated personnel)
This memorandum is not to be shared with BRB, Gregory Nardone, or any other client representative, nor with any third party, without the prior written consent of Philip Hartmann, the responsible partner on this engagement. The memorandum reflects internal Firm deliberations regarding billing strategy and budget management and is protected by the attorney work product doctrine.
Any questions regarding the fee arrangement, budget, or billing protocols described in this memorandum should be directed to Marcus Delgado at mdelgado@calderwoodharkness.com or (212) 555-0147.