PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT
DRAFT SHAREHOLDER COMMUNICATION TALKING POINTS
BELMONT RIDGE FINANCIAL GROUP, INC.
February 2025
Prepared by: Calderwood & Harkness LLP 1285 Avenue of the Americas, 40th Floor New York, NY 10019
Matter No.: 1045-00002
Prepared for: Belmont Ridge Bank National Association / Belmont Ridge Financial Group, Inc. Investor Relations Team
Addressees:
Gregory Nardone, General Counsel & Corporate Secretary Samantha Reeves, Chief Financial Officer
Purpose of This Document
This memorandum provides the Belmont Ridge Bank National Association ("BRB" or the "Bank") and Belmont Ridge Financial Group, Inc. ("BRFG" or the "Company") investor relations team with structured question-and-answer talking points for use in shareholder communications and investor inquiries regarding the Consent Order issued by the Office of the Comptroller of the Currency ("OCC"), the Bank's remediation program, associated costs, anticipated timeline, and management's commitment to regulatory compliance. These talking points have been prepared with particular attention to anticipated inquiries from Brindoval Capital Partners LP and their counsel, Amberly Knox LLP, given Brindoval's significant equity position in BRFG and their expressed concerns regarding the matter. All communications made using these talking points should remain consistent with the Company's public disclosure obligations and the guidance set forth herein.
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I. INTRODUCTORY GUIDANCE NOTES FOR INVESTOR RELATIONS TEAM
A. Purpose and Scope of This Document
These talking points have been prepared by outside counsel Calderwood & Harkness LLP to guide BRFG's investor relations team in responding to shareholder and investor inquiries related to OCC Consent Order No. OCC-2025-003, issued on January 15, 2025, against Belmont Ridge Bank National Association (OCC Charter No. 48271; FDIC Certificate No. 31845). The Consent Order addresses identified deficiencies in the Bank's Bank Secrecy Act / Anti-Money Laundering ("BSA/AML") compliance program, as more fully described in Section II below.
All communications with shareholders, investors, analysts, and other market participants should be consistent with BRFG's public disclosures, including the Form 8-K filed with the Securities and Exchange Commission ("SEC") on January 16, 2025, as well as ongoing SEC reporting obligations under the Securities Exchange Act of 1934, as amended. The investor relations team should not communicate information regarding the Consent Order, remediation program, or related matters that has not been publicly disclosed or that is not covered by the approved talking points set forth in this document.
These talking points constitute attorney-client privileged communication and attorney work product prepared in anticipation of potential litigation and regulatory inquiry. They should not be distributed externally or shared outside of authorized investor relations personnel and senior management who have been designated by the General Counsel as having a need to know. Any request by an external party — including shareholders, their counsel, media representatives, or other third parties — for a copy of these talking points or for information about their existence should be immediately referred to Gregory Nardone (General Counsel) or Philip Hartmann (Calderwood & Harkness LLP).
B. General Communication Principles
The following overarching principles should guide all investor relations communications regarding the Consent Order and related matters:
1. Tone and Substance. Responses should convey the seriousness with which the Board of Directors and management are treating the Consent Order, the Bank's full cooperation with its regulators, and the proactive and comprehensive nature of the remediation program. Communications should project competence, transparency, and accountability without making forward-looking assurances or guarantees that could create legal or regulatory liability.
2. Avoidance of Speculation. Investor relations personnel should not speculate on the timing, likelihood, or potential scope of additional enforcement actions by any regulatory authority, including without limitation the Financial Crimes Enforcement Network ("FinCEN"), the Department of Justice ("DOJ"), the Office of Foreign Assets Control ("OFAC"), or any state banking regulator. If pressed on these topics, the appropriate response is to acknowledge that the Company is committed to cooperation with all relevant authorities and to refer the inquiring party to the Company's public filings for additional information.
3. Referral of Legal and Enforcement Inquiries. Any inquiries that pertain to the specific legal provisions of the Consent Order, the Bank's legal strategy, potential exposure to additional enforcement actions, or the details of any legal proceedings should be referred to Gregory Nardone (General Counsel & Corporate Secretary) or to outside counsel at Calderwood & Harkness LLP. Investor relations personnel should not attempt to provide legal interpretations or assessments of enforcement risk.
4. Forward-Looking Statements. All forward-looking statements — including statements regarding the anticipated timeline, cost, or outcome of the remediation program — should include appropriate safe harbor language under the Private Securities Litigation Reform Act of 1995 (the "PSLRA"). Suggested safe harbor language is provided in the Appendix to this document and should be incorporated into any written communication, presentation, or prepared remarks containing forward-looking statements.
5. Consistency Across Communications. All investor relations personnel must use the approved talking points contained in this document as the basis for their responses. Deviations from these talking points, including the disclosure of information not covered herein, require prior approval from Gregory Nardone or Philip Hartmann.
C. Key Shareholder Context — Brindoval Capital Partners LP
The investor relations team should be aware of the following background regarding Brindoval Capital Partners LP ("Brindoval"), a significant shareholder of BRFG that has been actively engaged on the matters addressed in this document:
• Ownership Position. Brindoval Capital Partners LP (Managing Partner: Julian Whitmore; principal office at 399 Park Avenue, 24th Floor, New York, NY 10022) holds approximately 8.3% of BRFG's issued and outstanding common stock, representing approximately 14.9 million shares of 179.5 million shares outstanding. This ownership position makes Brindoval one of the Company's largest institutional shareholders.
• Legal Representation. Brindoval is represented by counsel at Amberly Knox LLP (Partner: Steven Briggs; 600 Third Avenue, New York, NY 10016). Amberly Knox LLP is a firm with a recognized practice in shareholder activism and corporate governance matters.
• Expressed Concerns. Brindoval has expressed concern regarding the magnitude of remediation costs, the risk of additional enforcement fines or penalties beyond the OCC's $14.5 million civil money penalty, and the reputational impact of the Consent Order on BRFG's stock price and long-term shareholder value. Brindoval's concerns have been communicated both directly and through their counsel.
• Coordination Requirement. Given the sensitivity of the Brindoval relationship and the potential for Brindoval's inquiries to implicate privileged legal strategy, all communications with Brindoval Capital Partners LP or its counsel at Amberly Knox LLP should be coordinated with Gregory Nardone (General Counsel) and Philip Hartmann (Calderwood & Harkness LLP) before any substantive engagement. This includes informal conversations, email correspondence, and any scheduled meetings or calls. Additional guidance specific to Brindoval engagement is provided in Section XI of this document.
II. BACKGROUND AND REGULATORY CONTEXT — Q&A
Q1: What regulatory action has been taken against Belmont Ridge Bank?
Approved Response:
On January 15, 2025, the Office of the Comptroller of the Currency issued Consent Order No. OCC-2025-003 against Belmont Ridge Bank National Association. The Consent Order cites deficiencies in the Bank's BSA/AML compliance program and requires the Bank to undertake a comprehensive remediation program to address the identified shortcomings.
The Consent Order addresses five core areas of deficiency:
(i) OFAC sanctions screening processes, particularly with respect to the Bank's Banking-as-a-Service ("BaaS") channels;
(ii) Suspicious activity reporting, including timeliness and completeness of SAR filings;
(iii) Customer due diligence and enhanced due diligence ("CDD/EDD") procedures for high-risk customer accounts;
(iv) Transaction monitoring model validation, including the frequency and rigor of independent model validation; and
(v) Board-level oversight of BSA/AML and sanctions compliance functions.
In connection with the Consent Order, the OCC assessed a civil money penalty of $14.5 million against the Bank, payable within 60 days of the Order's effective date. The payment deadline is March 16, 2025.
This enforcement action followed an OCC targeted BSA/AML examination conducted from March 2024 through September 2024. The examination findings built upon prior supervisory actions, including a Matter Requiring Attention ("MRA") issued in June 2022 regarding transaction monitoring deficiencies and a Matter Requiring Immediate Attention ("MRIA") issued in November 2023 regarding OFAC screening gaps in certain BaaS channels. The escalation from MRA to MRIA to formal enforcement action reflects the OCC's determination that the Bank's prior remediation efforts were insufficient to address the identified deficiencies within the supervisory timeframe.
The Bank has consented to the Order without admitting or denying any findings and is committed to full and timely compliance with all of its terms and conditions.
Q2: Has any criminal referral been made?
Approved Response:
As of the engagement date of February 10, 2025, no criminal referral to the Department of Justice has been made in connection with the matters addressed in the Consent Order, and the Company is not aware of any pending criminal investigation.
It is important to note that the Consent Order does not preclude the possibility of future referral or investigation by the DOJ or other law enforcement agencies. However, the Bank's proactive and comprehensive remediation program — including the engagement of a qualified independent consultant, the significant investment in technology upgrades, and the addition of permanent compliance staff — is designed to demonstrate the Bank's genuine commitment to compliance and to mitigate the risk of further enforcement action.
Additionally, the Financial Crimes Enforcement Network is monitoring the Bank's SAR filing remediation efforts. As of the engagement date, no separate FinCEN enforcement action has been filed against the Bank. However, FinCEN has reserved its enforcement rights, which is customary in matters of this nature.
The Company will continue to monitor these developments and will make appropriate disclosures in accordance with its SEC reporting obligations should circumstances change.
Investor relations personnel should not speculate on the likelihood of criminal referral or additional enforcement actions. If pressed, refer the inquiry to the General Counsel.
Q3: When was the Consent Order publicly disclosed?
Approved Response:
BRFG publicly disclosed the Consent Order on January 16, 2025, the business day following its issuance, through the filing of a Form 8-K with the Securities and Exchange Commission. The 8-K filing described the material terms of the Consent Order, including the $14.5 million civil money penalty and the requirement for a comprehensive remediation program. The Company's disclosure was consistent with its obligations under the Securities Exchange Act of 1934, as amended, and the Company's established disclosure policies and procedures.
The Consent Order itself is a public document available through the OCC's enforcement actions database, and a copy was included as an exhibit to the Form 8-K filing.
III. STOCK PRICE AND MARKET IMPACT — Q&A
Q4: What has been the impact on BRFG's stock price?
Approved Response:
Following the public disclosure of the Consent Order on January 16, 2025, BRFG's common stock experienced a decline in market price. The stock closed at $41.15 per share on January 16, 2025, representing a decline of approximately $6.67 per share, or approximately 13.9%, from the pre-disclosure closing price.
The Company recognizes that this decline reflects the market's reaction to the disclosure and understands that shareholders are concerned about the financial and reputational implications of the Consent Order. However, the stock price has demonstrated a partial recovery in the weeks following disclosure. As of February 7, 2025, BRFG common stock was trading at $47.82 per share. Based on 179.5 million shares of common stock outstanding, BRFG's market capitalization as of February 7, 2025 was approximately $8.58 billion.
Management believes that the comprehensive remediation program, the Bank's transparent engagement with regulators, and the continued strength of the Bank's core business operations will support the restoration and growth of long-term shareholder value. The Company's investor relations team will continue to provide timely and transparent updates as the remediation progresses.
Investor relations personnel should note that stock price movements are influenced by numerous factors, and the Company does not provide stock price forecasts or guidance. Comments regarding stock price should be limited to factual recitation of publicly available market data and the Company's general commitment to long-term value creation.
Q5: What is BRFG's current financial position?
Approved Response:
Belmont Ridge Bank and Belmont Ridge Financial Group maintain a strong financial position. As of December 31, 2024:
• BRB had total assets of $38.7 billion.
• Total deposits were $29.4 billion.
• The Bank's Tier 1 capital ratio was 11.2%, which exceeds the regulatory threshold for "well-capitalized" status under applicable OCC and FDIC guidelines.
For the fiscal year ended December 31, 2024, BRFG reported consolidated net income of $412 million. The Bank's financial performance reflects the continued strength of its diversified business model, which includes retail banking, commercial lending, wealth management, and its Banking-as-a-Service division.
The Bank is well-capitalized and has sufficient financial resources to fund the remediation program, satisfy the civil money penalty, and continue normal business operations without material disruption. Management does not anticipate any need for an equity raise, significant asset dispositions, or material changes to the Company's capital allocation strategy as a result of the remediation program.
Investors are encouraged to refer to the Company's annual and quarterly SEC filings for comprehensive financial information, including the forthcoming 10-K annual report for fiscal year 2024.
IV. REMEDIATION COSTS AND BUDGET — Q&A
Q6: What are the total estimated costs of the remediation?
Approved Response:
The Board of Directors has approved a comprehensive remediation budget of $42.5 million, exclusive of the $14.5 million civil money penalty assessed by the OCC. Including the civil money penalty, the total estimated outlay associated with the Consent Order is approximately $57.0 million.
The major components of the remediation budget are as follows:
The remediation budget reflects the Board's commitment to addressing all five deficiency categories identified in the Consent Order through a comprehensive, adequately resourced program. The budget was developed in consultation with outside counsel and with input from the incoming independent consultant, Thornfield Consulting Group LLC. Management is committed to executing the remediation within the approved budget and will report to the Board and to shareholders on budget performance as the program progresses.
Q7: How does the remediation cost compare to BRFG's financial position?
Approved Response:
The total estimated outlay of approximately $57.0 million — including both the $42.5 million remediation program and the $14.5 million civil money penalty — represents approximately 13.8% of BRFG's fiscal year 2024 net income of $412 million. While this expenditure is material and will impact short-term financial results, the Company's strong financial position provides a solid foundation to absorb these costs.
Specifically:
• The Bank's Tier 1 capital ratio of 11.2% significantly exceeds the "well-capitalized" threshold, providing ample capital headroom.
• With a total asset base of $38.7 billion, the $57.0 million total outlay represents less than 0.15% of total assets.
• Management expects the remediation costs to be absorbed primarily from operating cash flow generated by the Bank's ongoing business operations. No equity raise, significant debt issuance, or material asset sales are anticipated in connection with the remediation program.
The Company's management and Board of Directors view the remediation investment as both a necessary compliance expenditure and an opportunity to strengthen the Bank's compliance infrastructure for long-term sustainable growth. Management believes that the short-term financial impact is manageable and will be offset over time by the benefits of a strengthened compliance program and reduced regulatory risk.
Q8: Could costs exceed the current budget?
Approved Response:
The $42.5 million remediation budget has been developed with the benefit of input from outside counsel, the independent consultant, and internal management, and it includes contingency provisions to address foreseeable cost variations within the scope of the current remediation plan.
With respect to specific cost components:
• The Calderwood & Harkness LLP fee arrangement includes a ±15% fee collar around the base fee of $8.0 million. Any fees exceeding $9.2 million (representing $8.0 million multiplied by 1.15) would require written approval from the General Counsel prior to being incurred. This structure provides cost discipline while preserving flexibility for unanticipated legal advisory needs.
• The Thornfield Consulting Group LLC engagement is structured as a fixed fee of $6.5 million, with expenses capped at $400,000, which provides cost certainty for the independent consultant engagement.
• Technology costs represent an area where variability is possible. The current budget reflects the planned upgrade to Veridian Analytics TMS v.10.0 at a cost of $4.7 million. If the existing Veridian platform upgrade proves insufficient to meet the Bank's compliance requirements — for example, if additional functional capabilities are required to satisfy the independent consultant's recommendations or the OCC's expectations — the Bank is evaluating an alternative vendor, Ridgeline Data Systems LLC, which has proposed a contract value of $7.2 million per year on a five-year term ($36.0 million total). This alternative represents a contingency scenario and is not currently reflected in the approved budget.
Management is committed to transparency regarding any material changes to the remediation budget. If circumstances require a material budget revision — whether due to expanded remediation scope, additional regulatory requirements, technology changes, or other factors — the Company will update its Board of Directors and make appropriate public disclosures in accordance with its SEC reporting obligations.
If pressed on the likelihood of cost overruns, investor relations personnel should note that the budget was developed conservatively and includes contingency provisions, and that management is focused on executing within the approved budget. Avoid providing specific probabilities or guarantees regarding budget adherence.
V. REMEDIATION PROGRAM AND TIMELINE — Q&A
Q9: What is the Bank's remediation plan?
Approved Response:
The Bank is implementing a comprehensive Remediation Action Plan that addresses all five deficiency categories identified in the Consent Order. The plan is organized into five principal workstreams, each with defined objectives, deliverables, and target completion dates:
Workstream 1: OFAC Sanctions Screening. This workstream is focused on remediating identified gaps in the Bank's OFAC sanctions screening processes, with a particular emphasis on the BaaS channels. The OCC examination identified that approximately 12% of NovaPay Technologies transactions — approximately 3.8 million of 31.7 million transactions processed in calendar year 2023 — were not subjected to OFAC screening. The remediation plan includes the implementation of comprehensive, real-time OFAC screening across all BaaS channels and transaction types. Full OFAC screening across all BaaS channels is targeted for operationalization by November 1, 2025.
Workstream 2: SAR Backlog Clearance. This workstream addresses the backlog of unreviewed suspicious activity alerts and the timeliness of SAR filings. As of September 2024, the Bank had a backlog of approximately 2,400 unreviewed suspicious activity alerts. In addition, the average time from alert generation to SAR filing had extended to approximately 78 days, well beyond the Bank's internal target and industry best practices. The remediation plan includes dedicated analyst resources to clear the existing backlog and process improvements to reduce average SAR filing time to within 30 calendar days on an ongoing basis. The backlog clearance is targeted for completion by June 30, 2025.
Workstream 3: CDD/EDD Remediation. This workstream addresses the remediation of customer due diligence and enhanced due diligence documentation for high-risk customer accounts. The OCC examination identified approximately 47,000 high-risk customer accounts — primarily accounts onboarded through fintech BaaS partnerships — that lacked adequate due diligence documentation consistent with the Bank's CDD/EDD policies and regulatory requirements. The remediation plan establishes a phased approach: a 50% milestone of 23,500 accounts remediated by July 15, 2025, and 100% completion of all 47,000 accounts by January 15, 2026.
Workstream 4: Transaction Monitoring Model Validation. This workstream encompasses the upgrade of the Bank's transaction monitoring system from Veridian Analytics TMS version 8.3 to version 10.0. The current TMS was last independently validated in March 2021 and last tuned in October 2022, which is below the frequency expected by the OCC for systems of this complexity and risk profile. The remediation plan includes system upgrade, testing, and independent validation. User acceptance testing is targeted for completion by August 1, 2025, with independent model validation of the upgraded system by October 1, 2025.
Workstream 5: Governance and Training. This workstream addresses the Board-level and organizational governance enhancements required by the Consent Order. Key elements include the establishment of a dedicated Board-level Compliance Committee (to be chaired by independent director James Rutherford), enhanced compliance reporting metrics and dashboards for Board and senior management review, organizational restructuring of the BSA/AML department (increasing permanent FTE headcount from 62 to 77), and the design and delivery of an enterprise-wide BSA/AML and sanctions compliance training program. These governance enhancements are designed to provide sustainable, embedded compliance oversight rather than a one-time remediation effort.
The Remediation Action Plan has been developed with the guidance of outside counsel and in anticipation of the independent consultant's preliminary gap assessment. The formal Comprehensive Remediation Action Plan is scheduled for submission to the OCC by May 15, 2025.
Q10: What are the key milestones and deadlines?
Approved Response:
The remediation program is governed by a detailed timeline with defined milestones, many of which are required by the Consent Order or agreed upon with the OCC. The key milestones and target dates are as follows:
Management is committed to meeting or exceeding each of these milestones. Progress against the timeline will be monitored by the Compliance Committee of the Board of Directors, reviewed by the independent consultant, and reported to the OCC on a quarterly basis. The Company will also provide updates to shareholders through its regular SEC reporting cycle.
Q11: Has the Bank engaged an independent consultant?
Approved Response:
Yes. Pursuant to Article VII of the Consent Order, which requires the Bank to engage an independent consultant acceptable to the OCC, the Bank has engaged Thornfield Consulting Group LLC ("Thornfield"). The engagement is referenced under Thornfield's engagement identifier TCG-BRB-2025-001 and is led by Dr. Vivian Castellano, Managing Director of Thornfield's Financial Crimes Advisory practice.
The OCC issued its formal non-objection to the Bank's selection of Thornfield on February 5, 2025, confirming that Thornfield meets the OCC's requirements for independence, qualifications, and experience in BSA/AML and sanctions compliance program assessment.
The Thornfield engagement is structured as a fixed fee of $6.5 million for a 12-month period commencing in February 2025 and running through February 2026. Expenses are capped at $400,000, bringing the total maximum engagement cost to $6.9 million. The fixed-fee structure provides the Company with cost certainty for this significant component of the remediation budget.
Thornfield's scope of work includes a comprehensive assessment of the Bank's BSA/AML and OFAC compliance program, validation of the Bank's remediation efforts across all five workstreams, interim reporting to the OCC and the Bank's Board of Directors, and the delivery of a final validation report by February 15, 2026. Thornfield's findings and recommendations will inform the Bank's self-certification of full compliance program implementation.
The engagement of a highly regarded independent consultant such as Thornfield demonstrates the Bank's commitment to transparency, rigor, and third-party validation of its remediation efforts. Management views the independent consultant's involvement as a critical component of the Bank's path to satisfying the Consent Order and restoring full regulatory confidence.
VI. IMPACT ON BUSINESS OPERATIONS — Q&A
Q12: How does the remediation affect BRB's fintech/BaaS business?
Approved Response:
Belmont Ridge Bank's Banking-as-a-Service division is a significant and growing component of the Bank's business. As of calendar year 2024, the BaaS division operated through approximately 14 active fintech partnerships, generating $127.4 million in revenue from approximately $74.3 billion in total transaction volume. The BaaS business is an important strategic asset for the Bank and a meaningful driver of revenue and growth.
It is important to note that the Consent Order findings are concentrated in the BaaS channels. Specifically, the OFAC screening gaps identified in Workstream 1, the CDD/EDD documentation deficiencies identified in Workstream 3, and a significant proportion of the SAR backlog identified in Workstream 2 are attributable to BaaS-related activity. BaaS-related SARs accounted for approximately 54.8% of all SARs filed by the Bank in calendar year 2024 — 2,108 of 3,847 total filings — which reflects both the volume of BaaS transactions and the compliance challenges inherent in the BaaS business model.
Management is implementing enhanced compliance oversight across all BaaS partnerships as part of the remediation program. This includes the introduction of compliance addenda to all partner agreements, establishing minimum compliance standards and obligations for each fintech partner, and direct remediation engagement with the Bank's three largest BaaS partners:
• NovaPay Technologies Inc. — The largest BaaS partner by volume, representing approximately 41% of BaaS transaction volume (approximately $30.5 billion). NovaPay was the principal source of the OFAC screening gaps identified in the Consent Order.
• FairLend Digital LLC — The second-largest BaaS partner, representing approximately 28% of BaaS volume, with approximately $1.4 billion in loan originations in fiscal year 2024.
• VaultEdge Inc. — The third-largest BaaS partner, representing approximately 18% of BaaS volume.
The Bank is committed to maintaining and growing its BaaS business with strengthened compliance controls. Management does not currently anticipate winding down or exiting the BaaS segment. To the contrary, the investments being made in compliance infrastructure — including upgraded transaction monitoring, enhanced OFAC screening, and improved CDD/EDD processes — are expected to make the BaaS business more sustainable and scalable over the long term.
Q13: Will the Consent Order affect BRB's other business lines?
Approved Response:
While the remediation program encompasses all of the Bank's business lines — including retail banking, commercial lending, wealth management, and Banking-as-a-Service — the primary deficiencies identified in the Consent Order are concentrated in the BaaS channels. The Bank's other business lines were not cited as areas of material deficiency in the OCC's examination findings.
The Bank's Community Reinvestment Act ("CRA") rating remains "Satisfactory," based on the most recent CRA examination completed in June 2023. The Consent Order does not affect the Bank's CRA rating or its ability to engage in community lending and development activities.
The Bank does not anticipate material disruptions to its retail banking, commercial lending, or wealth management operations as a result of the remediation program. The compliance infrastructure investments being made as part of the remediation — particularly the upgraded transaction monitoring system and enhanced governance framework — will benefit all business lines and strengthen the Bank's overall compliance posture.
Customers across all business lines will continue to receive uninterrupted service, and the Bank's branch network, digital banking platforms, and lending operations will continue to operate normally throughout the remediation period.
VII. LEADERSHIP AND GOVERNANCE CHANGES — Q&A
Q14: What leadership actions has the Board taken?
Approved Response:
The Board of Directors of Belmont Ridge Financial Group has taken decisive action in response to the Consent Order, demonstrating its commitment to effective compliance governance and remediation.
The Board is establishing a dedicated Compliance Committee, which will be chaired by independent director James Rutherford. The Compliance Committee will have a direct mandate for oversight of BSA/AML and sanctions compliance, monitoring of Consent Order remediation progress, review of reports from the independent consultant, and ongoing compliance reporting to the full Board of Directors. The establishment of the Compliance Committee addresses the Consent Order's findings regarding the need for enhanced Board-level oversight and is consistent with regulatory best practices for institutions under formal enforcement actions.
On the management level, Patricia Langston, Chief Compliance Officer (appointed January 2024), and Thomas Ikeda, BSA Officer (appointed March 2023), are leading the internal remediation effort. Both Ms. Langston and Mr. Ikeda bring significant experience in compliance program management and regulatory remediation, and they are supported by a growing team of permanent and temporary compliance professionals.
In addition, the Company has made changes to its outside advisory relationships. The Bank's prior outside regulatory counsel, Drayton Mercer LLP, was terminated in January 2025 following the issuance of the Consent Order. Calderwood & Harkness LLP was engaged effective February 10, 2025 as new outside regulatory counsel, with a mandate to advise on the comprehensive compliance-program uplift and all matters arising from the Consent Order.
Diane Whitford, Chief Executive Officer and Board Chair of BRFG, with the full support of the Board of Directors, is overseeing the remediation effort at the executive level. Ms. Whitford is personally engaged in the remediation program and has communicated to the Board and to the management team that successful and timely completion of the remediation is the Bank's highest institutional priority.
Q15: Is there any individual officer or director accountability concern?
Approved Response:
The Consent Order addresses institutional compliance deficiencies at Belmont Ridge Bank National Association. It does not name any individual officers or directors as respondents, nor does it include any individual enforcement actions, individual civil money penalties, or individual cease-and-desist provisions.
The Board of Directors and the management team are fully engaged in overseeing and executing the remediation program. The Board views its role in this process as both a fiduciary obligation and a governance imperative, and it is committed to ensuring that the Bank's compliance program meets or exceeds all applicable regulatory requirements.
The Company has directors' and officers' liability insurance coverage in place. The adequacy of this coverage has been assessed in the context of the current regulatory action and associated risks, and management believes that the existing coverage is appropriate for the Company's current circumstances.
If asked about potential individual accountability or personal liability of officers or directors, investor relations personnel should note the institutional nature of the Consent Order and refer the inquiry to the General Counsel. Do not speculate on the possibility of future individual actions.
VIII. RISK OF FURTHER ENFORCEMENT — Q&A
Q16: Is the Bank at risk of additional regulatory or enforcement actions?
Approved Response:
As a general matter, a consent order issued by the OCC does not preclude additional actions by the OCC itself, or by other federal or state regulatory agencies, including the Financial Crimes Enforcement Network, the Office of Foreign Assets Control, the Department of Justice, or state banking regulators. The Company has disclosed this risk in its public SEC filings.
With respect to the current status:
• FinCEN. FinCEN is monitoring the Bank's SAR filing remediation efforts in connection with the matters underlying the Consent Order. As of the engagement date of February 10, 2025, no separate FinCEN enforcement action has been filed against the Bank. FinCEN has reserved its enforcement rights, which is customary practice.
• OFAC. The Bank is evaluating, with the guidance of outside counsel at Calderwood & Harkness LLP, whether a voluntary self-disclosure to OFAC regarding the NovaPay Technologies screening gaps is advisable. A voluntary self-disclosure, if made, could serve as a mitigating factor in any future OFAC enforcement proceeding.
• DOJ. As previously noted, no criminal referral to the Department of Justice has been made as of the engagement date, and the Company is not aware of any pending criminal investigation.
The Bank's proactive and comprehensive remediation program, the engagement of a qualified independent consultant with OCC non-objection, the significant financial investment in compliance infrastructure, and the Bank's cooperative posture with all relevant regulators are intended to mitigate the likelihood and severity of any additional enforcement action.
Management believes that the current reserve and budget, totaling approximately $57.0 million, are adequate to address foreseeable regulatory costs. However, the Company will continue to evaluate its exposure and will make appropriate disclosures if circumstances change.
Investor relations personnel should not provide probability assessments regarding additional enforcement actions. If pressed, acknowledge the risk factors described in the Company's public filings and refer the inquiry to the General Counsel.
Q17: Could the Consent Order lead to shareholder litigation?
Approved Response:
As of the date of these talking points, the Company is not aware of any pending shareholder litigation related to the Consent Order or the matters described therein.
The Company acknowledges that the stock decline of approximately 13.9% on the trading day following public disclosure of the Consent Order (January 16, 2025) could attract scrutiny from the plaintiffs' securities litigation bar or from shareholders evaluating potential claims. The Company has assessed its disclosure practices in connection with the Consent Order and the underlying regulatory developments and believes that its public communications have been timely and adequate in all material respects.
Any inquiries regarding potential litigation — whether from shareholders, their counsel, or media representatives — should be directed immediately to Gregory Nardone, General Counsel and Corporate Secretary. Investor relations personnel should not comment on the likelihood, merits, or potential financial impact of any hypothetical litigation.
IX. DISCLOSURE AND REPORTING OBLIGATIONS — Q&A
Q18: What SEC disclosure obligations are triggered?
Approved Response:
The issuance of the Consent Order and the assessment of the $14.5 million civil money penalty constitute material events requiring disclosure under the Securities Exchange Act of 1934. In response, BRFG filed a Form 8-K with the SEC on January 16, 2025, the business day following the issuance of the Consent Order. The 8-K filing described the material terms of the Consent Order, the amount of the civil money penalty, and the Bank's commitment to a comprehensive remediation program.
Looking ahead, the Company's disclosure obligations will continue through several channels:
• The Company's forthcoming Form 10-K annual report for fiscal year 2024 will include a comprehensive discussion of the Consent Order, the remediation program, the estimated costs, and the associated risks. This disclosure will appear in the relevant sections of the 10-K, including Management's Discussion and Analysis of Financial Condition and Results of Operations, the Legal Proceedings section, and the Risk Factors section.
• The Company's proxy statement for the 2025 annual meeting of shareholders will include appropriate disclosure regarding the Consent Order and the Board's governance response, including the establishment of the Compliance Committee.
• The total remediation outlay of approximately $57.0 million (including the $14.5 million civil money penalty) is material relative to BRFG's fiscal year 2024 net income of $412 million, representing approximately 13.8%, and will be disclosed accordingly.
• The Company will continue to evaluate its disclosure requirements on a quarterly basis as the remediation progresses, and will file additional Form 8-K reports if material developments occur that require current reporting.
The Company's disclosure practices are subject to ongoing review by outside counsel to ensure compliance with all applicable SEC rules and regulations.
Q19: Will remediation costs be reflected in financial statements?
Approved Response:
Yes. The financial impact of the Consent Order and the remediation program will be reflected in the Company's financial statements as follows:
• The $14.5 million civil money penalty will be reflected as a charge in the period in which the liability was incurred, consistent with applicable accounting standards.
• The $42.5 million in remediation costs will be expensed over the remediation period, which is currently expected to span approximately 12 months, beginning in the first quarter of 2025. These costs will impact operating expenses and, accordingly, net income during the remediation period.
• The specific accounting treatment of each component of the remediation budget — including legal fees, consulting costs, technology expenditures, and staffing costs — is being coordinated between the Chief Financial Officer, Samantha Reeves, and the Company's external auditors, Caldera & Pope LLP (Engagement Partner: Franklin Dorsey), to ensure compliance with Generally Accepted Accounting Principles and consistent application of the Company's accounting policies.
Investors should refer to the Company's quarterly reports on Form 10-Q and the annual report on Form 10-K for detailed information regarding the financial impact of the remediation program on the Company's results of operations, financial condition, and cash flows.
X. KEY MESSAGES FOR PROACTIVE COMMUNICATION
The following key messages should serve as the foundation for proactive shareholder communications, including earnings calls, investor presentations, and written materials. These messages are designed to convey management's commitment, the strategic rationale for the remediation investment, and the Company's financial resilience.
A. Management Commitment Statement
Belmont Ridge is fully committed to building a best-in-class BSA/AML and sanctions compliance program that meets or exceeds regulatory expectations and industry best practices. The Board of Directors and senior management are treating the Consent Order with the utmost seriousness and are personally engaged in overseeing and executing the comprehensive remediation program.
The Board and management view the Consent Order as an opportunity — and indeed an imperative — to fundamentally strengthen the Bank's compliance infrastructure, to invest in the people, technology, and governance processes necessary for sustainable compliance, and to position the institution for responsible, long-term growth. The Bank's response to this challenge will define its character as an institution and its commitment to operating with integrity in all aspects of its business.
B. Remediation Investment as Long-Term Value
The $42.5 million remediation investment, together with the $14.5 million civil money penalty, represents a significant but necessary investment in the Bank's compliance infrastructure. Management views these expenditures not merely as a cost of regulatory compliance, but as an investment in the long-term value and sustainability of the enterprise.
A strengthened compliance program will enhance the Bank's ability to grow its Banking-as-a-Service business — which generated $127.4 million in revenue in calendar year 2024 across 14 active fintech partnerships and $74.3 billion in transaction volume — in a responsible and sustainable manner. In an industry environment where regulatory expectations for BaaS compliance are rising, the Bank's investment in compliance leadership will serve as a competitive advantage and a foundation for continued business development.
Over the long term, the remediation investment is expected to protect and enhance shareholder value by reducing regulatory risk, strengthening the Bank's reputation with regulators and business partners, and enabling the Bank to pursue growth opportunities with confidence in its compliance capabilities.
C. Regulatory Cooperation
The Bank is cooperating fully and transparently with the OCC, FinCEN, and all other relevant regulatory authorities. The Bank has met or is on track to meet or exceed all Consent Order deadlines established to date.
The engagement of Thornfield Consulting Group LLC as the OCC-mandated independent consultant, which received OCC non-objection on February 5, 2025, demonstrates the Bank's commitment to transparency and to the independent, third-party validation of its remediation efforts. Thornfield's involvement ensures that the Bank's remediation will be rigorously assessed against regulatory expectations and industry standards.
The Bank's cooperative posture is not merely a legal strategy — it reflects the Bank's genuine belief that constructive engagement with regulators is essential to achieving lasting compliance and earning the trust of the regulatory community.
D. Financial Strength
The Bank's strong capital position, substantial asset base, and robust earnings capacity provide a solid financial foundation to absorb the costs of the remediation program while continuing to serve customers, invest in the business, and return value to shareholders.
Key financial metrics underscore this strength:
• Tier 1 Capital Ratio: 11.2%, well above the regulatory threshold for "well-capitalized" status.
• Total Assets: $38.7 billion, providing a diversified and stable asset base.
• Fiscal Year 2024 Net Income: $412 million, demonstrating strong and consistent earnings capacity.
The total remediation outlay of approximately $57.0 million, while material, is manageable relative to these financial metrics. Management does not anticipate any need for an equity offering, significant asset sales, or material changes to the Company's dividend or capital return policies. The Bank's financial strength ensures that the remediation program can be executed without compromising the Bank's ability to serve its customers and pursue its strategic objectives.
XI. SPECIFIC GUIDANCE FOR BRINDOVAL CAPITAL ENGAGEMENT
A. Background
Brindoval Capital Partners LP is a significant institutional shareholder of BRFG, holding approximately 8.3% of the Company's issued and outstanding common stock — approximately 14.9 million shares of 179.5 million shares outstanding. This ownership position makes Brindoval one of the Company's largest equity investors and gives it substantial influence in shareholder votes and corporate governance matters.