client-notification-termination-letter.docx

1045-00007 · Client 1045 · Closing

client-notification-termination-letter.docx DOCUMENT Litigation

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CALDERWOOD & HARKNESS LLP Attorneys at Law

425 Lexington Avenue, 30th Floor New York, New York 10017 Telephone: (212) 554-7000 Facsimile: (212) 554-7001 www.calderwoodharkness.com

May 31, 2024

Via Email and Sundial Data Systems

Derek Sung, Esq. General Counsel and Chief Legal Officer Belmont Ridge Bank National Association 200 Park Avenue South, 38th Floor New York, New York 10003

Marcus R. Ellingham Chief Executive Officer Belmont Ridge Bank National Association 200 Park Avenue South, 38th Floor New York, New York 10003

Re: Termination of SEC Division of Enforcement Investigation — File No. HO-14287 (Formal Order No. EN-2023-0947)

Calderwood & Harkness Matter No. SC-MAT-2023-4172

Dear Derek and Marcus:

I. Purpose of This Letter

Calderwood & Harkness LLP writes on behalf of its client, Belmont Ridge Bank National Association ("BRB" or the "Bank"), to formally advise that the United States Securities and Exchange Commission ("SEC") Division of Enforcement has terminated its investigation into BRB's public disclosures regarding the allowance for credit losses ("ACL") for the BridgeFin consumer fintech loan portfolio. The termination letter from the Staff of the Division of Enforcement was received by our office on May 30, 2024, and a copy is enclosed with this correspondence.

We are pleased to report that the Staff has determined not to recommend any enforcement action against BRB in connection with this investigation. This outcome represents a complete and favorable resolution of the matter at the Staff level.

The purpose of this letter is to provide BRB's senior management and Board-level leadership with a comprehensive summary of the termination and its legal significance, our recommended next steps regarding public disclosure obligations, a description of any ongoing obligations that remain following the investigation's closure, and guidance on related matters including document retention, insurance, and regulatory notifications. We address each of these topics in turn below.

II. Summary of the SEC Termination Letter

On May 30, 2024, the SEC Division of Enforcement Staff — specifically through Branch Chief Renata Moss and Assistant Director Gregory Bonham of the Financial Fraud Unit — delivered a written letter to Calderwood & Harkness advising that the Staff has concluded its investigation in the matter captioned In the Matter of Belmont Ridge Bank National Association, File No. HO-14287, and has determined not to recommend any enforcement action against Belmont Ridge Bank National Association.

As you are aware, the investigation concerned whether BRB's public filings — specifically, its Annual Report on Form 10-K for fiscal year 2022 (filed with the SEC on February 28, 2023), its Quarterly Report on Form 10-Q for the first quarter of fiscal year 2023 (filed on May 10, 2023), and its Quarterly Report on Form 10-Q for the second quarter of fiscal year 2023 (filed on August 9, 2023) — materially understated expected credit losses in the BridgeFin consumer fintech loan portfolio. The BridgeFin portfolio, which comprises unsecured consumer installment loans originated through BRB's fintech lending partnership channel, had experienced elevated delinquency rates during the relevant period, and the Staff's inquiry focused on whether BRB's application of the Current Expected Credit Losses ("CECL") methodology, and in particular certain qualitative overlay adjustments, resulted in an ACL that was materially understated in the subject filings.

During the course of the investigation, the Staff had been considering whether to recommend charges against BRB under Section 13(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which requires issuers to file accurate periodic reports with the SEC, and Section 13(b)(2)(A) of the Exchange Act, which requires issuers to make and keep books, records, and accounts that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer. The Staff was also considering potential charges under Rules 13a-1 and 12b-20 promulgated thereunder, which govern the filing requirements for annual reports and the obligation to include such further material information as may be necessary to make required statements, in light of the circumstances under which they are made, not misleading.

The Staff's termination notice was issued at the Wells stage — that is, following the delivery of a Wells notice to BRB, the submission by Calderwood & Harkness of a comprehensive Wells Submission on BRB's behalf, and the Staff's subsequent deliberation. A Wells-stage termination is the definitive close of a matter at the Staff level and reflects the Staff's considered judgment, after a full review of the evidence and the respondent's arguments, that the evidence does not warrant pursuit of an enforcement proceeding.

We note that the SEC's termination letter contains customary language providing that the termination of the investigation "should not be construed as indicating that the party has been exonerated or that no action may ultimately result from the Staff's investigation." This language is standard boilerplate that appears in virtually all SEC investigation termination letters, and it reflects the fact that the Commission itself — as distinguished from the Staff — retains plenary authority to direct the initiation of enforcement proceedings at any time, subject to applicable statutes of limitations. However, in our extensive experience representing financial institutions and public companies in SEC enforcement matters, a Wells-stage termination effectively and conclusively resolves the matter. It is exceedingly rare for the Commission to take action after the Staff has affirmatively determined not to recommend one, and we are not aware of any such instance involving comparable circumstances.

III. Background — Investigation Timeline

For the benefit of BRB's management team and for the record, we provide below a chronological summary of the key events and milestones in the SEC's investigation:

The investigation spanned approximately eight months from the initial voluntary request through final disposition, a timeframe that is relatively compressed by SEC enforcement standards and that reflects, in our view, both the focused nature of the inquiry and BRB's commendable cooperation throughout the process.

IV. Legal Effect of the Termination

A. No Enforcement Action

The Staff's decision not to recommend an enforcement action means that no civil proceeding, administrative proceeding, cease-and-desist order, or other enforcement remedy will be pursued by the SEC against BRB in connection with File No. HO-14287 and the matters investigated thereunder. Specifically:

• No civil complaint will be filed against BRB in federal district court;

• No administrative proceeding will be instituted against BRB before an SEC Administrative Law Judge;

• No cease-and-desist order will be sought or imposed;

• No monetary penalties, civil money penalties, or disgorgement of any kind will be sought from BRB;

• No injunctive relief will be pursued against BRB; and

• No undertakings, compliance monitors, or other remedial measures will be required of BRB.

We also confirm that no individual officers, directors, or employees of BRB were identified as separate subjects of the investigation or received separate Wells notices at any point during the course of the inquiry. The investigation was directed solely at BRB as an entity, and the termination encompasses the entirety of the matter. Accordingly, no individual at BRB faces any residual enforcement exposure arising from this investigation.

B. Statute of Limitations Considerations

We wish to bring to your attention several statute-of-limitations considerations that, while largely theoretical in light of the termination, are relevant as a matter of prudent legal planning.

No tolling agreement was executed between BRB and the SEC at any point during the investigation. Calderwood & Harkness successfully resisted the Staff's preliminary inquiry regarding tolling during the early stages of the matter, and no formal tolling request was subsequently made by the Staff.

The applicable statute of limitations for SEC civil enforcement actions is five years, as provided under 28 U.S.C. § 2462, which governs actions for the enforcement of civil penalties. The limitations period runs from the date of the alleged violation. Because the earliest filing at issue was BRB's FY 2022 Form 10-K, filed on February 28, 2023, the limitations period with respect to that filing would not expire until on or about February 28, 2028. For the Q1 2023 Form 10-Q (filed May 10, 2023), the limitations period extends to approximately May 10, 2028, and for the Q2 2023 Form 10-Q (filed August 9, 2023), to approximately August 9, 2028.

While the risk of the SEC reopening this investigation following a Wells-stage termination is, in our professional judgment, extremely low — indeed, we would characterize the likelihood as de minimis — the statute of limitations technically remains open with respect to all three subject filings for the durations indicated above. We are not recommending any affirmative action at this time with respect to the limitations period. However, as discussed in Section VI below, we do recommend that BRB maintain its document-preservation protocols for the foreseeable future as a matter of prudent practice.

C. Distinction from a "No-Action" Letter

We wish to clarify the legal distinction between the termination letter BRB has received and a formal SEC "no-action" letter. The termination letter is a Staff-level determination not to recommend that the Commission bring an enforcement action. It is not a formal "no-action" letter of the type issued by the SEC's Divisions of Corporation Finance, Investment Management, or Trading and Markets in response to interpretive requests, and it does not constitute an affirmative determination by the Commission itself that BRB's conduct was lawful or that its disclosures were accurate and complete.

Nonetheless, the termination letter carries substantial practical weight. It reflects the considered judgment of the Division of Enforcement Staff — including the Financial Fraud Unit, which specializes in accounting and disclosure matters — after a thorough review of hundreds of thousands of documents, multiple witness testimonies, and a detailed Wells Submission. Absent extraordinary circumstances — such as the discovery of previously unknown evidence of fraud — a Wells-stage termination represents a final disposition of the matter for all practical purposes. BRB should treat this outcome as a definitive and favorable conclusion of the SEC investigation.

V. Form 8-K Disclosure Considerations

A. Disclosure Analysis

BRB is a Nasdaq Global Select Market-listed company, trading under the ticker symbol "BRDG," and is a reporting company subject to the periodic and current reporting requirements of the Exchange Act. As such, BRB has disclosure obligations that are implicated by the termination of the SEC investigation.

Under Form 8-K, Item 8.01 ("Other Events"), a registrant may disclose any events that the registrant deems of importance to its security holders, even where no specific Form 8-K triggering event otherwise applies. The commencement of the SEC investigation was not separately disclosed by BRB in a Form 8-K at the time the voluntary request letter or formal order of investigation was received. Rather, the investigation was referenced in the risk-factor disclosures included in BRB's Quarterly Report on Form 10-Q for the third quarter of fiscal year 2023, filed with the SEC on November 9, 2023. That risk-factor disclosure stated, in relevant part, that the SEC Division of Enforcement was conducting an investigation into BRB's ACL disclosures for the BridgeFin portfolio and that BRB was cooperating with the investigation.

Calderwood & Harkness recommends that BRB consider disclosing the termination of the investigation through one of the following two channels:

(a) A current report on Form 8-K filed with the SEC under Item 8.01 ("Other Events"), disclosing the favorable termination of the investigation; or

(b) Disclosure of the termination in BRB's next periodic report — specifically, the Quarterly Report on Form 10-Q for the second quarter of fiscal year 2024, expected to be filed on or before August 9, 2024.

Of these two options, Calderwood & Harkness recommends option (a) — the prompt filing of a Form 8-K announcing the favorable termination — as the preferred approach. There are several reasons supporting this recommendation. First, filing the 8-K promptly removes the disclosure overhang created by the existing risk-factor language in the Q3 2023 Form 10-Q, which has been carried forward into the subsequent periodic filings and which the market may continue to weigh negatively against BRB's stock price. Second, the favorable resolution of an SEC investigation is the type of material positive development that may be viewed constructively by analysts, institutional investors, and the market generally, and prompt disclosure demonstrates transparency and good corporate governance. Third, timely disclosure reduces the risk that the information could leak or become known through other channels (such as Freedom of Information Act requests or informal market intelligence) before BRB has the opportunity to control the narrative.

BRB should coordinate with its securities reporting counsel, Caldwell Pratt & Stein LLP, and specifically with lead partner Martin Caldwell, on the drafting and filing of the Form 8-K. Calderwood & Harkness is available to review and comment on the Form 8-K disclosure language prior to filing.

B. Suggested Disclosure Language

For BRB's consideration, and subject to review and refinement by Caldwell Pratt & Stein LLP, we propose the following disclosure language for inclusion in the Form 8-K:

"On May 30, 2024, the Staff of the Division of Enforcement of the U.S. Securities and Exchange Commission notified Belmont Ridge Bank National Association (the "Bank") that it has concluded its investigation relating to the Bank's allowance for credit losses and related disclosures for the BridgeFin consumer fintech loan portfolio and does not intend to recommend any enforcement action against the Bank. The Bank cooperated fully with the Staff's investigation. The Bank intends to update or remove the related risk-factor disclosure in its subsequent periodic filings."

This language is intentionally concise and factual, consistent with market practice for disclosures of this nature. It conveys the essential information — that the investigation has been concluded and no enforcement action will be recommended — without elaboration that could be construed as an admission or that could invite unnecessary follow-up inquiries.

We note that BRB should also plan to update or remove the risk-factor disclosure relating to the SEC investigation in the Bank's Q2 2024 Form 10-Q and all subsequent periodic filings. The risk factor, as currently drafted, would be misleading if carried forward without modification following the investigation's termination.

C. Earnings Call and Investor Communications

To the extent the termination is publicly disclosed — whether through a Form 8-K, a periodic filing, or otherwise — BRB may receive questions from sell-side analysts, institutional investors, or other market participants regarding the investigation and its resolution. We recommend that BRB's investor-relations team, in coordination with Derek Sung's office and with input from Calderwood & Harkness, prepare a brief set of Q&A talking points to guide management's responses to any such questions.

As a general matter, we recommend that management's public statements on this topic be limited to confirming the facts set forth in the Form 8-K disclosure — namely, that the investigation has been concluded and no enforcement action will be recommended — and to expressing appreciation for the Bank's employees and advisors who contributed to the favorable resolution. Management should avoid characterizing the SEC's reasoning, speculating about the Staff's analysis, or commenting on the merits of the investigation in any detail.

All public statements regarding the SEC investigation and its termination, including any prepared remarks, Q&A responses, or press releases, should be reviewed by legal counsel in advance to ensure consistency with the Form 8-K disclosure and to avoid any inadvertent waiver of privilege or creation of disclosure obligations.

VI. Ongoing Obligations and Recommendations

A. Document Retention

Although the SEC investigation has been terminated, BRB should maintain its litigation hold related to this matter for a minimum period to be determined in consultation with counsel. Calderwood & Harkness recommends, as a matter of prudent practice, a seven-year retention hold on the following categories of materials:

(i) All documents produced to the SEC in connection with File No. HO-14287, including the six rolling productions totaling 284,617 documents;

(ii) All witness preparation materials, including outlines, memoranda, and notes prepared in connection with the investigative testimonies of Patricia Navarrete, Naveen Chakravarti, and Raymond Hu;

(iii) All work product generated by Calderwood & Harkness and Brindoval Analytic Partners LLC in connection with the investigation, including the Wells Submission and its exhibits;

(iv) All correspondence with the SEC Staff, including the initial voluntary request letter, the formal order of investigation, all subpoenas, all production cover letters, the Wells notice, the Wells Submission, the supplemental letter dated April 22, 2024, and the termination letter dated May 30, 2024; and

(v) All internal BRB communications, board and committee materials, and other records identified, collected, or reviewed in connection with the investigation that remain subject to the existing litigation hold.

The seven-year retention period is recommended to extend beyond the applicable five-year statute of limitations under 28 U.S.C. § 2462, providing an additional margin of protection. Calderwood & Harkness will maintain its own files in connection with this matter on the same seven-year schedule, consistent with the firm's document-retention policy.

BRB should not lift its litigation hold or permit the destruction of any documents subject to the hold without first consulting with Calderwood & Harkness. We will advise BRB when, in our judgment, it is appropriate to release the hold.

B. Disclosure Controls and Procedures Enhancements

One of the most important outcomes of any SEC investigation — even one that concludes favorably — is the opportunity to identify and implement enhancements to an institution's disclosure controls and procedures and internal controls over financial reporting. Calderwood & Harkness, in consultation with Brindoval Analytic Partners LLC, will prepare a comprehensive set of recommendations in a forthcoming final report to the Audit Committee of BRB's Board of Directors, addressed to Audit Committee Chair Gwendolyn Prescott. We expect to deliver that report within approximately thirty days of this letter.

In advance of the final report, we wish to highlight several preliminary recommendations that have emerged from our work on this matter:

(i) Enhanced Documentation of Qualitative Overlay Adjustments in the CECL Model. The SEC Staff's inquiry focused substantially on BRB's application of qualitative adjustment factors — sometimes referred to as "Q-factors" — in its CECL model for the BridgeFin portfolio. While Calderwood & Harkness's Wells Submission successfully demonstrated that BRB's qualitative adjustments were reasonable and within the range of acceptable practice, we identified opportunities to strengthen the contemporaneous documentation of the rationale for qualitative overlays, including the specific data inputs considered, the range of alternative assumptions evaluated, and the basis for selecting the adjustment applied. Enhanced documentation will provide a more robust audit trail and will better position BRB to defend its CECL methodology in any future regulatory or accounting inquiry.

(ii) Quarterly Vintage-Level Delinquency Reporting in MD&A. BRB has already implemented enhanced disclosure of vintage-level delinquency data for the BridgeFin portfolio in its Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), beginning with the Q3 2023 Form 10-Q filed on November 9, 2023. We commend BRB for this proactive step and recommend that it be continued on a permanent basis. Vintage-level reporting provides investors and regulators with granular insight into credit performance trends and reduces the risk that aggregate portfolio metrics may obscure emerging pockets of credit deterioration.

(iii) Formalized Governance Protocols for Re-Aging and Modification Decisions. During the investigation, the SEC Staff devoted significant attention to BRB's practices for re-aging delinquent loans and granting borrower modifications within the BridgeFin division. While no evidence of improper re-aging was identified, Calderwood & Harkness recommends that BRB formalize its governance protocols for re-aging and modification decisions, including the establishment of clear approval thresholds, mandatory supervisory review for modifications exceeding specified dollar or frequency limits, and periodic reporting of re-aging and modification activity to the Credit Committee and the Audit Committee.

(iv) Periodic Independent Review of ACL Methodology. Calderwood & Harkness recommends that BRB engage an independent third party — separate from its external auditor, Whitfield Keane LLP, to avoid independence concerns — to conduct a periodic review of its ACL methodology for the BridgeFin portfolio. This review should be conducted no less frequently than annually and should encompass an assessment of model inputs, assumptions, qualitative overlays, and the adequacy of the resulting reserve. The findings of the independent review should be reported to the Audit Committee.

We will elaborate on each of these recommendations, and provide additional recommendations as appropriate, in our forthcoming Audit Committee report.

C. OCC Coordination

BRB holds a national bank charter issued by the Office of the Comptroller of the Currency ("OCC"), Charter No. 24891, and is subject to ongoing OCC supervision and examination. As you are aware, the OCC conducted its own concurrent supervisory assessment of BRB's ACL methodology during the period of the SEC investigation. The OCC's assessment found no material deficiency in BRB's ACL methodology, and BRB continues to maintain a satisfactory CAMELS composite rating of 2 — a rating that reflects the OCC's determination that BRB is fundamentally sound and that any weaknesses are minor in nature and can be handled in a routine manner.

BRB should notify its OCC examiner-in-charge of the SEC investigation's termination as a matter of supervisory courtesy. While there is no formal regulatory requirement to provide such notification, maintaining open lines of communication with the OCC is consistent with sound supervisory practice and will ensure that the OCC's examination files are updated to reflect the favorable resolution. We recommend that Derek Sung or Annette Kowalski communicate the termination to the examiner-in-charge in writing, with a copy of the SEC Staff's termination letter enclosed.

D. Whitfield Keane LLP (Independent Auditor) Notification

BRB should inform its independent auditor, Whitfield Keane LLP, and specifically audit engagement partner Lorraine Dupont (PCAOB Registration No. 2847), of the termination of the SEC investigation. The termination may affect Whitfield Keane's assessment of subsequent-event considerations under PCAOB Auditing Standard AS 2801 (Subsequent Events) and may be relevant to their overall audit-risk evaluations for BRB's fiscal year 2024 audit.

In addition, Calderwood & Harkness recommends that Whitfield Keane's outside counsel, Hargrove & Millstein LLP, and specifically lead partner Samuel Hargrove, be copied on the notification to Whitfield Keane. This will ensure that Hargrove & Millstein, which served as an intermediary for certain document-production issues during the investigation, is informed of the matter's closure.

VII. D&O Insurance Matters

The SEC investigation was tendered as a Claim under BRB's directors and officers ("D&O") liability insurance program. We summarize the insurance-related matters below and recommend certain follow-up actions.

Policy Information. The primary D&O policy is issued by Northcastle Mutual Assurance Company, Policy No. NMA-DO-2023-11847, providing a primary limit of liability of $15,000,000 and bearing an entity retention (self-insured retention) of $2,500,000. The first excess D&O layer is provided by Cascade Omnivrel Insurance Group, Policy No. CFIG-XS1-2023-5598, providing $10,000,000 in excess of the $15,000,000 primary limit.

Defense Costs. Total defense costs incurred in connection with the investigation are as follows:

After application of the $2,500,000 entity retention, Northcastle Mutual Assurance Company reimbursed BRB a total of $1,966,022.00 in defense costs under the primary D&O policy. The first excess D&O layer with Cascade Omnivrel Insurance Group was not implicated, as total defense costs did not exceed the primary policy limit.

Recommended Actions. Calderwood & Harkness recommends that BRB take the following actions with respect to the D&O insurance program:

(i) Provide formal written notice of the investigation's closure to Northcastle Mutual Assurance Company, through BRB's D&O insurance broker, Ridgeline Governance Advisors LLC (contact: Melinda Tran), and to Northcastle's claims counsel, Thornfield & Rowe LLP (contact: Brenda Alvaro, Esq.). The closure notice should include a copy of the SEC Staff's termination letter and should confirm that no enforcement action was taken and that no penalties, disgorgement, or other monetary sanctions were imposed.

(ii) Submit a final accounting of all defense costs, together with any remaining outstanding invoices from Calderwood & Harkness or Brindoval Analytic Partners LLC, to Northcastle Mutual for final claim reconciliation. This final reconciliation should be completed prior to the current policy's expiration date of July 1, 2024, to ensure that all reimbursable costs are processed under the existing policy period.

(iii) Confirm with Ridgeline Governance Advisors LLC whether the favorable termination of the investigation should be disclosed in the D&O insurance renewal application for the upcoming policy period commencing July 1, 2024, and whether the termination may result in any favorable premium adjustment.

We are available to assist BRB and Ridgeline Governance Advisors LLC with any of these insurance-related matters as needed.

VIII. Acknowledgments

Calderwood & Harkness wishes to express its deep appreciation to BRB's management team for their cooperation, responsiveness, and professionalism throughout the course of the SEC investigation. The favorable outcome in this matter is attributable in significant part to the tireless efforts of BRB's leadership and staff.

In particular, we wish to recognize Derek Sung, whose sound judgment and strategic guidance as General Counsel were indispensable throughout the engagement; Patricia "Trish" Navarrete, whose testimony before the SEC Staff was well-prepared and effective, and whose mastery of BRB's financial reporting processes was instrumental in the preparation of the Wells Submission; Raymond Hu, whose detailed knowledge of BRB's CECL methodology and accounting policies enabled us to present a persuasive defense of BRB's ACL determinations; Naveen Chakravarti, whose candid and thorough testimony regarding the BridgeFin portfolio's credit performance was essential to the Staff's understanding of the relevant facts; and Annette Kowalski, whose coordination of BRB's risk management and compliance functions ensured the integrity and completeness of BRB's document productions and internal review.

We also wish to recognize the Audit Committee of BRB's Board of Directors for its engaged and diligent oversight throughout the investigation. Under the leadership of Audit Committee Chair Gwendolyn Prescott, the Audit Committee provided thoughtful governance, received regular briefings from Calderwood & Harkness, and supported management's efforts to cooperate fully with the SEC Staff while vigorously defending BRB's positions.

Finally, we acknowledge the cooperation and professionalism of BRB's securities reporting counsel, Caldwell Pratt & Stein LLP, and lead partner Martin Caldwell, who facilitated the transition of the defense engagement to Calderwood & Harkness and provided valuable assistance during the document-production process.

IX. Next Steps

In light of the investigation's termination, Calderwood & Harkness will prepare and circulate the following deliverables:

(a) Final Audit Committee Report. A comprehensive report to the Audit Committee, addressed to Chair Gwendolyn Prescott, summarizing the investigation, its resolution, lessons learned, and detailed recommendations for enhancements to BRB's disclosure controls and procedures and internal controls over financial reporting. We anticipate delivering this report within thirty days.

(b) Internal Matter Close-Out Memorandum. A privileged internal memorandum documenting the closure of Calderwood & Harkness Matter No. SC-MAT-2023-4172 and the disposition of all related files and work product.

(c) Final Invoices. Final invoices for the remaining billing period, which we will submit in accordance with the terms of our engagement letter and BRB's standard outside-counsel billing guidelines.

In addition, BRB should take the following actions, each of which is discussed in greater detail in the relevant sections of this letter:

(d) Engage Caldwell Pratt & Stein LLP to prepare and file the Form 8-K disclosure under Item 8.01 announcing the termination of the SEC investigation, as discussed in Section V above.

(e) Provide closure notification to BRB's OCC examiner-in-charge, as discussed in Section VI.C above.

(f) Provide notification to Whitfield Keane LLP and Hargrove & Millstein LLP, as discussed in Section VI.D above.

(g) Provide closure notification to Northcastle Mutual Assurance Company and submit final defense-cost reconciliation, as discussed in Section VII above.

Calderwood & Harkness remains fully available to assist BRB with any of the foregoing next steps and with any other follow-up matters that may arise in connection with the investigation or its aftermath.

X. Closing

We are gratified by the favorable outcome of this matter and believe it reflects both the strength of BRB's underlying accounting and disclosure practices and the effectiveness of BRB's cooperation strategy throughout the investigation. The termination of the SEC investigation without any enforcement action is the best possible result for BRB and its stakeholders, and we are proud to have played a role in achieving it.

Should you have any questions regarding any aspect of this letter, the enclosed SEC Staff termination letter, or the recommended next steps outlined herein, please do not hesitate to contact me directly at the number or email address listed below. Howard Quinn and Jasmine Thornton of our office are also available to assist.

We kindly request that you confirm receipt of this letter and its enclosure at your earliest convenience.

With warm regards,

CALDERWOOD & HARKNESS LLP

By: ________

Victoria Chambers Partner

425 Lexington Avenue, 30th Floor New York, New York 10017 Direct: (212) 554-7142

Email: vchambers@calderwoodharkness.com

Enclosure:

Copy of SEC Division of Enforcement Staff Letter dated May 30, 2024 (File No. HO-14287)

cc (via email):

Patricia "Trish" Navarrete, Chief Financial Officer, Belmont Ridge Bank National Association Gwendolyn Prescott, Audit Committee Chair, Belmont Ridge Bank National Association Annette Kowalski, Chief Risk Officer, Belmont Ridge Bank National Association Raymond Hu, Chief Accounting Officer, Belmont Ridge Bank National Association Howard Quinn, Partner, Calderwood & Harkness LLP Jasmine Thornton, Associate, Calderwood & Harkness LLP

CONFIDENTIALITY NOTICE: This communication, including all attachments and enclosures, is protected by the attorney-client privilege and the attorney work-product doctrine. It has been prepared by Calderwood & Harkness LLP in connection with the provision of legal services to Belmont Ridge Bank National Association and is intended solely for the use of the addressees and the individuals identified in the distribution list above. This communication contains confidential and privileged information. If you are not an intended recipient, you are hereby notified that any review, use, dissemination, distribution, or copying of this communication is strictly prohibited. If you have received this communication in error, please notify the sender immediately by telephone and destroy all copies of the communication and any attachments. Thank you.

Date	Event
September 18, 2023	SEC Division of Enforcement voluntary request letter received by BRB, initiating the investigation and requesting voluntary production of specified categories of documents relating to BRB's ACL for the BridgeFin portfolio
September 20, 2023	Calderwood & Harkness LLP retained by BRB as outside defense counsel; engagement letter executed by Derek Sung on behalf of BRB
October 12, 2023	SEC Formal Order of Investigation issued by the Commission (Formal Order No. EN-2023-0947), authorizing the Staff to compel testimony and the production of documents by subpoena
October 15, 2023	SEC document subpoena issued to BRB (Subpoena No. HO-14287-001), covering twenty-three categories of documents relating to the BridgeFin portfolio, CECL modeling, ACL governance, and related internal communications
November 1, 2023 – March 1, 2024	Six rolling document productions completed by BRB, totaling 284,617 documents (approximately 1.42 million pages), encompassing board and committee materials, credit committee minutes, CECL model documentation, loan-level data, internal audit reports, and email and instant-message communications
January 18, 2024	Investigative testimony of Patricia "Trish" Navarrete, Chief Financial Officer of BRB, taken on the record at the SEC's New York Regional Office
January 30, 2024	Investigative testimony of Naveen Chakravarti, Senior Vice President and Division Head of BridgeFin, taken on the record at the SEC's New York Regional Office
February 14, 2024	Investigative testimony of Raymond Hu, Chief Accounting Officer of BRB, taken on the record at the SEC's New York Regional Office
March 8, 2024	Wells call from the SEC Staff (Branch Chief Renata Moss and Assistant Director Gregory Bonham), advising Calderwood & Harkness that the Staff was considering recommending that the Commission bring an enforcement action against BRB for potential violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 13a-1 and 12b-20 thereunder
April 5, 2024	Wells Submission filed by Calderwood & Harkness on behalf of BRB (42 pages of narrative argument plus Exhibits A through G, including expert analysis by Brindoval Analytic Partners LLC regarding the reasonableness of BRB's CECL methodology)
April 22, 2024	Supplemental letter submitted by Calderwood & Harkness to the SEC Staff, providing updated fourth-quarter 2023 BridgeFin credit performance metrics demonstrating stabilization and improvement in delinquency rates and net charge-offs
May 30, 2024	SEC Staff termination letter received by Calderwood & Harkness — investigation closed, no enforcement action recommended
Category	Amount
Calderwood & Harkness LLP — legal fees and expenses	$3,847,622.00
Brindoval Analytic Partners LLC — forensic accounting fees and expenses	$618,400.00
Total Defense Costs	$4,466,022.00

ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL This communication is protected by the attorney-client privilege and the work-product doctrine. It has been prepared by Calderwood & Harkness LLP in connection with the provision of legal services to Belmont Ridge Bank National Association. This letter and its enclosures contain confidential and privileged information. Do not forward, copy, or distribute this communication to any person or entity without the prior written authorization of counsel.
CALDERWOOD & HARKNESS LLP Attorneys at Law
425 Lexington Avenue, 30th Floor New York, New York 10017 Telephone: (212) 554-7000 Facsimile: (212) 554-7001 www.calderwoodharkness.com
May 31, 2024
Via Email and Sundial Data Systems
Derek Sung, Esq. General Counsel and Chief Legal Officer Belmont Ridge Bank National Association 200 Park Avenue South, 38th Floor New York, New York 10003
Marcus R. Ellingham Chief Executive Officer Belmont Ridge Bank National Association 200 Park Avenue South, 38th Floor New York, New York 10003
Re: Termination of SEC Division of Enforcement Investigation — File No. HO-14287 (Formal Order No. EN-2023-0947)
Calderwood & Harkness Matter No. SC-MAT-2023-4172
Dear Derek and Marcus:
I. Purpose of This Letter
Calderwood & Harkness LLP writes on behalf of its client, Belmont Ridge Bank National Association ("BRB" or the "Bank"), to formally advise that the United States Securities and Exchange Commission ("SEC") Division of Enforcement has terminated its investigation into BRB's public disclosures regarding the allowance for credit losses ("ACL") for the BridgeFin consumer fintech loan portfolio. The termination letter from the Staff of the Division of Enforcement was received by our office on May 30, 2024, and a copy is enclosed with this correspondence.
We are pleased to report that the Staff has determined not to recommend any enforcement action against BRB in connection with this investigation. This outcome represents a complete and favorable resolution of the matter at the Staff level.
The purpose of this letter is to provide BRB's senior management and Board-level leadership with a comprehensive summary of the termination and its legal significance, our recommended next steps regarding public disclosure obligations, a description of any ongoing obligations that remain following the investigation's closure, and guidance on related matters including document retention, insurance, and regulatory notifications. We address each of these topics in turn below.
II. Summary of the SEC Termination Letter
On May 30, 2024, the SEC Division of Enforcement Staff — specifically through Branch Chief Renata Moss and Assistant Director Gregory Bonham of the Financial Fraud Unit — delivered a written letter to Calderwood & Harkness advising that the Staff has concluded its investigation in the matter captioned In the Matter of Belmont Ridge Bank National Association, File No. HO-14287, and has determined not to recommend any enforcement action against Belmont Ridge Bank National Association.
As you are aware, the investigation concerned whether BRB's public filings — specifically, its Annual Report on Form 10-K for fiscal year 2022 (filed with the SEC on February 28, 2023), its Quarterly Report on Form 10-Q for the first quarter of fiscal year 2023 (filed on May 10, 2023), and its Quarterly Report on Form 10-Q for the second quarter of fiscal year 2023 (filed on August 9, 2023) — materially understated expected credit losses in the BridgeFin consumer fintech loan portfolio. The BridgeFin portfolio, which comprises unsecured consumer installment loans originated through BRB's fintech lending partnership channel, had experienced elevated delinquency rates during the relevant period, and the Staff's inquiry focused on whether BRB's application of the Current Expected Credit Losses ("CECL") methodology, and in particular certain qualitative overlay adjustments, resulted in an ACL that was materially understated in the subject filings.
During the course of the investigation, the Staff had been considering whether to recommend charges against BRB under Section 13(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which requires issuers to file accurate periodic reports with the SEC, and Section 13(b)(2)(A) of the Exchange Act, which requires issuers to make and keep books, records, and accounts that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer. The Staff was also considering potential charges under Rules 13a-1 and 12b-20 promulgated thereunder, which govern the filing requirements for annual reports and the obligation to include such further material information as may be necessary to make required statements, in light of the circumstances under which they are made, not misleading.
The Staff's termination notice was issued at the Wells stage — that is, following the delivery of a Wells notice to BRB, the submission by Calderwood & Harkness of a comprehensive Wells Submission on BRB's behalf, and the Staff's subsequent deliberation. A Wells-stage termination is the definitive close of a matter at the Staff level and reflects the Staff's considered judgment, after a full review of the evidence and the respondent's arguments, that the evidence does not warrant pursuit of an enforcement proceeding.
We note that the SEC's termination letter contains customary language providing that the termination of the investigation "should not be construed as indicating that the party has been exonerated or that no action may ultimately result from the Staff's investigation." This language is standard boilerplate that appears in virtually all SEC investigation termination letters, and it reflects the fact that the Commission itself — as distinguished from the Staff — retains plenary authority to direct the initiation of enforcement proceedings at any time, subject to applicable statutes of limitations. However, in our extensive experience representing financial institutions and public companies in SEC enforcement matters, a Wells-stage termination effectively and conclusively resolves the matter. It is exceedingly rare for the Commission to take action after the Staff has affirmatively determined not to recommend one, and we are not aware of any such instance involving comparable circumstances.
III. Background — Investigation Timeline
For the benefit of BRB's management team and for the record, we provide below a chronological summary of the key events and milestones in the SEC's investigation:
The investigation spanned approximately eight months from the initial voluntary request through final disposition, a timeframe that is relatively compressed by SEC enforcement standards and that reflects, in our view, both the focused nature of the inquiry and BRB's commendable cooperation throughout the process.
IV. Legal Effect of the Termination
A. No Enforcement Action
The Staff's decision not to recommend an enforcement action means that no civil proceeding, administrative proceeding, cease-and-desist order, or other enforcement remedy will be pursued by the SEC against BRB in connection with File No. HO-14287 and the matters investigated thereunder. Specifically:
• No civil complaint will be filed against BRB in federal district court;
• No administrative proceeding will be instituted against BRB before an SEC Administrative Law Judge;
• No cease-and-desist order will be sought or imposed;
• No monetary penalties, civil money penalties, or disgorgement of any kind will be sought from BRB;
• No injunctive relief will be pursued against BRB; and
• No undertakings, compliance monitors, or other remedial measures will be required of BRB.
We also confirm that no individual officers, directors, or employees of BRB were identified as separate subjects of the investigation or received separate Wells notices at any point during the course of the inquiry. The investigation was directed solely at BRB as an entity, and the termination encompasses the entirety of the matter. Accordingly, no individual at BRB faces any residual enforcement exposure arising from this investigation.
B. Statute of Limitations Considerations
We wish to bring to your attention several statute-of-limitations considerations that, while largely theoretical in light of the termination, are relevant as a matter of prudent legal planning.
No tolling agreement was executed between BRB and the SEC at any point during the investigation. Calderwood & Harkness successfully resisted the Staff's preliminary inquiry regarding tolling during the early stages of the matter, and no formal tolling request was subsequently made by the Staff.
The applicable statute of limitations for SEC civil enforcement actions is five years, as provided under 28 U.S.C. § 2462, which governs actions for the enforcement of civil penalties. The limitations period runs from the date of the alleged violation. Because the earliest filing at issue was BRB's FY 2022 Form 10-K, filed on February 28, 2023, the limitations period with respect to that filing would not expire until on or about February 28, 2028. For the Q1 2023 Form 10-Q (filed May 10, 2023), the limitations period extends to approximately May 10, 2028, and for the Q2 2023 Form 10-Q (filed August 9, 2023), to approximately August 9, 2028.
While the risk of the SEC reopening this investigation following a Wells-stage termination is, in our professional judgment, extremely low — indeed, we would characterize the likelihood as de minimis — the statute of limitations technically remains open with respect to all three subject filings for the durations indicated above. We are not recommending any affirmative action at this time with respect to the limitations period. However, as discussed in Section VI below, we do recommend that BRB maintain its document-preservation protocols for the foreseeable future as a matter of prudent practice.
C. Distinction from a "No-Action" Letter
We wish to clarify the legal distinction between the termination letter BRB has received and a formal SEC "no-action" letter. The termination letter is a Staff-level determination not to recommend that the Commission bring an enforcement action. It is not a formal "no-action" letter of the type issued by the SEC's Divisions of Corporation Finance, Investment Management, or Trading and Markets in response to interpretive requests, and it does not constitute an affirmative determination by the Commission itself that BRB's conduct was lawful or that its disclosures were accurate and complete.
Nonetheless, the termination letter carries substantial practical weight. It reflects the considered judgment of the Division of Enforcement Staff — including the Financial Fraud Unit, which specializes in accounting and disclosure matters — after a thorough review of hundreds of thousands of documents, multiple witness testimonies, and a detailed Wells Submission. Absent extraordinary circumstances — such as the discovery of previously unknown evidence of fraud — a Wells-stage termination represents a final disposition of the matter for all practical purposes. BRB should treat this outcome as a definitive and favorable conclusion of the SEC investigation.
V. Form 8-K Disclosure Considerations
A. Disclosure Analysis
BRB is a Nasdaq Global Select Market-listed company, trading under the ticker symbol "BRDG," and is a reporting company subject to the periodic and current reporting requirements of the Exchange Act. As such, BRB has disclosure obligations that are implicated by the termination of the SEC investigation.
Under Form 8-K, Item 8.01 ("Other Events"), a registrant may disclose any events that the registrant deems of importance to its security holders, even where no specific Form 8-K triggering event otherwise applies. The commencement of the SEC investigation was not separately disclosed by BRB in a Form 8-K at the time the voluntary request letter or formal order of investigation was received. Rather, the investigation was referenced in the risk-factor disclosures included in BRB's Quarterly Report on Form 10-Q for the third quarter of fiscal year 2023, filed with the SEC on November 9, 2023. That risk-factor disclosure stated, in relevant part, that the SEC Division of Enforcement was conducting an investigation into BRB's ACL disclosures for the BridgeFin portfolio and that BRB was cooperating with the investigation.
Calderwood & Harkness recommends that BRB consider disclosing the termination of the investigation through one of the following two channels:
(a) A current report on Form 8-K filed with the SEC under Item 8.01 ("Other Events"), disclosing the favorable termination of the investigation; or
(b) Disclosure of the termination in BRB's next periodic report — specifically, the Quarterly Report on Form 10-Q for the second quarter of fiscal year 2024, expected to be filed on or before August 9, 2024.
Of these two options, Calderwood & Harkness recommends option (a) — the prompt filing of a Form 8-K announcing the favorable termination — as the preferred approach. There are several reasons supporting this recommendation. First, filing the 8-K promptly removes the disclosure overhang created by the existing risk-factor language in the Q3 2023 Form 10-Q, which has been carried forward into the subsequent periodic filings and which the market may continue to weigh negatively against BRB's stock price. Second, the favorable resolution of an SEC investigation is the type of material positive development that may be viewed constructively by analysts, institutional investors, and the market generally, and prompt disclosure demonstrates transparency and good corporate governance. Third, timely disclosure reduces the risk that the information could leak or become known through other channels (such as Freedom of Information Act requests or informal market intelligence) before BRB has the opportunity to control the narrative.
BRB should coordinate with its securities reporting counsel, Caldwell Pratt & Stein LLP, and specifically with lead partner Martin Caldwell, on the drafting and filing of the Form 8-K. Calderwood & Harkness is available to review and comment on the Form 8-K disclosure language prior to filing.
B. Suggested Disclosure Language
For BRB's consideration, and subject to review and refinement by Caldwell Pratt & Stein LLP, we propose the following disclosure language for inclusion in the Form 8-K:
"On May 30, 2024, the Staff of the Division of Enforcement of the U.S. Securities and Exchange Commission notified Belmont Ridge Bank National Association (the "Bank") that it has concluded its investigation relating to the Bank's allowance for credit losses and related disclosures for the BridgeFin consumer fintech loan portfolio and does not intend to recommend any enforcement action against the Bank. The Bank cooperated fully with the Staff's investigation. The Bank intends to update or remove the related risk-factor disclosure in its subsequent periodic filings."
This language is intentionally concise and factual, consistent with market practice for disclosures of this nature. It conveys the essential information — that the investigation has been concluded and no enforcement action will be recommended — without elaboration that could be construed as an admission or that could invite unnecessary follow-up inquiries.
We note that BRB should also plan to update or remove the risk-factor disclosure relating to the SEC investigation in the Bank's Q2 2024 Form 10-Q and all subsequent periodic filings. The risk factor, as currently drafted, would be misleading if carried forward without modification following the investigation's termination.
C. Earnings Call and Investor Communications
To the extent the termination is publicly disclosed — whether through a Form 8-K, a periodic filing, or otherwise — BRB may receive questions from sell-side analysts, institutional investors, or other market participants regarding the investigation and its resolution. We recommend that BRB's investor-relations team, in coordination with Derek Sung's office and with input from Calderwood & Harkness, prepare a brief set of Q&A talking points to guide management's responses to any such questions.
As a general matter, we recommend that management's public statements on this topic be limited to confirming the facts set forth in the Form 8-K disclosure — namely, that the investigation has been concluded and no enforcement action will be recommended — and to expressing appreciation for the Bank's employees and advisors who contributed to the favorable resolution. Management should avoid characterizing the SEC's reasoning, speculating about the Staff's analysis, or commenting on the merits of the investigation in any detail.
All public statements regarding the SEC investigation and its termination, including any prepared remarks, Q&A responses, or press releases, should be reviewed by legal counsel in advance to ensure consistency with the Form 8-K disclosure and to avoid any inadvertent waiver of privilege or creation of disclosure obligations.
VI. Ongoing Obligations and Recommendations
A. Document Retention
Although the SEC investigation has been terminated, BRB should maintain its litigation hold related to this matter for a minimum period to be determined in consultation with counsel. Calderwood & Harkness recommends, as a matter of prudent practice, a seven-year retention hold on the following categories of materials:
(i) All documents produced to the SEC in connection with File No. HO-14287, including the six rolling productions totaling 284,617 documents;
(ii) All witness preparation materials, including outlines, memoranda, and notes prepared in connection with the investigative testimonies of Patricia Navarrete, Naveen Chakravarti, and Raymond Hu;
(iii) All work product generated by Calderwood & Harkness and Brindoval Analytic Partners LLC in connection with the investigation, including the Wells Submission and its exhibits;
(iv) All correspondence with the SEC Staff, including the initial voluntary request letter, the formal order of investigation, all subpoenas, all production cover letters, the Wells notice, the Wells Submission, the supplemental letter dated April 22, 2024, and the termination letter dated May 30, 2024; and
(v) All internal BRB communications, board and committee materials, and other records identified, collected, or reviewed in connection with the investigation that remain subject to the existing litigation hold.
The seven-year retention period is recommended to extend beyond the applicable five-year statute of limitations under 28 U.S.C. § 2462, providing an additional margin of protection. Calderwood & Harkness will maintain its own files in connection with this matter on the same seven-year schedule, consistent with the firm's document-retention policy.
BRB should not lift its litigation hold or permit the destruction of any documents subject to the hold without first consulting with Calderwood & Harkness. We will advise BRB when, in our judgment, it is appropriate to release the hold.
B. Disclosure Controls and Procedures Enhancements
One of the most important outcomes of any SEC investigation — even one that concludes favorably — is the opportunity to identify and implement enhancements to an institution's disclosure controls and procedures and internal controls over financial reporting. Calderwood & Harkness, in consultation with Brindoval Analytic Partners LLC, will prepare a comprehensive set of recommendations in a forthcoming final report to the Audit Committee of BRB's Board of Directors, addressed to Audit Committee Chair Gwendolyn Prescott. We expect to deliver that report within approximately thirty days of this letter.
In advance of the final report, we wish to highlight several preliminary recommendations that have emerged from our work on this matter:
(i) Enhanced Documentation of Qualitative Overlay Adjustments in the CECL Model. The SEC Staff's inquiry focused substantially on BRB's application of qualitative adjustment factors — sometimes referred to as "Q-factors" — in its CECL model for the BridgeFin portfolio. While Calderwood & Harkness's Wells Submission successfully demonstrated that BRB's qualitative adjustments were reasonable and within the range of acceptable practice, we identified opportunities to strengthen the contemporaneous documentation of the rationale for qualitative overlays, including the specific data inputs considered, the range of alternative assumptions evaluated, and the basis for selecting the adjustment applied. Enhanced documentation will provide a more robust audit trail and will better position BRB to defend its CECL methodology in any future regulatory or accounting inquiry.
(ii) Quarterly Vintage-Level Delinquency Reporting in MD&A. BRB has already implemented enhanced disclosure of vintage-level delinquency data for the BridgeFin portfolio in its Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), beginning with the Q3 2023 Form 10-Q filed on November 9, 2023. We commend BRB for this proactive step and recommend that it be continued on a permanent basis. Vintage-level reporting provides investors and regulators with granular insight into credit performance trends and reduces the risk that aggregate portfolio metrics may obscure emerging pockets of credit deterioration.
(iii) Formalized Governance Protocols for Re-Aging and Modification Decisions. During the investigation, the SEC Staff devoted significant attention to BRB's practices for re-aging delinquent loans and granting borrower modifications within the BridgeFin division. While no evidence of improper re-aging was identified, Calderwood & Harkness recommends that BRB formalize its governance protocols for re-aging and modification decisions, including the establishment of clear approval thresholds, mandatory supervisory review for modifications exceeding specified dollar or frequency limits, and periodic reporting of re-aging and modification activity to the Credit Committee and the Audit Committee.
(iv) Periodic Independent Review of ACL Methodology. Calderwood & Harkness recommends that BRB engage an independent third party — separate from its external auditor, Whitfield Keane LLP, to avoid independence concerns — to conduct a periodic review of its ACL methodology for the BridgeFin portfolio. This review should be conducted no less frequently than annually and should encompass an assessment of model inputs, assumptions, qualitative overlays, and the adequacy of the resulting reserve. The findings of the independent review should be reported to the Audit Committee.
We will elaborate on each of these recommendations, and provide additional recommendations as appropriate, in our forthcoming Audit Committee report.
C. OCC Coordination
BRB holds a national bank charter issued by the Office of the Comptroller of the Currency ("OCC"), Charter No. 24891, and is subject to ongoing OCC supervision and examination. As you are aware, the OCC conducted its own concurrent supervisory assessment of BRB's ACL methodology during the period of the SEC investigation. The OCC's assessment found no material deficiency in BRB's ACL methodology, and BRB continues to maintain a satisfactory CAMELS composite rating of 2 — a rating that reflects the OCC's determination that BRB is fundamentally sound and that any weaknesses are minor in nature and can be handled in a routine manner.
BRB should notify its OCC examiner-in-charge of the SEC investigation's termination as a matter of supervisory courtesy. While there is no formal regulatory requirement to provide such notification, maintaining open lines of communication with the OCC is consistent with sound supervisory practice and will ensure that the OCC's examination files are updated to reflect the favorable resolution. We recommend that Derek Sung or Annette Kowalski communicate the termination to the examiner-in-charge in writing, with a copy of the SEC Staff's termination letter enclosed.
D. Whitfield Keane LLP (Independent Auditor) Notification
BRB should inform its independent auditor, Whitfield Keane LLP, and specifically audit engagement partner Lorraine Dupont (PCAOB Registration No. 2847), of the termination of the SEC investigation. The termination may affect Whitfield Keane's assessment of subsequent-event considerations under PCAOB Auditing Standard AS 2801 (Subsequent Events) and may be relevant to their overall audit-risk evaluations for BRB's fiscal year 2024 audit.
In addition, Calderwood & Harkness recommends that Whitfield Keane's outside counsel, Hargrove & Millstein LLP, and specifically lead partner Samuel Hargrove, be copied on the notification to Whitfield Keane. This will ensure that Hargrove & Millstein, which served as an intermediary for certain document-production issues during the investigation, is informed of the matter's closure.
VII. D&O Insurance Matters
The SEC investigation was tendered as a Claim under BRB's directors and officers ("D&O") liability insurance program. We summarize the insurance-related matters below and recommend certain follow-up actions.
Policy Information. The primary D&O policy is issued by Northcastle Mutual Assurance Company, Policy No. NMA-DO-2023-11847, providing a primary limit of liability of $15,000,000 and bearing an entity retention (self-insured retention) of $2,500,000. The first excess D&O layer is provided by Cascade Omnivrel Insurance Group, Policy No. CFIG-XS1-2023-5598, providing $10,000,000 in excess of the $15,000,000 primary limit.
Defense Costs. Total defense costs incurred in connection with the investigation are as follows:
After application of the $2,500,000 entity retention, Northcastle Mutual Assurance Company reimbursed BRB a total of $1,966,022.00 in defense costs under the primary D&O policy. The first excess D&O layer with Cascade Omnivrel Insurance Group was not implicated, as total defense costs did not exceed the primary policy limit.
Recommended Actions. Calderwood & Harkness recommends that BRB take the following actions with respect to the D&O insurance program:
(i) Provide formal written notice of the investigation's closure to Northcastle Mutual Assurance Company, through BRB's D&O insurance broker, Ridgeline Governance Advisors LLC (contact: Melinda Tran), and to Northcastle's claims counsel, Thornfield & Rowe LLP (contact: Brenda Alvaro, Esq.). The closure notice should include a copy of the SEC Staff's termination letter and should confirm that no enforcement action was taken and that no penalties, disgorgement, or other monetary sanctions were imposed.
(ii) Submit a final accounting of all defense costs, together with any remaining outstanding invoices from Calderwood & Harkness or Brindoval Analytic Partners LLC, to Northcastle Mutual for final claim reconciliation. This final reconciliation should be completed prior to the current policy's expiration date of July 1, 2024, to ensure that all reimbursable costs are processed under the existing policy period.
(iii) Confirm with Ridgeline Governance Advisors LLC whether the favorable termination of the investigation should be disclosed in the D&O insurance renewal application for the upcoming policy period commencing July 1, 2024, and whether the termination may result in any favorable premium adjustment.
We are available to assist BRB and Ridgeline Governance Advisors LLC with any of these insurance-related matters as needed.
VIII. Acknowledgments
Calderwood & Harkness wishes to express its deep appreciation to BRB's management team for their cooperation, responsiveness, and professionalism throughout the course of the SEC investigation. The favorable outcome in this matter is attributable in significant part to the tireless efforts of BRB's leadership and staff.
In particular, we wish to recognize Derek Sung, whose sound judgment and strategic guidance as General Counsel were indispensable throughout the engagement; Patricia "Trish" Navarrete, whose testimony before the SEC Staff was well-prepared and effective, and whose mastery of BRB's financial reporting processes was instrumental in the preparation of the Wells Submission; Raymond Hu, whose detailed knowledge of BRB's CECL methodology and accounting policies enabled us to present a persuasive defense of BRB's ACL determinations; Naveen Chakravarti, whose candid and thorough testimony regarding the BridgeFin portfolio's credit performance was essential to the Staff's understanding of the relevant facts; and Annette Kowalski, whose coordination of BRB's risk management and compliance functions ensured the integrity and completeness of BRB's document productions and internal review.
We also wish to recognize the Audit Committee of BRB's Board of Directors for its engaged and diligent oversight throughout the investigation. Under the leadership of Audit Committee Chair Gwendolyn Prescott, the Audit Committee provided thoughtful governance, received regular briefings from Calderwood & Harkness, and supported management's efforts to cooperate fully with the SEC Staff while vigorously defending BRB's positions.
Finally, we acknowledge the cooperation and professionalism of BRB's securities reporting counsel, Caldwell Pratt & Stein LLP, and lead partner Martin Caldwell, who facilitated the transition of the defense engagement to Calderwood & Harkness and provided valuable assistance during the document-production process.
IX. Next Steps
In light of the investigation's termination, Calderwood & Harkness will prepare and circulate the following deliverables:
(a) Final Audit Committee Report. A comprehensive report to the Audit Committee, addressed to Chair Gwendolyn Prescott, summarizing the investigation, its resolution, lessons learned, and detailed recommendations for enhancements to BRB's disclosure controls and procedures and internal controls over financial reporting. We anticipate delivering this report within thirty days.
(b) Internal Matter Close-Out Memorandum. A privileged internal memorandum documenting the closure of Calderwood & Harkness Matter No. SC-MAT-2023-4172 and the disposition of all related files and work product.
(c) Final Invoices. Final invoices for the remaining billing period, which we will submit in accordance with the terms of our engagement letter and BRB's standard outside-counsel billing guidelines.
In addition, BRB should take the following actions, each of which is discussed in greater detail in the relevant sections of this letter:
(d) Engage Caldwell Pratt & Stein LLP to prepare and file the Form 8-K disclosure under Item 8.01 announcing the termination of the SEC investigation, as discussed in Section V above.
(e) Provide closure notification to BRB's OCC examiner-in-charge, as discussed in Section VI.C above.
(f) Provide notification to Whitfield Keane LLP and Hargrove & Millstein LLP, as discussed in Section VI.D above.
(g) Provide closure notification to Northcastle Mutual Assurance Company and submit final defense-cost reconciliation, as discussed in Section VII above.
Calderwood & Harkness remains fully available to assist BRB with any of the foregoing next steps and with any other follow-up matters that may arise in connection with the investigation or its aftermath.
X. Closing
We are gratified by the favorable outcome of this matter and believe it reflects both the strength of BRB's underlying accounting and disclosure practices and the effectiveness of BRB's cooperation strategy throughout the investigation. The termination of the SEC investigation without any enforcement action is the best possible result for BRB and its stakeholders, and we are proud to have played a role in achieving it.
Should you have any questions regarding any aspect of this letter, the enclosed SEC Staff termination letter, or the recommended next steps outlined herein, please do not hesitate to contact me directly at the number or email address listed below. Howard Quinn and Jasmine Thornton of our office are also available to assist.
We kindly request that you confirm receipt of this letter and its enclosure at your earliest convenience.
With warm regards,
CALDERWOOD & HARKNESS LLP
By: ________
Victoria Chambers Partner
425 Lexington Avenue, 30th Floor New York, New York 10017 Direct: (212) 554-7142
Email: vchambers@calderwoodharkness.com
Enclosure:
Copy of SEC Division of Enforcement Staff Letter dated May 30, 2024 (File No. HO-14287)
cc (via email):
Patricia "Trish" Navarrete, Chief Financial Officer, Belmont Ridge Bank National Association Gwendolyn Prescott, Audit Committee Chair, Belmont Ridge Bank National Association Annette Kowalski, Chief Risk Officer, Belmont Ridge Bank National Association Raymond Hu, Chief Accounting Officer, Belmont Ridge Bank National Association Howard Quinn, Partner, Calderwood & Harkness LLP Jasmine Thornton, Associate, Calderwood & Harkness LLP
CONFIDENTIALITY NOTICE: This communication, including all attachments and enclosures, is protected by the attorney-client privilege and the attorney work-product doctrine. It has been prepared by Calderwood & Harkness LLP in connection with the provision of legal services to Belmont Ridge Bank National Association and is intended solely for the use of the addressees and the individuals identified in the distribution list above. This communication contains confidential and privileged information. If you are not an intended recipient, you are hereby notified that any review, use, dissemination, distribution, or copying of this communication is strictly prohibited. If you have received this communication in error, please notify the sender immediately by telephone and destroy all copies of the communication and any attachments. Thank you.
Date | Event
September 18, 2023 | SEC Division of Enforcement voluntary request letter received by BRB, initiating the investigation and requesting voluntary production of specified categories of documents relating to BRB's ACL for the BridgeFin portfolio
September 20, 2023 | Calderwood & Harkness LLP retained by BRB as outside defense counsel; engagement letter executed by Derek Sung on behalf of BRB
October 12, 2023 | SEC Formal Order of Investigation issued by the Commission (Formal Order No. EN-2023-0947), authorizing the Staff to compel testimony and the production of documents by subpoena
October 15, 2023 | SEC document subpoena issued to BRB (Subpoena No. HO-14287-001), covering twenty-three categories of documents relating to the BridgeFin portfolio, CECL modeling, ACL governance, and related internal communications
November 1, 2023 – March 1, 2024 | Six rolling document productions completed by BRB, totaling 284,617 documents (approximately 1.42 million pages), encompassing board and committee materials, credit committee minutes, CECL model documentation, loan-level data, internal audit reports, and email and instant-message communications
January 18, 2024 | Investigative testimony of Patricia "Trish" Navarrete, Chief Financial Officer of BRB, taken on the record at the SEC's New York Regional Office
January 30, 2024 | Investigative testimony of Naveen Chakravarti, Senior Vice President and Division Head of BridgeFin, taken on the record at the SEC's New York Regional Office
February 14, 2024 | Investigative testimony of Raymond Hu, Chief Accounting Officer of BRB, taken on the record at the SEC's New York Regional Office
March 8, 2024 | Wells call from the SEC Staff (Branch Chief Renata Moss and Assistant Director Gregory Bonham), advising Calderwood & Harkness that the Staff was considering recommending that the Commission bring an enforcement action against BRB for potential violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 13a-1 and 12b-20 thereunder
April 5, 2024 | Wells Submission filed by Calderwood & Harkness on behalf of BRB (42 pages of narrative argument plus Exhibits A through G, including expert analysis by Brindoval Analytic Partners LLC regarding the reasonableness of BRB's CECL methodology)
April 22, 2024 | Supplemental letter submitted by Calderwood & Harkness to the SEC Staff, providing updated fourth-quarter 2023 BridgeFin credit performance metrics demonstrating stabilization and improvement in delinquency rates and net charge-offs
May 30, 2024 | SEC Staff termination letter received by Calderwood & Harkness — investigation closed, no enforcement action recommended
Category | Amount
Calderwood & Harkness LLP — legal fees and expenses | $3,847,622.00
Brindoval Analytic Partners LLC — forensic accounting fees and expenses | $618,400.00
Total Defense Costs | $4,466,022.00

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