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ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT

This memorandum is a privileged and confidential attorney work product prepared in anticipation of litigation and in connection with the provision of legal advice. It is not to be disclosed to any person or entity outside of Calderwood & Harkness LLP and authorized representatives of Belmont Ridge Bank NA without the prior written consent of counsel. Any inadvertent disclosure does not constitute a waiver of any applicable privilege or protection.

CALDERWOOD & HARKNESS LLP 425 Lexington Avenue, 30th Floor New York, NY 10017

January 12, 2024

INTERNAL MEMORANDUM

TO: Victoria Chambers, Partner

FROM: Jasmine Thornton, Lead Associate Liam Donahue, Working Associate

RE: Witness Preparation — Investigative Testimony of Patricia "Trish" Navarrete, Chief Financial Officer, Belmont Ridge Bank NA; SEC Division of Enforcement, File No. HO-14287

MATTER NO.: SC-MAT-2023-4172

CLASSIFICATION: For Internal Use Only — Not to Be Shared with Witness Prior to Preparation Session

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I. PURPOSE AND SCOPE OF MEMORANDUM

This memorandum outlines the comprehensive preparation strategy for the investigative testimony of Patricia "Trish" Navarrete, Chief Financial Officer of Belmont Ridge Bank National Association ("BRB" or the "Bank"), which is currently scheduled to take place on January 18, 2024, before Staff of the Division of Enforcement of the United States Securities and Exchange Commission ("SEC" or "Commission"). Ms. Navarrete's testimony has been noticed pursuant to a testimony subpoena issued on November 22, 2023, under Formal Order of Investigation No. EN-2023-0947, in connection with SEC File No. HO-14287.

Based on our review of the subpoena, the Formal Order, the SEC's prior communications with us as counsel for BRB, and the nature and scope of the investigation to date, we anticipate that the following SEC Staff members will be present for the examination: Senior Staff Attorney Andrea Felton, who has been leading the day-to-day conduct of the investigation; Staff Attorney Christopher Yuen, who has handled the majority of document-production negotiations; and Staff Accountant Diane Milosevic, who has been responsible for the accounting analysis underlying the Staff's preliminary views on the allowance for credit losses. In addition, we believe there is a reasonable likelihood that Assistant Director Gregory Bonham, who oversees the Financial Fraud Unit within the Division of Enforcement, and Branch Chief Renata Moss may attend portions of the testimony, particularly the segments addressing the treatment of re-aged loans and the CFO certification process. The involvement of more senior personnel would be consistent with the Staff's apparent view that this investigation raises significant reporting and books-and-records issues.

This memorandum is organized into the following sections, each of which is designed to provide the preparation team with a thorough analytical framework for the upcoming preparation sessions and testimony itself:

(1) Witness Background — a detailed professional profile of Ms. Navarrete, her role in the matters under investigation, and representation considerations;

(2) The SEC's Investigation — Context for Testimony — an overview of the investigation, the Staff's preliminary legal theories, and the status of the document production;

(3) Anticipated Areas of SEC Staff Inquiry — a topic-by-topic analysis of the eight principal subject-matter areas we expect the Staff to explore;

(4) Anticipated Exhibits the SEC Staff May Use — an identification and categorization of documents the Staff is likely to present to the witness during testimony;

(5) Key Preparation Points and Strategy — general testimony principles, topic-specific preparation guidance, demeanor and presentation considerations, and areas of potential difficulty; and

(6) Preparation Session Schedule and Logistics — the proposed timeline for document review, mock examination sessions, and day-of arrangements.

The memorandum concludes with appendices containing the Upjohn warning script, a key document index, SEC Staff biographical notes, and applicable statutory and regulatory provisions.

II. WITNESS BACKGROUND

A. Professional Profile

Patricia "Trish" Navarrete is the Chief Financial Officer of Belmont Ridge Bank National Association, a nationally chartered commercial bank whose common stock is listed on the Nasdaq Global Select Market under the ticker symbol "BRDG." BRB's principal offices are located at 200 Park Avenue South, 38th Floor, New York, NY 10003. As of the most recently filed proxy statement, BRB had total consolidated assets of approximately $47.2 billion and total stockholders' equity of approximately $5.1 billion.

Ms. Navarrete has served as CFO of BRB since approximately mid-2019, a date we intend to confirm with the client prior to the first preparation session. It is our understanding, based on a preliminary review of BRB's organizational records and public filings, that Ms. Navarrete's appointment as CFO predates the launch of the BridgeFin digital-lending platform in the third quarter of 2020 — a chronological fact of some significance, as it means she was in the CFO role throughout the entire lifecycle of BridgeFin's origination and growth trajectory.

Prior to joining BRB, Ms. Navarrete served in senior finance roles at two other financial institutions, although the specifics of her prior employment history are more properly confirmed through her resume and Westmark Health IT profile, both of which should be reviewed before the preparation session to anticipate any background questions the Staff may pose.

In her capacity as CFO, Ms. Navarrete is a signatory on all of the SEC filings that are central to this investigation, including:

• The Fiscal Year 2022 Annual Report on Form 10-K, filed with the Commission on February 28, 2023;

• The First Quarter 2023 Quarterly Report on Form 10-Q, filed with the Commission on May 10, 2023; and

• The Second Quarter 2023 Quarterly Report on Form 10-Q, filed with the Commission on August 9, 2023.

For each of these filings, Ms. Navarrete executed certifications pursuant to both Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002. The Section 302 certifications, in particular, include her attestation that the financial statements fairly present, in all material respects, the financial condition and results of operations of BRB for the periods presented, and that she is responsible for establishing and maintaining internal controls and has evaluated their effectiveness. The Section 906 certifications carry potential criminal liability for knowing false certifications.

Within BRB's organizational structure, Ms. Navarrete reports directly to Chief Executive Officer Marcus R. Ellingham. She oversees the entirety of BRB's finance function, including the office of Chief Accounting Officer Raymond Hu, who is responsible for the day-to-day accounting operations and the preparation of the Bank's financial statements in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP"). Ms. Navarrete also has a functional reporting relationship with the Board of Directors' Audit Committee, which is chaired by independent director Gwendolyn Prescott. Understanding this organizational chain is critical because the SEC Staff will likely probe the flow of information from the business units up through the finance function to the CFO, with particular attention to what credit-quality data reached Ms. Navarrete, when it reached her, and what she did with it.

B. Role in Matters Under Investigation

Ms. Navarrete occupied a pivotal position in the matters that the SEC Staff is investigating. Her involvement spans several interconnected areas:

Allowance for Credit Losses. As CFO, Ms. Navarrete bore ultimate CFO-level responsibility for the allowance for credit losses ("ACL") methodology and for the adequacy of BRB's related disclosures in its periodic reports filed with the Commission. She was not personally constructing the econometric models or running the loan-level analyses — those tasks fell to Raymond Hu's team and the credit-risk analytics group — but she was the senior financial officer who reviewed, challenged, and ultimately approved the quarterly ACL estimates before they were incorporated into the financial statements.

Reserves Committee. Ms. Navarrete chaired BRB's internal Reserves Committee, which was the principal governance body responsible for reviewing and approving the quarterly ACL estimates across all of BRB's lending segments, including the BridgeFin portfolio. The Reserves Committee's work is at the center of the investigation because it was the body that reviewed and approved the BridgeFin portfolio's ACL of $143.5 million, representing a reserve rate of 3.50% against $4.1 billion in outstanding BridgeFin loans as of December 31, 2022. The composition, meeting cadence, and deliberative process of the Reserves Committee will be examined in detail during testimony, and Ms. Navarrete will be the key witness on these topics.

External Auditor Interface. Ms. Navarrete was the primary C-suite point of contact for BRB's independent registered public accounting firm, Whitfield Keane LLP. The engagement partner for the FY 2022 audit was Lorraine Dupont (PCAOB Registration No. 2847). Ms. Navarrete participated in discussions with the audit team regarding ACL-related audit matters, including the auditor's evaluation of BRB's CECL methodology, the reasonableness of management's assumptions, and the adequacy of related disclosures. The nature and substance of these communications will almost certainly be a focus of the Staff's questioning.

Board Audit Committee Reporting. Ms. Navarrete regularly communicated with the Board Audit Committee regarding credit-quality trends and provisioning across BRB's lending portfolios. These communications included quarterly presentations on credit performance, updates on the ACL estimation process, and discussions of emerging risks. The Staff will seek to understand what information Ms. Navarrete conveyed to the Audit Committee, particularly whether she disclosed the re-aging practices in the BridgeFin portfolio and the impact those practices had on reported credit metrics.

C. Representation Considerations

Several important representation considerations bear directly on the preparation process and the conduct of the testimony:

Entity Representation. Calderwood & Harkness LLP represents Belmont Ridge Bank NA, the corporate entity, in connection with this investigation. We do not represent Ms. Navarrete individually. This distinction is fundamental and must be clearly communicated to the witness at the outset of each preparation session through the administration of an Upjohn warning, the template script for which is attached as Appendix A. The Upjohn warning will make clear that (1) C&H represents BRB the entity and not Ms. Navarrete personally; (2) the attorney-client privilege that attaches to communications between Ms. Navarrete and C&H belongs to BRB, not to Ms. Navarrete; (3) BRB may elect to waive that privilege in the future, including by disclosing the substance of those communications to the SEC or other third parties; and (4) Ms. Navarrete has the right to retain personal counsel at her own expense at any time.

Personal Counsel. Ms. Navarrete has been advised on multiple occasions that she may retain personal counsel to represent her individual interests in connection with the investigation and the upcoming testimony. As of the date of this memorandum, she has not elected to do so and has affirmatively consented to preparation by C&H in its capacity as counsel for the entity. Should her interests and the entity's interests diverge at any point — including during the preparation sessions or during the testimony itself — we must be prepared to address that divergence promptly, including by suspending the preparation or the testimony to allow her to consult with independent counsel.

Cooperation Confirmation. General Counsel Derek Sung has confirmed that Ms. Navarrete has agreed to cooperate fully with the preparation process and the testimony. Mr. Sung has served as the internal coordination point between the witness and outside counsel throughout the investigation.

III. THE SEC'S INVESTIGATION — CONTEXT FOR TESTIMONY

A. Overview of the Investigation

The SEC's investigation into BRB originated with a voluntary request letter dated September 18, 2023, directed to BRB's General Counsel, Derek Sung. The voluntary request letter sought the production of documents and information relating to BRB's BridgeFin digital-lending platform, with particular focus on the allowance for credit losses associated with BridgeFin consumer personal loans and micro-business loans. After an initial period of engagement under the voluntary request, the Division of Enforcement obtained Formal Order of Investigation No. EN-2023-0947 on October 12, 2023, which authorized the issuance of subpoenas for documents and testimony. The investigation is being conducted under SEC File No. HO-14287.

The core issue under investigation is whether BRB's reported ACL of $143.5 million — representing a reserve rate of 3.50% applied to BridgeFin's $4.1 billion in outstanding loans as of December 31, 2022 — materially understated expected credit losses by failing to incorporate deteriorating credit-quality metrics in the BridgeFin consumer personal-loan sub-segment. The specific credit-quality deterioration at issue involves rising delinquency rates and increased charge-offs in vintage cohorts originated after the second quarter of 2021, a period during which BridgeFin's AI-driven underwriting model approved a significantly higher volume of loans under revised risk-tolerance parameters.

The Staff's Preliminary Quantitative View. Based on communications from Senior Staff Attorney Felton and the analytical work of Staff Accountant Milosevic, the SEC Staff's preliminary view is that the ACL for the BridgeFin portfolio should have been approximately $180.8 million, representing a reserve rate of approximately 4.41% of outstanding loans. This would constitute a potential understatement of $37.3 million ($180.8 million minus $143.5 million). It is critical to understand that the Staff's preliminary view rests heavily on the re-aging issue described below — specifically, the Staff's contention that BRB improperly reset the delinquency clocks on certain modified loans, thereby understating both delinquency rates and loss-rate projections in the CECL model.

Materiality Analysis. BRB's internal materiality threshold for purposes of financial reporting is set at 5% of pre-tax income. BRB's pre-tax income for fiscal year 2022 was approximately $612 million, yielding a quantitative materiality threshold of $30.6 million. The alleged $37.3 million understatement exceeds this threshold by $6.7 million, or approximately 21.9% of the threshold itself. This is a significant vulnerability because it allows the Staff to argue that the alleged misstatement was material even under BRB's own internally established metrics. However, as discussed in Section VI below, materiality is properly assessed under a totality-of-the-circumstances analysis rather than a single quantitative bright-line test, and Ms. Navarrete should be prepared to articulate that point if the issue arises during testimony.

The Re-Aging Issue. The key disputed factual and accounting question in the investigation is the treatment of 12,847 re-aged or modified BridgeFin loans with an aggregate outstanding balance of $236.4 million. Under BRB's practices, when a BridgeFin borrower received a loan modification — typically involving a temporary reduction in payment amount, an extension of the loan term, or a deferral of past-due payments — BRB's systems reset the borrower's delinquency status to "current" as of the modification date. This had the effect of resetting the delinquency clock, so that a borrower who had been 90 or more days delinquent prior to modification would be reported as current immediately following the modification. BRB's CECL model then treated these re-aged loans as "current" in their modified status for purposes of estimating lifetime expected credit losses, effectively assigning them the loss rates associated with current loans rather than the higher loss rates associated with their pre-modification delinquency status.

The SEC Staff contends that these 12,847 re-aged loans should have remained in their original vintage delinquency buckets for purposes of the CECL model's loss-rate projections, and that BRB's practice of resetting the delinquency clocks artificially depressed both the reported delinquency rates and the projected loss rates that fed into the ACL calculation. The following credit metrics are in dispute:

These metrics are central to the investigation and will almost certainly be put to Ms. Navarrete during testimony. She should be thoroughly prepared to address each of them.

B. Potential Legal Theories

Based on the Staff's communications to date, the public filings at issue, and the nature of the factual questions being investigated, we anticipate that the SEC Staff is considering the following legal theories:

Section 13(a) of the Securities Exchange Act of 1934 and Rule 13a-1 thereunder. Section 13(a) requires issuers of securities registered under Section 12 of the Exchange Act to file periodic reports — including annual reports on Form 10-K and quarterly reports on Form 10-Q — in conformity with the Commission's rules and regulations. Rule 13a-1 implements this requirement with respect to annual reports. The Staff's theory would be that BRB violated Section 13(a) and Rule 13a-1 by filing a Form 10-K for fiscal year 2022, and Forms 10-Q for Q1 and Q2 2023, that contained financial statements materially misstating the ACL for the BridgeFin portfolio and that omitted material information about the re-aging practices that distorted reported credit-quality metrics.

Section 13(b)(2)(A) of the Exchange Act. This provision requires every issuer to "make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer." The Staff's theory would be that BRB's books and records inaccurately reflected the credit quality and delinquency status of the BridgeFin loan portfolio by treating re-aged loans as current rather than maintaining their original delinquency classifications.

Rule 12b-20 under the Exchange Act. Rule 12b-20 requires that, in addition to the information expressly required in any filing, an issuer must include "such further material information, if any, as may be necessary to make the required statements, in the light of the circumstances under which they are made, not misleading." The Staff may argue that BRB's periodic reports omitted material information about the re-aging practices, the impact of those practices on reported delinquency and charge-off metrics, and the resulting effect on the reported ACL — information that was necessary to prevent the filed statements from being misleading.

Scienter-Based Theories — Potential but Not Yet signaled. We note that, as of the date of this memorandum, the SEC Staff has not signaled an intent to pursue scienter-based fraud charges under Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, or under Section 17(a) of the Securities Act. However, the possibility that the investigation could evolve in that direction cannot be ruled out, particularly given the involvement of Assistant Director Bonham from the Financial Fraud Unit and the Staff's apparent interest in what Ms. Navarrete knew about the re-aging practices and their impact on reported metrics. Ms. Navarrete should be prepared as though scienter is at issue, meaning she must be careful in her testimony about her state of mind, her knowledge of the re-aging practices, and the basis for her determinations regarding the adequacy of the ACL and related disclosures.

It bears emphasis that Sections 13(a) and 13(b)(2)(A) are strict-liability provisions that do not require proof of scienter. The Staff could bring reporting and books-and-records charges against BRB as an entity without needing to prove that any individual officer acted with fraudulent intent. However, if the Staff were to pursue charges against Ms. Navarrete individually — whether under the fraud provisions or as a cause of the entity's violations — the scienter or negligence standards applicable to individual liability would come into play. The distinction between entity liability and individual liability should inform our preparation strategy.

C. Document Production Status

As of the date of this memorandum, BRB has completed three rolling productions of documents to the SEC Staff in response to the subpoena duces tecum:

Three additional productions remain to be completed. The cumulative target across all six productions is approximately 284,617 documents. The privilege log maintained in connection with the production currently reflects 1,847 documents that have been withheld in whole or redacted in part on the basis of attorney-client privilege, work-product protection, or bank-examination privilege.

Ms. Navarrete is a key custodian in the document production. Her email account, shared drives, and hard-copy files have been collected and processed, and her documents have been produced across all three completed productions. The SEC Staff will have had access to a substantial volume of Ms. Navarrete's communications and files before the testimony, and the Staff's questioning will undoubtedly be informed by that documentary record. It is therefore essential that Ms. Navarrete review key documents from her custodial files as part of the preparation process, so that she is not encountering her own emails and memoranda for the first time during the examination.

We note that because only approximately half of the total document production has been completed, there may be documents in the remaining three productions that are responsive to topics addressed during the testimony. This is a logistical reality that we should flag with the SEC Staff, if necessary, to avoid any suggestion that BRB or the witness has been uncooperative or that the testimony was premature.

IV. ANTICIPATED AREAS OF SEC STAFF INQUIRY

Based on our analysis of the investigation to date, the documents produced, the Staff's prior communications, and the typical structure of SEC investigative testimony in financial reporting matters, we anticipate that the examination will focus on the following eight principal topic areas. For each topic, we identify the likely thrust of the Staff's questions and the key facts that Ms. Navarrete should be prepared to address.

A. Topic 1: BRB's CECL Methodology and ACL Estimation Process

This will almost certainly be the opening substantive area of inquiry, as the Staff will want to establish the foundation for the more pointed questions that follow regarding the re-aging treatment and the adequacy of the reported ACL. We anticipate the Staff will explore the following:

CECL Adoption. The Staff will likely begin by asking Ms. Navarrete to describe how BRB adopted Accounting Standards Codification Topic 326, Financial Instruments — Credit Losses ("ASC 326"), also known as the Current Expected Credit Losses ("CECL") standard. BRB's CECL adoption was effective January 1, 2020, in accordance with the standard's mandatory effective date for SEC filers. Ms. Navarrete should be prepared to describe the transition at a high level, including the key methodological choices BRB made in implementing CECL and the governance structure put in place to oversee the new model.

Model Structure and Governance. The Staff will want to understand the structure and governance of BRB's CECL model, including its inputs, assumptions, and the qualitative overlay process. This includes the specific quantitative models used (vintage analysis, probability-of-default/loss-given-default models, or other approaches), the data inputs fed into those models, the macroeconomic scenarios considered, and the process by which qualitative adjustments were layered on top of the quantitative output. Ms. Navarrete should be able to describe the general framework without getting lost in the mathematical details, which are more properly the province of Raymond Hu and the credit-risk analytics team.

Navarrete's Personal Role. The Staff will probe Ms. Navarrete's personal involvement in reviewing and approving the quarterly ACL estimate. They will want to understand the depth of her engagement — whether she was substantively involved in the deliberations, whether she challenged assumptions, and whether she understood the key drivers of the ACL estimate, or whether she merely signed off on numbers presented to her by subordinates. This line of questioning goes directly to the scienter issue: a CFO who was deeply engaged in the process is harder to charge with fraud, but a CFO who rubber-stamped numbers without inquiry may be vulnerable to negligence-based liability.

BridgeFin Segmentation. The Staff will ask how the BridgeFin portfolio was segmented within BRB's overall ACL framework. BridgeFin's consumer personal loans and micro-business loans have different risk profiles from BRB's traditional lending products, and the Staff will want to understand whether the CECL model treated BridgeFin as a distinct segment with its own loss-rate assumptions or whether BridgeFin was pooled with other lending categories in a way that might have diluted the impact of its deteriorating credit quality.

Lifetime Expected Credit Losses Methodology. The Staff will focus on the specific methodology used to estimate lifetime expected credit losses for BridgeFin's two principal loan types: consumer personal loans (average loan size of approximately $18,400) and micro-business loans (average loan size of approximately $42,000). The relatively small average loan sizes and the unsecured or lightly secured nature of these loans give them fundamentally different risk characteristics from, for example, BRB's commercial real estate portfolio or its residential mortgage book. The Staff will want to understand how those characteristics were reflected in the loss-rate assumptions.

Origination Volume and Outstanding Balances. The Staff will establish the scale of the BridgeFin portfolio: $2.87 billion in new originations during fiscal year 2022, with $4.1 billion in outstanding loans at year-end. These figures provide the denominator against which the ACL percentage is calculated, and the Staff will want to confirm that Ms. Navarrete was aware of the portfolio's rapid growth and the implications of that growth for credit-loss estimation.

Macroeconomic Forecasts. The Staff will ask how macroeconomic forecasts were incorporated into the CECL model — what economic scenarios were used, what macroeconomic variables were considered (unemployment rates, GDP growth, consumer debt levels, interest rates), and whether the forecasts were updated to reflect deteriorating economic conditions that might affect BridgeFin borrowers.

Quarterly True-Up and Qualitative Adjustments. Finally, the Staff will ask about quarterly true-up procedures and whether qualitative adjustments were made to account for emerging credit trends that the quantitative model might not have fully captured. This is particularly important because qualitative adjustments are where management judgment is most directly exercised, and the Staff may argue that BRB should have made larger qualitative adjustments to account for the deterioration in post-Q2 2021 vintage cohorts even if the quantitative model did not fully reflect that deterioration.

B. Topic 2: Treatment of Re-Aged / Modified Loans

This is the single most important and most sensitive area of inquiry. The re-aging issue is the fulcrum of the entire investigation, and the Staff's questions on this topic will likely be the most aggressive and detailed. We anticipate the following lines of questioning:

The Re-Aging Decision. The Staff will ask Ms. Navarrete to describe the decision to reset delinquency clocks for 12,847 re-aged or modified BridgeFin loans, which had an aggregate outstanding balance of $236.4 million. They will want to understand the mechanics of the re-aging process — what triggered a modification, what types of modifications were made (payment reduction, term extension, payment deferral, or some combination), and what happened to the borrower's delinquency status upon modification.

Decision-Makers and Organizational Level. The Staff will probe who made the re-aging decision and at what organizational level. Specifically, they will want to know whether the decision was made at the BridgeFin division level (by Naveen Chakravarti or his subordinates), at the central finance/accounting level (by Raymond Hu or his team), or at the CFO level (by Ms. Navarrete herself). The Staff's interest in the organizational level of the decision-making reflects its inquiry into scienter — if the decision was made at a lower level without Ms. Navarrete's knowledge, that has different implications than if she was directly involved in or approved the re-aging practice.

Navarrete's Awareness. The Staff will ask directly whether Ms. Navarrete was aware of the re-aging practice and, critically, whether she was aware of its effect on delinquency and loss-rate metrics. This is likely to be a pivotal moment in the testimony. If Ms. Navarrete was aware that re-aging had the effect of reducing reported delinquency rates, the Staff will use that awareness to argue that she knew or should have known that the reported credit metrics were misleading.

Policy Documentation and Compliance. The Staff will ask whether BRB's re-aging policies were documented in writing and whether they complied with the guidance set forth in the Office of the Comptroller of the Currency's ("OCC") Comptroller's Handbook regarding re-aging of loans. The OCC guidance generally permits re-aging under certain conditions, including that the borrower has demonstrated a renewed willingness and ability to repay, and that the re-aging is not used to avoid reporting delinquent loans. The Staff will want to know whether BRB's practices met those conditions.

Disclosure to Whitfield Keane. The Staff will ask whether the re-aging practice was disclosed to Whitfield Keane LLP during the FY 2022 audit. If the practice was not disclosed, or was not disclosed fully, the Staff will argue that BRB withheld material information from its auditor, which would undermine BRB's reliance on the unqualified audit opinion as a defense.

Disclosure to Investors. The Staff will ask whether the re-aging practice was disclosed to investors in the FY 2022 10-K or the subsequent 10-Q filings. Based on our review, BRB's public filings do not contain specific disclosure of the re-aging practice or its impact on reported credit metrics. The absence of such disclosure is a vulnerability.

Impact on Credit Metrics. The Staff will put the specific numbers to Ms. Navarrete: the 90+ day delinquency rate of 1.72% as reported versus 2.38% when re-aged loans are included in their original delinquency buckets; the net charge-off rate of 2.14% as reported versus approximately 3.05% on an adjusted basis. The Staff will argue that the difference between the reported and adjusted metrics is material and that the failure to disclose the re-aging practice rendered BRB's reported credit metrics misleading.

C. Topic 3: CFO Certifications (SOX 302 and 906)

The Staff will examine Ms. Navarrete's understanding of and compliance with her certification obligations under the Sarbanes-Oxley Act. This topic is significant both because of the legal consequences of false certifications and because the certification process is a window into Ms. Navarrete's state of mind at the time of the filings.

The Staff will ask Ms. Navarrete to explain her understanding of her obligations under Sarbanes-Oxley Sections 302 and 906 when she certified the 10-K and 10-Q filings. They will want to understand the process she followed before executing certifications — specifically, what materials she reviewed, who she consulted, and what sub-certifications or representations she received from business-unit heads and from Chief Accounting Officer Raymond Hu. The Staff will also ask whether she was aware of any material weaknesses or significant deficiencies in BRB's internal controls over financial reporting as of the certification dates, and whether she received any internal reports, memoranda, emails, or oral warnings suggesting that the ACL for the BridgeFin portfolio might be understated or that the reported credit metrics might not accurately reflect the portfolio's condition.

D. Topic 4: Internal Controls over Financial Reporting (ICFR)

The Staff will explore BRB's internal controls over financial reporting as they relate to the ACL estimation process. This line of questioning serves the dual purpose of assessing whether BRB's controls were adequate and of establishing what information flowed through the control environment to the CFO.

We expect the Staff to ask about the following: BRB's ICFR framework as it relates to ACL estimation, including the specific controls designed to ensure the accuracy and completeness of the inputs to the CECL model; the role of the Reserves Committee, including its composition, meeting frequency, and documentation practices; the interaction between the BridgeFin division (headed by Senior Vice President and Division Head Naveen Chakravarti) and the central finance/accounting function (led by CAO Raymond Hu) in providing data inputs for the ACL calculations; any changes to ICFR during calendar years 2022 or 2023 that were made in response to the rapid growth of the BridgeFin portfolio; and whether Whitfield Keane identified any control deficiencies related to the ACL process in connection with their audit of the FY 2022 financial statements.

E. Topic 5: Communications with External Auditor (Whitfield Keane LLP)

The Staff will seek to understand the nature and content of Ms. Navarrete's communications with Whitfield Keane, particularly engagement partner Lorraine Dupont, regarding the BridgeFin ACL. The Staff's interest in these communications is multifaceted: if the auditor raised concerns about the re-aging treatment or the adequacy of the ACL and BRB did not adequately address those concerns, that would strengthen the Staff's case; conversely, if the auditor was fully informed and did not object, that may support BRB's position but could also signal issues with the audit itself (which is a separate matter for the PCAOB).

Specifically, the Staff will ask about the nature and frequency of communications between Ms. Navarrete and the Whitfield Keane engagement team regarding the BridgeFin ACL; whether Whitfield Keane raised any questions about the re-aging treatment or the adequacy of the ACL at any point during the FY 2022 audit or the Q1 and Q2 2023 interim reviews; whether Ms. Navarrete was involved in any discussions about proposed audit adjustments related to the ACL; and whether there were any items in the management representation letter signed by Ms. Navarrete for the FY 2022 audit that specifically addressed the BridgeFin ACL, the re-aging practice, or the credit-quality metrics for the BridgeFin portfolio.

F. Topic 6: Communications with Audit Committee

The Staff will examine the information that flowed from Ms. Navarrete to the Board Audit Committee, chaired by independent director Gwendolyn Prescott. This topic is relevant both to the adequacy of BRB's corporate governance and to the question of what information was available to the individuals responsible for oversight of the financial reporting process.

We expect the Staff to ask about the reports and presentations provided to the Audit Committee regarding BridgeFin credit quality, including whether Ms. Navarrete presented credit-quality dashboards, trend analyses, or other materials that reflected the deterioration in post-Q2 2021 vintage cohorts. The Staff will ask whether the Audit Committee was informed of the re-aging practice and its effect on reported delinquency metrics. And the Staff will ask whether the Audit Committee discussed the adequacy of the ACL disclosures for the BridgeFin portfolio in the 10-K and 10-Q filings.

G. Topic 7: Disclosure Preparation and Review Process

The Staff will explore the process by which BRB prepared and reviewed the disclosures in the periodic reports at issue. This topic is distinct from the accounting questions addressed above; it focuses on the disclosure drafting process itself and the involvement of various parties — including outside counsel — in shaping the language of the ACL disclosures and the MD&A credit-quality discussion.

We anticipate the Staff will ask about Ms. Navarrete's specific role in the preparation and review of the FY 2022 10-K, the Q1 2023 10-Q, and the Q2 2023 10-Q; the involvement of BRB's prior outside securities counsel, Caldwell Pratt & Stein LLP (lead partner Martin Caldwell), in drafting and reviewing the ACL disclosures; whether any draft disclosure language specifically addressing the re-aging practice or its impact on credit metrics was considered during the drafting process and subsequently removed or revised; and the MD&A discussion of credit-quality metrics — what Ms. Navarrete reviewed, what comments she provided, and what she ultimately approved for filing.

The question of whether draft disclosure language about re-aging was considered and removed is particularly important. If such language existed in draft form and was deleted before filing, the Staff will argue that BRB consciously decided to omit material information, which would support a finding of scienter. We should review the drafting history of the relevant filings in detail before the preparation session.

H. Topic 8: BridgeFin Platform and Credit Quality Trends

The Staff will likely conclude the substantive examination — or intersperse questions throughout — regarding Ms. Navarrete's general knowledge of the BridgeFin platform, its performance, and emerging credit-quality trends. This topic is designed to test whether Ms. Navarrete, as the Bank's CFO, was attuned to the warning signs of credit deterioration in the BridgeFin portfolio.

The Staff will ask about Ms. Navarrete's general knowledge of BridgeFin's AI-driven underwriting model and how it performed over time; whether she received reports showing deterioration in the vintage cohorts originated after Q2 2021, when BridgeFin's revised risk-tolerance parameters resulted in a higher volume of originations to borrowers with thinner credit files; the internal dashboards, credit-quality reports, and management information she regularly reviewed in connection with her CFO responsibilities; and any escalation or communication from Chief Risk Officer Annette Kowalski regarding BridgeFin credit trends, including whether Kowalski raised concerns about the portfolio's performance or the adequacy of the ACL.

V. ANTICIPATED EXHIBITS THE SEC STAFF MAY USE

The SEC Staff will almost certainly use exhibits during the examination to anchor Ms. Navarrete's testimony to specific documents. Based on our experience with SEC investigative testimony and our knowledge of the documents in the production, we anticipate the following categories of exhibits:

A. SEC Filings

The Staff will likely introduce and question Ms. Navarrete about the following public filings:

• BRB FY 2022 Form 10-K (filed February 28, 2023) — The Staff will focus on the financial statement notes relating to the allowance for credit losses (we expect this to be Note 7 or a similarly numbered note, to be confirmed) and the MD&A discussion of credit-quality trends, asset quality, and provisioning. The Staff will also focus on the loan-portfolio tables and the ACL rollforward schedule.

• BRB Q1 2023 Form 10-Q (filed May 10, 2023) — The Staff will examine the ACL disclosures and MD&A for the first quarter of 2023, looking for any changes in the disclosed methodology or credit metrics from the 10-K.

• BRB Q2 2023 Form 10-Q (filed August 9, 2023) — Similar focus as the Q1 filing, with additional attention to whether the Q2 disclosures reflected any updating for further credit deterioration that emerged during the first half of 2023.

• SOX Section 302 and Section 906 Certifications — The Staff will present the certifications signed by Ms. Navarrete in each of the three filings and will ask her to confirm her signature and to testify about the process she followed before signing.

B. Internal BRB Documents (from Production)

The Staff will draw from the documents produced by BRB in the three completed rolling productions. The following categories of documents are most likely to be used as exhibits:

• Reserves Committee Meeting Minutes — The minutes from the quarterly Reserves Committee meetings during FY 2022 and the first half of 2023 will be central exhibits. These minutes document the committee's deliberations regarding the ACL estimates, including the data considered, the assumptions discussed, and the decisions reached. Because Ms. Navarrete chaired the committee, she should be thoroughly familiar with these minutes.

• BridgeFin Credit-Quality Reports and Dashboards — Any credit-quality reports, dashboard outputs, or management information packages provided to Ms. Navarrete that reflected the performance of the BridgeFin portfolio, including delinquency rates, charge-off rates, vintage-cohort performance, and other credit metrics.

• Emails between Navarrete and Raymond Hu (CAO) — Communications between the CFO and the CAO regarding ACL estimates, CECL methodology, and related topics. These emails may reveal the substance of discussions about the ACL, any concerns raised by the CAO, and the CFO's responses.

• Emails between Navarrete and Naveen Chakravarti (SVP, BridgeFin Division Head) — Communications between the CFO and the head of the BridgeFin division regarding portfolio performance, credit quality, and related matters. The Staff will use these emails to establish what Ms. Navarrete knew about the BridgeFin portfolio's condition.

• Re-Aging-Related Documents — Any emails, memoranda, policy documents, or meeting notes that discuss the re-aging of BridgeFin loans, the decision to reset delinquency clocks, the rationale for the practice, and its impact on reported metrics.

• Sub-Certification Packages — The packages of sub-certifications from business-unit heads and the CAO to the CFO in connection with the SOX certification process. These documents reflect the representation cascade that supports the CFO's certifications and will be relevant to Ms. Navarrete's testimony about the basis for her certifications.

• Audit Committee Presentation Materials — The presentation decks, talking points, and other materials prepared by or for Ms. Navarrete for her presentations to the Board Audit Committee, particularly those addressing BridgeFin credit quality and the ACL.

C. Auditor Communications

The Staff may introduce documents from BRB's communications with its independent auditor, Whitfield Keane LLP:

• Management Letters — If Whitfield Keane issued any management letters to BRB that reference the BridgeFin ACL, the re-aging practice, or related control issues, the Staff will likely use those as exhibits.

• SAS 114/AU-C 260 Communications — The required communications from the auditor to the Audit Committee under AU-C Section 260 (formerly SAS 114) regarding significant audit findings, including any discussions of critical audit matters, significant accounting estimates, or disagreements with management related to the ACL.

• Management Representation Letters — The management representation letters signed by Ms. Navarrete (and CEO Ellingham) in connection with the FY 2022 audit. These letters typically contain specific representations about the completeness and accuracy of information provided to the auditor and about the reasonableness of significant accounting estimates, including the ACL.

D. Regulatory Communications

The Staff may attempt to introduce or question Ms. Navarrete about OCC examination reports or other regulatory correspondence that references the ACL. We note, however, that the bank-examination privilege may apply to protect these communications from disclosure to the SEC. If the Staff seeks testimony about the substance of OCC examination reports or correspondence, counsel should be prepared to instruct Ms. Navarrete not to answer pending a privilege determination. Ms. Navarrete should be briefed that she should not volunteer the contents of OCC examination materials during testimony, even if she recalls them, and should look to counsel if any question appears to call for such information.

VI. KEY PREPARATION POINTS AND STRATEGY

A. General Testimony Principles

At the outset of each preparation session, the following fundamental principles for investigative testimony should be reviewed with Ms. Navarrete. These principles are standard guidance for witnesses in SEC proceedings, but they warrant emphasis given the complexity of the subject matter and the high stakes involved:

Answer only the question asked. Ms. Navarrete should listen carefully to each question and answer it directly, without volunteering additional information. Testimony subpoenas compel her to appear and answer questions truthfully, but they do not require her to educate the Staff or fill in gaps in their understanding. If the Staff wants to know something, they will ask. Volunteered information creates new lines of inquiry and increases the risk of inconsistencies.

Ask for clarification if a question is unclear. If Ms. Navarrete does not understand a question — because it is ambiguous, compound, or uses terminology in an unfamiliar way — she should ask the examining attorney to rephrase or clarify the question before attempting to answer. It is far better to seek clarification than to guess at the questioner's intent and provide a responsive but potentially harmful answer.

Distinguish between personal knowledge and information learned from others. Ms. Navarrete should be precise about the basis for her knowledge. If she knows something from personal observation or direct involvement, she should say so. If she learned something from a report, an email, a subordinate, or another source, she should identify the source. She should not speculate about matters outside her personal knowledge.

"I don't recall" is an acceptable answer when truthful. Ms. Navarrete should not feel pressured to recall specific details that she genuinely does not remember. The events at issue span multiple quarters, and it is entirely natural for a busy CFO not to recall every detail of every conversation, every email, and every data point. However, "I don't recall" must be truthful — if she does recall, she must say so.

Do not guess at specific numbers or dates. The examination will involve numerous specific figures — dollar amounts, percentages, dates, loan counts. Ms. Navarrete should not guess at these figures. If she is not certain of a specific number or date, she should say so and, where appropriate, refer to documents for confirmation. The Staff will have the documents and can show them to her.

Be truthful at all times. This point requires no elaboration, but it deserves emphasis. Ms. Navarrete's testimony will be taken under oath, and false testimony carries the risk of criminal prosecution for perjury or obstruction. She must be truthful in every answer, even when the truth is uncomfortable or inconvenient for BRB's position.

Do not assert privilege during testimony. If a question calls for information that is protected by the attorney-client privilege, the work-product doctrine, or the bank-examination privilege, counsel attending the testimony — Victoria Chambers and/or Jasmine Thornton — will assert the privilege on behalf of BRB. Ms. Navarrete should not attempt to assert privilege herself. If she is uncertain whether a question calls for privileged information, she should pause and look to counsel before answering.

Be cautious about state-of-mind questions. The SEC Staff may attempt to establish scienter by asking Ms. Navarrete about her state of mind — what she "knew," "believed," "expected," "thought," or "intended" with respect to credit quality, the ACL, the re-aging practice, and the adequacy of disclosures. These questions are designed to elicit testimony that can be used to support a fraud theory. Ms. Navarrete should answer state-of-mind questions factually and specifically, grounding her answers in what she reviewed, what she was told, what the data showed, and what process she followed, rather than offering broad characterizations of her subjective beliefs.

B. Topic-Specific Preparation Guidance

1. CECL Methodology / ACL

Ms. Navarrete should emphasize throughout her testimony on this topic that the ACL estimation process under ASC 326 inherently involves significant management judgment and estimation uncertainty. CECL requires the estimation of lifetime expected credit losses over the remaining contractual life of loans, adjusted for expected prepayments, and incorporating reasonable and supportable forecasts of future economic conditions. There is no single "correct" ACL; rather, there is a range of reasonable estimates, and management must exercise judgment in selecting an estimate within that range.

She should be prepared to note that BRB's CECL methodology was reviewed and accepted by Whitfield Keane LLP in connection with the FY 2022 audit. The auditor examined BRB's model, tested its inputs and assumptions, evaluated the reasonableness of management's estimates, and ultimately issued an unqualified opinion on the financial statements. While the auditor's acceptance of the methodology does not immunize BRB from SEC scrutiny, it is a significant fact that underscores the reasonableness of BRB's approach.

We note for internal purposes only that BRB's reported ACL of $143.5 million (3.50% of BridgeFin outstanding) was within the range of reasonable estimates, as supported by the analysis performed by our retained expert, Dr. Franklin Osei of Brindoval Analytic Partners. However, Ms. Navarrete must not reference the Brindoval engagement, Dr. Osei's analysis, or any aspect of the expert's work product during testimony. That engagement was made at the direction of counsel and is protected by the attorney-client privilege and the work-product doctrine. If the Staff asks whether BRB has retained any outside experts in connection with the investigation, counsel will address the question.

Ms. Navarrete should be able to describe the general framework of BRB's CECL model at a level appropriate for a CFO: vintage-cohort analysis as the primary quantitative methodology, the use of historical loss rates calibrated to the BridgeFin portfolio's specific experience, the incorporation of macroeconomic overlays based on multiple economic scenarios, and the application of qualitative adjustments to account for factors not captured by the quantitative model. She should demonstrate command of the framework without getting drawn into granular model mechanics that are more appropriately addressed by Raymond Hu or the credit-risk analytics team.

2. Re-Aging / Modification Treatment

This is the most sensitive area of the testimony and the topic that requires the most careful preparation. The re-aging issue is the factual foundation of the Staff's case, and the Staff's questions will be designed to establish either that Ms. Navarrete knew the re-aging practice was distorting credit metrics (supporting a scienter theory) or that she was negligent in failing to understand its impact (supporting a negligence theory for individual liability or a books-and-records violation for the entity).

Ms. Navarrete should describe the re-aging practice factually and without defensiveness. She should be prepared to explain what a loan modification entailed in the BridgeFin context, why borrowers were offered modifications, and what happened to the borrower's account status upon modification. She should explain that the re-aging of modified loans was consistent with BRB's internal loan-modification policy, which she should describe, and that BRB viewed the practice as consistent with the OCC Handbook's guidance on re-aging, which permits the practice under appropriate conditions.

Ms. Navarrete should avoid conceding that the re-aging practice "masked," "hid," or "concealed" delinquency. These are the Staff's characterizations, not BRB's, and adopting them would be harmful. Instead, she should frame re-aging as a recognized and legitimate credit-management practice that is used by banks to work with borrowers who have experienced temporary financial difficulty and have demonstrated a renewed willingness and ability to repay. She should note that re-aging, when properly implemented, benefits both the borrower and the institution by avoiding unnecessary charge-offs on loans that are likely to return to performing status.

If the Staff asks whether Ms. Navarrete was aware that re-aging had the effect of reducing reported delinquency rates, she should acknowledge awareness of the mechanical effect — that resetting a loan's delinquency status to current upon modification necessarily moves it out of the delinquent bucket — but she should explain the business rationale for the practice and emphasize that it was documented, applied consistently in accordance with BRB's internal policy, and reviewed as part of the normal credit-management process.

Ms. Navarrete should be prepared to hear the following key figures from the Staff, as they will almost certainly be put to her: the total of 12,847 re-aged loans; the $236.4 million aggregate outstanding balance; the 90+ day delinquency rate of 1.72% as reported versus 2.38% with re-aged loans included in their original delinquency buckets; and the net charge-off rate of 2.14% as reported versus approximately 3.05% on an adjusted basis. She should not dispute these numbers during testimony — doing so without supporting documents could create credibility issues — but she should avoid affirmatively adopting the Staff's adjusted figures as the "correct" metrics. If asked whether the adjusted figures are accurate, she can note that she has not independently verified the Staff's calculations and would need to review the underlying data and methodology before commenting on their accuracy.

3. CFO Certifications

Ms. Navarrete should describe her certification process as thorough, deliberate, and supported by multiple layers of internal review and representation. She should explain that before signing the SOX 302 and 906 certifications for each filing, she followed a structured process that included:

(a) receiving and reviewing sub-certifications from the heads of each major business unit, including the BridgeFin division, in which those officers represented that they had reviewed the financial information attributable to their units and that it was accurate and complete;

(b) receiving and reviewing a sub-certification from Chief Accounting Officer Raymond Hu, in which Hu represented that the financial statements had been prepared in accordance with U.S. GAAP and that the accounting records and underlying data were accurate;

(d) consulting with the internal audit function regarding any findings or control issues;

(e) considering the results of the external audit and any matters communicated by Whitfield Keane; and

(f) relying on the work of qualified professionals within BRB's finance and accounting organization who were closer to the underlying data and calculations.

She should not concede any deficiency in her certification process. If the Staff suggests that she should have done more — for example, that she should have independently verified the delinquency calculations or drilled down into the re-aging data — she should explain that the certification process is designed to work through a system of internal controls and sub-certifications, and that a CFO of a multi-billion-dollar financial institution necessarily relies on the work of subordinates and on the control environment to support her certifications.

If the Staff asks hypothetical questions — for example, "If you had known the true delinquency rate was 2.38% rather than 1.72%, would you still have signed the certifications?" — Ms. Navarrete should avoid engaging with the hypothetical. She should restate that her certifications were based on the information available to her at the time and the judgments made through the established process. Hypothetical questions invite speculation and can produce damaging sound bites; she should decline the invitation.

4. Communications with Whitfield Keane

Ms. Navarrete may describe the general nature and topics of her discussions with the Whitfield Keane engagement team, but she should be cautious about the level of detail she provides. Communications between management and the external auditor in the course of the audit are generally not privileged, but there are privilege considerations if counsel was present during any of those communications or if the discussions touched on legal advice.

Ms. Navarrete should note that Whitfield Keane audited BRB's FY 2022 financial statements and issued an unqualified opinion. She should further note that the audit engagement included a specific focus on the ACL as a significant accounting estimate, and that the engagement team, including engagement partner Lorraine Dupont, had access to BRB's CECL model, its inputs and assumptions, and the underlying loan-level data.

She should not speculate about what the auditor "thought," "believed," or "concluded" with respect to specific ACL levels or the re-aging practice. She can testify about what was communicated to her, but she should not put words in the auditor's mouth. If the Staff wants to know Whitfield Keane's views, they can examine the auditor directly.

5. Privilege Concerns During Testimony

Ms. Navarrete must be carefully instructed on the boundaries of privilege during testimony. She should not disclose the substance of any communications with Calderwood & Harkness LLP in connection with the investigation, any communications with BRB's prior outside securities counsel, Caldwell Pratt & Stein LLP (lead partner Martin Caldwell), that are protected by the attorney-client privilege, or any communications with General Counsel Derek Sung that involve the provision or receipt of legal advice.

She should not disclose the substance of OCC examination reports, examination findings, or correspondence between BRB and the OCC relating to the ACL or credit quality. The bank-examination privilege protects these communications, and their disclosure to the SEC could waive the privilege. If the Staff asks questions that call for information from OCC examination materials, counsel will instruct Ms. Navarrete not to answer pending a privilege determination, or will assert the privilege on the record.

As a general rule, if Ms. Navarrete is uncertain whether a question calls for privileged information, she should pause and look to counsel before answering. It is far better to take a brief pause than to inadvertently waive a privilege that cannot be recaptured.

C. Demeanor and Presentation

Ms. Navarrete should present as a confident, competent, and cooperative Chief Financial Officer who takes her financial-reporting and disclosure obligations seriously. The Staff will form

ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT
This memorandum is a privileged and confidential attorney work product prepared in anticipation of litigation and in connection with the provision of legal advice. It is not to be disclosed to any person or entity outside of Calderwood & Harkness LLP and authorized representatives of Belmont Ridge Bank NA without the prior written consent of counsel. Any inadvertent disclosure does not constitute a waiver of any applicable privilege or protection.
CALDERWOOD & HARKNESS LLP 425 Lexington Avenue, 30th Floor New York, NY 10017
January 12, 2024
INTERNAL MEMORANDUM
TO: Victoria Chambers, Partner
FROM: Jasmine Thornton, Lead Associate Liam Donahue, Working Associate
RE: Witness Preparation — Investigative Testimony of Patricia "Trish" Navarrete, Chief Financial Officer, Belmont Ridge Bank NA; SEC Division of Enforcement, File No. HO-14287
MATTER NO.: SC-MAT-2023-4172
CLASSIFICATION: For Internal Use Only — Not to Be Shared with Witness Prior to Preparation Session
Right-click to update Table of Contents
I. PURPOSE AND SCOPE OF MEMORANDUM
This memorandum outlines the comprehensive preparation strategy for the investigative testimony of Patricia "Trish" Navarrete, Chief Financial Officer of Belmont Ridge Bank National Association ("BRB" or the "Bank"), which is currently scheduled to take place on January 18, 2024, before Staff of the Division of Enforcement of the United States Securities and Exchange Commission ("SEC" or "Commission"). Ms. Navarrete's testimony has been noticed pursuant to a testimony subpoena issued on November 22, 2023, under Formal Order of Investigation No. EN-2023-0947, in connection with SEC File No. HO-14287.
Based on our review of the subpoena, the Formal Order, the SEC's prior communications with us as counsel for BRB, and the nature and scope of the investigation to date, we anticipate that the following SEC Staff members will be present for the examination: Senior Staff Attorney Andrea Felton, who has been leading the day-to-day conduct of the investigation; Staff Attorney Christopher Yuen, who has handled the majority of document-production negotiations; and Staff Accountant Diane Milosevic, who has been responsible for the accounting analysis underlying the Staff's preliminary views on the allowance for credit losses. In addition, we believe there is a reasonable likelihood that Assistant Director Gregory Bonham, who oversees the Financial Fraud Unit within the Division of Enforcement, and Branch Chief Renata Moss may attend portions of the testimony, particularly the segments addressing the treatment of re-aged loans and the CFO certification process. The involvement of more senior personnel would be consistent with the Staff's apparent view that this investigation raises significant reporting and books-and-records issues.
This memorandum is organized into the following sections, each of which is designed to provide the preparation team with a thorough analytical framework for the upcoming preparation sessions and testimony itself:
(1) Witness Background — a detailed professional profile of Ms. Navarrete, her role in the matters under investigation, and representation considerations;
(2) The SEC's Investigation — Context for Testimony — an overview of the investigation, the Staff's preliminary legal theories, and the status of the document production;
(3) Anticipated Areas of SEC Staff Inquiry — a topic-by-topic analysis of the eight principal subject-matter areas we expect the Staff to explore;
(4) Anticipated Exhibits the SEC Staff May Use — an identification and categorization of documents the Staff is likely to present to the witness during testimony;
(5) Key Preparation Points and Strategy — general testimony principles, topic-specific preparation guidance, demeanor and presentation considerations, and areas of potential difficulty; and
(6) Preparation Session Schedule and Logistics — the proposed timeline for document review, mock examination sessions, and day-of arrangements.
The memorandum concludes with appendices containing the Upjohn warning script, a key document index, SEC Staff biographical notes, and applicable statutory and regulatory provisions.
II. WITNESS BACKGROUND
A. Professional Profile
Patricia "Trish" Navarrete is the Chief Financial Officer of Belmont Ridge Bank National Association, a nationally chartered commercial bank whose common stock is listed on the Nasdaq Global Select Market under the ticker symbol "BRDG." BRB's principal offices are located at 200 Park Avenue South, 38th Floor, New York, NY 10003. As of the most recently filed proxy statement, BRB had total consolidated assets of approximately $47.2 billion and total stockholders' equity of approximately $5.1 billion.
Ms. Navarrete has served as CFO of BRB since approximately mid-2019, a date we intend to confirm with the client prior to the first preparation session. It is our understanding, based on a preliminary review of BRB's organizational records and public filings, that Ms. Navarrete's appointment as CFO predates the launch of the BridgeFin digital-lending platform in the third quarter of 2020 — a chronological fact of some significance, as it means she was in the CFO role throughout the entire lifecycle of BridgeFin's origination and growth trajectory.
Prior to joining BRB, Ms. Navarrete served in senior finance roles at two other financial institutions, although the specifics of her prior employment history are more properly confirmed through her resume and Westmark Health IT profile, both of which should be reviewed before the preparation session to anticipate any background questions the Staff may pose.
In her capacity as CFO, Ms. Navarrete is a signatory on all of the SEC filings that are central to this investigation, including:
• The Fiscal Year 2022 Annual Report on Form 10-K, filed with the Commission on February 28, 2023;
• The First Quarter 2023 Quarterly Report on Form 10-Q, filed with the Commission on May 10, 2023; and
• The Second Quarter 2023 Quarterly Report on Form 10-Q, filed with the Commission on August 9, 2023.
For each of these filings, Ms. Navarrete executed certifications pursuant to both Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002. The Section 302 certifications, in particular, include her attestation that the financial statements fairly present, in all material respects, the financial condition and results of operations of BRB for the periods presented, and that she is responsible for establishing and maintaining internal controls and has evaluated their effectiveness. The Section 906 certifications carry potential criminal liability for knowing false certifications.
Within BRB's organizational structure, Ms. Navarrete reports directly to Chief Executive Officer Marcus R. Ellingham. She oversees the entirety of BRB's finance function, including the office of Chief Accounting Officer Raymond Hu, who is responsible for the day-to-day accounting operations and the preparation of the Bank's financial statements in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP"). Ms. Navarrete also has a functional reporting relationship with the Board of Directors' Audit Committee, which is chaired by independent director Gwendolyn Prescott. Understanding this organizational chain is critical because the SEC Staff will likely probe the flow of information from the business units up through the finance function to the CFO, with particular attention to what credit-quality data reached Ms. Navarrete, when it reached her, and what she did with it.
B. Role in Matters Under Investigation
Ms. Navarrete occupied a pivotal position in the matters that the SEC Staff is investigating. Her involvement spans several interconnected areas:
Allowance for Credit Losses. As CFO, Ms. Navarrete bore ultimate CFO-level responsibility for the allowance for credit losses ("ACL") methodology and for the adequacy of BRB's related disclosures in its periodic reports filed with the Commission. She was not personally constructing the econometric models or running the loan-level analyses — those tasks fell to Raymond Hu's team and the credit-risk analytics group — but she was the senior financial officer who reviewed, challenged, and ultimately approved the quarterly ACL estimates before they were incorporated into the financial statements.
Reserves Committee. Ms. Navarrete chaired BRB's internal Reserves Committee, which was the principal governance body responsible for reviewing and approving the quarterly ACL estimates across all of BRB's lending segments, including the BridgeFin portfolio. The Reserves Committee's work is at the center of the investigation because it was the body that reviewed and approved the BridgeFin portfolio's ACL of $143.5 million, representing a reserve rate of 3.50% against $4.1 billion in outstanding BridgeFin loans as of December 31, 2022. The composition, meeting cadence, and deliberative process of the Reserves Committee will be examined in detail during testimony, and Ms. Navarrete will be the key witness on these topics.
External Auditor Interface. Ms. Navarrete was the primary C-suite point of contact for BRB's independent registered public accounting firm, Whitfield Keane LLP. The engagement partner for the FY 2022 audit was Lorraine Dupont (PCAOB Registration No. 2847). Ms. Navarrete participated in discussions with the audit team regarding ACL-related audit matters, including the auditor's evaluation of BRB's CECL methodology, the reasonableness of management's assumptions, and the adequacy of related disclosures. The nature and substance of these communications will almost certainly be a focus of the Staff's questioning.
Board Audit Committee Reporting. Ms. Navarrete regularly communicated with the Board Audit Committee regarding credit-quality trends and provisioning across BRB's lending portfolios. These communications included quarterly presentations on credit performance, updates on the ACL estimation process, and discussions of emerging risks. The Staff will seek to understand what information Ms. Navarrete conveyed to the Audit Committee, particularly whether she disclosed the re-aging practices in the BridgeFin portfolio and the impact those practices had on reported credit metrics.
C. Representation Considerations
Several important representation considerations bear directly on the preparation process and the conduct of the testimony:
Entity Representation. Calderwood & Harkness LLP represents Belmont Ridge Bank NA, the corporate entity, in connection with this investigation. We do not represent Ms. Navarrete individually. This distinction is fundamental and must be clearly communicated to the witness at the outset of each preparation session through the administration of an Upjohn warning, the template script for which is attached as Appendix A. The Upjohn warning will make clear that (1) C&H represents BRB the entity and not Ms. Navarrete personally; (2) the attorney-client privilege that attaches to communications between Ms. Navarrete and C&H belongs to BRB, not to Ms. Navarrete; (3) BRB may elect to waive that privilege in the future, including by disclosing the substance of those communications to the SEC or other third parties; and (4) Ms. Navarrete has the right to retain personal counsel at her own expense at any time.
Personal Counsel. Ms. Navarrete has been advised on multiple occasions that she may retain personal counsel to represent her individual interests in connection with the investigation and the upcoming testimony. As of the date of this memorandum, she has not elected to do so and has affirmatively consented to preparation by C&H in its capacity as counsel for the entity. Should her interests and the entity's interests diverge at any point — including during the preparation sessions or during the testimony itself — we must be prepared to address that divergence promptly, including by suspending the preparation or the testimony to allow her to consult with independent counsel.
Cooperation Confirmation. General Counsel Derek Sung has confirmed that Ms. Navarrete has agreed to cooperate fully with the preparation process and the testimony. Mr. Sung has served as the internal coordination point between the witness and outside counsel throughout the investigation.
III. THE SEC'S INVESTIGATION — CONTEXT FOR TESTIMONY
A. Overview of the Investigation
The SEC's investigation into BRB originated with a voluntary request letter dated September 18, 2023, directed to BRB's General Counsel, Derek Sung. The voluntary request letter sought the production of documents and information relating to BRB's BridgeFin digital-lending platform, with particular focus on the allowance for credit losses associated with BridgeFin consumer personal loans and micro-business loans. After an initial period of engagement under the voluntary request, the Division of Enforcement obtained Formal Order of Investigation No. EN-2023-0947 on October 12, 2023, which authorized the issuance of subpoenas for documents and testimony. The investigation is being conducted under SEC File No. HO-14287.
The core issue under investigation is whether BRB's reported ACL of $143.5 million — representing a reserve rate of 3.50% applied to BridgeFin's $4.1 billion in outstanding loans as of December 31, 2022 — materially understated expected credit losses by failing to incorporate deteriorating credit-quality metrics in the BridgeFin consumer personal-loan sub-segment. The specific credit-quality deterioration at issue involves rising delinquency rates and increased charge-offs in vintage cohorts originated after the second quarter of 2021, a period during which BridgeFin's AI-driven underwriting model approved a significantly higher volume of loans under revised risk-tolerance parameters.
The Staff's Preliminary Quantitative View. Based on communications from Senior Staff Attorney Felton and the analytical work of Staff Accountant Milosevic, the SEC Staff's preliminary view is that the ACL for the BridgeFin portfolio should have been approximately $180.8 million, representing a reserve rate of approximately 4.41% of outstanding loans. This would constitute a potential understatement of $37.3 million ($180.8 million minus $143.5 million). It is critical to understand that the Staff's preliminary view rests heavily on the re-aging issue described below — specifically, the Staff's contention that BRB improperly reset the delinquency clocks on certain modified loans, thereby understating both delinquency rates and loss-rate projections in the CECL model.
Materiality Analysis. BRB's internal materiality threshold for purposes of financial reporting is set at 5% of pre-tax income. BRB's pre-tax income for fiscal year 2022 was approximately $612 million, yielding a quantitative materiality threshold of $30.6 million. The alleged $37.3 million understatement exceeds this threshold by $6.7 million, or approximately 21.9% of the threshold itself. This is a significant vulnerability because it allows the Staff to argue that the alleged misstatement was material even under BRB's own internally established metrics. However, as discussed in Section VI below, materiality is properly assessed under a totality-of-the-circumstances analysis rather than a single quantitative bright-line test, and Ms. Navarrete should be prepared to articulate that point if the issue arises during testimony.
The Re-Aging Issue. The key disputed factual and accounting question in the investigation is the treatment of 12,847 re-aged or modified BridgeFin loans with an aggregate outstanding balance of $236.4 million. Under BRB's practices, when a BridgeFin borrower received a loan modification — typically involving a temporary reduction in payment amount, an extension of the loan term, or a deferral of past-due payments — BRB's systems reset the borrower's delinquency status to "current" as of the modification date. This had the effect of resetting the delinquency clock, so that a borrower who had been 90 or more days delinquent prior to modification would be reported as current immediately following the modification. BRB's CECL model then treated these re-aged loans as "current" in their modified status for purposes of estimating lifetime expected credit losses, effectively assigning them the loss rates associated with current loans rather than the higher loss rates associated with their pre-modification delinquency status.
The SEC Staff contends that these 12,847 re-aged loans should have remained in their original vintage delinquency buckets for purposes of the CECL model's loss-rate projections, and that BRB's practice of resetting the delinquency clocks artificially depressed both the reported delinquency rates and the projected loss rates that fed into the ACL calculation. The following credit metrics are in dispute:
These metrics are central to the investigation and will almost certainly be put to Ms. Navarrete during testimony. She should be thoroughly prepared to address each of them.
B. Potential Legal Theories
Based on the Staff's communications to date, the public filings at issue, and the nature of the factual questions being investigated, we anticipate that the SEC Staff is considering the following legal theories:
Section 13(a) of the Securities Exchange Act of 1934 and Rule 13a-1 thereunder. Section 13(a) requires issuers of securities registered under Section 12 of the Exchange Act to file periodic reports — including annual reports on Form 10-K and quarterly reports on Form 10-Q — in conformity with the Commission's rules and regulations. Rule 13a-1 implements this requirement with respect to annual reports. The Staff's theory would be that BRB violated Section 13(a) and Rule 13a-1 by filing a Form 10-K for fiscal year 2022, and Forms 10-Q for Q1 and Q2 2023, that contained financial statements materially misstating the ACL for the BridgeFin portfolio and that omitted material information about the re-aging practices that distorted reported credit-quality metrics.
Section 13(b)(2)(A) of the Exchange Act. This provision requires every issuer to "make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer." The Staff's theory would be that BRB's books and records inaccurately reflected the credit quality and delinquency status of the BridgeFin loan portfolio by treating re-aged loans as current rather than maintaining their original delinquency classifications.
Rule 12b-20 under the Exchange Act. Rule 12b-20 requires that, in addition to the information expressly required in any filing, an issuer must include "such further material information, if any, as may be necessary to make the required statements, in the light of the circumstances under which they are made, not misleading." The Staff may argue that BRB's periodic reports omitted material information about the re-aging practices, the impact of those practices on reported delinquency and charge-off metrics, and the resulting effect on the reported ACL — information that was necessary to prevent the filed statements from being misleading.
Scienter-Based Theories — Potential but Not Yet signaled. We note that, as of the date of this memorandum, the SEC Staff has not signaled an intent to pursue scienter-based fraud charges under Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, or under Section 17(a) of the Securities Act. However, the possibility that the investigation could evolve in that direction cannot be ruled out, particularly given the involvement of Assistant Director Bonham from the Financial Fraud Unit and the Staff's apparent interest in what Ms. Navarrete knew about the re-aging practices and their impact on reported metrics. Ms. Navarrete should be prepared as though scienter is at issue, meaning she must be careful in her testimony about her state of mind, her knowledge of the re-aging practices, and the basis for her determinations regarding the adequacy of the ACL and related disclosures.
It bears emphasis that Sections 13(a) and 13(b)(2)(A) are strict-liability provisions that do not require proof of scienter. The Staff could bring reporting and books-and-records charges against BRB as an entity without needing to prove that any individual officer acted with fraudulent intent. However, if the Staff were to pursue charges against Ms. Navarrete individually — whether under the fraud provisions or as a cause of the entity's violations — the scienter or negligence standards applicable to individual liability would come into play. The distinction between entity liability and individual liability should inform our preparation strategy.
C. Document Production Status
As of the date of this memorandum, BRB has completed three rolling productions of documents to the SEC Staff in response to the subpoena duces tecum:
Three additional productions remain to be completed. The cumulative target across all six productions is approximately 284,617 documents. The privilege log maintained in connection with the production currently reflects 1,847 documents that have been withheld in whole or redacted in part on the basis of attorney-client privilege, work-product protection, or bank-examination privilege.
Ms. Navarrete is a key custodian in the document production. Her email account, shared drives, and hard-copy files have been collected and processed, and her documents have been produced across all three completed productions. The SEC Staff will have had access to a substantial volume of Ms. Navarrete's communications and files before the testimony, and the Staff's questioning will undoubtedly be informed by that documentary record. It is therefore essential that Ms. Navarrete review key documents from her custodial files as part of the preparation process, so that she is not encountering her own emails and memoranda for the first time during the examination.
We note that because only approximately half of the total document production has been completed, there may be documents in the remaining three productions that are responsive to topics addressed during the testimony. This is a logistical reality that we should flag with the SEC Staff, if necessary, to avoid any suggestion that BRB or the witness has been uncooperative or that the testimony was premature.
IV. ANTICIPATED AREAS OF SEC STAFF INQUIRY
Based on our analysis of the investigation to date, the documents produced, the Staff's prior communications, and the typical structure of SEC investigative testimony in financial reporting matters, we anticipate that the examination will focus on the following eight principal topic areas. For each topic, we identify the likely thrust of the Staff's questions and the key facts that Ms. Navarrete should be prepared to address.
A. Topic 1: BRB's CECL Methodology and ACL Estimation Process
This will almost certainly be the opening substantive area of inquiry, as the Staff will want to establish the foundation for the more pointed questions that follow regarding the re-aging treatment and the adequacy of the reported ACL. We anticipate the Staff will explore the following:
CECL Adoption. The Staff will likely begin by asking Ms. Navarrete to describe how BRB adopted Accounting Standards Codification Topic 326, Financial Instruments — Credit Losses ("ASC 326"), also known as the Current Expected Credit Losses ("CECL") standard. BRB's CECL adoption was effective January 1, 2020, in accordance with the standard's mandatory effective date for SEC filers. Ms. Navarrete should be prepared to describe the transition at a high level, including the key methodological choices BRB made in implementing CECL and the governance structure put in place to oversee the new model.
Model Structure and Governance. The Staff will want to understand the structure and governance of BRB's CECL model, including its inputs, assumptions, and the qualitative overlay process. This includes the specific quantitative models used (vintage analysis, probability-of-default/loss-given-default models, or other approaches), the data inputs fed into those models, the macroeconomic scenarios considered, and the process by which qualitative adjustments were layered on top of the quantitative output. Ms. Navarrete should be able to describe the general framework without getting lost in the mathematical details, which are more properly the province of Raymond Hu and the credit-risk analytics team.
Navarrete's Personal Role. The Staff will probe Ms. Navarrete's personal involvement in reviewing and approving the quarterly ACL estimate. They will want to understand the depth of her engagement — whether she was substantively involved in the deliberations, whether she challenged assumptions, and whether she understood the key drivers of the ACL estimate, or whether she merely signed off on numbers presented to her by subordinates. This line of questioning goes directly to the scienter issue: a CFO who was deeply engaged in the process is harder to charge with fraud, but a CFO who rubber-stamped numbers without inquiry may be vulnerable to negligence-based liability.
BridgeFin Segmentation. The Staff will ask how the BridgeFin portfolio was segmented within BRB's overall ACL framework. BridgeFin's consumer personal loans and micro-business loans have different risk profiles from BRB's traditional lending products, and the Staff will want to understand whether the CECL model treated BridgeFin as a distinct segment with its own loss-rate assumptions or whether BridgeFin was pooled with other lending categories in a way that might have diluted the impact of its deteriorating credit quality.
Lifetime Expected Credit Losses Methodology. The Staff will focus on the specific methodology used to estimate lifetime expected credit losses for BridgeFin's two principal loan types: consumer personal loans (average loan size of approximately $18,400) and micro-business loans (average loan size of approximately $42,000). The relatively small average loan sizes and the unsecured or lightly secured nature of these loans give them fundamentally different risk characteristics from, for example, BRB's commercial real estate portfolio or its residential mortgage book. The Staff will want to understand how those characteristics were reflected in the loss-rate assumptions.
Origination Volume and Outstanding Balances. The Staff will establish the scale of the BridgeFin portfolio: $2.87 billion in new originations during fiscal year 2022, with $4.1 billion in outstanding loans at year-end. These figures provide the denominator against which the ACL percentage is calculated, and the Staff will want to confirm that Ms. Navarrete was aware of the portfolio's rapid growth and the implications of that growth for credit-loss estimation.
Macroeconomic Forecasts. The Staff will ask how macroeconomic forecasts were incorporated into the CECL model — what economic scenarios were used, what macroeconomic variables were considered (unemployment rates, GDP growth, consumer debt levels, interest rates), and whether the forecasts were updated to reflect deteriorating economic conditions that might affect BridgeFin borrowers.
Quarterly True-Up and Qualitative Adjustments. Finally, the Staff will ask about quarterly true-up procedures and whether qualitative adjustments were made to account for emerging credit trends that the quantitative model might not have fully captured. This is particularly important because qualitative adjustments are where management judgment is most directly exercised, and the Staff may argue that BRB should have made larger qualitative adjustments to account for the deterioration in post-Q2 2021 vintage cohorts even if the quantitative model did not fully reflect that deterioration.
B. Topic 2: Treatment of Re-Aged / Modified Loans
This is the single most important and most sensitive area of inquiry. The re-aging issue is the fulcrum of the entire investigation, and the Staff's questions on this topic will likely be the most aggressive and detailed. We anticipate the following lines of questioning:
The Re-Aging Decision. The Staff will ask Ms. Navarrete to describe the decision to reset delinquency clocks for 12,847 re-aged or modified BridgeFin loans, which had an aggregate outstanding balance of $236.4 million. They will want to understand the mechanics of the re-aging process — what triggered a modification, what types of modifications were made (payment reduction, term extension, payment deferral, or some combination), and what happened to the borrower's delinquency status upon modification.
Decision-Makers and Organizational Level. The Staff will probe who made the re-aging decision and at what organizational level. Specifically, they will want to know whether the decision was made at the BridgeFin division level (by Naveen Chakravarti or his subordinates), at the central finance/accounting level (by Raymond Hu or his team), or at the CFO level (by Ms. Navarrete herself). The Staff's interest in the organizational level of the decision-making reflects its inquiry into scienter — if the decision was made at a lower level without Ms. Navarrete's knowledge, that has different implications than if she was directly involved in or approved the re-aging practice.
Navarrete's Awareness. The Staff will ask directly whether Ms. Navarrete was aware of the re-aging practice and, critically, whether she was aware of its effect on delinquency and loss-rate metrics. This is likely to be a pivotal moment in the testimony. If Ms. Navarrete was aware that re-aging had the effect of reducing reported delinquency rates, the Staff will use that awareness to argue that she knew or should have known that the reported credit metrics were misleading.
Policy Documentation and Compliance. The Staff will ask whether BRB's re-aging policies were documented in writing and whether they complied with the guidance set forth in the Office of the Comptroller of the Currency's ("OCC") Comptroller's Handbook regarding re-aging of loans. The OCC guidance generally permits re-aging under certain conditions, including that the borrower has demonstrated a renewed willingness and ability to repay, and that the re-aging is not used to avoid reporting delinquent loans. The Staff will want to know whether BRB's practices met those conditions.
Disclosure to Whitfield Keane. The Staff will ask whether the re-aging practice was disclosed to Whitfield Keane LLP during the FY 2022 audit. If the practice was not disclosed, or was not disclosed fully, the Staff will argue that BRB withheld material information from its auditor, which would undermine BRB's reliance on the unqualified audit opinion as a defense.
Disclosure to Investors. The Staff will ask whether the re-aging practice was disclosed to investors in the FY 2022 10-K or the subsequent 10-Q filings. Based on our review, BRB's public filings do not contain specific disclosure of the re-aging practice or its impact on reported credit metrics. The absence of such disclosure is a vulnerability.
Impact on Credit Metrics. The Staff will put the specific numbers to Ms. Navarrete: the 90+ day delinquency rate of 1.72% as reported versus 2.38% when re-aged loans are included in their original delinquency buckets; the net charge-off rate of 2.14% as reported versus approximately 3.05% on an adjusted basis. The Staff will argue that the difference between the reported and adjusted metrics is material and that the failure to disclose the re-aging practice rendered BRB's reported credit metrics misleading.
C. Topic 3: CFO Certifications (SOX 302 and 906)
The Staff will examine Ms. Navarrete's understanding of and compliance with her certification obligations under the Sarbanes-Oxley Act. This topic is significant both because of the legal consequences of false certifications and because the certification process is a window into Ms. Navarrete's state of mind at the time of the filings.
The Staff will ask Ms. Navarrete to explain her understanding of her obligations under Sarbanes-Oxley Sections 302 and 906 when she certified the 10-K and 10-Q filings. They will want to understand the process she followed before executing certifications — specifically, what materials she reviewed, who she consulted, and what sub-certifications or representations she received from business-unit heads and from Chief Accounting Officer Raymond Hu. The Staff will also ask whether she was aware of any material weaknesses or significant deficiencies in BRB's internal controls over financial reporting as of the certification dates, and whether she received any internal reports, memoranda, emails, or oral warnings suggesting that the ACL for the BridgeFin portfolio might be understated or that the reported credit metrics might not accurately reflect the portfolio's condition.
D. Topic 4: Internal Controls over Financial Reporting (ICFR)
The Staff will explore BRB's internal controls over financial reporting as they relate to the ACL estimation process. This line of questioning serves the dual purpose of assessing whether BRB's controls were adequate and of establishing what information flowed through the control environment to the CFO.
We expect the Staff to ask about the following: BRB's ICFR framework as it relates to ACL estimation, including the specific controls designed to ensure the accuracy and completeness of the inputs to the CECL model; the role of the Reserves Committee, including its composition, meeting frequency, and documentation practices; the interaction between the BridgeFin division (headed by Senior Vice President and Division Head Naveen Chakravarti) and the central finance/accounting function (led by CAO Raymond Hu) in providing data inputs for the ACL calculations; any changes to ICFR during calendar years 2022 or 2023 that were made in response to the rapid growth of the BridgeFin portfolio; and whether Whitfield Keane identified any control deficiencies related to the ACL process in connection with their audit of the FY 2022 financial statements.
E. Topic 5: Communications with External Auditor (Whitfield Keane LLP)
The Staff will seek to understand the nature and content of Ms. Navarrete's communications with Whitfield Keane, particularly engagement partner Lorraine Dupont, regarding the BridgeFin ACL. The Staff's interest in these communications is multifaceted: if the auditor raised concerns about the re-aging treatment or the adequacy of the ACL and BRB did not adequately address those concerns, that would strengthen the Staff's case; conversely, if the auditor was fully informed and did not object, that may support BRB's position but could also signal issues with the audit itself (which is a separate matter for the PCAOB).
Specifically, the Staff will ask about the nature and frequency of communications between Ms. Navarrete and the Whitfield Keane engagement team regarding the BridgeFin ACL; whether Whitfield Keane raised any questions about the re-aging treatment or the adequacy of the ACL at any point during the FY 2022 audit or the Q1 and Q2 2023 interim reviews; whether Ms. Navarrete was involved in any discussions about proposed audit adjustments related to the ACL; and whether there were any items in the management representation letter signed by Ms. Navarrete for the FY 2022 audit that specifically addressed the BridgeFin ACL, the re-aging practice, or the credit-quality metrics for the BridgeFin portfolio.
F. Topic 6: Communications with Audit Committee
The Staff will examine the information that flowed from Ms. Navarrete to the Board Audit Committee, chaired by independent director Gwendolyn Prescott. This topic is relevant both to the adequacy of BRB's corporate governance and to the question of what information was available to the individuals responsible for oversight of the financial reporting process.
We expect the Staff to ask about the reports and presentations provided to the Audit Committee regarding BridgeFin credit quality, including whether Ms. Navarrete presented credit-quality dashboards, trend analyses, or other materials that reflected the deterioration in post-Q2 2021 vintage cohorts. The Staff will ask whether the Audit Committee was informed of the re-aging practice and its effect on reported delinquency metrics. And the Staff will ask whether the Audit Committee discussed the adequacy of the ACL disclosures for the BridgeFin portfolio in the 10-K and 10-Q filings.
G. Topic 7: Disclosure Preparation and Review Process
The Staff will explore the process by which BRB prepared and reviewed the disclosures in the periodic reports at issue. This topic is distinct from the accounting questions addressed above; it focuses on the disclosure drafting process itself and the involvement of various parties — including outside counsel — in shaping the language of the ACL disclosures and the MD&A credit-quality discussion.
We anticipate the Staff will ask about Ms. Navarrete's specific role in the preparation and review of the FY 2022 10-K, the Q1 2023 10-Q, and the Q2 2023 10-Q; the involvement of BRB's prior outside securities counsel, Caldwell Pratt & Stein LLP (lead partner Martin Caldwell), in drafting and reviewing the ACL disclosures; whether any draft disclosure language specifically addressing the re-aging practice or its impact on credit metrics was considered during the drafting process and subsequently removed or revised; and the MD&A discussion of credit-quality metrics — what Ms. Navarrete reviewed, what comments she provided, and what she ultimately approved for filing.
The question of whether draft disclosure language about re-aging was considered and removed is particularly important. If such language existed in draft form and was deleted before filing, the Staff will argue that BRB consciously decided to omit material information, which would support a finding of scienter. We should review the drafting history of the relevant filings in detail before the preparation session.
H. Topic 8: BridgeFin Platform and Credit Quality Trends
The Staff will likely conclude the substantive examination — or intersperse questions throughout — regarding Ms. Navarrete's general knowledge of the BridgeFin platform, its performance, and emerging credit-quality trends. This topic is designed to test whether Ms. Navarrete, as the Bank's CFO, was attuned to the warning signs of credit deterioration in the BridgeFin portfolio.
The Staff will ask about Ms. Navarrete's general knowledge of BridgeFin's AI-driven underwriting model and how it performed over time; whether she received reports showing deterioration in the vintage cohorts originated after Q2 2021, when BridgeFin's revised risk-tolerance parameters resulted in a higher volume of originations to borrowers with thinner credit files; the internal dashboards, credit-quality reports, and management information she regularly reviewed in connection with her CFO responsibilities; and any escalation or communication from Chief Risk Officer Annette Kowalski regarding BridgeFin credit trends, including whether Kowalski raised concerns about the portfolio's performance or the adequacy of the ACL.
V. ANTICIPATED EXHIBITS THE SEC STAFF MAY USE
The SEC Staff will almost certainly use exhibits during the examination to anchor Ms. Navarrete's testimony to specific documents. Based on our experience with SEC investigative testimony and our knowledge of the documents in the production, we anticipate the following categories of exhibits:
A. SEC Filings
The Staff will likely introduce and question Ms. Navarrete about the following public filings:
• BRB FY 2022 Form 10-K (filed February 28, 2023) — The Staff will focus on the financial statement notes relating to the allowance for credit losses (we expect this to be Note 7 or a similarly numbered note, to be confirmed) and the MD&A discussion of credit-quality trends, asset quality, and provisioning. The Staff will also focus on the loan-portfolio tables and the ACL rollforward schedule.
• BRB Q1 2023 Form 10-Q (filed May 10, 2023) — The Staff will examine the ACL disclosures and MD&A for the first quarter of 2023, looking for any changes in the disclosed methodology or credit metrics from the 10-K.
• BRB Q2 2023 Form 10-Q (filed August 9, 2023) — Similar focus as the Q1 filing, with additional attention to whether the Q2 disclosures reflected any updating for further credit deterioration that emerged during the first half of 2023.
• SOX Section 302 and Section 906 Certifications — The Staff will present the certifications signed by Ms. Navarrete in each of the three filings and will ask her to confirm her signature and to testify about the process she followed before signing.
B. Internal BRB Documents (from Production)
The Staff will draw from the documents produced by BRB in the three completed rolling productions. The following categories of documents are most likely to be used as exhibits:
• Reserves Committee Meeting Minutes — The minutes from the quarterly Reserves Committee meetings during FY 2022 and the first half of 2023 will be central exhibits. These minutes document the committee's deliberations regarding the ACL estimates, including the data considered, the assumptions discussed, and the decisions reached. Because Ms. Navarrete chaired the committee, she should be thoroughly familiar with these minutes.
• BridgeFin Credit-Quality Reports and Dashboards — Any credit-quality reports, dashboard outputs, or management information packages provided to Ms. Navarrete that reflected the performance of the BridgeFin portfolio, including delinquency rates, charge-off rates, vintage-cohort performance, and other credit metrics.
• Emails between Navarrete and Raymond Hu (CAO) — Communications between the CFO and the CAO regarding ACL estimates, CECL methodology, and related topics. These emails may reveal the substance of discussions about the ACL, any concerns raised by the CAO, and the CFO's responses.
• Emails between Navarrete and Naveen Chakravarti (SVP, BridgeFin Division Head) — Communications between the CFO and the head of the BridgeFin division regarding portfolio performance, credit quality, and related matters. The Staff will use these emails to establish what Ms. Navarrete knew about the BridgeFin portfolio's condition.
• Re-Aging-Related Documents — Any emails, memoranda, policy documents, or meeting notes that discuss the re-aging of BridgeFin loans, the decision to reset delinquency clocks, the rationale for the practice, and its impact on reported metrics.
• Sub-Certification Packages — The packages of sub-certifications from business-unit heads and the CAO to the CFO in connection with the SOX certification process. These documents reflect the representation cascade that supports the CFO's certifications and will be relevant to Ms. Navarrete's testimony about the basis for her certifications.
• Audit Committee Presentation Materials — The presentation decks, talking points, and other materials prepared by or for Ms. Navarrete for her presentations to the Board Audit Committee, particularly those addressing BridgeFin credit quality and the ACL.
C. Auditor Communications
The Staff may introduce documents from BRB's communications with its independent auditor, Whitfield Keane LLP:
• Management Letters — If Whitfield Keane issued any management letters to BRB that reference the BridgeFin ACL, the re-aging practice, or related control issues, the Staff will likely use those as exhibits.
• SAS 114/AU-C 260 Communications — The required communications from the auditor to the Audit Committee under AU-C Section 260 (formerly SAS 114) regarding significant audit findings, including any discussions of critical audit matters, significant accounting estimates, or disagreements with management related to the ACL.
• Management Representation Letters — The management representation letters signed by Ms. Navarrete (and CEO Ellingham) in connection with the FY 2022 audit. These letters typically contain specific representations about the completeness and accuracy of information provided to the auditor and about the reasonableness of significant accounting estimates, including the ACL.
D. Regulatory Communications
The Staff may attempt to introduce or question Ms. Navarrete about OCC examination reports or other regulatory correspondence that references the ACL. We note, however, that the bank-examination privilege may apply to protect these communications from disclosure to the SEC. If the Staff seeks testimony about the substance of OCC examination reports or correspondence, counsel should be prepared to instruct Ms. Navarrete not to answer pending a privilege determination. Ms. Navarrete should be briefed that she should not volunteer the contents of OCC examination materials during testimony, even if she recalls them, and should look to counsel if any question appears to call for such information.
VI. KEY PREPARATION POINTS AND STRATEGY
A. General Testimony Principles
At the outset of each preparation session, the following fundamental principles for investigative testimony should be reviewed with Ms. Navarrete. These principles are standard guidance for witnesses in SEC proceedings, but they warrant emphasis given the complexity of the subject matter and the high stakes involved:
Answer only the question asked. Ms. Navarrete should listen carefully to each question and answer it directly, without volunteering additional information. Testimony subpoenas compel her to appear and answer questions truthfully, but they do not require her to educate the Staff or fill in gaps in their understanding. If the Staff wants to know something, they will ask. Volunteered information creates new lines of inquiry and increases the risk of inconsistencies.
Ask for clarification if a question is unclear. If Ms. Navarrete does not understand a question — because it is ambiguous, compound, or uses terminology in an unfamiliar way — she should ask the examining attorney to rephrase or clarify the question before attempting to answer. It is far better to seek clarification than to guess at the questioner's intent and provide a responsive but potentially harmful answer.
Distinguish between personal knowledge and information learned from others. Ms. Navarrete should be precise about the basis for her knowledge. If she knows something from personal observation or direct involvement, she should say so. If she learned something from a report, an email, a subordinate, or another source, she should identify the source. She should not speculate about matters outside her personal knowledge.
"I don't recall" is an acceptable answer when truthful. Ms. Navarrete should not feel pressured to recall specific details that she genuinely does not remember. The events at issue span multiple quarters, and it is entirely natural for a busy CFO not to recall every detail of every conversation, every email, and every data point. However, "I don't recall" must be truthful — if she does recall, she must say so.
Do not guess at specific numbers or dates. The examination will involve numerous specific figures — dollar amounts, percentages, dates, loan counts. Ms. Navarrete should not guess at these figures. If she is not certain of a specific number or date, she should say so and, where appropriate, refer to documents for confirmation. The Staff will have the documents and can show them to her.
Be truthful at all times. This point requires no elaboration, but it deserves emphasis. Ms. Navarrete's testimony will be taken under oath, and false testimony carries the risk of criminal prosecution for perjury or obstruction. She must be truthful in every answer, even when the truth is uncomfortable or inconvenient for BRB's position.
Do not assert privilege during testimony. If a question calls for information that is protected by the attorney-client privilege, the work-product doctrine, or the bank-examination privilege, counsel attending the testimony — Victoria Chambers and/or Jasmine Thornton — will assert the privilege on behalf of BRB. Ms. Navarrete should not attempt to assert privilege herself. If she is uncertain whether a question calls for privileged information, she should pause and look to counsel before answering.
Be cautious about state-of-mind questions. The SEC Staff may attempt to establish scienter by asking Ms. Navarrete about her state of mind — what she "knew," "believed," "expected," "thought," or "intended" with respect to credit quality, the ACL, the re-aging practice, and the adequacy of disclosures. These questions are designed to elicit testimony that can be used to support a fraud theory. Ms. Navarrete should answer state-of-mind questions factually and specifically, grounding her answers in what she reviewed, what she was told, what the data showed, and what process she followed, rather than offering broad characterizations of her subjective beliefs.
B. Topic-Specific Preparation Guidance
1. CECL Methodology / ACL
Ms. Navarrete should emphasize throughout her testimony on this topic that the ACL estimation process under ASC 326 inherently involves significant management judgment and estimation uncertainty. CECL requires the estimation of lifetime expected credit losses over the remaining contractual life of loans, adjusted for expected prepayments, and incorporating reasonable and supportable forecasts of future economic conditions. There is no single "correct" ACL; rather, there is a range of reasonable estimates, and management must exercise judgment in selecting an estimate within that range.
She should be prepared to note that BRB's CECL methodology was reviewed and accepted by Whitfield Keane LLP in connection with the FY 2022 audit. The auditor examined BRB's model, tested its inputs and assumptions, evaluated the reasonableness of management's estimates, and ultimately issued an unqualified opinion on the financial statements. While the auditor's acceptance of the methodology does not immunize BRB from SEC scrutiny, it is a significant fact that underscores the reasonableness of BRB's approach.
We note for internal purposes only that BRB's reported ACL of $143.5 million (3.50% of BridgeFin outstanding) was within the range of reasonable estimates, as supported by the analysis performed by our retained expert, Dr. Franklin Osei of Brindoval Analytic Partners. However, Ms. Navarrete must not reference the Brindoval engagement, Dr. Osei's analysis, or any aspect of the expert's work product during testimony. That engagement was made at the direction of counsel and is protected by the attorney-client privilege and the work-product doctrine. If the Staff asks whether BRB has retained any outside experts in connection with the investigation, counsel will address the question.
Ms. Navarrete should be able to describe the general framework of BRB's CECL model at a level appropriate for a CFO: vintage-cohort analysis as the primary quantitative methodology, the use of historical loss rates calibrated to the BridgeFin portfolio's specific experience, the incorporation of macroeconomic overlays based on multiple economic scenarios, and the application of qualitative adjustments to account for factors not captured by the quantitative model. She should demonstrate command of the framework without getting drawn into granular model mechanics that are more appropriately addressed by Raymond Hu or the credit-risk analytics team.
2. Re-Aging / Modification Treatment
This is the most sensitive area of the testimony and the topic that requires the most careful preparation. The re-aging issue is the factual foundation of the Staff's case, and the Staff's questions will be designed to establish either that Ms. Navarrete knew the re-aging practice was distorting credit metrics (supporting a scienter theory) or that she was negligent in failing to understand its impact (supporting a negligence theory for individual liability or a books-and-records violation for the entity).
Ms. Navarrete should describe the re-aging practice factually and without defensiveness. She should be prepared to explain what a loan modification entailed in the BridgeFin context, why borrowers were offered modifications, and what happened to the borrower's account status upon modification. She should explain that the re-aging of modified loans was consistent with BRB's internal loan-modification policy, which she should describe, and that BRB viewed the practice as consistent with the OCC Handbook's guidance on re-aging, which permits the practice under appropriate conditions.
Ms. Navarrete should avoid conceding that the re-aging practice "masked," "hid," or "concealed" delinquency. These are the Staff's characterizations, not BRB's, and adopting them would be harmful. Instead, she should frame re-aging as a recognized and legitimate credit-management practice that is used by banks to work with borrowers who have experienced temporary financial difficulty and have demonstrated a renewed willingness and ability to repay. She should note that re-aging, when properly implemented, benefits both the borrower and the institution by avoiding unnecessary charge-offs on loans that are likely to return to performing status.
If the Staff asks whether Ms. Navarrete was aware that re-aging had the effect of reducing reported delinquency rates, she should acknowledge awareness of the mechanical effect — that resetting a loan's delinquency status to current upon modification necessarily moves it out of the delinquent bucket — but she should explain the business rationale for the practice and emphasize that it was documented, applied consistently in accordance with BRB's internal policy, and reviewed as part of the normal credit-management process.
Ms. Navarrete should be prepared to hear the following key figures from the Staff, as they will almost certainly be put to her: the total of 12,847 re-aged loans; the $236.4 million aggregate outstanding balance; the 90+ day delinquency rate of 1.72% as reported versus 2.38% with re-aged loans included in their original delinquency buckets; and the net charge-off rate of 2.14% as reported versus approximately 3.05% on an adjusted basis. She should not dispute these numbers during testimony — doing so without supporting documents could create credibility issues — but she should avoid affirmatively adopting the Staff's adjusted figures as the "correct" metrics. If asked whether the adjusted figures are accurate, she can note that she has not independently verified the Staff's calculations and would need to review the underlying data and methodology before commenting on their accuracy.
3. CFO Certifications
Ms. Navarrete should describe her certification process as thorough, deliberate, and supported by multiple layers of internal review and representation. She should explain that before signing the SOX 302 and 906 certifications for each filing, she followed a structured process that included:
(a) receiving and reviewing sub-certifications from the heads of each major business unit, including the BridgeFin division, in which those officers represented that they had reviewed the financial information attributable to their units and that it was accurate and complete;
(b) receiving and reviewing a sub-certification from Chief Accounting Officer Raymond Hu, in which Hu represented that the financial statements had been prepared in accordance with U.S. GAAP and that the accounting records and underlying data were accurate;
(c) reviewing the draft financial statements and the related disclosures, including the ACL-related notes and the MD&A;
(d) consulting with the internal audit function regarding any findings or control issues;
(e) considering the results of the external audit and any matters communicated by Whitfield Keane; and
(f) relying on the work of qualified professionals within BRB's finance and accounting organization who were closer to the underlying data and calculations.
She should not concede any deficiency in her certification process. If the Staff suggests that she should have done more — for example, that she should have independently verified the delinquency calculations or drilled down into the re-aging data — she should explain that the certification process is designed to work through a system of internal controls and sub-certifications, and that a CFO of a multi-billion-dollar financial institution necessarily relies on the work of subordinates and on the control environment to support her certifications.
If the Staff asks hypothetical questions — for example, "If you had known the true delinquency rate was 2.38% rather than 1.72%, would you still have signed the certifications?" — Ms. Navarrete should avoid engaging with the hypothetical. She should restate that her certifications were based on the information available to her at the time and the judgments made through the established process. Hypothetical questions invite speculation and can produce damaging sound bites; she should decline the invitation.
4. Communications with Whitfield Keane
Ms. Navarrete may describe the general nature and topics of her discussions with the Whitfield Keane engagement team, but she should be cautious about the level of detail she provides. Communications between management and the external auditor in the course of the audit are generally not privileged, but there are privilege considerations if counsel was present during any of those communications or if the discussions touched on legal advice.
Ms. Navarrete should note that Whitfield Keane audited BRB's FY 2022 financial statements and issued an unqualified opinion. She should further note that the audit engagement included a specific focus on the ACL as a significant accounting estimate, and that the engagement team, including engagement partner Lorraine Dupont, had access to BRB's CECL model, its inputs and assumptions, and the underlying loan-level data.
She should not speculate about what the auditor "thought," "believed," or "concluded" with respect to specific ACL levels or the re-aging practice. She can testify about what was communicated to her, but she should not put words in the auditor's mouth. If the Staff wants to know Whitfield Keane's views, they can examine the auditor directly.
5. Privilege Concerns During Testimony
Ms. Navarrete must be carefully instructed on the boundaries of privilege during testimony. She should not disclose the substance of any communications with Calderwood & Harkness LLP in connection with the investigation, any communications with BRB's prior outside securities counsel, Caldwell Pratt & Stein LLP (lead partner Martin Caldwell), that are protected by the attorney-client privilege, or any communications with General Counsel Derek Sung that involve the provision or receipt of legal advice.
She should not disclose the substance of OCC examination reports, examination findings, or correspondence between BRB and the OCC relating to the ACL or credit quality. The bank-examination privilege protects these communications, and their disclosure to the SEC could waive the privilege. If the Staff asks questions that call for information from OCC examination materials, counsel will instruct Ms. Navarrete not to answer pending a privilege determination, or will assert the privilege on the record.
As a general rule, if Ms. Navarrete is uncertain whether a question calls for privileged information, she should pause and look to counsel before answering. It is far better to take a brief pause than to inadvertently waive a privilege that cannot be recaptured.
C. Demeanor and Presentation
Ms. Navarrete should present as a confident, competent, and cooperative Chief Financial Officer who takes her financial-reporting and disclosure obligations seriously. The Staff will form

ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT

INTERNAL MEMORANDUM

MATTER NO.: SC-MAT-2023-4172

I. PURPOSE AND SCOPE OF MEMORANDUM

II. WITNESS BACKGROUND

IV. ANTICIPATED AREAS OF SEC STAFF INQUIRY

V. ANTICIPATED EXHIBITS THE SEC STAFF MAY USE

VI. KEY PREPARATION POINTS AND STRATEGY

Record

Parties

Dates

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