Happen, Inc.

The allowance for loan and lease losses (ALLL) for lifetime expected losses under CECL on loans and leases HFI at amortized cost is initially recognized as “Provision for credit losses” at the time of origination. The ALLL is estimated using a discounted cash flow (DCF) approach, where effective interest rates are used to calculate the net present value (NPV) of expected cash flows. The effective interest rates are calculated based on the periodic interest income received from the loan’s contractual cash flows and the net investment in the loan, which includes deferred origination fees and marketing costs, to provide a constant rate of return over the loan term. The NPV from the DCF approach is then compared to the amortized cost basis of the loans and leases to determine the ALLL. Under the DCF approach, the provision for credit losses in subsequent periods includes a credit loss expense related to the discounting effect due to the passage of time after the initial recognition of the ALLL on originated loans and leases HFI at amortized cost.

As a result of our fair value option election for HFI loans originated on or after January 1, 2026, there will no longer be an initial recognition of an allowance for lifetime expected credit losses as required under amortized cost accounting. Therefore, following this election, the provision for credit losses reflects changes in credit loss assumptions associated with HFI loans originated prior to January 1, 2026 that continue to be accounted for at amortized cost.

The table below illustrates the composition of the provision for credit losses for each period presented, as well as the loan originations HFI at amortized cost during each period, which was a key driver for credit loss expense:

(1) Prior period amounts were reclassified to include small business loan origination volume. See “Non-interest Income” for additional information.

Sequential: The provision benefit was $15.9 million for the third quarter of 2026 compared to a provision benefit of $10.9 million for the second quarter of 2026. The change in provision was primarily due to strong credit performance, including lower observed net charge-offs and an improved credit outlook on our loan portfolio.

Year Over Year: The provision benefit was $15.9 million for the third quarter of 2026 compared to a provision expense of $46.3 million for the third quarter of 2025. The change in provision was primarily due to our election of the fair value option in 2026, under which newly originated HFI loans no longer required an initial allowance for credit losses (ACL). The third quarter of 2026 also reflected strong credit performance, including lower observed net charge-offs and an improved credit outlook on our loan portfolio.

Nine Months Over Nine Months: The provision benefit was $26.5 million for the first nine months of 2026 compared to a provision expense of $144.2 million for the first nine months of 2025. The change in provision was primarily due to our election of the fair value option in 2026, under which newly originated HFI loans no longer required an initial ACL. The first nine months of 2026 also reflected strong credit performance, including lower observed net charge-offs and an improved credit outlook on our loan portfolio.

Allowance for Credit Losses

The activity in the ACL was as follows:

(1)Relates to $29.9 million, $35.2 million and $114.4 million of unfunded commitments as of September 30, 2026, June 30, 2026 and September 30, 2025, respectively.

The following table presents the components of the ALLL:

(1)Represents the allowance for future estimated net charge-offs on existing portfolio balances.

(2)Represents a negative allowance for expected recoveries of amounts previously charged-off.

(1) Calculated as ALLL or gross ALLL, where applicable, to total loans and leases held for investment at amortized cost.

Net Charge-Offs

The following table presents information regarding average loan and lease balances at amortized cost, the associated net charge-offs and the annualized ratio of net charge-offs to average outstanding loans and leases HFI at amortized cost during the period. Net charge-offs are impacted by the expected timing of the charge-offs, anticipated recoveries and the age of the overall portfolio.

Nonaccrual

Loans and leases are generally placed on nonaccrual status when contractually past due 90 days or more, or earlier if management believes that the probability of collection does not warrant further accrual. Unsecured consumer loans are generally charged-off when a borrower is contractually 120 days past due.

The following table presents nonaccrual loans and leases HFI at amortized cost:

For additional information on the ACL and nonaccrual loans and leases, see “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements –Note 1. Summary of Significant Accounting Policies” in our Annual Report and “Notes to Condensed Consolidated Financial Statements – Note 4. Loans” in this Report.