SHFS

SHF Holdings, Inc. (SHFS) - 10-K Summary for Fiscal Year Ended December 31, 2025

Business Context and Reporting Period

Company: SHF Holdings, Inc.
Reporting Period: Fiscal Year Ended December 31, 2025
Business Model: SHF provides a proprietary compliance technology platform enabling financial institutions to offer banking and lending services to Cannabis-Related Businesses (CRBs). The Company is not a bank; it acts as a compliance intermediary and loan originator.
Key Relationship: The Company is heavily dependent on Partner Colorado Credit Union (PCCU), which holds the majority of CRB deposits and serves as the legal lender for the loan portfolio. PCCU is also a significant shareholder (approx. 25.2%).

Key Financial Metrics

Note: The 2024 Net Loss included a $43.9 million non-recurring deferred tax asset valuation adjustment. Excluding this, underlying operating performance declined year-over-year.

Material Changes vs. Prior Period

• Revenue Decline: Total revenue dropped nearly 50% primarily due to a structural change in the Commercial Alliance Agreement (CAA) with PCCU. Under the "First Amended CAA" effective Jan 1, 2025, the Company's share of loan program income was reduced from ~100% to ~35% in exchange for eliminating indemnification obligations. This was partially offset in Q4 2025 by the "Second Amended CAA" (retroactive to Oct 1, 2025), which increased the income share to up to 65% but reinstated indemnification obligations.
• Expense Reduction: Operating expenses decreased by $9.3 million (42%) compared to 2024, largely due to the absence of $9.1 million in goodwill and intangible asset impairments recorded in the prior year, alongside workforce restructuring.
• Recapitalization: In September 2025, the Company completed a recapitalization that eliminated approximately $18 million in debt (including a $10.7 million note to PCCU) and raised $6.7 million in new capital via Series B Preferred Stock and an Equity Line of Credit (ELOC).
• Investment Income: Decreased 45% due to lower Federal Reserve interest rates (IORB) and the introduction of money market accounts that share interest with depositors.

Guidance, Outlook, Risks, and Contingencies

Going Concern: The Company has incurred recurring operating losses and negative cash flows from operations. The independent auditor's report includes an explanatory paragraph expressing substantial doubt about the Company's ability to continue as a going concern for at least 12 months from the issuance date. Management plans to mitigate this through the ELOC, cost reductions, and the improved revenue profile of the Second Amended CAA.

Key Risks:

• Concentration Risk: 86.7% of 2025 revenue was derived from PCCU. Loss of this relationship would be catastrophic.
• Indemnification Liability: Under the Second Amended CAA, SHF indemnifies PCCU for up to 65% of loan losses. The Company recorded a $2.1 million stand-ready guarantee liability (ASC 460) and a $1.1 million financial indemnification liability (ASC 326). One borrower represents 18% of the portfolio and carries a high risk rating.
• Nasdaq Compliance: The stock has traded below the $1.00 minimum bid price. A proposed new Nasdaq rule regarding a $5 million market capitalization minimum could lead to immediate delisting without a cure period if adopted.
• Internal Controls: A material weakness was identified in loan documentation and credit loss estimation processes. While a previous weakness in revenue recognition has been remediated, sufficient time has not passed to conclude controls are operating effectively.
• Legal Proceedings: Ongoing litigation regarding the 2022 acquisition of Abaca involves a disputed $3.0 million payment. The estimated loss range is $0 to $7.8 million.

Investor Verification Checklist

• Verify Liquidity Runway: Confirm if the $6.8 million cash balance is sufficient to cover operating losses and indemnification obligations given the "substantial doubt" going concern warning.
• Monitor Nasdaq Status: Track the stock price relative to the $1.00 minimum bid requirement and the status of the proposed $5 million market cap rule.
• Assess Loan Portfolio Quality: Review the specific risk rating of the single borrower representing 18% of the loan portfolio and the adequacy of the $3.1 million total indemnification reserve.
• Review ELOC Terms: Understand the dilution mechanics of the $150 million ELOC, including the 10% discount on draws and the mandatory 25% use of proceeds to redeem Series B Preferred Stock.
• Track PCCU Relationship: Monitor any changes in the Second Amended CAA or PCCU's regulatory standing, as this relationship drives the vast majority of revenue.