SHF Holdings, Inc. Q3 FY2023 earnings call

• The company has a unique fintech platform connecting cannabis-related businesses (CRBs) and financial institutions, earning income from onboarding due diligence fees, monthly account compliance fees, investment income, loan activity income, and Safe Harbor program licensing.
• Key metrics: Account relationships increased, deposit base grew to over $216.9 million in Q3 2023, investment income up due to higher rates, lending pipeline over $100 million. New credit products launched include interest-bearing deposit accounts and nationwide lines of credit.
• Highlights: Increased lending with a Tier 1 multistate operator by originating $4.3 million in loans, originated a $3 million loan for a Washington-based THC-infused beverage company. Issued $7.2 million in credit facilities in Q3 2023.
• Restructured deferred consideration with Abaca to reduce over-dilution by 10%.
• The SAFER Banking Act is reshaping the regulatory landscape for cannabis, opening growth opportunities for Safe Harbor to serve more customers.

For the third quarter of 2023, Safe Harbor's revenue segments included: Deposit and onboarding income was $2.23 million, an increase of over 63% from the same period in 2022. Investment income was $1.19 million, a 112% year-over-year increase. Loan interest income grew 119% to $906,213 in Q3 2023. Safe Harbor program income decreased; $7,000 in Q3 2023, down 81% year-over-year, and $48,000 for the 9 months ended September 30, 2023, down 62% year-over-year. Deposit balances in Q3 2023 were $216.9 million, a 36.5% increase from Q3 2022. Loan balance was over $42 million with term sheet commitments in excess of $20 million.

• Expect full year 2023 revenue in the range of $16 million to $16.5 million.
• Pursuing initiatives to acquire accounts from financial institutions, which will bring new depository relationships, more states, and additional financial institution relationships. In discussions with partners to invest in the company to fund growth initiatives, with focus on cost of capital being less than return on invested capital.

• Regulatory challenges in the cannabis industry pose difficulties for financial institutions serving CRBs in fulfilling BSA obligations.
• The complex nature of cannabis businesses and associated risk factors lead to higher monitoring and potential loan losses.

Q: You disclosed in the press release that deposit balances on average at the financial institution clients were about $216.9 million in the quarter. I was just curious if you could disclose how much of that roughly is Partner Colorado Credit Union versus other financial institutions.

A: Well, I'll take that question. We haven't disclosed that in previous calls or disclosed it publicly. But I would say the easiest way to come about is about 3/4 of that, anywhere from like 2/3 to 3/4 of that is of Partner Colorado Credit Union.