8-K: SHF Holdings Amends Key Agreement with Partner Colorado Credit Union, Extends Term and Modifies Revenue Structure

SHF Holdings has amended its commercial alliance agreement with Partner Colorado Credit Union, extending the term to 2028 and changing the revenue calculation and fee structure.

Summary

• SHF Holdings has amended its Commercial Alliance Agreement with Partner Colorado Credit Union (PCCU).
• The original agreement, set to expire in March 2025, has been extended to December 31, 2028, with automatic two-year renewals.
• The amended agreement changes how SHF Holdings receives interest income, moving from a fixed percentage to a loan yield allocation formula based on US Treasury rates and a proprietary risk rating.
• The per-account servicing fees have been replaced with a fixed fee based on the average daily balance of accounts generated by SHF Holdings.
• SHF Holdings' indemnification obligations for loan losses have been eliminated.
• The relationship with PCCU accounted for $5.1 million and $5.6 million of SHF Holdings' revenue in 2023 and 2022, respectively, and $3.1 million for the nine months ended September 30, 2024.

Sentiment

Score: 7

Explanation: The document indicates a positive development with the extension of a key agreement and reduced risk, but also introduces some complexity with the new revenue structure. The sentiment is moderately positive.

Positives

• The extension of the agreement provides long-term stability for the relationship with PCCU.
• The elimination of indemnification obligations for loan losses reduces risk for SHF Holdings.
• The new revenue calculation formula may provide more favorable terms for SHF Holdings.
• The fixed fee based on average daily balances simplifies the fee structure.

Negatives

• The change in revenue calculation introduces a new level of complexity.
• The fixed fee based on average daily balances may be less favorable than the previous per-account servicing fees if account balances are low.

Risks

• The new loan yield allocation formula is based on the Constant Maturity US Treasury Rate and a proprietary risk rating formula, which could be subject to market fluctuations and internal model risk.
• The fixed fee based on average daily balances may not be as profitable as the previous per-account servicing fees if account balances are low.
• The arbitration demand from the former Chief Credit Officer could result in legal costs and potential liabilities.

Future Outlook

The amended agreement extends the relationship with PCCU through 2028 with automatic two-year renewals, providing long-term stability. The new revenue structure will be based on a loan yield allocation formula and a fixed fee based on average daily balances.

Industry Context

This agreement is important for SHF Holdings as it represents a significant portion of their revenue. The changes in the agreement reflect a shift in the financial services industry towards more complex revenue models and risk management.

Comparison to Industry Standards

• The move to a loan yield allocation formula is similar to how many financial institutions manage their interest income, aligning with industry best practices.
• The elimination of indemnification obligations is a positive development for SHF Holdings, as it reduces their risk exposure, which is a common goal for financial companies.
• The fixed fee based on average daily balances is a common practice in the financial industry for account servicing, but the specific rate of 0.01% needs to be compared to industry benchmarks to assess its competitiveness.

Legal Proceedings

• The Company was notified by legal counsel for Mr. Roda that he has made an arbitration demand related to his employment agreement with the Company.

Stakeholder Impact

• Shareholders may view the extension of the agreement and reduced risk as positive.
• Employees involved in loan underwriting and account management will need to adapt to the new processes.
• Customers may not be directly impacted by the changes in the agreement.

Next Steps

• SHF Holdings will implement the new revenue calculation and fee structure.
• SHF Holdings will continue to perform underwriting activities for loans facilitated under the amended agreement.
• SHF Holdings will manage the arbitration demand from the former Chief Credit Officer.

Key Dates

Keywords

Commercial Alliance Agreement, Partner Colorado Credit Union, loan yield allocation, interest income, servicing fees, indemnification, revenue, arbitration, financial services