SHF Holdings, Inc.

Current report

We are subject to risks and uncertainties that could potentially negatively impact our business, financial conditions, results of operations and cash flows. This section contains a description of certain risks and uncertainties identified by management that could, individually or in combination, harm our business, results of operations, liquidity and financial condition, as well as our financial instruments and our securities. These disclosures reflect the Company’s beliefs and opinions as to factors that could materially and adversely affect the Company and its securities in the future. References to past events are provided by way of example only and are not intended to be a complete listing or a representation as to whether or not such factors have occurred in the past or their likelihood of occurring in the future. In evaluating us and our business and making or continuing an investment in our securities, you should carefully consider the risks described below as well as other information contained in this Form 10-K and any risk factors and uncertainties discussed in our other public filings with the SEC under the caption “Risk Factors.” We may face other risks that are not contained in this Form 10-K, including additional risk that are not presently known, or that we presently deem immaterial. This Form 10-K and the risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in such forward-looking statements. Please refer to the sections in this Form 10-K titled “Cautionary Note Regarding Forward-Looking Statements” for additional information regarding forward-looking statements and “Summary of Risk Factors” for additional information regarding the risks and uncertainties that could potentially negatively impact our business, financial conditions, results of operations and cash flows.

Current report

Risks Related to the Company’s Business

Current report

Our revenue has declined significantly in recent periods, and we cannot guarantee that the economics of the Second Amended CAA will fully restore our financial performance.

Current report

Our loan interest income declined sharply following the First Amended CAA, which reduced our income share to approximately 35%. While the Second Amended CAA, increases our income share to up to 65%, this comes at the cost of an up to 65% loan loss indemnification obligation. As such, we cannot guarantee that the economics of the Second Amended CAA will fully restore our financial performance if we are required to fulfill our indemnification obligations.

Current report

Our revenue has declined due to account attrition, lower pricing, introduction of money market accounts that share interest earned with the depositor and reduced transaction activity within the cannabis industry.

Current report

The fees we earn from deposit accounts and transaction activity are directly tied to the number of active CRB accounts, the average balances those accounts maintain, and the volume of transactions processed through our platform. Over recent periods, we have experienced account attrition and lower balances, reflecting broader economic pressures in the U.S. cannabis industry, including reduced wholesale pricing and constrained operator liquidity. These trends reduce both our account fee income and the deposit base on which we earn investment income. We also introduced a money market account that shares the interest earned with depositors, which reduces theaverage revenue generated from CRBs. We cannot predict when, or whether, conditions in the cannabis industry will improve, or whether accounts lost to attrition will be replaced by new customers.

Current report

Volatility in interest rates may adversely affect our revenues, profitability, and competitive position.

Current report

Our investment income is earned on CRB deposits held at PCCU based on the Interest on Reserve Balances (IORB) paid by the Federal Reserve, which is sensitive to changes in prevailing interest rates and including policy decisions by the Federal Reserve. When interest rates decline, the yield earned on CRB deposits decreases, and when interest rates rise, the yield earned on CRB deposits increases. A sustained low-rate environment could materially reduce our revenues and make it more difficult for us to achieve or maintain profitability. In addition, lower interest rates could reduce the interest rates charged on new loans made to CRB borrowers.

Current report

Our recurring operating losses and negative cash flows from operations raise substantial doubt about our ability to continue as a going concern.

Current report

The Company has incurred recurring losses from operations and negative cash flows from operations, including an operating loss of approximately $5.4 million and cash used in operating activities of approximately $3.4 million for the year ended December 31, 2025, which raise substantial doubt about the Company’s ability to continue as a going concern. Management has taken steps to preserve liquidity, including restructuring revenue sharing under the Second Amended CAA to increase the Company’s share of loan program income from approximately 35% to 65%, seeking strategic partnerships, reducing operating expenses, maintaining access to a $150 million ELOC and monitoring its liquidity position. Notwithstanding these measures, there is no assurance that management’s plans will be sufficient to sustain operations, and if the Company is unable to achieve profitability or access adequate capital on acceptable terms, it may be forced to reduce spending, liquidate assets, or curtail operations, any of which could materially harm the Company’s business and financial condition.

Current report

Furthermore, the independent auditors’ report on our consolidated financial statements for the year ended December 31, 2025 includes an explanatory paragraph that expresses substantial doubt about our ability to continue as a going concern. In addition, our future financial statements may include similar qualifications about our ability to continue as a going concern. Our financial statements were prepared assuming that we will continue as a going concern and do not include any adjustments that may result from the outcome of this uncertainty. See Part II, Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Years ended December 31, 2025 and 2024––Liquidity” and Note 2 to the Company’s consolidated financial statements in this Form 10-K for further details.

Current report

Risks Related to the Second Amended CAA

Current report

PCCU’s loan program is substantially dependent on the regulatory restrictions placed on PCCU, which may limit the types, terms, and amounts of loans offered.

Current report

PCCU is a federally chartered credit union subject to regulation by the National Credit Union Administration. PCCU is subject to regulatory capital requirements, portfolio concentration limits, currently capped at 60% of total assets in CRB-related deposits, and periodic examinations by applicable oversight authorities. If PCCU’s regulators impose more restrictive requirements, reduce its concentration limit, or restrict its ability to make CRB loans, the size and composition of the loan portfolio from which we earn income could be materially reduced. We have no ability to compel PCCU to originate loans or to maintain its current regulatory posture, and changes in PCCU’s regulatory environment could restrict the loan program we depend on for a significant portion of our revenue.

Current report

The Second Amended CAA reinstates an indemnification obligation of up to 65% of loan loss.

Current report

Under the Second Amended CAA, we receive up to 65% of loan program income generated by PCCU’s CRB loan portfolio. In exchange, we are obligated to indemnify PCCU for up to 65% of net losses of a default on any loan covered by the Second Amended CAA. This obligation has no maximum dollar limit and covers principal, accrued interest, fees, legal costs, collection costs, and collateral disposition costs, net of any recoveries. As of the date the Second Amended CAA was entered into, the total loan portfolio was approximately $52.1 million, giving us a theoretical maximum indemnification exposure of approximately $33.8 million. If one or more significant loan defaults occur, our indemnification obligations could be substantial and could materially impair our financial condition and ability to operate. See Part II, Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Years ended December 31, 2025 and 2024––Relationship with PCCU.”

Current report

We are required to maintain sufficient balance sheet resources to support our indemnification obligations under the Second Amended CAA.

Current report

The Second Amended CAA requires us to certify monthly to PCCU that we maintain adequate liquidity to support our 65% indemnification obligation. While we currently meet this requirement, there is no assurance that we will continue to do so. Our cash position may decline as a result of operating losses, capital expenditures, debt service, or indemnification payments. If we are unable to certify adequate liquidity or if material indemnification claims are made against us, our ability to continue operating could be significantly impaired

Current report

Our indemnification obligation is unlimited in amount, and our actual losses could exceed our current estimates and our available cash.

Current report

The indemnification obligation under the Second Amended CAA has no dollar cap. Our ability to satisfy indemnification claims depends entirely on our maintaining sufficient cash and liquidity at the time a claim arises. As of December 31, 2025, we held cash of $6.8 million; however, our cash position may decline due to operating losses, working capital needs, or prior indemnification payments. If we are unable to fund an indemnification claim, PCCU would bear the full loss on the affected loan. Such a failure could severely damage our relationship with PCCU, result in a default under the Second Amended CAA, and jeopardize our ability to continue operating.

Current report

We are required to maintain sufficient cash and cash equivalents to support our indemnification obligations under the Second Amended CAA.

Current report

The Second Amended CAA requires us to certify monthly to PCCU that we maintain adequate liquidity to support our 65% indemnification obligation. While we currently meet this requirement, there is no assurance that we will continue to do so. Our cash position may decline as a result of operating losses, capital expenditures, debt service, or indemnification payments. If we are unable to certify adequate liquidity or if material indemnification claims are made against us, our ability to continue operating could be significantly impaired.

Current report

PCCU retains final loan approval authority and may decline loans that meet our underwriting standards, which could limit our revenue growth.

Current report

We control the loan origination process and assist with underwriting, risk rating, and credit analysis, for these loans and determine which loan applications are submitted to PCCU for funding. However, PCCU’s loan committee retains final approval authority and may reject loans that we have underwritten and recommended for funding. A pattern of rejections on loans we consider creditworthy could reduce the size of the loan portfolio, limit our loan program income, and constrain our ability to grow revenue under the Second Amended CAA. We cannot compel PCCU to approve any loan we originate, and disagreements over credit standards could adversely affect our relationship with PCCU and our financial results.

Current report

One borrower represents approximately 18% of the total loan portfolio and carries the second highest risk classification.

Current report

As of December 31, 2025, one borrower had an outstanding loan balance of approximately $9.3 million, representing approximately 18% of our total CRB loan portfolio. This loan carries the second highest risk rating under the risk rating classification system used in the loan program, and which indicates that collection or liquidation in full is highly questionable, doubtful and improbable, with anticipated losses ranging from 20% to 50% of the outstanding balance. Our 65% indemnification exposure on this single loan could result in a loss to us of between approximately $2.2 million, net of estimated collateral value and $6.1 million, uncollateralized. As of December 31, 2025, the Company has recorded provisions of $0.4 million and $0.3 million in the consolidated balance sheet for financial indemnification liability under ASC 326 and standby guarantee obligations under ASC 460, respectively. The realization of any portion of this loss could materially impair our liquidity and financial condition.

Current report

The CRB loan portfolio is concentrated entirely in the cannabis industry, and cannabis-specific collateral is subject to significant valuation discounts, legal uncertainties, and a limited buyer pool in a foreclosure or forced sale.

Current report

All loans in the portfolio we indemnify are made to CRBs. In the event of a default, the primary collateral securing these loans is typically real estate used in cannabis operations. PCCU eliminates the cannabis license premium (sometimes referred to as the “green tax”) from its collateral valuations and applies a further 60% reduction to estimate realizable value in a non-cannabis sale. As a result, the effective collateral value available to offset loan losses in a foreclosure or forced sale is significantly lower than for comparable conventional commercial real estate. This means our actual loss for a given default, and therefore our indemnification payments under the Second Amended CAA, may be materially higher than we currently estimate.

Current report

Certain provisions in the Second Amended CAA create a direct link between our listing compliance and our revenue.

Current report

The Second Amended CAA contains a provision that automatically reduces our loan program income share percentage if we determine that our indemnification percentage must be reduced in order to maintain our listing on The Nasdaq Stock Market (“Nasdaq”). In the event of such a determination, our income split percentage will be reduced to match our indemnification percentage, with a retroactive true-up to the immediately preceding quarter that will be settled within ten days of our next filing with the SEC. A reduction in the indemnity percentage would directly reduce our revenue and could signal financial distress to the market. This provision means that a Nasdaq compliance issue could simultaneously impair both our capital markets access and our operating income.

Current report

The initial fair value measurement of our stand-ready guarantee liability at inception under the Second Amended CAA involves significant estimates and judgment and is subject to material uncertainty.

Current report

We are required under ASC 460,Guarantees, to recognize the fair value of our stand-ready guarantee obligation at inception. We are finalizing this initial fair value measurement with the assistance of a third-party valuation specialist. This is a Level 3 measurement under the fair value hierarchy, meaning it relies on significant unobservable inputs, including assumed default probabilities, loss given default rates, cannabis-specific collateral discount assumptions, discount rates, and the timing of potential guarantee payments. The fair value of this liability is fixed at inception and released over the remaining term of the Second Amended CAA as we are released from risk. Because this measurement depends entirely on management assumptions and unobservable market inputs, actual results could differ materially from our estimates. Errors in this measurement, or changes in the assumptions used, could result in material charges to our income statement or require restatements of our financial statements.

Current report

Our ongoing expected financial indemnification liability under the Current Expected Credit Loss (“CECL”) standard (ASC 326) requires quarterly ongoing remeasurement and is subject to material uncertainty.

Current report

Pursuant to ASC 326,Financial Instruments – Credit Losses, using the CECL methodology, coinciding with the first period in which the Company held financial assets within the scope of the standard. Our financial indemnification liability represents our estimate of 65% of the expected credit losses on the covered loan portfolio under the Second Amended CAA. Unlike our ASC 460 stand-ready guarantee liability, which is fixed at inception, our financial indemnification liability is dynamic and remeasured every quarter to reflect current conditions, forward-looking economic forecasts, updated default probability assumptions, revised loss given default estimates, and changes in collateral values. Because the cannabis commercial real estate lending market has limited historical loss data for reliable statistical calibration, our estimates forfinancial indemnification liability involve a higher-than-normal degree of management judgment. Changes in these estimates in future periods, including as a result of borrower deterioration, collateral value declines, or changes in economic conditions, could result in material charges to credit loss expense in our income statement. Errors in these measurements could also require restatements of our financial statements.

Current report

We are dependent on third parties, including PCCU and other service providers, for certain critical services, and disruptions at PCCU would directly and immediately impair our operations.

Current report

PCCU provides the regulated banking infrastructure on which our entire service model depends. We do not hold a bank or credit union charter and cannot directly offer deposit, lending, or payment services to CRB clients. Operational disruptions at PCCU whether caused by a regulatory action, a cybersecurity incident, a financial stress event, or an operational failure would directly and immediately impair our ability to serve our clients and generate revenue. We have limited ability to transition our operations to an alternative financial institution partner on short notice, and the loss of PCCU’s operational infrastructure for any extended period could be fatal to our business.

Current report

We are almost entirely dependent on PCCU as our banking partner. Substantially all deposits from our CRB clients are held at PCCU, and substantially all of our revenue is generated through the services we provide under the Second Amended CAA. We currently have no other financial institution partner of comparable scope. The loss of our relationship with PCCU, or a material adverse change to the terms of the CAA, would have a material adverse effect on our business, revenues, and operations. Until we enter into agreements with one or more additional financial institution partners, our ability to grow our client base and diversify our revenue is significantly constrained

Current report

Loan program income (formerly loan interest income) could decline under the Second Amended CAA if the indemnity reserve would cause our shareholders’ equity to drop below the Nasdaq Listing Requirements to maintain compliance.

Current report

The Second Amended CAA contains a provision that automatically reduces our loan program income (formerly loan interest income) share percentage if we determine that our indemnification percentage must be reduced in order to maintain our Nasdaq listing. In the event of such a determination, our income split percentage will be reduced to match our indemnification percentage. Any such adjustment in our indemnification obligation would result in a corresponding decrease in the amount of loan program income generated by PCCU’s CRB loan portfolio that we receive pursuant to the Second Amended CAA. The current listing requirement is a minimum of $2.5 million of shareholders’ equity, and if Nasdaq were to increase this requirement such that it exceeded the Company’s balance sheet equity, or the Company’s balance sheet equity decreases below $2.5 million, our loan program income could decline. See “––Risks Related to the Second Amended CAA––Certain provisions in the Second Amended CAA create a direct link between our listing compliance and our revenue.”

Current report

Risks Related to the Cannabis Industry and Regulatory Environment

Previous report

For a complete discussion of the Company’s risks and uncertainties, please refer to the risk factors included under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on April 14, 2023. As of the date of this Annual Report on Form 10-K, there have been no material changes to the risk factors previously disclosed under Part I, Item 1A, except for the following update regarding non-compliance with Nasdaq listing requirements: