SHF Holdings, Inc. (NASDAQ:SHFS) Q4 2023 Earnings Call Transcript April 1, 2024
SHF Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon and welcome to the Safe Harbor Financial Q4 2023 Earnings Call. Please note that this call is being recorded. All participants are now in listen-only mode. After the speakers’ remarks there will be a question and answer session. [Operator Instructions]. I will now turn the call over to Erika Kay, you may begin your conference.
Erika Kay: Thank you. Good afternoon, everyone, and welcome to the Fourth Quarter and Full Year 2023 Earnings Conference Call for Safe Harbor Financial. Before we start, please note that remarks made today include forward-looking statements, including statements with respect to the company’s outlook and the company’s expectations regarding its market opportunities and other financial operational matters. Each forward-looking statement discussed on today’s call is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Actual results and the timing of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements, and reported results should not be considered as an indication for future performance.
Additional information regarding these factors appears under the heading Risk Factors in the Company’s filings with the Securities and Exchange Commission or the SEC, which are available at www.sec.gov and on our website at ir.shfinancial.org. The forward-looking statements in this call will speak only as of today’s date, and the company undertakes no obligation to update or revise any of these statements. Also during the call, Safe Harbor will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today’s earnings press release, which you can find on the Company’s Investor Relations website or on the SEC website. All dollar amounts expressed today are in U.S. currency. Presenting today will be Sundie Seefried, Chief Executive Officer; and Jim Dennedy, Chief Financial Officer of Safe Harbor.
I’ll now hand the call over to Sundie. Sundie, please go ahead.
Sundie Seefried: Thank you, Erika, and welcome to our 2023 yearend earnings call. 2023 was another strong year of financial growth for Safe Harbor with record revenue of $17.56 million, an increase of 85.3%, up from $9.48 million in 2022. In addition to our continued year-over-year growth, we have impactfully elevated our position as a one-stop financial service center for cannabis related businesses across the country, building an expansive compliant financial products and services. I am also pleased to report that we have reached a point in our evolution where we have optimized our fintech platform to deliver multiple high margin revenue streams that are expected to contribute meaningfully to our growth going forward. By successfully scaling our platform with new credit and deposit tools, we have continued to differentiate Safe Harbor from our peers, further demonstrating the underlying value of our expertise and experience in this complex segments of the finance industry.
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Q&A Session
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To better understand our unique market position and capabilities, it’s important to understand the role we play as a trusted intermediary between CRBs and financial institutions. Safe Harbor’s compliant cannabis infrastructure intuitively interfaces with each of our financial institution partners to seamlessly manage financial transactions ensuring the highest level of oversight, validation and compliance. By eliminating the risk of serving the cash-intensive cannabis industry without interruption and [Indiscernible] here Safe Harbor has established itself as a critical component of the financial transaction process and more importantly, our fintech platform have to become a gateway to introducing additional banking solutions to the cannabis industry.
The core driver of our business is customer deposit activity, which since 2015 has facilitated over $21.5 billion in deposits across 41 states. For 2023, our goal was to facilitate $4 billion in deposits. In 2023, we facilitated approximately $4.2 billion in deposits representing an increase of approximately 16.67% compared to the $3.6 billion we reported in 2022. For the full year 2023, as compared to the full year 2022, revenue increased 85.3% consisting primarily in key components as follows: deposit and onboarding income increased by 42%, investment income increased by 175.6% and loan interest income increased by 163% with the loan book increasing 194%. Jim will provide additional detail on these three revenue components in his review of the fourth quarter and yearend financials.
The strength of these results is extremely impressive, especially when taking into account the July 2023 termination of our master services and revenue sharing agreement with Central Bank. As a result, our total number of clients decreased from 1,040 as of March 30th, 2023 to 721 as of December 31st 2023. The effect of the account losses on deposit related fees were first recognized in quarter four 2023. Please note that we are actively engaged with potential new financial partners eager to enter the high growth cannabis banking industry. Against this challenging backdrop, Safe Harbor continued to deliver strong results, a testament to our ability to diversify the business, launch additional fee generating products and services, which collectively has allowed us to increase our business activity with our valued customer base.
For example, the average monthly fee revenue per account increased 35% year-over-year to $8,298, up from $6,154 for the same period in 2022. In addition, our average per account balance for the full year 2023 was $219,835 to $215, 269 in 2022. The growth in monthly sheen revenue is a function of high business volume, albeit on a smaller account and deposit base which is happening across the entire banking sector. Even though deposits are down, the velocity of money turning through the system is increasing. Our revenues have historically been driven by depository fees which are composed of deposits onboarding, compliance, monitoring and validation fees. However, with the addition of new service offerings, our recent financial results represents a more diversified income stream, which resulted in a strong total revenue growth for fourth quarter and the full year 2023.
The diversification of our income streams has allowed us to remain competitive given the fact that most of our competitors are incapable of diversifying their income especially with lending. Our proven ability to add new revenue streams including lending, new credit, and deposit offerings, as well as investment income represent key areas of differentiation for safe Harbor. As we leverage our expertise to lead the evolving cannabis finance industry and scale our operations to meet increasing demand, we are seeing other financial institutions desiring to exit the market as they do not have our capabilities nor are they solely focused on this market segment. Our team is fully dedicated to cannabis financial services, which furthers our competitive edge and high-level competency in our business.
Our interests are not divided and this is a key competitive advantage undistracted by other markets requiring banking services. Safe Harbor’s ability to offer highly competitive rates on loans to new customers along with the opportunity to provide additional lending services to our established long-term customer base allowed us to increase the size of our loan book to $55.66 million at the end of December 31st, 2023. This compares to a loan book of $18.9 million at the end of December 31, 2022, representing a significant increase of 194% year-over-year. As a result of higher loan activity, we have steadily increased our loan income creating a powerful new high margin revenue channel for Safe Harbor. Total loan interest income from 2023 was $2.97 million, representing an increase of 163%, up from $1.13 million in 2022.
Further supporting our financial and operational growth last year was the introduction of an expanded line of deposit and credit tools that has allowed us to further optimize our deposit base. In July 2023, we launched the first interest-bearing commercial deposit account broadly available to cannabis businesses nationwide, providing depositors with the opportunity to earn interest income with no maximum balance limitation. In September 2023, we introduced a new line of credit product to support cannabis enterprises who historically have faced difficulty obtaining debt financing at reasonable terms. Our investment income correlates directly with deposit base and loan book as our financial institution partners collect interest on loans and deposits, in line with our increased account activity we recognized and increased and invest in income with investment income increasing 175.6% to $5.84 million in 2023, up from $2.12 million in 2022.
The fact that we have achieved strong financial growth in 2023 while facing market headwinds due to slowed industry growth and increased competition, along with the loss of deposit accounts from the termination of our partnership with Central Bank speak to the value to the strength of our business model. While it remains our goal to increase our deposit base with more active accounts to grow our investment income and facilitate greater lending opportunities, it is just as important to strengthen our fintech platform with more sophisticated products and services to create additional revenue channels and improved margins. We have several opportunities throughout the remainder of 2024 that we expect to lead to increase in both our deposit activity and number of accounts.
