TWFG, Inc. 10-Q

Item 1. Financial Statements TWFG, Inc. Condensed Consolidated Statements of Operations (Amounts in thousands, except share and per share data) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Revenues Commission income (related party of $ 3,026 and $ 1,167 for the three months ended and $ 6,047 and $ 3,064 for the nine months ended September 30, 2024 and 2023, respectively) $ 48,240 $ 43,993 $ 139,447 $ 122,451 Contingent income 1,383 1,035 3,717 3,023 Fee income (related party of $ 884 and $ 419 for the three months ended and $ 1,799 and $ 1,258 for the nine months ended September 30, 2024 and 2023, respectively) 2,890 2,107 7,811 6,343 Other income 2,127 575 3,244 1,125 Total revenues 54,640 47,710 154,219 132,942 Expenses Commission expense 30,766 32,461 89,171 90,853 Salaries and employee benefits 8,331 3,390 21,401 10,096 Other administrative expenses (related party of $ 339 and $ 178 for the three months ended and $ 1,122 and $ 270 for the nine months ended September 30, 2024 and 2023, respectively) 4,813 2,812 11,687 8,043 Depreciation and amortization 2,985 1,145 8,966 3,340 Total operating expenses 46,895 39,808 131,225 112,332 Operating income 7,745 7,902 22,994 20,610 Interest expense ( 411 ) ( 295 ) ( 2,125 ) ( 553 ) Other non-operating income (expense), net ( 4 ) 1 8 ( 10 ) Income before tax 7,330 7,608 20,877 20,047 Income tax expense 437 — 437 — Net income from continuing operations 6,893 7,608 20,440 20,047 Net income from discontinued operation, net of tax — — — 834 Net income 6,893 7,608 20,440 20,881 Less: net income attributable to noncontrolling interests 5,739 — 19,286 — Net income attributable to TWFG, Inc. $ 1,154 $ 7,608 $ 1,154 $ 20,881 Weighted average shares of common stock outstanding (see Note 13): Basic 14,722,685 14,722,685 Diluted 14,890,382 14,890,382 Earnings per share (see Note 13): Basic $ 0.08 $ 0.08 Diluted $ 0.08 $ 0.08 See Notes to the Condensed Consolidated Financial Statements 1 Table of Contents TWFG, Inc. Condensed Consolidated Statements of Comprehensive Income (Loss) (Amounts in thousands) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net income $ 6,893 $ 7,608 $ 20,440 $ 20,881 Other comprehensive income (loss), net of tax: Unrealized gains on investments of discontinued operation during the period (net of tax expense of $ 0 and $ 0 for the three months ended and $ 0 and $ 44 for the nine months ended September 30, 2024 and 2023, respectively) — — — 165 Unrealized (loss) gains on derivative instruments during the period ( 77 ) 72 68 195 Reclassification of realized gains on derivative instruments included in net income during the period ( 80 ) ( 107 ) ( 258 ) ( 308 ) Total other comprehensive (loss) income, net of tax ( 157 ) ( 35 ) ( 190 ) 52 Comprehensive income 6,736 7,573 20,250 20,933 Less: comprehensive income attributable to noncontrolling interests 5,615 — 19,129 — Comprehensive income attributable to TWFG, Inc. $ 1,121 $ 7,573 $ 1,121 $ 20,933 See Notes to the Condensed Consolidated Financial Statements 2 Table of Contents TWFG, Inc. Condensed Consolidated Statements of Financial Position (Amounts in thousands, except share/unit data) (unaudited) September 30, 2024 December 31, 2023 Assets Current assets Cash and cash equivalents $ 191,196 $ 39,297 Restricted cash 9,709 7,171 Commissions receivable, net 22,901 19,082 Accounts receivable 8,782 5,982 Deferred offering costs — 2,025 Other current assets, net 1,539 1,551 Total current assets 234,127 75,108 Non-current assets Intangible assets - net 75,024 36,436 Property and equipment - net 682 597 Lease right-of-use assets - net 2,625 2,459 Other non-current assets 635 837 Total assets $ 313,093 $ 115,437 Liabilities and Equity Current liabilities Commissions payable $ 14,438 $ 12,487 Carrier liabilities 13,278 8,731 Operating lease liabilities, current 1,070 882 Short-term bank debt 1,897 2,437 Deferred acquisition payable, current 506 5,369 Other current liabilities 6,908 5,006 Total current liabilities 38,097 34,912 Non-current liabilities Operating lease liabilities, net of current portion 1,448 1,518 Long-term bank debt 4,490 46,919 Deferred acquisition payable, non-current 924 1,037 Total liabilities 44,959 84,386 Commitment and contingencies (see Note 15) Stockholders'/Members' Equity Members’ Equity ( 631,750 common units issued and outstanding at December 31, 2023) — 632 Class A common stock ($ 0.01 par value per share - 300,000,000 authorized, 14,811,874 shares issued and outstanding at September 30, 2024) 148 — Class B common stock ($ 0.00001 par value per share - 100,000,000 authorized, 7,277,651 shares issued and outstanding at September 30, 2024) — — Class C common stock ($ 0.00001 par value per share - 100,000,000 authorized, 33,893,810 shares issued and outstanding at September 30, 2024) — — Additional paid-in capital 57,159 25,114 Retained earnings 13,697 4,805 Accumulated other comprehensive income 82 500 Total stockholders' equity attributable to TWFG, Inc. /members’ equity 71,086 31,051 Noncontrolling interests 197,048 — Total stockholders'/members' equity 268,134 31,051 Total liabilities and equity $ 313,093 $ 115,437 See Notes to the Condensed Consolidated Financial Statements 3 Table of Contents TWFG, Inc. Condensed Consolidated Statements of Stockholders’/Members’ Equity (Amounts in thousands, except share/unit data) (unaudited) Members’ Equity Class A Common Stock Class B Voting Stock Class C Voting Stock Units Amount Shares Amount Shares Amount Shares Amount Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Attributable to TWFG, Inc./ Members' Equity Noncontrolling Interests Total Stockholders’/Members' Equity Balance at December 31, 2023 631,750 $ 632 – $ — – $ — – $ — $ 25,114 $ 4,805 $ 500 $ 31,051 $ — $ 31,051 Net income – — – — – — – — — 6,629 — 6,629 — 6,629 Shares issued 27,689 28 – — – — – — 30,018 — — 30,046 — 30,046 Cash distributions to members – — – — – — – — — ( 2,420 ) — ( 2,420 ) — ( 2,420 ) Other comprehensive income – — – — – — – — — — 23 23 — 23 Balance at March 31, 2024 659,439 $ 660 – $ — – $ — – $ — $ 55,132 $ 9,014 $ 523 $ 65,329 $ — $ 65,329 Net income – — – — – — – — — 6,918 — 6,918 — 6,918 Cash distributions to members – — – — – — – — — ( 4,679 ) — ( 4,679 ) — ( 4,679 ) Other comprehensive loss – — – — – — – — — — ( 56 ) ( 56 ) — ( 56 ) Balance at June 30, 2024 659,439 $ 660 – $ — – $ — – $ — $ 55,132 $ 11,253 $ 467 $ 67,512 $ — $ 67,512 Net income prior to the Reorganization Transactions and IPO (see Note 1) — — — — — — — — — 1,290 — 1,290 — 1,290 Other comprehensive loss prior to the Reorganization Transactions and IPO — — — — — — — — — — ( 33 ) ( 33 ) — ( 33 ) Effect of the Reorganization Transactions ( 659,439 ) ( 660 ) 2,161,874 22 7,277,651 — 33,893,810 — ( 191,733 ) — ( 319 ) ( 192,690 ) 192,690 — Issuance of Class A common stock at the IPO, net of underwriting costs — — 12,650,000 126 — — — — 200,548 — — 200,674 — 200,674 Capitalized offering costs — — — — — — — — ( 7,800 ) — — ( 7,800 ) — ( 7,800 ) Net income after the Reorganization Transactions and IPO — — — — — — — — — 1,154 — 1,154 4,449 5,603 Other comprehensive loss after the Reorganization Transactions and IPO — — — — — — — — — — ( 33 ) ( 33 ) ( 91 ) ( 124 ) Stock-based compensation — — — — — — — — 1,012 — 1,012 — 1,012 Balance at September 30, 2024 — $ — 14,811,874 $ 148 7,277,651 $ — 33,893,810 $ — $ 57,159 $ 13,697 $ 82 $ 71,086 $ 197,048 $ 268,134 See Notes to the Condensed Consolidated Financial Statements 4 Table of Contents TWFG, Inc. Condensed Consolidated Statements of Stockholders’/Members’ Equity (Continued) (Amounts in thousands, except share/unit data) (unaudited) Members’ Equity Class A Common Stock Class B Voting Stock Class C Voting Stock Units Amount Shares Amount Shares Amount Shares Amount Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Attributable to TWFG, Inc./ Members' Equity Noncontrolling Interests Total Stockholders’/Members' Equity Balance at December 31, 2022 631,750 $ 632 — $ — — $ — — $ — $ 25,114 $ 32,180 $ ( 140 ) $ 57,786 $ — $ 57,786 Cumulative effect of change in accounting principle (see Note 2) — — — — — — — — — ( 271 ) — ( 271 ) — ( 271 ) Adjusted balance at December 31, 2022 631,750 632 — — — — — — 25,114 31,909 ( 140 ) 57,515 — 57,515 Net income — — — — — — — — — 6,206 — 6,206 — 6,206 Cash distributions to members — — — — — — — — — ( 5,378 ) — ( 5,378 ) — ( 5,378 ) Other distributions to members — — — — — — — — — ( 16,599 ) — ( 16,599 ) — ( 16,599 ) Other comprehensive income — — — — — — — — — — 39 39 — 39 Impact of discontinued operation on accumulated other comprehensive income — — — — — — — — — — 775 775 — 775 Balance at March 31, 2023 631,750 $ 632 — $ — — $ — — $ — $ 25,114 $ 16,138 $ 674 $ 42,558 $ — $ 42,558 Net income — — — — — — — — — 7,067 — 7,067 — 7,067 Cash distributions to members — — — — — — — — — ( 5,186 ) — ( 5,186 ) — ( 5,186 ) Other distributions to members — — — — — — — — — ( 3,195 ) — ( 3,195 ) — ( 3,195 ) Other comprehensive loss — — — — — — — — — — 48 48 — 48 Balance at June 30, 2023 631,750 $ 632 — $ — — $ — — $ — $ 25,114 $ 14,824 $ 722 $ 41,292 $ — $ 41,292 Net income — — — — — — — — — 7,608 — 7,608 — 7,608 Cash distributions to members — — — — — — — — — ( 2,599 ) — ( 2,599 ) — ( 2,599 ) Other comprehensive loss — — — — — — — — — — ( 35 ) ( 35 ) — ( 35 ) Balance at September 30, 2023 631,750 $ 632 — $ — — $ — — $ — $ 25,114 $ 19,833 $ 687 $ 46,266 $ — $ 46,266 See Notes to the Condensed Consolidated Financial Statements 5 Table of Contents TWFG, Inc. Condensed Consolidated Statements of Cash Flows (Amounts in thousands) (unaudited) Nine Months Ended September 30, 2024 2023 Cash Flows from Operating Activities Net income $ 20,440 $ 20,881 Less: Net income from discontinued operation, net of tax — 834 Net income from continuing operations 20,440 20,047 Adjustments to reconcile net income to cash flows from operating activities: Depreciation and amortization 8,966 3,340 Allowance for credit losses 69 — (Gains) losses on sale of intangible assets and property and equipment ( 86 ) 12 Stock-based compensation expense 1,012 — Non-cash lease expense 756 503 Other non-cash items ( 10 ) 5 Change in: Commission receivable ( 3,889 ) ( 4,216 ) Accounts receivable ( 2,800 ) ( 1,667 ) Other current and non-current assets 151 ( 74 ) Commissions payable 1,951 4,284 Operating lease liabilities ( 802 ) ( 537 ) Other current liabilities 3,121 1,567 Net cash provided by operating activities from continuing operations 28,879 23,264 Net cash provided by operating activities from discontinued operation — 839 Net cash provided by operating activities 28,879 24,103 Cash Flows from Investing Activities Proceeds from disposition of intangible assets 84 524 Proceeds from disposition of property and equipment 2 2 Purchase of intangible assets ( 21,395 ) ( 6,315 ) Purchase of property and equipment ( 280 ) ( 217 ) Net cash used in investing activities from continuing operations ( 21,589 ) ( 6,006 ) Net cash provided by investing activities from discontinued operation — 64 Net cash used in investing activities ( 21,589 ) ( 5,942 ) Cash Flows from Financing Activities Proceeds from borrowings — 10,000 Repayment of borrowings ( 42,968 ) ( 1,973 ) Distributions to members ( 7,099 ) ( 13,163 ) Cash derecognized upon distribution of EVO to members (see Note 2) — ( 2,229 ) Net proceeds from IPO, net of underwriting costs 200,674 — Payment of deferred offering costs ( 7,122 ) ( 127 ) Payment of equity issuance costs ( 38 ) — Net change in carrier liabilities 4,547 1,414 Payment of deferred acquisition payable ( 847 ) ( 8 ) Net cash provided by (used in) financing activities from continuing operations 147,147 ( 6,086 ) Net cash used in financing activities from discontinued operation — ( 11,305 ) Net cash provided by (used in) financing activities 147,147 ( 17,391 ) See Notes to the Condensed Consolidated Financial Statements 6 Table of Contents TWFG, Inc. Condensed Consolidated Statement of Cash Flows (continued) (Amounts in thousands) (unaudited) Nine Months Ended September 30, 2024 2023 Net change in cash, cash equivalents and restricted cash from continuing operations 154,437 11,172 Net change in cash, cash equivalents and restricted cash from discontinued operation — ( 10,402 ) Net change in cash, cash equivalents and restricted cash 154,437 770 Cash, cash equivalents and restricted cash from continuing operations - beginning balance 46,468 30,262 Cash, cash equivalents and restricted cash from discontinued operation - beginning balance — 10,402 Cash, cash equivalents and restricted cash - beginning balance 46,468 40,664 Cash, cash equivalents and restricted cash - ending balance 200,905 41,434 Less: Cash, cash equivalents and restricted cash from discontinued operation - ending balance — — Cash, cash equivalents and restricted cash from continuing operations - ending balance $ 200,905 $ 41,434 Reconciliation of cash, cash equivalents and restricted cash, end of period: Cash and cash equivalents $ 191,196 $ 33,623 Restricted cash 9,709 7,811 Cash, cash equivalents and restricted cash, end of period $ 200,905 $ 41,434 Net change in cash and cash equivalents $ 151,899 $ 890 Net change in restricted cash 2,538 ( 120 ) Net change in cash, cash equivalents and restricted cash $ 154,437 $ 770 Supplemental disclosures of cash flow information: Cash paid for interest $ 2,298 $ 328 Non-cash investing and financing activities: Additions to intangible assets and offsetting additions to deferred acquisition payable $ 396 $ 1,395 Additions to intangible assets and offsetting additions to members' equity $ 25,560 $ — Additions to intangible assets and offsetting additions to other current liabilities $ 8 $ — Settlement of deferred acquisition payable through the issuance of Class A common units $ 4,524 $ — Distribution to members $ — $ 6,260 See Notes to the Condensed Consolidated Financial Statements 7 Table of Contents TWFG, Inc. Notes to the Condensed Consolidated Financial Statements (unaudited) 1. ORGANIZATION AND BASIS OF PRESENTATION Organization TWFG, Inc. was incorporated as a Delaware corporation on January 8, 2024 for the purpose of facilitating an initial public offering (“IPO”) of its common stock and other related reorganization transactions (the “Reorganization Transactions,” which are further described below) in order to carry on the business of TWFG Holding Company, LLC (“TWFG Holding”) and its consolidated subsidiaries. On July 19, 2024, TWFG, Inc. completed an IPO of 11,000,000 shares of its Class A common stock (“Class A Common Stock”) at an initial public offering price of $ 17.00 per share. On July 23, 2024, the underwriters purchased an additional 1,650,000 shares of Class A Common Stock at $ 17.00 per share in connection with the underwriters’ full exercise of their option to purchase additional shares. In these notes to the condensed consolidated financial statements, references to the “Company” refer to: (i) TWFG, Inc. and, unless otherwise stated or the context otherwise requires, all of its subsidiaries, including TWFG Holding, for all periods following the consummation of the Reorganization Transactions, including the IPO, and (ii) TWFG Holding and, unless otherwise stated or the context otherwise requires, all of its subsidiaries for periods prior to the completion of the Reorganization Transactions, including the IPO. Following the Reorganization Transactions, the Company is a holding company with its principal asset being a controlling ownership interest in TWFG Holding and its consolidated subsidiaries. Information for any period prior to July 19, 2024 relates to TWFG Holding. TWFG Holding is an independent distribution platform for personal and commercial insurance in the United States. The Company’s corporate headquarters is in The Woodlands, Texas. TWFG Holding is the parent company of the following wholly-owned subsidiaries: TWFG Insurance Services LLC (“TWFG-IS”) is a national retail insurance agency that distributes personal lines, commercial lines, life, annuities, health, and supplemental benefits insurance products. TWFG General Agency LLC (“TWFG-GA”) is a Managing General Agency that distributes personal and commercial lines insurance products to independent agents, in addition to TWFG-IS agents. TWFG Premium Finance LLC (“TWFG-PF”) is an intermediary insurance premium financing company that offers premium financing for commercial insurance policies for Clients of TWFG-GA and TWFG-IS. TWFG CA Premium Finance Company (“TWFG-CA PF”) is an intermediary insurance premium financing company that offers premium financing for personal and commercial insurance Clients that purchase insurance from licensed California insurance agents. This entity was formed in 2022. PSN Business Processing Inc. (“PSN”) is a Philippine corporation with its principal office located in the Philippines. PSN is engaged in the business of providing back-office support to TWFG agents and the TWFG corporate office, specifically insurance-related and various administrative services. Evolution Agency Management LLC (“EVO”) is a software services company that offers agents complete agency management systems solutions. In May 2023, the Company distributed its equity interest in EVO to the owners of the Company. The distribution of EVO did not meet the criteria for discontinued operation reporting. The Woodlands Insurance Company (“TWICO”) is a Texas domiciled insurance company, formed in 2014, which currently writes homeowner’s policies. TWICO is licensed in Texas and Louisiana. In 2023, the Company distributed its equity interest in TWICO to the owners of the Company. TWICO became a related party to the Company post-distribution. The Company has presented TWICO as a discontinued operation in these condensed consolidated financial statements. See Note 12 for additional information about the related party transactions between the Company and TWICO and Note 14 for additional information about the discontinued operation . Prior to the consummation of the Reorganization Transactions and the IPO, substantially all of TWFG Holding’s outstanding ownership interests in the form of limited liability company units (the “LLC Units”), including its Class A common unit interests, Class B common unit interests and Class C common unit interests, were owned beneficially by Bunch Family Holdings, LLC (“Bunch Holdings”), which is owned by Richard F. (“Gordy”) Bunch III, the Chief 8 Table of Contents Executive Officer, Chairman and Director of the Company, RenaissanceRe Ventures U.S. LLC (“RenRe”), and GHC Woodlands Holdings LLC (“GHC” and collectively with Bunch Holdings and RenRe, together with each of their permitted transferees, the “Pre-IPO LLC Members”). Bunch Holdings was the ultimate controlling owner of TWFG Holding prior to the consummation of the Reorganization Transactions and the IPO. On January 1, 2024, TWFG Holding issued a total of 27,689 new Class A common units to separate individuals and entities (collectively, the “New Members”) in connection with separate asset purchase agreements. See Note 4 for more information about the asset purchases. Reorganization Transactions In connection with the IPO, TWFG Holding completed the following series of transactions to implement an internal reorganization on July 19, 2024, which are collectively referred to as the Reorganization Transactions. The Pre-IPO LLC Members who retained their equity ownership in the LLC Units, following the consummation of the Reorganization Transactions are referred to as “Continuing Pre-IPO LLC Members”. • The Company, TWFG Holding and each of the Pre-IPO LLC Members entered into the third amended and restated TWFG Holding LLC agreement (the “TWFG LLC Agreement”), which, among other things, appointed the Company as the sole managing member of TWFG Holding and modified the TWFG Holding capital structure by reclassifying the interests held by the Pre-IPO LLC Members and the New Members into a single new class of non-voting common interest units; • TWFG, Inc.’s certificate of incorporation authorizes the issuance of three classes of common stock: Class A Common Stock, non-economic Class B common stock (“Class B Common Stock” or “Class B Voting Stock”) and non-economic Class C common stock (“Class C Common Stock” or “Class C Voting Stock”). Each share of Class A Common Stock entitles its holder to one vote per share on all matters submitted to a vote of the stockholders, each share of Class B Voting Stock entitles its holder to one vote per share on all matters submitted to a vote of the stockholders and each share of Class C common stock initially entitles its holder to ten votes per share on all matters submitted to a vote of the stockholders. Each share of non-economic Class C Common Stock is entitled to one vote per share automatically (i) 12 months following the death or disability of Richard F. (“Gordy”) Bunch III or (ii) upon the first trading day on or after such date that the outstanding shares of non-economic Class C Common Stock represent less than 10% of the then-outstanding Class A Common Stock, non-economic Class B Common Stock and non-economic Class C Common Stock, which, in either instance, may be extended to 18 months upon affirmative approval of a majority of the independent directors; • 342,362 LLC Units held by Bunch Holdings were exchanged into 342,362 shares of Class A Common Stock of the Company; • Bunch Holdings was issued 33,893,810 shares of non-economic Class C Common Stock, RenRe was issued 5,457,417 shares of non-economic Class B Common Stock; GHC was issued 1,820,234 shares of non-economic Class B Common Stock; and the New Members were issued 1,819,512 shares of Class A Common Stock, each in an amount equal to the number of LLC Units previously held by each such Pre-IPO LLC Member and New Members; • Under the TWFG LLC Agreement, the Pre-IPO LLC Members have the right, from and after the completion of the IPO, to require TWFG Holding to redeem all or a portion of their LLC Units for, at the Company’s election, newly-issued shares of Class A Common Stock on a one -for-one basis or a cash payment equal to the volume weighted average market price of one share of Class A Common Stock for each LLC Unit redeemed (subject to customary adjustments, including for stock splits, stock dividends and reclassifications) in accordance with the terms of the TWFG LLC Agreement. Additionally, in the event of a redemption request by a holder of LLC Units, the Company may, at its option, effect a direct exchange of cash or Class A Common Stock for LLC Units in lieu of such a redemption. Shares of non-economic Class B Common Stock or non-economic Class C Common Stock, as applicable, will be cancelled on a one -for-one basis if the Company, following a redemption request of a holder of LLC Units, redeems or exchanges LLC Units of such holder of LLC Units pursuant to the terms of the TWFG LLC Agreement. Except for transfers to the Company pursuant to the TWFG LLC Agreement or to certain permitted transferees, the holders of LLC Units are not permitted to sell, transfer or otherwise dispose of any LLC Units or shares of non-economic Class B Common Stock or non-economic Class C Common Stock; • The Company used the net proceeds from the IPO (including the net proceeds received from the underwriters exercising their option to purchase additional shares of Class A Common Stock) to acquire a number of newly-issued LLC Units equal to the number of shares of Class A Common Stock issued in the IPO from TWFG 9 Table of Contents Holding, at a purchase price per LLC Unit equal to the initial public offering price of Class A Common Stock after underwriting discounts and commissions; and • The Company caused TWFG Holding to use the proceeds it received from the sale of LLC Units to the Company to pay fees and expenses of approximately $ 7.8 million in connection with the IPO and the Reorganization Transactions and to repay in full outstanding debt under the Revolving Credit Agreement in the amount of $ 41.0 million. As part of the Reorganization Transactions, the Company entered into a tax receivable agreement that obligates the Company to make payments to the Continuing Pre-IPO LLC Members and any future party to the tax receivable agreement generally equal to 85 % of the applicable cash savings that the Company actually realizes as a result of certain tax basis adjustments resulting from the purchase of LLC Units from any of the Continuing Pre-IPO LLC Members using the net proceeds from any future offering, future taxable redemptions or exchanges of LLC Units by the holders of LLC Units and from payments made under the tax receivable agreement, as well as tax benefits related to imputed interest resulting from payments made under the tax receivable agreement. The Company retains the benefit of the remaining 15 % of these tax savings. The corporate structure following the completion of the IPO and Reorganization Transactions, as described above, is commonly referred to as an “Up-C” structure, which is used by partnerships and limited liability companies when they undertake an IPO of their business. The Up-C structure will allow the Continuing Pre-IPO LLC Members to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “pass-through” entity, for income tax purposes following the IPO. On July 19, 2024, in connection with the Reorganization Transactions, immediately prior to the IPO, the Company issued (i) 2,161,874 shares of Class A Common Stock in exchange for 342,362 LLC Units held by Bunch Holdings and 1,819,512 LLC Units held by the New Members, (ii) 7,277,651 shares of Class B Common Stock to RenRe and GHC for consideration of $ 0.00001 per share and (iii) 33,893,810 shares of Class C Common Stock for consideration of $ 0.00001 per share to Bunch Holdings. Immediately following the closing of the IPO, TWFG Holding is the predecessor of the Company for financial reporting purposes. As sole managing member of TWFG Holding, the Company has sole authority to determine the amount and timing of distributions from TWFG Holding. Because the Company manages and operates the business and controls the strategic decisions and day-to-day operations of TWFG Holding and also has a substantial financial interest in TWFG Holding, the Company consolidates the financial results of TWFG Holding, and a portion of the Company’s net income is allocated to the noncontrolling interests to reflect the entitlement of the Pre-IPO LLC Members to a portion of TWFG Holding’s net income. In addition, because TWFG Holding is under the control of Bunch Holdings before and after the Reorganization Transactions, the Company accounts for the Reorganization Transactions as a reorganization of entities under common control and initially measured the assets and liabilities of TWFG Holding at their carrying amounts as of the date of the completion of these Reorganization Transactions. Basis of Presentation The condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its subsidiaries. TWFG Holding was determined to be a variable interest entity and the Company is considered the primary beneficiary and sole managing member of TWFG Holding and has decision making authority that significantly affects the performance of the entity. The Company consolidates TWFG Holding in its condensed consolidated financial statements and records noncontrolling interests representing the portion of earnings attributable to the economic interest in TWFG Holding held by the Continuing Pre-IPO LLC Members. All intercompany transactions and balances have been eliminated in consolidation. The condensed consolidated financial statements reflect all adjustments necessary to present fairly the Company’s condensed consolidated financial position, results of operations, and cash flows for all periods presented. Such adjustments are normal and recurring in nature. Certain prior period amounts have been reclassified to conform with the current period presentation. The Company is an emerging growth company and elects to avail itself of the extended transition period for complying with new or revised accounting standards. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and 10 Table of Contents liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions reflected within these condensed consolidated financial statements include, but are not limited to, revenue recognition, intangible assets, lease right-of-use assets, operating lease liabilities, and acquisitions. Actual results could differ from those estimates as more information becomes known. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition The Company applies the following five-step model in order to determine revenue recognition: (i) identification of the contract with a customer; (ii) identification of the performance obligations in the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration it is entitled to in exchange for the services it transfers to the customer . Commission Income The Company derives its revenues from the placement of insurance contracts between insurance carriers and insureds. Revenues are recognized when the performance obligation of placing the policy has been met and the policy is in effect, based on the effective date of the policy. Commission income is an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. The Company does not have any significant financing components. Costs incurred to place a contract are expensed as incurred. The Company incurs costs to place the contracts, primarily through commissions paid to agents. The Company’s customers are insurance carriers, as the Company acts as an agent to the insureds to identify a policy and carrier that best meets the needs of the insured. The Company contracts with various insurance carriers and earns commissions for the initial term of the policy on policies placed with insurance carriers. Contracts with the insurance carriers are non-exclusive and can typically be terminated unilaterally by either party. Additionally, the Company and the insurance carrier can agree to amend provisions in the contracts relating to the prospective commission rates paid to the Company for new policies sold. Revenue from performance obligations is satisfied at the point in time in which the current term of the policy is placed and effective. These contracts are sold by the Company on behalf of the insurance carriers to the policyholder. For performance obligations related to the placement of insurance contracts, control transfers to the policyholder at a point in time at which all performance obligations have been fulfilled as evidenced by the binding of a policy. Commissions are established by contract between the Company and the insurance carrier and are calculated as a percentage of premium for the underlying insurance contract. The Company records revenue when the underlying insurance contracts are bound for the commission expected to be received for the current term of the policy, net of any estimated refunds due to policy cancellations. Commissions related to renewed policies are recognized at the time the policy renews and the new policy becomes effective. The only material promise to be performed by the Company is to sell the policy. While agreements may indicate certain administrative support such as to provide the underlying insured with policy information, such promises are immaterial in the context of the contract and are not identified as performance obligations. Additionally, the Company has concluded that they are required to “re-sell” the policy on an annual basis. As a result, a performance obligation exists for each policy term. This coincides with the efforts of placing renewed policies with the insurance carrier. The transaction price is the total commission the Company expects to receive from the insurance carrier for the current term of the policy. The transaction date is determined by the effective date of the insurance policy. Policies are subject to cancellation at the discretion of the insured, and such a cancellation would result in the Company’s commission being limited to the period that the policy was in force. The Company estimates any expected variable consideration, endorsements, or cancellations, based on historical information and data collected from external sources, at the time revenue is recorded. Contingent Income Contingent income is earned from the insurance carriers to drive incremental policy sales when the Company meets or exceeds certain premium volumes and/or falls below specific loss ratio quotas predetermined by its insurance carriers. The Company utilizes the expected value approach to estimate contingent income that incorporates a combination of historical payment data by insurance carriers and the current-year production forecast data used to 11 Table of Contents estimate the amount of contingent income expected to be received from the insurance carriers. Because of the uncertainty regarding the amount estimated to be received, the Company constrains the recognition of contingent income until information from the insurance carrier regarding the amount owed by the insurance carriers to the Company is received and is probable to avoid reversal of contingent income in the future period. The uncertainty regarding the estimated contingent income is primarily in the profitability of the insurance policies placed, as determined by the loss ratios maintained by the insurance carriers. The uncertainty is resolved upon receiving notification from the insurance carrier regarding actual profitability results. Contingent income is not refundable. Fee Income Fee income is comprised primarily of policy fees, branch fees, license fees and third-party administrator (“TPA”) fees. The Company receives policy fees as compensation for administrative services performed in connection with the placement and issuance of certain policies that are in addition to and separate from commissions paid by the insurance carriers. Policy fees are recognized at the point in time in which an insurance policy is bound and issued on the effective date of certain policies. Policy fees are not refundable. Branch fees include the monthly recurring fees assessed for the ongoing customer service and back-office support provided to independent branches operating exclusively through the Company pursuant to an exclusive branch agreement and a one-time branch onboarding fee. The Company’s performance obligation related to branch fees is largely satisfied, and the related revenue is recognized at a point in time, when the services are rendered, typically monthly. Branch fees are deducted from the monthly commissions paid to the branch. License fees include usage-based fees, which are typically priced as a specified fee per user and assessed by the Company for the use of its proprietary applications. The Company’s performance obligation related to license fees is largely satisfied, and the related revenue is recognized at a point in time, when the services are rendered, typically monthly. TPA fees are related to services performed based on service agreements with a few insurance carriers. Revenues associated with TPA fees are recognized at a point in time, when the services are performed, which is typically monthly. Other Income Other income is comprised primarily of income earned for facilitating premium financing arrangements, fees assessed for agent conventions, interest income, and other miscellaneous income. Cash and Cash Equivalents Cash and cash equivalents primarily include demand deposits with financial institutions and highly liquid investments with original maturities of three months or less that are not managed by external or internal investment advisors. Restricted Cash In certain cases, the Company collects premiums from insureds and, after deducting our commissions and fees, remits the premiums to insurance carriers. The Company also collects surplus line taxes for remittance to state taxing authorities. Additionally, the Company has an agreement with certain insurance carriers whereby it remits claim payments and/or premium refunds to the insured on behalf of the insurance carriers. While the Company is in possession of the premiums, claims payments and surplus line taxes, the Company may invest those funds in interest-bearing demand deposit accounts with banks, in which interest income on these unremitted amounts is included in Other non-operating income (expense), net in the Condensed Consolidated Statements of Operations. These unremitted amounts are reported as Restricted cash in the Condensed Consolidated Statements of Financial Position. Restricted cash amounting to $ 9.7 million and $ 7.2 million as of September 30, 2024 and December 31, 2023, respectively, is comprised of interest-bearing bank deposits. In its role as an insurance intermediary, the Company collects and remits amounts between the insureds and insurance carriers. Because these amounts are collected on behalf of third parties, they are excluded from the measurement of the transaction price when applying the revenue recognition guidance. Similarly, the Company excludes surplus lines taxes from the measurement of the transaction price, as these are assessed by and remitted to governmental authorities. The Company recognizes the amounts collected on behalf of others, including insureds and insurance carriers, as Accounts receivable and the associated Carrier liabilities on the Condensed 12 Table of Contents Consolidated Statements of Financial Position. The Company does not have any rights or obligations in connection with these amounts with the exception of segregating these amounts from the Company's operating funds and paying them when they are due. As of September 30, 2024 and December 31, 2023, the Company reported Carrier liabilities amounting to $ 13.3 million and $ 8.7 million, respectively. Carrier liabilities are recognized based on premiums written, while Restricted cash is recorded based on premiums collected. This basis difference, coupled with the timing of settling the commissions and fees on collected premiums, resulted in differences between the amount reported in Restricted cash and Carrier liabilities. Receivables Commissions receivable represents commissions earned but outstanding along with the estimated contingent commissions. Accounts receivable represents premiums billed by TWFG-GA on behalf of certain insurance carriers. These amounts, less commission, are remitted to the insurance carriers upon collection. Allowance for Credit Losses On January 1, 2023, the Company adopted the current expected credit losses methodology (“CECL”) for estimating allowances for credit losses for most financial assets. The Company adopted the CECL methodology using a modified retrospective method, which requires a cumulative effect adjustment to its opening retained earnings. Upon adoption of the CECL methodology, the Company recorded a total allowance for credit losses of $ 0.3 million, which was primarily related to Receivables from agents, included in Other current assets, net, in the Condensed Consolidated Statements of Financial Position, and to a lesser extent, Commissions receivable. The allowance for credit losses is maintained on Commissions receivable and Receivables from agents, included in Other current assets, net, in the Condensed Consolidated Statements of Financial Position. The determination of the credit allowance is based on a quarterly evaluation of each of these receivables, including general economic conditions and estimated collectability. The Company evaluates the collectability of its receivables based on a combination of credit quality indicators, including, but not limited to, payment status, historical charge-offs, and financial strength of the insurance carriers for Commissions receivable, and production performance and age of balances for Receivables from agents. A receivable is considered to have deteriorated in credit quality when, based on current information and events, it is probable that the Company will be unable to collect all amounts due . As of September 30, 2024 and December 31, 2023, the total allowance for credit losses was $ 0.4 million and $ 0.3 million, respectively. No allowance for credit losses was required related to Accounts receivable as of September 30, 2024 and December 31, 2023. Intangible Assets Intangible assets are stated at cost, less accumulated amortization, and consist of computer software development costs, non-compete agreements, and purchased customer lists. Computer software development costs are amortized on the straight-line method over three or five years . Non-compete agreements are amortized on the straight-line method over the term of the non-compete agreements. Customer lists represent amounts paid by insurance agencies to buy a list of active policies or insureds. As these policies renew, the Company realizes an income stream from commissions. Customer lists are amortized on the straight-line method over eight to ten years . The Company acquires intangible assets in connection with acquisition transactions. In each acquisition transaction, the Company assesses whether the transaction should follow accounting guidance applicable to an asset acquisition or a business combination. This assessment requires an evaluation of whether the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, resulting in an asset acquisition or, if not, resulting in a business combination. An asset acquisition is an acquisition of an asset, or a group of assets, that does not meet the definition of a business. The Company accounts for asset acquisitions using the cost accumulation and allocation model, whereby the costs of acquisition are allocated to the assets acquired on a relative fair value basis in accordance with the Company’s accounting policies. The acquired intangible assets are recorded at fair value, which is determined based on multiples of revenue or Adjusted EBITDA, growth rates, and loss ratios of the intangible assets acquired. The 13 Table of Contents methods and assumptions used to determine the purchase price and the estimated useful lives of intangible assets require significant judgment. Intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may no longer be recoverable. If indicators of impairment exist, the Company assesses the recoverability of its intangible assets by reviewing the estimated future undiscounted cash flows generated by the corresponding asset or asset group. If based on the assessment, the Company determines that the intangible assets are impaired, such assets are written down to their fair values with the related impairment losses recognized in the Condensed Consolidated Statements of Operations. There were no impairments recorded for the three and nine months ended September 30, 2024 and 2023. Property and Equipment Property and equipment are recorded at cost, less accumulated depreciation. Maintenance, minor repairs, and replacements are charged directly to expense as incurred, while major renewals and betterments are capitalized. When property and equipment are sold or otherwise disposed of, the asset accounts and related accumulated depreciation accounts are relieved, and any gain or loss is included in the results of operations. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets as follows: Useful Life Automobiles 5 years Computer equipment 5 years Furniture and fixtures 7 years Leasehold improvements Lesser of the estimated useful life or the underlying lease term Office equipment 5 - 7 years Property and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may no longer be recoverable. If indicators of impairment exist, the Company assesses its recoverability by reviewing the estimated future undiscounted cash flows generated by the corresponding asset or asset group. If based on the assessment, the Company determines that the property and equipment are impaired, such assets are written down to their fair values with the related impairment losses recognized in the result of operations. There were no impairments recorded for the three and nine months ended September 30, 2024 and 2023. Assets for disposal are reported at the lower of the carrying value or fair value, less costs to sell. Deferred Offering Costs Deferred offering costs, which consist of direct incremental legal, accounting, consulting, and other fees and expenses related to the IPO were capitalized in Deferred offering costs on the Condensed Consolidated Statements of Financial Position. The deferred offering costs were offset against IPO proceeds upon the consummation of the IPO. Upon closing of the IPO on July 19, 2024, total deferred offering costs of $ 7.8 million were reclassified to additional paid-in capital to offset the IPO proceeds. The Company had no deferred offering costs as of September 30, 2024. Commissions Payable Commissions payable represents commissions due to agents for services provided for the placement of insurance contracts. The Company records the commission expense and the related commissions payable on the effective date of the policy based on the estimated total premium for the term of the policy adjusted for any expected variable consideration, endorsements or cancellations based on historical information at the time the expense is recorded. Leases The Company evaluates contracts entered into to determine whether the contract involves the use of an identified asset. The Company then evaluates whether it obtains substantially all economic benefits from the use of the asset, and whether it has the right to direct the use of the asset. If these criteria are met and a lease has been identified, 14 Table of Contents the Company accounts for the contract under the requirements of the Accounting Standards Codification (“ASC”) 842, Leases . The Company's leased assets consist primarily of real estate for occupied offices and office equipment. Leases with a lease term of 12 months or less at inception are not recorded on the Condensed Consolidated Statements of Financial Position and are expensed on a straight-line basis over the lease term. The Company determines the lease term by assessing the renewal options with the lessor and includes lease extension (or termination) options only when options are reasonably certain of being (or not being) exercised. All of the Company’s real estate and office equipment leases are recognized as operating leases. The Company does not sublease any of its leases. The Company elected the practical expedient to not separate non-lease and lease components and rather account for them as a single lease component of the underlying assets. The Company has no variable lease payments in any of its leases. The Company recognizes lease right-of-use (“ROU”) assets and operating lease liabilities on the Condensed Consolidated Statements of Financial Position for operating lease agreements. Lease liabilities are measured at the lease commencement date as the present value of the future lease payments determined. As the interest rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate on the lease commencement date. ROU assets are measured as the lease liability plus initial direct costs and prepaid lease payments less lease incentives . Derivatives The Company uses derivative financial instruments, i.e., interest rate swaps, to manage its interest rate exposure associated with some of its borrowings. The Company does not hold or issue derivative instruments for trading or speculative purposes. Derivative instruments are recognized as assets or liabilities at fair value on the Condensed Consolidated Statements of Financial Position. At the inception of the hedging relationship, the Company formally documents its designation of the hedge as a cash flow hedge and the risk management objective and strategy for undertaking the hedging transaction. The Company identifies how the hedging instrument is expected to hedge the designated risks related to the hedged item and the method that will be used to retrospectively and prospectively assess the hedge effectiveness and the method which will be used to measure ineffectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness is formally assessed at inception and periodically throughout the life of the hedge accounting relationship. For derivative instruments designated as a cash flow hedge, all changes in the fair value of the hedging derivative are reported within accumulated other comprehensive income and the related gains or losses on the derivative are reclassified into earnings when the cash flows of the hedged item affect earnings. For a derivative not designated as a hedge, changes in the derivative’s fair value and any income received or paid on derivatives at the settlement date are included in earnings. See Note 6 for additional information about the Company’s derivative instruments . The Company discontinues hedge accounting prospectively when: (1) it determines the derivative is no longer highly effective in offsetting changes in the estimated cash flows of a hedged item; (2) the derivative expires, is sold, terminated, or exercised; or (3) the derivative is de-designated as a hedging instrument. When hedge accounting is discontinued, the derivative continues to be carried on the Condensed Consolidated Statements of Financial Position at fair value, with changes in fair value recognized in earnings. Fair Value Measurements ASC 820, Fair Value Measurement , establishes a fair value hierarchy that prioritizes and ranks the level of observability of inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level I measurements) and the lowest priority to unobservable inputs (Level III measurements). The three levels of the fair value hierarchy under ASC 820 are as follows: Level I – Observable inputs such as quoted prices for identical assets in active markets; Level II – Inputs other than quoted prices for identical assets in active markets, that are observable either directly or indirectly; and 15 Table of Contents Level III – Unobservable inputs in which there is little or no market data which requires the use of valuation techniques and the development of assumptions. The carrying amount of financial assets and liabilities reported in the Condensed Consolidated Statements of Financial Position for Cash and cash equivalents, Restricted cash, Commissions receivable, Accounts receivable, Other current assets, Commissions payable, Carrier liabilities, and Other current liabilities at September 30, 2024 and December 31, 2023, approximate fair value because of the short-term duration of these instruments. See Notes 6 and 8 for discussions of fair value measurements related to derivative instruments and debt. Noncontrolling Interests Pursuant to the Reorganization Transactions, as described in Note 1, the Company is organized in an “Up-C” structure with the Company owning only a portion of its consolidated subsidiaries. Noncontrolling interests represent the economic interests in TWFG Holding held by the Continuing Pre-IPO LLC Members. Income or loss is attributed to the noncontrolling interests based on the weighted average Pre-IPO Members’ LLC Unit interests outstanding during the period. The noncontrolling interests can be exchanged at the election of the Company, for shares of Class A Common Stock on a one -for-one basis or a cash payment equal to the volume weighted average market price of one share of Class A Common Stock for each LLC Unit exchanged. The noncontrolling interests' ownership percentage can fluctuate over time as the Continuing Pre-IPO LLC Members elect to exchange their LLC Units, together with their corresponding shares of Class B and Class C Common Stock, for Class A Common Stock. Because redemptions for cash is solely within the control of the Company, noncontrolling interests are presented in permanent equity. Stock-Based Compensation The Company has granted restricted stock units (“RSUs”) under its 2024 Omnibus Incentive Plan. The Company measures all RSUs granted to employees, directors and non-employees at fair value at each grant date based on the price of the Company’s common stock at the date of grant. The Company has granted RSUs that are subject to service-based vesting conditions. There are no performance conditions attached to the RSUs granted by the Company. Compensation expense for grants to employees and directors with service-based vesting conditions is recognized using the straight-line method over the requisite service period, which is generally the vesting period of the respective award. Compensation expense for grants to non-employees with service-based vesting conditions is recognized in the same manner as if the Company had paid cash in exchange for the goods or services, which is generally over the vesting period of the award. The Company accounts for forfeitures as they occur. All stock-based compensation expense is recorded in salaries and employee benefits in the Condensed Consolidated Statements of Operations. Earnings Per Share The Company’s basic earnings (loss) per share attributable to Class A common stockholders is calculated by dividing the net income (loss) attributable to the Company by the weighted-average number of shares of Class A Common Stock outstanding. The computation of net income (loss) attributable to the Company is computed by deducting net income or loss attributable to noncontrolling interests from the consolidated net income or loss. Shares of Class B Common Stock and Class C Common Stock do not share in the earnings or losses of the Company and are therefore not participating securities. As such, separate presentation of basic and diluted earnings (loss) per share of Class B and Class C Common Stock under the two-class method has not been presented. Diluted earnings (loss) per share is computed by adjusting the net income (loss) available to the Company and the weighted average shares outstanding to give effect to potentially dilutive securities. Income Taxes The Company is the managing member of TWFG Holding and, as a result, consolidates the financial results of TWFG Holding in the unaudited condensed consolidated financial statements. TWFG Holding is a pass-through entity for U.S. federal and most applicable state and local income tax purposes following the Reorganization Transactions effected in connection with the IPO. As an entity classified as a partnership for tax purposes, TWFG Holding is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by TWFG Holding is passed through to and included in the taxable income or loss of its members, including the Company. The Company is taxed as a corporation and pays corporate federal, state and local taxes 16 Table of Contents with respect to income allocated from TWFG Holding, based on the Company’s ownership interest in TWFG Holding during each reporting period. The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. Income tax expense was $ 0.4 million for the three and nine months ended September 30, 2024. The estimated effective tax rate was 5.96 % and 2.09 % for the three and nine months ended September 30, 2024, respectively, which is different from the 21% statutory rate primarily because prior to the completion of the Reorganization Transactions, the Company was taxed as a partnership and the taxable income was included in the taxable income of its members. Additionally, income tax expense is recognized only on the portion of earnings attributable to the Company in the periods following the consummation of the Reorganization Transactions. The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more likely than not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. The Company has determined there are no material uncertain tax positions as of September 30, 2024. Segment The Company operates its business as a single operating and reportable segment, which is consistent with how its chief operating decision maker (“CODM”) reviews financial performance and allocates resources. Recent Accounting Pronouncements Not Yet Adopted Segment Reporting In November 2023, the Financial Accounting Standards Board (“FASB”) issued an accounting standard that is intended to improve reportable segment disclosure requirements. The standard requires disclosures to include significant segment expenses that are regularly provided to the CODM, a description of other segment items by reportable segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources. The ASU also requires all annual disclosures currently required by the standard to be included in interim periods. The update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted and requires retrospective application to all prior periods presented in the financial statements. The Company intends to adopt the new standard in its annual consolidated financial statements as of and for the year ending December 31, 2024. The Company expects the adoption of the standard to have an impact on its disclosures; however, the standard will not have an impact on its Condensed Consolidated Statements of Financial Position, Operations or Cash Flows. Income Taxes In December 2023, the FASB issued an accounting standard that requires disaggregated income tax disclosures for specific categories on the effective tax rate reconciliation, and additional information about federal, state, local and foreign income taxes. The standard also requires annual disclosure of income taxes paid (net of refunds received), disaggregated by jurisdiction. This guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The standard is to be applied on a prospective basis, although optional retrospective application is permitted. The Company is currently evaluating the impact this standard will have on its financial statement disclosures. 17 Table of Contents 3. REVENUES The following table presents the disaggregation of revenues by major source (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Commission income $ 48,240 $ 43,993 $ 139,447 $ 122,451 Contingent income 1,383 1,035 3,717 3,023 Fee income Policy fees 1,064 580 2,510 1,656 Branch fees 1,172 824 3,523 2,134 License fees 495 555 1,454 2,090 TPA fees 159 148 324 463 Other income 2,127 575 3,244 1,125 Total revenues $ 54,640 $ 47,710 $ 154,219 $ 132,942 The Company operates through two primary offerings, which are Insurance Services and TWFG MGA. The following table presents the disaggregation of revenues by offerings (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Insurance Services Agency-in-a-box $ 34,000 $ 35,895 $ 100,418 $ 102,539 Corporate Branches 9,234 1,755 25,861 4,259 TWFG MGA 9,490 9,538 25,213 24,417 Other 1,916 522 2,727 1,727 Total revenues $ 54,640 $ 47,710 $ 154,219 $ 132,942 As of September 30, 2024 and December 31, 2023, the Commissions receivable reported in the Condensed Consolidated Statements of Financial Position had a balance of $ 22.9 million and $ 19.1 million, respectively, and had an opening balance of $ 15.0 million as of January 1, 2023. As of September 30, 2024, the aging of Commissions receivable is 61.9 % for current, 6.7 % for 31-60 days and the remainder is over 61 days. As of December 31, 2023, the aging of commissions receivable is 73.2 % for current, 8.8 % for 31-60 days and the remainder is over 61 days. The Company has no contract liabilities as of September 30, 2024, December 31, 2023, and January 1, 2023. Other than The Progressive Corporation, which accounted for 11 % and 12 % of total revenues for the three and nine months ended September 30, 2024, respectively, and 10 % and 11 % of total revenues for the three and nine months ended September 30, 2023, respectively, no other customers individually accounted for 10% or more of the Company’s total revenues for the three and nine months ended September 30, 2024 and 2023. 4. INTANGIBLE ASSETS In April 2023, the Company purchased the assets of Ralph E. Wade Insurance Agency Inc. (“Wade”), which resulted in the Company recording an increase in customer lists intangible assets of $ 4.3 million. Immediately following the asset purchase, the Company sold 10.9 % interest in the asset purchased from Wade to American Insurance Strategies, LLC (“AIS”) for a total consideration of $ 0.5 million. In May 2023, the Company purchased 50.1 % of the assets of Luczkowski Insurance Agency Inc. (“Luczkowski”) and Jim Kelly Insurance Agency Inc. (“Kelly”), which resulted in the Company recording an increase in customer lists intangible assets of $ 0.6 million from the Luczkowski asset purchase and $ 1.1 million from the Kelly asset purchase. In October 2023, the Company purchased the assets of Jeff Kincaid Insurance Agency, Inc. (“Kincaid”), which resulted in the Company recording an increase in customer lists intangible assets of $ 11.8 million. In December 18 Table of Contents 2023, the Company purchased the assets of Brinson, Inc. (“Brinson”), which resulted in the Company recording an increase in customer lists intangible assets of $ 2.0 million. In January 2024, the Company issued a total of 4,164 Class A common units to settle the equity component of the Kincaid and Brinson asset purchase considerations. The Company previously acquired partial interests in the assets of AIS, Luczkowski, and Kelly and operated them as corporate branches. In January 2024, the Company acquired the remaining interests in the assets of AIS, Luczkowski, and Kelly for a total purchase price of $ 5.2 million, converting them to wholly owned corporate branches. The Company paid the total purchase price related to these asset acquisitions through the issuance of equity. In January 2024, the Company acquired the assets of nine of its independent branches and converted those independent branches to corporate branches. The transactions resulted in the Company recording an increase in customer list intangible assets of $ 40.8 million. The Company issued equity and paid cash amounting to $ 20.4 million in settlement for the total purchase price. In addition to the acquisitions described above, the Company purchased customer lists intangible assets totaling $ 0.9 million for the nine months ended September 30, 2024 and $ 0.9 million for the year ended December 31, 2023, representing purchases of assets with annualized revenue of less than $ 0.5 million. The following table presents information about the Company’s intangible assets (in thousands): September 30, 2024 December 31, 2023 Customer Lists Computer Software Non-Compete Agreements Total Customer Lists Computer Software Non-Compete Agreements Total Cost Balance, beginning of period $ 48,997 $ 7,858 $ 275 $ 57,130 $ 29,177 $ 8,472 $ 275 $ 37,924 Additions (1) 46,822 537 — 47,359 20,678 1,129 — 21,807 Disposals (2) — — — — ( 858 ) ( 1,743 ) — ( 2,601 ) Balance, end of period 95,819 8,395 275 104,489 48,997 7,858 275 57,130 Accumulated amortization 22,765 6,432 268 29,465 14,779 5,684 231 20,694 Net carrying amount, end of period $ 73,054 $ 1,963 $ 7 $ 75,024 $ 34,218 $ 2,174 $ 44 $ 36,436 2024 2023 Customer Lists Computer Software Non-Compete Agreements Total Customer Lists Computer Software Non-Compete Agreements Total Three Months Ended September 30, Amortization expense $ 2,675 $ 240 $ 5 $ 2,920 $ 796 $ 253 $ 29 $ 1,078 Nine Months Ended September 30, Amortization expense $ 7,986 $ 747 $ 38 $ 8,771 $ 2,162 $ 894 $ 87 $ 3,143 (1) The acquired customer lists in 2024 and 2023 have a weighted average amortization period of 8 years. (2) For the three and nine months ended September 30, 2024, the Company recognized $ 0.02 million and $ 0.08 million gain on sale of customer lists, respectively. For both the three and nine months ended September 30, 2023, $ 0.01 million loss on sale of customer lists was recognized by the Company. The following table presents the future amortization for intangible assets as of September 30, 2024 (in thousands): Customer Lists Computer Software Non-Compete Agreements Remainder of 2024 $ 2,670 $ 224 $ 4 2025 10,670 606 3 2026 10,613 497 — 2027 10,566 399 — 2028 10,530 212 — Thereafter 28,005 25 — Total $ 73,054 $ 1,963 $ 7 19 Table of Contents 5. OPERATING LEASES The following table summarizes the Company’s lease costs and supplemental cash flow information related to its operating leases (dollar amounts in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Operating lease costs reported in Other administrative expenses $ 263 $ 185 $ 789 $ 515 Short-term operating lease costs reported in Other administrative expenses 23 3 96 13 Total lease costs $ 286 $ 188 $ 885 $ 528 Weighted average remaining lease term (in years) 3.0 years 3.5 years Weighted average discount rate 3.49 % 2.69 % Supplemental cash flow information: Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows used in operating leases reported in Change in operating lease liabilities $ 284 $ 203 $ 833 $ 549 Operating lease non-cash items: Non-cash right-of-use assets obtained in exchange for new operating lease liabilities, net of terminations $ 116 $ ( 89 ) $ 924 $ 459 The estimated future minimum payments of operating leases as of September 30, 2024 (in thousands): Remainder of 2024 $ 291 2025 1,134 2026 820 2027 374 2028 167 2029 4 Total undiscounted future lease payments 2,790 Less: imputed interest ( 272 ) Present value of lease liabilities $ 2,518 6. DERIVATIVES On July 30, 2019, and December 4, 2020, the Company entered into interest rate swap agreements to manage its exposure to interest rate fluctuations related to the Company’s term loans. At inception, the Company designated the interest rate swap agreements as cash flow hedges. The interest rate swap agreement entered on July 30, 2019 with the original notional amount of $ 4.0 million matured on July 30, 2024. As of September 30, 2024 and December 31, 2023, the interest rate swaps continue to be effective hedges. The original notional amount of the interest rate swaps as of September 30, 2024 and December 31, 2023 was $ 13.0 million and $ 17.0 million, respectively. The current notional amount of the interest rate swaps as of September 30, 2024 and December 31, 2023 was $ 6.4 million and $ 8.4 million, respectively. The fair value of the interest rate swaps as of September 30, 2024 and December 31, 2023 was $ 0.3 million and $ 0.5 million, respectively, which was included in Other non-current assets, except for the portion that relates to maturities within the next twelve months. The derivative assets fair value as of September 30, 2024 and December 31, 2023 was determined using the Level II inputs described in Note 2. 20 Table of Contents The maturity date for the current interest rate swap is December 6, 2027, which correspond with the debt maturity date. As of September 30, 2024, the Company expects $ 0.2 million of unrealized gains from the interest rate swap to be reclassified into earnings over the next twelve months. 7. OTHER CURRENT LIABILITIES Other current liabilities consisted of the following as of the dates indicated (in thousands): September 30, 2024 December 31, 2023 Accrued salaries and bonus expenses $ 2,264 $ 522 Accrued professional fees 914 605 Accounts payable 768 1,566 Income tax payable 437 — Other current liabilities 2,525 2,313 $ 6,908 $ 5,006 8. DEBT The following is a summary of the Company’s outstanding debt (in thousands): September 30, 2024 December 31, 2023 Term Loans 5 -year term loan, periodic interest and monthly principal payments, Daily Simple SOFR + 0.11448 % SOFR adjustment, matures July 30, 2024 $ — $ 584 7 -year term loan, periodic interest and monthly principal payments, Daily Simple SOFR + 0.11448 % SOFR adjustment, matures December 6, 2027 6,387 7,772 Total term loans 6,387 8,356 Revolving Facility 5 -year revolving credit facility, periodic interest payments, Term SOFR + 0.10 % SOFR adjustment + 2 % up to 2.75 % applicable margin based on the consolidated leverage ratio, plus commitment fees of 0.20 % up to 0.35 % based on the consolidated leverage ratio, matures May 23, 2028 — 41,000 Deferred acquisition payable 1,430 1,381 Total debt 7,817 50,737 Current maturities ( 2,403 ) ( 2,781 ) Long-term debt $ 5,414 $ 47,956 Future maturities of the Company’s outstanding debt as of September 30, 2024, were as follows (in thousands): Remainder of 2024 $ 596 2025 2,417 2026 2,474 2027 2,207 2028 63 Thereafter 60 Total $ 7,817 For the three and nine months ended September 30, 2024, the Company incurred interest expense of $ 0.4 million and $ 2.1 million, respectively. For the three and nine months ended September 30, 2023, the Company incurred interest expense of $ 0.3 million and $ 0.6 million, respectively. 21 Table of Contents Term Loans The 5-year term loan was entered into on July 30, 2019, with the original principal of $ 4.0 million, which was fully repaid by its maturity on July 30, 2024, while the 7-year term loan was entered into on December 4, 2020, with the original principal of $ 13.0 million. The Company entered into interest rate swap agreements to manage its exposure to interest rate fluctuations related to its term loans. See Note 6 for more information relating to the interest rate swaps associated with these loans. Revolving Credit Agreement On May 23, 2023, the Company entered into a Revolving Credit Agreement (the “Revolving Credit Agreement”) with PNC Bank National Association (“Lender”) which provides a revolving credit facility to the Company, with commitments in an aggregate principal amount not to exceed $ 50.0 million (as amended on June 20, 2024, the “Revolving Facility”). The borrowings under the Revolving Facility will be used by the Company for permitted acquisitions, working capital and general corporate purposes. The Company pays a commitment fee on undrawn amounts under the Revolving Facility of 0.20 % to up to 0.35 % based on the consolidated leverage ratio. On August 5, 2024, the Company repaid the outstanding balance of its Revolving Facility amounting to $ 41.0 million using a portion of the net proceeds from the IPO (see Note 1). As of September 30, 2024 and December 31, 2023, the unused capacity under the Revolving Facility was $ 50.0 million and $ 9.0 million, respectively. Borrowings under the term loans and the Revolving Facility are secured by substantially all assets constituting personal property of TWFG, Inc. and its subsidiaries, including receivables, inventory, equipment, and intellectual property, subject to certain exceptions. In addition, the term loan agreement contains covenants that restrict the Company’s ability to make certain distributions or dividend payments, incur additional debt, engage in certain asset sales, mergers, acquisitions or similar transactions, create liens on assets, engage in certain transactions with affiliates, change the Company’s business or make investments. In addition, the term loan agreement requires the Company to maintain certain financial ratios. As of September 30, 2024 and December 31, 2023, the Company was in compliance with these covenants. Because the Company’s term loans and borrowings under the Revolving Facility have variable interest rates, the outstanding debt as of September 30, 2024 and December 31, 2023 approximates fair value. Acquisition-Related Notes In April 2023, the Company acquired customer list intangible assets for a total consideration of $ 4.3 million, of which $ 3.0 million was paid in cash at closing. The remaining balance was settled through the issuance of a note payable monthly over three years beginning in April 2024 and bears an annual interest of 3.75 %. In March 2024, the Company acquired customer list intangible assets, of which approximately $ 0.4 million of the purchase price was settled through the issuance of a non-interest bearing note and was recorded as deferred acquisition payable. The note is payable monthly over a period of 70 months. The deferred acquisition payable was recorded at fair value with an imputed interest rate of 5.00 %. The portion of the Company’s acquisition-related notes due within 12 months or less from the financial statement date is reported in the Condensed Consolidated Statements of Financial Position as Deferred acquisition payable, current, while the amount due after 12 months from the financial statement date is included in Deferred acquisition payable, non-current. See Notes 4 and 12 for more information regarding the purchase of the customer list intangible assets. 9. STOCKHOLDERS’ EQUITY The Company’s board of directors (the “Board”) approved an amended and restated certificate of incorporation (the “Restated Certificate of Incorporation”), which became effective on July 17, 2024 in connection with the IPO. The Restated Certificate of Incorporation authorizes the issuance of three classes of common stock: Class A Common Stock, non-economic Class B Common Stock and non-economic Class C Common Stock, and preferred stock. As described in Note 1, in connection with the IPO on July 19, 2024, the Company issued 11,000,000 shares of Class A Common Stock, at a price of $ 17.00 per share. On July 23, 2024, the underwriters purchased an additional 1,650,000 shares of Class A Common Stock in connection with the underwriters’ full exercise of their option to purchase additional shares, at a price of $ 17.00 per share. The Company received approximately $ 192.9 million of 22 Table of Contents net proceeds, including from the full exercise of the underwriters’ option, after deducting underwriting discounts and commissions of approximately $ 14.4 million and related offering expenses of approximately $ 7.8 million. In connection with the Reorganization Transactions, the Company issued (i) 2,161,874 shares of Class A Common Stock in exchange for 342,362 LLC Units held by Bunch Holdings and 1,819,512 LLC Units held by the New Members, (ii) 7,277,651 shares of Class B Common Stock to RenRe and GHC for consideration of $ 0.00001 per share and (iii) 33,893,810 shares of Class C Common Stock to Bunch Holdings for consideration of $ 0.00001 per share. Immediately after the IPO and the Reorganization Transactions, 14,811,874 shares of Class A Common Stock were outstanding, including 12,650,000 shares issued in the IPO plus 342,362 shares issued to Bunch Holdings and 1,819,512 shares issued to New Members, and 7,277,651 shares of Class B Common Stock and 33,893,810 shares of Class C Common Stock were outstanding. The following table summarizes the capitalization and voting rights of the Company’s classes of stock after the completion of the IPO and the Reorganization Transactions and as of September 30, 2024: Authorized Par Value Issued & Outstanding Votes per share Economic Rights Preferred Stock 50,000,000 $ 0.01 None Common stock: Class A (1) 300,000,000 $ 0.01 14,811,874 1 Yes Class B (1) 100,000,000 $ 0.00001 7,277,651 1 No Class C (2) 100,000,000 $ 0.00001 33,893,810 10 No (1) Each share of Class A Common Stock and non-economic Class B Common Stock entitles its holder to one vote per share on all matters submitted to a vote of the stockholders. (2) Each share of non-economic Class C Common Stock entitles its holders to ten votes per share on all matters presented to the stockholders and on which the holders of the Class C Common Stock are entitled to vote; provided, that each share of Class C Common Stock will be entitled to one vote per share automatically (i) 12 months following the death or disability of Richard F. (“Gordy”) Bunch III or (ii) upon the first trading day on or after such date that the outstanding shares of non-economic Class C Common Stock represent less than 10 % of the then-outstanding Class A Common Stock, non-economic Class B Common Stock and non-economic Class C Common Stock, which, in either instance, may be extended to 18 months upon affirmative approval of a majority of the independent directors. The Board is authorized to direct the Company to issue shares of preferred stock in one or more series and has the discretion to determine the number and designation of such series and the powers, rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock. Through September 30, 2024, no shares of preferred stock have been issued. Holders of Class A Common Stock are entitled to receive dividends when and if declared by the Board out of funds legally available therefor, subject to any statutory or contractual restrictions on the payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding preferred stock. Upon liquidation, dissolution or winding up and after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of shares of Class A Common Stock will be entitled to receive pro rata our remaining assets available for distribution. Holders of the Company’s non-economic Class B and non-economic Class C Common Stock do not have any right to receive dividends or to receive a distribution upon a liquidation or winding up of the Company. 23 Table of Contents Noncontrolling interests Noncontrolling interests represent the economic interests of TWFG Holding held by the Continuing Pre-IPO LLC Members. The following table summarizes the ownership of TWFG Holding as of September 30, 2024: Owner Units Owned Ownership percentage TWFG, Inc. 14,811,874 26.5 % Noncontrolling interests 41,171,461 73.5 % Total 55,983,335 100.0 % Cash Distributions to Members Related to Their Income Tax Liabilities As a limited liability company treated as a partnership for income tax purposes, TWFG Holding does not incur significant federal, state or local income taxes, as these taxes are primarily the obligations of its members. Under the TWFG LLC Agreement, TWFG Holding is required to distribute cash, to the extent that TWFG Holding has cash available, on a pro rata basis to its members to the extent necessary to cover the members’ tax liabilities, if any, with respect to each member’s share of TWFG Holding’s taxable earnings. TWFG Holding makes such tax distributions to its members quarterly, based on an estimated tax rate and projected year-to-date taxable income, with a final accounting once actual taxable income or loss has been determined. Prior to the IPO, TWFG Holding made tax distributions to its members totaling approximately zero and $ 6.1 million for the three and nine months ended September 30, 2024, respectively. 10. STOCK-BASED COMPENSATION 2024 Omnibus Incentive Plan On July 17, 2024, the Company adopted the 2024 Omnibus Incentive Plan (the “2024 Incentive Plan”) for its directors, officers, employees, consultants and advisors. The 2024 Incentive Plan authorizes the granting of stock options, restricted stock, RSUs, stock appreciation rights, and other stock-based awards. The Company has reserved 4,346,667 shares of Class A Common Stock for issuance under the 2024 Incentive Plan, subject to annual increases pursuant to the terms of the 2024 Incentive Plan. During the nine months ended September 30, 2024, the Company granted 429,190 RSUs under the 2024 Incentive Plan, and 3,917,477 shares of Class A Common Stock remain available for future grant. No other award types have been issued under the 2024 Incentive Plan to date. Stock-Based Compensation Expense Stock-based compensation expense recorded in salaries and employee benefits for the three and nine months ended September 30, 2024 was $ 1.0 million. There was no equity or equity-based compensation plan maintained by the Company prior to its IPO on July 19, 2024. See Note 1 for more information about the IPO. Stock-Based Awards Stock-based awards granted in the period include RSUs with service-based vesting conditions. Outstanding RSUs and related activity for the nine months ended September 30, 2024 were as follows: Number of Awards Weighted-Average Grant Date Fair Value Unvested balance - December 31, 2023 — $ — Granted 429,190 17.00 Converted to shares of Class A Common Stock upon vesting — — Forfeited ( 1,938 ) 17.00 Unvested balance - September 30, 2024 427,252 $ 17.00 As of September 30, 2024, the Company had $ 6.2 million of unrecognized stock-based compensation costs related to unvested RSUs, which is expected to be recognized over a weighted-average period of 1.8 years. 24 Table of Contents 11. DEFINED CONTRIBUTION PLAN TWFG Holding sponsors a Safe Harbor defined contribution plan (“the Plan”). The sponsor is part of a controlled group that includes both TWFG-IS and TWFG-GA. The Plan allows employees who are age 21 or older and have completed 3 months of service to participate. Each year, participants may defer between 1 % and 100 % of eligible compensation, not to exceed the maximum dollar amount as allowed under Section 402(g) of the Internal Revenue Code. Effective January 1, 2008, the Plan was amended to allow the Company to meet the provisions of the regulations. The Plan provides a Company matching of 100 % on the first 4 % of eligible compensation that a participant contributes to the Plan. For the three and nine months ended September 30, 2024, the Company recognized expenses related to the Plan of $ 0.2 million and $ 0.4 million, respectively. For the three and nine months ended September 30, 2023, the Company recognized expenses related to the Plan of $ 0.1 million and $ 0.2 million, respectively. The Company at its election may make discretionary profit share contributions. Contributions are subject to certain limitations. For the three and nine months ended September 30, 2024 and 2023, the Company elected not to make any additional discretionary contributions. 12. RELATED PARTY TRANSACTIONS The Company provides administration services to and pays expenses on behalf of its subsidiaries as part of its management agreement with its subsidiaries. These expenses are allocated to the subsidiaries based on the time expended by employees in each subsidiary. For the three and nine months ended September 30, 2024, the Company allocated general and administrative expenses related to the continuing operations totaling $ 1.7 million and $ 3.9 million, respectively. For the three and nine months ended September 30, 2023, the Company allocated general and administrative expenses related to the continuing operations totaling $ 0.9 million and $ 2.9 million, respectively. These amounts are eliminated in the Condensed Consolidated Statements of Operations. TWICO pays TWFG-GA commissions and fee income, i.e., policy fees and TPA fees, for business written through TWFG-GA. On September 1, 2024, TWICO and TWFG-GA amended their managing general agency and claims administration agreement, which reflects an increase in the percentage of commissions paid to TWFG-GA from 18 % to 20 % and requires TWICO to reimburse TWFG-GA for actual expenses incurred or allocated by TWFG-GA for licensing, statistical accounting and management services performed by TWFG-GA. The transaction was approved by the Board pursuant to the Company’s Related Party Transaction Approval Policy and approved by Texas Department of Insurance. For the three and nine months ended September 30, 2024, TWFG-GA earned $ 3.0 million and $ 6.0 million in commissions, respectively, and $ 0.9 million and $ 1.8 million in fee income, respectively, from TWICO. For the three and nine months ended September 30, 2023, TWFG-GA earned $ 1.2 million and $ 3.1 million in commissions, respectively, and $ 0.4 million and $ 1.3 million in fee income, respectively, from TWICO. These amounts are not eliminated and are included in commission income and fee income in the Condensed Consolidated Statements of Operations. In addition, TWFG Holding provides administration services to and pays expenses on behalf of TWICO as part of its management agreement with TWICO. For the three and nine months ended September 30, 2024 and 2023, the Company allocated general and administrative expenses related to TWICO, which were immaterial. The offsetting expenses recognized by TWICO for one month in 2023 related to these commissions, policy, TPA fees and allocated general and administrative expenses are included in the net income from discontinued operation in the Condensed Consolidated Statements of Operations. As described in Note 1, in May 2023, the Company distributed its equity interest in EVO to the owners of the Company. As a result, the Company deconsolidated EVO effective on the distribution date. TWFG-IS and TWFG-GA have software licensing agreements with EVO, which allow TWFG-IS and TWFG-GA to use EVO’s proprietary agency management system in exchange for a fixed annual fee. In addition, TWFG Holding provides administration services to and pays expenses on behalf of EVO as part of its management agreement with EVO. Prior to the deconsolidation of EVO, charges between the Company and EVO were eliminated upon consolidation. For the three and nine months ended September 30, 2024, the Company incurred $ 0.5 million and $ 1.4 million in license fees, respectively, and allocated general and administrative expenses related to EVO, totaling $ 0.1 million and $ 0.2 million, respectively. For the three and nine months ended September 30, 2023, the Company incurred $ 0.3 million and $ 0.5 million, respectively, in license fees, and allocated general and administrative expenses related to EVO, 25 Table of Contents totaling $ 0.09 million and $ 0.2 million, respectively. These amounts are not eliminated and are included in Other administrative expenses in the Condensed Consolidated Statements of Operations. As described in Note 4, the Company purchased the assets of Wade for a total consideration of $ 4.3 million, of which $ 3.0 million was paid in cash, and the remaining balance of $ 1.3 million, was settled through the issuance of an interest-bearing note, payable monthly, over three years beginning in April 2024. The portion of the balance due within 12 months or less from the financial statement date is reported in the Condensed Consolidated Statements of Financial Position as Deferred acquisition payable, current, while the amount due after 12 months from the financial statement date is included in Deferred acquisition payable, non-current. As described in Note 4, immediately following the asset purchase, the Company sold 10.9 % interest in the asset purchased from Wade to AIS for a total consideration of $ 0.5 million. In connection with the Wade asset purchase, the branch agreement between TWFG-IS and AIS was amended to add Wade’s book of business into AIS, which changed to TWFG-IS ownership of the assets of AIS branch from 70 % to 76.9 %. As described in Note 4, the Company acquired interests in the operations and assets of AIS, Luczkowski and Kelly. All respective equity ownership with AIS, Luczkowski and Kelly following the respective asset purchases remained with the sellers, while TWFG-IS managed the ongoing operations of AIS, Luczkowski and Kelly. In January 2024, the Company acquired the remaining interests in the assets of AIS, Luczkowski, and Kelly for a total purchase price of $ 5.2 million, converting them to wholly owned corporate branches. The Company issued equity to settle the total purchase price. As described in Note 4, the Company purchased the assets of Kincaid and Brinson for a total consideration of $ 11.8 million and $ 2.0 million, respectively. Upon closing, the Company paid $ 8.2 million in cash for the Kincaid asset purchase and $ 0.5 million in cash for the Brinson asset purchase. The amount representing the unsettled portion of the total consideration as of December 31, 2023 was reported as Deferred acquisition payable, current in the Condensed Consolidated Statements of Financial Position. In January 2024, pursuant to the asset purchase agreements, the remaining balances of the total consideration associated with the Kincaid and Brinson asset purchases were settled through the issuance of the Company’s Class A common units, equivalent to $ 3.5 million for the Kincaid asset purchase, and the issuance of the Company’s Class A common units equivalent to $ 1.0 million and cash payment of $ 0.5 million for the Brinson asset purchase. RenaissanceRe Holdings Ltd., through its wholly-owned subsidiary RenaissanceRe Ventures U.S. LLC, has been an investor in the Company since 2018, and is represented on the Company’s Board of Managers. Griffin Highline Capital, LLC, through its wholly-owned subsidiary, GHC Woodlands Holdings LLC, has been an investor in the Company since 2021, and is represented on the Company’s Board of Managers. 13. EARNINGS PER SHARE For the three and nine months ended September 30, 2024, basic earnings per share has been calculated by dividing net earnings attributable to Class A common stockholders for the period subsequent to the Reorganization Transactions as described in Note 1, by the weighted average number of shares of Class A Common Stock outstanding for the same period. All earnings prior to July 19, 2024, the date of the Reorganization Transactions, were entirely allocable to the noncontrolling interests and, as a result, earnings per share information is not applicable for reporting periods prior to this date. Shares of Class A Common Stock are weighted for the portion of the period in which the shares were outstanding. Diluted earnings per share has been calculated in a manner consistent with that of basic earnings per share while considering all potentially dilutive shares of Class A Common Stock outstanding during the periods. 26 Table of Contents The following tables set forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2024 (in thousands, except share and per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2024 2024 Numerator: Net income attributable to TWFG, Inc. (basic and diluted) $ 1,154 $ 1,154 Denominator: Weighted average common stock outstanding (basic) 14,722,685 14,722,685 Effect of potentially dilutive securities: RSUs 167,697 167,697 Weighted average common stock outstanding (diluted) 14,890,382 14,890,382 Earnings per share Basic $ 0.08 $ 0.08 Diluted $ 0.08 $ 0.08 Diluted earnings per share attributable to common stockholders adjusts the basic earnings per share attributable to common stockholders and the weighted average number of shares of common stock outstanding for the potential dilutive impact of potential common stock. Pursuant to the Reorganization Transactions, Class B Voting Stock and Class C Voting Stock are considered in the calculation of dilutive earnings per share on an if-converted basis as these classes of stock, together with the related LLC Units, have exchange rights into Class A Common Stock that could result in additional Class A Common Stock being issued. Net income attributable to the noncontrolling interests would be added back to net income in the fully dilutive computation and adjusted for income taxes which would have been expensed had the income been recognized by the Company, a taxable entity. All other potentially dilutive securities (such as unvested RSUs) are determined based on the treasury stock method. The Company excluded the following potential shares, presented based on amounts outstanding at each period end, from the computation of diluted weighted average shares outstanding for the periods indicated because including them would have had an antidilutive effect: Three Months Ended September 30, Nine Months Ended September 30, 2024 2024 Class B Voting Stock 7,277,651 7,277,651 Class C Voting Stock 33,893,810 33,893,810 41,171,461 41,171,461 14. DISCONTINUED OPERATION Prior to February 2023, TWICO was a wholly owned subsidiary of the Company. In July 2022, the Company entered into a Master Transaction Agreement in which the Company’s equity interests in TWICO were distributed to the owners of the Company (“TWICO Distribution”). The TWICO Distribution was effective in February 2023 after approval from the Texas Department of Insurance. The TWICO Distribution is a common control transaction and recorded at book value as a capital transaction with no gain or loss recorded. TWICO, as a subsidiary of the Company, was determined to be a component of the Company and disposed of by other-than-sale. The TWICO Distribution represents a significant strategic shift in the operations of the Company and has met all criteria for discontinued operations reporting on the distribution date, i.e., February 2023. After the TWICO Distribution, the Company retains significant continuing involvement in the operation of TWICO through TWICO’s existing agency agreement with TWFG-GA and the management agreement with the Company. See Note 12 for more information about the transactions between the Company, TWFG-GA and TWICO. 27 Table of Contents The following is a reconciliation of the amounts of major classes of income from operations classified as discontinued operation in the Consolidated Statement of Operations (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Revenue $ — $ — $ — $ 1,240 Less: Operating expenses — — — 450 Operating income — — — 790 Less: Income tax benefit — — — ( 44 ) Net income from discontinued operation, net of tax $ — $ — $ — $ 834 15. LITIGATION AND CONTINGENCIES The Company is a party to various legal actions and claims, brought by or threatened against it, in the ordinary course of business. The Company records liabilities for loss contingencies when it is probable that a liability has been incurred and the amount is reasonably estimable. The Company does not discount such contingent liabilities and recognizes incremental costs related to the contingencies when incurred. In the opinion of management, the ultimate resolution of legal actions and pending claims will not materially affect the condensed consolidated financial statements of the Company. 16. SUBSEQUENT EVENTS We have evaluated subsequent events through November 13, 2024, the issuance date and determined that no events have occurred that require disclosure other than the events listed below. On November 12, 2024, the Company entered into a lease agreement with Parkwood 2, LLC (the “Lease”), a related party, for additional office space located in The Woodlands, Texas. Parkwood 2, LLC is owned by the Continuing Pre-IPO LLC Members. The Lease is anticipated to commence on December 1, 2024 with an initial term of 120 months with an option to renew. The Company has the right to extend the term of the Lease for an additional 120 months at the then-prevailing market rate. The total future minimum lease payments related to the Lease are approximately $ 2.6 million. In addition, the Lease provides for additional rent for operating expenses under the terms of the Lease. 28 Table of Contents