TWFG, Inc.

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 Class A common stock (“Class A 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 completed an IPO of 11,000,000 shares of its 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 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.

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 Company has a software licensing agreement with EVO, which allows TWFG-IS and TWFG-GA to use EVO’s proprietary agency management system on a fixed annual fee.

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 the consolidated financial statements. See Note 13 for additional information about the related party transactions between the Company and TWICO and Note 15 for 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 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’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 toone vote per share on all matters submitted to a vote of the stockholders, each share of Class B Voting Stock entitles its holder toone 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 toten 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 aone-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 aone-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 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 other holders of LLC Units 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 other holders of LLC Units 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 other holders of LLC Units 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 Continuing 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 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 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 consolidated financial statements include all normal recurring adjustments necessary to present fairly the Company’s consolidated balance sheets, results of operations, and cash flows for all periods presented.

Reclassification

Certain amounts previously reported in the 2023 financial statements have been reclassified for comparative purposes to conform to the current period’s presentation. We reclassified amounts between “Other income” and

“Interest income” in the Consolidated Statements of Income. We disaggregated the interest earned on funds held in a fiduciary capacity and those not held in a fiduciary capacity.

Use of Estimates

The preparation of the consolidated financial statements and notes thereto requires management to make estimates, judgements, and assumptions that affect the amounts reported in the consolidated financial statements and in the notes thereto. Such estimates and assumptions could change in the future as circumstances change or more information becomes available, which could affect the amounts reported and disclosed herein.

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 primarily 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. The Company incurs costs to fulfill contracts primarily through sales commissions paid to agents. In circumstances in which the contract is one year or less the costs incurred to place the contract is expensed as a practical expedient. 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 executed 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 obliga tions 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 the premium for the underlying insurance policy. 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 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 limits 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 ratably over the term when the services are rendered, typically monthly.

License fees include fixed and usage-based arrangements, which are typically priced as a monthly fixed fee or specified fee per user, 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 on fiduciary funds, 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. Interest earned on non-fiduciary funds is recognized in Interest income on the Consolidated Statements of Income while interest earned on fiduciary funds is recognized in Other income on the Consolidated Statements of Income.

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 income in the Consolidated Statements of Income. These unremitted amounts are reported as Restricted cash in the Consolidated Balance Sheets. Restricted cash amounting to$9.6 million and $7.2 million as of December 31, 2024 and 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 to be collected on behalf of others, including insureds and insurance carriers, as Accounts receivable and the associated Carrier liabilities on the Consolidated Balance Sheets. 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 December 31, 2024 and 2023, the Company reported Carrier liabilities amounting to$12.4 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 commissions, fees and taxes, are remitted to the insurance carriers upon collection.

Commissions receivable from agents are recorded in Other current assets.

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 and Commissions receivable.

The Company’s receivables are shown net of an allowance for credit losses, which are 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. See Note 3 for additional information about the Company’s Allowance for Credit Losses.

Intangible Assets, net and Acquisitions

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 orfive 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 toten 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 asset is recorded in accordance with the cost accumulation method based on the determined purchase price, it is then amortized over the established useful life.

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 Consolidated Statements of Income. There wereno impairments recorded for the years ended December 31, 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:

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 wereno impairments recorded for the years ended December 31, 2024 and 2023.

Assets held for sale are reported at the lower of the carrying value or fair value, less costs to sell.

Deferred Offering Costs

Deferred offering costs, which consisted of direct incremental legal, accounting, consulting, and other fees and expenses related to the IPO were capitalized in Deferred offering costs on the Consolidated Balance Sheets. 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 recorded to additional paid-in capital to offset the IPO proceeds. The Company hadno deferred offering costs as of December 31, 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, 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 Consolidated Balance Sheets 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 exercised. All of the Company’s real estate and office equipment leases are recognized as operating leases. The Company has no material financing 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 hasno material variable lease payments in any of its leases.

The Company recognizes lease right-of-use (“ROU”) assets and operating lease liabilities on the Consolidated Balance Sheets for operating lease agreements. Lease liabilities are measured at the lease commencement date as the present value of the future lease payments. If 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 at the lease liability amount plus initial direct costs and prepaid lease payments less lease incentives.

Derivatives

The Company uses derivative financial instruments, primarily 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 Consolidated Balance Sheets.

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 Consolidated Balance Sheets 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

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.

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 aone-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 Consolidated Statements of Income.

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.

The Company is the managing member of TWFG Holding and, as a result, consolidates the financial results of TWFG Holding in the 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 on its allocable share of any net taxable income of TWFG Holding as a corporation and pays corporate federal, state and local taxes.

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. Under this method, the Company determines deferred tax assets and liabilities on the basis of the difference between the financial statementand tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. 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 $1.5 million for the year ended December 31, 2024. The estimated effective tax rate was 5.0% for the year ended December 31, 2024, 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. As a result, a provision or liability for federal income tax isnot reflected in the consolidated financial statements of the Company for the year ended December 31, 2023. Upon completion of the Reorganization Transactions, 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 December 31, 2024.

Tax Receivable Agreement

The Company’s purchase of TWFG Holding units in connection with the IPO, as well as the anticipated future redemptions or exchanges of LLC Units by the Pre-IPO LLC Members for shares of our Class A Common Stock or cash, are expected to result in an increase in the Company’s share of the tax basis in the tangible and intangible assets of the TWFG Holding. This increase in tax basis is expected to generate additional tax depreciation and amortization deductions that would not have otherwise been available to the Company, thereby reducing the Company’s future cash tax obligations.

In connection with these transactions, the Company has entered into a Tax Receivable Agreement, pursuant to which the Company is required to pay the other holders of LLC Units 85% of the amount of actual cash savings, if any, in U.S. federal, state, and local income taxes that the Company realizes (or, in certain circumstances, is deemed to realize) as a result of the future increases in tax basis, as well as certain other tax benefits associated with payments made under the Tax Receivable Agreement.

Recently Adopted Accounting Standards

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2023-07, Segment Reporting (“Topic 280”) - Improvements to Reportable Segment Disclosures (“ASU 2023-07”) to enhance the disclosure requirements for reportable segments. ASU 2023-07 requires disclosure of significant segment expenses regularly provided to the chief operating decision maker (“CODM”), as well as an aggregate amount of other segment items included within segment profit or loss and a description of its composition. Additionally, ASU 2023-07 requires disclosure of the title and position of the CODM and a description of how the CODM utilizes the reported measure of segment profit or loss to assess segment performance. ASU 2023-07 requires segment disclosures under Topic 280 on an annual and interim basis. This guidance is effective for fiscal year end December 31, 2024. The Company has adopted this standard as disclosed in Note 17 Segment.

Recent Accounting Pronouncements Not Yet Adopted

Disaggregation of Income Statement Expense

On November 4, 2024 the FASB issued ASU 2024-03, Disaggregation of Income Statement Expense (DISE) that requires an entity to disclose in the footnote a tabular format that disaggregates relevant expense captions in to the following natural expense categories: purchase of inventory, employee compensation, depreciation, intangible asset amortization and depreciation, depletion and amortization or other amounts of depletion expense. This guidance is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. The requirements will be applied prospectively with the option for retrospective application and early adoption is permitted. The Company is currently evaluating the impacts at this time.

In December 2023, the FASB issued ASU 2023-09, Improvement to Income Tax Disclosures 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 still evaluating the specific impacts on our consolidated financial statements and disclosures related to the adoption.

3. REVENUES

The following table presents the disaggregation of revenues by major source (in thousands):

The Company operates throughtwo primary offerings, which are Insurance Services and TWFG MGA. The following table presents the disaggregation of revenues by offerings (in thousands):

As of December 31, 2024 and December 31, 2023, the Commissions receivable reported in the Consolidated Balance Sheets had a balance of $27.1 million and $19.1 million, respectively, and had an opening balance of $15.0 million as of January 1, 2023. The change in the Commission receivable balance was due to increased revenue for the year ended December 31, 2024. As of December 31, 2024,75.2% of the commissions receivable balance is current and as of December 31, 2023,73.2% of the commission receivable balance is current. The Company hasno contract liabilities as of December 31, 2024, December 31, 2023, and January 1, 2023.

The Company’s allowance for credit losses is based on a combina tion of factors, 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.

The following table provides a summary of changes in the Company’s allowance for expected credit losses (in thousands):

The Progressive Corporation accounted for 13% and 11% of total revenues for the year ended December 31, 2024 and December 31, 2023, respectively. The Travelers Companies, Inc. accounted for 10% of total revenue for the year ended December 31, 2023. For the year ended December 31, 2022, no customers individually accounted for 10% or more of the Company’s total revenues. No other customers individually accounted for 10% or more of the Company’s total revenues for the years ended December 31, 2024 and 2023.

4. INTANGIBLE ASSETS AND ACQUISITIONS

In January 2024, the Company acquired the assets ofnine 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 $40.8 million in settlement for the total purchase price.

The Company previously acquired partial interests in the assets of American Insurance Strategies, LLC (“AIS”), Luczkowski Insurance Agency Inc. (“Luczkowski”) and Jim Kelly Insurance Agency Inc. (“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 addition to the acquisitions described above, the Company purchased customer lists intangible assets totaling $1.6 million for the year ended December 31, 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.

In April 2023, the Company purchased the assets of Ralph E. Wade Insurance Agency Inc. (“Wade”), for total consideration of $4.3 million, fully in cash. The acquisition was accounted for as an asset acquisition under the cost accumulation model. The Company recognized a customer list intangible asset of $4.3 million. 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 May 2023, the Company purchased 50.1% of the assets of Luczkowski and Kelly, fully in cash. The acquisition was accounted for as an asset acquisition under the cost accumulation model. The Company recognized 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”), for total consideration of $11.8 million, $8.2 million in cash and $3.6 million in equity. The acquisition was accounted for as an asset acquisition under the cost accumulation model. The Company recognized a customer list intangible asset of $11.8 million. The equity consideration was transferred in January 2024.

In December 2023, the Company purchased the assets of Brinson, Inc. (“Brinson”), for total consideration of $2.0 million, $1.0 million in cash and $1.0 million in equity. The acquisition was accounted for as an asset acquisition under the cost accumulation model. The Company recognized a customer list intangible asset for $2.0 million. The equity consideration was transferred in January 2024.

The following table presents information about the Company’s intangible assets (in thousands):

(1)The acquired customer lists in 2024 and 2023 have a weighted average amortization period of 8 years.

(2)For the year ended December 31, 2023, the Company recognized $0.01 million loss on sale of customer lists and $1.74 million loss on disposal of computer software was recognized by the Company.

The following table presents the future amortization for intangible assets as of December 31, 2024 (in thousands):

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):

The estimated future minimum payments of operating leases as of December 31, 2024 (in thousands):

None of the Company’s leases impose restrictions or covenants on the ability to enter into debt or equity financing transactions, pay dividends, or enter into future lease agreements.

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 December 31, 2024 and 2023, the interest rate swaps continue to be effective hedges. The notional amount of the interest rate swaps as of December 31, 2024 and 2023 is $13.0 million and $17.0 million, respectively.

The fair value of the interest rate swaps as of December 31, 2024 and 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 which are included in Other current assets.

The fair value of derivative assets as of December 31, 2024 and 2023 was determined using the Level II inputs described in Note 2. For determining the fair value of the interest rate swap we use significant other observable market data or assumptions (Level 2 inputs) that we believe market participants would use in pricing similar assets or liabilities, including assumptions about counterparty risk. Our fair value estimates reflect an income approach based on the terms of the interest rate swap contract and inputs corroborated by observable market data including interest rate curves.

The maturity date for the current interest rate swap is December 6, 2027, which correspond with the debt maturity date. As of December 31, 2024, 2023, and 2022, the Company expects $0.2 million, $0.3 million and $0.4 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):

8. DEBT

The following is a summary of the Company’s outstanding debt (in thousands):

Future maturities of the Company’s outstanding debt as of December 31, 2024, were as follows (in thousands):

For the years ended December 31, 2024 and 2023, the Company incurred interest expense of $2.2 million and $1.0 million, respectively.

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, TWFG Holding, the guarantors party thereto, the lenders party thereto, PNC Bank, National Association (the “Agent”) and PNC Capital Markets LLC entered into a Revolving Credit Agreement (the “Revolving Credit Agreement”) which provides a revolving credit facility to the Company, with commitments in an aggregate principal amount not to exceed $50.0 million, which was amended on June 20, 2024 (as so amended, the “Revolving Facility”). On August 6, 2024, in accordance with the Revolving Facility, we became a guarantor of, and granted security interest to secure, the Revolving Facility. TWFG Holding and the guarantors to the Revolving Credit Facility entered into a letter agreement, dated October 3, 2024, with the Agent and the lenders party thereto to make changes relating to the debt covenant calculation. 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 December 31, 2024 and 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 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 December 31, 2024 and 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 December 31, 2024 and 2023 approximates fair value.

Deferred Acquisition Payable

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 annual imputed interest rate of 5.00%.

In October 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 60 months. The deferred acquisition payable was recorded at fair value with an annual imputed interest rate of 4.69%.

The portion of the Company’s acquisition-related notes due within 12 months or less from the financial statement date is reported in the Consolidated Balance Sheets 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 13 for more information regarding the purchase of the customer list intangible assets.

Fair value information about financial instruments not measured at fair value

The following table presents the Company’s debt that is not measured at fair value on a recurring basis:

(1)The carrying value of the Company’s borrowings under various credit agreements approximates its fair value due to the variable interest rate based upon adjusted SOFR.

(2) The acquisition payable is cash payments that are due to the seller paid out over a future period. The fair value of the acquisition payable is based on an estimate using a discounted cash flow analysis and current finance rates for similar types of financing arrangements.

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 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 December 31, 2024:

(1) Each share of Class A Common Stock and non-economic Class B Common Stock entitles its holder toone 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 toten 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 toone 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 December 31, 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.

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 December 31, 2024:

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 is not subject to any entity level U.S. federal 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 net taxable income of TWFG Holding. 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 $6.1 million, $9.5 million, and $6.0 million for the years ended December 31, 2024, 2023, and 2022, respectively. Post the completion of the IPO. TWFG Holding made tax distributions to its members totaling approximately $3.0 million.

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 year ended December 31, 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.

The fair value of the restricted stock units under the 2024 Incentive Plan for awards granted at the time of the Company’s IPO were granted at the IPO price of $17.00 per share.

Stock-Based Compensation Expense

Stock-based compensation expense recorded in Salaries and employee benefits for the year ended December 31, 2024 was $2.2 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 year ended December 31, 2024 were as follows:

As of December 31, 2024, the Company had $4.9 million of unrecognized stock-based compensation costs related to unvested RSUs, which is expected to be recognized over a weighted-average period of 1.5 years.

11. INCOME TAXES

Prior to the Reorganization Transactions, we were organized as Delaware limited liability companies and Delaware limited partnerships and were treated as flow-through entities for U.S. federal income tax purposes. Subsequent to the Reorganization Transactions, we are subject to U.S. federal income and state tax on our allocable share of any taxable income of TWFG Holding’s income (loss) before provision for income taxes consisted of the following (in thousands):

The components of the provision for income taxes is as follows:

A reconciliation of the Company's statutory income tax rate to the Company’s effective income tax rate is as follows:

(1)During the years ended December 31, 2024 and 2023, the income attributable to predecessor was not subject to corporate income tax as we were organized as limited liability companies and limited partnerships that were treated as flow-through entities for U.S federal income tax purposes prior to the Reorganization Transactions.

Significant components of the Company's deferred income taxes were as follows (in thousands):

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax assets, projected future taxable income and tax planning strategies in making this assessment. After consideration of all the information available, management has recorded a valuation allowance against our deferred tax asset for our tax basis in TWFG Holding in excess of the carrying value of our investment in TWFG Holding.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations for both federal taxes and the many states in which we operate or do business in. ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.

We record uncertain tax positions as liabilities in accordance with ASC 740 and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.

We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying Consolidated Statements of Income. As of December 31, 2024 and 2023, no accrued interest or penalties are included on the related tax liability line in the Consolidated Balance Sheets.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. The Company's tax years are still open under statute from December 31, 2021, to the present. The resolution of tax matters is not expected to have a material effect on the Company's consolidated financial statements.

As of December 31, 2024 and 2023, we did not have any uncertain tax positions.

12. 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 years ended December 31, 2024, 2023 and 2022, the Company recognized expenses related to the Plan of $0.6 million, $0.3 million, and $0.3 million, respectively. The Company at its election may make discretionary profit share contributions. Contributions are subject to certain limitations. For the years ended December 31, 2024, 2023 and 2022, the Company elected not to make any additional discretionary contributions.

13. 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 years ended December 31, 2024 and 2023, the Company allocated general and administrative expenses related to the continuing operations totaling $5.9 million and $4.2 million, respectively. These amounts are eliminated in the Consolidated Statements of Income.

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.

As described in Note 1, in 2023, the Company distributed its equity interest in TWICO to the owners of the Company. As a result, the Company deconsolidated TWICO in January 2023. For the years ended December 31, 2024 and 2023, TWFG-GA earned $9.6 million and $4.2 million in commissions, respectively, and $2.7 million and $1.6 million in fee income, respectively, from TWICO. These amounts are not eliminated and are included in commission income and fee income in the Consolidated Statements of Income. 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 years ended December 31, 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 Consolidated Statements of Income. See Note 15 for the discontinued operation.

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 years ended December 31, 2024 and 2023, the Company incurred $1.9 million and $0.7 million in license fees, respectively, and allocated general and administrative expenses related to EVO, totaling $0.4 million and $0.3 million, respectively. These amounts are not eliminated and are included in Other administrative expenses in the Consolidated Statements of Income.

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 Consolidated Balance Sheets 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, 2024 and December 31, 2023 was reported as Deferred acquisition payable, current in the Consolidated Balance Sheets.

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 $3.6 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.

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 commenced 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. As of December 31, 2024, the Company has accrued rent expense and tenant improvements of approximately $2.5 million. See Note 5, Operating Leases for additional information.

RenaissanceRe Holdings Ltd., through its wholly-owned subsidiary RenaissanceRe Ventures U.S. LLC, has been an investor in the Company since 2018. Jonathan Anderson is one of our directors and the Senior Vice President, Global Head - Strategic Investments of RenaissanceRe Holdings Ltd.

Griffin Highline Capital, LLC, through its wholly-owned subsidiary, GHC Woodlands Holdings LLC, has been an investor in the Company since 2021. Michael Doak serves on the Board and is the Chief Executive Officer and Managing Partner of Griffin Highline Capital.

14. EARNINGS PER SHARE

For the year ended December 31, 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.

Prior to the IPO and Reorganization Transactions, TWFG Holding’s equity structure included common units. The Company considered the calculation of earnings per unit for periods prior to the IPO and determined that it would not be meaningful to the users of these consolidated financial statements. Therefore, earnings per share information has not been presented for the year ended December 31, 2023 and 2022.

The following tables set forth the computation of basic and diluted earnings per share for the year ended December 31, 2024 (in thousands, except share and per share amounts):

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 period end, from the computation of diluted weighted average shares outstanding for the periods indicated because including them would have had an antidilutive effect:

15. 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 (“MTA”) in which the Company’s equity interests in TWICO were distributed to the owners of the Company (“TWICO Distribution”). In 2022, as part of the MTA, the Company contributed $5.0 million to TWICO. This contribution was reported in the Consolidated Statements of Cash Flows as an investing outflow from continuing operations and as a financing inflow from discontinued operations. 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 13 for more information about the transactions between the Company, TWFG-GA and TWICO.

The following is a reconciliation of the amounts of major classes of income from operations classified as discontinued operation in the Consolidated Statements of Income (in thousands):

16. 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 consolidated financial statements of the Company.

17. SEGMENT

The Company hasone operating segment and thereforeone reportable segment relating to its business as an independent distribution platform for personal and commercial insurance in the United States. All business activities and operations are reported in the one reportable segment, which applies accounting policies consistent with the consolidated entity. The Company’s CODM, the CEO, manages the Company’s operations on a consolidated basis as one operating segment for the purpose of evaluating financial performance and allocating resources. See Note 2 Revenue for products and major customers on an entity wide basis.

The segment derives its revenues primarily from the placement of insurance contracts between insurance carriers and insureds. The CODM assesses the financial performance of the segment and decides how to allocate resources based on net income on a consolidated basis. The measure of segment assets is reported on the Consolidated Balance Sheets as total consolidated assets. Refer to Note 4 Intangibles Assets and Acquisitions for capital expenditures on an entity wide basis.

The CODM uses net income predominantly in the annual operating budget and in the strategic planning and forecasting process. Such profit measure is used to monitor budget versus actual results on an ongoing basis by the CODM and determine how resources are allocated to the various activities of the Company. The CODM also uses net income to evaluate the Company’s performance and assist in determination of management’s incentive compensation.

The following table provides a summary of the segment revenue, segment profit or loss, and significant segment expenses (in thousands):

(1)Other segment items included in segment net income include marketing expenses, survey expenses, office expenses, and certain administrative expenses.

18. SUBSEQUENT EVENTS

In January 2025, the Company completedtwo asset acquisitions for an aggregate cash purchase price of $10.2 million.

We have evaluated all other subsequent events through March 27, 2025, the issuance date and determined that no events have occurred that require disclosure other than the events listed above.