UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended JuneSeptember 30, 2008.


OR


[  ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

¨Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ____ to ____.



.

Commission file number 1-31234



WESTWOOD HOLDINGS GROUP, INC.

(Exact name of registrant as specified in its charter)

DELAWARE75-2969997
DELAWARE75-2969997

(State or other jurisdiction

of incorporation or organization)

(IRS Employer

Identification No.)

200 CRESCENT COURT, SUITE 1200

DALLAS, TEXAS

75201

(Address of principal executive office)

(Zip Code)


(214) 756-6900

(Registrant'sRegistrant’s telephone number, including area code)


---

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YesXNo

    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “ smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filero ¨  Accelerated filer
x
Non-accelerated filero (Do¨  (Do not check if a smaller reporting company)Smaller reporting companyo ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YesNoX

    Yes  ¨    No  x

The number of shares of the issuer'sissuer’s common stock, par value $0.01 per share, outstanding as of July 18,October 20, 2008:

6,972,458.
6,954,488.

WESTWOOD HOLDINGS GROUP, INC.


INDEX


PART I
FINANCIAL INFORMATION
PAGE
    PAGE
PART IFINANCIAL INFORMATION
Item 1.
Unaudited Condensed Consolidated Financial Statements
  
Consolidated Balance Sheets as of JuneSeptember 30, 2008 and December 31, 2007 (audited)1
  

Consolidated Statements of Income for the three and sixnine months ended JuneSeptember 30, 2008 and JuneSeptember 30, 2007

2
  
Consolidated Statement of Stockholders’ Equity for the sixnine months ended JuneSeptember 30, 2008
3
  

Consolidated Statements of Cash Flows for the sixnine months ended JuneSeptember 30, 2008 and JuneSeptember 30, 2007

4
  
Notes to Interim Consolidated Financial Statements
5
Item 2.
Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations12
Item 3.
Quantitative And Qualitative Disclosures About Market Risk20
Item 4.
Controls and Procedures20
PART II
OTHER INFORMATION
  
Item 1.
Legal Proceedings20
  21
Item 1A.
Risk Factors20
  
Item 4.
Submission of Matters to a Vote of Security Holders 
21
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds21
Item 6.
Exhibits21

Signatures

  
Signatures  22

PART I - FINANCIAL INFORMATION

ITEM 1.UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


ITEM 1.  UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of JuneSeptember 30, 2008 and December 31, 2007

(in thousands, except par value and share amounts)


  
June 30,
2008
(unaudited)
  
December 31,
2007
 
ASSETS      
Current Assets:      
Cash and cash equivalents
 $5,009  $4,560 
Accounts receivable
  4,169   6,599 
Investments, at market valueents, at market value
  23,038   22,144 
Deferred income taxes
  2,006   1,512 
Other current assets
  1,501   651 
Total current assets
  35,723   35,466 
Goodwill
  2,302   2,302 
Deferred income taxes
  267   225 
Property and equipment, net of accumulated depreciation of $1,116 and $1,002
  935   1,031 
Total assets
 $39,227  $39,024 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current Liabilities:        
Accounts payable and accrued liabilities
 $1,060  $1,024 
Dividends payable
  2,091   1,702 
Compensation and benefits payable
  2,679   4,848 
Income taxes payable
  996   1,505 
Other current liabilities
  12   11 
Total current liabilities
  6,838   9,090 
Deferred rent  519   588 
Total liabilities
  7,357   9,678 
Stockholders’ Equity:        
Common stock, $0.01 par value, authorized 25,000,000 shares, issued
7,027,877 and outstanding 6,972,458 shares at June 30, 2008; authorized
10,000,000 shares, issued 6,840,327 and outstanding 6,807,408 shares at
December 31, 2007
      70       68 
Additional paid-in capital
  31,590   27,770 
Treasury stock, at cost – 55,419 shares at June 30, 2008; 32,919 shares at
December 31, 2007
  (1,872)  (1,070)
Retained earnings
  2,082   2,578 
Total stockholders’ equity
  31,870   29,346 
Total liabilities and stockholders’ equity $39,227  $39,024 

   September 30,
2008
(unaudited)		  December 31,
2007		 
ASSETS   

Current Assets:

   

Cash and cash equivalents

  $2,941  $4,560 

Accounts receivable

   4,780   6,599 

Investments, at market value

   25,537   22,144 

Deferred income taxes

   1,110   1,512 

Prepaid taxes

   2,295   —   

Other current assets

   412   651 
         

Total current assets

   37,075   35,466 

Goodwill

   2,302   2,302 

Deferred income taxes

   472   225 

Property and equipment, net of accumulated depreciation of $1,175 and $1,002

   899   1,031 
         

Total assets

  $40,748  $39,024 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY   

Current Liabilities:

   

Accounts payable and accrued liabilities

  $1,194  $1,024 

Dividends payable

   2,087   1,702 

Compensation and benefits payable

   3,342   4,848 

Income taxes payable

   —     1,505 

Other current liabilities

   11   11 
         

Total current liabilities

   6,634   9,090 

Deferred rent

   480   588 
         

Total liabilities

   7,114   9,678 
         

Stockholders’ Equity:

   

Common stock, $0.01 par value, authorized 25,000,000 shares, issued 7,048,977 and outstanding 6,954,488 shares at September 30, 2008; authorized 10,000,000 shares, issued 6,840,327 and outstanding 6,807,408 shares at December 31, 2007

   70   68 

Additional paid-in capital

   35,332   27,770 

Treasury stock, at cost – 94,489 shares at September 30, 2008; 32,919 shares at December 31, 2007

   (3,500)  (1,070)

Retained earnings

   1,732   2,578 
         

Total stockholders’ equity

   33,634   29,346 
         

Total liabilities and stockholders’ equity

  $40,748  $39,024 
         

See notes to interim consolidated financial statements.

1

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)


  
Three months ended
June 30,
  
Six months ended
June 30,
 
  2008  2007  2008  2007 
REVENUES:            
Advisory fees
            
Asset-based
 $6,606  $5,003  $12,996  $9,586 
Performance-based
  80   -   80     
Trust fees
  2,677   2,516   5,425   4,892 
Other revenues, net
  288   438   277   832 
Total revenues
  9,651   7,957   18,778   15,310 
                 
EXPENSES:                
Employee compensation and benefits
  5,352   4,266   10,014   7,975 
Sales and marketing
  195   147   332   268 
WHG mutual funds
  106   66   141   101 
Information technology
  266   249   527   482 
Professional services
  439   379   887   779 
General and administrative
  695   609   1,266   1,125 
Total expenses
  7,053   5,716   13,167   10,730 
Income before income taxes  2,598   2,241   5,611   4,580 
Provision for income taxes  867   768   1,925   1,600 
Net income $1,731  $1,473  $3,686  $2,980 
                 
Earnings per share:                
Basic
 $0.29  $0.26  $0.61  $0.52 
Diluted
 $0.27  $0.24  $0.58  $0.49 

   Three months ended
September 30,		  Nine months ended
September 30,
   2008  2007  2008  2007

REVENUES:

       

Advisory fees

       

Asset-based

  $7,381  $5,782  $20,377  $15,368

Performance-based

   —     —     80  

Trust fees

   2,845   2,666   8,270   7,558

Other revenues, net

   (134)  291   143   1,123
                

Total revenues

   10,092   8,739   28,870   24,049
                

EXPENSES:

       

Employee compensation and benefits

   5,498   4,669   15,512   12,644

Sales and marketing

   263   164   595   432

WHG mutual funds

   94   43   235   144

Information technology

   296   239   823   721

Professional services

   450   420   1,337   1,199

General and administrative

   727   565   1,993   1,690
                

Total expenses

   7,328   6,100   20,495   16,830
                

Income before income taxes

   2,764   2,639   8,375   7,219

Provision for income taxes

   1,028   957   2,953   2,557
                

Net income

  $1,736  $1,682  $5,422  $4,662
                

Earnings per share:

       

Basic

  $0.28  $0.28  $0.89  $0.80

Diluted

  $0.27  $0.27  $0.84  $0.76

See notes to interim consolidated financial statements.

2

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the SixNine Months Ended JuneSeptember 30, 2008

(in thousands)

(unaudited)



  
Westwood Holdings
Group, Inc.
Common Stock,
Par
  
Addi-
tional
Paid-In
  
 
 
Treasury
  
 
 
Retained
    
  Shares  Amount  Capital  Stock  Earnings  Total 
BALANCE, January 1, 2008  6,807,408  $68  $27,770  $(1,070) $2,578  $29,346 
Net income                  3,686   3,686 
Issuance of restricted stock  183,800   2   (2)          - 
Dividends declared ($0.60 per share)                  (4,182)  (4,182)
Restricted stock amortization          3,151           3,151 
Tax benefit related to equity compensation          623           623 
Stock options exercised  3,750   -   48           48 
Purchase of treasury stock  (22,500)          (802)      (802)
BALANCE, June 30, 2008  6,972,458  $70  $31,590  $(1,872) $2,082  $31,870 


   Westwood Holdings
Group, Inc.
Common Stock, Par		  Additional
Paid-In
Capital		  Treasury
Stock		  Retained
Earnings		  Total 
   Shares  Amount     

BALANCE, January 1, 2008

  6,807,408  $68  $27,770  $(1,070) $2,578  $29,346 

Net income

        5,422   5,422 

Issuance of restricted stock

  192,500   2   (2)    —   

Dividends declared ($0.90 per share)

        (6,268)  (6,268)

Restricted stock amortization

      4,926     4,926 

Tax benefit related to equity compensation

      2,430     2,430 

Stock options exercised

  16,150   —     208     208 

Purchase of treasury stock

  (61,570)     (2,430)   (2,430)
                        

BALANCE, September 30, 2008

  6,954,488  $70  $35,332  $(3,500) $1,732  $33,634 
                        

See notes to interim consolidated financial statements.

3

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



  
For the six months
ended June 30,
 
  2008  2007 
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income
 $3,686  $2,980 
Adjustments to reconcile net income to net cash provided by operating activities:
        
Depreciation and amortization
  114   124 
Unrealized (gains) and losses on investments
  249   (20)
Restricted stock amortization
  3,151   2,260 
Deferred income taxes
  (536)  (258)
Excess tax benefits from stock-based compensation
  (450)  (176)
Net purchases of investments – trading securities
  (69)  (778)
Change in operating assets and liabilities:
        
Accounts receivable
  2,430   357 
Other current assets
  (856)  102 
Accounts payable and accrued liabilities
  36   (79)
Compensation and benefits payable
  (2,169)  (591)
Income taxes payable
  114   476 
Other liabilities
  (14)  (3)
Net cash provided by operating activities
  5,686   4,394 
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchases of money market funds – available for sale
  (3,478)  (3,986)
Sales of money market funds – available for sale
  2,404   3,368 
Purchase of property and equipment
  (66)  (39)
Net cash used in investing activities
  (1,140)  (657)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Purchase of treasury stock
  (802)  (131)
Excess tax benefits from stock-based compensation
  450   176 
Proceeds from exercise of stock options
  48   311 
Cash dividends
  (3,793)  (2,324)
Net cash used in financing activities
  (4,097)  (1,968)
         
NET INCREASE IN CASH  449   1,769 
Cash and cash equivalents, beginning of period  4,560   2,177 
Cash and cash equivalents, end of period $5,009  $3,946 
         
Supplemental cash flow information:        
Cash paid during the period for income taxes
 $2,348  $1,381 
Issuance and (cancellation) of restricted stock
  6,552   (59)
Tax benefit allocated directly to equity
  623   282 

   For the nine months
ended September 30,		 
   2008  2007 

CASH FLOWS FROM OPERATING ACTIVITIES:

   

Net income

  $5,422  $4,662 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

   

Depreciation and amortization

   173   176 

Unrealized (gains) and losses on investments

   505   (52)

Restricted stock amortization

   4,927   3,797 

Deferred income taxes

   155   439 

Excess tax benefits from stock-based compensation

   (2,188)  (1,226)

Net purchases of investments – trading securities

   (13,510)  (1,089)

Change in operating assets and liabilities:

   

Accounts receivable

   1,819   (569)

Other current assets

   242   (82)

Accounts payable and accrued liabilities

   170   (3)

Compensation and benefits payable

   (1,506)  (235)

Income taxes payable

   (1,370)  361 

Other liabilities

   (27)  (10)
         

Net cash (used in) provided by operating activities

   (5,188)  6,169 
         

CASH FLOWS FROM INVESTING ACTIVITIES:

   

Purchases of money market funds – available for sale

   (20,098)  (5,320)

Sales of money market funds – available for sale

   29,710   4,909 

Purchase of property and equipment

   (125)  (45)
         

Net cash provided by (used in) investing activities

   9,487   (456)
         

CASH FLOWS FROM FINANCING ACTIVITIES:

   

Purchase of treasury stock

   (2,430)  (1,042)

Excess tax benefits from stock-based compensation

   2,188   1,226 

Proceeds from exercise of stock options

   208   533 

Cash dividends

   (5,884)  (3,654)
         

Net cash used in financing activities

   (5,918)  (2,937)
         

NET (DECREASE) INCREASE IN CASH

   (1,619)  2,776 

Cash and cash equivalents, beginning of period

   4,560   2,177 
         

Cash and cash equivalents, end of period

  $2,941  $4,953 
         

Supplemental cash flow information:

   

Cash paid during the period for income taxes

  $4,170  $1,756 

Issuance of restricted stock

   7,032   5,330 

Tax benefit allocated directly to equity

   2,430   1,475 

See notes to interim consolidated financial statements.

4

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



1. DESCRIPTION OF THE BUSINESS:


Westwood Holdings Group, Inc. (“Westwood,” the “Company,” “we,” or “our”) was incorporated under the laws of the State of Delaware on December 12, 2001, as a subsidiary of SWS Group, Inc. (“SWS”). On June 28, 2002, SWS completed the spin-off of Westwood by effecting a dividend distribution of all of the Westwood common stock held by SWS to all of its stockholders on a pro rata basis.


Westwood manages investment assets and provides services for its clients through two subsidiaries, Westwood Management Corp. (“Westwood Management”) and Westwood Trust (“Westwood Trust”). Westwood Management provides investment advisory services to corporate pension funds, public retirement plans, endowments, foundations, and a family of mutual funds, which we call the WHG Funds, and investment subadvisory services to mutual funds and clients of Westwood Trust. Westwood Trust provides to institutions and high net worth individuals trust and custodial services and participation in common trust funds that it sponsors. Revenue is largely dependent on the total value and composition of assets under management ("AUM"(“AUM”). Accordingly, fluctuations in financial markets and in the composition of AUM impact revenue and results of operations.


Westwood Management is a registered investment advisor under the Investment Advisers Act of 1940. Westwood Trust is chartered and regulated by the Texas Department of Banking.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation


The accompanying consolidated financial statements have been prepared without an audit and reflect all adjustments that, in the opinion of management, are necessary to present fairly our financial position as of JuneSeptember 30, 2008, and results of operations and cash flows for the periods presented. All such adjustments are normal and recurring in nature. The accompanying consolidated financial statements are presented using the accrual basis of accounting and have been prepared in accordance with the instructions for the presentation of interim financial information as prescribed by the Securities and Exchange Commission (“SEC”) and, therefore, as permitted by SEC rules, do not contain certain information and footnote disclosures required by accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements should be read in conjunction with our consolidated financial statements, and notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2007. Refer to the accounting policies described in the notes to our annual financial statements, which were consistently followed in preparing this interim financial information. Operating results for the sixnine months ended JuneSeptember 30, 2008 are not necessarily indicative of the results for the year ending December 31, 2008 or any future period.


Use of Estimates


The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

5
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS---(Continued)
 (Unaudited)

Revenue Recognition


Investment advisory and trust fees are recognized as services are provided. These fees are determined in accordance with contracts between our subsidiaries and their clients and are generally based on a percentage of

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

AUM. A limited number of our clients have a performance-based fee component in their contract, which would pay us an additional fee if we outperform a specified index over a specific period of time. We would record as revenue any performance-based fees earned at the end of the performance period. Most advisory and trust fees are payable in advance or in arrears on a calendar quarterly basis. Advance payments are deferred and recognized over the periods services are performed. Since most of our advance paying clients’ billing periods coincide with the calendar quarter to which payment relates, the revenue related to those clients is fully recognized within the quarter; consequently, there is not a significant amount of deferred revenue contained in these financial statements. Deferred revenue is shown on the balance sheet under the heading of “Other current liabilities”. Other revenues generally consist of interest and investment income and unrealized gains and losses on our investments. These revenues are recognized as earned or as the services are performed.


Cash and Cash Equivalents


Cash and cash equivalents consist of short-term, highly liquid investments with maturities of three months or less.


Investments


Money market securities are classified as available for sale securities and have no significant fluctuating values. All other marketable securities are classified as trading securities. All securities are carried at quoted market value on the accompanying balance sheet. Net unrealized holding gains or losses on investments classified as trading securities are reflected as a component of other revenues. We measure realized gains and losses on investments using the specific identification method.


Goodwill


During the third quarter of 2007,2008, we completed our annual impairment assessment as required by the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No.142. No impairment loss was required. We perform our annual impairment assessment in the third quarter as of July 1.


Federal Income Taxes


We file a Federal income tax return as a consolidated group for Westwood and its subsidiaries. Deferred income tax assets and liabilities are determined based on the differences between the financial statement and income tax bases of assets and liabilities as measured at enacted income tax rates. Deferred income tax expense is generally the result of changes in the deferred tax assets and liabilities and relates primarily to stock-based compensation expense.


Fair Value of Financial Instruments


The estimated fair values of our financial instruments have been determined by us using available information. The fair value amounts discussed in Note 3 are not necessarily indicative of either the amounts we would realize upon disposition of these instruments or our intent or ability to dispose of these assets. The estimated fair value of cash and cash equivalents, as well as accounts receivable and payable, approximates their carrying value due to their short-term maturities. The carrying amount of investments designated as “trading” securities, primarily U.S. Government and Government agency obligations as well as mutual funds and common trust fund shares, equals their fair value, which is equal to prices quoted in active markets and, with respect to funds, the net asset value of the shares held as reported by the fund. The carrying amount of investments designated as “available for sale” securities, primarily money market accounts, equals their fair value, which is equal to the net asset value of the shares held as reported by the fund. The market values of our money market holdings generally do not fluctuate.


Effective January 1, 2008, we adopted the provisions of FASB SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value and requires additional disclosures regarding certain fair value measurements. SFAS No. 157 establishes a three tier hierarchy for measuring fair value as follows: level 1 – quoted market prices in active markets, level 2 – inputs other than quoted prices that are directly or indirectly observable and level 3 – unobservable inputs where there is little or no market activity. The

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

fair value of our investments in “Note 3. Investments” were determined using quoted prices from active markets (level 1). The implementation of SFAS No. 157 had no effect on our financial statements.

Earnings per Share


Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding for the periods ended JuneSeptember 30, 2008 and 2007, respectively. Diluted earnings per share for these periods is computed based on the weighted average number of shares outstanding plus the effect of the dilutive impact of stock options and shares of restricted stock granted to employees and non-employee directors. Diluted earnings per common share is computed using the treasury stock method.


6
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS---(Continued)
 (Unaudited)

The following table sets forth the computation of basic and diluted shares (in thousands, except per share and share amounts):


  
Three months ended
June 30,
  
Six months ended
June 30,
 
  2008  2007  2008  2007 
Net income $1,731  $1,473  $3,686  $2,980 
                 
Weighted average shares outstanding – basic  6,014,074   5,767,238   6,020,074   5,761,409 
Dilutive potential shares from stock options  35,950   43,474   36,047   44,872 
Dilutive potential shares from restricted shares  362,274   329,713   334,680   316,950 
Weighted average shares outstanding – diluted  6,412,298   6,140,425   6,390,801   6,123,231 
                 
Earnings per share:                
Basic
 $0.29  $0.26  $0.61  $0.52 
Diluted
 $0.27  $0.24  $0.58  $0.49 
                 

   Three months ended
September 30,		  Nine months ended
September 30,
   2008  2007  2008  2007

Net income

  $1,736  $1,682  $5,422  $4,662

Weighted average shares outstanding – basic

   6,190,630   5,937,270   6,077,341   5,820,673

Dilutive potential shares from stock options

   33,624   41,942   35,487   44,365

Dilutive potential shares from restricted shares

   288,466   284,010   325,300   277,158
                

Weighted average shares outstanding – diluted

   6,512,720   6,263,222   6,438,128   6,142,196
                

Earnings per share:

        

Basic

  $0.28  $0.28  $0.89  $0.80

Diluted

  $0.27  $0.27  $0.84  $0.76

Stock-Based Compensation


We account for stock-based compensation in accordance with FASB SFAS No. 123 Revised (“SFAS No. 123R”). Under SFAS No. 123R, stock-based compensation expense reflects the fair value of stock-based awards measured at grant date, is recognized over the relevant service period, and is adjusted each period for anticipated forfeitures. The compensation cost we record for these awards is based on their grant-date fair value as required by SFAS No. 123R.


We have issued restricted stock and stock options in accordance with our Third Amended and Restated Westwood Holdings Group, Inc. Stock Incentive Plan. We valued stock options issued based upon the Black-Scholes option-pricing model and recognized this value as an expense over the periods in which the options vested. Implementation of the Black-Scholes option-pricing model required us to make certain assumptions, including expected volatility, risk-free interest rate, expected dividend yield and expected life of the options. We utilized assumptions that we believed to be most appropriate at the time of the valuation. Had we used different assumptions in the pricing model, the expense recognized for stock options may have been different than the expense recognized in our financial statements. We must also apply judgment in developing an expectation of awards of restricted stock and stock options that may be forfeited. If actual experience differs significantly from these estimates, stock-based compensation expense and our results of operations could be materially affected.

7

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS---STATEMENTS—(Continued)

(Unaudited)

3. INVESTMENTS:


Investment balances are presented in the table below (in thousands). All of these investments are carried at market value.value, using prices from active markets as of the balance sheet date. The money market funds are accounted for as available for sale securities. The other investments are accounted for as trading securities.

  Cost  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Estimated
Market
Value
 
June 30, 2008:            
U.S. Government and Government agency obligations
 $1,969  $-  $-  $1,969 
Funds:
                
Money market
  16,191   -   -   16,191 
Equity and fixed income
  4,896   -   (18)  4,878 
Marketable securities
 $23,056  $-  $(18) $23,038 
                 
December 31, 2007:                
U.S. Government and Government agency obligations
 $1,942  $1  $-  $1,943 
Funds:
                
Money market
  15,117   -   -   15,117 
Equity and fixed income
  4,854   230   -   5,084 
Marketable securities
 $21,913  $231  $-  $22,144 

   Cost  Gross
Unrealized
Gains		  Gross
Unrealized
Losses		  Estimated
Market
Value

September 30, 2008:

       

U.S. Government and Government agency obligations

  $15,391  $30  $—    $15,421

Funds:

       

Money market

   5,505   —     —     5,505

Equity and fixed income

   4,915   11   (315)  4,611
                

Marketable securities

  $25,811  $41  $(315) $25,537
                

December 31, 2007:

       

U.S. Government and Government agency obligations

  $1,942  $1  $—    $1,943

Funds:

       

Money market

   15,117   —     —     15,117

Equity and fixed income

   4,854   230   —     5,084
                

Marketable securities

  $21,913  $231  $—    $22,144
                

4. EQUITY:


On July 23, 2008, we declared a quarterly cash dividend of $0.30 per share on common stock payable on October 1, 2008 to stockholders of record on September 15, 2008.

On July 23, 2008, we granted an aggregate of 10,500 shares of restricted stock to non-employee directors. These shares are subject to vesting conditions as described in “Note 5. Stock Based Compensation”.

On July 1, 2008, we purchased 39,070 shares of our common stock from employees of Westwood to satisfy tax obligations related to vested restricted shares. The shares were purchased at $41.66, the closing price of our common stock on that date, and are shown as treasury shares at cost in the equity section of our balance sheet.

On April 24, 2008, we declared a quarterly cash dividend of $0.30 per share on common stock payable on July 1, 2008 to stockholders of record on June 13, 2008.

On February 27, 2008, we granted an aggregate of 183,800 shares of restricted stock to certain employees. These shares are subject to vesting conditions as described in “Note 5. Stock-Based Compensation”.

On February 27, 2008, we purchased 22,500 shares of our common stock from employees of Westwood to satisfyassist our employees in satisfying their tax obligations related to vested restricted shares. The shares were purchased at $35.65, the closing price of our common stock on that date, and are shown as treasury shares in the equity section of our balance sheet at cost.

On February 6, 2008, we declared a quarterly cash dividend of $0.30 per share on common stock payable on April 1, 2008 to stockholders of record on March 14, 2008.

5. STOCK-BASED COMPENSATION

We have issued stock options and restricted shares to our employees, non-employee directors and a non-employee consultant. The Third Amended and Restated Westwood Holdings Group, Inc. Stock Incentive Plan (the "Plan"“Plan”) reserves shares of Westwood common stock for issuance to eligible employees, directors and consultants of

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Westwood or its subsidiaries in the form of restricted stock and stock options. The total number of shares that may be issued under the Plan (including the predecessor plans to the Plan) may not exceed 1,948,100 shares. In the event of a change in control of Westwood, the Plan contains provisions providing for the acceleration of the vesting of restricted stock and stock options. At JuneSeptember 30, 2008, approximately 241,000232,000 shares remain available for issuance under the Plan.

The following table presents the total stock-based compensation expense we recorded and the total income tax benefit recognized for stock-based compensation arrangements:


8
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS---(Continued)
 (Unaudited)


  
Six months ended
June 30,
 
  2008  2007 
Total stock-based compensation expense $3,151,000  $2,260,000 
Total income tax benefit recognized related to stock-based compensation  937,000   710,000 

   Nine months ended
September 30,
   2008  2007

Total stock-based compensation expense

  $4,927,000  $3,797,000

Total income tax benefit recognized related to stock-based compensation

   4,067,000   2,957,000

Restricted Stock

Under the Plan, we have granted restricted stock to employees, non-employee directors and a non-employee consultant, which are subject to a service condition, and to our Chief Executive Officer and Chief Investment Officer, which are subject to a service condition and performance goals. Until the shares vest, they are restricted from sale, transfer or assignment in accordance with the terms of the agreements under which they were issued. We calculate compensation cost for restricted stock grants by using the fair market value of our common stock at the date of grant, the number of shares issued and an estimate of shares that will not vest due to forfeitures. This compensation cost is amortized on a straight-line basis over the applicable vesting period. As of JuneSeptember 30, 2008, there was approximately $16.6$15.3 million of unrecognized compensation cost, which we expect to recognize over a weighted-average period of 2.52.2 years. In order to satisfy tax liabilities employees will owe on their vested shares, we may withhold a sufficient number of vested shares from employees on the date vesting occurs. For 2008, we expect the number of shares withheld for this purpose to total 61,570 shares. Our two types of restricted stock grants are discussed below.

Employee and non-employee director restricted share grants

Restricted stock granted to employees vest over four years and the non-employee directors’ shares vest over one year. For the sixnine months ended JuneSeptember 30, 2008, we recorded $2.7$4.0 million of expense for these grants. The following table details the status and changes in our restricted stock grants that are subject only to a service condition for the three months ended JuneSeptember 30, 2008:


 
 
Restricted shares subject only to a service condition:
 Shares  
Weighted Average
Grant Date Fair
Value
 
       
Non-vested, January 1, 2008  523,175  $22.95 
Granted  183,800   35.65 
Vested  -   - 
Forfeited  -   - 
Non-vested, June 30, 2008  706,975   26.25 

Restricted shares subject only to a service condition:  Shares  Weighted Average
Grant Date Fair
Value

Non-vested, January 1, 2008

  523,175  $22.95

Granted

  194,300   36.51

Vested

  (208,225)  18.94

Forfeited

  (1,800)  34.37
     

Non-vested, September 30, 2008

  507,450   29.74
     

CEO and CIO performance-based restricted share grants

Under the Plan, we granted restricted shares to our Chief Executive Officer and Chief Investment Officer that vest over four years and six years, respectively, provided annual performance goals established by the Compensation Committee of Westwood’s board of directors are met. In each year during the applicable vesting period, the Compensation Committee will establish a specific goal for that year’s vesting of the restricted shares, which will be

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

based in all cases upon Westwood’s adjusted pre-tax income, as defined. In February 2008, the Compensation Committee established the goal for 2008 as an increase of at least 7% in adjusted pre-tax income over the adjusted pre-tax income for the year 2007. If in any year during the vesting period the performance goal is not met, the Compensation Committee may establish a goal for a subsequent vesting period, which if achieved or exceeded may result in full or partial vesting of the shares that did not otherwise become vested in a prior year. However, in no event will the maximum number of shares, which may become vested over the vesting period, exceed 100,000 shares in the case of our Chief Executive Officer and 300,000 shares in the case of our Chief Investment Officer. If a portion of the performance-based restricted shares do not vest, no compensation expense is recognized for that portion and any previously recognized compensation expense related to the shares that do not vest would be reversed.

9
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS---(Continued)
 (Unaudited)

 
Restricted shares subject to service and performance conditions:
 
 
Shares
  
Weighted Average
Grant Date Fair
Value
 
       
Non-vested, January 1, 2008  250,000  $18.81 
Granted  -   - 
Vested  -   - 
Forfeited  -   - 
Non-vested, June 30, 2008  250,000   18.81 

Restricted shares subject to service and performance conditions:  Shares  Weighted Average
Grant Date Fair
Value

Non-vested, January 1, 2008

  250,000  $18.81

Granted

  —     —  

Vested

  —     —  

Forfeited

  —     —  
     

Non-vested, September 30, 2008

  250,000   18.81
     

Because the performance goal was met in 2007, the shares subject to vesting were vested in substance, but required certification by the Compensation Committee, at which time a share price was determined for tax purposes. On February 27, 2008, the 2007 shares, which were expensed in 2007, were certified as vested and the total fair value of the shares was determined to be $2,674,000, utilizing a share price of $35.65, the closing price of our common stock as of the day of certification. In the second quarters of 2008 and 2007, we concluded that it was probable that we would meet the performance goals required in order for the applicable percentage of the performance-based restricted shares awarded to our Chief Executive Officer and Chief Investment Officer to vest in each year. As a result, we recognized expense of approximately $470,000 in both the current and prior year second and third quarters related to these performance-based restricted stock grants.

Stock Options

Options granted under the Plan have a maximum ten-year term and vested over a period of four years. All of our stock options are vested and exercisable. All of our options became fully expensed in 2007. The following table sets forth the summary of option activity under our stock option program for the sixnine months ended JuneSeptember 30, 2008:


  
Options
  
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term (years)
 
Aggregate
Intrinsic
Value
          
Options outstanding, January 1, 2008  77,300  $12.92    
Granted  -   -    
Exercised  (3,750)  12.90    
Forfeited/expired  -   -    
Options outstanding and exercisable, June 30, 2008  73,550   12.93 4.00$1,977,000

   Options  Weighted
Average
Exercise
Price		  Weighted
Average
Remaining
Contractual
Term (years)		  Aggregate
Intrinsic
Value

Options outstanding, January 1, 2008

  77,300  $12.92    

Granted

  —     —      

Exercised

  (16,150)  12.90    

Forfeited/expired

  —     —      
         

Options outstanding and exercisable, September 30, 2008

  61,150   12.93  3.75  $2,108,000
         

The total intrinsic value of options exercised during the three months ended JuneSeptember 30, 2008 and 2007 was $83,000$531,000 and $260,000,$541,000, respectively. Options exercised represent newly issued shares.


10

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS---STATEMENTS—(Continued)

(Unaudited)

6. SEGMENT REPORTING:


We operate two segments: the Westwood Management segment and the Westwood Trust segment. These segments are managed separately based on types of products and services offered and their related client bases. We evaluate the performance of our segments based primarily on income before income taxes. The entity Westwood Holdings, the parent company of Westwood Management and Westwood Trust, does not have revenues or employees and is the entity in which we record the expense for stock based compensation.

Westwood Management

Westwood Management provides investment advisory services to corporate pension funds, public retirement plans, endowments, foundations and the WHG Funds, as well as investment subadvisory services to mutual funds and clients of Westwood Trust.

Westwood Trust

Westwood Trust provides trust and custodial services and participation in common trust funds that it sponsors to institutions and high net worth individuals.

All segment accounting policies are the same as those described in the summary of significant accounting policies. Intersegment balances that eliminate in consolidation have been applied to the appropriate segment.


  
Westwood
Management
  
Westwood
Trust
  
Westwood
Holdings
  
Eliminations
  
Consolidated
 
  (in thousands)
Three months ended June 30, 2008             
Net revenues from external sources
 $6,956  $2,695  $-  $-  $9,651 
Net intersegment revenues
  948   2   -   (950)  - 
Income before income taxes
  3,944   596   (1,942)  -   2,598 
Segment assets
  31,023   4,531   3,673   -   39,227 
Segment goodwill
  1,790   512   -   -   2,302 
                     
Three months ended June 30, 2007                 
Net revenues from external sources
 $5,397  $2,560  $-  $-  $7,957 
Net intersegment revenues
  935   2   -   (937)  - 
Income before income taxes
  2,948   654   (1,361)  -   2,241 
Segment assets
  23,817   4,513   3,237   -   31,567 
Segment goodwill
  1,790   512   -   -   2,302 

  
Westwood
Management
  
Westwood
Trust
  
Westwood
Holdings
  
Eliminations
  
Consolidated
 
  (in thousands)
Six months ended June 30, 2008             
Net revenues from external sources
 $13,307  $5,471  $-  $-  $18,778 
Net intersegment revenues
  1,954   4   -   (1,958)  - 
Income before income taxes
  7,493   1,269   (3,151)  -   5,611 
Segment assets
  31,023   4,531   3,673   -   39,227 
Segment goodwill
  1,790   512   -   -   2,302 
                     
Six months ended June 30, 2007                 
Net revenues from external sources
 $10,335  $4,975  $-  $-  $15,310 
Net intersegment revenues
  1,846   3   -   (1,849)  - 
Income before income taxes
  5,629   1,210   (2,259)  -   4,580 
Segment assets
  23,817   4,513   3,237   -   31,567 
Segment goodwill
  1,790   512   -   -   2,302 
11

   Westwood
Management		  Westwood
Trust		  Westwood
Holdings		  Eliminations  Consolidated
   (in thousands)

Three months ended September 30, 2008

        

Net revenues from external sources

  $7,227  $2,865  $—    $—    $10,092

Net intersegment revenues

   986   2   —     (988)  —  

Income before income taxes

   4,015   524   (1,775)  —     2,764

Segment assets

   31,855   4,506   4,387   —     40,748

Segment goodwill

   1,790   512   —     —     2,302

Three months ended September 30, 2007

        

Net revenues from external sources

  $6,023  $2,716  $—    $—    $8,739

Net intersegment revenues

   965   1   —     (966)  —  

Income before income taxes

   3,453   724   (1,538)  —     2,639

Segment assets

   23,106   4,411   5,958   —     33,475

Segment goodwill

   1,790   512   —     —     2,302
   Westwood
Management		  Westwood
Trust		  Westwood
Holdings		  Eliminations  Consolidated
   (in thousands)

Nine months ended September 30, 2008

        

Net revenues from external sources

  $20,534  $8,336  $—    $—    $28,870

Net intersegment revenues

   2,940   6   —     (2,946)  —  

Income before income taxes

   11,508   1,794   (4,927)  —     8,375

Segment assets

   31,855   4,506   4,387   —     40,748

Segment goodwill

   1,790   512   —     —     2,302

Nine months ended September 30, 2007

        

Net revenues from external sources

  $16,358  $7,691  $—    $—    $24,049

Net intersegment revenues

   2,811   4   —     (2,815)  —  

Income before income taxes

   9,082   1,934   (3,797)  —     7,219

Segment assets

   23,106   4,411   5,958   —     33,475

Segment goodwill

   1,790   512   —     —     2,302

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Forward-Looking Statements

Statements in this report that are not purely historical facts, including statements about our expected future financial position, results of operations or cash flows, as well as other statements including words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “should,” “could,” “goal,” “target,” “designed,” “on track,” “comfortable with,” “optimistic” and other similar expressions, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results and the timing of some events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including, without limitation, the risks described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007 filed with the SEC, and those set forth below:

our ability to identify and successfully market services that appeal to our customers;

the significant concentration of our revenues in four of our customers;

■  our ability to identify and successfully market services that appeal to our customers;

our relationships with investment consulting firms;

our relationships with current and potential customers;

■  the significant concentration of our revenues in four of our customers;

our ability to retain qualified personnel;

our ability to successfully develop and market new asset classes;

■  our relationships with investment consulting firms;

our ability to maintain our fee structure in light of competitive fee pressures;

competition in the marketplace;

■  our relationships with current and potential customers;

downturn in the financial markets;

the passage of legislation adversely affecting the financial services industries;

■  our ability to retain qualified personnel;

interest rates;

changes in our effective tax rate;

■  our ability to successfully develop and market new asset classes;

our ability to maintain an effective system of internal controls; and

the other risks detailed from time to time in our SEC reports.

■  our ability to maintain our fee structure in light of competitive fee pressures;
■  competition in the marketplace;
■  downturn in the financial markets;
■  the passage of legislation adversely affecting the financial services industries;
■  interest rates;
■  changes in our effective tax rate;
■  our ability to maintain an effective system of internal controls; and
■  the other risks detailed from time to time in our SEC reports.

You should not unduly rely on these forward-looking statements, which speak only as of the date of this report. Except as required by law, we are not obligated to publicly release any revisions to these forward-looking statements to reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events.

Overview

We manage investment assets and provide services for our clients through our two subsidiaries, Westwood Management and Westwood Trust. Westwood Management provides investment advisory services to corporate pension funds, public retirement plans, endowments, foundations and a family of mutual funds, which we call the WHG Funds, as well as investment subadvisory services to other mutual funds and clients of Westwood Trust. Westwood Trust provides trust and custodial services and participation in common trust funds that it sponsors to institutions and high net worth individuals. Our revenues are generally derived from fees based on a percentage of assets under management. We have been providing investment advisory services since 1983 and, according to recognized industry sources, including Morningstar, Inc., when measured over multi-year periods ten years and longer, our principal asset classes have consistently ranked above the median in performance within their peer groups. Percentages stated in this section are rounded to the nearest whole percent.

12

Revenues

We derive our revenues from investment advisory fees, trust fees, and other revenues. Our advisory fees are generated by Westwood Management, which manages its clients'clients’ accounts under investment advisory and

subadvisory agreements. Advisory fees are calculated based on a percentage of assets under management, and are paid in accordance with the terms of the agreements. Westwood Management'sManagement’s advisory fees are paid quarterly in advance based on the assets under management on the last day of the preceding quarter, quarterly in arrears based on the assets under management on the last day of the quarter just ended, or are based on a daily or monthly analysis of assets under management for the stated period. Westwood Management recognizes revenues as services are rendered. A limited number of our clients have a performance-based fee component in their contract, which would pay us an additional fee if we outperform a specified index over a specific period of time. We would record as revenue any performance-based fees earned at the end of the performance period. We recognized a performance-based fee in the second quarter of 2008 related to a client that has an annual performance period that ends in June. In addition, as of JuneSeptember 30, 2008, we were on track to earn a performance-based fee in 2008 as we did in the fourth quarter of 2007 from a client that has an annual performance period that ends in December. The exact amount of this fee will remain uncertain and cannotwill not be recorded as revenue until the performance period ends on December 31, 2008. Since most of our advance paying clients’ billing periods coincide with the calendar quarter to which payment relates, the revenue related to those clients is fully recognized within the quarter; consequently, there is not a significant amount of deferred revenue contained in our financial statements.

Our trust fees are generated by Westwood Trust pursuant to trust or custodial agreements. Trust fees are separately negotiated with each client and are generally based on a percentage of assets under management, which in turn is influenced by the complexity of the operations of the trust and the services provided. Westwood Trust also provides trust services to a small number of clients on a fixed fee basis. Most trust fees are paid quarterly in advance and are recognized as services are rendered. Since the majority of Westwood Trusts’ advance paying clients’ billing periods coincide with the calendar quarter to which payment relates, the revenue related to those clients is fully recognized within the quarter; consequently, there is not a significant amount of deferred revenue contained in our financial statements.

Our other revenues generally consist of interest and investment income and unrealized gains and losses on our investments. We invest most of our cash in money market funds,U.S. Treasury Bills, although we also invest smaller amounts in bondsmoney market funds and equity instruments.

Assets Under Management

Assets under management increased $900$600 million to $7.7$8.3 billion at JuneSeptember 30, 2008, compared with $6.8$7.7 billion at JuneSeptember 30, 2007. Average assets under management for the secondthird quarter of 2008 were $7.6$8.0 billion compared to $6.5$7.3 billion for the secondthird quarter of 2007, an increase of 17%10%. The increase in period ending assets under management was principally attributable to asset inflows from new and existing clients and was partially offset by market depreciation of assets under management and the withdrawal of assets by certain clients. The following table sets forth Westwood Management’s and Westwood Trust’s assets under management as of JuneSeptember 30, 2008 and 2007:

13

  
As of June 30,
(in millions)
  
% Change
 
  
2008
  
2007
  
June 30, 2008 vs.
June 30, 2007
 
Westwood Management         
Separate Accounts $3,725  $3,047   22%
Subadvisory  1,068   1,042   3 
WHG Funds  319   223   43 
Westwood Funds  357   388   (8)
Managed Accounts  493   401   23 
Total  5,962   5,101   17 
             
Westwood Trust            
Commingled Funds  1,395   1,355   3 
Private Accounts  304   251   21 
Agency/Custody Accounts  86   140   (39)
Total  1,785   1,746   2 
             
Total Assets Under Management $7,747  $6,847   13%

______________

   As of September 30,
(in millions)		  % Change
September 30, 2008
vs.
September 30, 2007		 
   2008  2007  

Westwood Management

      

Separate Accounts

  $3,613  $3,701  (2)%

Subadvisory

   1,756   1,062  65 

WHG Funds

   322   228  41 

Westwood Funds

   335   363  (8)

Managed Accounts

   484   484  —   
            

Total

   6,510   5,838  12 

Westwood Trust

      

Commingled Funds

   1,362   1,400  (3)

Private Accounts

   304   331  (8)

Agency/Custody Accounts

   108   123  (12)
            

Total

   1,774   1,854  (4)

Total Assets Under Management

  $8,284  $7,692  8%
            

Westwood Management. In the preceding table, "Separate Accounts"“Separate Accounts” represent corporate pension and profit sharing plans, public employee retirement accounts, Taft Hartley plans, endowments, foundations and individuals. "Subadvisory"“Subadvisory” represents relationships where Westwood Management provides investment management services for funds offered by other financial institutions. “WHG Funds” represent the family of mutual funds for which Westwood Management serves as advisor. "Westwood Funds"“Westwood Funds” represent the family of mutual funds for which Westwood Management serves as subadvisor. "Managed Accounts"“Managed Accounts” represent relationships with brokerage firms and other registered investment advisors who offer Westwood Management'sManagement’s products to their customers.

Westwood Trust. In the preceding table, "Commingled Funds"“Commingled Funds” represent funds that have been established to facilitate investment of fiduciary funds of multiple clients by combining assets into a single trust for taxable and tax-exempt entities. "Private Accounts"“Private Accounts” represent discretionary accounts where Westwood Trust acts as trustee or agent and has full investment discretion. "Agency/“Agency/Custody Accounts"Accounts” represent non-discretionary accounts in which Westwood Trust provides agent or custodial services, but does not act in an advisory capacity. For certain assets in this category, Westwood Trust provides limited custody services for a minimal or zero fee currently, but views these assets as potentially converting to fee-generating managed assets in the future. As an example, some assets in this category consist of low-basis stock that is being held in custody for clients currently, but may transfer to fee-generating managed assets during an intergenerational transfer of wealth at some point in the future.

14

Results of Operations

The following table (dollars in thousands) and discussion of our results of operations for the three and nine months ended JuneSeptember 30, 2008 is based upon data derived from the consolidated statements of income contained in our consolidated financial statements and should be read in conjunction with these statements, which are included elsewhere in this quarterly report.


              % Change 
  
Three months ended
June 30,
  
Six months ended
June 30,
  
Three months ended
June 30, 2008 vs.
  
Six months ended
June 30, 2008 vs.
 
  2008  2007  2008  2007  June 30, 2007  June 30, 2007 
Revenues                  
Advisory fees                  
  Asset-based $6,606  $5,003  $12,996  $9,586   32%  36%
  Performance-based  80   -   80   -   -   - 
Trust fees  2,677   2,516   5,425   4,892   6   11 
Other revenues  288   438   277   832   (34)  (67)
Total revenues  9,651   7,957   18,778   15,310   21   23 
                         
Expenses                        
Employee compensation and benefits  5,352   4,266   10,014   7,975   25   26 
Sales and marketing  195   147   332   268   33   24 
WHG mutual funds  106   66   141   101   61   40 
Information technology  266   249   527   482   7   9 
Professional services  439   379   887   779   16   14 
General and administrative  695   609   1,266   1,125   14   13 
Total expenses  7,053   5,716   13,167   10,730   23   23 
Income before income taxes  2,598   2,241   5,611   4,580   16   23 
Provision for income taxes  867   768   1,925   1,600   13   20 
Net income $1,731  $1,473  $3,686  $2,980   18%  24%


               % Change 
   Three months ended
September 30,		  Nine months ended
September 30,		  Three months ended
September 30, 2008
vs.
September 30, 2007		  Nine months ended
September 30, 2008
vs.
September 30, 2007		 
   2008  2007  2008  2007   

Revenues

          

Advisory fees

          

Asset-based

  $7,381  $5,782  $20,377  $15,368  28% 33%

Performance-based

   —     —     80   —    —    —   

Trust fees

   2,845   2,666   8,270   7,558  7  9 

Other revenues

   (134)  291   143   1,123  (146) (87)
                       

Total revenues

   10,092   8,739   28,870   24,049  15  20 
                       

Expenses

          

Employee compensation and benefits

   5,498   4,669   15,512   12,644  18  23 

Sales and marketing

   263   164   595   432  60  38 

WHG mutual funds

   94   43   235   144  119  63 

Information technology

   296   239   823   721  24  14 

Professional services

   450   420   1,337   1,199  7  12 

General and administrative

   727   565   1,993   1,690  29  18 
                       

Total expenses

   7,328   6,100   20,495   16,830  20  22 
                       

Income before income taxes

   2,764   2,639   8,375   7,219  5  16 

Provision for income taxes

   1,028   957   2,953   2,557  7  15 
                       

Net income

  $1,736  $1,682  $5,422  $4,662  3% 16%
                       

Three months ended JuneSeptember 30, 2008 compared to three months ended JuneSeptember 30, 2007


Total Revenues. Our total revenues increased by 21%15% to $9.7$10.1 million for the three months ended JuneSeptember 30, 2008 compared with $8.0$8.7 million for the three months ended JuneSeptember 30, 2007. Asset-based advisory fees increased by 32%28% to $6.6$7.4 million for the three months ended JuneSeptember 30, 2008 compared with $5.0$5.8 million for the three months ended JuneSeptember 30, 2007, as a result of increased average assets under management by Westwood Management due to inflows from new and existing clients as well as higher average fee realization, which was partially offset by the withdrawal of assets by certain clients and the market depreciation of assets.  Performance-based advisory fees were $80,000 for the three months ended June 30, 2008 compared to zero in the prior year quarter, as a result of a performance-based fee earned in the annual measurement period ended June 30, 2008.  Trust fees increased by 6% to $2.7 million for the three months ended June 30, 2008 compared with $2.5 million for the three months ended June 30, 2007, as a result of increased average assets under management by Westwood Trust due to inflows from new and existing clients, offset in part by market depreciation of assets and the withdrawal of assets by certain clients. Trust fees increased by 7% to $2.8 million for the three months ended September 30, 2008 compared with $2.7 million for the three months ended September 30, 2007, as a result of higher average fee realization. Average assets under management by Westwood Trust declined slightly as market depreciation of assets offset inflows from new and existing clients. Other revenues, which generally consist of interest and investment income, decreased by 34%146% to $288,000$(134,000) for the three months ended JuneSeptember 30, 2008 compared with $438,000$291,000 for the three months ended JuneSeptember 30, 2007. Other revenues are presented net and decreased primarily due to a decrease of $228,000$290,000 in realized and unrealized gains/losses on investments and a decrease of $81,000$128,000 in interest income.  An increase of $159,000 inand dividend income partially offset these decreases.  Dividend income in the second quarter 2008 includesdue to lower interest rates as well as a $200,000 dividend from Teton Advisors (formerly Gabelli Advisers).shift into lower yielding U.S. Treasury Bills.


Employee Compensation and Benefits. Employee compensation and benefits costs generally consist of salaries, incentive compensation, equity based compensation expense and benefits. Employee compensation and benefits increased by 25%18% to $5.4$5.5 million for the three months ended JuneSeptember 30, 2008 compared with $4.3$4.7 million for the three months ended JuneSeptember 30, 2007. This increase was due primarily to an increase of approximately $580,000 in restricted stock expense due to additional restricted stock grants in July 2007 and February 2008, increased salary and benefits expense due to increased headcount and salary increases for certain employees, an increase of approximately $238,000 in restricted stock expense due to additional employee restricted stock grants in February 2008 and independent director grants in July 2008, increased payroll taxes due on vested restricted shares, increased incentive compensation expense due to higher pretax income and increased 401(k) match expense related to increased salaries and incentive compensation.health insurance costs. Beginning in 2008, employee restricted stock grants were awarded in the first quarter of the year in order to synchronize the payment of cash incentive bonus awards with theemployees’ personal tax liabilityliabilities resulting from restricted stock vesting. In the second quarters of 2008 and 2007, we concluded that it was probable that we would meet the

performance goals required in order for the applicable percentage of the performance-based restricted shares awarded to our Chief Executive Officer and Chief Investment Officer to vest in each year. In the current and prior year third quarters, we reaffirmed our conclusions that it was probable that these performance-based restricted shares would vest. As a result, we recognized expense of approximately $470,000 in each of the second and third quarters of both the current and prior year second quarters related to these performance-based restricted stock grants. We expect to recognize a similar amount in the third and fourth quartersquarter of 2008 related to these performance-based restricted stock grants. The conclusion related to the 2008 expense is based, in part, on our belief that it is likely that we will recognize a performance-based fee in the fourth quarter of 2008 related to a client that has an annual performance period that ends in December. As stated above, the exact amount of this fee will remain uncertain and we will not record it until the related performance period ends on December 31, 2008. We had 5763 full-time employees as of JuneSeptember 30, 2008 compared to 5051 full-time employees as of JuneSeptember 30, 2007.

15

Sales and Marketing. Sales and marketing costs generally consist of costs associated with our marketing efforts, including travel and entertainment, direct marketing and advertising costs. Sales and marketing costs increased by 33%60% to $195,000$263,000 for the three months ended JuneSeptember 30, 2008 compared with $147,000$164,000 for the three months ended JuneSeptember 30, 2007. The increase is primarily the result of increased travel and direct marketing and travel expenses.

WHG Mutual Funds. WHG Mutual Funds expenses generally consist of costs associated with our marketing, distribution and administration efforts related to the WHG Funds. WHG Mutual Funds expenses increased by 61%119% to $106,000$94,000 for the three months ended JuneSeptember 30, 2008 compared with $66,000$43,000 for the three months ended JuneSeptember 30, 2007.2007 due to increased shareholder servicing fees related to the funds. Decreased fund expense reimbursements due to a higher level of assets in the funds werepartially offset by increased shareholder servicing fees related to the funds.this increase.

Information Technology. Information technology expenses are generally costs associated with proprietary investment research tools, maintenance and support, computing hardware, software licenses, telecommunications and other related costs. Information technology costs increased by 7%24% to $266,000$296,000 for the three months ended JuneSeptember 30, 2008 compared with $249,000$239,000 for the three months ended JuneSeptember 30, 2007. The increase is primarily due to increased expenses for support services, research tools and quotations.  Decreases in data fees, equipment rental expensesoftware, quotations, telephone costs and depreciation expense partially offset these increases.depreciation.

Professional Services. Professional services expenses generally consist of costs associated with subadvisory fees, audit, legal and other professional services. Professional services expenses increased by 16%7% to $439,000$450,000 for the three months ended JuneSeptember 30, 2008 compared with $379,000$420,000 for the three months ended JuneSeptember 30, 2007. The increase is primarily due to higher advisory fees paid to external subadvisors due to increased average assets under management in international equity, growth and high-yield common trust funds sponsored by Westwood Trust and increased public relations fees. A decrease in legal expenses partially offset these increases.

General and Administrative. General and administrative expenses generally consist of costs associated with the lease of our office space, investor relations, licenses and fees, depreciation, insurance, office supplies and other miscellaneous expenses. General and administrative expenses increased by 14%29% to $695,000$727,000 for the three months ended JuneSeptember 30, 2008 compared with $609,000$565,000 for the three months ended JuneSeptember 30, 2007. The increase is primarily due to increases in miscellaneous expenses, custody expense, director’s fees,charitable contributions, office supplies and occupancy expenses and charitable contributions.expenses. These increases were partially offset by decreased insurance expense.decreases in other miscellaneous expenses.

Provision for Income Tax Expense. Provision for income tax expenses increased by 13%7% to $867,000$1,028,000 for the three months ended JuneSeptember 30, 2008 compared with $768,000$957,000 for the three months ended JuneSeptember 30, 2007 as a result of increased income. The effective tax rate was 33.4%37.2% for the three months ended JuneSeptember 30, 2008 compared to 34.3%36.3% for the three months ended JuneSeptember 30, 2007.

Six

Nine months ended JuneSeptember 30, 2008 compared to sixnine months ended JuneSeptember 30, 2007

Total Revenues. Our total revenues increased by 23%20% to $18.8$28.9 million for the sixnine months ended JuneSeptember 30, 2008 compared with $15.3$24.0 million for the sixnine months ended JuneSeptember 30, 2007. Asset-based advisory fees increased by 36%33% to $13.0$20.4 million for the sixnine months ended JuneSeptember 30, 2008 compared with $9.6$15.4 million for the sixnine months ended JuneSeptember 30, 2007, as a result of increased average assets under

management by Westwood Management due to inflows from new and existing clients as well as higher average fee realization, partially offset by the market depreciation of assets and the withdrawal of assets by certain clients and the market depreciation of assets.clients. Performance-based advisory fees were $80,000 for the sixnine months ended JuneSeptember 30, 2008 compared to zero for the first sixnine months of the prior year, as a result of a performance-based fee earned in the annual measurement period ended June 30, 2008. Trust fees increased by 11%9% to $5.4$8.3 million for the sixnine months ended JuneSeptember 30, 2008 compared with $4.9$7.6 million for the sixnine months ended JuneSeptember 30, 2007, as a result of increasedhigher average assets under management by Westwood Trust due to inflows from new clients, offset in part by market depreciation of assets and the withdrawal of assets by certain clients.fee realization. Other revenues which generally consist of interest and investment income, decreased by 67%87% to $277,000$143,000 for the sixnine months ended JuneSeptember 30, 2008 compared with $832,000$1,123,000 for the sixnine months ended JuneSeptember 30, 2007. Other revenues decreased primarily due to a decrease of $574,000$865,000 in realized and unrealized gains/losses on investments and a decrease of $95,000$195,000 in interest income.income due to lower interest rates and a shift into lower yielding U.S. Treasury Bills. An increase of $115,000$86,000 in dividend income partially offset these decreases.

16

Employee Compensation and Benefits. Employee compensation and benefits increased by 26%23% to $10.0$15.5 million for the sixnine months ended JuneSeptember 30, 2008 compared with $8.0$12.6 million for the sixnine months ended JuneSeptember 30, 2007. This increase was due primarily to an increase of approximately $891,000$1.1 million in restricted stock expense due to additional employee and independent director restricted stock grants in July 2007, employee grants in February 2008 and Februaryindependent director grants in July 2008, increased salary and benefits expense due to increased headcount and salary increases for certain employees, increased incentive compensation expense due to higher pretax income, increased payroll taxes due to vested restricted stock, increased health insurance expense, increased 401(k) match expense related to increased salaries and incentive compensation expense and increased profit sharing expense and increased health insurance costs.expense. Beginning in 2008, employee restricted stock grants were awarded in the first quarter of the year in order to synchronize the payment of cash incentive bonus awards with theemployees’ personal tax liabilityliabilities resulting from restricted stock vesting. We had 5763 full-time employees as of JuneSeptember 30, 2008 compared to 5051 full-time employees as of JuneSeptember 30, 2007.

Sales and Marketing. Sales and marketing costs increased by 24%38% to $332,000$595,000 for the sixnine months ended JuneSeptember 30, 2008 compared with $268,000$432,000 for the sixnine months ended JuneSeptember 30, 2007. The increase is primarily the result of increases in travel and direct marketing travel and entertainment expenses.

WHG Mutual Funds. WHG Mutual Funds expenses increased by 40%63% to $141,000$235,000 for the sixnine months ended JuneSeptember 30, 2008 compared with $101,000$144,000 for the sixnine months ended JuneSeptember 30, 2007. Decreased fund expense reimbursements due to a higher level of assets in the funds was offset by increased shareholder servicing fees related to the funds.

Information Technology. Information technology costs increased by 9%14% to $527,000$823,000 for the sixnine months ended JuneSeptember 30, 2008 compared with $482,000$721,000 for the sixnine months ended JuneSeptember 30, 2007. The increase is primarily due to increased expenses for support services, software licenses and maintenance, quotations, research tools and quotations.telephone expense. Decreases in data fees and equipment rental expense and depreciation expense partially offset these increases.

Professional Services. Professional services expenses increased by 14%12% to $887,000$1,337,000 for the sixnine months ended JuneSeptember 30, 2008 compared with $779,000$1,199,000 for the sixnine months ended JuneSeptember 30, 2007. The increase is primarily due to higher advisory fees paid to external subadvisors due to increased average assets under management in international equity, growth and high-yield common trust funds sponsored by Westwood Trust and increased professional fees related to new products and human resources. Decreases in legal expenses partially offset these increases.

General and Administrative. General and administrative expenses increased by 13%18% to $1.3$2.0 million for the sixnine months ended JuneSeptember 30, 2008 compared with $1.1$1.7 million for the sixnine months ended JuneSeptember 30, 2007. The increase is primarily due to increases in custody expense, charitable contributions, miscellaneous expenses, director’s fees, occupancy expenses, charitable contributions, office supplies expense investor relations expense and custody expense.employee training and seminar expenses. These increases were partially offset by decreases in insurance expense.

Provision for Income Tax Expense. Provision for income tax expenses increased by 20%15% to $1.9$3.0 million for the sixnine months ended JuneSeptember 30, 2008 compared with $1.6$2.6 million for the sixnine months ended JuneSeptember 30, 2007 as a result of increased income. The effective tax rate was 34.3%35.3% for the sixnine months ended JuneSeptember 30, 2008 compared to 34.9%35.4% for the sixnine months ended JuneSeptember 30, 2007.

Supplemental Financial Information

As supplemental information, we are providing non-generally accepted accounting principles (“non-GAAP”) performance measures that we refer to as cash earnings and cash expenses. We provide these measures in addition to, but not as a substitute for, net income and total expenses, which are reported on a U.S. generally accepted accounting principles (“GAAP”) basis. Management and our board of directors review cash earnings and cash expenses to evaluate our ongoing performance, allocate resources and review dividend policy. We believe that these non-GAAP performance measures, while not substitutes for GAAP net income and total expenses, are useful for both management and investors to evaluate our underlying operating and financial performance and our available resources. We do not advocate that investors consider these non-GAAP measures without considering financial information prepared in accordance with GAAP.


17

In calculating cash earnings, we add to net income the non-cash expense associated with equity-based compensation awards of restricted stock and stock options. We define cash expenses as total expenses less non-cash equity-based compensation expense. Although depreciation on fixed assets is a non-cash expense, we do not add it back when calculating cash earnings or deduct it when calculating cash expenses because depreciation charges represent a decline in the value of the related assets that will ultimately require replacement. In addition, we do not adjust cash earnings for tax deductions related to restricted stock expense.


Our cash earnings increased by 30%9% to $3.7$3.5 million for the three months ended JuneSeptember 30, 2008 compared with $2.8$3.2 million for the three months ended JuneSeptember 30, 2007 primarily due to a 21%15% increase in total revenues. For the sixnine months ended JuneSeptember 30, 2008, cash earnings increased by 30%22% to $6.8$10.3 million compared with $5.2$8.5 million for he sixnine months ended JuneSeptember 30, 2007, primarily due to a 23%20% increase in total revenues.


The following tables provide a reconciliation of net income to cash earnings and total expenses to cash expenses (in thousands):


  Three Months Ended June 30  
%
 
  2008  2007  Change 
Net Income                                                                              $1,731  $1,473   18%
Add:  Restricted stock expense                                                                               1,942   1,362   43 
Cash earnings                                                                              $3,673  $2,835   30 
             
Total expenses                                                                              $7,053  $5,716   23 
Less: Restricted stock expense                                                                               (1,942)  (1,362)  43 
Cash expenses                                                                              $5,111  $4,354   17%

  
Six Months Ended
June 30
  
%
 
  2008  2007  Change 
Net Income                                                                              $3,686  $2,980   24%
Add:  Restricted stock expense                                                                               3,151   2,260   39 
Cash earnings                                                                              $6,837  $5,240   30 
             
Total expenses                                                                              $13,167  $10,730   23 
Less: Restricted stock expense                                                                               (3,151)  (2,260)  39 
Cash expenses                                                                              $10,016  $8,470   18%


   Three Months Ended
September 30		  %
Change		 
   2008  2007  

Net Income

  $1,736  $1,682  3%

Add: Restricted stock expense

   1,775   1,537  15 
            

Cash earnings

  $3,511  $3,219  9 
            

Total expenses

  $7,328  $6,100  20 

Less: Restricted stock expense

   (1,775)  (1,537) 15 
            

Cash expenses

  $5,553  $4,563  22%
            
   Nine Months Ended
September 30		  %
Change		 
   2008  2007  

Net Income

  $5,422  $4,662  16%

Add: Restricted stock expense

   4,927   3,797  30 
            

Cash earnings

  $10,349  $8,459  22 
            

Total expenses

  $20,495  $16,830  22 

Less: Restricted stock expense

   (4,927)  (3,797) 30 
            

Cash expenses

  $15,568  $13,033  19%
            

Liquidity and Capital Resources


We fund our operations and cash requirements with cash generated from operating activities. As of JuneSeptember 30, 2008, we had no long-term debt. The changes in net cash provided by operating activities generally reflect the changes in earnings plus the effect of non-cash items and changes in working capital. Changes in

working capital, especially accounts receivable and accounts payable, are generally the result of timing differences between collection of fees billed and payment of operating expenses.


During the sixnine months ended JuneSeptember 30, 2008, cash flow provided byused in operating activities, principally our investment advisory business, was $5.7$5.2 million. The cash we generated from operations was more than offset by the net purchase of trading securities that resulted from a shift into U.S. Treasury Bills. At JuneSeptember 30, 2008, we had working capital of $28.9$30.4 million. Cash flow used inprovided by investing activities during the sixnine months ended JuneSeptember 30, 2008 of $1.1$9.5 million was related to net purchasessales of investments, andwhich was partially offset by purchases of fixed assets. Cash flow used in financing activities during the sixnine months ended JuneSeptember 30, 2008 of $4.1$5.9 million was due to cash dividends paid to our stockholders and the purchase of treasury shares. Those cash uses were partially offset by tax benefits from stock-based compensation.


18

We had cash and investments of $28.0$28.5 million as of JuneSeptember 30, 2008 and $26.7 million as of December 31, 2007. Dividends payable were $2.1 million and $1.7 million as of JuneSeptember 30, 2008 and December 31, 2007, respectively. We had no liabilities for borrowed money at JuneSeptember 30, 2008.


Our future liquidity and capital requirements will depend upon numerous factors, including our results of operations, the timing and magnitude of capital expenditures and strategic initiatives (if any) and our dividend policy. We believe that current cash and short-term investment balances and cash generated from operations will be sufficient to meet the operating and capital requirements of our ordinary business operations through at least the next twelve months. However, there can be no assurance that we will not require additional financing within this time frame. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary. The failure to raise needed capital on attractive terms, if at all, could have a material adverse effect on our business, financial condition and results of operations.


Contractual Obligations


There have been no significant changes in our contractual obligations since December 31, 2007.


Recent Accounting Pronouncements


In June 2007, the FASB ratified a consensus opinion reached by the Emerging Issues Task Force (“EITF”) on EITF issue 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards.” EITF Issue 06-11 requires an employer to recognize tax benefits realized from dividend or dividend equivalents paid to employees for certain share-based payment awards as an increase to additional paid-in capital and include such amounts in the pool of excess tax benefits available to absorb future tax deficiencies on share-based payment awards. If an entity’s estimate of forfeitures increases, or if an award is no longer expected to vest, entities should reclassify the dividends or dividend equivalents paid on that award from retained earnings to compensation cost. The provisions of EITF Issue 06-11 are effective for fiscal years beginning after December 15, 2007 and interim periods within those fiscal years. We have adopted EITF Issue 06-11 and do not expect it to have a significant effect on our financial statements since we have historically accounted for the income tax benefits of dividends paid for share-based payment awards in the manner described.


In December 2007, the FASB amended SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an acquirer: (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (2) recognizes and measures the goodwill acquired in the business combination or gain from a bargain purchase; and (3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first reporting period for fiscal years beginning on or after December 15, 2008 and will have no impact on our transactions recorded to date.


In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under GAAP. The provisions of SFAS 157 are effective for fiscal years

beginning after November 15, 2007 and interim periods within those fiscal years. We adopted SFAS 157 on January 1, 2008 and have determined that SFAS 157 did not have a material impact on our financial statements.


In February 2007, the FASB issued FASB Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”), which permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of the statement is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The provisions of SFAS 159 are effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. We adopted SFAS 159 on January 1, 2008. We did not make any fair value elections upon adoption and have determined that SFAS 159 did not have a material impact on our financial statements.


19

Critical and Significant Accounting Policies and Estimates


There have been no significant changes in our critical or significant accounting policies and estimates since December 31, 2007.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We utilize various financial instruments, which entail certain inherent market risks. We do not currently participate in any hedging activities, nor do we currently utilize any derivative financial instruments. The following information describes the key aspects of certain financial instruments that have market risks.


Interest Rates and Securities Markets


Our cash equivalents and other investment instruments are exposed to financial market risk due to fluctuation in interest rates, which may affect our interest income. These instruments are not entered into for speculative trading purposes. We do not expect our interest income to be significantly affected by a sudden change in market interest rates.


The value of our assets under management is affected by changes in interest rates and fluctuations in securities markets. Since we derive a substantial portion of our revenues from investment advisory and trust fees based on the value of assets under management, our revenues may be adversely affected by changing interest rates or a decline in the prices of securities generally.



ITEM 4.  CONTROLS AND PROCEDURES

ITEM 4.CONTROLS AND PROCEDURES

Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on this evaluation, our management, including our Chief Executive Officer and our Chief Financial Officer, concluded that, as of the end of the quarter just completed, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.


For the quarter just completed, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



PART II. OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

ITEM 1.LEGAL PROCEEDINGS

We are subject from time to time to certain claims and legal proceedings arising in the ordinary course of our business. We do not believe the outcome of these proceedings will have a material impact on our financial position, operations or cash flow.


20

ITEM 1A.  RISK FACTORS

ITEM 1A.RISK FACTORS

We face a number of significant risks and uncertainties in our business, which are detailed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007 and summarized in this report under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These risks and uncertainties may affect our current position and future prospects, and should be considered carefully in evaluating us and an investment in our common stock.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

stock.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Annual Meetingfollowing table displays information with respect to the treasury shares we purchased during the three months ended September 30, 2008.

Period

  Total
number of
shares
purchased		  Average
price paid
per share		  Total number
of shares
purchased as
part of publicly
announced
plans or
programs		  Maximum
number of
shares that
may yet be
purchased
under the
plans or
programs

July 1 through July 31, 2008

  39,070  $41.66  —    —  

August 1 through August 31, 2008

  —     —    —    —  

September 1 through September 30, 2008

  —     —    —    —  
             

Total

  39,070  $41.66  —    —  

Note: The treasury shares were purchased from Westwood employees at the market close price on the date of Stockholders of Westwood Holdings Group, Inc. was held on April 24, 2008purchase in Dallas, Texas,order to assist our employees in satisfying their tax obligations from restricted shares that vested. We anticipate purchasing additional treasury shares in subsequent years, for the purpose of considering and acting upon the following:


(a)Election of directors.  The stockholders elected the following directors to hold office until the next annual meeting or until their respective successors shall have been duly elected and qualified.

Nominee For Withheld
Susan M. Byrne 6,717,032 76,204
Brian O. Casey 6,767,637 25,599
Tom C. Davis 6,767,630 25,606
Richard M. Frank 6,752,717 40,519
Robert D. McTeer 6,767,530 25,706
Frederick R. Meyer 6,752,175 41,061
Jon L. Mosle, Jr. 6,766,756 26,480
Geoffrey Norman 6,752,291 40,945
Raymond E. Wooldridge 6,752,430 40,806

(b)  The ratification of Grant Thornton LLP as our independent auditors for the year ending December 31, 2008.
     
For Against Abstain
6,785,275 7,050 911

(c)  Approval of Amendment to Amended and Restated Certificate of Incorporation to Increase Authorized Common Shares.
For Against Abstain
5,974,892 815,553 2,791

same purpose.

ITEM 6.  EXHIBITS
ITEM 6.EXHIBITS

31.1Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a)
31.2Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a)
32.1*Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*Pursuant to Item 601(b)(32) of SEC Regulation S-K, these exhibits are furnished rather than filed with this report.

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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: JulyOctober 22, 2008WESTWOOD HOLDINGS GROUP, INC.
 By:

/s/ Brian O. Casey

 
 Brian O. Casey
 
 Chief Executive Officer

 By:

/s/ William R. Hardcastle, Jr.

 
William R. Hardcastle, Jr.
 
 Chief Financial Officer

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