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

For the quarterly period ended September 30, ~~2017~~2019



¨☐	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)



~~DELAWARE~~Delaware		75-2969997
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

200 CRESCENT COURT, SUITE 1200
DALLAS, ~~TEXAS~~	Texas	75201
(Address of principal executive office)		(Zip Code)

(214) 756-6900

(Registrant’s telephone number, including area code)

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

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common stock, par value $0.01 per share	WHG	New York Stock Exchange

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.Yes☒No ☐

~~Yes~~ xNo ¨

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

Yesx☒No ¨☐

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



Large accelerated filer	¨☐	Accelerated filer	x☒

Non-accelerated filer	¨ ~~(Do not check if a smaller reporting company)~~ ☐	Smaller reporting company	¨☐

		Emerging growth company	¨ ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised accounting standards provided pursuant to Section 13(a) of the Exchange Act.			¨ ☐

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

Yes ¨☐No x☒

Shares of common stock, par value $0.01 per share, outstanding as of October ~~13, 2017: 8,884,421.~~25, 2019: 8,863,674.

WESTWOOD HOLDINGS GROUP, INC.

INDEX



PART I	FINANCIAL INFORMATION	PAGE

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of September 30, ~~2017~~2019 and December 31, ~~2016~~2018	1

	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, ~~2017~~2019 and ~~2016~~2018	2

	Condensed Consolidated Statement of Stockholders’ Equity for the Three and Nine Months Ended September 30, ~~2017~~2019 and 2018	3

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2017~~2019 and ~~2016~~2018	45

	Notes to Condensed Consolidated Financial Statements	56

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1923

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2832

Item 4.	Controls and Procedures	2832

PART II	OTHER INFORMATION	2833

Item 1.	Legal Proceedings	2833

Item 1A.	Risk Factors	2833

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2933

Item 6.	Exhibits	3034

Signatures		3135

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share amounts)

(Unaudited)


	September 30, 2017			December 31, 2016			September 30, 2019			December 31, 2018

ASSETS
Current assets:
Cash and cash equivalents	$	51,436		$	33,679		$	58,372		$	52,449
Accounts receivable	22,163			23,429			12,872			18,429
Investments, at fair value	48,093			56,485			42,844			65,781
Income taxes receivable	2,744			—
Prepaid income taxes							916			349
Other current assets	6,261			2,364			2,657			2,731
Total current assets	130,697			115,957			117,661			139,739
Investments							5,425			5,425
Noncurrent investments at fair value							3,020			—
Goodwill	27,144			27,144			19,804			19,804
Deferred income taxes	9,473			10,903			3,540			5,102
Operating lease right-of-use assets							7,851			8,698
Intangible assets, net	19,945			21,394			15,701			15,961
Property and equipment, net of accumulated depreciation of $5,354 and $4,590	4,103			4,280
Property and equipment, net of accumulated depreciation of $7,144 and $6,462							4,311			4,454
Total assets	$	191,362		$	179,678		$	177,313		$	199,183
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	2,851		$	2,641		$	2,040		$	2,518
Accrued litigation settlement	8,018			—
Dividends payable	6,666			6,679			7,290			7,710
Compensation and benefits payable	14,126			17,200			6,858			15,102
Operating lease liabilities							1,554			1,432
Income taxes payable	722			3,148			254			365
Total current liabilities	32,383			29,668			17,996			27,127
Accrued dividends	1,495			1,767			1,100			1,576
Deferred rent	2,055			2,174
Noncurrent operating lease liabilities							8,158			9,331
Total liabilities	35,933			33,609			27,254			38,034
Commitments and contingencies (Note 12)
Commitments and contingencies (Note 13)
Stockholders' Equity:
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 9,986,076 and outstanding 8,884,421 shares at September 30, 2017; issued 9,801,938 and outstanding 8,810,375 shares at December 31, 2016	100			98
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 10,314,305 and outstanding 8,906,152 shares at September 30, 2019; issued 10,182,583 and outstanding 8,904,902 shares at December 31, 2018							103			102
Additional paid-in capital	176,329			162,730			202,278			194,116
Treasury stock, at cost - 1,101,655 shares at September 30, 2017; 991,563 shares at December 31, 2016	(50,910		)	(44,353		)
Treasury stock, at cost - 1,408,152 shares at September 30, 2019; 1,277,681 shares at December 31, 2018							(63,335		)	(58,711		)
Accumulated other comprehensive loss	(1,849		)	(4,287		)	(3,799		)	(4,883		)
Retained earnings	31,759			31,881			14,812			30,525
Total stockholders' equity	155,429			146,069			150,059			161,149
Total liabilities and stockholders' equity	$	191,362		$	179,678		$	177,313		$	199,183

See ~~notes~~Notes to ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except per share data and share amounts)

(Unaudited)


	Three Months Ended September 30,					Nine Months Ended September 30,				Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017		2016		2019			2018		2019		2018
REVENUES:
Advisory fees:
Asset-based	$	25,334	$	23,447		$	73,619	$	67,928	$	13,164		$	22,023	$	44,265	$	69,979
Performance-based	—		226			1,417		635		154			—		454		2,984
Trust fees	7,858		7,690			23,570		22,798		6,281			7,191		19,264		22,265
Other, net	300		414			1,265		568		293			640		1,480		953
Total revenues	33,492		31,777			99,871		91,929		19,892			29,854		65,463		96,181
EXPENSES:
Employee compensation and benefits	15,601		15,637			48,875		47,239		12,072			14,444		38,060		46,857
Sales and marketing	457		408			1,447		1,423		506			549		1,550		1,401
Westwood mutual funds	977		755			2,749		2,282		916			979		2,423		2,966
Information technology	1,855		1,874			5,494		6,039		2,017			2,332		6,276		6,753
Professional services	1,681		1,903			4,495		4,707		940			1,372		3,258		3,677
Legal settlement	4,009		—			4,009		—
General and administrative	3,160		2,147			8,697		7,028		2,317			2,431		7,153		7,300
(Gain) loss on foreign currency transactions										(402		)	596		1,142		(823		)
Total expenses	27,740		22,724			75,766		68,718		18,366			22,703		59,862		68,131
Net operating income										1,526			7,151		5,601		28,050
Gain on sale of operations										—			—		—		524
Other income										33			—		110		—
Income before income taxes	5,752		9,053			24,105		23,211		1,559			7,151		5,711		28,574
Provision for income taxes	1,620		3,166			7,013		8,141		442			1,783		2,341		7,236
Net income	$	4,132	$	5,887		$	17,092	$	15,070	$	1,117		$	5,368	$	3,370	$	21,338
Other comprehensive income (loss):
Foreign currency translation adjustments	1,297		(453		)	2,438		1,007		(482		)	616		1,084		(1,062		)
Total comprehensive income	$	5,429	$	5,434		$	19,530	$	16,077	$	635		$	5,984	$	4,454	$	20,276

Earnings per share:
Basic	$	0.51	$	0.74		$	2.10	$	1.89	$	0.13		$	0.64	$	0.40	$	2.55
Diluted	$	0.49	$	0.72		$	2.05	$	1.84	$	0.13		$	0.62	$	0.40	$	2.49
Weighted average shares outstanding:
Basic	8,171,809		7,995,680			8,136,350		7,952,938		8,432,598			8,402,697		8,414,317		8,359,088
Diluted	8,420,749		8,179,956			8,350,926		8,212,468		8,470,673			8,598,230		8,467,823		8,561,918

Cash dividends declared per share	$	0.62	$	0.57		$	1.86	$	1.71

See ~~notes~~Notes to ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Three Months Ended September 30, 2019 and 2018

(In thousands, except share amounts)

(Unaudited)



	Common Stock, Par					Additional Paid-In Capital		Treasury Stock			Accumulated Other Comprehensive Gain (Loss)			Retained Earnings			Total
	Shares		Amount			Additional Paid-In Capital		Treasury Stock			Accumulated Other Comprehensive Gain (Loss)			Retained Earnings			Total
BALANCE, June 30, 2019	8,944,733		$	104		$	200,028	$	(62,883	)	$	(3,317	)	$	20,054		$	153,986
Net income	—		—			—		—			—			1,117			1,117
Other comprehensive loss	—		—			—		—			(482		)	—			(482		)
Issuance of restricted stock, net of forfeitures	(22,059	)	(1		)	1		—			—			—			—
Dividends declared ($0.72 per share)	—		—			—		—			—			(6,359		)	(6,359		)
Stock based compensation expense	—		—			2,249		—			—			—			2,249
Purchases of treasury stock	(16,522	)	—			—		(452		)	—			—			(452		)
BALANCE, September 30, 2019	8,906,152		$	103		$	202,278	$	(63,335	)	$	(3,799	)	$	14,812		$	150,059



	Common Stock, Par				Additional Paid-In Capital		Treasury Stock			Accumulated Other Comprehensive Gain (Loss)			Retained Earnings			Total
	Shares		Amount		Additional Paid-In Capital		Treasury Stock			Accumulated Other Comprehensive Gain (Loss)			Retained Earnings			Total
BALANCE, June 30, 2018	9,026,806		$	102	$	187,367	$	(55,201	)	$	(3,442	)	$	32,315		$	161,141
Net income	—		—		—		—			—			5,368			5,368
Other comprehensive gain	—		—		—		—			616			—			616
Issuance of restricted stock, net of forfeitures	(8,252	)	—		—		—			—			—			—
Dividends declared ($0.68 per share)	—		—		—		—			—			(6,134		)	(6,134		)
Stock based compensation expense	—		—		3,695		—			—			—			3,695
Restricted stock returned for payment of taxes	(118	)	—		—		(14		)	—			—			(14		)
BALANCE, September 30, 2018	9,018,436		$	102	$	191,062	$	(55,215	)	$	(2,826	)	$	31,549		$	164,672

See Notes to Condensed Consolidated Financial Statements.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Nine Months Ended September 30, ~~2017~~2019 and 2018

(In thousands, except share amounts)

(Unaudited)


	Common Stock, Par				Additional Paid-In Capital				Treasury Stock				Accumulated Other Comprehensive Income (Loss)				Retained Earnings			Total				Common Stock, Par				Additional Paid-In Capital			Treasury Stock			Accumulated Other Comprehensive Gain (Loss)			Retained Earnings			Total
	Shares		Amount						Treasury Stock				Accumulated Other Comprehensive Income (Loss)			Shares				Total			Amount					Additional Paid-In Capital			Treasury Stock			Accumulated Other Comprehensive Gain (Loss)			Retained Earnings			Total
BALANCE, December 31, 2016	8,810,375		$	98	Additional Paid-In Capital			$	162,730			$	(44,353	)		$	Retained Earnings	(4,287	)	$	31,881			$	146,069
Cumulative effect of accounting change	—		—		711				—				—				(711		)	—
BALANCE, December 31, 2018																								8,904,902		$	102	$	194,116		$	(58,711	)	$	(4,883	)	$	30,525		$	161,149
Net income	—		—		—				—				—				17,092			17,092				—		—		—			—			—			3,370			3,370
Other comprehensive income	—		—		—				—				2,438				—			2,438
Other comprehensive gain																								—		—		—			—			1,084			—			1,084
Issuance of restricted stock, net of forfeitures	184,138		2		(2		)		—				—				—			—				131,721		1		(1		)	—			—			—			—
Dividends declared	—		—		—				—				—				(16,503		)	(16,503		)
Dividends declared ($2.16 per share)																								—		—		—			—			—			(19,083		)	(19,083		)
Stock based compensation expense	—		—		12,298				—				—				—			12,298				—		—		7,932			—			—			—			7,932
Reclassification of compensation liability to be paid in shares	—		—		592				—				—				—			592				—		—		231			—			—			—			231
Purchases of treasury stock	(23,822	)	—		—				(1,326		)		—				—			(1,326		)		(68,435	)	—		—			(2,239		)	—			—			(2,239		)
Restricted stock returned for payment of taxes	(86,270	)	—		—				(5,231		)		—				—			(5,231		)		(62,036	)	—		—			(2,385		)	—			—			(2,385		)
BALANCE, September 30, 2017	8,884,421		$	100	$	176,329			$	(50,910	)		$	(1,849	)		$	31,759		$	155,429
BALANCE, September 30, 2019																								8,906,152		$	103	$	202,278		$	(63,335	)	$	(3,799	)	$	14,812		$	150,059



	Common Stock, Par				Additional Paid-In Capital			Treasury Stock			Accumulated Other Comprehensive Gain (Loss)			Retained Earnings			Total
	Shares		Amount		Additional Paid-In Capital			Treasury Stock			Accumulated Other Comprehensive Gain (Loss)			Retained Earnings			Total
BALANCE, December 31, 2017	8,899,587		$	100	$	179,241		$	(49,788	)	$	(1,764	)	$	28,607		$	156,396
Net income	—		—		—			—			—			21,338			21,338
Other comprehensive loss	—		—		—			—			(1,062		)	—			(1,062		)
Issuance of restricted stock, net of forfeitures	215,808		2		(2		)	—			—						—
Dividends declared ($2.04 per share)	—		—					—			—			(18,396		)	(18,396		)
Stock based compensation expense	—		—		11,658			—			—			—			11,658
Reclassification of compensation liability to be paid in shares	—		—		165			—			—			—			165
Purchases of treasury stock	(13,031	)	—		—			(726		)	—			—			(726		)
Restricted stock returned for payment of taxes	(83,928	)	—		—			(4,701		)	—			—			(4,701		)
BALANCE, September 30, 2018	9,018,436		$	102	$	191,062		$	(55,215	)	$	(2,826	)	$	31,549		$	164,672

See ~~notes~~Notes to ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	17,092		$	15,070		$	3,370		$	21,338
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	722			732			662			653
Amortization of intangible assets	1,449			1,470			1,281			1,255
Unrealized gains on trading investments	(539		)	(676		)
Unrealized (gains) losses on trading investments							(501		)	145
Stock based compensation expense	12,298			12,164			7,932			11,658
Deferred income taxes	1,481			114			1,572			(1,693		)
Excess tax benefits from stock based compensation	—			(165		)
Other	—			275
Non-cash lease expense							852			789
Gain on sale of operations							—			(524		)
Change in operating assets and liabilities:
Net sales of investments - trading securities	8,931			23,147
Net sales (purchases) of investments - trading securities							23,438			(19,824		)
Accounts receivable	1,686			(2,711		)	5,673			1,537
Other current assets	(3,881		)	900			(361		)	4,185
Accounts payable and accrued liabilities	178			(82		)	(482		)	(650		)
Accrued litigation settlement	8,018			—
Compensation and benefits payable	(2,696		)	(6,758		)	(8,100		)	(6,157		)
Income taxes receivable/payable	(5,181		)	(4,637		)
Income taxes payable							(668		)	3,265
Other liabilities	(111		)	154			(1,057		)	(907		)
Net cash provided by operating activities	39,447			38,997			33,611			15,070
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(537		)	(1,680		)	(516		)	(676		)
Net cash used in investing activities	(537		)	(1,680		)
Proceeds from Omaha divestiture							—			10,013
Additions to internally developed software							(584		)	—
Purchase of investments							(3,020		)	(5,425		)
Net cash provided by (used in) investing activities							(4,120		)	3,912
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock	—			(5,629		)	(1,258		)	—
Purchase of treasury stock under employee stock plans	(1,326		)	(614		)	(981		)	(726		)
Restricted stock returned for payment of taxes	(5,231		)	(3,710		)	(2,385		)	(4,701		)
Excess tax benefits from stock based compensation	—			165
Payment of contingent consideration in acquisition	—			(5,562		)
Cash dividends paid	(16,787		)	(14,827		)	(19,979		)	(18,825		)
Net cash used in financing activities	(23,344		)	(30,177		)	(24,603		)	(24,252		)
Effect of currency rate changes on cash	2,191			812			1,035			(893		)
Net Change in Cash and Cash Equivalents	17,757			7,952			5,923			(6,163		)
Cash and cash equivalents, beginning of period	33,679			22,740			52,449			54,249
Cash and cash equivalents, end of period	$	51,436		$	30,692		$	58,372		$	48,086

Supplemental cash flow information:
Cash paid during the period for income taxes	$	10,245		$	12,632		$	1,431		$	5,634
Common stock issued for acquisition	$	—		$	3,734
Accrued dividends	$	8,161		$	7,682		$	8,390		$	8,644
Tenant allowance included in property and equipment	$	—		$	1,128

See ~~notes~~Notes to ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. DESCRIPTION OF THE BUSINESS

Westwood Holdings Group, Inc. (“Westwood”, the “Company”, “we”, “us” or “our”) was incorporated under the laws of the State of Delaware on December 12, ~~2001.~~2001. Westwood provides investment management services to institutional investors, ~~private wealth clients~~high net worth individuals and financial intermediaries through its subsidiaries, Westwood Management Corp. and Westwood Advisors, L.L.C. (together “Westwood Management”), Westwood Trust, and Westwood International Advisors Inc. (“Westwood International”). Revenue is largely dependent on the total value and composition of assets under management (“AUM”). Accordingly, fluctuations in financial markets and in the composition of AUM impact revenues and results of operations.

Divestiture of our Omaha Operations

On September 6, 2017, we entered into an agreement to sell the Omaha-based component of our ~~Private~~ Wealth Management business. The sale ~~is expected to close~~closed on ~~December 31, 2017, subject to usual and customary closing conditions and the receipt of regulatory approval from the Nebraska Department of Banking.~~January 12, 2018. We ~~expect to receive~~received proceeds of $710.0 million to ~~$10.5 million~~, ~~subject to client consents and~~ net of working capital ~~requirements; however, we do not expect to record~~requirements, and recorded a ~~material~~$524,000 gain ~~or loss~~ on the sale, ~~within~~which is included as “Gain on sale of operations” on our Condensed Consolidated ~~Statement~~Statements of Comprehensive Income. The sale ~~will reduce our~~reduced goodwill and intangible assets but isdid not ~~expected to~~ have a material impact toon our Condensed Consolidated Balance Sheet. The following table presents cash proceeds received and net assets sold (in thousands):



Cash Proceeds	$	10,013
Net assets sold:
Accounts receivable	99
Other current assets	112
Goodwill	7,340
Intangible assets, net	2,170
Property and equipment, net	18
Accounts payable and accrued liabilities	(241		)
Other liabilities	(9		)
Gain on sale of operations	$	524

The component is reported within both our Advisory and Trust segments. The sale ~~does~~did not represent a major strategic shift in our business and ~~does~~did not qualify for discontinued operations reporting.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements are unaudited and are presented in accordance with the requirements for quarterly reports on Form 10-Q and consequently do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The Company’s Condensed Consolidated Financial Statements reflect all adjustments (consisting only of normal recurring adjustments) necessary in the opinion of management to present fairly our interim financial position and results of operations and cash flows for the periods presented. The accompanying Condensed Consolidated Financial Statements are presented in accordance with GAAP and the rules and regulations of the Securities and Exchange Commission (“SEC”).

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The accompanying unaudited Condensed 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, ~~2016,~~2018, filed with the SEC. Operating results for the periods in these ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements are not necessarily indicative of ~~the~~ results for any future period. The accompanying Condensed Consolidated Financial Statements include the accounts of Westwood and its subsidiaries. All intercompany accounts and transactions have been eliminated upon consolidation. In the current year, we created a new expense item on the Condensed Consolidated Statements of Comprehensive Income for “(Gain) loss on foreign currency transactions,” which was previously included in “General and Administrative” expense, and a new cash flow item on the Condensed Consolidated Statements of Cash Flows for “Non-cash lease expense,” which was previously included in the changes in operating assets and liabilities within “Other liabilities.” Prior year financial statements were reclassified to conform to this presentation. These reclassifications had no impact on net income, stockholders’ equity or cash flows as previously reported.

Recent Accounting Pronouncements

Recently Adopted

In ~~March~~February 2016, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued Accounting Standards Update ~~(ASU) 2016-09,~~ (“ASU”) 2016-02, Leases. ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use asset for all leases at the commencement date, excluding short-term leases. Leases will be classified as either financing or operating, with classification impacting the pattern of expense recognition in the income statement. The amendment is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We adopted the standard as of January 1, 2019 under the modified retrospective approach, which provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a full retrospective approach. We elected the package of practical expedients permitted under the transition guidance, which, among other things, allows us to carry forward the historical lease classification and elect hindsight to determine certain lease terms for existing leases. See further discussion in Note 13 “Leases.”

The following table summarizes the impacts of the adoption of ASU 2016-02 to our previously reported results (in thousands):



Balance Sheet as of December 31, 2018:	As Previously Reported		New Lease Standard Adjustment			As Restated
Operating lease right-of-use assets	$	—	$	8,698		$	8,698
Operating lease liabilities	—		1,432			1,432
Noncurrent operating lease liabilities	—		9,331			9,331
Deferred rent	2,065		(2,065		)	—

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock ~~Compensation:~~Compensation (Topic 718): Improvements to ~~Employee~~Nonemployee Share-Based Payment Accounting. The purpose of ~~the~~this amendment is to simplify the accounting for share-based ~~payment transactions,~~payments granted to nonemployees for goods and ~~includes changes~~services by aligning it with the accounting used for arrangements with employees. We adopted the standard as of January 1, 2019 and it did not have a material impact on our Consolidated Financial Statements.

Not Yet Adopted

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework- Changes to the ~~accounting~~Disclosure Requirements for ~~the classification~~Fair Value Measurement. The purpose of ~~awards as either equity or liabilities, classification of certain share-based payment items in the statement of cash flows, the accounting for forfeitures and certain income tax consequences. The~~this amendment is to modify, remove and add certain disclosure requirements for fair value measurements. Under ASU 2018-13, entities are required to disclose the amount of total gains or losses recognized in other comprehensive income attributable to assets and liabilities categorized within Level 3 of the fair value hierarchy. The ASU includes an incremental requirement about significant unobservable inputs for Level 3 fair value measurements. The requirement to disclose reasons for transfers between Level 1 and Level 2 was removed. Various requirements for Level 3 disclosure were also modified. The amendments in this ASU are effective for ~~annual~~all entities for fiscal years and interim periods beginning after December 15, ~~2016,~~2019. We do not expect the amendment to have a material impact on our Consolidated Financial Statements, and ~~interim periods~~we plan to adopt this amendment within ~~those annual periods. Amendments related to~~ the presentation of employee taxes paid on the statement of cash flows should be applied retrospectively. The amendment related to forfeitures, where an entity may account for forfeitures as they occur, should berequired time frame.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

applied retrospectively by means of a cumulative-effect adjustment to equity at the beginning of the period in which the guidance is adopted. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively. An entity may elect to apply the amendments related to the presentation of tax benefits on the statement of cash flows using either a prospective or retrospective transition method.

~~We adopted ASU 2016-09 effective January 1, 2017. The following summarizes the effects of the adoption on our Condensed Consolidated Financial Statements:~~

Income Taxes - Upon adoption of this standard, all excess tax benefits and tax deficiencies, including tax benefits of dividends on share-based payment awards, are recognized as income tax expense or benefit in the consolidated statement of comprehensive income. The tax effects of exercised or vested awards are treated as discrete items in the reporting period in which they occur. As a result, the Company recognized discrete adjustments to income tax expense in the first nine months of 2017 of $1.0 million related to excess tax benefits, decreasing our effective tax rate for the first nine months of 2017 to 29.1%. Without the adjustment, our effective tax rate would have been 33.0%. The Company did not have any unrecognized excess tax benefits as of December 31, 2016 and therefore there was no cumulative-effect adjustment to retained earnings related to income taxes. The Company adopted the amendments related to the recognition of excess tax benefits and tax shortfalls prospectively, with no adjustments made to prior periods.

Forfeitures - Prior to adoption, stock-based compensation expense was recognized on a straight-line basis, net of estimated forfeitures, such that expense was recognized for stock-based awards that were expected to vest. A forfeiture rate was estimated annually and revised, if necessary, in subsequent periods if actual forfeitures differed from initial estimates. Upon adoption of this standard, the Company no longer applies an estimated forfeiture rate and instead accounts for forfeitures as they occur. The Company applied the modified retrospective adoption approach, resulting in a $711,000 cumulative-effect reduction to “Retained earnings” with the offset to “Additional paid-in-capital” on January 1, 2017.

Statements of Cash Flows - The Company historically accounted for excess tax benefits on the consolidated statements of cash flows as a financing activity. Upon adoption of this standard, excess tax benefits are classified along with other income tax cash flows as an operating activity. The change in cash flow classification associated with excess tax benefits was adopted prospectively, resulting in the classification of the $1.0 million excess tax benefit as an operating activity during the nine months ended September 30, 2017. No change in classification was necessary for the presentation of restricted stock returned for payment of taxes, as the Company has historically presented such payments as a financing activity. The Company adopted this portion of the standard on a prospective basis, with no adjustments made to prior periods.

Earnings Per Share - The Company uses the treasury stock method to compute diluted earnings per share, unless the effect would be anti-dilutive. Under the new standard, the Company is no longer required to estimate the tax effect of anticipated windfall benefits or shortfalls when projecting proceeds available for share repurchases in calculating dilutive shares. The Company utilized the modified retrospective adoption approach, with no adjustments made to prior periods.

~~Not Yet Adopted~~

In ~~May 2014,~~August 2018, the FASB issued ASU ~~2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606), which~~

~~resulted from a joint project by the FASB and the International Accounting Standards Board to clarify the principles for~~

~~recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards~~

("IFRS"). The ASU will be effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Retrospective application is required, with the entity either applying the change to each prior reporting period presented or applying the cumulative effect of each prior reporting period presented at the date of initial application. Management has completed a detailed review of the terms and conditions of our current contracts, including performance based fees, and we do not anticipate a significant change in the timing of revenue recognized. As part of our review we analyzed our current business process and internal controls and do not anticipate implementing new procedures to successfully adopt the standard. We expect to enhance and add additional disclosures surrounding our revenue process including disaggregation of revenue and information about performance obligations that will help provide the financial statement users a better understanding of the nature, amount, timing and potential uncertainty of the revenue being recognized.

~~WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

~~In January 2017, the FASB issued ASU 2017-04,~~ 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Topic 350): ~~Simplifying~~Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The purpose of this amendment is to align the ~~Test~~requirements for ~~Goodwill Impairment~~capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The ~~amendment eliminates step two from the goodwill impairment test~~amendments in order to simplify the subsequent measurement of goodwill. Under step two, an entity had to perform procedures to determine the fair value of its assets and liabilities at the impairment testing date following procedures required to determine the fair value of assets acquired and liabilities assumed in a business combination. Under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment chargethis update are effective for ~~the amount by which the carrying amount exceeds the reporting unit's fair value. The amendment is effective, on a prospective basis,~~public companies for ~~annual or interim periods~~fiscal years beginning after December 15, 2019, ~~with early adoption permitted.~~including interim periods within that fiscal year. We do not expect the amendment to have a material impact on our Consolidated Financial Statements, and ~~expect~~we plan to adopt the standard within the required time frame.

In May ~~2017,~~2019, the FASB issued ASU ~~2017-09,~~ ~~Compensation- Stock Compensation~~2019-05, Financial Instruments—Credit Losses (Topic ~~718)~~326): ~~Scope of Modification Accounting~~.~~The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modified accounting under ASC 718.~~ Targeted Transition Relief. The purpose of ~~the~~this amendment is to ~~reduce diversity,~~amend ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to allow companies to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that were previously recorded at amortized cost and ~~complexity~~are within the scope of ASC 326-20, Financial Instruments-Credit Losses: Amortization Cost, if the instruments are eligible for the fair value option under Accounting Standards Codification 825 - Financial Instruments. The fair value option election does not apply to held-to-maturity debt securities. The amendments in ~~practice when analyzing and applying these modifications. The ASU is~~this update are effective for ~~periods~~public companies for fiscal years beginning after December 15, ~~2017.~~2019, including interim periods within that fiscal year. We do not expect the amendment to have a material impact on our Consolidated Financial Statements, and ~~expect~~we plan to adopt the standard within the required time frame.

3. 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 applicable period. Diluted earnings per share is computed based on the weighted average number of shares outstanding plus the effect of any dilutive shares of restricted stock granted to employees and non-employee directors. There were noapproximately 81,000 anti-dilutive restricted shares outstanding for the three months ended September 30, ~~2017. There~~2019, and there were ~~approximately 2,453~~0 anti-dilutive restricted shares outstanding for the three months ended September 30, ~~2016,~~2018. There were approximately 87,000 and ~~8,800 and 2,301~~3,251 anti-dilutive restricted shares outstanding for the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively.

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Net income	$	1,117	$	5,368	$	3,370	$	21,338

Weighted average shares outstanding - basic	8,432,598		8,402,697		8,414,317		8,359,088
Dilutive potential shares from unvested restricted shares	38,075		195,533		53,506		202,830
Weighted average shares outstanding - diluted	8,470,673		8,598,230		8,467,823		8,561,918

Earnings per share:
Basic	$	0.13	$	0.64	$	0.40	$	2.55
Diluted	$	0.13	$	0.62	$	0.40	$	2.49

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income $ 4,132
$ 5,887
$ 17,092
$ 15,070

Weighted average shares outstanding - basic 8,171,809
7,995,680
8,136,350
7,952,938
Dilutive potential shares from unvested restricted shares 248,940
184,276
214,576
259,530
Weighted average shares outstanding - diluted 8,420,749
8,179,956
8,350,926
8,212,468

Earnings per share:
Basic $ 0.51
$ 0.74
$ 2.10
$ 1.89
Diluted $ 0.49
$ 0.72
$ 2.05
$ 1.84

4. INVESTMENTS

During 2018, we made a $5.4 million strategic investment in a private company (“Private Company”), which is included in “Investments” on our Condensed Consolidated Balance Sheets. This investment represents an equity interest in a private company without a readily-determinable fair value. The Company has elected to apply the measurement alternative of cost minus impairment, if any, plus or minus changes resulting from observable price changes. As of September 30, 2019 and December 31, 2018, there were no observable price changes or indicators of impairment for this investment.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

~~4. INVESTMENTS~~In February 2019, we made a $250,000 investment in Westwood Hospitality Fund I, LLC, a private investment fund. Our investment is included in “Noncurrent investments at fair value” on our Condensed Consolidated Balance Sheets and will be measured at fair value on a recurring basis using net asset value (“NAV”) as a practical expedient.

In September 2019, we made a $2.8 million investment in Charis Holdings, Inc. (“Charis”), the parent company of Westwood Private Bank. Our investment is included in “Noncurrent investments at fair value” on our Condensed Consolidated Balance Sheets and will be measured at fair value on a recurring basis.

All other investments are accounted for as trading securities, are carried at fair value on a recurring basis and are ~~accounted for as trading securities. Investment balances~~included in “Investments, at fair value” on our Condensed Consolidated Balance Sheets.

Investments carried at fair value are presented in the table below (in thousands):


	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Market Value		Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Market Value
September 30, 2017:
September 30, 2019:
U.S. Government and Government agency obligations	$	26,093	$	12	$	(14	)	$	26,091	$	24,036	$	145	$	—		$	24,181
Money market funds	9,925		—		—			9,925		12,072		—		—			12,072
Equity funds	11,510		578		(11		)	12,077		6,329		280		(18		)	6,591
Total trading securities										42,437		425		(18		)	42,844
Private investment fund										250		—		—			250
Private equity										2,770		—		—			2,770
Total investments carried at fair value										$	45,457	$	425	$	(18	)	$	45,864
	$	47,528	$	590	$	(25	)	$	48,093
December 31, 2016:
December 31, 2018:
U.S. Government and Government agency obligations	$	30,275	$	—	$	(2	)	$	30,273	$	48,177	$	232	$	—		$	48,409
Money market funds	14,127		—		—			14,127		10,354		—		—			10,354
Equity funds	12,057		204		(176		)	12,085		7,344		—		(326		)	7,018
	$	56,459	$	204	$	(178	)	$	56,485
Total trading securities										$	65,875	$	232	$	(326	)	$	65,781

As of September 30, ~~2017~~2019 and December 31, ~~2016, $10.6~~2018, approximately $6.5 million and ~~$11.0~~$6.1 million, respectively, in corporate funds ~~respectively,~~ were invested in Westwood Funds®~~, Westwood Common Trust Funds and Westwood Investment Funds PLC (the “UCITS Fund”)~~. See Note 8 “Variable Interest ~~Entities”.~~Entities.”

5. FAIR VALUE MEASUREMENTS

We determine estimated fair values for our financial instruments using available information. The fair value amounts discussed in our Condensed Consolidated Financial Statements are not necessarily indicative of either amounts realizable upon disposition of these instruments or our intent or ability to dispose of these assets. The estimated fair value of cash and cash equivalents, accounts receivable, prepaid income taxes, ~~receivable,~~ other current assets, accounts payable and accrued liabilities, dividends payable, compensation and benefits payable and income taxes payable approximates their carrying value due to their short-term maturities. The carrying amount of investments designated as ~~“trading”~~trading securities, primarily U.S. Government and Government agency obligations, money market funds, Westwood Funds® mutual funds, ~~the UCITS Fund~~Westwood Investment Funds Plc (the “UCITS Fund”) and Westwood Trust common trust fund shares, equals their fair value based on prices quoted in active markets and, with respect to common trust funds, the net asset value of the shares held as reported by each fund. Market values of our money market holdings generally do not fluctuate.

Our investment in Westwood Hospitality Fund I, LLC is measured at fair value using NAV.

Our investment in Charis is measured at fair value on a recurring basis using a market approach based on a price to tangible book value multiple range that is determined to be reasonable in the current environment. Management believes this valuation methodology is consistent with the banking industry and will reevaluate our methodology and inputs on a quarterly basis.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Our strategic investment in the Private Company discussed in Note 4 “Investments” is excluded from the recurring fair value table shown below, because we have elected to apply the measurement alternative for this investment.

ASC 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value and requires disclosures regarding certain fair value measurements. ASC 820 establishes a three-tier hierarchy for measuring fair value, as follows:

~~level~~Level 1 – quoted market prices in active markets for identical assets

~~level~~Level 2 – inputs other than quoted prices that are directly or indirectly observable

~~level~~Level 3 – significant unobservable inputs where there is little or no market activity

The following table summarizes the values of our investments measured at fair value on a recurring basis within the fair value hierarchy as of the dates indicated (in thousands):



	Level 1		Level 2		Level 3		Investments Measured at NAV ⁽¹⁾		Total
As of September 30, 2019:
Investments in trading securities	$	42,844	$	—	$	—	$	—	$	42,844
Private investment fund	—		—		—		250		250
Private equity	—		—		2,770		—		2,770
Total investments carried at fair value	$	42,844	$	—	$	2,770	$	250	$	45,864

As of December 31, 2018:
Investments in trading securities	$	65,781	$	—	$	—	$	—	$	65,781
Total investments carried at fair value	$	65,781	$	—	$	—	$	—	$	65,781

(1) Comprised of certain investments measured at fair value using NAV as a practical expedient. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented on our Condensed Consolidated Balance Sheets.

The following table summarizes the changes in Level 3 investments measured at fair value on a recurring basis for the

periods presented (in thousands):



	Fair Value using Significant Unobservable Inputs (Level 3)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	Private Equity Investment				Private Equity Investment
Beginning balance	$	—	$	—	$	—	$	—
Purchases	2,770		—		2,770		—
Transfers into (out of) level 3	—		—		—		—
Realized gains (losses)	—		—		—		—
Unrealized gains (losses)	—		—		—		—
Ending balance	$	2,770	$	—	$	2,770	$	—

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

~~The following table summarizes the values of our assets and liabilities as of the dates indicated within the fair value hierarchy (in thousands):~~

Level 1 Level 2 Level 3
Investments Measured at NAV ⁽¹⁾
Total
As of September 30, 2017:
Investments in trading securities $ 45,836
$ —
$ —
$ 2,257
$ 48,093
Total financial instruments $ 45,836
$ —
$ —
$ 2,257
$ 48,093

As of December 31, 2016:
Investments in trading securities $ 53,319
$ —
$ —
$ 3,166
$ 56,485
Total financial instruments $ 53,319
$ —
$ —
$ 3,166
$ 56,485

(1) Comprised of certain investments measured at fair value using net asset value (“NAV”) as a practical expedient. These investments were recategorized and are no longer included within Level 2 of the valuation hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented on our consolidated balance sheets.

6. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

Goodwill represents the excess of the cost of acquired assets over the fair value of the underlying identifiable assets at the date of acquisition. Goodwill is not amortized but is tested for impairment at least annually. We completed our annual goodwill impairment assessment during the third quarter of ~~2017~~2019 and determined that no impairment loss was required. NoNaN impairments on goodwill were recorded during the three or nine months ended September 30, ~~2017~~2019 or ~~2016.~~2018.

Other Intangible Assets

Our intangible assets represent the acquisition date fair value of acquired client relationships, trade names, non-compete agreements and internally developed software and are reflected net of amortization. In valuing these assets, we made significant estimates regarding their useful lives, growth rates and potential attrition. We periodically review intangible assets for events or circumstances that would indicate impairment. NoNaN impairments on intangible assets were recorded during the three or nine months ended September 30, ~~2017~~2019 or ~~2016.~~

2018.

7. STOCKHOLDERS' EQUITY

Accumulated Other Comprehensive Loss

The components of ~~accumulated~~“Accumulated other comprehensive ~~loss~~loss” were as follows (in thousands):



	As of September 30, 2019			As of December 31, 2018
Foreign currency translation adjustment	$	(3,799	)	$	(4,883	)
Accumulated other comprehensive loss	$	(3,799	)	$	(4,883	)

As of September 30, 2017 As of December 31, 2016
Foreign currency translation adjustment $ (1,849 ) $ (4,287 )
Accumulated other comprehensive loss $ (1,849 ) $ (4,287 )
Share Repurchase Program

On July 20, 2012, our Board of Directors authorized the repurchase of up to $10.0 million of our outstanding common stock on the open market or in privately negotiated transactions. The share repurchase program has no expiration date and may be discontinued at any time by the Board of Directors. In July 2016, Westwood's Board of Directors authorized an additional $5.0 million of repurchases under the share repurchase program. As of September 30, 2019, approximately $4.1 million remained available under the share repurchase program.

Between January 1, 2019 and September 30, 2019, under our share repurchase plan, the Company repurchased 43,388 shares of our common stock at an average price of $28.99, including commissions, at an aggregate purchase price of $1.3 million.

~~WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

8. VARIABLE INTEREST ENTITIES

We have evaluated ~~all of~~(i) our advisory relationships with the UCITS Fund and the Westwood Funds®, ~~limited liability companies (“LLCs”) and~~(ii) our relationship as sponsor of the Common Trust Funds (“CTFs”) and managing member of the private investment funds Westwood Hospitality Fund I, LLC and Westwood Technology Opportunities Fund I, LP (collectively, the “Private Funds”) and (iii) our investments in the Private Company and Charis discussed in Note 4 “Investments” (collectively, “Private Equity”) to determine whether each of these entities is a variable interest entity (“VIE”) or voting ownership entity (“VOE”). Based on our analysis, we determined that the ~~LLCs~~CTFs and ~~CTFs~~Private Funds were VIEs, as the at-risk equity holders do not have the ability to direct the activities that most significantly impact the entity’s economic performance, and the Company and its representatives have a majority control of the entities' respective boards of directors and can influence the respective entities' management and affairs. ~~Although we have related parties~~Based on ~~the UCITS Fund board of directors, the shareholders have rights to remove the current directors with a simple majority vote, so~~our analysis, we determined the UCITS Fund, ~~is not a VIE. As the Company and its representatives do not have representation on the~~ Westwood Funds® ~~independent board~~and Private Equity (i) have sufficient equity at risk to finance the entity's activities independently, (ii) have the obligation to absorb losses, the right to receive residual returns and the right to direct the activities of ~~directors, which directs~~ the ~~activities~~entity that most significantly impact the ~~entity's~~entity’s economic performance ~~we determined that~~and (iii) are not structured with disproportionate voting rights, and therefore the UCITS Funds, Westwood Funds® ~~were~~and Private Equity are not ~~VIEs. Therefore, the UCITS Fund~~VIEs and ~~the Westwood Funds®~~ should be analyzed under the VOE consolidation method. Based on our analysis of our ~~seed~~ investments in these entities for the periods ending

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, we have not consolidated the ~~LLCs~~CTFs, Private Funds or ~~CTFs~~LLCs under the VIE method or the UCITS Fund, ~~or the~~ Westwood Funds® or Private Equity under the VOE method, and therefore the financial results of these entities are not included in the Company’s consolidated financial results.

As of September 30, ~~2017~~2019 and December 31, ~~2016, the Company had~~2018, our seed investments in ~~aggregate of approximately $10.6 million and $11.0 million, respectively, in the CTFs,~~ the Westwood Funds aggregated approximately $6.5 million and ~~the UCITS Fund. These~~$6.1 million, respectively. The seed investments were provided for the sole purpose of showing the economic substance needed to establish the funds ~~or sub-funds. The Company's seed investments in these funds~~and are included in “Investments, at fair value” on our Condensed Consolidated Balance ~~Sheet at September 30, 2017.~~Sheets.

~~Otherwise, we~~We have not otherwise provided any financial support ~~we were~~ not previously contractually obligated to provide, and there are no arrangements that would require us to provide additional financial support to any of these entities. Our seed investments in the above-mentioned Westwood Funds®, the UCITS Fund and the CTFs are accounted for as investments ~~in accordance~~consistent with our other investments described in Note 4 “Investments.” We recognized fee revenue from the Westwood VIEs and Westwood VOEs of approximately ~~$13.2~~$7.2 million and ~~$13.5~~$11.7 million for the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively. We recognized fee revenue from the Westwood VIEs and Westwood VOEs of approximately ~~$39.1~~$24.3 million and ~~$39.5~~$36.3 million for the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively.

The following table displays the assets under management, the amounts of our seed investments ~~that are~~ included in ~~“Investments, at fair value”~~“Investments” on our consolidated balance sheets, and the risk of loss in each vehicle (in millions):



	As of September 30, 2019
	Assets Under Management		Corporate Investment		Amount at Risk
VIEs/VOEs:
Westwood Funds®	$	2,338	$	6.5	$	6.5
Common Trust Funds	1,409		—		—
UCITS Fund	309		—		—
Private Funds	11		0.3		0.3
Private Equity	—		8.2		8.2
All other assets:
Wealth Management	2,881
Institutional	8,038
Total Assets Under Management	$	14,986

As of September 30, 2017
Assets
Under
Management Corporate
Investment Amount at Risk
VIEs/VOEs:
Westwood Funds® $ 4,144
$ 6
$ 6
Common Trust Funds 2,602
2
2
LLCs 113
—
—
UCITS Fund 595
2
2
All other assets:
Private Wealth 3,107

Institutional 13,063

Total Assets Under Management $ 23,624

9. REVENUE

Revenue Recognition

Revenues are recognized when the performance obligation (the investment management and advisory or trust services provided to the client) defined by the investment advisory or sub-advisory agreement is satisfied. For each performance obligation, we determine at contract inception whether the revenue satisfies over time or at a point in time. We derive our revenues from investment advisory fees, trust fees and other sources of revenues. Advisory and Trust fees are calculated based on a percentage of assets under management and the performance obligation is realized over the current calendar quarter. Once clients receive our investment advisory services we have an enforceable right to payment.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

9.Advisory Fee Revenues

Our advisory fees are generated by Westwood Management and Westwood International, which manage client accounts under investment advisory and sub-advisory agreements. Advisory fees are typically calculated based on a percentage of assets under management and are paid in accordance with the terms of the agreements. Advisory fees are paid quarterly in advance based on assets under management on the last day of the preceding quarter, quarterly in arrears based on 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. We recognize advisory fee revenues as services are rendered. Since our advance paying clients' billing periods coincide with the calendar quarter to which such payments relate, revenue is recognized within the quarter and our Condensed Consolidated Financial Statements contain no deferred advisory fee revenues. Advisory clients typically consist of institutional and mutual fund accounts.

Institutional investors include separate accounts of (i) corporate pension and profit sharing plans, public employee retirement funds, Taft Hartley plans, endowments, foundations and individuals; (ii) subadvisory relationships where Westwood provides investment management services for funds offered by other financial institutions; (iii) pooled investment vehicles, including the UCITS Fund and collective investment trusts; and (iv) managed account relationships with brokerage firms and other registered investment advisors that offer Westwood products to their customers.

Mutual funds include the Westwood Funds®, a family of mutual funds for which Westwood Management serves as advisor. These funds are available to individual investors, as well as offered as part of our investment strategies for institutional investors and wealth management accounts.

Arrangements with Performance Based Obligations

A limited number of our advisory clients have a contractual performance-based fee component in their contracts, which generates additional revenues if we outperform a specified index over a specific period of time. The revenue is based on future market performance and is susceptible to factors outside our control. We cannot conclude that a significant reversal in the cumulative amount of revenue recognized will not occur during the measurement period, and therefore the revenue is recorded at the end of the measurement period when the performance obligation has been satisfied.

Trust Fee Revenues

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Revenue Disaggregated

Sales taxes are excluded from revenues. The following table presents our revenue disaggregated by account type (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Advisory Fees:
Institutional	$	8,664	$	14,426	$	28,475	$	46,815
Mutual Funds	4,375		7,527		15,452		23,030
Wealth Management	125		70		338		134
Performance-based	154		—		454		2,984
Trust Fees	6,281		7,191		19,264		22,265
Other	293		640		1,480		953
Total revenues	$	19,892	$	29,854	$	65,463	$	96,181

We serve clients in various locations around the world. The following table presents our revenue disaggregated by our clients' geographical locations (in thousands):



Three Months Ended September 30, 2019	Advisory		Trust		Performance-based		Other		Total
Asia	$	410	$	—	$	—	$	—	$	410
Canada	608		—		—		44		652
Europe	836		—		154		—		990
United States	11,310		6,281		—		249		17,840
Total	$	13,164	$	6,281	$	154	$	293	$	19,892

Nine Months Ended September 30, 2019
Asia	$	1,223	$	—	$	—	$	—	$	1,223
Australia	591		—		—		—		591
Canada	2,134		—		—		128		2,262
Europe	2,685		—		454		—		3,139
United States	37,632		19,264		—		1,352		58,248
Total	$	44,265	$	19,264	$	454	$	1,480	$	65,463

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)



Three Months Ended September 30, 2018	Advisory		Trust		Performance-based		Other		Total
Asia	$	853	$	—	$	—	$	—	$	853
Australia	927		—		—		—		927
Canada	1,707		—		—		38		1,745
Europe	1,249		—		—		—		1,249
United States	17,287		7,191		—		602		25,080
Total	$	22,023	$	7,191	$	—	$	640	$	29,854

Nine Months Ended September 30, 2018
Asia	$	3,520	$	—	$	—	$	—	$	3,520
Australia	2,923		—		—		—		2,923
Canada	5,177		—		—		124		5,301
Europe	3,839		—		—		—		3,839
United States	54,520		22,265		2,984		829		80,598
Total	$	69,979	$	22,265	$	2,984	$	953	$	96,181

10. LONG-TERM INCENTIVE COMPENSATION

Restricted Stock Awards

We have issued restricted shares to our employees and non-employee directors. The ~~Fourth~~Sixth Amended and Restated Westwood Holdings Group, Inc. Stock Incentive Plan ~~as amended~~ (the “Plan”), reserves shares of Westwood common stock for issuance to eligible employees, directors and consultants of Westwood or its subsidiaries in the form of restricted stock. ~~In April 2017, stockholders approved an additional 250,000 shares to be authorized under the Plan, increasing the~~The total number of shares issuable under the Plan (including predecessor plans to the Plan) ~~to 4,648,100~~may not exceed 5,048,100 shares. At September 30, ~~2017,~~2019, approximately ~~433,000~~511,000 shares remain available for issuance under the Plan.

The following table presents the total stock-based compensation expense recorded for stock-based compensation arrangements for the periods indicated (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Service condition stock-based compensation expense	$	1,578	$	2,434	$	5,526	$	7,759
Performance condition stock-based compensation expense	491		1,107		1,909		3,471
Stock-based compensation expense under the Plan	2,069		3,541		7,435		11,230
Canadian Plan stock-based compensation expense	180		154		497		428
Total stock-based compensation expense	$	2,249	$	3,695	$	7,932	$	11,658

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Service condition stock-based compensation expense $ 2,591
$ 2,679
$ 7,828
$ 7,978
Performance condition stock-based compensation expense 1,454
1,234 3,949
3,705
Stock-based compensation expense under the Plan 4,045
3,913 11,777
11,683
Canadian Plan stock-based compensation expense 188
169
521
481
Total stock-based compensation expense $ 4,233
$ 4,082
$ 12,298
$ 12,164

Restricted Stock

Under the Plan, we have granted to employees and non-employee directors restricted stock subject to service conditions and to certain key employees restricted stock subject to both service and performance conditions.

As of September 30, ~~2017,~~2019, there was approximately ~~$26.3~~$15.9 million of unrecognized compensation cost for restricted stock grants under the Plan, which we expect to recognize over a weighted-average period of ~~2.2~~2.4 years. Our two types of restricted stock grants under the Plan are discussed below.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Restricted Stock Subject Only to a Service Condition

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 adjustment for restrictions on dividends. This compensation cost is amortized on a straight-line basis over the applicable vesting ~~period. As discussed in Note 2 “Summary of Significant Accounting Policies,” the Company made an accounting policy election to account~~period, with adjustments for forfeitures recorded as they ~~occur effective upon the adoption of ASU 2016-09 on January 1, 2017.~~occur.

The following table details the status and changes in our restricted stock grants subject only to a service condition for the nine months ended September 30, ~~2017:~~2019:



	Shares		Weighted Average Grant Date Fair Value
Non-vested, January 1, 2019	440,073		$	56.40
Granted	198,295		$	38.64
Vested	(162,287	)	$	57.14
Forfeited	(73,036	)	$	51.11
Non-vested, September 30, 2019	403,045		$	48.32

Shares Weighted Average
Grant Date Fair Value
Non-vested, January 1, 2017 607,501
$ 54.67
Granted 143,460
61.20
Vested (182,085 ) 57.43
Forfeited (36,579 ) 55.11
Non-vested, September 30, 2017 532,297
$ 55.46

~~WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

Restricted Stock Subject to Service and Performance Conditions

Under the Plan, certain key employees were provided agreements for grants of restricted shares that vest over multiple year periods subject to achieving annual performance goals established by the Compensation Committee of Westwood’s Board of Directors. Each year the Compensation Committee establishes a specific ~~goal~~goals for that year’s vesting of the restricted shares. ~~For 2017, the goal is based on Income before income tax from our audited consolidated statement of comprehensive income for fiscal 2017.~~ The date that the Compensation Committee establishes ~~the~~ annual ~~goal~~goals is considered to be the grant date and the fair value measurement date to determine expense on the shares that are likely to vest. The vesting period ends when the Compensation Committee formally approves the performance-based restricted stock vesting based on the ~~Income before income tax~~specific performance goals from the Company’s audited consolidated financial statements. If a portion of the performance-based restricted shares does not vest, no compensation expense is recognized for that portion and any previously recognized compensation expense related to shares that do not vest is reversed.

In March ~~2017,~~2019, the Compensation Committee established fiscal 2019 goals based on various departmental and company-wide performance goals. During the ~~fiscal 2017 goal for our Chief Executive Officer and Chief Investment Officer as Income before income taxes~~first nine months of ~~$24.0 million for 50% of their respective awards, and an Income before income taxes target of $34.0 million (ranging from 25% of target for threshold performance of $30.3 million~~2019, we recorded expense related to 185% of target for maximum performance of $42.5 million) for the remaining 50% of their respective awards. For all other restricted stock grants subject to performance conditions, the Compensation Committee established the fiscal 2017 goal as Income before income taxes of at least $24.0 million. These performance grants allow the Compensation Committee to exclude certain items, including legal settlements, from the Income before income taxes target. At the Committee's discretion, we excluded the $4.0 million legal settlement expense recorded during the third quarter of 2017 from our forecasted Income before income taxes target and concluded that it was probable that we would exceed the target performance goals required to vest the applicable percentage of the performance-based restricted shares ~~this year and continued recording expense related to the shares~~ expected to ~~vest.~~meet or exceed the performance goals needed to earn the shares.

The following table details the status and changes in our restricted stock grants subject to service and performance conditions for the nine months ended September 30, ~~2017:~~2019:



	Shares		Weighted Average Grant Date Fair Value
Non-vested, January 1, 2019	156,293		$	55.66
Granted	21,186		$	37.97
Vested	(80,493	)	$	56.09
Forfeited	(19,495	)	$	55.18
Non-vested, September 30, 2019	77,491		$	50.29

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Shares Weighted Average
Grant Date Fair Value
Non-vested, January 1, 2017 153,620
$ 55.90
Granted 157,877
54.86
Vested (102,367 ) 56.58
Forfeited (45,675 ) 55.86
Non-vested, September 30, 2017 163,455
$ 55.87

The above amounts as of September 30, 2017 do not include 16,313 non-vested restricted shares that potentially vest over performance years subsequent to 2017 inasmuch as the Compensation Committee has not set annual performance goals for later years and therefore no grant date has been established.

Canadian Plan

The Share Award Plan of Westwood Holdings Group, Inc. for Service Provided in Canada to its Subsidiaries (the “Canadian Plan”) provides compensation in the form of common stock for services performed by employees of Westwood International. Under the Canadian Plan, no more than $10 million CDN ($~~8.0~~7.6 million in U.S. Dollars using the exchange rate on September 30, ~~2017)~~2019) may be funded to the plan trustee for purchases of common stock with respect to awards granted under the Canadian Plan. At September 30, ~~2017,~~2019, approximately ~~$4.3~~$2.3 million CDN ($~~3.4~~1.7 million in U.S. Dollars using the exchange rate on September 30, ~~2017)~~2019) remains available for issuance under the Canadian Plan, or approximately ~~51,200~~62,000 shares based on the closing share price of our stock of ~~$67.27~~$27.67 as of September 30, ~~2017.~~2019. During the first nine months of ~~2017,~~2019, the trust formed pursuant to the Canadian Plan purchased 25,047 Westwood common shares in the open market ~~23,822 Westwood common shares~~ for approximately ~~$1.3 million.~~$980,000. As of September 30, ~~2017,~~2019, the trust holds ~~55,418~~61,078 shares of Westwood common stock. As of September 30, ~~2017,~~2019, unrecognized compensation cost related to restricted stock grants under the Canadian Plan totaled ~~$864,000,~~$907,000, which we expect to recognize over a weighted-average period of 1.8 years years.

~~WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

Mutual Fund Share Incentive Awards

We may grant ~~annually to certain employees~~ mutual fund incentive awards, which are bonus awards based on our mutual funds achieving specific performance ~~goals.~~goals, annually to certain employees. Awards granted are notionally credited to a participant account maintained by us that contains a number of mutual fund shares equal to the award amount divided by the net closing value of a fund share on the date the amount is credited to the account.

~~For awards earned prior to 2017,~~ We maintain the award ~~vested after approximately one year~~in a corporate investment account until vesting. The investment may increase or decrease based on changes in the value of ~~service following~~ the ~~year in which~~mutual fund shares awarded, including reinvested income from the ~~participant earned~~mutual funds during the ~~award. Beginning in 2017, the award vests after~~vesting period. Unvested mutual fund awards are included under “Investments, at fair value” on our Condensed Consolidated Balance Sheets.

Awards vest over approximately two years of service following the year in which the participant earned the award. We begin accruing a liability for mutual fund incentive awards when we believe it is probable that the award will be earned and record expense for these awards over the service period of the award, which is ~~either two or three~~3 years. During the year in which the amount of the award is determined, we record expense based on the expected value of the award. After the award is earned, we record expense based on the value of the shares awarded and the percentage of the vesting period that has elapsed. Our liability under these awards may increase or decrease based on changes in the value of the mutual fund shares awarded, including reinvested income from the mutual funds during the vesting period. Upon vesting, participants receive the value of the mutual fund share awards adjusted for earnings or losses attributable to the underlying mutual funds. For the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, we recorded expense of approximately ~~$281,000~~$12,000 and ~~$313,000,~~$89,000, respectively, related to mutual fund share incentive awards. For the nine months ended September 30, ~~2017 and 2016,~~2019, we recorded a net $100,000 credit to mutual fund expense, primarily related to the forfeiture of a mutual fund award during the first quarter. For the nine months ended September 30, 2018, we recorded expense of approximately ~~$819,000 and $933,000, respectively,~~$274,000 related to mutual fund share incentive awards. As of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, we had an accrued liability of approximately ~~$1.5 million~~$67,000 and ~~$1.7 million,~~$635,000, respectively, related to mutual fund share incentive awards.

~~10.~~11. INCOME TAXES

Our effective income tax rate was ~~28.2%~~28.4% for the third quarter of ~~2017,~~2019, compared with ~~35.0%~~24.9% for the third quarter of 2016. The decrease is primarily related to the tax impact of our legal settlement with AGF (see further discussion in Note 12 “Commitments and Contingencies”) in the third quarter of 2017 and adjustments to uncertain tax positions (net of federal tax benefit) recorded in the third quarter of 2016.2018. Our effective income tax rate was ~~29.1%~~41.0% for the first nine months of ~~2017,~~2019, compared with ~~35.1%~~25.3% for the first nine months of ~~2016.~~2018. The ~~decrease is primarily~~current year-to-date rate was negatively impacted by a $638,000 discrete tax expense related to ~~the adoption of ASU 2016-09~~ ~~Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which requires recognition of excess~~a permanent difference between book and tax ~~benefits related to employees'~~ restricted stock expense based on a decrease in our stock price between the grant and vesting dates.

Tax Audit

The Company is subject to ~~be recorded within income~~taxation in the United States and various state and foreign jurisdictions. The audit of our 2015, 2016 and 2017 tax ~~expense. Prior to adoption of ASU 2016-09, excess tax benefits were recorded through Additional paid-in capital,~~returns in a state jurisdiction in which we operate has been closed with no findings and had no impact ~~to the effective tax rate or~~on our consolidated statement of comprehensive income. See further discussion in Note 2 “Summary of Significant Accounting Policies.” The remaining decrease is related to the tax impact of our legal settlement with AGF (see further discussion in Note 12 “Commitments and Contingencies”) in the third quarter of 2017 and adjustments to uncertain tax positions (net of federal tax benefit) recorded in the first and third quarters of 2016.Consolidated Financial Statements.

As of September 30, 2017 and December 31, 2016, the Company's gross liability related to uncertain tax positions was $196,000 and $2.5 million, respectively. A number of years may elapse before an uncertain tax position is finally resolved. To the extent that the Company has favorable tax settlements, or determines that accrued amounts are no longer needed due to a lapse in the applicable statute of limitations or other changes in circumstances, such liabilities, as well as any related interest and penalties, would be reversed as a reduction of income tax expense, net of federal tax effects, in the period such determination is made. A reconciliation of the change in recorded uncertain tax positions during the nine months ended September 30, 2017 is as follows (in thousands):

Balance at January 1, 2017 $ 2,462
   Additions for tax positions related to the current year 68
   Additions for tax positions related to prior years —
   Reductions for tax positions related to prior years (768 )
   Payments for tax positions related to prior years (1,566 )
Balance at September 30, 2017 $ 196

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Within the next twelve months, it is reasonably possible that the liability for uncertain tax positions could decrease by as much as $196,000 as a result of settlements with certain taxing authorities, which, if recognized, would decrease our provision for income taxes by $130,000.

~~11.~~12. RELATED PARTY TRANSACTIONS

Some of our directors, executive officers and their affiliates invest ~~their~~ personal funds directly in trust accounts that we manage. For the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, we recorded trust fees from these accounts of ~~$92,000~~$90,000 and ~~$108,000,~~$89,000, respectively. For the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, we recorded trust fees from these accounts of ~~$277,000~~$252,000 and ~~$305,000,~~$276,000, respectively. There was ~~$92,000~~approximately $90,000 and ~~$97,000~~$84,000 due from these accounts as of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively.

The Company engages in transactions with its affiliates in the ordinary course of business. Westwood International and Westwood Management provide investment advisory services to the ~~UCITS Fund and the~~ Westwood Funds®., and Westwood International provides investment advisory services to the UCITS Fund. Certain members of our management serve on the board of directors of the UCITS Fund, and we have capital invested in three of the Westwood Funds®. Under the terms of the investment advisory agreements, the Company earns quarterly fees paid by clients of the fund or by the funds directly. The fees are based on negotiated fee schedules applied to assets under management. ~~These fees are commensurate with market rates.~~ For the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, the Company earned approximately ~~$1.1~~$708,000 and $1.0 million, ~~and $370,000,~~ respectively, in fees from the affiliated funds. For the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, the Company earned approximately ~~$2.8~~$2.3 million and ~~$1.0~~$3.3 million, respectively, in fees from the affiliated funds. These fees do not include fees paid directly to Westwood International by certain clients invested in the UCITS Fund that have an investment management agreement with Westwood International. As of September 30, ~~2017~~2019 and December 31, ~~2016, $398,000~~2018, $240,000 and ~~$270,000,~~$295,000, respectively, of these fees were ~~unpaid~~outstanding and included in “Accounts receivable” on our Condensed Consolidated Balance Sheets.

~~12. COMMITMENTS AND CONTINGENCIES~~

~~On August 3, 2012, AGF Management Limited~~As discussed in Note 4 “Investments,” the Company made a strategic investment in the Private Company during 2018. We previously entered into a separate agreement with this company to implement portfolio management and ~~AGF Investments Inc. (collectively, “AGF”) filed a lawsuit~~digital solutions products. For the three months ended September 30, 2019 and 2018, we incurred approximately $216,000 and $162,000, respectively, in expenses payable to this company. For the ~~Ontario Superior Court of Justice against Westwood, certain Westwood employees~~nine months ended September 30, 2019 and ~~the executive recruiting firm of Warren International, LLC (“Warren”). The action related~~2018, we incurred approximately $796,000 and $767,000, respectively, in expenses payable to the hiring of certain members of Westwood’s global and emerging markets investment team previously employed by AGF. AGF alleged that the former employees breached certain obligations when they resigned from AGF and that Westwood and Warren induced such breaches. AGF was seeking an unspecified amount of damages and punitive damages of $10 million CDN in the lawsuit. On November 5, 2012, Westwood responded to AGF’s lawsuit with a counterclaim against AGF for defamation. Westwood was seeking $1 million CDN in general damages, $10 million CDN in special damages, $1 million CDN in punitive damages, and costs. On November 6, 2012, AGF filed a second lawsuit against Westwood, Westwood Management and an employee of a Westwood subsidiary, alleging that the employee made defamatory statements about AGF. In this ~~second lawsuit, AGF was seeking $5 million CDN in general damages, $1 million CDN per defendant in punitive damages, unspecified special damages, interest and costs.~~

On October 13, 2017, we reached a settlement with AGF that provides for the dismissal of all claims, with prejudice and without any admission of liability. We have agreed to pay AGF a one-time payment of $10 million CDN, half of which is expected to be covered by our insurance. During the third quarter of 2017, we recorded a net $4.0 million ($5 million CDN) charge related to the settlement and associated insurance coverage, with an $8.0 million ($10 million CDN) settlement liability recorded in “Accrued lawsuit settlement” and a $4.0 million ($5 million CDN) receivable from our insurance providercompany. These expenses are included in ~~“Other current assets”~~“Information technology expenses” on our Condensed Consolidated ~~Balance Sheets at~~ Statements of Comprehensive Income.

Additionally discussed in Note 4 “Investments,” the Company made an investment in Charis in September 2019. We previously entered into an agreement to sublease a portion of our corporate headquarters to a subsidiary of Charis. For the three and nine months ended September 30, ~~2017.~~

~~Our policy is to not accrue legal fees~~2019, we recorded other income of approximately $33,000 and ~~directly related costs as part of potential loss contingencies. We have agreed with our Directors & Officers insurance provider that 50% of the defense costs~~$110,000, respectively, related to ~~both AGF claims, excluding Westwood’s counterclaim against AGF, are covered by insurance.~~the sublease agreement. This income is included in “Other Income” on our Condensed Consolidated Statements of Comprehensive Income. We ~~expense legal fees and directly related costs as incurred. We received insurance proceeds of approximately $276,000 and $928,000 during~~did not record any income from Charis for the three or nine months ended September 30, ~~2017~~2018.

13. LEASES

We have operating leases for corporate offices and ~~2016, respectively.~~for certain office equipment. The lease terms for our corporate offices vary and have remaining lease terms ranging from one to seven years. The corporate office lease payments are fixed and are based upon contractual monthly rates. The majority of our corporate office leases do not include options to extend or terminate the leases, and each lease is re-negotiated before its leasing period ends. We ~~had~~lease office equipment for a ~~receivable~~period of ~~approximately $113,000~~two years. In June 2019, we entered into a sublease agreement for a portion of newly built-out space in our corporate office. The sublease agreement has a term of seven years, and ~~$186,000 as of September 30, 2017 and December 31, 2016, respectively, which represents our current minimum estimate of expenses that we expect to recover under our insurance policy. This receivable~~the sublease income is ~~part of~~included in “Other ~~current assets”~~income” on our Condensed Consolidated ~~Balance Sheets.~~Statements of Comprehensive Income.

The following table presents the components of lease costs, as well as supplemental cash flow information, related to our leases (in thousands):

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

~~13.~~



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Operating lease cost	$	449	$	426	$	1,346	$	1,279
Sublease income	$	33	$	—	$	110	$	—
Supplemental cash flow information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	524	$	475	$	1,568	$	1,415
Right-of-use assets obtained in exchange for lease obligations	$	—	$	569	$	—	$	1,010

Operating lease cost is included in “General and administrative” expense on our Condensed Consolidated Statements of Comprehensive Income.

The following table presents information regarding our operating leases (in thousands, except years and rates):



	September 30, 2019			December 31, 2018
Operating lease right-of-use assets	$	7,851		$	8,698

Operating lease liabilities	$	1,554		$	1,432
Non-current lease liabilities	8,158			9,331
Total lease liabilities	$	9,712		$	10,763

Weighted-average remaining lease term (in years)	5.9			6.6
Weighted-average discount rate	5.0		%	5.0		%

The maturities of lease liabilities are as follows (in thousands):



Year Ending December 31,	Operating Leases
2019 (excluding the nine months ended September 30, 2019)	$	524
2020	2,117
2021	2,081
2022	1,717
2023	1,719
2024	1,550
Thereafter	1,852
Total undiscounted lease payments	$	11,560
Less discount	(1,848		)
Total lease liabilities	$	9,712

remaining lease terms ranging from one year to seven years

14. SEGMENT REPORTING

We operate ~~two~~2 segments: Advisory and Trust. These segments are managed separately based on the types of products and services offered and their related client bases. The Company’s segment information is prepared on the same basis that management reviews the financial information for operational decision-making purposes. The Company’s chief operating decision maker, our Chief Executive Officer, evaluates the performance of our segments based primarily on fee revenues and Economic Earnings. Westwood Holdings Group, Inc., the parent company of Advisory and Trust, does not have revenues and is the entity in which we record typical holding company expenses including employee compensation and benefits for holding company employees, directors’ fees and investor relations costs. All segment

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

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.

Advisory

Our Advisory segment provides investment advisory services to (i) corporate ~~retirement~~pension and profit sharing plans, public employee retirement funds,Taft Hartley plans, endowments, foundations and individuals, (ii) subadvisory relationships where Westwood provides investment management services to the Westwood Funds®, funds offered by other financial institutions and funds offered by our Trust segment and (iii) pooled investment vehicles, including the UCITS Fund ~~as well as~~and collective investment ~~subadvisory services to mutual funds and our Trust segment.~~trusts. Westwood Management ~~Corp.~~ and Westwood International, which provide investment advisory services to ~~clients of~~ similar ~~type,~~clients, are included in our Advisory ~~segment along with Westwood Advisors, L.L.C.~~segment.

Trust

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

~~WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~


(in thousands)	Advisory		Trust			Westwood Holdings			Eliminations			Consolidated		Advisory		Trust		Westwood Holdings			Eliminations			Consolidated
Three Months Ended September 30, 2017
Three Months Ended September 30, 2019
Net fee revenues from external sources	$	25,334	$	7,858		$	—		$	—		$	33,192	$	13,318	$	6,281	$	—		$	—		$	19,599
Net intersegment revenues	2,026		57			—			(2,083		)	—		755		38		—			(793		)	—
Net interest and dividend revenue	111		43			—			—			154		179		69		3			—			251
Other, net	157		(11		)	—			—			146		39		3		—			—			42
Total revenues	$	27,628	$	7,947		$	—		$	(2,083	)	$	33,492	$	14,291	$	6,391	$	3		$	(793	)	$	19,892
Economic Earnings	$	8,786	$	1,560		$	(1,356	)	$	—		$	8,990	$	3,574	$	2,055	$	(1,758	)	$	—		$	3,871
Less: Restricted stock expense												4,233												2,249
Intangible amortization												469												445
Deferred taxes on goodwill												156												60
Net income												$	4,132											$	1,117

Segment assets	$	208,444	$	73,170		$	18,388		$	(108,640	)	$	191,362	$	236,710	$	66,352	$	21,541		$	(147,289	)	$	177,313
Segment goodwill	$	5,219	$	21,925		$	—		$	—		$	27,144	$	3,403	$	16,401	$	—		$	—		$	19,804

Three Months Ended September 30, 2016
Three Months Ended September 30, 2018
Net fee revenues from external sources	$	23,673	$	7,690		$	—		$	—		$	31,363	$	22,023	$	7,191	$	—		$	—		$	29,214
Net intersegment revenues	5,275		41			—			(5,316		)	—		1,756		58		—			(1,814		)	—
Net interest and dividend revenue	128		5			—			—			133		187		52		—			—			239
Other, net	279		2			—			—			281		389		12		—			—			401
Total revenues	$	29,355	$	7,738		$	—		$	(5,316	)	$	31,777	$	24,355	$	7,313	$	—		$	(1,814	)	$	29,854
Economic Earnings	$	10,270	$	1,690		$	(1,345	)	$	—		$	10,615	$	10,553	$	1,357	$	(2,369	)	$	—		$	9,541
Less: Restricted stock expense												4,082												3,695
Intangible amortization												490												419
Deferred taxes on goodwill												156												59
Net income												$	5,887											$	5,368

Segment assets	$	163,826	$	65,986		$	13,046		$	(73,160	)	$	169,698	$	220,138	$	60,658	$	16,839		$	(105,008	)	$	192,627
Segment goodwill	$	5,219	$	21,925		$	—		$	—		$	27,144	$	3,403	$	16,401	$	—		$	—		$	19,804

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)




(in thousands)	Advisory		Trust			Westwood Holdings			Eliminations			Consolidated
Nine Months Ended September 30, 2019
Net fee revenues from external sources	$	44,719	$	19,264		$	—		$	—		$	63,983
Net intersegment revenues	2,638		180			—			(2,818		)	—
Net interest and dividend revenue	596		247			3			—			846
Other	645		(11		)	—			—			634
Total revenues	$	48,598	$	19,680		$	3		$	(2,818	)	$	65,463
Economic Earnings	$	13,665	$	4,872		$	(5,776	)	$	—		$	12,761
Less: Restricted stock expense												7,932
Intangible amortization												1,281
Deferred taxes on goodwill												178
Net income												$	3,370

Nine Months Ended September 30, 2018
Net fee revenues from external sources	$	72,963	$	22,265		$	—		$	—		$	95,228
Net intersegment revenues	5,639		171			—			(5,810		)	—
Net interest and dividend revenue	464		152			—			—			616
Other	331		6			—			—			337
Total revenues	$	79,397	$	22,594		$	—		$	(5,810	)	$	96,181
Economic Earnings	$	37,463	$	4,034		$	(7,069	)	$	—		$	34,428
Less: Restricted stock expense												11,658
Intangible amortization												1,255
Deferred taxes on goodwill												177
Net income												$	21,338

(in thousands) Advisory Trust Westwood
Holdings Eliminations Consolidated
Nine Months Ended September 30, 2017
Net fee revenues from external sources $ 75,036
$ 23,570
$ —
$ —
$ 98,606
Net intersegment revenues 6,050
160
—
(6,210 ) —
Net interest and dividend revenue 391
67
—
—
458
Other, net 811
(4 ) —
—
807
Total revenues $ 82,288
$ 23,793
$ —
$ (6,210 ) $ 99,871
Economic Earnings $ 31,372
$ 4,528
$ (4,592 ) $ —
$ 31,308
Less: Restricted stock expense 12,298
Intangible amortization 1,449
Deferred taxes on goodwill 469
Net income $ 17,092

Nine Months Ended September 30, 2016
Net fee revenues from external sources $ 68,563
$ 22,798
$ —
$ —
$ 91,361
Net intersegment revenues 14,455
82
—
(14,537 ) —
Net interest and dividend revenue 360
9
—
—
369
Other, net 462
(263 ) —
—
199
Total revenues $ 83,840
$ 22,626
$ —
$ (14,537 ) $ 91,929
Economic Earnings $ 30,493
$ 4,160
$ (5,559 ) $ —
$ 29,094
Less: Restricted stock expense 12,164
Intangible amortization 1,470
Deferred taxes on goodwill 390
Net income $ 15,070

We are providing a performance measure that we refer to as Economic Earnings. Our management and the Board of Directors review Economic Earnings to evaluate our ongoing performance, allocate resources and determine our dividend policy. We also believe that this performance measure is useful for management and investors when evaluating our underlying operating and financial performance and our available resources.

In calculating Economic Earnings, we add to net income the non-cash expense associated with equity-based compensation awards of restricted stock, amortization of intangible assets and the deferred taxes related to the tax-basis amortization of goodwill. Although depreciation on property and equipment is a non-cash expense, we do not add it back when calculating Economic Earnings because depreciation charges represent a decline in the value of the related assets that will ultimately require replacement.

The following tables provide a reconciliation of Net income to Economic Earnings (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Net income	$	1,117	$	5,368	$	3,370	$	21,338
Add: Stock-based compensation expense	2,249		3,695		7,932		11,658
Add: Intangible amortization	445		419		1,281		1,255
Add: Tax benefit from goodwill amortization	60		59		178		177
Economic Earnings	$	3,871	$	9,541	$	12,761	$	34,428

Three Months Ended September 30,
2017 2016
Net income $ 4,132
$ 5,887
Add: Stock-based compensation expense 4,233
4,082
Add: Intangible amortization 469
490
Add: Tax benefit from goodwill amortization 156
156
Economic Earnings $ 8,990
$ 10,615

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Nine Months Ended September 30,
2017 2016
Net Income $ 17,092
$ 15,070
Add: Stock-based compensation expense 12,298
12,164
Add: Intangible amortization 1,449
1,470
Add: Tax benefit from goodwill amortization 469
390
Economic Earnings $ 31,308
$ 29,094

~~14.~~15. SUBSEQUENT EVENTS

Dividend Declared

In October ~~2017,~~2019, Westwood’s Board of Directors declared a quarterly cash dividend of ~~$0.68~~$0.72 per common share, ~~an increase of 10% from the previous quarterly dividend rate,~~ payable on January 2, ~~2018~~2020, to stockholders of record on December ~~8, 2017.~~6, 2019.

~~AGF Lawsuits~~Share Repurchase Program

OnIn October ~~13, 2017,~~2019, we ~~reached a settlement with AGF regarding their lawsuits and~~repurchased 42,171shares of our ~~related counterclaim. See Note 12 “Commitments and Contingencies”~~common stock for ~~additional discussion~~an aggregate purchase price of ~~the settlement.~~approximately $1.2 million.


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

Forward-Looking Statements

Statements in this report and the Annual Report to Stockholders that are not purely historical facts, including, without limitation, statements about our expected future financial position, results of operations or cash flows, as well as other statements including, without limitation, words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “should,” “could,” “goal,” “potentially,” “may,” ~~“target,” “designed,” “on track,” “comfortable with,” “optimistic”~~“designed” 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, ~~2016,~~2018, filed with the SEC, and those risks set forth below:

the composition and market value of our assets under management;

regulations adversely affecting the financial services industry;

competition in the investment management industry;

our assets under management includes investments in foreign companies;

our ability to develop and market new investment strategies successfully;

our reputation and our relationships with current and potential customers;

our ability to attract and retain qualified personnel;

our ability to maintain effective cyber security;

our ability to perform operational tasks;

our ability to identify and execute on our strategic initiatives;

our ability to maintain effective information systems;

our ability to ~~pursue~~select and ~~properly integrate acquired businesses;~~oversee third-party vendors;

litigation risks;

our ability to properly address conflicts of interest;

our ability to maintain adequate insurance coverage;

our ability to maintain an effective system of internal controls;

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

our relationships with investment consulting firms; and

the significant concentration of our revenues in a small number of customers.

You should not unduly rely on these forward-looking statements, which speak only as of the date of this report. We are not obligated and do not undertake an obligation 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 or otherwise.

Overview

We manage investment assets and provide services for our clients through our subsidiaries, Westwood Management Corp. and Westwood Advisors, L.L.C. (each of which is an SEC-registered investment advisor and referred to hereinafter together as “Westwood Management”), Westwood International Advisors Inc. (“Westwood International”) and Westwood Trust. Westwood Management provides investment advisory services to institutional investors, a family of mutual funds called the Westwood Funds®, other mutual funds, an ~~Ireland-domiciled fund organized~~Irish investment company authorized pursuant to the European ~~Union’s Undertakings~~Communities (Undertakings for Collective Investment in Transferable ~~Securities~~Securities) Regulation 2011 (as amended) (the “UCITS Fund”), ~~individual investors~~individuals and clients of Westwood Trust. Westwood International provides investment advisory services to institutional clients, the Westwood Funds®, other mutual funds, the UCITS Fund and clients of Westwood Trust. Westwood Trust provides trust and custodial services and participation in ~~self-sponsored~~ common trust funds to institutions and high net worth individuals. Our revenues are generally derived from fees based on a percentage of assets under management.

Divestiture of our Omaha Operations

On September 6, 2017, we entered into an agreement to sell the Omaha-based component of our ~~Private~~ Wealth Management business. The sale ~~is expected to close~~closed on ~~December 31, 2017, subject to usual and customary closing conditions and the receipt of regulatory approval from the Nebraska Department of Banking.~~January 12, 2018. We ~~expect to receive~~received proceeds of $7$10.0 million, ~~to $10.5 million, subject to client consents and~~ net of working capital ~~requirements; however, we do not expect to record~~requirements, and recorded a ~~material~~ gain ~~or loss~~ on the sale ~~within~~of $524,000, which is included as “Gain on sale of operations” on our Consolidated Statement of Comprehensive Income. ~~The sale will reduce our goodwill and intangible assets but is not expected to have a material impact to our Consolidated Balance Sheet.~~ The component is reported within both our Advisory and Trust segments. The sale ~~does~~did not represent a major strategic shift in our business and ~~does~~did not qualify for discontinued operations reporting.

Revenues

We derive our revenues from investment advisory fees, trust fees and other revenues. Our advisory fees are generated by Westwood Management and Westwood International, which manage client accounts under investment advisory and subadvisory agreements. Advisory fees are typically calculated based on a percentage of assets under management and are paid in accordance with the terms of the agreements. Advisory fees are paid quarterly in advance based on assets under management on the last day of the preceding quarter, quarterly in arrears based on 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. We recognize advisory fee revenues as services are rendered. A limited number of our clients have a contractual performance-based fee component in their contracts, which generates additional revenues if we outperform a specified index over a specific period of time. We record revenues from performance-based fees at the end of the measurement period. Since our advance paying clients' billing periods coincide with the calendar quarter to which such payments relate, revenue is recognized within the quarter, and our Condensed Consolidated Financial Statements contain no deferred advisory fee revenues.

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. Westwood Trust also provides trust services to a small number of clients on a fixed fee basis. ~~During the first quarter of 2016, Westwood~~ Trust ~~changed the billing terms for most of our trust clients from quarterly in advance, based on assets under management on the last day of the preceding quarter, to~~fees are primarily either calculated quarterly in arrears based on a daily average of assets under management for the quarter. Since billing periods for most of Westwood Trust’s clients coincide with the calendar quarter or monthly based on the month-end assets under management. Since billing periods for most of Westwood Trust's clients coincide with the calendar quarter, revenue is fully recognized within the quarter, and our Condensed Consolidated Financial Statements do not contain a significant amount of deferred trust fee revenues.

Our other revenues generally consist of interest and investment income. Although we generally invest most of our cash in U.S. Treasury securities, we also invest in equity and fixed income instruments and money market funds, including seed money for new investment strategies.

Employee Compensation and Benefits

Employee compensation and benefits ~~costs~~expenses generally consist of salaries, incentive compensation, equity-based compensation ~~expense~~ and benefits.

Sales and Marketing

Sales and marketing ~~costs~~expenses relate to our marketing efforts, including travel and entertainment, direct marketing and advertising costs.

Westwood Mutual Funds

Westwood Mutual Funds expenses relate to our marketing, distribution and administration of the Westwood Funds®.

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.

Professional Services

Professional services expenses generally consist of costs associated with subadvisory fees, audit, tax, legal and other professional services.

~~Legal Settlement~~

~~Legal settlement expenses consist of settlements related to litigation claims, net of any portions covered by our insurance policies.~~

General and Administrative

General and administrative expenses generally consist of costs associated with the lease of our office space, amortization, depreciation, insurance, custody expense, ~~Board of Directors~~Directors' fees, investor relations, licenses and fees, office supplies and other miscellaneous expenses.

Gain (Loss) on Foreign Currency Transactions

Gain (loss) on foreign currency transactions consists of foreign currency transactions primarily related to Westwood International Advisors.

Gain on Sale of Operations

Gain on sale of operations includes the gain on the sale of our Omaha-based component of our Wealth Management business.

Other Income

Other Income consists of income from the sublease of a portion of our corporate office.

Assets Under Management

Assets under management (“AUM”) ~~increased $2.3~~decreased $5.8 billion to ~~$23.6~~$15.0 billion at September 30, ~~2017~~2019 compared with ~~$21.3~~$20.8 billion at September 30, ~~2016 as a result of market appreciation, partially offset by net outflows over the last twelve months.~~2018. The average of beginning and ending assets under management for the third quarter of ~~2017~~2019 was ~~$23.1~~$15.2 billion compared to ~~$21.1~~$21.2 billion for the third quarter of ~~2016. The increase in average assets under management is~~2018. These decreases are due to net outflows, including $274 million of outflows related to the sale of the Omaha-based component of our Wealth Management business, partially offset by market appreciation, over the last twelve ~~months and $713 million in a long-only convertibles fund that transitioned from assets under advisement (“AUA”) to AUM during the third quarter of 2017.~~months.

The following table displays assets under management as of September 30, ~~2017~~2019 and ~~2016:~~2018 (in millions):

% Change
September 30, 2017
As of September 30, vs.
2017 2016 September 30, 2016
(in millions)
Institutional $ 13,658
$ 12,192
12 %
Private Wealth 5,822
5,327
9
Mutual Funds 4,144
3,753
10
Total Assets Under Management⁽¹⁾
$ 23,624
$ 21,272
11 %




	As of September 30,
	2019		2018		% Change
Institutional⁽¹⁾	$	8,347	$	11,979	(30	)%
Wealth Management⁽²⁾	4,301		4,790		(10	)
Mutual Funds⁽³⁾	2,338		4,031		(42	)
Total Assets Under Management⁽⁴⁾	$	14,986	$	20,800	(28	)%

________________

(1)

Institutional includes (i) separate accounts of corporate pension and profit sharing plans, public employee retirement funds, Taft-Hartley plans, endowments, foundations and individuals; (ii) subadvisory relationships where Westwood provides investment management services for funds offered by other financial institutions; (iii) pooled investment vehicles, including the UCITS Fund and collective investment trusts; and (iv) managed account relationships with brokerage firms and other registered investment advisors that offer Westwood products to their customers.

(2)

Wealth Management includes assets for which Westwood Trust provides trust and custodial services and participation in common trust funds that it sponsors to institutions and high net worth individuals pursuant to trust or agency agreements and assets for which Westwood Advisors, L.L.C. provided advisory services to high net worth individuals. Investment subadvisory services are provided for the common trust funds by Westwood Management, Westwood International Advisors and external unaffiliated subadvisors. For certain assets in this category Westwood Trust currently provides limited custody services for a minimal or no fee, viewing 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 currently held in custody for clients where we believe such assets may convert to fee-generating managed assets following an intergenerational transfer of wealth.


(3)	Mutual Funds include the Westwood Funds®, a family of mutual funds for which Westwood Management serves as advisor. These funds are available to individual investors, as well as offered as part of our investment strategies for institutional and wealth management accounts.

(4)

AUM excludes ~~$362~~$266 million and $268 million of assets under advisement (“AUA”) as of September 30, ~~2017~~2019 and 2018, respectively, related to our model portfolios for which we provided consulting advice but for which we did not have direct discretionary investment authority. During the third quarter of 2017, approximately $713 million related to a long-only convertibles fund transitioned from AUA to AUM. AUM excluded approximately $1.1 billion of AUA as of September 30, 2016 related to model portfolios, including the long-only convertibles fund, for which we provided consulting advice but for which we did not have direct discretionary investment authority.

~~Institutional~~ includes separate accounts of corporate pension and profit sharing plans, public employee retirement funds, Taft Hartley plans, endowments, foundations and individuals; subadvisory relationships where Westwood provides investment management services for funds offered by other financial institutions; pooled investment vehicles, including the UCITS Fund and collective investment trusts; and managed account relationships with brokerage firms and other registered investment advisors that offer Westwood products to their customers.

~~Private Wealth~~ includes assets for which Westwood Trust provides trust and custodial services and participation in common trust funds that it sponsors to institutions and high net worth individuals pursuant to trust or agency agreements and assets for which Westwood Advisors, L.L.C. provides advisory services in ten limited liability companies to high net worth individuals. Investment subadvisory services are provided for the common trust funds by Westwood Management, Westwood International and external, unaffiliated subadvisors. For certain assets in this category, Westwood Trust currently provides limited custody services for a minimal or no fee, viewing 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 currently held in custody for clients where we believe such assets may convert to fee-generating managed assets upon an inter-generational transfer of wealth.

~~Mutual Funds~~ ~~include the Westwood Funds~~®, a family of mutual funds for which Westwood Management serves as advisor. These funds are available to individual investors, as well as offered as part of our investment strategies for institutional and private wealth accounts.

Roll-Forward of Assets Under Management


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2017			2016			2017			2016			2019			2018			2019			2018
Institutional
Beginning of period assets	$	12,773		$	11,921		$	11,911		$	11,752		$	8,377		$	12,457		$	9,327		$	14,421
Inflows⁽¹⁾	1,113			420			2,173			1,133
Inflows													158			402			535			1,187
Outflows	(659		)	(606		)	(1,954		)	(1,902		)	(286		)	(1,265		)	(2,790		)	(3,858		)
Net flows	454			(186		)	219			(769		)
Market appreciation	431			457			1,528			1,209
Net client flows													(128		)	(863		)	(2,255		)	(2,671		)
Market appreciation (depreciation)													98			385			1,275			229
Net change	885			271			1,747			440			(30		)	(478		)	(980		)	(2,442		)
End of period assets	$	13,658		$	12,192		$	13,658		$	12,192		$	8,347		$	11,979		$	8,347		$	11,979

Private Wealth
Wealth Management
Beginning of period assets	$	5,685		$	5,361		$	5,520		$	5,393		$	4,399		$	4,935		$	4,043		$	5,566
Inflows	194			104			509			274			87			106			326			293
Outflows(1)	(216		)	(245		)	(710		)	(626		)	(237		)	(422		)	(576		)	(1,242		)
Net flows	(22		)	(141		)	(201		)	(352		)
Market appreciation	159			107			503			286
Net client flows													(150		)	(316		)	(250		)	(949		)
Market appreciation (depreciation)													52			171			508			173
Net change	137			(34		)	302			(66		)	(98		)	(145		)	258			(776		)
End of period assets	$	5,822		$	5,327		$	5,822		$	5,327		$	4,301		$	4,790		$	4,301		$	4,790

Mutual Funds
Beginning of period assets	$	4,092		$	3,690		$	3,810		$	3,617		$	2,612		$	4,199		$	3,236		$	4,242
Inflows	293			214			792			674			98			164			351			716
Outflows	(334		)	(224		)	(803		)	(798		)	(411		)	(466		)	(1,687		)	(1,034		)
Net flows	(41		)	(10		)	(11		)	(124		)
Market appreciation	93			73			345			260
Net client flows													(313		)	(302		)	(1,336		)	(318		)
Market appreciation (depreciation)													39			134			438			107
Net change	52			63			334			136			(274		)	(168		)	(898		)	(211		)
End of period assets	$	4,144		$	3,753		$	4,144		$	3,753		$	2,338		$	4,031		$	2,338		$	4,031

Total
Total AUM
Beginning of period assets	$	22,550		$	20,972		$	21,241		$	20,762		$	15,388		$	21,591		$	16,606		$	24,229
Inflows	1,600			738			3,474			2,081			343			672			1,212			2,196
Outflows	(1,209		)	(1,075		)	(3,467		)	(3,326		)	(934		)	(2,153		)	(5,053		)	(6,134		)
Net flows	391			(337		)	7			(1,245		)
Market appreciation	683			637			2,376			1,755
Net client flows													(591		)	(1,481		)	(3,841		)	(3,938		)
Market appreciation (depreciation)													189			690			2,221			509
Net change	1,074			300			2,383			510			(402		)	(791		)	(1,620		)	(3,429		)
End of period assets	$	23,624		$	21,272		$	23,624		$	21,272		$	14,986		$	20,800		$	14,986		$	20,800

________________


(1)	~~Institutional inflows~~Wealth Management outflows include approximately ~~$713~~$271 million and $802 million of assets related to ~~a long-only convertibles fund, which transitioned from AUA to AUM during~~ the ~~third quarter~~sale of ~~2017.~~the Omaha-based component of our Wealth Management business for the three and nine months ended September 30, 2018, respectively.

Three months ended September 30, ~~2017~~2019 and ~~2016~~2018

The ~~$1.1 billion increase~~$402 million decrease in assets under management for the three months ended September 30, ~~2017~~2019 was due to net outflows of $591 million, offset by market appreciation of ~~$683 million and net inflows of $391~~$189 million. Net ~~inflows~~outflows were primarily related to ~~approximately $713 million in~~ our Strategic Global Convertibles strategy that transitioned from AUA to AUM in the third quarter of 2017, as well as net inflows to our Market Neutral Income and Emerging Markets strategies. Inflows were partially offset by net outflows to our SMidCap strategies, Income Opportunity, ~~strategy and~~ LargeCap Value ~~strategy.~~

and SMidCap strategies.

The ~~$300~~$791 million ~~increase~~decrease in assets under management for the three months ended September 30, ~~2016~~2018 was due to net outflows of ~~$337 million~~$1.5 billion, partially offset by market appreciation of ~~$637~~$690 million. Net outflows were primarily related to our ~~SMidCap strategies and LargeCap Value strategy, partially offset by net inflows to our SmallCap Value, Market Neutral Income, and~~ Emerging Markets, ~~strategies.~~SMidCap and Income Opportunity strategies, as well as outflows from the divestiture of our Omaha operations.

Nine months ended September 30, ~~2017~~2019 and ~~2016~~2018

The ~~$2.4~~$1.6 billion ~~increase~~decrease in assets under management for the nine months ended September 30, ~~2017~~2019 was due to net outflows of $3.8 billion, offset by market appreciation of ~~$2.4 billion and net inflows of of $7 million.~~$2.2 billion. Net ~~inflows~~outflows were primarily related to ~~approximately $713 million in~~ our ~~Strategic Global Convertibles strategy that transitioned from AUA to AUM in the third quarter of 2017~~Income Opportunity, Emerging Markets, LargeCap Value and SMidCap strategies, partially offset by net inflows to our SmallCap Value ~~Market Neutral Income, and Emerging Markets strategies, partially offset by net outflows to our SMidCap strategies and LargeCap Value~~ strategy.

The ~~$510 million increase~~$3.4 billion decrease in assets under management for the nine months ended September 30, ~~2016~~2018 was due to net outflows of $3.9 billion, partially offset by market appreciation of ~~$1.8 billion, offset by net outflows of $1.2 billion.~~$509 million. Net outflows were primarily related to our Emerging Markets, SMidCap, ~~SmidCap Plus,~~Income Opportunity and LargeCap Value ~~AllCap~~strategies, as well as outflows from the divestiture of our Omaha operations, partially offset by net inflows to our SmallCap Value ~~and Income Opportunity strategies.~~strategy.

Results of Operations

The following table (dollars in thousands) and discussion of our results of operations isare based upon data derived from the ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~comprehensive income~~Comprehensive Income contained in our ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements and should be read in conjunction with those statements included elsewhere in this report.


									% Change		% Change
									Three Months Ended		Nine Months Ended
	Three Months Ended				Nine Months Ended				September 30, 2017		September 30, 2017		Three Months Ended					Nine Months Ended					% Change
	September 30,				September 30,				vs.		vs.		September 30,					September 30,					Three		Nine
	2017		2016		2017		2016		September 30, 2016		September 30, 2016		2019			2018		2019		2018			Months		Months
Revenues:
Advisory fees: asset-based	$	25,334	$	23,447	$	73,619	$	67,928	8	%	8	%	$	13,164		$	22,023	$	44,265	$	69,979		(40	)%	(37	)%
Advisory fees: performance-based	—		226		1,417		635		(100	)	123		154			—		454		2,984			NM		(85	)
Trust fees	7,858		7,690		23,570		22,798		2		3		6,281			7,191		19,264		22,265			(13	)	(13	)
Other revenues	300		414		1,265		568		NM		NM		293			640		1,480		953			NM		NM
Total revenues	33,492		31,777		99,871		91,929		5		9		19,892			29,854		65,463		96,181			(33	)	(32	)
Expenses:
Employee compensation and benefits	15,601		15,637		48,875		47,239		—		3		12,072			14,444		38,060		46,857			(16	)	(19	)
Sales and marketing	457		408		1,447		1,423		12		2		506			549		1,550		1,401			(8	)	11
Westwood mutual funds	977		755		2,749		2,282		29		20		916			979		2,423		2,966			(6	)	(18	)
Information technology	1,855		1,874		5,494		6,039		(1	)	(9	)	2,017			2,332		6,276		6,753			(14	)	(7	)
Professional services	1,681		1,903		4,495		4,707		(12	)	(5	)	940			1,372		3,258		3,677			(31	)	(11	)
Legal settlement	4,009		—		4,009		—		100		100
General and administrative	3,160		2,147		8,697		7,028		47		24		2,317			2,431		7,153		7,300			(5	)	(2	)
(Gain) loss on foreign currency transactions													(402		)	596		1,142		(823		)	NM
Total expenses	27,740		22,724		75,766		68,718		22		10		18,366			22,703		59,862		68,131			(19	)	(12	)
Net operating income													1,526			7,151		5,601		28,050			(79	)	(80	)
Gain on sale of operations													—			—		—		524			NM		NM
Other income													33			—		110		—			NM		NM
Income before income taxes	5,752		9,053		24,105		23,211		(36	)	4		1,559			7,151		5,711		28,574			(78	)	(80	)
Provision for income taxes	1,620		3,166		7,013		8,141		(49	)	(14	)	442			1,783		2,341		7,236			(75	)	(68	)
Net income	$	4,132	$	5,887	$	17,092	$	15,070	(30	)%	13	%	$	1,117		$	5,368	$	3,370	$	21,338		(79	)%	(84	)%

_________________________

NM Not meaningful

Three months ended September 30, ~~2017~~2019 compared to three months ended September 30, ~~2016~~2018

Total Revenues. ~~Our~~ Total revenues ~~increased $1.7~~decreased $10.0 million, or 5%33%, to ~~$33.5~~$19.9 million for the three months ended September 30, ~~2017~~2019 compared with ~~$31.8~~$29.9 million for the three months ended September 30, ~~2016.~~2018. Asset-based advisory fees ~~increased $1.9~~decreased $8.8 million, or 8%40%, and Trust fees ~~increased $0.2~~decreased $0.9 million, or 2%13%, both primarily due to ~~higher~~lower average assets under ~~management due to asset appreciation.~~

~~Legal Settlement~~.management. We recorded ~~a net $4.0 million charge related to a legal settlement and associated insurance coverage recorded during the third quarter~~performance-based fees of ~~2017. See further discussion of the settlement in Note 12 “Commitments and Contingencies” to our Condensed Consolidated Financial Statements included in Part I. Financial Information.~~

~~General and Administrative. General and administrative costs increased $1.1 million, or 47.2%, to $3.2~~$0.2 million for the three months ended September 30, ~~2017~~2019.

Employee Compensation and Benefits. Employee compensation and benefits decreased$2.3 million, or 16%, to $12.1 million for the three months ended September 30, 2019 compared with ~~$2.1~~$14.4 million for the three months ended September 30, ~~2016, primarily~~2018. The decrease was due to ~~a $0.9 million foreign currency transaction loss recorded~~reductions in ~~the third quarter of 2017~~compensation relating to short- and long-term incentive compensation as a result of ~~a 4% decrease in~~lower asset-based revenues as compared to the ~~Canadian dollar exchange rate.~~prior year quarter.

~~Provision for Income Taxes. The effective tax rate~~ Professional Services. Professional services decreased$0.5 million, or 31%, to ~~28.2%~~$0.9 million for the three months ended September 30, ~~2017 from 35.0%~~2019 compared with $1.4 million for the three months ended September 30, ~~2016.~~2018. The decrease iswas primarily ~~related~~due to ~~the tax impact of our legal settlement with AGF~~reductions in subadvisory costs and recruitment fees versus those incurred in the third quarter of ~~2017 and adjustments to uncertain tax positions (net of federal tax benefit)~~2018.

(Gain) loss on foreign currency transactions. We recorded$402,000 in foreign currency gains in the ~~third~~current quarter as a result of ~~2016.~~a 1.1% increase in the Canadian dollar exchange rate.

Provision for Income Taxes. The effective tax rate increased to 28.4% for the three months ended September 30, 2019 from 24.9% for the three months ended September 30, 2018. The current quarter rate was negatively impacted by increased permanent differences between book and tax compensation expense as a result of additional compensation limitations under the Tax Cuts and Jobs Act.

Nine months ended September 30, ~~2017~~2019 compared to nine months ended September 30, ~~2016~~2018

Total Revenues. ~~Our~~ Total revenues ~~increased $8.0~~decreased $30.7 million, or 9%32%, to ~~$99.9~~$65.5 million for the nine months ended September 30, ~~2017~~2019 compared with ~~$91.9~~$96.2 million for the nine months ended September 30, ~~2016. This increase was primarily related to a $5.7 million, or 8%, increase in~~2018. Asset-based advisory fees ~~and a $0.8~~decreased $25.7 million, or 3%37%, ~~increase in Trust fees~~ related to ~~higher~~lower average assets under management, and Trust fees decreased $3.0 million, or 13%, primarily due to ~~market appreciation.~~the sale of the Omaha-based component of our Wealth Management business. Performance-based ~~advisory~~ fees ~~increased by $0.8 million.~~

~~Employee Compensation and Benefits. Employee compensation and benefits costs increased~~decreased $2.5 million to ~~$48.9~~$0.5 million for the nine months ended September 30, ~~2017~~2019 compared with ~~$47.2~~$3.0 million for the nine months ended September 30, ~~2016. The increase is due to higher incentive~~2018.

Employee Compensation and Benefits. Employee compensation and ~~performance-based restricted stock expense as a result of improved pre-tax income as compared to the prior year, as well as merit increases.~~

~~Legal Settlement~~. We recorded a net $4.0 million charge related to a legal settlement and associated insurance coverage recorded during the third quarter of 2017. See further discussion of the settlement in Note 12 “Commitments and Contingencies” to our Condensed Consolidated Financial Statements included in Part I. Financial Information.

~~General & Administrative.~~ ~~General and administrative expenses increased $1.7~~benefits costs decreased $8.8 million, or ~~24%~~19%, to ~~$8.7 million~~

~~for the nine months ended September 30, 2017 compared to $7.0~~$38.1 million for the nine months ended September 30, ~~2016,~~

~~primarily~~2019 compared with $46.9 million for the nine months ended September 30, 2018. The decrease is due to ~~a $1.6 million foreign currency transaction loss recorded~~reductions in compensation relating to the ~~first nine months~~sale of ~~2017~~the Omaha-based component of our Wealth Management business and relating to short- and long-term incentive compensation as a result of ~~an 8%~~lower asset-based revenues as compared to the prior year.

Westwood Mutual Funds. Westwood mutual funds expenses decreased $0.6 million or 18% to $2.4 million for the nine months ended September 30, 2019 compared to $3.0 million for the nine months ended September 30, 2018. The decrease was due to overall reductions in shareholder servicing costs on lower average mutual fund assets under management.

(Gain) loss on foreign currency transactions. We recorded $1.1 million in foreign currency losses for the nine months ended September 30, 2019 as a result of a 3.0% decrease in the Canadian dollar exchange rate.

Gain on Sale of Operations. The nine months ended September 30, 2018 includes a $0.5 million gain on the sale of our Omaha-based component of our Wealth Management business.

Provision for Income Taxes. The effective tax rate ~~decreased~~increased to ~~29.1%~~41.0% for the nine months ended September 30, ~~2017~~2019 from ~~35.1%~~25.3% for the nine months ended September 30, ~~2016. During the first quarter of 2017, we recorded~~2018. The current year rate was negatively impacted by a ~~$1.0 million adjustment to income~~$638,000 discrete tax expense related to ~~excess~~a permanent difference between book and tax ~~benefits~~restricted stock expense based on a decrease in our stock price between grant and vesting dates, as ~~a result~~well as limitations on the deductibility of additional compensation under the ~~adoption of ASU 2016-09~~ ~~Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting~~, which decreased our effective tax rate to 29.1%. Without the adjustment, our effective tax rate for the nine months ended September 30, 2016 would have been 33.0%. Prior to adoption of ASU 2016-09, excess tax benefits were recorded through Additional paid-in capital, with no impact to the effective tax rate. The remaining decrease is related to the tax impact of our legal settlement with AGF in the third quarter of 2017Tax Cuts and ~~adjustments to uncertain tax positions (net of federal tax benefit) recorded in the first and third quarters of 2016.~~Jobs Act.

Supplemental Financial Information

As supplemental information, we provide a non-U.S. generally accepted accounting principles (“non-GAAP”) performance measure that we refer to as Economic Earnings. We provide this measure in addition to, but not as a substitute for, net income reported on a U.S. generally accepted accounting principles (“GAAP”) basis. Our management and Board of Directors review Economic Earnings to evaluate our ongoing performance, allocate resources and review ~~the~~our dividend policy. We believe that this non-GAAP performance measure, while not a substitute for GAAP net income, is useful for management and investors when evaluating our underlying operating and financial performance and our available resources. We do not advocate that investors consider this non-GAAP measure without also considering financial information prepared in accordance with GAAP.

In calculating Economic Earnings, we add back to net income the non-cash expense associated with equity-based compensation awards of restricted stock, amortization of intangible assets and deferred taxes related to the tax-basis amortization of goodwill. Although depreciation on property and equipment is a non-cash expense, we do not add it back when calculating Economic Earnings because depreciation charges represent a decline in the value of the related assets that will ultimately require replacement.

The following tables provide a reconciliation of Net income to Economic Earnings (in thousands, except share and per share amounts):

Three Months Ended September 30, %
Change
2017 2016
Net income $ 4,132
$ 5,887
(30 )%
Add: Stock-based compensation expense 4,233
4,082
4
Add: Intangible amortization 469
490
(4 )
Add: Tax benefit from goodwill amortization 156
156
—
Economic Earnings $ 8,990
$ 10,615
(15 )%
Diluted weighted average shares outstanding 8,420,749
8,179,956

Economic Earnings per share $ 1.07
$ 1.30

Nine Months Ended September 30, %
Change
2017 2016
Net Income $ 17,092
$ 15,070
13 %
Add: Stock-based compensation expense 12,298
12,164
1
Add: Intangible amortization 1,449
1,470
(1 )
Add: Tax benefit from goodwill amortization 469
390
20
Economic Earnings $ 31,308
$ 29,094
8 %
Diluted weighted average shares outstanding 8,350,926
8,212,468

Economic Earnings per share $ 3.75
$ 3.54



	Three Months Ended September 30,				% Change
	2019		2018		% Change
Net income	$	1,117	$	5,368	(79	)%
Add: Stock-based compensation expense	2,249		3,695		(39	)
Add: Intangible amortization	445		419		6
Add: Tax benefit from goodwill amortization	60		59		2
Economic Earnings	$	3,871	$	9,541	(59	)%

Diluted weighted average shares outstanding	8,470,673		8,598,230
Economic Earnings per share	$	0.46	$	1.11



	Nine Months Ended September 30,				% Change
	2019		2018		% Change
Net Income	$	3,370	$	21,338	(84	)%
Add: Stock-based compensation expense	7,932		11,658		(32	)
Add: Intangible amortization	1,281		1,255		2
Add: Tax benefit from goodwill amortization	178		177		1
Economic Earnings	$	12,761	$	34,428	(63	)%

Diluted weighted average shares outstanding	8,467,823		8,561,918
Economic Earnings per share	$	1.51	$	4.02

Liquidity and Capital Resources

We fund our operations and cash requirements with cash generated from operating activities. We may also use cash from operations to pay dividends to our stockholders. As of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, we had no debt. The changes in net cash provided by operating activities generally reflect the changes in earnings plus the effects of non-cash items and changes in working ~~capital.~~capital, including liquidation of investments used to cover current liabilities. 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 nine months ended September 30, ~~2017,~~2019, cash flow provided by operating activities ~~principally our investment advisory business,~~ was ~~$39.4 million.~~$33.6 million, which included a $23.4 million liquidation of current investments partially offset by an $8.1 million decrease in compensation and benefits payables. Cash flow used in investing activities of ~~$537,000~~$4.1 million during the nine months ended September 30, ~~2017~~2019 was primarily related to ~~purchases~~our investments in private equity and Westwood Hospitality Fund I, LLC, while the prior year quarter experienced positive cash flow provided by investing activities as a result of ~~fixed assets.~~the sale of the Omaha-based component of our wealth management business. Cash flow used in financing activities of ~~$23.3~~$24.6 million for the nine months ended September 30, ~~2017 was due to~~2019 reflected the payment of dividends, ~~purchases of~~ restricted stock returned for the payment of taxes and purchases of treasury shares under our share repurchase plan and for our Canadian share award plan.

We had cash and short-term investments of ~~$99.5~~$101.2 million as of September 30, ~~2017~~2019 and ~~$90.2~~$118.2 million as of December 31, ~~2016.~~2018. Cash and cash equivalents ~~as of September 30, 2017 and December 31, 2016 includes~~included approximately ~~$30~~$32 million and ~~$20~~$33 million ~~respectively,~~ of undistributed income from Westwood International ~~that~~as of September 30, 2019 and December 31, 2018, respectively. If these funds were needed for our U.S. operations, we ~~consider~~would be required to beaccrue and pay a 5% incremental Canadian withholding taxes to repatriate all or a portion of these funds. Our current intention is to permanently ~~invested in Canada.~~reinvest the funds subject to withholding taxes outside of the U.S., and our current forecasts do not demonstrate a need to repatriate them to fund our U.S. operations. At September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, working capital aggregated ~~$98.3~~$99.7 million and ~~$86.3~~$112.6 million, respectively.

Westwood Trust must maintain cash and investments in an amount equal to the minimum restricted capital of $4.0 million, as required by the Texas Finance Code. Restricted capital is included in Investments in the accompanying Condensed Consolidated Balance Sheets. At September 30, ~~2017,~~2019, Westwood Trust had approximately ~~$20.4~~$22.1 million in excess of its minimum capital requirement.

Our future liquidity and capital requirements will depend upon numerous factors, including our results of operations, the timing and magnitude of capital expenditures or strategic initiatives, our dividend policy and other business and risk factors described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2018, filed with the SEC. We believe that current cash and short-term investment balances ~~and~~plus cash generated from operations will be sufficient to meet both 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. 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

As of September 30, ~~2017,~~2019, there have been no material changes outside of the ordinary course of business to our contractual obligations since December 31, ~~2016.~~2018. For information regarding our contractual obligations, refer to “Contractual Obligations” in Part II, Item 7. ~~“Management’s~~“Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2018.

Critical and Significant Accounting Policies and Estimates

Effective January 1, ~~2017,~~2019, we adopted ASU ~~2016-09,~~ ~~Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting.~~2016-02, Leases. Refer to Note 2 “Summary of Significant Accounting Policies” and Note 13 “Leases” in our Condensed Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for a detailed description of the adoption of ASU ~~2016-09.~~2016-02.

~~Otherwise, there~~There have been no other significant changes in our critical or significant accounting policies and estimates since December 31, ~~2016.~~2018. Information with respect to our critical accounting policies and estimates that we believe could have the most significant effect on our reported consolidated results and require difficult, subjective or complex judgment by management ~~are~~is described under “Critical Accounting Policies and Estimates” in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2018.

Accounting Developments

Refer to Note 2 “Summary of Significant Accounting Policies” in our ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for a description of recently issued accounting guidance.


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant changes in our Quantitative and Qualitative Disclosures about Market Risk from those previously reported in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.


ITEM 4.	CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure. 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 Exchange Act) 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 period covered by this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

~~For~~During the quarter ended September 30, ~~2017,~~2019, there were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

On October 13, 2017, we reached a settlement with AGF regarding their lawsuits and our related counterclaim. See additional discussion of the settlement and our legal proceedings and procedures in Note 12 “Commitments and Contingencies” in our condensed consolidated financial statements included in Part I, Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q.None.


ITEM 1A.	RISK FACTORS

We face a number of significant risks and uncertainties in our business, including those detailed under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~2018 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, including making an investment in our common stock.


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

The following table displays information with respect to the treasury shares we purchased during the three months ended September 30, ~~2017:~~2019:


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 (or approximate dollar value) of shares that may yet be purchased under the plans or programs (1)
								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 (or approximate dollar value) of shares that may yet be purchased under the plans or programs (1)
Repurchase program ⁽¹⁾	—	$	—	—		$	9,366,000					$	4,108,000
August 1-31, 2019								2,200	$	27.51
September 1-30, 2019								14,322	$	27.36
Canadian Plan ⁽²⁾	—	$	—	—	CDN	$	4,296,000	—	$	—	—	C$	2,259,000
Employee transactions ⁽³⁾								—	$	—	—	—
July 1-31, 2017	713	$	59.97	—		—

(1)

On July 20, 2012, our Board of Directors authorized management to repurchase up to $10.0 million of our outstanding common stock on the open market or in privately negotiated transactions. In July 2016, Westwood's Board of Directors authorized an additional $5.0 million of repurchases under the share repurchase program. The share repurchase program has no expiration date and may be discontinued at any time by the Board of Directors.

(2)

On April 18, 2013, our stockholders approved the Share Award Plan of Westwood Holdings Group, Inc. for Service Provided in Canada to its Subsidiaries (the “Canadian Plan”), which contemplates a trustee purchasing up to $10.0 million CDN of our outstanding common stock on the open market for the purpose of making share awards to our Canadian employees. The Canadian Plan has no expiration date and may be discontinued at any time by the Board of Directors.


(3)	Consists of shares of common stock tendered by an employee at the market close price on the date of vesting in order to satisfy the employee’s minimum tax withholding obligations from vested restricted shares. We anticipate having additional shares tendered in subsequent periods for the same purpose.


ITEM 6.	EXHIBITS




31.1*		Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a)

31.2*		Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 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

101.INS101		~~XBRL Instance Document~~The following financial information from Westwood Holdings Group, Inc.'s Quarterly Report on Form 10-Q for the period ended September 30, 2019, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018; (ii) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018; (iii) Condensed Consolidated Statements of Stockholders' Equity; (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018; and (v) Notes to the Condensed Consolidated Financial Statements.

101.SCH104		~~XBRL Taxonomy Extension Schema Document~~Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101)

101.CAL*		~~XBRL Taxonomy Extension Calculation Linkbase Document~~

101.DEF*		~~XBRL Taxonomy Extension Definition Linkbase Document~~

101.LAB*		~~XBRL Taxonomy Extension Label Linkbase Document~~

101.PRE*		~~XBRL Taxonomy Extension Presentation Linkbase Document~~


*	Filed herewith.


**	Furnished herewith.

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:	October ~~25, 2017~~30, 2019	WESTWOOD HOLDINGS GROUP, INC.

		By:	/s/ Brian O. Casey
			Brian O. Casey
			President and Chief Executive Officer

		By:	/s/ ~~Tiffany B. Kice~~Murray Forbes III
			~~Tiffany B. Kice~~Murray Forbes III
			Chief Financial Officer and Treasurer

3135



	As of September 30, 2017			As of December 31, 2016
Foreign currency translation adjustment	$	(1,849	)	$	(4,287	)
Accumulated other comprehensive loss	$	(1,849	)	$	(4,287	)



	Shares		Weighted Average Grant Date Fair Value
Non-vested, January 1, 2017	607,501		$	54.67
Granted	143,460		61.20
Vested	(182,085	)	57.43
Forfeited	(36,579	)	55.11
Non-vested, September 30, 2017	532,297		$	55.46



Balance at January 1, 2017	$	2,462
Additions for tax positions related to the current year	68
Additions for tax positions related to prior years	—
Reductions for tax positions related to prior years	(768		)
Payments for tax positions related to prior years	(1,566		)
Balance at September 30, 2017	$	196