UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31,September 30, 2007.

OR

For the transition period from            to            .

Commission file number 1-31234

WESTWOOD HOLDINGS GROUP, INC.

(Exact name of registrant as specified in its charter)

200 CRESCENT COURT, SUITE 1200

DALLAS, 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)

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 periodsperiod that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares of the issuer’s common stock, par value $0.01 per share, outstanding as of April 24,October 19, 2007: 6,639,203.6,802,303.

WESTWOOD HOLDINGS GROUP, INC.

INDEX

PART I - FINANCIAL INFORMATION

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of March 31,September 30, 2007 and December 31, 2006

(in thousands, except par value and share amounts)

See notes to consolidated financial statements.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)

See notes to consolidated financial statements.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Three MonthsNine months Ended March 31,September 30, 2007

(in thousands)

(unaudited)

See notes to consolidated financial statements.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

See notes to consolidated financial statements.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. DESCRIPTION OF THE BUSINESS:

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

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

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation

The accompanying consolidated financial statements have been prepared without an audit and reflect all adjustments that, in the opinion of management, are necessary to present fairly our financial position as of March 31,September 30, 2007, and results of operations and cash flows for the periods presented. All such adjustments are normal and recurring in nature. The accompanying consolidated financial statements are presented using the accrual basis of accounting and have been prepared in accordance with the instructions for the presentation of interim financial information as prescribed by the Securities and Exchange Commission (“SEC”) and, therefore, as permitted by SEC rules, do not contain certain information and footnote disclosures required by accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements should be read in conjunction with our consolidated financial statements, and notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2006. Refer to the accounting policies described in the notes to our annual financial statements, which were consistently followed in preparing this interim financial information. Operating results for the threenine months ended March 31,September 30, 2007 are not necessarily indicative of the results for the year ending December 31, 2007 or any future period.

Use of Estimates

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

Revenue Recognition

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

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

AUM. A limited number of our clients have a performance-based fee component in their contract, which could pay us an additional fee if we outperform a specified index over a specific period of time. We would record as revenue any performance-based fees earned at the end of the performance period. Most advisory and trust fees are payable in advance or in arrears on a calendar quarterly basis. Advance payments are deferred and recognized over the periods services are performed. Since most of our advance paying clients’ billing periods coincide with the calendar quarter to which payment relates, the revenue related to those

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

clients is fully recognized within the quarter; consequently, there is not a significant amount of deferred revenue contained in these financial statements. Deferred revenue is shown on the balance sheet under the heading of “Other current liabilities”. Other revenues generally consist of interest and investment income. These revenues are recognized as earned or as the services are performed.

Cash and Cash Equivalents

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

Investments

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

Goodwill

During the third quarter of 2006,2007, we completed our annual impairment assessment as required by the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No.142. No impairment loss was required. We perform our annual impairment assessment as of July 1.

Federal Income Taxes

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

Fair Value of Financial Instruments

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

Earnings per Share

Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding for the periods ended March 31,September 30, 2007 and 2006, respectively. Diluted earnings per share for these periods is computed based on the weighted average number of

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

shares outstanding plus the effect of the dilutive impact of stock options and shares of restricted stock granted to employees and non-employee directors. Diluted earnings per common share is computed using the treasury stock method.

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

		Three months ended September 30,						Nine months ended September 30,
		2007			2006			2007			2006
Net income		$	1,682		$	921		$	4,662		$	3,203
Weighted average shares outstanding – basic			5,937,270			5,662,064			5,820,673			5,566,779
Dilutive potential shares from stock options			41,942			42,522			44,365			45,737
Dilutive potential shares from restricted shares			284,010			112,744			277,158			—
Weighted average shares outstanding – diluted			6,263,222			5,817,330			6,142,196			5,612,516

Stock BasedStock-Based Compensation

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

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

3. INVESTMENTS:

Investment balances are presented in the table below (in thousands). All of these investments are carried at market value. The money market funds are accounted for as available for sale securities. The other investments are accounted for as trading securities.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

4. EQUITY:

On July 26, 2007, we declared a quarterly cash dividend of $0.25 per share and a special cash dividend of $0.25 per share on common stock both payable on October 1, 2007 to stockholders of record on September 14, 2007.

On July 26, 2007, we granted an aggregate of 172,600 shares of restricted stock to certain employees, non-employee directors and a non-employee consultant. These shares are subject to vesting conditions as described in “Note 5. Stock Based Compensation”.

On July 1, 2007, we purchased 26,652 shares of our common stock from employees of Westwood to satisfy tax obligations related to vested restricted shares. The shares were purchased at $34.16, the closing price of our common stock on that date, and are shown as treasury shares in the equity section of our balance sheet at cost.

On April 26, 2007, we declared a quarterly cash dividend of $0.20 per share on common stock payable on July 2, 2007 to stockholders of record on June 15, 2007.

On February 22, 2007, we purchased 5,497 shares of our common stock from employees of Westwood to satisfy tax obligations related to vested restricted shares. The shares were purchased at $23.88, the closing price of our common stock on that date, and are shown as treasury shares in the equity section of our balance sheet at cost.

On February 7, 2007, we declared a quarterly cash dividend of $0.20 per share on common stock payable on April 2, 2007 to stockholders of record on March 15, 2007.

5. STOCK BASEDSTOCK-BASED COMPENSATION

We have issued stock options and restricted shares to our employees, non-employee directors and a non-employee directors.consultant. The Third Amended and Restated Westwood Holdings Group, Inc. Stock Incentive Plan (the “Plan”) reserves shares of Westwood common stock for issuance to eligible employees, directors and directorsconsultants of Westwood or its subsidiaries in the form of restricted stock and stock options. The total number of shares that may be issued under the Plan (including the predecessor plans to the Plan) may not exceed 1,948,100 shares. In the event of a change in control of Westwood, the Plan contains provisions providing for the acceleration of the vesting of restricted stock and stock options. At March 31,September 30, 2007, approximately 583,000425,000 shares remain available for issuance under the Plan.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

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

Restricted Stock

We have granted restricted stock to employees, and non-employee directors and a non-employee consultant, which are subject to a service condition, and to our Chief Executive Officer and Chief Investment Officer, which are subject to a service condition and performance goals. Until the shares vest, they are restricted from sale, transfer or assignment in accordance with the terms of the agreements under which they were issued. We calculate compensation cost for restricted stock grants by using the fair market value of our common stock at the date of grant, the number of shares issued and an estimate of shares that will not vest due to forfeitures. This compensation cost is amortized on a straight-line basis over the applicable vesting period. As of March 31,September 30, 2007, there was approximately $12.5$15.0 million of unrecognized compensation cost, which we expect to recognize over a weighted-average period of 2.52.6 years. In order to satisfy tax liabilities that employees will owe on their shares that vest, we may withhold a sufficient number of vested shares from employees on or about the date vesting occurs. For 2007, we estimate that the number of shares that could be withheld for this purpose could total approximately 55,00033,000 shares. Our two types of restricted stock grants are discussed below.

Employee and non-employee director restricted share grants

Restricted stock granted to employees vest over four years and the non-employee directors’ shares vest over one year. For the nine months ended September 30, 2007, we recorded $2.9 million of expense for these grants. The following table details the status and changes in our restricted stock grants that are subject only to a service condition for the threenine months ended March 31,September 30, 2007:

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Certain employees that retired from Westwood in the first three monthsquarter of 2007 had a portion of their non-vested restricted shares vest ahead of the vesting schedule. The total fair value of shares vested during the threenine months ended March 31,September 30, 2007 and 2006 was $36,000$6.4 million and zero,$2.5 million, respectively.

CEO and CIO performance-based restricted share grants

We granted restricted shares to our Chief Executive Officer and the Chief Investment Officer that vest over four years and six years, respectively, provided annual performance goals established by the Compensation Committee of Westwood’s board of directors are met. In each year during the applicable vesting period, the Compensation Committee will establish a specific goal for that year’s vesting of the restricted shares, which will be based in all cases upon Westwood’s adjusted pre-tax income, as defined. In February 2007, the Compensation Committee established the goal for 2007 as an increase of at least 7% in adjusted pre-tax income over the adjusted pre-tax

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

income for the year 2006. If in any year during the vesting period the performance goal is not met, the Compensation Committee may establish a goal for a subsequent vesting period, which if achieved or exceeded may result in full or partial vesting of the shares that did not otherwise become vested in a prior year. However, in no event will the maximum number of shares, which may become vested over the vesting period, exceed 100,000 shares in the case of our Chief Executive Officer and 300,000 shares in the case of our Chief Investment Officer. If a portion of the performance-based restricted shares do not vest, no compensation expense is recognized for that portion and any previously recognized compensation expense related to the shares that do not vest would be reversed.

Because the performance goal was met in 2006, the shares subject to vesting were vested in substance, but required certification by the Compensation Committee, at which time a share price was determined for tax purposes. On February 22, 2007, the 2006 shares, which were expensed in 2006, were certified as vested and the total fair value of the shares was determined to be $1,791,000, utilizing a share price of $23.88, the closing price of our common stock as of the day of certification. In the second quarters of 2007 and 2006, we concluded that it was probable that we would meet the performance goals required in order for the applicable percentage of the performance-based restricted shares awarded to our Chief Executive Officer and Chief Investment Officer to vest in each year. As a result, we recognized expense of approximately $470,000 in both the second and third quarters of the current and prior years related to these performance-based restricted stock grants.

Stock Options

Options granted under the Plan have a maximum ten-year term and vested over a period of four years. All of our stock options are vested and exercisable. All of our outstanding and exercisable options were fully expensed in 2006. The following table sets forth the summary of option activity under our stock option program for the threenine months ended March 31,September 30, 2007:

		Options			Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Options outstanding, January 1, 2007		124,531			$	12.92
Granted		—				—
Exercised		(41,356	)			12.91
Forfeited/expired		—				—
Options outstanding and exercisable, September 30, 2007		83,175				12.92		4.76		$	1,779,000

The total intrinsic value of options exercised during the threenine months ended March 31,September 30, 2007 and 2006 was $95,000$541,000 and $34,000,$141,000, respectively. Options exercised represent newly issued shares.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

6. SEGMENT REPORTING:

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

Westwood Management

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

Westwood Trust

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

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

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Statements in this report that are not purely historical facts, including statements about our expected future financial position, results of operations or cash flows, as well as other statements including words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “should,” “could,” “goal,” “target,” “designed,” “on track,” “comfortable with,” “optimistic” and other similar expressions, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results and the timing of some events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including, without limitation, the risks described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2006 filed with the SEC, and those set forth below:

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

Overview

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

Revenues

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

subadvisory agreements. Advisory fees are calculated based on a percentage of assets under management, and are paid in accordance with the terms of the agreements. Westwood Management’s advisory fees are paid quarterly in advance based on the assets under management on the last day of the preceding quarter, quarterly in arrears based on the assets under management on the last day of the quarter just ended, or are based on a daily or monthly analysis of assets under management for the stated period. Westwood Management recognizes revenues as services are rendered. A limited number of our clients have a performance-based fee component in their contract, which could pay us an additional fee if we outperform a specified index over a specific period of time. We would record as revenue any performance-based fees earned at the end of the performance period. Since most of our advance paying clients’ billing periods coincide with the calendar quarter to which payment relates, the revenue related to those clients is fully recognized within the quarter; consequently, there is not a significant amount of deferred revenue contained in our financial statements.

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

Our other revenues generally consist of interest and investment income. We invest most of our cash in money market funds, although we also invest smaller amounts in bonds and equity instruments.

Assets Under Management

Assets under management increased $771 million,$2.0 billion, or 14.4%35.4%, to $6.1$7.7 billion at March 31,September 30, 2007, compared with $5.4$5.7 billion at March 31,September 30, 2006. Average assets under management for the firstthird quarter of 2007 were $6.0$7.3 billion compared to $5.1$5.5 billion for the firstthird quarter of 2006, an increase of 17.2%31.0%. The increase in period ending assets under management was principally attributable to asset inflows from new and existing clients and market appreciation of assets under management, and asset inflows from new clients, partially offset by the withdrawal of assets by certain clients. The following table sets forth Westwood Management’s and Westwood Trust’s assets under management as of March 31,September 30, 2007 and March 31,September 30, 2006:

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

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

Results of Operations

The following table (dollars in thousands) and discussion of our results of operations for the three and nine months ended March 31,September 30, 2007 is based upon data derived from the consolidated statements of income contained in our consolidated financial statements and should be read in conjunction with these statements, which are included elsewhere in this quarterly report.

Three months ended March 31,September 30, 2007 compared to three months ended March 31,September 30, 2006

Total Revenues. Our total revenues increased by 12.9%26.7% to $7.4$8.7 million for the three months ended March 31,September 30, 2007 compared with $6.5$6.9 million for the three months ended March 31,September 30, 2006. Advisory fees increased by 9.7%31.7% to $4.6$5.8 million for the three months ended March 31,September 30, 2007 compared with $4.2$4.4 million for

the three months ended March 31,September 30, 2006, primarily as a result of increased average assets under management by Westwood Management due to market appreciation of assets and inflows from new clients. These increases wereand existing clients, partially offset by the

withdrawal of assets by certain clients. Trust fees increased by 25.2%27.8% to $2.4$2.7 million for the three months ended March 31,September 30, 2007 compared with $1.9$2.1 million for the three months ended March 31,September 30, 2006, primarily as a result of increased average assets under management by Westwood Trust due to inflows from new clients and existing clients and market appreciation of assets, offset in part by the withdrawal of assets by certain clients. Other revenues, which generally consist of interest and investment income, decreased by 9.2%30.4% to $394,000$291,000 for the three months ended March 31,September 30, 2007 compared with $434,000$418,000 for the three months ended March 31,September 30, 2006. Other revenues decreased primarily as a result ofdue to a decrease of $83,000$84,000 in consulting revenue from Gabelli Advisers due to the termination of our consulting fee arrangement.arrangement and a decrease of $62,000 in realized and unrealized gains on investments. We were notified in the fourth quarter 2006 by Gabelli Advisers that our consulting payment arrangement with them was to be replaced by a dividend payment from Gabelli Advisers. We accrued $47,000 in the first quarter of 2007 related to the expected dividend for 2007. Also contributing to the decrease in other revenues were decreases in realized gains and mark to market values on our investments. Increased dividend income offset these decreases to some extent.payment.

Employee Compensation and Benefits. Employee compensation and benefits costs generally consist of salaries, incentive compensation, equity based compensation expense and benefits. Employee compensation and benefits increased by 16.2%15.1% to $3.7$4.7 million for the three months ended March 31,September 30, 2007 compared with $3.2$4.1 million for the three months ended March 31,September 30, 2006. This increase was due primarily to increased incentive compensation expense due to higher pretax income, an increase of approximately $259,000$150,000 in restricted stock expense due to additional restricted stock grants in July 2006, increased incentive compensation expense due to higher pretax income,2007, increased salary and benefits expense due to increased headcount and salary increases for certain employees and increased headcount, increased payroll taxes401(k) match expense related to increased salaries and incentive compensation expense. In the second quarters of 2007 and 2006, we concluded that it was probable that we would meet the performance goals required in order for the applicable percentage of the performance-based restricted shares awarded to our Chief Executive Officer and Chief Investment Officer to vest in each year. As a result, we recognized expense of approximately $470,000 in the second and increased 401(k) match expense. A decrease in compensation expensethird quarters of both the current and prior year quarters related to these performance-based restricted stock options partially offsetgrants. We expect to recognize a similar amount in the fourth quarter of 2007 related to these increases.performance-based restricted stock grants. We had 51 full-time employees as of September 30, 2007 compared to 48 full-time employees as of March 31, 2007 compared to 47 full-time employees as of March 31,September 30, 2006.

Sales and Marketing. Sales and marketing costs generally consist of costs associated with our marketing efforts, including travel and entertainment, direct marketing and advertising costs. Sales and marketing costs decreasedincreased by 4.0%10.8% to $121,000$164,000 for the three months ended March 31,September 30, 2007 compared with $126,000$148,000 for the three months ended March 31,September 30, 2006. The decreaseincrease is primarily the result of decreased consultantincreased direct marketing costs and a decrease in referral fees. Increases in advertising costs and travel and entertainment expenses. Decreased consultant marketing expenses partially offset these decreases.increases.

WHG Mutual Funds. WHG Mutual Funds expenses generally consist of costs associated with our marketing, distribution and administration efforts related to the WHG Mutual Funds. WHG Mutual Funds expenses decreased 51.4%46.3% to $35,000$43,000 for the three months ended March 31,September 30, 2007 compared with $72,000$80,000 for the three months ended March 31,September 30, 2006. The decrease was due primarily to decreased distribution and administration expenses and lower fund expense reimbursements due to growth ina higher level of assets in thesethe funds compared to last year. This decrease was partially offset by increased direct marketing costs and travel expense related to the 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. Information technology costs increased by 0.4%6.2% to $233,000$239,000 for the three months ended March 31,September 30, 2007 compared with $232,000$225,000 for the three months ended March 31,September 30, 2006. The increase is primarily due to increased expenses for research tools, quotations and increased equipment rental fees. Decreases insoftware licenses and maintenance. Decreased depreciation and website related expensesexpense partially offset the increases.

Professional Services. Professional services expenses generally consist of costs associated with subadvisory fees, audit, legal and other professional services. Professional services expenses increased by 13.3%34.6% to $400,000$420,000 for the three months ended March 31,September 30, 2007 compared with $353,000$312,000 for the three months ended March 31,September 30, 2006. The increase is primarily due to higher advisory fees paid to external subadvisors due to increased assets under management in international equity and growth common trust funds sponsored by Westwood Trust and increased audit expense related to 2006 audits. These increases were partially offset by decreased legal expense.

General and Administrative. General and administrative expenses generally consist of costs associated with the lease of our office space, investor relations, licenses and fees, depreciation, insurance, office supplies and other miscellaneous expenses. General and administrative expenses increased by 4.5%11.2% to $516,000$565,000 for the three months ended March 31,September 30, 2007 compared with $494,000$508,000 for the three months ended March 31,September 30, 2006. The increase is primarily due to increased occupancy costs, increased custody expense, increased employee training costsincreases in miscellaneous expenses, director’s fees, office supplies and increased board of director expenses.research expense. These increases were partially offset by a decreasedecreases in investor relations expense related to a prior year investor and analyst conference, a decrease in office suppliestax expense and a decrease in state and local taxinsurance expense.

Provision for Income Tax Expense. Provision for income tax expense increased by 5.9%48.8% to $832,000$957,000 for the three months ended March 31,September 30, 2007 compared with $786,000$643,000 for the three months ended March 31, 2006.September 30, 2006 as a result of increased income. The effective tax rate was 35.6%36.3% for the three months ended March 31,September 30, 2007 compared to 38.4%41.1% for the three months ended March 31,September 30, 2006. The decrease in the effective tax rate is primarily due to the decrease in state taxes owed resulting from a change in tax law by the State of Texas.

Nine months ended September 30, 2007 compared to nine months ended September 30, 2006

Total Revenues. Our total revenues increased by 20.0% to $24.0 million for the nine months ended September 30, 2007 compared with $20.0 million for the nine months ended September 30, 2006. Advisory fees increased by 19.3% to $15.4 million for the nine months ended September 30, 2007 compared with $12.9 million for the nine months ended September 30, 2006, as a result of increased average assets under management by Westwood Management due to inflows from new and existing clients and the market appreciation of assets. These increases were partially offset by the withdrawal of assets by certain clients. Trust fees increased by 25.4% to $7.6 million for the nine months ended September 30, 2007 compared with $6.0 million for the nine months ended September 30, 2006, as a result of increased average assets under management by Westwood Trust due to inflows from new and existing clients and the market appreciation of assets, offset in part by the withdrawal of assets by certain clients. Other revenues decreased by 1.3% to $1,123,000 for the nine months ended September 30, 2007 compared with $1,138,000 for the nine months ended September 30, 2006. Other revenues decreased primarily as a result of a decrease of $271,000 in consulting revenue from Gabelli Advisers due to the termination of our consulting fee arrangement, which was replaced by a dividend payment from them. We accrued $90,000 in the first nine months of 2007 related to the dividend for 2007. These decreases were partially offset by increased realized and unrealized gains on investments and increased dividend and interest income.

Employee Compensation and Benefits. Employee compensation and benefits increased by 15.2% to $12.6 million for the nine months ended September 30, 2007 compared with $11.0 million for the nine months ended September 30, 2006. This increase was due primarily to increased incentive compensation expense due to higher pretax income, an increase of approximately $645,000 in restricted stock expense due to additional restricted stock grants in July 2006 and 2007, increased salary and benefits expense due to salary increases for certain employees and increased headcount, increased 401(k) match expense and increased payroll taxes related to increased salaries and incentive compensation expense. A decrease in compensation expense related to stock options partially offset these increases.

Sales and Marketing. Sales and marketing costs increased by 0.2% to $432,000 for the nine months ended September 30, 2007 compared with $431,000 for the nine months ended September 30, 2006. The increase is primarily the result of increased travel and entertainment expenses and increased advertising expenses. Decreases in consultant and direct marketing expenses partially offset these increases.

WHG Mutual Funds. WHG Mutual Funds expenses decreased 13.8% to $144,000 for the nine months ended September 30, 2007 compared with $167,000 for the nine months ended September 30, 2006. The decrease was due primarily to decreased fund expense reimbursements due to a higher level of assets in the funds compared to last year. This decrease was partially offset by increased direct marketing costs and travel expense related to the funds.

Information Technology. Information technology costs increased by 5.7% to $721,000 for the nine months ended September 30, 2007 compared with $682,000 for the nine months ended September 30, 2006. The increase is primarily due to increased expenses for research tools, software licenses and maintenance, network support and quotations. Decreases in depreciation and website related expenses partially offset the increases.

Professional Services. Professional services expenses increased by 15.3% to $1.2 million for the nine months ended September 30, 2007 compared with $1.0 million for the nine months ended September 30, 2006. The increase is primarily due to higher advisory fees paid to external subadvisors due to increased assets under management in international equity and growth common trust funds sponsored by Westwood Trust. These increases were partially offset by decreased legal and audit expenses.

General and Administrative. General and administrative expenses increased by 11.0% to $1.7 million for the nine months ended September 30, 2007 compared with $1.5 million for the nine months ended September 30, 2006. The increase is primarily due to increases in miscellaneous expenses, director’s fees, office supplies, employee training costs, subscriptions and research expenses and occupancy expenses. These increases were partially offset by a decrease in tax expense.

Provision for Income Tax Expense. Provision for income tax expense increased by 24.1% to $2.6 million for the nine months ended September 30, 2007 compared with $2.1 million for the nine months ended September 30, 2006 as a result of increased income. The effective tax rate was 35.4% for the nine months ended September 30, 2007 compared to 39.4% for the nine months ended September 30, 2006. The decrease in the effective tax rate is primarily due to the decrease in state taxes owed resulting from a change in tax law by the State of Texas.

Cumulative Effect of a Change in Accounting Principle, Net of Tax. In December 2004, the FASB revised SFAS No. 123 (“SFAS No. 123R”), requiring public companies to recognize the cost resulting from all share-based payment transactions in their financial statements. We have applied the fair value provisions of the original SFAS No. 123 for all options and restricted shares we issued and accounted for forfeitures as they occurred. Under SFAS No. 123R we are required to estimate the effect of forfeitures. As a result, on January 1, 2006 we recorded a cumulative effect of a change in accounting principle totaling $39,000, net of tax, in order to reverse compensation expense recorded for unvested securities as of December 31, 2006 that was in excess of what we estimateestimated will vest.

Supplemental Financial Information

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

In calculating cash earnings, we add to net income the non-cash expense associated with equity-based compensation awards of restricted stock and stock options. In calculating cash earnings for the threenine months ended March 31,September 30, 2006, we also eliminate the non-cash cumulative effect of change in accounting principle associated with our implementation of SFAS 123R. We define cash expenses as total expenses less non-cash equity-based compensation expense. Although depreciation on fixed assets is a non-cash expense, we do not add it back when calculating cash earnings or deduct it when calculating cash expenses because depreciation charges represent a decline in the value of the related assets that will ultimately require replacement.

Our cash earnings increased by 22.9%39.4% to $2.4$3.2 million for the three months ended March 31,September 30, 2007 compared with $2.0$2.3 million for the three months ended March 31,September 30, 2006 primarily due to a 16.3%26.7% increase in total revenues. For the nine months ended September 30, 2007, cash earnings increased by 31.4% to $8.5 million compared with $6.4 million for the nine months ended September 30, 2006, primarily due to a 20.0% increase in total revenues.

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

		Three Months Ended September 30								% Change
		2007				2006
Net Income		$	1,682			$	921			82.6	%
Add: Restricted stock expense			1,537				1,387			10.8
Add: Stock option expense			—				1			N/A
Cash earnings		$	3,219			$	2,309			39.4
Total expenses		$	6,100			$	5,331			14.4
Less: Restricted stock expense			(1,537	)			(1,387	)		10.8
Less: Stock option expense			—				(1	)		N/A
Cash expenses		$	4,563			$	3,943			15.7	%
		Nine months Ended September 30								% Change
		2007				2006
Net Income		$	4,662			$	3,203			45.6	%
Add: Restricted stock expense			3,797				3,152			20.5
Add: Stock option expense			—				122			N/A
Less: Cumulative effect of a change in accounting principle			—				(39	)		N/A
Cash earnings		$	8,459			$	6,438			31.4
Total expenses		$	16,830			$	14,821			13.6
Less: Restricted stock expense			(3,797	)			(3,152	)		20.5
Less: Stock option expense			—				(122	)		N/A
Cash expenses		$	13,033			$	11,547			12.9	%