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, 2008 filed with the SEC, and those set forth below:

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

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

• our relationships with investment consulting firms;

• our relationships with current and potential customers;

• our ability to retain qualified personnel;

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

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

• our ability to realize potential performance-based advisory fees;

• competition in the marketplace;

• downturn in the financial markets;

• the passage of legislation adversely affecting the financial services industries;

• interest rates;

• changes in our effective tax rate;

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

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

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

Overview

We manage investment assets and provide services for our clients through our two subsidiaries, Westwood Management and Westwood Trust. Westwood Management provides investment advisory services to corporate and public retirement plans, endowments and foundations, a family of mutual funds, which we call the WHG Funds, 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 rank above the median in performance within their peer groups. Percentages stated in this section are rounded to the nearest whole percent.

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 would pay us an additional fee if we outperform a specified index over a specific period of time. We record revenue from performance-based fees at the end of the measurement 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, our financial statements do not contain a significant amount of deferred revenue.

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, our financial statements do not contain a significant amount of deferred revenue.

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

Assets Under Management

Assets under management increased $1.2 billion to $9.5 billion at September 30, 2009, compared with $8.3 billion at September 30, 2008. The average of beginning and ending assets under management for the third quarter of 2009 was $8.9 billion compared to $8.0 billion for the third quarter of 2008, an increase of 11%. The increase in period ending assets under management was principally due to asset inflows from new and existing clients and was partially offset by market depreciation of assets under management and the withdrawal of assets by certain clients. The following table sets forth Westwood Management's and Westwood Trust's assets under management as of September 30, 2009 and 2008:

                                                                    % Change
                                       As of September 30,     September 30, 2009
                                          (in millions)               vs.
                                        2009          2008     September 30, 2008
     Westwood Management
     Separate Accounts               $     4,572    $  3,613                   27 %
     Subadvisory                           1,892       1,756                    8
     WHG Funds                               458         322                   42
     Westwood Funds                          292         335                  (13 )
     Managed Accounts                        430         484                  (11 )

     Total                                 7,644       6,510                   17

     Westwood Trust
     Commingled Funds                      1,427       1,362                    5
     Private Accounts                        348         304                   14
     Agency/Custody Accounts                  92         108                  (15 )

     Total                                 1,867       1,774                    5

     Total Assets Under Management   $     9,511    $  8,284                   15 %

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 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, but views these assets as potentially converting to fee-generating managed assets. As an example, some assets in this category consist of low-basis stock that is being held in custody for clients, but may transfer to fee-generating managed assets during an inter-generational transfer of wealth at some future date.

Results of Operations

The following table (dollars in thousands) and discussion of our results of
operations for the three and nine months ended September 30, 2009 is based upon
data derived from the consolidated statements of income contained in our
consolidated financial statements and should be read in conjunction with these
statements, which are included elsewhere in this quarterly report.



                                                                                                               % Change
                                                                                              Three months ended       Nine months ended
                                        Three months ended            Nine months ended       September 30, 2009       September 30, 2009
                                           September 30,                September 30,                vs.                      vs.
                                         2009          2008            2009         2008      September 30, 2008       September 30, 2008
Revenues
Advisory fees
Asset-based                           $     8,773    $  7,381       $   22,118    $ 20,377                    19 %                      9 %
Performance-based                              -           -                -           80                    -                      (100 )
Trust fees                                  2,642       2,845            7,366       8,270                    (7 )                    (11 )
Other revenues                                226        (134 )            346         143                   269                      142

Total revenues                             11,641      10,092           29,830      28,870                    15                        3


Expenses
Employee compensation and benefits          6,381       5,498           16,965      15,512                    16                        9
Sales and marketing                           154         263              448         595                   (41 )                    (25 )
WHG mutual funds                              145          94              425         235                    54                       81
Information technology                        309         296              925         823                     4                       12
Professional services                         376         450            1,130       1,337                   (16 )                    (15 )
General and administrative                    678         727            1,906       1,993                    (7 )                     (4 )

Total expenses                              8,043       7,328           21,799      20,495                    10                        6

Income before income taxes                  3,598       2,764            8,031       8,375                    30                       (4 )
Provision for income taxes                  1,284       1,028            2,857       2,953                    25                       (3 )

Net income                            $     2,314    $  1,736       $    5,174    $  5,422                    33 %                     (5 )%

Three months ended September 30, 2009 compared to three months ended September 30, 2008

Total Revenues. Our total revenues increased by 15% to $11.6 million for the three months ended September 30, 2009 compared with $10.1 million for the three months ended September 30, 2008. Asset-based advisory fees increased by 19% to $8.8 million for the three months ended September 30, 2009 compared with $7.4 million for the three months ended September 30, 2008, as a result of increased average assets under management by Westwood Management due to inflows from new and existing clients, partially offset by market depreciation of assets and the withdrawal of assets by certain clients, as well as higher average fee realization. Trust fees decreased by 7% to $2.6 million for the three months ended September 30, 2009 compared with $2.8 million for the three months ended September 30, 2008 as a result of lower assets under management by Westwood Trust at the

beginning of the quarter due to market depreciation of assets. Net asset inflows partially offset this decrease. Other revenues, which generally consist of interest and investment income, increased by 269% to $226,000 for the three months ended September 30, 2009 compared with $(134,000) for the three months ended September 30, 2008. Other revenues are presented net and increased primarily due to an increase of $436,000 in net realized and unrealized gains on investments, partially offset by a decrease of $63,000 in interest and dividend income due to lower interest rates and a shift into lower yielding U.S. Treasury Bills.

Employee Compensation and Benefits. Employee compensation and benefits costs generally consist of salaries, incentive compensation, equity based compensation expense and benefits. Employee compensation and benefits costs increased by 16% to $6.4 million for the three months ended September 30, 2009 compared with $5.5 million for the three months ended September 30, 2008. The increase was primarily due to increases of $572,000 in incentive compensation expense as a result of higher pretax income, $196,000 in restricted stock expense due to additional employee restricted stock grants in February 2009 as well as the higher price at which these shares were granted compared to prior grants and $92,000 in salary expense due primarily to increased average headcount. In the second quarters of 2009 and 2008, we concluded that it was probable that we would meet the performance goals required in order for the applicable percentage of the performance-based restricted shares awarded to our Chief Executive Officer and Chief Investment Officer to vest in each year. As a result, we recognized expense of approximately $470,000 in both the current and prior year second and third quarters related to these performance-based restricted stock grants. We expect to recognize a similar amount in the fourth quarter of 2009 related to these performance-based restricted stock grants. We had 63 full-time employees as of September 30, 2009 and September 30, 2008.

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 decreased by 41% to $154,000 for the three months ended September 30, 2009 compared with $263,000 for the three months ended September 30, 2008. The decrease is primarily the result of decreased travel and direct marketing expense.

WHG Mutual Funds. WHG Mutual Funds expenses generally consist of costs associated with our marketing, distribution and administration efforts related to the WHG Funds. WHG Mutual Funds expenses increased by 54% to $145,000 for the three months ended September 30, 2009 compared with $94,000 for the three months ended September 30, 2008 due to increased legal costs related to a planned mutual fund acquisition. We have entered into an asset purchase agreement with Baxter Financial Corporation, the investment advisor to the Philadelphia Fund (PHILX), to acquire substantially all of the assets of Baxter related to its management of the Philadelphia Fund. The asset purchase agreement is subject to certain customary closing conditions. In connection with this acquisition, the Philadelphia Fund would be reorganized into the WHG LargeCap Value Fund (WHGLX), a mutual fund advised by Westwood. The related agreement and plan of reorganization has been approved by both funds' boards and is subject to approval by shareholders of the Philadelphia Fund and other closing conditions. The reorganization agreement has been submitted to Philadelphia Fund shareholders for their approval at a special meeting during the fourth quarter of 2009. As of September 30, 2009 the Philadelphia Fund had net assets of approximately $54 million and the WHG LargeCap Value Fund had net assets of approximately $130 million.

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 4% to $309,000 for the three months ended September 30, 2009 compared with $296,000 for the three months ended September 30, 2008. The increase is primarily due to increased expenses for support services and software, partially offset by a decrease in research and hardware maintenance expenses.

Professional Services. Professional services expenses generally consist of costs associated with subadvisory fees, audit, legal and other professional services. Professional services expenses decreased by 16% to $376,000 for the three months ended September 30, 2009 compared with $450,000 for the three months ended September 30, 2008. The decrease is primarily due to growth common trust funds sponsored by Westwood Trust being temporarily invested in passive index funds. We expect to resume paying subadvisory fees to a newly hired active growth manager in the fourth quarter 2009. We also realized a decrease in legal expenses. An increase in other professional expenses partially offset these decreases.

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 decreased by 7% to $678,000 for the three months ended September 30, 2009 compared with $727,000 for the three months ended September 30, 2008. The decrease is primarily due to decreases in custody expense, other expenses and training and seminar expense. These decreases were partially offset by increases in miscellaneous and insurance expenses.

Provision for Income Tax Expense. Provision for income tax expenses increased by 25% to $1,284,000 for the three months ended September 30, 2009 compared with $1,028,000 for the three months ended September 30, 2008. The effective tax rate was 35.7% for the three months ended September 30, 2009 compared to 37.2% for the three months ended September 30, 2008.

Nine months ended September 30, 2009 compared to nine months ended September 30, 2008

Total Revenues. Our total revenues increased by 3% to $29.8 million for the nine months ended September 30, 2009 compared with $28.9 million for the nine months ended September 30, 2008. Asset-based advisory fees increased by 9% to $22.1 million for the nine months ended September 30, 2009 compared with $20.4 million for the nine months ended September 30, 2008, as a result of increased average assets under management by Westwood Management due to inflows from new and existing clients, partially offset by market depreciation of assets and the withdrawal of assets by certain clients. Trust fees decreased by 11% to $7.4 million for the nine months ended September 30, 2009 compared with $8.3 million for the nine months ended September 30, 2008, as a result of decreased average assets under management by Westwood Trust due to market depreciation of assets and the withdrawal of assets by certain clients. Inflows from new clients partially offset these decreases. Other revenues increased by 142% to $346,000 for the nine months ended September 30, 2009 compared with $143,000 for the nine months ended September 30, 2008. Other revenues increased primarily due to an increase of $531,000 in net unrealized and realized gains on investments, partially offset by a decrease in interest and dividend income due to lower interest rates, a shift into lower yielding U.S. Treasury Bills and lower dividends from Teton Advisors, Inc. ("Teton"). Westwood Management owns shares of Class A Common Stock representing a 15.3% economic interest in Teton, the adviser to the Westwood Funds. Westwood is the subadvisor to three of the six Westwood Funds.

Employee Compensation and Benefits. Employee compensation and benefits costs increased by 9% to $17.0 million for the nine months ended September 30, 2009 compared with $15.5 million for the nine months ended September 30, 2008. The increase is primarily due to increases of $768,000 in restricted stock expense due to additional employee restricted stock grants in February 2009 as well as the higher price at which these shares were granted compared to prior grants, $449,000 in salary expense due primarily to increased average headcount, $243,000 in incentive compensation expense and $36,000 in health insurance expense. These increases were offset by decreased profit sharing expense. We had 63 full-time employees as of September 30, 2009 and September 30, 2008.

Sales and Marketing. Sales and marketing costs decreased by 25% to $448,000 for the nine months ended September 30, 2009 compared with $595,000 for the nine months ended September 30, 2008. The decrease is primarily the result of decreased travel, direct marketing and advertising expenses, partially offset by an increase in entertainment expense.

WHG Mutual Funds. WHG Mutual Funds expenses increased by 81% to $425,000 for the nine months ended September 30, 2009 compared with $235,000 for the nine months ended September 30, 2008 due to legal costs related to the asset purchase agreement with Baxter Financial and planned reorganization of the Philadelphia Fund into the WHG LargeCap Value Fund.

Information Technology. Information technology costs increased by 12% to $925,000 for the nine months ended September 30, 2009 compared with $823,000 for the nine months ended September 30, 2008. The increase is primarily due to increased expenses for support services, data fees and software.

Professional Services. Professional services expenses decreased by 15% to $1.1 million for the nine months ended September 30, 2009 compared with $1.3 million for the nine months ended September 30, 2008. The decrease is primarily due to lower advisory fees paid to external subadvisors due to decreased average assets under management in international equity and domestic growth and decreased fees related to growth common trust funds sponsored by Westwood Trust. Increased legal expenses and other professional service expenses partially offset this decrease.

General and Administrative. General and administrative expenses decreased by 4% to $1.9 million for the nine months ended September 30, 2009 compared with $2.0 million for the nine months ended September 30, 2008. The decrease is primarily due to decreases in miscellaneous expenses, training and seminar expense, custody expense and office supplies expense, partially offset by increases in insurance and other expenses.

Provision for Income Tax Expense. Provision for income tax expenses decreased by 3% to $2,857,000 for the nine months ended September 30, 2009 compared with $2,953,000 for the nine months ended September 30, 2008 as a result of decreased income. The effective tax rate was 35.6% for the nine months ended September 30, 2009 compared to 35.3% for the nine months ended September 30, 2008.

Supplemental Financial Information

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

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

Our cash earnings increased by 22% to $4.3 million for the three months ended September 30, 2009 compared with $3.5 million for the three months ended September 30, 2008 primarily due to an increase in total revenues. For the nine months ended September 30, 2009, cash earnings increased by 5% to $10.9 million compared with $10.3 million for the nine months ended September 30, 2008 primarily due to an increase in total revenues.

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

                                             Three Months Ended
                                                September 30              %
                                             2009           2008        Change
          Net Income                       $   2,314      $  1,736          33 %
          Add: Restricted stock expense        1,972         1,775          11

          Cash earnings                    $   4,286      $  3,511          22


          Total expenses                   $   8,043      $  7,328          10
          Less: Restricted stock expense      (1,972 )      (1,775 )        11

          Cash expenses                    $   6,071      $  5,553           9 %
. . .