8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report:

(Date of earliest event reported)

February 8, 2005

SWS GROUP, INC.

(Exact name of registrant as specified in charter)

Delaware	0-19483	75-2040825
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(IRS Employer Identification No.)

1201 Elm Street, Suite 3500

Dallas, Texas 75270

(Address of principal executive offices and zip code)

(214) 859-1800

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425).

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12).

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)).

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)).

Item 2.02 Results of Operations and Financial Condition.

On February 8, 2005, SWS Group, Inc. (“SWS”) issued a press release regarding its results of operations for the second quarter ended December 31, 2004. The press release is attached hereto as Exhibit 99.1.

All of the information contained in this Item 2.02 shall be deemed to be “furnished” and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, therefore, shall not be incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”), except as expressly set forth by reference in such filing.

Item 9.01(c) Exhibits.

Pursuant to General Instruction B.2. of Form 8-K, the following information shall be deemed to be “furnished” and not “filed” for purposes of Section 18 of the Exchange Act and, therefore, shall not be incorporated by reference in any filing under the Securities Act, except as expressly set forth by reference in such filing:

Exhibit 99.1    Press Release issued by SWS on February 8, 2005.

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SIGNATURES

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

	SWS GROUP, INC.
Date: February 8, 2005	By:	/s/ Kenneth R. Hanks
		Kenneth R. Hanks
		Executive Vice President, Chief Financial Officer and Treasurer

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EX-99.1

Exhibit 99.1

For Immediate Release

SWS Reports Results for Fiscal Second Quarter of 2005

Net Income Totaled $4.5 Million on Revenues of $80.5 Million

DALLAS, Feb. 8, 2005 – SWS Group, Inc. (NYSE: SWS) today reported net income of $4.5 million, or diluted earnings per share (EPS) of 26 cents, on revenues of $80.5 million for the company’s fiscal second quarter ended Dec. 31, 2004, compared with net income of $4.3 million, or diluted EPS of 25 cents, on revenues of $72 million in the prior year’s second quarter.

For the first half of fiscal 2005, SWS recorded revenues of $169.1 million, net income of $23.6 million and diluted EPS of $1.36, compared with revenues of $135.8 million, net income of $5.5 million and diluted EPS of 32 cents in the same period of the prior fiscal year.

As reported last quarter, results for the first half of the fiscal year include a non-cash, after-tax gain of $15.3 million as a result of the company’s exchanging all of its holdings of Knight Trading Group common stock (373,550 shares) to redeem all of the company’s outstanding Derivative Adjustable Ratio Securities^(SM) (DARTS^(SM)), which matured after the close of fiscal 2004.

Last year’s second quarter benefited from a $703,000 after-tax gain on the receipt of additional shares of U.S. Home Systems, Inc. (USHS) common stock in connection with the sale of a subsidiary of Southwest Securities Bank. Last year’s second quarter also had the benefit of a $587,000 after-tax gain on the sale of a portion of the company’s investment in Archipelago, an electronic stock exchange.

“Overall, we are pleased with our progress in the second quarter and the first six months of fiscal 2005,” said Chief Executive Officer Donald W. Hultgren. “On the brokerage side, our margin and stock lending balances were up, and we also experienced a nice increase in loan balances at the bank.”

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SWS Group Announces Second Quarter Results / 2

Hultgren said net interest revenues from securities lending activities increased 77 percent in the second quarter and 35 percent in the first half of the fiscal year as compared with the same periods in the prior year. He added that second quarter margin balances averaged $358 million, up 8.5 percent over the comparable period a year ago. Net interest revenue generated by the bank was also up 34 percent in the quarter.

The bank continued to diversify its lending base through increased commercial and consumer lending, according to Hultgren. He noted that commercial real estate lending increased 10 percent and consumer loans increased more than 100 percent from the comparable quarter a year earlier.

“The bank used approximately $47 million in excess liquidity to invest in loans in the first six months of 2005, and that resulted in increased interest revenue,” Hultgren said.

As previously reported, SWS said the departure of a significant clearing customer at the beginning of the quarter reduced clearing revenues. Commissions and trading revenues were down because of the impact of higher rates in the fixed income area. Equity revenues also decreased as a result of the previously announced closing of the Brighton, Mich., office.

Operating expenses decreased $1.1 million and $5.8 million for the three and six-month periods, respectively, as compared with results in the prior year. The company was able to achieve expense reductions as a result of decreased commissions and incentive compensation, the maturing of capital lease obligations and the expiration of operating leases for which the company either purchased or returned equipment. Operating expenses also included $553,000 in costs related to closing the Brighton office.

“We anticipated the declines in the quarter’s operating revenues,” Hultgren said, “and believe we have worked through most of the issues that caused them.”

Subsequent to the end of the quarter, SWS finalized a settlement agreement with the SEC and NYSE regarding their investigations of mutual fund trading practices at the company’s principal brokerage subsidiary. The total liability of $10 million matched the amount that SWS had already charged against earnings in the prior fiscal year in anticipation of the settlement.

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SWS Group Announces Second Quarter Results / 3

Also in January 2005, SWS finalized an agreement with CSS to forgive the $3.5 million loan SWS made to the software company in fiscal 2003. The loan would be considered an equity contribution to CSS. SWS did not participate in CSS’ January 2005 equity offering, which had the effect of decreasing the company’s ownership in CSS to 13.7 percent and will decrease SWS’ expenses in the technology area this year. SWS’ equity participation resulted in expense of $2.9 million in calendar 2004.

Hultgren noted that Southwest Securities has refocused its Equity Research Department on companies in the Southwest. “We believe this is the niche that best fits our capabilities and offers the opportunity for us to make the greatest and most efficient contribution,” he said.

Fiscal-year-to-date transactions processed by Southwest Securities, Inc. for correspondent broker/dealers totaled 7.3 million compared with 16.2 million in the prior year period. However, changes in the mix of transactions resulted in significant increases in revenue per ticket, which rose 119 percent and 60 percent for the current three and six-month periods, respectively, above levels achieved a year earlier. Book value per share was $14.90 compared with $14.93 a year ago.

SWS Group, Inc. is a Dallas-based holding company that offers a broad range of investment and financial services through its subsidiaries. The company’s common stock is listed and traded on the New York Stock Exchange under the symbol SWS. SWS Group, Inc. subsidiaries include Southwest Securities, Inc., Southwest Securities Bank, SWS Financial Services, Inc., SWS Capital Corporation, and Southwest Insurance Agency.

This release contains forward-looking statements regarding the company’s future overall performance. Readers are cautioned that any forward-looking statements, including those predicting or forecasting future events or results, which depend on future events for their accuracy, embody projections or assumptions, or express the intent, belief or current expectations of the company or management, are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially as a result of various factors, some of which are out of our control, including, but not limited to, volume of trading in securities, volatility of securities prices and interest rates, customer margin loan activity, credit worthiness of our correspondents and customers, demand for housing, and those factors discussed in our Annual Report on Form 10-K and in our other reports filed with and available from the Securities and Exchange Commission.

FINANCIAL TABLES FOLLOW

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SWS Group Announces Second Quarter Results / 4

SWS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

December 31, 2004 and June 25, 2004

(In thousands, except par values and share amounts)

(Unaudited)

	Dec. 31, 2004			June 25, 2004
Assets
Cash and cash equivalents	$	17,401		$	88,589
Assets segregated for regulatory purposes		381,343			367,070
Marketable equity securities available for sale		2,812			7,038
Receivable from brokers, dealers and clearing organizations		3,062,420			3,107,287
Receivable from clients, net		387,073			421,799
Loans held for sale, net		114,310			79,083
Loans, net		523,064			462,957
Securities owned, at market value		145,226			136,199
Securities purchased under agreements to resell		48,433			4,909
Goodwill		8,543			8,183
Other assets		69,983			59,536
Total assets	$	4,760,608		$	4,742,650
Liabilities and Stockholders’ Equity
Short-term borrowings	$	59,425		$	—
Payable to brokers, dealers and clearing organizations		2,946,027			3,050,748
Payable to clients		678,617			691,456
Deposits		510,130			501,094
Securities sold, not yet purchased, at market value		127,294			88,957
Drafts payable		39,729			32,212
Advances from Federal Home Loan Bank		48,909			36,576
Other liabilities		90,650			82,968
Exchangeable subordinated notes		—			8,604
Total liabilities		4,500,781			4,492,615
Minority interest in consolidated subsidiaries		2,595			2,396
Stockholders’ equity:
Preferred stock of $1.00 par value. Authorized 100,000 shares; none issued		—			—
Common stock of $.10 par value. Authorized 60,000,000 shares, issued 17,912,209 and outstanding 17,263,582 shares at December 31, 2004; issued 17,817,444 and outstanding 17,109,925 shares at June 25, 2004		1,791			1,781
Additional paid-in capital		247,432			245,391
Retained earnings		16,869			(2,718	)
Accumulated other comprehensive income – unrealized holding gain (loss), net of tax		545			12,833
Deferred compensation, net		182			834
Treasury stock (648,627 shares at December 31, 2004 and 707,519 shares at June 25, 2004, at cost)		(9,587	)		(10,482	)
Total stockholders’ equity		257,232			247,639
Commitments and contingencies
Total liabilities and stockholders’ equity	$	4,760,608		$	4,742,650

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SWS Group Announces Second Quarter Results / 5

SWS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Income and Comprehensive Income

For the three and six months ended December 31, 2004 and 2003

(In thousands, except per share and share amounts)

(Unaudited)

	Three Months Ended Dec. 31, 2004			Three Months Ended Dec. 31, 2003			Six Months Ended Dec. 31, 2004			Six Months Ended Dec. 31, 2003
Net revenues from clearing operations	$	3,724		$	5,009		$	7,391		$	10,285
Commissions		24,304			26,469			43,529			48,327
Interest		38,167			23,739			65,519			48,142
Investment banking, advisory and administrative fees		6,459			5,902			13,306			11,947
Net gains on principal transactions		3,456			6,072			25,772			9,525
Other		4,390			4,827			13,555			7,562
Total revenue		80,500			72,018			169,072			135,788
Commissions and other employee compensation		35,853			36,550			67,346			69,301
Interest		17,442			8,423			27,722			16,592
Occupancy, equipment and computer service costs		6,699			7,164			13,566			14,551
Communications		3,098			3,345			6,185			6,497
Floor brokerage and clearing organization charges		1,587			1,681			3,169			3,449
Advertising and promotional		1,093			964			1,925			1,758
Other		7,388			7,128			12,328			14,767
Total expense		73,160			65,255			132,241			126,915
Income before income tax expense and minority interest in consolidated subsidiaries		7,340			6,763			36,831			8,873
Income tax expense		2,546			2,286			12,744			2,813
Income before minority interest in consolidated subsidiaries		4,794			4,477			24,087			6,060
Minority interest in consolidated subsidiaries		(253	)		(221	)		(515	)		(521	)
Net income		4,541			4,256			23,572			5,539
Net income (loss) recognized in other comprehensive income, net of tax		327			359			(12,288	)		1,252
Comprehensive income	$	4,868		$	4,615		$	11,284		$	6,791
Earnings per share – basic
Net income	$	0.27		$	0.25		$	1.38		$	0.33
Weighted average shares outstanding – basic		17,111,267			17,041,885			17,088,836			17,022,322
Earnings per share - diluted
Net income	$	0.26		$	0.25		$	1.36		$	0.32
Weighted average shares outstanding – diluted		17,366,500			17,249,984			17,270,658			17,228,830

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CONTACT:	Jim Bowman, Vice President - Corporate Communications, (214) 859-9335
	jbowman@swst.com