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)

November 3, 2008

SWS GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	000-19483	75-2040825
(State or other jurisdiction of incorporation)	(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 November 3, 2008, SWS Group, Inc. (“SWS”) issued a press release regarding its results of operations for the first quarter ended September 26, 2008. The press release is attached hereto as Exhibit 99.1.

Pursuant to General Instruction B.2 of Form 8-K, the information in Item 2.02 of this Form 8-K and Exhibit 99.1 attached hereto shall not be deemed filed for the purposes of Section 18 of the Exchange Act, and are not incorporated by reference into any filing of SWS, whether made before or after the date hereof and regardless of any general incorporation language in such filing.

Item 9.01(d). Exhibits.

Exhibit 99.1 Press Release issued by SWS on November 3, 2008.

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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: November 3, 2008	By:	/s/ Kenneth R. Hanks
		Kenneth R. Hanks
		Executive Vice President, Chief Financial Officer and Treasurer

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EXHIBIT INDEX

Exhibit No.	Description
Exhibit 99.1	Press Release issued by SWS on November 3, 2008.

EX-99.1

Exhibit 99.1

SWS Group, Inc. Reports First Quarter Net Income of $7 Million

DALLAS, November 3, 2008 – SWS Group, Inc. (NYSE: SWS) today announced net income of $7.0 million, or diluted earnings per share (EPS) of 26 cents, for its fiscal first quarter ended Sept. 26, 2008, compared with net income of $7.7 million, or diluted EPS of 28 cents, for the first quarter of its prior fiscal year. Net revenues (total revenues less interest expense) were $87.8 million compared with $66.9 million in the first quarter a year ago.

Results for the quarter just ended included a previously announced $3.5 million after-tax write-off of a Lehman Brothers counterparty obligation.

“We’re pleased that all of our business segments contributed to the company’s pre-tax income for the quarter,” said SWS Group President and CEO Donald W. Hultgren. “General economic and market conditions present challenges to all financial companies as we undergo a period of stress and uncertainty. We believe we are well positioned to take advantage of opportunities and to continue expanding our presence in the markets in which we compete.”

Net revenues increased by $20.8 million over those reported for the prior year’s first quarter, with the acquisition of M.L. Stern accounting for $12.2 million of the increase. Institutional segment commission revenue increased $4.5 million, primarily in the fixed income business as greater volatility and increased client activity led to wider spreads and more transactions. Net interest revenue increased $8.6 million primarily because of increased stock loan spreads and an increase in the bank’s average loan balance.

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SWS Reports First Quarter Net Income of $7.0 Million / 2

Operating expenses for the first quarter increased $22 million over those reported for the first quarter of the prior fiscal year. The largest increases were in commissions and other employee compensation, $12.2 million, and other expenses, $7.6 million. The acquisition of M.L. Stern added $8.3 million in commissions and other employee compensation expense to first quarter results. The remainder of the increase resulted from variable compensation in the institutional segment, additional headcount at the bank and an increase in incentive compensation. The increase in other expenses is primarily from the write-off of the Lehman Brothers counterparty exposure, an increase in the provision for loan loss and increases in certain licenses, fees and assessments.

Clearing segment net revenues declined $2.1 million to $8.2 million, and the segment’s pre-tax income declined to $2.3 million from $4.5 million in the prior year first quarter. Clearing fee revenue declined 2 percent to $3.3 million, and the segment’s net interest revenue declined 50 percent to $2.3 million while other clearing revenues increased 7 percent to $2.6 million. The large decline in net interest revenues primarily resulted from decreased spreads earned on correspondent customer margin and credit balances, a decline in margin balances and a drop in the spread earned on customer deposits. Staff additions caused operating expenses to increase slightly. The correspondent count at the end of the quarter was 201.

Retail segment net revenues, driven by the addition of revenues from the acquisition of M.L. Stern, increased $10.4 million, or 53 percent, in the first quarter as compared with results from the first quarter last year. Despite the added revenues, pre-tax income was down 13 percent to $2.8 million as a result of higher expenses and reduced spreads earned on customer deposits. Net interest revenue allocated to the retail segment decreased 32 percent and operating expenses increased 65 percent in the quarter. The primary component of operating expenses, commission expense, increased 55 percent, driven by M.L. Stern’s commission expense of $8.3 million. Total customer assets were $10.8 billion, including $4.4 billion at M.L. Stern, at Sept. 26, 2008, up from $7.3 billion a year ago.

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SWS Reports First Quarter Net Income of $7.0 Million / 3

The retail segment, excluding M.L. Stern, posted revenue down 9 percent primarily due to reduced revenue from independent contractors. In addition, new retail offices are still operating at less than full capacity.

Institutional segment net revenues increased 54 percent to $36.8 million from $24.0 million, and pre-tax income rose 57 percent to $11.0 million from $7.0 million in the first quarter as compared with the same period in the prior fiscal year. Institutional commissions increased $4.5 million, or 44 percent, as volumes improved in the taxable fixed income and municipal areas. Institutional net interest income, which is generated primarily by securities lending activities, improved $8.4 million, or 152 percent from the prior year’s first quarter as the spread in this business remained at high levels.

Banking segment net revenues increased 23 percent in the first quarter to $15.3 million from $12.5 million in the first quarter a year ago. Pre-tax income for the banking segment declined 17 percent to $4.5 million from $5.5 million. Net interest revenue increased $2.8 million, or 23 percent, as compared with the prior year’s first quarter figure, primarily as a result of increased loan volume. The bank’s first quarter operating expenses were up $3.7 million, or 53 percent, from the year earlier quarter. An increase in the provision for loan losses, increased compensation expense, real estate fees and other expenses caused operating expenses to rise.

The bank opened a new full-service banking center in the southwest Fort Worth area in October. Southwest Securities, FSB now has 11 full-service banking centers. At quarter’s end the bank had $1.3 billion in interest-earning assets. “We are continuing down a path of reasonable growth through attracting experienced lenders who want the opportunity to develop and manage their own banking center,” Mr. Hultgren said.

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SWS Reports First Quarter Net Income of $7.0 Million / 4

SWS Group, Inc. is a Dallas-based financial services holding company offering a broad range of services through its subsidiaries. The company’s common stock is listed and traded on the New York Stock Exchange under the symbol, SWS. Subsidiaries include Southwest Securities, Inc, SWS Financial Services, Inc., M. L. Stern & Co., Southwest Securities, FSB, and Southwest Insurance Agency.

This news release contains forward-looking statements. 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, availability of lines of credit, customer margin loan activity, creditworthiness of our correspondents and customers, demand for housing, and other 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.

Segment Results

(In thousands)

	Net Revenues Three Months Ended					Pre-Tax Income Three Months Ended
	Sept. 26, 2008			Sept. 28, 2007		Sept. 26, 2008			Sept. 28, 2007
Clearing	$	8,176		$	10,278	$	2,272		$	4,497
Retail		29,997			19,639		2,774			3,184
Institutional		36,812			23,953		11,027			7,037
Bank		15,327			12,491		4,548			5,452
Other consolidated entities		(2,544	)		585		(9,828	)		(8,224	)
Consolidated	$	87,768		$	66,946	$	10,793		$	11,946

FINANCIAL TABLES FOLLOW

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SWS Reports First Quarter Net Income of $7.0 Million / 5

SWS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

September 26, 2008 and June 27, 2008

(In thousands, except par values and share amounts)

	September 26, 2008 (Unaudited)			June 27, 2008
Assets
Cash and cash equivalents	$	52,345		$	39,628
Assets segregated for regulatory purposes		347,375			322,575
Receivable from brokers, dealers and clearing organizations		2,414,530			2,849,982
Receivable from clients, net of allowances		263,529			286,945
Loans held for sale		295,896			359,945
Loans, net		981,069			925,758
Securities owned, at market value		181,397			198,573
Securities purchased under agreements to resell		13,797			9,862
Goodwill		7,552			7,552
Marketable equity securities available for sale		5,597			6,964
Other assets		109,150			110,467
Total assets	$	4,672,237		$	5,118,251
Liabilities and Stockholders’ Equity
Short-term borrowings	$	114,500		$	86,800
Payable to brokers, dealers and clearing organizations		2,300,893			2,794,377
Payable to clients		552,798			556,029
Deposits		1,134,807			1,071,973
Securities sold under agreements to repurchase		10,007			6,342
Securities sold, not yet purchased, at market value		30,067			26,511
Drafts payable		25,292			19,657
Advances from Federal Home Loan Bank		106,701			166,250
Other liabilities		70,058			67,306
Total liabilities		4,345,123			4,795,245
Commitments and contingencies
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 28,296,219 and outstanding 27,294,654 shares at September 26, 2008; issued 28,269,134 and outstanding 27,195,609 shares at June 27, 2008		2,829			2,827
Additional paid-in capital		269,326			269,360
Retained earnings		66,669			62,100
Accumulated other comprehensive income – unrealized holding gain, net of tax		(2,062	)		(1,194	)
Deferred compensation, net		2,177			1,994
Treasury stock (1,001,565 shares at September 26, 2008 and 1,073,525 shares at June 27, 2008, at cost)		(11,825	)		(12,081	)
Total stockholders’ equity		327,114			323,006
Total liabilities and stockholders’ equity	$	4,672,237		$	5,118,251

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SWS Reports First Quarter Net Income of $7.0 Million / 6

SWS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Income and Comprehensive Income

For the three months ended September 26, 2008 and September 28, 2007

(In thousands, except per share and share amounts)

(Unaudited)

	Three Months Ended September 26, 2008			Three Months Ended September 28, 2007
Revenues:
Net revenues from clearing operations	$	3,296		$	3,351
Commissions		35,745			22,172
Interest		66,780			69,205
Investment banking, advisory and administrative fees		10,924			10,041
Net gains on principal transactions		2,704			1,343
Other		2,899			6,428
Total revenue		122,348			112,540
Interest expense		34,580			45,594
Net revenues		87,768			66,946
Non-Interest Expenses:
Commissions and other employee compensation		52,411			40,224
Occupancy, equipment and computer service costs		7,740			6,523
Communications		3,161			2,226
Floor brokerage and clearing organization charges		917			1,127
Advertising and promotional		799			593
Other		11,947			4,307
Total non-interest expenses		76,975			55,000
Income from continuing operations before income tax expense		10,793			11,946
Income tax expense		3,770			4,242
Income from continuing operations		7,023			7,704
Discontinued operations:
Income from discontinued operations		—			29
Income tax expense		—			(9	)
Minority interest		—			(3	)
Income from discontinued operations		—			17
Net income		7,023			7,721
Net loss recognized in other comprehensive income		(868	)		(225	)
Comprehensive income	$	6,155		$	7,496

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SWS Reports First Quarter Net Income of $7.0 Million / 7

	Three Months Ended September 26, 2008		Three Months Ended September 28, 2007
Earnings per share – basic
Income from continuing operations	$	0.26	$	0.28
Income from discontinued operations		—		—
Net income	$	0.26	$	0.28
Weighted average shares outstanding – basic		27,022,556		27,405,943
Earnings per share – diluted
Income from continuing operations	$	0.26	$	0.28
Income from discontinued operations		—		—
Net income	$	0.26	$	0.28
Weighted average shares outstanding – diluted		27,198,585		27,613,315

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