SWS (SWS) 8-K SWS Reports Significantly Higher Third Quarter Results

Exhibit 99.1

SWS Reports Significantly Higher Third Quarter Results

Net Income Totaled $5.6 Million on Revenues of $81.4 Million

DALLAS, May 2, 2005 – SWS Group, Inc. (NYSE: SWS) today reported net income of $5.6 million, or diluted earnings per share (EPS) of 32 cents, on revenues of $81.4 million for the company’s third fiscal quarter ended March 24, compared with net income of $1.5 million, or diluted EPS of 9 cents, on revenues of $69.7 million in the prior year’s third quarter.

For the first nine months of fiscal 2005, SWS recorded revenues of $250.5 million, net income of $29.2 million and diluted EPS of $1.68, compared with revenues of $205.5 million, net income of $7 million, or diluted EPS of 41 cents in the same period of the prior fiscal year. Nine-month results include a non-cash, after-tax gain of $15.3 million from the redemption of the company’s outstanding Derivative Adjustable Ratio Securities^(SM) (DARTS^(SM)), which matured after the close of fiscal 2004. SWS exchanged all of its common stock holdings in Knight Trading Group (373,550 shares) to redeem the DARTS.

“We are pleased with the significant progress the company made this quarter in revenue and earnings growth,” said Chief Executive Officer Donald W. Hultgren. Compared with results from the prior year’s third quarter, revenues grew 17 percent, while net income increased 278 percent. Book value per share grew to $15.13 from $14.92.

“We are focused on three aspects of our overall business – growing our clearing business, growing Southwest Securities Bank and expanding the scope and reputation of our full-service brokerage firm,” Hultgren said. “To realize our goal of becoming a nationally recognized, full-service regional brokerage firm, we are expanding our retail distribution network by recruiting

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additional registered representatives. We are adding registered representatives to our Private Client Group (PCG) and to our independent brokerage subsidiary, SWS Financial Services, with particular emphasis on filling our existing PCG branch offices in Dallas, Houston, Austin, San Antonio, Oklahoma City and Albuquerque with producing financial advisors.”

PCG ended the third quarter with 98 representatives, an increase of seven over the total at the end of the immediately preceding quarter and five over the number at the end of the third quarter of the prior fiscal year. “We believe our growth strategy will further diversify our revenue stream and enhance areas of our business that have relatively high margins,” Hultgren said

While clearing volumes were down at the company’s principal broker/dealer, Hultgren said he is encouraged by the marketing team’s efforts and expects an improved stream of new correspondents in coming quarters. Lower transactions processed for the active trading segment had a negative impact on Southwest Securities’ overall volume. Much of the drop in transactions processed resulted from the loss of a high-volume trading customer that began clearing transactions through an affiliate of its parent company in the second quarter of fiscal 2005. The percentage of clearing transactions attributable to high-volume trading correspondents dropped to 79 percent in the current quarter from 95 percent in the same period a year ago. “On balance, we expect the number of trades processed to stabilize for the rest of 2005 absent significant changes in market volumes or direction,” Hultgren said.

Revenue per ticket increased 160 percent and 79 percent for the three and nine-month periods, respectively, versus comparable periods of the prior fiscal year – to $1.87 from 72 cents for the third quarter and to $1.18 from 66 cents for the nine months – while the correspondent base grew to 227 from 219.

Net income rose by more than $4 million in the third quarter while net revenues declined by $2.1 million as compared with the third quarter of the prior fiscal year. “We are continuing to successfully

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manage our expenses,” Hultgren said.

SWS benefited from increased net interest income in both the brokerage and banking business lines. Net interest income on the brokerage side of the business is dependent upon the level of customer and stock loan balances as well as the spread between the rates earned on those assets compared with the cost of funds. Net interest is the primary source of income for Southwest Securities Bank and represents the amount by which interest and fees generated by earning assets exceed the cost of funds.

For the three and nine-month periods, net interest revenue from the Brokerage Group accounted for approximately 14 percent and 11 percent, respectively, of SWS’ net revenue, while net interest revenue generated by the bank accounted for approximately 21 percent and 13 percent.

In the third quarter, the bank expanded commercial loans 16 percent and consumer loans 49 percent over the levels achieved in the comparable period of the prior year. The bank also increased average balances in its purchased mortgage loan program 45 percent over the average balances in the third quarter a year ago. The bank benefited from an attractive interest rate environment and was able to use all of its excess liquidity to invest in loans and increase interest revenue.

In addition to increased interest income, SWS benefited from reduced operating expenses, which declined $7.4 million and $13.2 million for the three and nine-month periods, respectively. Variable compensation expense declined as a result of revenue-producing employees generating lower levels of commission revenue. Occupancy and equipment costs were lower because of the maturity of capital lease obligations and the expiration of several operating leases for which the company either purchased or returned the equipment. Communications expenses decreased as well, primarily as a result of closing the May Financial Corporation trading office in Brighton, Mich., in October 2004. Other expenses decreased because of decreased legal

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expenses and reduced losses on equity investments, primarily Comprehensive Software Systems, Ltd. (CSS).

SWS did not purchase any equity in CSS’ offering in January. As a result, SWS’ ownership interest in the software development company was reduced to 13.7 percent. Because no additional investments were made in CSS in the third quarter, SWS did not record any equity losses attributable to CSS. SWS’ prior equity participation had resulted in expense of $2.9 million in calendar 2004.

SWS benefited from its ownership interest in Archipelago Holdings, Inc., an electronic stock exchange. In the first quarter of fiscal 2005, Archipelago completed an initial public offering of common stock in which SWS Group sold 23,714 shares of its investment in Archipelago for an after-tax gain of $165,100. After the sale, SWS continues to own 43,721 Archipelago shares at a cost of zero. SWS recorded a gain of $776,000 in the first nine months of fiscal 2005 from market appreciation of these remaining shares. Subsequent to the end of the third quarter, Archipelago and the New York Stock Exchange announced plans to merge.

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, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

March 24, 2005 and June 25, 2004

(In thousands, except par values and share amounts)

(Unaudited)

	March 24, 2005			June 25, 2004
Assets
Cash and cash equivalents	$	33,840		$	88,589
Assets segregated for regulatory purposes		358,143			367,070
Marketable equity securities available for sale		2,647			7,038
Receivable from brokers, dealers and clearing organizations		3,271,714			3,107,287
Receivable from clients, net		381,136			421,799
Loans held for sale, net		145,098			79,083
Loans, net		564,021			462,957
Securities owned, at market value		202,572			136,199
Securities purchased under agreements to resell		70,480			4,909
Goodwill		11,645			8,183
Other assets		72,604			59,536
Total assets	$	5,113,900		$	4,742,650
Liabilities and Stockholders’ Equity
Short-term borrowings	$	64,400		$	—
Payable to brokers, dealers and clearing organizations		3,201,518			3,050,748
Payable to clients		660,387			691,456
Deposits		525,158			501,094
Securities sold, not yet purchased, at market value		147,288			88,957
Drafts payable		36,864			32,212
Advances from Federal Home Loan Bank		118,419			36,576
Other liabilities		96,962			82,968
Exchangeable subordinated notes		—			8,604
Total liabilities		4,850,996			4,492,615
Minority interest in consolidated subsidiaries		1,079			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 17,956,032 and outstanding 17,302,302 shares at March 24, 2005; issued 17,817,444 and outstanding 17,109,925 shares at June 25, 2004		1,795			1,781
Additional paid-in capital		248,440			245,391
Retained earnings		20,419			(2,718	)
Accumulated other comprehensive income – unrealized holding gain (loss), net of tax		431			12,833
Deferred compensation, net		420			834
Treasury stock (653,730 shares at March 24, 2005 and 707,519 shares at June 25, 2004, at cost)		(9,680	)		(10,482	)
Total stockholders’ equity		261,825			247,639
Commitments and contingencies
Total liabilities and stockholders’ equity	$	5,113,900		$	4,742,650

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SWS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Income and Comprehensive Income

For the three and nine months ended March 24, 2005 and March 26, 2004

(In thousands, except per share and share amounts)

(Unaudited)

	Three Months Ended March 24, 2005			Three Months Ended March 26, 2004			Nine Months Ended March 24, 2005			Nine Months Ended March 26, 2004
Net revenues from clearing operations	$	3,306		$	4,678		$	10,697		$	14,964
Commissions		19,408			24,753			62,937			73,080
Interest		42,706			23,013			108,225			71,154
Investment banking, advisory and administrative fees		7,084			7,765			20,390			19,711
Net gains on principal transactions		4,551			5,087			30,323			14,612
Other		4,385			4,404			17,940			11,966
Total revenue		81,440			69,700			250,512			205,487
Commissions and other employee compensation		34,423			37,399			101,769			106,699
Interest		21,880			8,003			49,602			24,595
Occupancy, equipment and computer service costs		6,262			7,002			19,828			21,553
Communications		2,495			3,442			8,680			9,939
Floor brokerage and clearing organization charges		1,177			1,381			4,346			4,830
Advertising and promotional		568			745			2,493			2,504
Other		5,827			8,142			18,155			22,909
Total expense		72,632			66,114			204,873			193,029
Income before income tax expense and minority interest in consolidated subsidiaries		8,808			3,586			45,639			12,458
Income tax expense		3,104			1,806			15,848			4,618
Income before minority interest in consolidated subsidiaries		5,704			1,780			29,791			7,840
Minority interest in consolidated subsidiaries		(111	)		(299	)		(626	)		(820	)
Net income		5,593			1,481			29,165			7,020
Net income (loss) recognized in other comprehensive income, net of tax		(114	)		(34	)		(12,402	)		1,218
Comprehensive income	$	5,479		$	1,447		$	16,763		$	8,238
Earnings per share – basic
Net income	$	0.32		$	0.09		$	1.70		$	0.41
Weighted average shares outstanding – basic		17,275,934			17,121,144			17,194,927			17,097,709
Earnings per share—diluted
Net income	$	0.32		$	0.09		$	1.68		$	0.41
Weighted average shares outstanding – diluted		17,501,027			17,290,101			17,389,953			17,292,354

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