SWS (SWS) 8-K SWS Reports Significant Increase in Second Fiscal Quarter Earnings

Exhibit 99.1

FOR IMMEDIATE RELEASE

SWS Reports Significant Increase in Second Fiscal Quarter Earnings

Net Income Totaled $8.8 Million on Revenues of $101.7 Million

DALLAS, Feb. 8, 2006 – SWS Group, Inc. (NYSE: SWS) today reported net income of $8.8 million, or diluted earnings per share (EPS) of 50 cents, on revenues of $101.7 million for the company’s second fiscal quarter ended Dec. 30, 2005.

Net income and EPS increased more than 90 percent and revenues increased 25 percent from the prior year’s second quarter when SWS earned net income of $4.5 million, or diluted EPS of 26 cents, on revenues of $81.2 million.

For the first half of fiscal 2006, SWS recorded revenues of $203.5 million, net income of $15.9 million and diluted EPS of 91 cents, compared with revenues of $165.9 million, net income of $20.4 million and diluted EPS of $1.18 a year earlier. The prior year period includes a $12.2 million gain, net of tax, from the redemption of the company’s DARTS^SM subordinated notes at maturity. Without this gain, six-month net income last year would have been $8.3 million, or 48 cents per share. (See accompanying non-GAAP financial information.)

“We are pleased with the company’s progress,” said Chief Executive Officer Donald W. Hultgren. “We were able to increase net revenues and income substantially while continuing to keep expenses under control.”

Second quarter net revenues (total revenues less interest expense) increased $5.8 million from year-ago levels, as net interest revenue increased $2.4 million and other revenue rose $2 million. Net interest revenue was driven higher by the securities lending business and an

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SWS Group Announces Second Quarter Results / 2

increase in average loans outstanding at the subsidiary bank, Southwest Securities, FSB. Other revenue benefited from a $1.5 million gain from a corporate venture capital investment. Commission revenue, public finance fees, and fixed income trading revenues were all higher than in the prior year’s second quarter, and net revenues from clearing operations experienced only a moderate decline.

Six-month net revenues were up slightly; however, $ 18.7 million of the prior year’s net revenue was from the maturity of the DARTS. Excluding the DARTS, most categories showed solid gains as compared with results from the first half of the prior year. Net interest revenue increased $9 million, or 24 percent, investment banking, advisory and administrative fees increased $2.8 million, or 21 percent, and commission revenue was up $2.6 million, or 6 percent. Portfolio trading recorded the largest increases in commissions for both the quarter and six-month periods.

Net revenues from clearing operations decreased $225,000, or 3 percent, in the first half of fiscal 2006. General securities clearing correspondents generated strong trading volume, up 24 percent from year ago levels. However, the overall trading volume processed in the six-month period did not match that of a year ago. As previously reported, one of the company’s high volume trading customers began clearing through an affiliate of its parent beginning in the second quarter of last year.

Second quarter operating expenses declined $424,000. The only expense category to increase, commissions and other employee compensation, was up $2.8 million or 8 percent, primarily from increased business line revenues and health insurance costs. Six-month operating expenses were up $7.4 million, largely as a result of a $10.4 million, or 15 percent increase, in commissions and other employee compensation.

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SWS Group Announces Second Quarter Results / 3

Fiscal-year-to-date transactions processed by Southwest Securities, Inc. for correspondent broker/dealers totaled approximately 7 million compared with 8.7 million in the prior year period. Book value per share was $16.00 compared with $14.90 a year ago.

The company recorded gains of $210,000 and $199,000, for the three and six-month periods, respectively, from the market appreciation of its 23,721 shares of Archipelago stock. This compares to gains of $242,000 and $900,000 for the comparable periods of the prior fiscal year.

Southwest Securities has been a member of the New York Stock Exchange since the company was established in 1972 and owns one seat on the exchange carried at a cost of $230,000. If the plan of merger between the NYSE and Archipelago proceeds as expected, Southwest Securities will surrender its seat on the exchange for the right to receive $300,000 in cash and 80,177 shares of restricted common stock from the NYSE Group. In lieu of a seat on the exchange, Southwest Securities secured the right to a trading license for $49,290 at the inaugural NYSE license auction on Jan. 4, 2006. This license will provide the firm continued physical and electronic access to the NYSE trading facilities following the close of the merger, which is anticipated to occur this month.

SWS repurchased 31,090 shares of its common stock in the second quarter at a cost of $478,000, or $15.36 per share, in accordance with an authorization by the company’s board of directors. As of the end of the quarter, 468,910 shares may be repurchased under the authorization, which expires at the end of calendar 2006.

Subsequent to the end of the quarter, Southwest Securities completed the sale of the assets of its Institutional Sales/Trading and Research departments to another regional broker/dealer. Under the terms of the transaction, the company received an initial payment and will participate in a three-year earn-out based on sales production. Southwest Securities will continue to offer corporate

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SWS Group Announces Second Quarter Results / 4

finance and equity trading services, including portfolio trading and other services for institutional clients.

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, FSB, SWS Financial Services, Inc., 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

Reconciliation of GAAP Financial Information to Non-GAAP Financial Information

SWS believes that the presentation of net income and EPS excluding the gain on the maturity of the DARTS for the six months ended December 31, 2004 is useful to investors because it is more indicative of the SWS’ net income from recurring operations and EPS. Management has provided this information to assist the reader in understanding the impact of the large gain recognized when the DARTS matured June 30, 2004 that is discussed herein. While management believes this non-GAAP financial measure is useful in evaluating SWS, this information should be considered as supplemental in nature and not as a substitute for or superior to the related financial information prepared in accordance with GAAP.

(In thousands except per share amounts)

	6 months ended 12/30/2005		6 months ended 12/31/2004
			(Restated)
Net Income—GAAP	$	15,937	$	20,429
Gain on Maturity of DARTS, net of tax		—		(12,176	)
Net Income Excluding DARTS	$	15,937	$	8,253
Earnings per share-diluted—GAAP	$	0.91	$	1.18
Gain on Maturity of DARTS, net of tax		—		(0.70	)
Earnings per share-diluted Excluding DARTS	$	0.91	$	0.48

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SWS Group Announces Second Quarter Results / 5

SWS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

December 30, 2005 and June 24, 2005

(In thousands, except par values and share amounts)

(Unaudited)

	Dec. 30, 2005			June 24, 2005
Assets
Cash and cash equivalents	$	27,607		$	23,045
Assets segregated for regulatory purposes		367,641			330,788
Marketable equity securities available for sale		3,077			2,372
Receivable from brokers, dealers and clearing organizations		2,427,645			2,855,296
Receivable from clients, net		366,407			372,143
Loans held for sale, net		136,857			172,023
Loans, net		647,434			591,857
Securities owned, at market value		176,407			166,954
Securities purchased under agreements to resell		34,107			28,890
Goodwill		11,746			11,660
Other assets		70,153			76,116
Total assets	$	4,269,081		$	4,631,144
Liabilities and Stockholders’ Equity
Short-term borrowings	$	47,300		$	68,400
Payable to brokers, dealers and clearing organizations		2,318,032			2,755,076
Payable to clients		643,387			609,477
Deposits		642,028			587,978
Securities sold under agreements to repurchase		29,417			8,061
Securities sold, not yet purchased, at market value		115,106			106,163
Drafts payable		37,401			32,018
Advances from Federal Home Loan Bank		75,189			93,539
Bank borrowings		27,950			47,150
Other liabilities		52,261			56,346
Total liabilities		3,988,071			4,364,208
Minority interest in consolidated subsidiaries		1,273			1,166
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 18,048,475 and outstanding 17,484,402 shares at December 30, 2005; issued 17,977,240 and outstanding 17,329,779 shares at June 24, 2005		1,804			1,797
Additional paid-in capital		250,903			248,955
Retained earnings		36,012			23,920
Accumulated other comprehensive income – unrealized holding gain (loss), net of tax		598			138
Deferred compensation, net		(907	)		529
Treasury stock (564,073 shares at December 30, 2005 and 647,461 shares at June 24, 2005, at cost)		(8,673	)		(9,569	)
Total stockholders’ equity		279,737			265,770
Commitments and contingencies
Total liabilities and stockholders’ equity	$	4,269,081		$	4,631,144

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SWS Group Announces Second Quarter Results / 6

SWS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Income and Comprehensive Income

For the three and six months ended December 30, 2005 and December 31, 2004

(In thousands, except per share and share amounts)

(Unaudited)

	Three Months Ended Dec. 30, 2005			Three Months Ended Dec. 31, 2004			Six Months Ended Dec. 30, 2005			Six Months Ended Dec. 31, 2004
				(Restated)						(Restated)
Net revenues from clearing operations	$	3,449		$	3,724		$	7,166		$	7,391
Commissions		25,056			24,304			46,126			43,529
Interest		55,307			38,167			112,175			65,519
Investment banking, advisory and administrative fees		6,931			6,459			16,107			13,306
Net gains on principal transactions		3,844			3,456			8,844			25,772
Other		7,147			5,122			13,115			10,338
Total revenue		101,734			81,232			203,533			165,855
Commissions and other employee compensation		38,680			35,853			77,698			67,346
Interest		32,158			17,442			65,349			27,722
Occupancy, equipment and computer service costs		6,078			6,699			11,838			13,566
Communications		2,338			3,098			4,822			6,185
Floor brokerage and clearing organization charges		798			1,587			2,093			3,169
Advertising and promotional		709			1,093			1,398			1,925
Other		7,423			8,120			15,676			13,946
Total expense		88,184			73,892			178,874			133,859
Income before income tax expense and minority interest in consolidated subsidiaries		13,550			7,340			24,659			31,996
Income tax expense		4,723			2,546			8,706			11,052
Income before minority interest in consolidated subsidiaries		8,827			4,794			15,953			20,944
Minority interest in consolidated subsidiaries		(62	)		(253	)		(91	)		(515	)
Income before cumulative effect of change in accounting principles		8,765			4,541			15,862			20,429
Cumulative effect of change in accounting principles, net of tax of $40		—			—			75			—
Net income		8,765			4,541			15,937			20,429
Net income (loss) recognized in other comprehensive income, net of tax		202			327			460			(12,288	)
Comprehensive income	$	8,967		$	4,868		$	16,397		$	8,141
Earnings per share – basic
Income before cumulative effect of change in accounting principles	$	0.51		$	0.27		$	0.91		$	1.19
Cumulative effect of change in accounting principles, net of tax		—			—			0.01			—
Net income	$	0.51		$	0.27		$	0.92		$	1.19
Weighted average shares outstanding – basic		17,353,831			17,181,347			17,340,925			17,158,916
Earnings per share—diluted
Income before cumulative effect of change in accounting principles	$	0.50		$	0.26		$	0.90		$	1.18
Cumulative effect of change in accounting principles, net of tax		—			—			0.01			—
Net income	$	0.50		$	0.26		$	0.91		$	1.18
Weighted average shares outstanding – diluted		17,615,354			17,436,580			17,564,369			17,340,738

CONTACT:    Jim Bowman, Vice President—Corporate Communications, (214) 859-9335

                         jbowman@swst.com