 Third Quarter Fiscal 2014 SWS Group Conference Call May 7, 2014 1 Filed by SWS Group, Inc. Pursuant to Rule 425 of the Securities Act of 1933 and deemed filed pursuant to Rule 14a-12 of the Securities Exchange Act of 1934 Subject Company: SWS Group, Inc. (Commission File No.: 000-19483) The following Earnings Presentation was used in SWS Group, Inc.’s quarterly earnings conference call on Wednesday, May 7, 2014 at 10:00 a.m. Eastern Time (9:00 a.m. Central Time): |
 Forward-Looking Statements This presentation 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 and general level of securities prices and interest rates, liquidity in capital markets, availability of borrowings under credit lines, credit agreements and credit facilities, customer margin loan activity, credit-worthiness of our correspondents, trading counterparties and customers, the ability of our borrowers to meet their contractual obligations, the value of the collateral securing the loans that we hold, demand for real estate and investment banking services, general economic conditions, especially in Texas and New Mexico, changes in the commercial lending and regulatory environments and the ability to meet regulatory capital requirements and other factors discussed in our most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, and in our other reports filed with and available from the Securities and Exchange Commission. 2 |
 Use of Non-GAAP Measures (Slides 8 & 14) 3 SWS Group, Inc. (“SWS” or the “Company”) has included presentations of Adjusted Pre-tax Loss (Slide #8) and Adjusted Compensation Ratio (Slide #14). Adjusted Pre-tax Loss is loss before income tax expense (benefit), excluding the impact of the valuation adjustment for the warrants held by Hilltop and Oak Hill, the impact of the loan loss recapture for the banking segment and the impact of legal and financial advisory fee expenses associated with the proposed merger with Hilltop Holdings, Inc. Adjusted Compensation Ratio is the ratio of commissions and other employee compensation to net revenues adjusted for the exclusion of interest expense on the $100 million loan from Hilltop and Oak Hill and the $3.6 million gain from the sale of shares of US Home Systems common stock in the second quarter of fiscal 2013. Adjusted Pre-tax Loss and the Adjusted Compensation Ratio are non-GAAP financial measures as defined in Item 10(e) of Regulation S-K. SWS believes that the presentation of these non-GAAP financial measures provides useful information by excluding these items, which SWS believes may not be indicative of the Company’s core operating results. While management believes these non-GAAP financial measures are 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. |
 Presenters Presenters: James H. Ross President & CEO SWS Group, Inc. J. Michael Edge SVP & CFO SWS Group, Inc. 4 |
 Agenda Opening Remarks Chief Financial Officer’s Report Questions 5 |
 Opening Remarks Merger agreement with Hilltop Holdings Improvement in all business segments Continued improvement at Bank Broker (88% of Q3 Revenues) Bank (12% of Q3 Revenues) Retail Institutional Clearing 2.79% net interest margin $1.3 billion in assets 27.4% total risk-based capital and 13.9% core capital ratios $40.9 million classified assets including $25.1 million non-performing assets 6 157 Reps $15.0 billion in customer assets 50 Reps $1.9 billion daily average stock loan book $11.7 billion municipal new issue volume 186,059 tickets $16.6 billion in assets under custody |
 Third Quarter Fiscal 2014 Overview 7 Three Months Ended ($ in Thousands, except per share amounts) 3/31/14 3/29/13 Revenues $77,488 $78,055 Net Revenues 65,674 66,754 Pre-tax Loss (8,171) (9,556) Net Loss (8,757) (5,718) Diluted EPS – Loss (0.27) (0.17) Book Value Per Share 9.37 10.85 |
 8 Adjusted Pre-tax Loss (Non-GAAP)* Three Months Ended (in thousands) 3/31/14 3/29/13 Change Loss before income tax expense (benefit) $(8,171) $(9,556) $1,385 Valuation adjustment for warrants 6,745 3,840 2,905 Merger-related expenses 2,356 -- 2,356 Loan loss recapture (1,578) -- (1,578) Adjusted Pre-tax Loss (Non-GAAP) $ (648) $(5,716) $5,068 *See discussion of Non-GAAP reconciliation on Slide #3 |
 SWS Priorities 9 Improve operating results Address impact of challenging markets Continue improvement at Bank |
 10 Chief Financial Officer’s Report |
 11 3/31/14 12/31/13 %Change 3/29/13 %Change Operating Revenues: Clearing Operations $ 2,170 $ 2,213 (1.9) $ 2,082 4.2 Commissions 30,247 29,788 1.5 31,275 (3.3) Investment Banking & Advisory 9,704 10,084 (3.8) 9,196 5.5 Net Gains on Principal Transactions 8,203 7,465 9.9 5,511 48.8 Other 4,891 8,331 (41.3) 7,191 (32.0) Total Operating Revenues $55,215 $57,881 (4.6) $55,255 (0.1) Net Interest Income: Brokerage $ 5,150 $ 4,999 3.0 $ 5,101 1.0 SWS Group, Inc. (3,221) (3,266) 1.4 (3,080) (4.6) Bank 8,530 8,872 (3.9) 9,478 (10.0) Total Interest Income 10,459 10,605 (1.4) 11,499 (9.0) Total Net Revenue $65,674 $68,486 (4.1) $66,754 (1.6) Third Quarter Fiscal 2014 Net Revenues ($ in Thousands) |
 12 3/31/14 12/31/13 Change 3/29/13 Change Taxable Fixed Income $3,775 $3,172 $603 $3,225 $550 Municipal Finance $4,475 $4,158 $317 $2,095 $2,380 All other units, net $(47) $135 $(182) $191 $(238) Total $8,203 $7,465 $738 $5,511 $2,692 Net Gains on Principal Transactions ($ in Thousands) |
 13 3/31/14 12/31/13 %Change 3/29/13 %Change Operating Expenses: Commissions and Other Employee Compensation $48,753 $48,766 -- $52,077 (6.4) Occupancy, Equipment and Computer Service Costs 7,676 7,729 (0.7) 7,829 (2.0) Communications 3,384 3,362 0.7 3,371 0.4 Floor Brokerage and Clearing Organization Charges 1,189 1,073 10.8 951 25.0 Advertising and Promotional 459 612 (25.0) 922 (50.2) Other 7,217 6,442 12.0 7,320 (1.4) Total Non-provision Operating Expenses $68,678 $67,984 1.0 $72,470 (5.2) Loan Loss Recapture (1,578) (2,825) (44.1) -- -- Valuation Adjustment for Warrants 6,745 2,058 >100 3,840 75.7 Total Operating Expenses and Valuation Adjustment for Warrants $73,845 $67,217 9.9 $76,310 (3.2) Third Quarter Fiscal 2014 Expenses ($ in Thousands) |
 14 Compensation Ratios ($ in Thousands) Three Months Ended 3/31/14 12/31/13 3/29/13 Commissions and Other Employee Compensation $48,753 $48,766 $52,077 Net Revenues $65,674 $68,486 $66,754 GAAP Compensation Ratio 74.2% 71.2% 78.0% Adjusted Compensation Ratio (Non-GAAP)*: Three Months Ended 3/31/14 12/31/13 3/29/13 Commissions and Other Employee Compensation $48,753 $48,766 $52,077 Net Revenues $65,674 $68,486 $66,754 Interest Expense on Hilltop/Oak Hill Loan $ 3,310 $ 3,268 $ 3,147 Adjusted Net Revenues (Non-GAAP)* $68,984 $71,754 $69,901 Adjusted Compensation Ratio (Non-GAAP)* 70.7% 68.0% 74.5% *See discussion of Non-GAAP reconciliation on Slide #3 |
 Warrant Valuation 3/31/14 12/31/13 3/29/13 Derived Volatility 30% 46% 47% Price $ 7.48 $ 6.08 $ 6.05 Valuation (in millions) $ 31.0 $ 24.3 $ 28.1 Adjustment (in millions) $ 6.7 $ 2.1 $ 3.8 15 |
 Third Quarter Fiscal 2014 Segment Results (In Thousands) 16 3/31/14 12/31/13 %Change 3/29/13 %Change Clearing Net Revenues $ 5,118 $ 5,301 (3.5) $ 4,511 13.5 Pre-Tax $ 979 $ 1,339 (26.9) $ (617) >100 Retail Net Revenues $27,722 $28,071 (1.2) $27,797 (0.3) Pre-Tax $ 2,355 $ 3,003 (21.6) $ 308 >100 Institutional Net Revenues $27,849 $27,265 2.1 $26,165 6.4 Pre-Tax $ 6,086 $ 5,949 2.3 $ 4,831 26.0 Bank Net Revenues $ 8,295 $10,464 (20.7) $10,540 (21.3) Pre-Tax $ 2,067 $ 5,324 (61.2) $ 1,186 74.3 |
 Key Metrics 17 3/31/14 12/31/13 %Change 3/29/13 %Change Clearing Transactions Processed 186,059 181,319 2.6 263,605 (29.4) Representatives: PCG 157 160 (1.9) 164 (4.3) Fixed Income 50 53 (5.7) 59 (15.3) Independent Contractors 279 280 (0.4) 302 (7.6) Correspondents 145 146 (0.7) 147 (1.4) Total Loan Officers 22 23 (4.3) 33 (33.3) Total Employees 923 933 (1.1) 1,066 (13.4) Retail Client Assets ($ in billions) $ 15.0 $14.8 1.4 $14.3 4.9 Balances ($ in millions): Avg. Margin Balances $ 238.9 $ 240.9 (0.8) $ 237.4 0.6 Avg. Credit Balances 335.5 354.9 (5.5) 329.4 1.9 Avg. Stock Loan Balances 1,914.3 1,864.7 2.7 1,584.4 20.8 Net Capital ($ in millions) $ 148.2 $ 153.9 (3.7) $ 145.1 2.1 |
 Classified Assets 18 ($ in Thousands) 3/31/14 12/31/13 3/31/13 Non-accrual Loans $14,388 $16,017 $19,394 Performing Troubled Debt Restructurings 4,819 3,544 2,604 REO & Other Repossessed Assets 5,880 7,355 23,694 Total Non-performing Assets $25,087 $26,916 $45,692 Current Classified Assets 15,835 21,099 32,831 Total Classified Assets $40,922 $48,015 $78,523 Non-performing Assets / Assets 1.98% 2.13% 3.57% Classified Assets / Capital + Reserve 22.9% 27.2% 41.4% |
 Key Bank Statistics *Excludes purchased mortgage loans held for investment and loans measured at fair value 19 ($ in Thousands) 3/31/14 12/31/13 3/31/13 Total Loan Loss Recapture $(1,578) $(2,825) $ -- Net Recovery (Charge-offs) 222 67 129 Allowance for Loan Losses 8,092 9,448 18,766 Reserve / Loan Ratio* 1.83% 2.29% 4.07% Yield on Earning Assets 3.02% 3.04% 3.28% Cost of Funds 0.27% 0.28% 0.28% Net Interest Margin 2.79% 2.80% 3.04% |
 Bank Balances 20 ($ in Millions) 3/31/14 12/31/13 %Change 3/31/13 %Change Investment Portfolio $ 596.9 $ 603.6 (1.1) $ 426.9 39.8 Loans Held for Investment – Gross 566.1 537.7 5.3 660.7 (14.3) Total Core Deposits 995.9 995.0 0.1 1,046.3 (4.8) Capital 170.3 167.3 1.8 170.8 (0.3) Core Capital 13.9% 13.8% 13.1% Total Risk-based Capital 27.4% 27.4% 23.2% Deposits Provided by Brokerage Clients $ 878.3 $ 876.5 0.2 $ 927.4 (5.3) |
 Bank Loans by Type 21 ($ in Millions) 3/31/14 12/31/13 %Change 3/31/13 %Change Residential Real Estate Purchased Mortgage – HFI $ 72.5 $ 89.6 (19.1) $ 200.0 (63.8) 1-4 Family 92.4 55.2 67.4 65.6 40.9 Construction Residential Construction 0.8 0.7 14.3 2.2 (63.6) Commercial Construction 5.5 3.6 52.8 8.9 (38.2) Lot & Land Development Residential Land 0.6 0.6 -- 3.9 (84.6) Commercial Land 5.4 5.4 -- 6.3 (14.3) Commercial Real Estate 182.8 187.0 (2.2) 233.8 (21.8) Multi-family 133.7 123.2 8.5 75.5 77.1 Commercial Loans 69.7 69.7 -- 62.9 10.8 Consumer Loans 2.7 2.7 -- 1.6 68.8 Total Loans $ 566.1 $ 537.7 5.3 $ 660.7 (14.3) |
 SWS Office Locations 22 |
 This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. Hilltop will file with the SEC a registration statement on Form S-4 containing a proxy statement/prospectus of SWS and Hilltop, and SWS and Hilltop will each file other documents with respect to the proposed transaction and a definitive proxy statement/prospectus will be mailed to shareholders of SWS. Investors and security holders of SWS are urged to read the proxy statement/prospectus and other documents that will be filed with the SEC carefully and in their entirety when they become available because they will contain important information. Investors and security holders of SWS will be able to obtain free copies of the registration statement and the proxy statement/prospectus (when available) and other documents filed with the SEC by SWS or Hilltop through the website maintained by the SEC at www.sec.gov. Copies of the documents filed with the SEC by SWS will be available free of charge on SWS’s internet website at www.swst.com or by contacting SWS’s Investor Relations Department at (214) 859-1800. Copies of the documents filed with the SEC by Hilltop will be available free of charge on Hilltop’s internet website at www.hilltop-holdings.com or by contacting Hilltop’s Investor Relations Department at (214) 252-4029. SWS, Hilltop, their respective directors and certain of their executive officers and other members of management and employees may be considered participants in the solicitation of proxies in connection with the proposed transaction. Information about the directors and executive officers of SWS is set forth in its Annual Report on Form 10-K for the year ended June 30, 2013, which was filed with the SEC on September 6, 2013, its proxy statement for its 2013 annual meeting of shareholders, which was filed with the SEC on October 3, 2013, and its Current Reports on Form 8-K, which were filed with the SEC on September 17, 2013 and October 1, 2013. Information about the directors and executive officers of Hilltop is set forth in its most recent proxy statement, which was filed with the SEC on April 30, 2013. Other information regarding the participants in the proxy solicitations and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the proxy statement/prospectus and other relevant materials to be filed with the SEC when they become available. 23 Important Information for Investors & Shareholders |
 24 Questions & Answers |