SWS (SWS) 425 Business combination disclosure

Merger with Hilltop Holdings Inc.

October 2014

1

Filed by SWS Group, Inc.

Pursuant to Rule 425 of the Securities Act of 1933

and deemed filed pursuant to Rule 14a-6(b)

of the Securities Exchange Act of 1934

Subject Company: Hilltop Holdings, Inc.  

(Commission File No. for Registration Statement on Form S-4: 333-196367)  

The following updated presentation is being used by management of SWS Group, Inc. in investor meetings commencing on the date of this filing;

      members of management of Hilltop Holdings Inc. may participate in some or all of these meetings.

Forward-Looking Statements

2

From

time

to

time

we

make

statements

(including

some

contained

in

this

presentation)

that

predict

or

forecast

future

events,

depend

on

future

events

for

their

accuracy,

or

otherwise

contain

"forward-looking"

information

and

constitute

“forward-looking

statements”

within

the

meaning

of

applicable

U.S.

securities

laws.

Such

statements

are

generally

identifiable

by

terminology

such

as

“plans,”

“expects,”

“estimates,”

“budgets,”

“intends,”

“anticipates,”

“believes,”

“projects,”

“indicates,”

“targets,”

“objective,”

“could,”

“should,”

“potential,”

“may”

or

other

similar

words.

By

their

very

nature,

forward-looking

statements

require

us

to

make

assumptions

that

may

not

materialize

or

that

may

not

be

accurate.

Readers

should

not

place

undue

reliance

on

forward-looking

statements

and

should

recognize

that

such

statements

are

predictions

of

future

results,

which

may

not

occur

as

anticipated.

Actual

results

may

differ

materially

as

a

result

of

various

factors,

some

of

which

are

outside

of

our

control,

including:

•

failure

to

obtain

the

approval

of

stockholders

of

SWS

Group,

Inc.

(“SWS”

or

the

“Company”

in

connection

with

the

proposed

transaction

with

Hilltop

Holdings

Inc.

(“Hilltop”);

•

the

failure

to

consummate

or

delay

in

consummating

the

proposed

transaction

for

other

reasons;

•

the

timing

to

consummate

the

proposed

transaction;

•

the

risk

that

a

condition

to

closing

of

the

proposed

transaction

may

not

be

satisfied;

•

the

risk

that

a

regulatory

approval

that

may

be

required

for

the

proposed

transaction

is

delayed,

is

not

obtained,

or

is

obtained

subject

to

conditions

that

are

not anticipated;

•

Hilltop’s

ability

to

achieve

the

synergies

and

value

creation

contemplated

by

the

proposed

transaction;

•

Hilltop’s

ability

to

promptly

and

effectively

integrate

its

and

SWS’s

businesses;

•

the

diversion

of

management

time

on

transaction-related

issues;

•

the

interest

rate

environment;

•

the

volume

of

trading

in

securities;

•

the

liquidity

in

capital

markets;

•

the

volatility

and

general

level

of

securities

prices

and

interest

rates;

•

the

ability

to

meet

regulatory

capital

requirements

administered

by

federal agencies;

•

the

level

of

customer

margin

loan

activity

and

the

size

of

customer

account balances;

•

the

demand

for

real

estate

in

Texas,

New

Mexico

and

the

national

market;

•

the

credit-worthiness

of

our

correspondents,

trading

counterparties

and

of

our

banking

and

margin

customers;

•

the

demand

for

investment

banking

services;

•

general

economic

conditions,

especially

in

Texas

and

New

Mexico,

and

investor

sentiment

and

confidence;

•

the

value

of

collateral

securing

the

loans

we

hold;

•

competitive

conditions

in

each

of

our

business

segments;

•

changes

in

accounting,

tax

and

regulatory

compliance

requirements;

•

changes

in

federal,

state

and

local

tax

rates;

•

the

ability

to

attract

and

retain

key

personnel;

•

the

availability

of

borrowings

under

credit

lines,

credit

agreements

and

credit facilities;

•

the

potential

misconduct

or

errors

by

our

employees

or

by

entities

with

whom

we

conduct

business;

•

the

ability

of

borrowers

to

meet

their

contractual

obligations

and

the

adequacy

of

our

allowance

for

loan

losses;

and

•

the

potential

for

litigation

and

other

regulatory

liability.

3

Forward-Looking Statements (Continued)

Our

future

operating

results

also

depend

on

our

operating

expenses,

which

are

subject

to

fluctuation

due

to:

•

variations

in

the

level

of

compensation

expense

incurred

as

a

result

of

changes

in

the

number

of

total

employees,

competitive

factors

or

other

market

variables;

•

variations

in

expenses

and

capital

costs,

including

depreciation,

amortization

and

other non-

cash

charges

incurred

to

maintain

our

infrastructure;

and

•

unanticipated

costs

which

may

be

incurred

from

time

to

time

in

connection

with

litigation,

regulation

and

compliance,

loan

analyses

and

modifications

or

other

contingencies.

Other

factors,

risks

and

uncertainties

that

could

cause

actual

results

to

differ

materially

from

our

expectations

discussed

in

this

presentation

and

those

discussed

in

our

reports

filed

with

and

available

from

the

Securities

and

Exchange

Commission

(the

"SEC").

Our

forward-looking

statements

are

based

on

current

beliefs,

assumptions

and

expectations.

All

forward-looking

statements

speak

only

as

of

the

date

on

which

they

are

made

and,

except

as

required

by

law,

we

expressly

disclaim

any

obligation

or

undertaking

to

disseminate

any

updates

or

revisions

to

any

forward-looking

statements

contained

herein

to

reflect

any

change

in

our

expectations

with

regard

thereto

or

any

change

in

events,

conditions

or

circumstances

upon

which

any

statement

is

based.

Agenda

Executive Summary

Transaction Overview

SWS Independent Special Committee

Transaction Background

Transaction Rationale

Hilltop

2011 Credit Agreement

Shareholder Approval

Appendix

4

Executive Summary

5

On

March

31,

2014,

SWS

entered

into

an

agreement

to

merge

into

a

subsidiary

of

Hilltop

SWS

Board

(other

than

Messrs.

Ford

1

and

Crandall

2

,

who

recused

themselves

from

voting)

unanimously

approved

the

merger

agreement

and

recommend

SWS

stockholders

vote

FOR

the

merger

on

or

before

the

Special Meeting of Stockholders to be held on November 21, 2014

SWS

holders

of

record

on

October

3,

2014

are

entitled

to

vote

–

importantly,

failing

to

vote

has

the

same

effect

as a vote against the transaction

Hilltop’s price represents a significant premium to SWS’s unaffected stock price³ and a substantial multiple in light of

SWS’s historical losses and low prospective earnings

Hilltop’s

merger

delivers

immediate

cash

value

and

allows

SWS

stockholders

to

participate

in

significant

upside

potential of a larger, more profitable, more diversified organization with ample capital to grow

Hilltop is the ideal buyer for SWS:

Hilltop owns complementary broker / dealer and banking businesses based in Dallas, TX

Low risk execution from regulatory and financing perspective

Alleviated

SWS

repayment

risk

on

$100

million

unsecured

debt

and

burdensome

conditions

in

related

Credit

Agreement

1

Refers to Gerald J. Ford, Chairman of the Board of Hilltop Holdings Inc.

2

Refers to J. Taylor Crandall, a founding Managing Partner of Oak Hill Capital Management, LLC

3

Unaffected SWS share price was $6.06 on January 9, 2014; the day before the Hilltop initial proposal was made public

6

Executive Summary (Continued)

Due to the anticipated scrutiny of merging with Hilltop, SWS formed an independent Special Committee, solicited

numerous potential acquirers and discussed potential transactions with other parties

Agreement with Hilltop was reached after SWS successfully negotiated enhanced economics, though no other

party submitted a binding proposal

Hilltop has since exercised all of its warrants, is the largest stockholder of SWS and is no longer a lender to SWS –

sacrificing certain rights and protections in the 2011 Credit Agreement

Oak

Hill

consented

to

the

merger

with

Hilltop

and

has

since

exercised

75%

of

its

warrants

–

becoming

the

second

largest common stockholder. Oak Hill is not subject to a voting agreement 

Transaction Overview

Per share deal value at announcement was $7.88

Hilltop originally offered $7.00 per share on 1/9/14

Value will fluctuate with Hilltop market price

SWS per share merger consideration of 0.2496 Hilltop shares

plus $1.94 in cash

Approximate mix 75% stock / 25% cash

Aggregate

value

of

SWS

at

announcement

of

$398

million

1

Hilltop existing investment in SWS of $80 million

Merger consideration to other SWS holders of $318

million

Transaction multiples at announcement:

Price/Fully Diluted Tangible Book Value Per Share:

97%

2

Price/Estimated FY 2015 EPS (Street): 88x

Unaffected

market

premium:

30%

3

Premium to 52 week low: 52%

7

1

Aggregate value includes Hilltop and Oak Hill warrants

2

Fully diluted tangible book value per share equaled $8.15 at announcement

3

Based on SWS share price on January 9, 2014 of $6.06 per share

Financial Terms

Legal Requirements

Stockholder approval requires affirmative vote of >50% of

outstanding SWS shares as of record date

Hilltop has exercised all of its warrants and has agreed to

vote its 10.2 million outstanding shares FOR the merger

(21% outstanding)

There is no voting agreement for Oak Hill’s 6.5 million

outstanding shares (14% outstanding)

Conditions to close merger include regulatory approvals;

Hilltop does not have financing or other outs

SWS Board can change its recommendation of the merger,

but not terminate the merger agreement, if SWS receives an

unsolicited superior proposal or in certain other limited

circumstances

Transaction is expected to close by year end 2014 with

merger agreement termination date of 3/31/15

SWS Independent Special Committee

On January 15, 2014, SWS formed a Special Committee to

review Hilltop’s unsolicited original offer, consider other

strategic alternatives and lead the negotiations for any

potential transaction

Members of the Special Committee:

SWS directors unaffiliated with Hilltop or Oak Hill

Disinterested and non-executives

Have relevant experience and industry knowledge

Able and willing to devote significant time and

thoughtfulness

Special Committee engaged independent advisors after

discussions with several candidates

Legal advisor -

Davis Polk & Wardwell (“Davis Polk”)

was retained on 1/29/14

Investment bank -

Sandler O’Neill (“Sandler”) was

retained on 2/3/14

From formation through the announcement of the Hilltop

transaction, the Special Committee met a total of 21 times

8

Formation

Tyree Miller -

Chair

SWS director since November 2011

Has been in the private equity and money management

business since 2004

Currently President of A.G. Hill Partners, LLC

From 2005 to 2008 served as a partner of Austin Ventures

From 1974 to 2004 built career at Bank One Corporation

(merged with JP Morgan in 2004), advancing to roles which

included Chairman and CEO of Bank One Texas from 1998

to 2000 and President and CEO of Global Treasury Services

from 2000 to 2004

Robert Buchholz

SWS director since May 2008

Served as an officer of SWS from 1985 to 1995, advancing

to President and a director

Chairman and founder of Town Center Holdings, former

parent company to Town Center Bank

Prior experiences as an attorney and certified public

accountant

Joel Williams III

SWS director since November 2009

President of Bristol Investment Company, Inc., a private

investment firm, since 1985

Formerly served as President and CEO of Texas Federal

Financial Corporation prior to its sale in 1984

Special Committee Bios

Transaction Background –

Process Overview¹

9

1

The

information

in

this

section

and

in

the

Transaction

Background

set

forth

in

this

presentation

is

selected

from

the

definitive

SWS/Hilltop

Proxy

Statement/Prospectus

filed

with

the

Securities

and

Exchange

Commission

and

is

not

a

complete

summary

of

the

transaction

background.

For

the

complete

summary,

please

refer

to

the

“Background

of

the

Merger”

section

of

the

SWS/Hilltop

Proxy

Statement/Prospectus.

Notes

Hilltop offer in public

domain for 81

days

before signing merger

agreement

17

companies contacted

(including all that

contacted SWS)

Other than Hilltop, only 2

companies continued to

pursue a transaction after

early stage conversations

Other than Hilltop, only 1

suitor was financially

capable of closing

transaction but that party

did not make a binding

proposal

1/9/14:

Hilltop delivered to SWS Board an unsolicited letter of intent to acquire all shares it did not own for

$7.00 per share in a 50% stock / 50% cash transaction

2/13/14:

Special Committee instructed Sandler to contact third parties that:

2/14

–

3/14:

17

parties

were

contacted

2/14 –

3/14:

Special Committee, Sandler and/or Davis Polk held discussions with or negotiated potential

transactions with:

3/31/14:

SWS entered into merger agreement with Hilltop following extensive negotiations

1/10/14:

Hilltop made its offer public

Hilltop

Esposito Global and Party B

Party A

Hilltop raised its offer price to $7.75 and stock consideration to 75%

Neither of the other interested parties submitted a binding proposal with a firm price to acquire SWS

Were

financially

capable,

Were

likely

to

receive

regulatory

approval,

and

Would

not

require

material

conditions

to

complete

a

transaction

to

acquire

SWS

Transaction Background –

Esposito Global & Party B

2/18/14:

Esposito Global publicly disclosed a proposal to acquire SWS for $8.00 per share, expressly contingent on third-

party financing being arranged

2/20/14:

Special Committee instructed Sandler and Davis Polk to speak with Esposito Global and its legal advisor

to understand their plans for arranging outside financing and their ability to obtain regulatory approval

2/24/14:

Esposito Global and its legal advisors indicated that Esposito Global was not in a position to obtain

regulatory approval and would require additional resources to meet financing requirements

2/27/14:

Esposito Global informed the Special Committee that it would be

working with “Party B,”

a bank holding

company

Over the ensuing several weeks, multiple conversations were held

with Esposito Global, Party B, and their financial and

legal advisors

Party B informed the Special Committee that significant external

financing would be required to complete a

transaction; multiple private equity firms would need to be involved

3/17/14:

Party B’s financial advisor indicated that sixty days would be required to finalize price and secure

necessary financing

3/20/14:

Special Committee informed Party B that it was uncomfortable with the uncertainty surrounding their extended

timeline to secure financing, complete due diligence and affirm their price

10

Transaction Background –

Party A

11

1

The

Merger

Covenant

in

the

Credit

Agreements

prohibits

SWS

from

undergoing

a

“Fundamental

Change,”

which

includes

any

merger

or

substantial

asset

sale,

without

the

approval

of

each

lender

2/18/14:

Initial conversation with Party A regarding a potential acquisition of SWS

During late February and early March, SWS’s financial advisor had several calls with Party A

3/18/14:

CEO of Party A stated they were valuing SWS at approximately $8.00 per share, though the price could be higher

3/25/14:

SWS and Party A executed a non-disclosure agreement

3/27/14:

Party

A

was

informed

that

SWS

was

under

a

deadline

to

execute

a

merger

agreement

by

March

31,

2014

3/29/14 –

3/31/14:

Party A conducted in-person due diligence at SWS headquarters in Dallas

3/31/14:

SWS received a letter from Party A stating they:

Party A indicated an interest in acquiring SWS at a price approximating tangible book value of SWS “liquid assets”; believed to

approximate the fully diluted tangible book value of $8.15 per share as of December 31, 2013

Also discussed were issues regarding the Merger Covenant, due diligence and terms of a non-disclosure agreement

Party A provided a non-binding indication of interest to acquire SWS for $8.65 per share, subject to due diligence and describing

the process that it would require to meet the March 31, 2014 deadline

Were

not

able

to

execute

a

definitive

agreement

by

the

March

31,

2014

deadline,

Had

serious

concerns

agreeing

to

a

transaction

if

Hilltop

would

not

waive

the

Merger

Covenant,

and

Needed

more

time

for

their

due

diligence

Party

A

also

discussed

the

Merger

Covenant

1

with

Hilltop’s

financial

advisor

-

who

informed

Party

A

that

Hilltop

would

not

waive it

Transaction Background –

Hilltop

3/3/14:

Special Committee rejected Hilltop’s original offer

3/5/14:

Hilltop

indicated

that

it

did

not

believe

book

value

($8.15

per

share)

was

the

correct

method

to

value

SWS,

based

on,

among

other

things,

its lack of historical and prospective earnings

3/19/14:

Hilltop submitted a revised proposal at $7.50 per share, 75% stock / 25% cash

Hilltop indicated that it was approaching its limit on price and

would not leave the offer outstanding for a prolonged period time

3/20/14:

Hilltop

agreed

to

increase

offer

price

to

$7.75

per

share,

75%

stock

/

25%

cash

Hilltop reiterated its intention not to waive the Merger Covenant with respect to any deal with another party

3/24/14:

Hilltop said that if the merger agreement was not signed by March 31, 2014, Hilltop would withdraw its offer; this position was

subsequently repeated on several occasions

3/31/14:

Special Committee members met with Hilltop to negotiate remaining issues of merger agreement

Hilltop refused again to eliminate the “force the vote”

provision and refused to accept a possible two-tier termination fee that would provide

for a lower payment if a deal was done with Party A

Hilltop did agree to reduce the termination fee to $8 million from original $12 million

3/31/14:

Later in the day, SWS Board (other than Messrs. Ford and Crandall, who were recused from voting) unanimously approved the merger

agreement and recommended its adoption by SWS stockholders based

on, among other things:

Enhanced value and improved terms (including higher price and lower termination fee) achieved through negotiations with Hilltop

Risk of Hilltop withdrawing its offer without a binding proposal

from either of the interested parties

Concern over the repayment risk of the $100 million of loans under the 2011 Credit Agreement and Hilltop’s unwillingness to waive the

Merger Covenant

12

13

Transaction Rationale –

SWS Six-Year Financial Performance

($ in Millions, Except per Share Data)

Source: SWS SEC Filings. SWS fiscal years ending June 30.

1

Fully Diluted Tangible Book Value per Share is Non-GAAP and includes Hilltop and Oak Hill warrant shares. See calculation on separate slide in Appendix.

Bank credit losses,

prolonged low short-

term interest rates

and declining broker /

dealer revenues have

primarily resulted in

net losses over past 5

years

Hilltop’s deal value is

attractive given

limited earnings

visibility of SWS as

standalone company

14

Transaction Rationale –

SWS Stock Price Performance

Prior to 2011

July

2010:

Bank

entered

into

MOU

with

OTS

Dec.

2010:

Terminates

planned

debt

offering

Feb. 2011: Bank enters

into C&D with OTS

March 2011: Agrees to

$100M capital raise with 

Hilltop and Oak Hill

(closed July 2011)

Historical price has

lingered around

warrant exercise price

as company

performance has

declined and exercise

price provided floor

For the three years

prior to Hilltop’s initial

proposal, SWS’s stock

price averaged $5.77

August 2011:

Announces

FY 2011 loss

per share of

$0.71

Sep. 2012:

Announces

FY 2012 loss

per share of

$0.14

August 2013:

Announces

FY 2013 loss

per share of

$1.02

Jan. 2014:

Hilltop

Announces

LOI for $7.00

per share

March 2014:

Announces

definitive

agreement for

$7.88 per share

Jan. 2013: OCC

lifts C&D order

for Bank

15

Hilltop’s offer at announcement

Transaction Rationale –

Provides Immediate and Long-Term Value

1

Unaffected stock price is equal to $6.06 per share, the price preceding Hilltop’s initial proposal.

2

Research

coverage

on

Hilltop

is

published

by

KBW,

Raymond

James,

Stephens

and

Sterne

Agee.

Provided a 30% premium to SWS’s unaffected stock price¹

Exceeded SWS likely value as a standalone entity

Provided a 12.5% premium to Hilltop’s original offer

Discount to tangible book value merited due to SWS historical losses and low prospective earnings

SWS stockholders will own approximately 10% of Hilltop

Hilltop median analyst price target of $26.25 implies $8.49 SWS deal value²

Larger,

diversified

organization

will

benefit

from

synergies

and

more

efficient

platform

Complementary businesses create leading Texas-based broker / dealer with bolstered market share and scale

Combined bank enhanced by significant source of additional low-cost, core deposits

Following merger, Hilltop will be well capitalized with excess capital to deploy on future transactions

25% cash / 75% stock mix offers SWS stockholders immediate cash value and significant upside potential

Transaction

alleviated

SWS

from

repayment

risk

of

$100

million

of

loans

and

lenders’

blocking

rights

to

a

merger

Hilltop

transaction

has

low

execution

risk

–

no

financing

contingencies

and

high

likelihood

of

regulatory

approvals

With Dallas-based broker/dealer and bank, Hilltop is best suited to extract benefits in excess of the risk and costs of integration

Numerous

potential

acquirers

were

solicited

following

public

announcement

of

Hilltop’s

initial

proposal,

none

of

whom

made

a

binding

proposal.

In

the

absence

of

other

binding

proposals,

there

was

a

significant

risk

to

SWS

of

Hilltop

withdrawing

its

offer

Hilltop is best buyer for SWS and transaction uniquely benefits SWS stockholders

16

Hilltop –

Overview

Hilltop is a diversified financial holding company based in Dallas

Led by Chairman Gerald J. Ford, who has acquired, managed and

sold banking businesses and other financial services companies for

over 35 years

Hilltop provides banking, mortgage origination, financial advisory

and insurance through its wholly owned subsidiaries, PlainsCapital

Corporation and National Lloyds Corporation

PlainsCapital

Bank

(“PCB”)

is

the

5th

largest

Texas-based

bank with 78 branches located in all major Texas markets

PrimeLending is the 4th largest mortgage originator in the U.S.

by purchase units (2013) with 300 locations in 42 states

First Southwest (“FSW”), primarily a public finance advisor,

ranked #1 nationally and in Texas for number of issues 

completed over past five years

National Lloyds provides fire and homeowners insurance for

low value dwellings in Texas and other southern states with a

distribution network of over 6,500 independent agents

With $9.4 billion in assets and $158 million in freely usable cash,

Hilltop seeks to build a premier Texas-based bank and diversified

financial services holding company through acquisitions and organic

growth

Q2 2014 LTM Pre-Tax Income by Segment ($000)

Organizational Structure

Source: SWS/Hilltop Proxy Statement/Prospectus, SNL Financial (deposit market share),

Ipreo MuniAnalytics (public finance rankings), Marketrac (origination ranking),

Hilltop website (number of National Lloyds independent agents)

1.

As of Oct. 6, 2014, Hilltop owned 21% of the outstanding common stock of SWS.

2.

Deposit

data

as

of

June

30,

2014

and

pro

forma

for

acquisitions.

Includes

banks

and

thrifts

headquartered

in

Texas.

2

17

Hilltop –

Financial Highlights

2013 Q2

2013 Q3

2013 Q4

2014 Q1

2014 Q2

Income to Common ($000)

$20,943

$38,174

$29,528

$23,760

$27,085

EPS -

Diluted

$0.24

$0.43

$0.34

$0.26

$0.30

ROAE

7.29%

13.02%

10.97%

7.65%

7.99%

Book Value Per Share

$12.59

$13.00

$13.27

$13.76

$14.22

Tier 1 Leverage Ratio

13.66%

13.96%

12.81%

13.12%

13.51%

Source: Hilltop 10-Qs and 10-K

Note: Hilltop also includes a corporate segment, which is excluded in bar chart for illustrative purposes

18

Hilltop and SWS –

Five Year Stock Price Relative Performance

Note: Includes the total return of the HTH stock price, the SWS stock price, and the S&P 500 Financials Index from October 28, 2009 to October 28, 2014

Source: SNL Financial

82.5%

(46.8%)

63.8%

(100.0%)

(50.0%)

0.0%

50.0%

100.0%

150.0%

10/28/09

10/28/10

10/28/11

10/28/12

10/28/13

10/28/14

HTH Stock Price

SWS Stock Price

S&P 500 Financials

19

Hilltop and SWS –

Stock Price Relative Performance & Short Interest

Current deal value is

$7.35; down from $7.88 at

announcement

Bank market is down

2.5% in that time

Elevated short interest is

impeding Hilltop and SWS

stock prices

Although Lone Star Value

has built a 8.15% long

position in SWS, they

have a 6.28% short

position, leaving them an

economic interest of only

1.88%

Research analysts of

Hilltop have median price

target of $26.25, a

premium of 21.1% over

the current market price

Note: Based on closing prices as of October 28, 2014

Short Interest

(8.9%)

(2.9%)

(2.5%)

(20.0%)

(15.0%)

(10.0%)

(5.0%)

0.0%

5.0%

10.0%

4/3/14

5/3/14

6/3/14

7/3/14

8/3/14

9/3/14

10/3/14

Relative Stock Price Performance

HTH Stock Price

SWS Stock Price

KBW Bank Index

0

500

1,000

1,500

2,000

2,500

3,000

3,500

3/31/14

4/30/14

5/31/14

6/30/14

7/31/14

8/31/14

9/30/14

HTH Short Interest

SWS Short Interest

20

Hilltop –

SWS Combination

Pro Forma Balance Sheet Highlights (6/30/14)

$bn

HTH

SWS

Pro Forma

Loans HFI

$4.5

$0.9

$5.4

Assets

$9.4

$4.1

$13.3

Deposits

$6.2

$1.4

$7.5

Equity

$1.4

$0.3

$1.6

Combination Opportunity

Transaction creates the largest full service brokerage firm

headquartered in the Southwestern US based on number

of financial advisors

Fortifies strong presence in Texas, while adding

complementary offices throughout the United States

Significant opportunity to bolster market share and scale

of complementary broker / dealer businesses

Larger, diversified organization will benefit from synergies

and more efficient operating platform

Combined bank will have a larger, more scalable deposit

base given ability to source additional deposits from

broker / dealer customers through the sweep program

Following the acquisition, Hilltop will be well capitalized

with excess cash to deploy on future transactions

Continues to build on Hilltop’s goal of building the premier

Texas financial holding company franchise with a

dominant Texas broker / dealer

Complementary Businesses

SWS

FSW

Taxable

Fixed

Income,

Retail

Public Finance,

Capital Markets,

Clearing,

Stock Loan,

Bank

Housing,

Asset

Management

Source: SWS/Hilltop Proxy Statement/Prospectus

21

Hilltop –

SWS / FSW Business Opportunity

FSW was formed in Dallas in 1946 and is a diversified investment

banking firm and a registered broker-dealer

25 locations nationwide (9 in Texas) and employs

approximately 400 people

Four primary lines of business: (1) public finance, (2) capital

markets, (3) correspondent clearing services and (4) asset

management

Combining SWS with FSW’s franchise will improve overlapping

business lines, while providing expansion into new areas

Public

Finance

-

will

have

the

premier

Southwestern

franchise with the ability to build both the municipal advisory

and

underwriting

practices

–

combined

company

will

be

the

number one ranked financial advisor in the nation by tax-

exempt issues

Capital Markets

-

able to add key traders and sales reps and

bolster its distribution for the municipal business, particularly

on west coast

Stock Loan

-

will benefit from addition of “hard-to-borrow”

balances and significant stock borrow/loan conduit business

Clearing

-

meaningfully increases scale with significant

addition of correspondents and balances but with minimal

overlap

Back Office

-

substantial opportunity to improve overhead

efficiency and streamline operations

New Businesses

-

addition of Taxable Fixed Income and

Retail will improve diversification and top line growth while

expanding product breadth and distribution capabilities

Financial

Advisor

Number

of

Tax-Exempt

Issues:

2009

–

2013

Source:

SWS/Hilltop

Proxy

Statement/Prospectus

and

Ipreo

MuniAnalytics

Opportunity Summary

2011 Credit Agreement

Two $50 million unsecured loans with 8.00% coupon

Equal commitments from Hilltop and Oak Hill; each offered 1 seat

on the

board

Each lender was issued warrants to purchase up to 8.7 million shares of

SWS common stock at fixed exercise price of $5.75 per share

Loan pre-payable with Make-Whole Premium¹

–

if SWS closing price

exceeds $8.625 for 20 of 30 consecutive trading days

Credit agreement includes “Merger Covenant”

–

prohibits SWS from

undergoing a “Fundamental Change,”

which includes any merger or

substantial asset sale, without the approval of each lender

Any exercise of warrants results in pro-rata elimination of loan

Closed on July 29, 2011 after SWS stockholder and regulatory approval

22

1

Make-Whole

Premium

(defined

as

“Applicable

Premium”

in

Credit

Agreement)

is

equal

to

the

present

value

of

all

required

interest

payments

from

prepayment

date

through

maturity

date.

2011 Credit Agreement

Credit Agreement Rationale

Southwest Securities, FSB (“Bank”) suffered from significant credit losses

and was operating under a Cease & Desist Order with heightened capital

requirements

Bank had a $68 million pre-tax loss over 12 months preceding

Credit Agreement

Bank issues were negatively impacting core brokerage businesses and

jeopardizing SWS viability

Efforts to raise capital in public and private markets were unsuccessful

2014 Consent and Warrant Exercises

Hilltop has exercised 100% of its warrant for 8.7 million SWS shares – eliminating its rights under Credit Agreement 

At the time the merger was announced, Oak Hill agreed to consent to the merger with Hilltop and exchange any outstanding

warrants for same merger consideration as SWS common holders plus Make-Whole Premium it is entitled to for its outstanding loan

Oak Hill has subsequently exercised 75% of its warrant for 6.5 million shares – preserving its rights under Credit Agreement but

eliminating 75% of its Make-Whole Premium

23

Shareholder Approval

The Board of Directors of SWS

Group

1

unanimously

recommends

that SWS stockholders vote “FOR”

the transaction with Hilltop

1

Other than Mr. Ford and Mr. Crandall who recused themselves from voting

24

APPENDIX

*

*

*

*

*

*

*

*

25

Fully Diluted Tangible Book Value (Non-GAAP)

See

discussion

of

Non-GAAP

reconciliation

on

next

slide.

($ in Thousands, Except per Share Data)

6/26/09

6/25/10

6/24/11

6/29/12

6/30/13

6/30/14

Book Value

340,357

383,394

357,469

355,702

315,286

309,872

Less: Goodwill

(7,552)

(7,552)

(7,552)

(7,552)

(7,552)

(7,552)

Less: Intangible (Ameritrade)

(1,734)

(791)

(6)

---

---

---

Tangible Book Value

331,071

375,051

349,911

348,150

307,734

302,320

Pro-Forma Adjustments:

New Equity from exercise (Common & APIC)

NA

NA

NA

92,696

94,783

126,609

Loss on debt extinguishment

NA

NA

NA

(20,924)

(16,898)

(12,231)

Gain on warrant extinguishment

NA

NA

NA

35,114

29,414

1,187

Less: Unamortized debt issuance costs

NA

NA

NA

(2,009)

(1,517)

(1,025)

Embedded gain on exercise before tax

NA

NA

NA

12,181

10,999

(12,069)

Less taxes (35%)

NA

NA

NA

(4,263)

(3,850)

4,224

Embedded gain after tax

7,918

7,150

(7,845)

Pro-forma Tangible Book Value

331,071

375,051

349,911

448,764

409,666

421,084

Shares Outstanding

27,263

32,342

32,285

32,576

32,629

32,757

Deferred Compensation Shares

187

216

262

306

302

311

Warrant Shares

NA

NA

NA

17,391

17,391

17,391

Pro-forma Shares Outstanding

27,450

32,558

32,547

50,273

50,322

50,459

Fully Diluted Tangible Book Value per Share

$12.06

$11.52

$10.75

$8.93

$8.14

$8.35

1

1

Use of Non-GAAP Measures

26

SWS

has

included

in

the

presentation

Fully

Diluted

Tangible

Book

Value

Per

Share.

Fully

Diluted

Tangible

Book

Value

Per

Share

reflects

book

value

per

share,

less

goodwill,

assuming

exercise

of

all

of

the

Company’s

outstanding

warrants

and

resulting

repayment

of

the

$100

million

loan

from

Hilltop

and

Oak

Hill.

Fully

Diluted

Tangible

Book

Value

Per

Share

is

a

non-GAAP

financial

measure

as

defined

in

Item

10(e)

of

Regulation

S-K.

SWS

believes

that

the

presentation

of

this

non-GAAP

financial

measure

provides

useful

information.

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.

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 Holdings Inc. (“Hilltop”) has filed with the Securities and Exchange Commission (“SEC”) a

registration statement on Form S-4 containing a definitive proxy statement of SWS Group, Inc. (“SWS”) that also

constitutes a prospectus of Hilltop, and SWS and Hilltop have each filed and will each file other documents with

respect to the proposed transaction and the definitive proxy statement/prospectus has been mailed to shareholders

of SWS. Investors and security holders of SWS are urged to read the definitive proxy statement/prospectus and

other documents filed or that will be filed with the SEC carefully and in their entirety because they contain important

information. Investors and security holders of SWS are able to obtain free copies of the registration statement and

the proxy statement/prospectus 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 are 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 are 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/A (Amendment No. 1) for the year ended June 30, 2014, which was filed with the SEC on September 26,

2014. 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 May 2, 2014. 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

definitive proxy statement/prospectus and other relevant materials to be filed with the SEC when they become

available.

27

Important Information for Investors & Shareholders