<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    Form 10-Q

               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

           [X]    For the quarterly period ended December 31, 2001

                                       OR

           [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                For the transition period from _______ to _______

                         Commission file number 0-19483

                                 SWS GROUP, INC.
             (Exact name of registrant as specified in its charter)


                         Delaware                            75-2040825
              (State or other jurisdiction of             (I.R.S. Employer
              incorporation or organization)             Identification No.)

              1201 Elm Street, Suite 3500, Dallas, Texas       75270
               (Address of principal executive offices)      (Zip Code)


        Registrant's telephone number, including area code (214) 859-1800

                        Southwest Securities Group, Inc.
              (Former name, former address and former fiscal year,
                         if changed since last report)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                          Yes X   No

As of February 6, 2002, there were 17,225,682 shares of the registrant's common
stock, $.10 par value, outstanding.

<PAGE>

                        SWS GROUP, INC. AND SUBSIDIARIES

                                      Index

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

   Consolidated Statements of Financial Condition
      December 31, 2001 (unaudited) and June 29, 2001

   Consolidated Statements of Income and Comprehensive Income (Loss)
      For the three and six months ended December 31, 2001 and 2000 (unaudited)

   Consolidated Statements of Cash Flows
      For the six months ended December 31, 2001 and 2000 (unaudited)

   Notes to Consolidated Financial Statements (unaudited)


Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Item 3.  Quantitative and Qualitative Disclosures About Market Risk



PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

Item 2.  Changes in Securities and Use of Proceeds

Item 3.  Defaults Upon Senior Securities

Item 4.  Submission of Matters to a Vote of Security Holders

Item 5.  Other Information

Item 6.  Exhibits and Reports on Form 8-K

<PAGE>

                        SWS GROUP, INC. AND SUBSIDIARIES
                 Consolidated Statements of Financial Condition
                       December 31, 2001 and June 29, 2001
               (In thousands, except par values and share amounts)

<TABLE>
<CAPTION>
                                                                                            December                June
                                                                                          (unaudited)
                                                                                     -------------------    -------------------
                                      Assets
<S>                                                                                         <C>                    <C>
Cash                                                                                        $    33,752            $    31,224
Assets segregated for regulatory purposes                                                       500,371                362,071
Marketable equity securities available for sale                                                   8,131                  9,687
Receivable from brokers, dealers and clearing organizations                                   2,082,741              2,221,253
Receivable from clients, net                                                                    675,937                437,620
Loans held for sale, net                                                                        165,060                155,025
Loans, net                                                                                      335,249                319,949
Securities owned, at market value                                                               126,675                146,074
Other assets                                                                                    122,285                101,854
                                                                                     -------------------    -------------------
                                                                                            $ 4,050,201            $ 3,784,757
                                                                                     ===================    ===================

                       Liabilities and Stockholders' Equity

Short-term borrowings                                                                       $   173,050            $        --
Payable to brokers, dealers and clearing organizations                                        2,015,185              2,233,207
Payable to clients                                                                              936,601                657,955
Deposits                                                                                        343,006                336,281
Securities sold, not yet purchased, at market value                                              20,629                 28,650
Drafts payable                                                                                   39,959                 29,620
Advances from Federal Home Loan Bank                                                            130,897                113,477
Other liabilities                                                                                87,746                 74,831
Exchangeable subordinated notes                                                                   8,814                  8,568
                                                                                     -------------------    -------------------
                                                                                              3,755,887              3,482,589

Minority interest in consolidated subsidiaries                                                    1,446                  2,729

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 17,539,600 and outstanding 17,184,004 shares at
        December 31, 2001; issued 17,509,771 and outstanding
        17,247,914 shares at June 29, 2001                                                        1,754                  1,751
   Additional paid-in capital                                                                   256,510                252,225
   Retained earnings                                                                             21,358                 21,269
   Accumulated other comprehensive income - unrealized holding gain,
        net of tax of $9,890 at December 31, 2001 and $15,075 at
        June 29, 2001                                                                            18,368                 27,997
   Deferred compensation, net                                                                     1,413                  1,141
   Treasury stock (355,596 shares at December 31, 2001 and 261,857 shares at June
       29, 2001, at cost)                                                                        (6,535)                (4,944)
                                                                                     -------------------    -------------------
           Total stockholders' equity                                                           292,868                299,439
Commitments and contingencies
                                                                                     -------------------    -------------------
                                                                                            $ 4,050,201            $ 3,784,757
                                                                                     ===================    ===================
</TABLE>




    See accompanying Notes to Consolidated Financial Statements.


                                       1

<PAGE>

                        SWS GROUP, INC. AND SUBSIDIARIES
        Consolidated Statements of Income and Comprehensive Income (Loss)
          For the three and six months ended December 31, 2001 and 2000
               (In thousands, except per share and share amounts)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                       For the three months ended         For the six months ended
                                                                       fiscal 2002     fiscal 2001       fiscal 2002    fiscal 2001
                                                                     -------------------------------------------------------------
<S>                                                                      <C>           <C>                <C>            <C>
Net revenues from clearing operations                                    $  9,443      $  12,378          $  16,684      $  27,586
Commissions                                                                20,035         15,505             36,120         31,169
Interest                                                                   31,904         67,500             71,534        144,065
Investment banking, advisory and administrative fees                       10,843          8,758             20,299         17,745
Net gains on principal transactions (including net gains on the
  sale of Knight Trading Group, Inc. ("Knight") common stock)              13,864         12,407             25,079         20,435
Other                                                                       4,897          9,432              8,639         16,148
                                                                     -------------------------------------------------------------
                                                                           90,986        125,980            178,355        257,148
                                                                     -------------------------------------------------------------

Commissions and other employee compensation                                38,621         38,174             70,919         73,955
Interest                                                                   17,207         46,740             41,751        100,792
Occupancy, equipment and computer service costs                            13,224          8,531             23,018         16,457
Communications                                                              4,886          3,919              9,256          7,510
Floor brokerage and clearing organization charges                           2,338          1,477              3,934          3,291
Advertising and promotional                                                 2,654          3,870              5,684          7,742
Other                                                                       8,514         14,644             16,300         24,877
                                                                     -------------------------------------------------------------
                                                                           87,444        117,355            170,862        234,624
                                                                     -------------------------------------------------------------
Income before income taxes and minority interest in
  consolidated subsidiaries                                                 3,542          8,625              7,493         22,524
Income taxes                                                                2,502          2,878              3,862          7,492
                                                                     -------------------------------------------------------------
Income before minority interest in consolidated subsidiaries                1,040          5,747              3,631         15,032
Minority interest in consolidated subsidiaries                                339           (518)                76         (1,585)
                                                                     -------------------------------------------------------------
Income before cumulative effect of a change in accounting principle         1,379          5,229              3,707         13,447
Cumulative effect of a change in accounting principle, net of tax
  of $1,548                                                                    --             --                 --         (2,874)
                                                                     -------------------------------------------------------------
Net income                                                                  1,379          5,229              3,707         10,573
Other comprehensive income (loss):
    Holding gain (loss) arising during period, net of tax                   2,591        (21,024)               511        (15,068)
    Reclassification for hedging activities, net of tax                      (804)        13,818                (80)        24,285
    Reclassification adjustment for gains realized in net income
     on the sale of Knight common stock, net of tax                        (3,923)        (1,558)           (10,060)        (3,421)
                                                                     -------------------------------------------------------------
Net gain (loss) recognized in other comprehensive income (loss),           (2,136)        (8,764)            (9,629)         5,796
  net of tax
                                                                     -------------------------------------------------------------
Comprehensive income (loss)                                              $   (757)     $  (3,535)         $  (5,922)     $  16,369
                                                                     =============================================================
Earnings per share - basic
  Income before cumulative effect of a change in accounting
     principle                                                           $    .08      $     .30          $     .22      $     .77
  Cumulative effect of a change in accounting principle, net of tax            --             --                 --           (.16)
                                                                     ------------- -------------- -- --------------- -------------
  Net income                                                             $    .08      $     .30          $     .22      $     .61
                                                                     =============================================================
  Weighted average shares outstanding - basic                          17,162,610     17,476,770         17,200,591     17,477,871
                                                                     =============================================================
Earnings per share - diluted
  Income before cumulative effect of a change in accounting
     principle                                                           $    .08      $     .30          $     .21      $     .76
  Cumulative effect of a change in accounting principle, net of tax            --             --                 --           (.16)
                                                                     ------------- -------------- -- --------------- -------------
  Net income                                                             $    .08      $     .30          $     .21      $     .60
                                                                     =============================================================
  Weighted average shares outstanding - diluted                        17,237,934     17,567,380         17,259,193     17,596,953
                                                                     =============================================================
</TABLE>

        See accompanying Notes to Consolidated Financial Statements.

                                       2

<PAGE>

                        SWS GROUP, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
               For the six months ended December 31, 2001 and 2000
                                 (In thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                             Fiscal 2002         Fiscal 2001
                                                                                           ----------------    ----------------
<S>                                                                                        <C>                 <C>
Cash flows from operating activities:
   Net income                                                                                     $  3,707           $  10,573
   Adjustments to reconcile net income to net cash provided by (used in) operating
     activities:
       Depreciation and amortization                                                                 2,344               2,915
       Provision for doubtful accounts                                                                 527                (893)
       Deferred income taxes                                                                         1,581                (281)
       Deferred compensation expense                                                                  (101)               (247)
       Gain on sale of marketable equity securities                                                (15,476)             (5,262)
       Gain on sale of First Consumer Credit LLC                                                    (1,163)                 --
       Compensation expense on spin-off of the Westwood Group                                        3,298                  --
       Compensation expense on stock options                                                           294                  --
       Net change in minority interest in consolidated subsidiaries                                   (747)                856
       Cumulative effect of change in accounting principle, net of tax                                  --               2,874
       Reclassification from other comprehensive income for SFAS No. 133                               123               1,994
       Change in operating assets and liabilities:
         Decrease (increase) in assets segregated for regulatory purposes                         (138,300)            130,563
         Net change in broker, dealer and clearing organization accounts                           (79,510)             53,518
         Net change in client accounts                                                              40,089             (32,786)
         Net change in loans held for sale                                                         (11,442)               (424)
         Decrease (increase) in securities owned                                                    15,012             (91,144)
         Increase in other assets                                                                  (15,759)            (16,985)
         Increase in drafts payable                                                                 10,339                 382
         Decrease in securities sold, not yet purchased                                             (8,021)            (18,918)
         Increase (decrease) in other liabilities                                                   14,000              (1,478)
                                                                                           ----------------    ----------------
             Net cash provided by (used in) operating activities                                  (179,205)             35,257
                                                                                           ----------------    ----------------

Cash flows from investing activities:
  Purchase of fixed assets                                                                          (3,561)             (2,831)
  Net change in loans                                                                              (15,662)            (22,273)
  Cash received from sale of First Consumer Credit LLC                                               1,050                  --
  Cash paid for O'Connor & Company Securities, Inc., net of cash acquired                             (887)                 --
  Cash received for sale of minority interest in Westwood Holdings Group, Inc.                       4,093                  --
  Proceeds from sale of marketable equity securities                                                 3,732               5,288
                                                                                           ----------------    ----------------
             Net cash used in investing activities                                                 (11,235)            (19,816)
                                                                                           ----------------    ----------------

Cash flows from financing activities:
  Increase (decrease) in short-term borrowings                                                     173,050             (49,800)
  Increase in deposits                                                                               6,725              20,706
  Increase (decrease) in advances from Federal Home Loan Bank                                       17,420             (11,484)
  Payment to repurchase 5% exchangeable subordinated notes                                              --             (16,981)
  Proceeds from issuance of stock in consolidated subsidiary                                            50                  50
  Payment of cash dividends on common stock - parent                                                (3,441)             (2,860)
  Net proceeds from exercise of stock options                                                          489                 219
  Proceeds related to Deferred Compensation Plan                                                       267                 501
  Purchase of treasury stock                                                                        (1,592)               (501)
                                                                                           ----------------    ----------------
             Net cash provided by (used in) financing activities                                   192,968             (60,150)
                                                                                           ----------------    ----------------

Net increase (decrease) in cash                                                                      2,528             (44,709)
Cash at beginning of period                                                                         31,224              72,479
                                                                                           ----------------    ----------------
Cash at end of period                                                                             $ 33,752            $ 27,770
                                                                                           ================    ================
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

                                       3

<PAGE>

                        SWS GROUP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

GENERAL AND BASIS OF PRESENTATION
The interim consolidated financial statements include the accounts of SWS Group,
Inc. ("Parent") and its consolidated subsidiaries listed below (collectively,
the "Company"):

       Brokerage Group
         SWS Securities, Inc.                           "SWS, Inc."
         SWS Financial Services, Inc.                   "SWSFS"
         Mydiscountbroker.com, Inc.                     "MDB"
         Southwest Clearing Corp.                       "Clearing"
         May Financial Corporation                      "May"
         O'Connor & Company Securities, Inc.            "O'Connor"
       Asset Management Group
         Westwood Holdings Group, Inc. (80.18%)         "Westwood Group"
            Westwood Management Corporation             "Management"
            Westwood Trust                              "Trust"
         SWS Capital Corporation                        "Capital"
         Southwest Investment Advisors, Inc.            "Advisors"
       Banking Group
         First Savings Bank, FSB                        "FSB"
            FSBF, LLC (75%)                             "FSBF LLC"
            FSB Financial, LTD (73.5%)                  "FSBF LTD"
            FSB Development, LLC                        "FSB Development"
       Other
         SWS Technologies Corporation                   "Technologies"


Brokerage Group. SWS, Inc. is a New York Stock Exchange ("NYSE") registered
broker/dealer, and SWSFS, MDB, Clearing, May and O'Connor are National
Association of Securities Dealers ("NASD") registered broker/dealers under the
Securities Exchange Act of 1934 ("1934 Act").

On October 2, 2001, a bankruptcy court awarded SWS, Inc. the accounts of
Minneapolis-based MJK Clearing. The Securities Investor Protection Corporation
assumed responsibility for the accounts when MJK Clearing reported that it was
in violation of minimum capital requirements. The accounts of MJK Clearing were
transferred to the Company's wholly-owned subsidiary, Clearing. SWS, Inc. made a
$20 million subordinated loan to Clearing, while the Parent contributed $15
million in capital.

Asset Management Group. Advisors and Management are registered investment
advisors under the Investment Advisors Act of 1940. Trust is chartered and
regulated by the Texas Department of Banking.

On December 12, 2001, the Westwood Group was formed by the Company to be a
holding company for two of the businesses that substantially comprise the asset
management segment of the Company. Prior to December 14, 2001, the Westwood
Group had no assets or operations. On December 14, 2001, the Company contributed
all of the issued and outstanding common stock of two wholly owned subsidiaries,
Management and Trust to the Westwood Group and announced its intention to spin
the Westwood Group off to the Company's stockholders. For financial statement
purposes, the Westwood Group accounted for the contribution of Management and
Trust to the Westwood Group as a reorganization of entities under common control
at historical cost.

Also on December 14, 2001, the Company sold 1,065 shares of the Westwood Group's
common stock, constituting 19.8% of the Westwood Group's outstanding common
stock, to five of the Westwood Group's executive officers for a cash
consideration of $4,093,000, a price premised upon an understanding reached in
October 2001 that the Company would sell the shares of Westwood Group common
stock based on their value at September 30, 2001, after applying appropriate
valuation discounts. The shares

                                       4

<PAGE>

sold to management will not be distributed in the spin-off. The difference
between the book value of the minority interest and the purchase price at the
date the sale was recorded by the Company as an increase of $518,000 to its
additional paid-in capital.

The Westwood Group loaned the executive officers $4,093,000 on a full-recourse
basis, evidenced by notes secured by the stock, payable in nine years bearing
interest at 3.93%. Because the notes are receivable in connection with the sale
of the Westwood Group's common stock, they were recorded at their fair value of
$3,536,000 as an offset to stockholders' equity. The difference between the face
amount of the notes and their fair value is due to the difference between the
stated interest rate and an estimated market interest rate of 6.0%.

The difference between the fair value for financial reporting purposes of the
stock on December 14, 2001, $7,512,000 and the fair value of the note,
$3,536,000, was recorded as an equity-based compensation charge of $3,976,000.
The difference between the value of the stock, $7,512,000, and the cash
consideration paid to the Company of $4,093,000, is an expense incurred by the
Company for the Westwood Group and is reflected as an equity-based compensation
expense with the offset as a contribution to the Westwood Group's additional
paid-in capital. On a consolidated basis, 80.18% of this charge, or $2,741,000,
is reflected in the Company's stockholders' equity as additional paid-in
capital. The remainder of the equity-based compensation expense is the
difference between the face and fair value of the notes, $557,000.

The difference between the $4,093,000 paid for the stock and the fair value of
the stock for financial reporting purposes on December 14, 2001, is attributable
to changes in assets under management and the common stock prices of comparable
public companies between September 30, 2001 and December 14, 2001. The amount of
assets under management, which is a factor in determining the Westwood Group's
revenues, and the common stock prices of comparable public companies are
significant considerations in estimating the Westwood Group's value. In
addition, the $4,093,000 valuation included a 35% discount for lack of
marketability. For financial accounting purposes, no discount for lack of
marketability was recorded, which accounts for $2,204,000 of the difference
between $7,512,000 and $4,093,000.

If the spin-off has not occurred within nine months of the original stock
purchase, December 14, 2001, the Company has a 30-day call and the members of
the Westwood Group's management each have a 30-day put to resell to the Company
all of the shares of Westwood Group's shares at a price equal to their fair
market value at that time based on a re-appraisal as of the date of the first
notice to exercise either the call or the put options. Alternately, if prior to
the nine-month term, the Company publicly announces its intent not to proceed
with the spin-off, then the ability to exercise the call and put options will
commence on the later of either the public announcement or six months and one
day after the original stock purchase. The resale must be completed within 60
days following the date of exercise. The notes between the Westwood Group and
members of management would concurrently be accelerated with any put or call
exercise.

Banking Group. FSB is a federally chartered savings association regulated by the
Office of Thrift Supervision. In October 2001, FSB sold its interest in its
minority-owned subsidiary First Consumer Credit, LLC ("First Consumer"),
receiving $1,050,000 and approximately 366,000 common shares of U.S. Home
Systems, Inc. ("USHS"), a company publicly traded on NASDAQ. The shares of USHS
were dividended to the Parent and were recorded at fair market value. A gain of
approximately $1,163,000 was recorded on the sale of First Consumer in other
income in the accompanying consolidated statements of income and comprehensive
income (loss).

Consolidated Financial Statements. The interim consolidated financial statements
as of December 31, 2001, and for the three- and six-month periods ended December
31, 2001 and 2000, are unaudited; however, in the opinion of management, these
interim statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position,
results of operations and cash flows. These financial statements should be read
in conjunction with the audited consolidated financial statements and related
notes as of and for the year ended June 29, 2001 filed on

                                       5

<PAGE>

Form 10-K. Amounts included for June 29, 2001 are from the audited consolidated
financial statements as filed on Form 10-K.

All significant intercompany balances and transactions have been eliminated.
Other comprehensive income (loss) for the three- and six-month periods ended
December 31, 2000 has been restated to reflect the reclassification of changes
in the value of the hedged Knight stock, net of tax, of $13,818,000 and
$24,285,000, respectively. The amount previously reported as comprehensive loss
for the three- and six-month periods ended December 31, 2000 was $17,353,000 and
$7,916,000, respectively.

CASH FLOW REPORTING
Cash paid for interest was $45,165,000 and $110,619,000 for the six-month
periods ended December 31, 2001 and 2000, respectively. Cash paid for income
taxes was $3,200,000 and $8,600,000 for the six months ended December 31, 2001
and 2000.

ASSETS SEGREGATED FOR REGULATORY PURPOSES
At December 31, 2001, the Company had U.S. Treasury securities with a market
value of approximately $394,025,000, reverse repurchase agreements of
approximately $98,950,000, cash of $101,000 and related accrued interest of
approximately $72,000 segregated in special reserve bank accounts for the
exclusive benefit of customers under Rule 15c3-3 of the 1934 Act. These reverse
repurchase agreements were collateralized by U.S. Government securities with a
market value of approximately $99,913,000. The Company also had approximately
$7,222,000 in U.S. Treasury securities, cash of $1,000 in special reserve bank
accounts for the Proprietary Accounts of Introducing Brokers ("PAIB") at
December 31, 2001.

At June 29, 2001, the Company had U.S. Treasury securities with a market value
of approximately $124,363,000, reverse repurchase agreements of approximately
$216,690,000, cash of $19,000 and related accrued interest of approximately
$130,000 segregated in the special reserve bank accounts for the exclusive
benefit of customers. These reverse repurchase agreements were collateralized by
U.S. Government securities with a market value of approximately $220,490,000.
The Company also had approximately $20,862,000 in reverse repurchase agreements,
cash of $1,000 and related accrued interest of approximately $6,000 in special
reserve bank accounts for the PAIB at June 29, 2001. The reverse repurchase
agreements in the PAIB accounts were collateralized by U.S. Government
securities with a market value of approximately $21,101,000.

MARKETABLE EQUITY SECURITIES
The investments in Knight and USHS common stock are classified as marketable
equity securities available for sale, and the unrealized holding gains (losses),
net of tax, are recorded as a separate component of stockholders' equity on the
consolidated statements of financial condition. The following table summarizes
the cost and market value of the investments at December 31, 2001 and June 29,
2001 (in thousands):

<TABLE>
<CAPTION>
                                                                           Gross          Gross
                                            Shares                       Unrealized     Unrealized       Market
                                             Held             Cost         Gains          Losses          Value
                                        -----------------------------------------------------------------------------
<S>                                     <C>                 <C>          <C>            <C>              <C>
December 31, 2001
  Knight                                     580,184        $     75         6,319             --          $ 6,394
  USHS                                       365,723             936           801             --            1,737
                                                       --------------------------------------------------------------
   Marketable equity securities                             $  1,011         7,120             --          $ 8,131
                                                       ==============================================================
June 29, 2001
 Marketable equity securities - Knight       906,184        $    117         9,570             --          $ 9,687
                                                       ==============================================================
</TABLE>

                                       6

<PAGE>

The "specific identification" method is used to determine the cost of marketable
securities sold. In the three- and six-month periods ended December 31, 2001,
the Company sold approximately 126,000 and 326,000 shares of Knight,
respectively, with proceeds from the sales totaling $1,496,000 and $3,732,000,
respectively. Realized gains on these sales totaled approximately $1,479,000 and
$3,690,000 for the three- and six-month periods ended December 31, 2001,
respectively. In the three- and six-month periods ended December 31, 2000, the
Company sold approximately 103,200 and 194,000 shares of Knight, respectively,
with proceeds from the sales totaling $2,410,000 and $5,288,000, respectively.
Realized gains on these sales totaled approximately $2,397,000 and $5,262,000
for the three- and six-month periods ended December 31, 2000, respectively.
These gains were reclassified from accumulated other comprehensive income (loss)
net of tax of ($517,000) and ($1,291,000) for the three- and six-month periods
ended December 31, 2001, respectively, and ($839,000) and ($1,841,000) for the
three- and six-month periods ended December 31, 2000.

The holding gain (loss) arising during period presented on the consolidated
statements of income and comprehensive income (loss) is shown net of tax of
$1,136,000 and $434,000 for the three- and six-month periods ended December 31,
2001, respectively, and $10,945,000 and $7,723,000 for the three- and six-month
periods ended December 31, 2000.

As of December 31, 2001 and June 29, 2001, 373,550 shares of this stock are
hedged by the Company's 5% Exchangeable Subordinated Notes ("the Notes"). In
December 2000, the Company repurchased and retired 640,782 Notes. A like number
of Knight shares were released from the hedging provisions of SFAS No. 133. Upon
final disposition of these previously hedged shares of Knight stock, the Company
will recognize a non-cash gain of approximately $23.50 per share, net of tax,
equal to the decrease in the value of Knight stock from the hedging date (June
16, 1999), to the termination date of hedge accounting (December 20, 2000). The
Company disposed of 126,000 shares and 326,000 shares of this previously hedged
stock in the three- and six-month periods ended December 31, 2001, respectively.
Therefore, non-cash gains of $4,555,000 and $11,786,000 on the sale of stock
were recorded in net gains from principal transactions in the accompanying
consolidated statements of income and comprehensive income (loss). These
non-cash gains were reclassified from accumulated other comprehensive income
(loss) on the consolidated statements of income and comprehensive income (loss)
net of tax of ($1,594,000) and ($4,125,000) for the three- and six-month periods
ended December 31, 2001. There were no such gains in fiscal 2001.

RECEIVABLE FROM AND PAYABLE TO BROKERS, DEALERS AND CLEARING ORGANIZATIONS
At December 31, 2001 and June 29, 2001, the Company had receivable from and
payable to brokers, dealers and clearing organizations related to the following
(in thousands):

                                                December               June
                                            ----------------      --------------
Receivable

  Securities failed to deliver                 $     96,474         $    25,825
  Securities borrowed                             1,945,913           2,162,467
  Correspondent broker/dealers                       25,689              16,353
  Clearing organizations                              4,694               1,776
  Other                                               9,971              14,832
                                            ----------------      --------------
                                               $  2,082,741         $ 2,221,253
                                            ================      ==============

Payable

  Securities failed to receive                 $     57,390         $    22,596
  Securities loaned                               1,909,248           2,166,165
  Correspondent broker/dealers                       32,392              31,660
  Other                                              16,155              12,786
                                            ----------------      --------------
                                               $  2,015,185         $ 2,233,207
                                            ================      ==============

                                       7

<PAGE>

LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans receivable, excluding loans held for sale, at December 31, 2001 and June
29, 2001 are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                      December                 June
                                                                  -----------------      -----------------
<S>                                                               <C>                    <C>
      First mortgage loans (principally conventional):
          Real estate                                                   $  164,200             $  153,573
          Construction                                                     120,455                116,195
                                                                  -----------------      -----------------
                                                                           284,655                269,768
                                                                  -----------------      -----------------
      Consumer and other loans:
          Commercial                                                        23,538                 18,757
          Other                                                             33,156                 35,640
                                                                  -----------------      -----------------
                                                                            56,694                 54,397
                                                                  -----------------      -----------------
      Factored receivables                                                   8,201                 11,021
                                                                  -----------------      -----------------
                                                                           349,550                335,186
      Unearned income                                                      (10,856)               (11,957)
      Allowance for possible loan losses                                    (3,445)                (3,280)
                                                                  -----------------      -----------------
                                                                        $  335,249             $  319,949
                                                                  =================      =================
</TABLE>

Impairment of loans with a recorded investment of approximately $5,250,000 and
$4,084,000 at December 31, 2001 and June 29, 2001, respectively, has been
recognized in conformity with SFAS No. 114 as amended by SFAS No. 118. An
analysis of the allowance for possible loan losses for the three- and six-month
periods ended December 31, 2001 and 2000 is as follows (in thousands):

<TABLE>
<CAPTION>
                                                        Three months ended                   Six months ended
                                                   fiscal 2002      fiscal 2001        fiscal 2002      fiscal 2001
                                                  --------------- ----------------    --------------- ----------------
<S>                                               <C>             <C>                 <C>             <C>
    Balance at beginning of period                     $  3,370         $  2,650           $  3,280         $  3,699
      Provision for loan losses                             287              259                582              788
      Loans charged to the allowance, net                  (212)            (131)              (417)          (1,709)
                                                  --------------- ----------------    --------------- ----------------
    Balance at end of period                           $  3,445         $  2,778           $  3,445         $  2,778
                                                  =============== ================    =============== ================
</TABLE>


SECURITIES OWNED AND SECURITIES SOLD, NOT YET PURCHASED
At December 31, 2001 and June 29, 2001, the Company held securities owned and
securities sold, not yet purchased as follows (in thousands):

<TABLE>
<CAPTION>
                                                                            December                June
                                                                         ---------------       ---------------
<S>                                                                      <C>                   <C>
      Securities owned
          Corporate equity securities                                         $  24,007             $  28,279
          Municipal obligations                                                  35,178                28,280
          U.S. Government and Government agency obligations                      14,082                26,361
          Corporate obligations                                                  25,864                40,240
          Funds and trusts                                                       27,544                22,914
                                                                         ---------------       ---------------
                                                                              $ 126,675             $ 146,074
                                                                         ===============       ===============
      Securities sold, not yet purchased
          Corporate equity securities                                         $  15,553             $   3,690
          Municipal obligations                                                     593                 2,731
          U.S. Government and Government agency obligations                         331                19,150
          Corporate obligations                                                   3,869                 2,904
          Funds and trusts                                                          283                   175
                                                                         ---------------       ---------------
                                                                              $  20,629             $  28,650
                                                                         ===============       ===============
</TABLE>

                                       8

<PAGE>

At December 31, 2001, the Company has pledged firm securities valued at $209,000
in conjunction with securities lending activities.

SHORT-TERM BORROWINGS
The Company has credit arrangements with commercial banks, which include broker
loan lines up to $360,000,000. These lines of credit are used primarily to
finance securities owned, securities held for Correspondent broker/dealer
accounts and receivables in customers' margin accounts. These lines may also be
used to release pledged collateral against day loans. These credit arrangements
are provided on an "as offered" basis and are not committed lines of credit.
These arrangements can be terminated at any time by the lender. Any outstanding
balance under these credit arrangements is due on demand and bears interest at
rates indexed to the federal funds rate. At December 31, 2001, there was
$153,050,000 outstanding under these secured arrangements which were fully
collateralized by client securities valued at $216,456,000, firm securities
valued at $55,401,000 and non-client securities valued at $20,712,000. There
were no amounts outstanding under these secured arrangements at June 29, 2001.

In addition to the broker loan lines, the Company has a $20,000,000 unsecured
line of credit that is due on demand and bears interest at rates indexed to the
federal funds rate, all of which was outstanding at December 31, 2001. There
were no amounts outstanding under this line of credit at June 29, 2001.

The Company has an irrevocable letter of credit agreement aggregating
$55,000,000 and $80,000,000 at December 31, 2001 and June 29, 2001,
respectively, pledged to support its open options positions with an options
clearing organization. The letter of credit bears interest at the brokers' call
rate, if drawn, and is renewable annually. This letter of credit is fully
collateralized by marketable securities held in client and non-client margin
accounts with a value of $115,910,000 and $129,677,000 at December 31, 2001 and
June 29, 2001, respectively. The Company also has an unsecured letter of credit
agreement aggregating $4,595,000 at December 31, 2001 and June 29, 2001, pledged
to support its open positions with a securities clearing organization. The
unsecured letter of credit bears interest at the prime rate plus 3%, if drawn,
and is renewable semi-annually.

In addition to using customer securities to finance bank loans as mentioned
above, the Company also pledges client securities as collateral in conjunction
with the Company's securities lending activities. At December 31, 2001, the
Company has approximately $805,062,000 of client securities under customer
margin loans that are available to be pledged, of which the Company has
repledged approximately $12,633,000 under securities loan agreements. Also, the
Company has received collateral of approximately $1,945,913,000 under securities
lending agreements, of which the Company has repledged approximately
$1,894,519,000 at December 31, 2001.

At December 31, 2001 and June 29, 2001, the Company had no repurchase agreements
outstanding.

DEPOSITS
Deposits at December 31, 2001 and June 29, 2001 are summarized as follows
(dollars in thousands):

<TABLE>
<CAPTION>
                                                                  December                            June
                                                            Amount        Percent             Amount        Percent
                                                         -------------- ------------       -------------- ------------
<S>                                                      <C>            <C>                <C>            <C>
    Noninterest bearing demand accounts                      $  17,042          5.0%           $  22,406          6.6%
    Interest bearing demand accounts                             6,327          1.8                5,088          1.5
    Savings accounts                                               762          0.2                  560          0.2
    Limited access money market accounts                        14,393          4.2               14,008          4.2
    Certificates of deposit, less than $100,000                152,187         44.4              179,681         53.4
    Certificates of deposit, $100,000 and greater              152,295         44.4              114,538         34.1
                                                         -------------- ------------       -------------- ------------
                                                             $ 343,006        100.0%           $ 336,281        100.0%
                                                         ============== ============       ============== ============
</TABLE>

                                       9

<PAGE>

The weighted average interest rate on deposits was approximately 4.3% at
December 31, 2001 and 5.5% at June 29, 2001. At December 31, 2001, scheduled
maturities of certificates of deposit were as follows (in thousands):

<TABLE>
<CAPTION>
                                             2002             2003             2004          Thereafter         Total
                                         -------------    -------------    -------------    -------------    -------------
<S>                                      <C>              <C>              <C>              <C>              <C>
     Certificates of deposit,
       less than $100,000                   $ 114,617          $18,213          $ 1,798         $ 17,559        $ 152,187
     Certificates of deposit,
       $100,000 and greater                   137,125            6,802              909            7,459          152,295
                                         -------------    -------------    -------------    -------------    -------------
                                            $ 251,742          $25,015          $ 2,707         $ 25,018        $ 304,482
                                         =============    =============    =============    =============    =============
</TABLE>


ADVANCES FROM THE FEDERAL HOME LOAN BANK ("FHLB")
At December 31, 2001 and June 29, 2001, advances from the FHLB were due as
follows (in thousands):

                                                December           June
                                             -------------    --------------
     Maturity:
       Due within one year                      $ 117,505         $ 101,456
       Due within two years                            --             1,517
       Due within five years                        3,318             3,164
       Due within seven years                         568               223
       Due within ten years                         2,718             1,411
       Due within twenty years                      6,788             5,706
                                             -------------    --------------
                                                $ 130,897         $ 113,477
                                             =============    ==============


Pursuant to collateral agreements, the advances from the FHLB, with interest
rates ranging from 1.95% to 7.7%, are collateralized by approximately
$160,000,000 of collateral value (as defined) in qualifying first mortgage loans
at December 31, 2001. At June 29, 2001, advances with interest rates from 3.9%
to 7.7% were collateralized by approximately $145,116,000 of collateral value in
qualifying first mortgages.

EXCHANGEABLE SUBORDINATED NOTES The Company adopted Statement of Financial
Accounting Standards No. 133 (SFAS No. 133) "Accounting for Derivative
Instruments and Hedging Activities", as amended, effective July 1, 2000. SFAS
No. 133 is applicable to the Notes due in 2004. The Company issued the Notes in
June 1999 in the form of DARTS/SM/, or Derivative Adjustable Ratio
Securities/SM/. As mentioned above, 373,550 DARTS, with a face value of $21.2
million, remain outstanding as of December 31, 2001 and June 29, 2001. SFAS No.
133 requires fair value recognition of the Notes' embedded derivative in the
consolidated statements of financial condition. Changes in the fair value of the
embedded derivative are required to be recognized in earnings, along with the
change in fair value of the Knight shares. Additionally, the change in the time
value of the embedded equity option in the DARTS must be recognized in earnings
on a quarterly basis. For the three- and six-month periods ended December 31,
2001, the Company recognized a gain of $27,000 and a loss of $123,000,
respectively, for the change in the time value of the embedded equity option.
The Company recognized a gain of $837,000 and a loss of $2,415,000 in the three-
and six-month periods ended December 31, 2000 for the change in the time value
of the embedded equity option.

Recognition of the change in fair value of the embedded derivative requires
adjustment of the value of the embedded derivative on the consolidated
statements of financial condition. As of December 31, 2001, the Company
increased the Notes' liability by approximately $1,209,000 in the second quarter
of fiscal 2002, a net $246,000 increase over June 29, 2001. The Company also
reclassified gains of $804,000 and $80,000, respectively, from other
comprehensive income (loss), net of tax of $432,000 and $43,000, respectively,
to earnings to record the value of the hedged Knight shares in the three- and
six-month periods ended December 31, 2001. The Company reclassified losses of
$13,818,000 and $24,285,000,

                                       10

<PAGE>

respectively, from other comprehensive income (loss), net of tax of $7,440,000
and $11,528,000, respectively, to earnings to record the value of the hedged
Knight shares in the three- and six-month periods ended December 31, 2000. The
following table reflects the activity in the Notes' liability account for the
quarterly periods ended December 31, 2001 and 2000 (in thousands):
<TABLE>
<CAPTION>

                                                            Fiscal 2002          Fiscal 2001
                                                          -----------------    -----------------
      <S>                                                  <C>                   <C>
      Balance at beginning of fiscal year                  $       8,568         $      57,500
        Adoption of SFAS No. 133                                      --               (17,956)
        Change in value of embedded derivative                      (963)                5,439
                                                           ----------------      ---------------
      Balance at end of first quarter                      $       7,605         $      44,983
        Repurchase of DARTS                                           --               (17,402)
        Change in value of embedded derivative                     1,209               (18,005)
                                                           ----------------      ---------------
        Balance at end of second quarter                   $       8,814         $       9,576
                                                           ================      ===============
</TABLE>



NET CAPITAL REQUIREMENTS Brokerage Group. The broker/dealer subsidiaries are
subject to the Securities and Exchange Commission's Uniform Net Capital Rule
(the "Rule"), which requires the maintenance of minimum net capital. SWS,
Inc.has elected to use the alternative method, permitted by the Rule, which
requires that it maintain minimum net capital, as defined in Rule 15c3-1 under
the 1934 Act, equal to the greater of $1,500,000 or 2% of aggregate debit
balances, as defined in Rule 15c3-3 under the 1934 Act. Clearing is a guaranteed
affiliate of SWS, Inc.; consequently, the excess net capital of Clearing is
included in the consolidated capital calculation of SWS, Inc. At December 31,
2001, SWS, Inc. had net capital of $100,703,000, or approximately 20.8% of
aggregate debit balances, which is $91,027,000 in excess of its minimum net
capital requirement of $9,676,000 at that date. Additionally, the net capital
rule of the New York Stock Exchange, Inc. (the "Exchange") provides that equity
capital may not be withdrawn or cash dividends paid if resulting net capital
would be less than 5% of aggregate debit items. At December 31, 2001, SWS, Inc.
had net capital of $76,512,000 in excess of 5% of aggregate debit items.

The broker/dealer subsidiaries are subject to a provision of Rule 15c3-1 which
requires that a broker-dealer notify the SEC prior to the withdrawal of equity
capital by a parent company if the withdrawal would exceed the greater of
$500,000 or 30 percent of the broker/dealer's excess net capital.

Clearing, May and O'Connor also follow the alternative method. At December 31,
2001, Clearing had net capital of $28,003,000, or approximately 9% of aggregate
debit balances, which is $21,714,000 in excess of its minimum net capital
requirement of $6,289,000 at that date. At December 31, 2001, Clearing had net
capital of $12,281,000 in excess of 5% of aggregate debit items. May had net
capital of $939,000, which is $689,000 in excess of its net capital requirement
of $250,000 at December 31, 2001. At December 31, 2001, O'Connor had net capital
of $346,000, which is $96,000 in excess of its minimum net capital requirement
of $250,000 at that date.

SWSFS and MDB follow the primary (aggregate indebtedness) method under Rule
15c3-1, which requires the maintenance of minimum net capital of $250,000. At
December 31, 2001, the net capital and excess net capital were $319,000 and
$69,000, respectively, for SWSFS and $2,977,000 and $2,727,000, respectively,
for MDB.

Asset Management Group. Trust is subject to the capital requirements of the
Texas Department of Banking, and has a minimum capital requirement of
$1,000,000. Trust had total stockholder's equity of approximately $3,657,000,
which is $2,657,000 in excess of its minimum capital requirement at December 31,
2001.

Banking Group. FSB is subject to various regulatory capital requirements
administered by Federal agencies. Quantitative measures, established by
regulation to ensure capital adequacy, require the maintaining of minimum
amounts and ratios (set forth in the table below) of total and Tier I capital
(as defined in the regulations) to risk-weighted assets (as defined), and of
Tier I capital (as defined) to average

                                       11

<PAGE>

assets (as defined). Management believes, as of December 31, 2001, that FSB
meets all capital adequacy requirements to which it is subject.

As of December 31, 2001 and June 29, 2001, FSB is considered "well capitalized"
under the regulatory framework for prompt corrective action. To be categorized
as "well capitalized," FSB must maintain minimum total risk-based, Tier I
risk-based, Tier I leverage ratios as set forth in the table.

FSB's actual capital amounts and ratios are presented in the following tables
(in thousands):

<TABLE>
<CAPTION>
                                                                                                                To Be Well
                                                                                                             Capitalized Under
                                                                                   For Capital               Prompt Corrective
                                                         Actual                 Adequacy Purposes            Action Provisions
                                                   Amount       Ratio          Amount       Ratio           Amount       Ratio
                                                 ------------------------    ------------------------     ------------------------
<S>                                                <C>          <C>            <C>          <C>             <C>          <C>
December 31, 2001:
  Total capital (to risk weighted assets)          $ 44,083     10.3  %        $ 34,199      8.0  %         $ 42,749     10.0  %
  Tier I capital (to risk weighted assets)           42,507      9.9             17,100      4.0              25,650      6.0
  Tier I capital (to adjusted total assets)          42,507      8.1             21,058      4.0              31,588      5.0

June 29, 2001:
  Total capital (to risk weighted assets)          $ 43,095     10.7  %        $ 32,222      8.0  %         $ 40,277     10.0  %
  Tier I capital (to risk weighted assets)           42,020     10.4             16,111      4.0              24,166      6.0
  Tier I capital (to adjusted total assets)          42,020      8.4             19,993      4.0              24,991      5.0
</TABLE>



EARNINGS PER SHARE
A reconciliation between the weighted average shares outstanding used in the
basic and diluted EPS computations is as follows for the three- and six-month
periods ended December 31, 2001 and 2000 (in thousands, except share and per
share amounts):

<TABLE>
<CAPTION>
                                                                    Three months ended                 Six months ended
                                                                fiscal 2002       fiscal 2001      fiscal 2002     fiscal 2001
                                                             --------------------------------------------------------------------
<S>                                                                 <C>              <C>              <C>              <C>
 Income before cumulative effect of a change in accounting
   principle                                                        $   1,379        $   5,229        $   3,707        $  13,447
Cumulative effect of a change in accounting principle                      --               --               --           (2,874)
                                                             --------------------------------------------------------------------
Net income                                                          $   1,379        $   5,229        $   3,707        $  10,573
                                                             ====================================================================

Weighted average shares outstanding - basic                        17,162,610       17,476,770       17,200,591       17,477,871
Effect of dilutive securities:
    Assumed exercise of stock options                                  75,324           90,610           58,602          119,082
                                                             --------------------------------------------------------------------
Weighted average shares outstanding - diluted                      17,237,934       17,567,380       17,259,193       17,596,953
                                                             ====================================================================

Earnings per share - basic
Income before cumulative effect of a change in accounting
   principle                                                         $    .08         $    .30         $    .22         $    .77
Cumulative effect of a change in accounting principle                      --               --               --             (.16)
                                                             --------------------------------------------------------------------
Net income                                                           $    .08         $    .30         $    .22         $    .61
                                                             ====================================================================

Earnings per share - diluted
Income before cumulative effect of a change in accounting
   principle                                                         $    .08         $    .30         $    .21         $    .76
Cumulative effect of a change in accounting principle                      --               --               --             (.16)
                                                             --------------------------------------------------------------------
Net income                                                           $    .08         $    .30         $    .21         $    .60
                                                             ====================================================================
</TABLE>

                                       12

<PAGE>

At December 31, 2001, the Company had two stock option plans, the SWS Group,
Inc. Stock Option Plan (the "1996 Plan") and the SWS Group, Inc. 1997 Stock
Option Plan (the "1997 Plan"). At December 31, 2001, there were approximately
1,415,000 options outstanding under the 1996 Plan and approximately 66,000
options outstanding under the 1997 Plan. As of December 31, 2001, 681,000
options were antidilutive and therefore were not included in the calculation of
weighted average shares outstanding-diluted.

SEGMENT REPORTING
The Company operates three principal segments within the financial services
industry: the Brokerage Group, the Asset Management Group and the Banking Group.
The category "other consolidated entities" includes the Parent and Technologies.
The Parent is a holding company that owns various investments, including the
investment in Knight common stock. Technologies provides Internet design and
marketing strategies and other Internet-related services, as well as disaster
recovery services. There are no material reconciling adjustments included in
this category.

<TABLE>
<CAPTION>
                                                                                                                        Consolidated
                                                                       Asset                               Other         Southwest
                                                      Brokerage      Management        Banking          Consolidated     Securities
(in thousands)                                         Group           Group            Group             Entities       Group, Inc.
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>               <C>            <C>               <C>             <C>
Three months ended December 31, 2001

   Net revenues from external sources                 $  67,973         $  5,451       $ 12,766          $  4,796        $  90,986
   Net intersegment revenue (expense)                    (1,375)             224            (12)            1,163               --
   Income (loss) before income taxes and
     minority interest in consolidated
     subsidiaries                                        (1,768)          (2,325)         4,243             3,392            3,542
   Net income (loss)                                       (555)          (2,795)         2,528             2,201            1,379

Six months ended December 31, 2001

   Net revenues from external sources                 $ 129,642         $ 10,517       $ 25,922         $  12,274        $ 178,355
   Net intersegment revenue (expense)                    (2,684)             393            (22)            2,313               --
   Income (loss) before income taxes and
     minority interest in consolidated
     subsidiaries                                        (8,681)            (229)         7,426             8,977            7,493
   Net income (loss)                                     (4,489)          (1,502)         4,436             5,262            3,707

Three months ended December 31, 2000

   Net revenues from external sources                 $ 103,219         $  5,069       $ 12,821          $  4,871        $ 125,980
   Net intersegment revenue (expense)                    (1,814)             113            (23)            1,724               --
   Income (loss) before income taxes and
     minority interest in consolidated
     subsidiaries                                         5,570            2,484          4,253            (3,682)           8,625
   Net income (loss)                                      4,286            1,568          2,447            (3,072)           5,229

Six months ended December 31, 2000

   Net revenues from external sources                 $ 214,739         $  9,638       $ 26,967          $  5,804        $ 257,148
   Net intersegment revenue (expense)                    (3,678)             279            (47)            3,446               --
   Income (loss) before income taxes and
     minority interest in consolidated
     subsidiaries                                        14,272            4,353          9,770            (5,871)          22,524
   Net income (loss)                                     10,674            2,714          5,234            (8,049)          10,573
</TABLE>


On the consolidated statements of income and comprehensive income (loss), the
cumulative effect of a change in accounting principle and other comprehensive
income (loss) are solely related to the Parent,

                                       13

<PAGE>

which is included in the other category. Minority interest is attributable to
the Parent and the Bank. The Parent's minority interest resulted from the
aforementioned sale of 19.82% of the Westwood Group to members of Westwood
Group's management in the second quarter of fiscal 2002.

COMMITMENTS AND CONTINGENCIES
The Company has a line of credit with FSBF LTD for $35 million, expiring January
22, 2003. The line of credit bears interest at a rate of prime plus 1.5%, if
drawn. At December 31, 2001, there were no amounts outstanding on the line of
credit.

On October 21, 1999, the Company filed an arbitration claim with the NASD
against a former correspondent broker dealer and its principal for
non-performance under the correspondent clearing agreement relating to a $5.7
million margin loan. On January 22, 2001, the Company was notified that it was
successful in obtaining a $4.7 million award against the correspondent
broker/dealer but was unsuccessful in its cause against the individual principal
of the correspondent firm. The Company is pursuing collection of the award. The
Company has fully reserved for this margin loan.

In the general course of our brokerage business and the business of clearing for
other brokerage firms, we have been named as defendants in various pending
lawsuits and arbitration proceedings. These claims allege violation of Federal
and state securities laws. FSB is also involved in certain claims and legal
actions arising in the ordinary course of business. We believe that resolution
of these claims will not result in any material adverse effect on our business,
consolidated financial condition or operating results.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
From time to time, SWS Group, Inc. (the "Parent") and subsidiaries
(collectively, the "Company") may publish "forward-looking statements" within
the meaning of section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended, (the "Acts")
or make oral statements that constitute forward-looking statements. These
forward-looking statements may relate to such matters as anticipated financial
performance, future revenues or earnings, business prospects, projected
ventures, new products, anticipated market performance and similar matters. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of the safe
harbor, the Company cautions readers that a variety of factors could cause the
Company's actual results to differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking statements. These
risks and uncertainties, many of which are beyond the Company's control,
include, but are not limited to (1) transaction volume in the securities
markets; (2) volatility of the securities markets; (3) fluctuations in interest
rates; (4) changes in regulatory requirements which could affect the cost of
doing business; (5) general economic conditions, both domestic and foreign; (6)
state of the housing market; (7) changes in the rate of inflation and related
impact on securities markets; (8) competition from existing financial
institutions and other new participants in the securities markets; (9) legal
developments affecting the litigation experience of the securities industry;
(10) successful implementation of technology solutions; (11) changes in Federal
and state tax laws which could affect the popularity of products sold by the
Company and (12) acts of terrorism and other acts of war. The Company does not
undertake any obligation to publicly update or revise any forward-looking
statements.

GENERAL
The Company is primarily engaged in securities execution and clearance,
securities brokerage, investment banking, securities lending and borrowing and
trading as a principal in equity and fixed income securities. The Company also
engages in full-service banking and asset management activities. All of these
activities are highly competitive and are sensitive to many factors outside the
control of the Company, including volatility of securities prices and interest
rates; trading volume of securities; economic conditions in the regions where
the Company does business; income tax legislation; and demand for financial
services. While revenues are dependent upon the level of trading and
underwriting

                                       14

<PAGE>

volume, which may fluctuate significantly, a large portion of the Company's
expenses remain fixed. Consequently, net earnings can vary significantly from
period to period.

RESULTS OF OPERATIONS
Net income for the three- and six-month periods ended December 31, 2001 was
$1,379,000 and $3,707,000, respectively, representing decreases over comparable
prior year periods of $3,850,000, or 74%, and $6,866,000, or 65%.

MJK Clearing. On October 2, 2001, a bankruptcy court awarded SWS Securities,
Inc. ("SWS, Inc.") the accounts of Minneapolis-based MJK Clearing ("MJK"). The
Securities Investor Protection Corporation assumed responsibility for the
accounts when MJK reported that it was in violation of minimum capital
requirements. The accounts of MJK Clearing were transferred to the Company's
wholly-owned subsidiary, Southwest Clearing Corp. ("Clearing"). SWS, Inc. made a
$20 million subordinated loan to Clearing, while the Parent contributed $15
million in capital. Clearing is allowed to utilize SWS, Inc.'s secured and
unsecured short term borrowing arrangements. SWS, Inc. has signed clearing
agreements with 54 of the former MJK correspondents and expects to convert these
correspondents to SWS, Inc. in the Spring of 2002.

Westwood Group Spin-Off. On December 12, 2001, Westwood Holdings Group, Inc.
(the "Westwood Group") was formed by the Company to be a holding company for two
of the businesses that substantially comprise the asset management segment of
the Company. Prior to December 14, 2001, the Westwood Group had no assets or
operations. On December 14, 2001, the Company contributed all of the issued and
outstanding common stock of two wholly owned subsidiaries, Westwood Management
Corporation ("Management") and Westwood Trust ("Trust") to the Westwood Group
and announced its intention to spin the Westwood Group off to the Company's
stockholders. For financial statement purposes, the Westwood Group accounted for
the contribution of Management and Trust to the Westwood Group as a
reorganization of entities under common control at historical cost.

Also on December 14, 2001, the Company sold 1,065 shares of the Westwood Group's
common stock, constituting 19.8% of the Westwood Group's outstanding common
stock, to five of the Westwood Group's executive officers for a cash
consideration of $4,093,000, a price premised upon an understanding reached in
October 2001 that the Company would sell the shares of Westwood Group common
stock based on their value at September 30, 2001, after applying appropriate
valuation discounts. The shares sold to management will not be distributed in
the spin-off. The difference between the book value of the minority interest and
the purchase price at the date the sale was recorded by the Company as an
increase of $518,000 to its additional paid-in capital.

The Westwood Group loaned the executive officers $4,093,000 on a full-recourse
basis, evidenced by notes secured by the stock, payable in nine years bearing
interest at 3.93%. Because the notes are receivable in connection with the sale
of the Westwood Group's common stock, they were recorded at their fair value of
$3,536,000 as an offset to stockholders' equity. The difference between the face
amount of the notes and their fair value is due to the difference between the
stated interest rate and an estimated market interest rate of 6.0%.

The difference between the fair value for financial reporting purposes of the
stock on December 14, 2001, $7,512,000 and the fair value of the note,
$3,536,000, was recorded as an equity-based compensation charge of $3,976,000.
The difference between the value of the stock, $7,512,000, and the cash
consideration paid to the Company of $4,093,000, is an expense incurred by the
Company for the Westwood Group and is reflected as an equity-based compensation
expense with the offset as a contribution to the Westwood Group's additional
paid-in capital. On a consolidated basis, 80.18% of this charge, or $2,741,000,
is reflected in the Company's stockholders' equity as additional paid-in
capital. The remainder of the equity-based compensation expense is the
difference between the face and fair value of the notes, $557,000.

The difference between the $4,093,000 paid for the stock and the fair value of
the stock for financial reporting purposes on December 14, 2001, is attributable
to changes in assets under management and

                                       15

<PAGE>

the common stock prices of comparable public companies between September 30,
2001 and December 14, 2001. The amount of assets under management, which is a
factor in determining the Westwood Group's revenues, and the common stock prices
of comparable public companies are significant considerations in estimating the
Westwood Group's value. In addition, the $4,093,000 valuation included a 35%
discount for lack of marketability. For financial accounting purposes, no
discount for lack of marketability was recorded, which accounts for $2,204,000
of the difference between $7,512,000 and $4,093,000.

If the spin-off has not occurred within nine months of the original stock
purchase, December 14, 2001, the Company has a 30-day call and the members of
the Westwood Group's management each have a 30-day put to resell to the Company
all of the shares of Westwood Group's shares at a price equal to their fair
market value at that time based on a re-appraisal as of the date of the first
notice to exercise either the call or the put options. Alternately, if prior to
the nine-month term, the Company publicly announces its intent not to proceed
with the spin-off, then the ability to exercise the call and put options will
commence on the later of either the public announcement or six months and one
day after the original stock purchase. The resale must be completed within 60
days following the date of exercise. The notes between the Westwood Group and
members of management would concurrently be accelerated with any put or call
exercise.

SFAS No. 133. The adoption of Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities", as amended,
("SFAS No. 133") in the first quarter of fiscal 2001 created a non-cash earnings
impact in the first quarters of both fiscal 2002 and 2001. SFAS No. 133 is
applicable to the Company's 5% Exchangeable Subordinated Notes, issued in the
form of DARTS(SM) (or, "Derivative Adjustable Ratio Securities(SM)"). The DARTS
contain an equity-based derivative designed to hedge changes in fair value of
the Company's investment in Knight Trading Group, Inc. ("Knight") common stock.
The embedded derivative has been designated as a fair value hedge of the
Company's investment in Knight shares.

SFAS No. 133 requires fair value recognition of the DARTS' embedded derivative
in the consolidated statements of financial condition. Changes in the fair value
of the embedded derivative are required to be recognized in earnings, along with
the change in fair value of the Knight shares. Under SFAS No. 133, the Company
recognized a net transition loss in the first quarter of fiscal 2001, which
includes gains on the change in the value of the embedded derivative, net of
losses on the change in value of the corresponding Knight common stock
reclassified from other comprehensive income (loss). The net transition loss
represents the differences in the time value of money related to the embedded
derivative.

For the three- and six-month periods ended December 31, 2001, the Company
recognized a gain of $27,000 and a loss of $123,000, respectively, in the
consolidated statements of income and comprehensive income (loss), representing
the change in the time value of money in the embedded derivative. In the three-
and six-month periods ended December 31, 2000, the Company recognized losses of
$2,831,000 and $1,994,000, respectively. Under SFAS No. 133, the related change
in the time value of money in the embedded derivative and the changes in the
fair value of the embedded derivative, along with the change in fair value of
the hedged Knight shares, will be calculated on a quarterly basis and recognized
in the consolidated statements of income and comprehensive income (loss) until
such time as the fair value hedge ceases to exist.

In December 2000, the Company repurchased and retired 640,782 Notes. A like
number of Knight shares were released from the hedging provisions of SFAS No.
133. Upon final disposition of these previously hedged shares of Knight stock,
the Company will recognize a non-cash gain of approximately $23.50 per share,
net of tax, equal to the decrease in the value of Knight stock from the hedging
date (June 16, 1999), to the termination date of hedge accounting (December 20,
2000). The Company disposed of 126,000 shares and 326,000 shares of this
previously hedged stock in the three- and six-month periods ended December 31,
2001, respectively. Therefore, non-cash gains of $4,555,000 and $11,786,000 on
the sale of stock were recorded in net gains from principal transactions in the
accompanying consolidated statements of income and comprehensive income (loss).
These non-cash

                                       16

<PAGE>

gains were reclassified from accumulated other comprehensive income net of tax
of ($1,594,000) and ($4,125,000) for the three- and six-month periods ended
December 31, 2001. There were no such gains in fiscal 2001.

Sale of First Consumer Credit. In October 2001, First Savings Bank, FSB ("FSB"
or the "Bank") sold its interest in its minority-owned subsidiary First Consumer
Credit, LLC ("First Consumer"), receiving $1,050,000 and approximately 366,000
common shares of U.S. Home Systems, Inc. ("USHS"), a company publicly traded on
NASDAQ. The shares of USHS were dividended to the Parent and were recorded at
fair market value. FSB recorded a gain of approximately $1,163,000 on the sale
of First Consumer.

Net Income from Operating Activities. A calculation of the Company's brokerage,
asset management and banking income, excluding the aforementioned items for the
fiscal 2002 and 2001 follows (in thousands):

<TABLE>
<CAPTION>
                                                           Three months ended             Six months ended
                                                        fiscal 2002    fiscal 2001   fiscal 2002    fiscal 2001
                                                      -----------------------------------------------------------
<S>                                                   <C>              <C>           <C>            <C>
Net income                                                 $  1,379      $  5,229      $   3,707      $ 10,573
  SFAS No. 133:
     Non-cash gain on sale of Knight stock released
       from hedge under SFAS No. 133, net of tax             (2,961)           --         (7,661)           --

     Cumulative effect of a change in accounting
       principal, net of tax                                     --            --             --         2,874

     Loss (gain) on hedging activities, net of tax              (18)        1,840             80         1,296

  Westwood Group spin-off:

     Compensation charge, net of minority interest            2,741            --          2,741            --

     Loan discount, net of tax and minority interest            290            --            290            --

  Gain on sale of First Consumer, net of tax                   (780)           --           (780)           --
                                                      -----------------------------------------------------------
                                                           $    651      $  7,069      $  (1,623)     $ 14,743
                                                      ===========================================================
</TABLE>

After adjusting for the items mentioned above, net income decreased $6,418,000,
or 91%, and $16,366,000, or 111%, in the three- and six-month periods ended
December 31, 2001 over the comparable prior year periods. These decreases are
attributed to reduced margin and stock loan balances and tightened margins and
reduced volume in the clearing business. Additionally, the Company's operations
were impacted by the closure of the U.S. financial markets in the wake of the
tragedies of September 11. There were 123 trade days in the first half of fiscal
2002 versus 126 trade days in the first half of fiscal 2001.

The following is a summary of increases (decreases) in categories of net
revenues and operating expenses for the three- and six-month periods ended
December 31, 2001 and 2000 (dollars in thousands):

<TABLE>
<CAPTION>
                                                            Three months ended           Six months ended
                                                            Amount      Percent        Amount      Percent
                                                         --------------------------  ------------------------
<S>                                                      <C>            <C>          <C>           <C>
Net revenues:
    Net revenues from clearing operations                  $  (2,935)       (24%)     $ (10,902)       (40%)
    Commissions                                                4,530         29%          4,951         16%
    Net interest                                              (6,063)       (29%)       (13,490)       (31%)
    Investment banking, advisory and administrative fees       2,085         24%          2,554         14%
    Net gains on principal transactions                        1,457         12%          4,644         23%
    Other                                                     (4,535)       (48%)        (7,509)       (47%)
                                                         -------------------------  -------------------------
                                                           $  (5,461)        (7%)     $ (19,752)       (13%)
                                                         -------------------------  -------------------------
</TABLE>

                                       17

<PAGE>

<TABLE>
<CAPTION>
                                                             Three months ended          Six months ended
                                                             Amount      Percent        Amount      Percent
                                                         --------------------------  -------------------------
<S>                                                      <C>            <C>          <C>           <C>
Operating expenses:
    Commissions and other employee compensation             $     447          1%      $  (3,036)        (4%)
    Occupancy, equipment and computer service costs             4,693         55%          6,561         40%
    Communications                                                967         25%          1,746         23%
    Floor brokerage and clearing organization charges             861         58%            643         20%
    Advertising and promotional                                (1,216)       (31%)        (2,058)       (27%)
    Other                                                      (6,130)       (42%)        (8,577)       (34%)
                                                         --------------------------  -------------------------
                                                                 (378)        (1%)        (4,721)        (4%)
                                                         --------------------------  -------------------------
      Income before income taxes and minority interest      $  (5,083)       (59%)     $ (15,031)       (67%)
                                                         ==========================  =========================
</TABLE>


Net Revenues from Clearing Operations. Net revenues from clearing decreased as a
result of a decrease in transaction volumes and lower clearing fees per
transaction. Total transactions processed in the second quarter of fiscal 2002
decreased 6% to approximately 15.3 million from approximately 16.3 million in
the second quarter of fiscal 2001. For the six-month period, transactions
decreased 9% to approximately 27.1 million from 29.8 million in the same period
of the prior year. Margin pressure impacted net clearing revenues in the three-
and six-month periods ended December 31, 2001 as average revenue per trade
declined to $.61 for both periods from $.76 and $.93 for the three- and
six-month periods ended December 31, 2000, respectively. Trade volume was
reduced due to fewer trading days in the first half of fiscal 2002 as well as
general market conditions. The newly acquired MJK clearing business added
approximately 300,000 transactions and $1.2 million in clearing revenue in the
second quarter of fiscal 2002.

Commissions. In the three- and six-month periods ended December 31, 2001,
commission revenue increased. This increase comes despite fewer trading days in
the first half of fiscal 2002 over the first half of fiscal 2001. Increased
commissions generated by the Company's fixed income, institutional sales and
program trading departments were offset by decreased commissions from the SWS
Financial Services, Inc. ("SWSFS") independent contractor network and
Mydiscountbroker.com, Inc. ("MDB"), the Company's on-line brokerage subsidiary.
Although MDB commissions decreased, core accounts at MDB increased 9% to 23,044
at December 31, 2001 from 21,055 at December 31, 2000. May, acquired in February
2001, generated $1 million and $2.1 million in commissions in the first three-
and six-month periods of fiscal 2002, respectively. Commission revenue by type
of representative is as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                         December 31, 2001                        December 31, 2000
                              ----------------------------------------  --------------------------------------
                               Three months      Six months    No.       Three months     Six months   No.
                                  ended            ended      of reps       ended           ended     of reps
                              ----------------------------------------  --------------------------------------
<S>                           <C>               <C>           <C>       <C>               <C>         <C>
SWS, Inc. brokers                 $ 10,788         $ 19,355      124        $  7,891       $ 15,370      104
Independent contractors              4,591            8,871      403           5,272         11,057      473
Other                                4,656            7,894                    2,342          4,742
                              --------------- ----------------          --------------- --------------
                                  $ 20,035         $ 36,120                 $ 15,505       $ 31,169
                              =============== ================          =============== ==============
</TABLE>

Net Interest Income. The Company's net interest income is dependent upon the
level of customer and stock loan balances as well as the spread between the
rates it earns on those assets compared with the cost of funds. Net interest is
the primary source of income for FSB and represents the amount by which interest
and fees generated by earning assets exceed the cost of funds, primarily
interest paid to FSB's depositors on interest-bearing accounts.

                                       18

<PAGE>

The components of interest earnings are as follows (in thousands) for the three-
and six-month periods ended December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                             Three months ended             Six months ended
                                        fiscal 2002     fiscal 2001   fiscal 2002     fiscal 2001
                                        ---------------------------   ---------------------------
   <S>                                  <C>             <C>           <C>             <C>
    Interest revenue:
       Customer margin accounts          $   8,982        $  15,045    $  15,698        $  32,669
       Assets segregated for
         regulatory purposes                 1,987            4,537        5,218            8,839
       Stock borrowed                        8,435           33,942       24,229           74,056
       Loans                                10,538           10,972       22,264           22,355
       Other                                 1,962            3,004        4,125            6,146
                                        ---------------------------   ---------------------------
                                         $  31,904        $  67,500    $  71,534        $ 144,065
                                        ---------------------------   ---------------------------
    Interest expense:
       Customer funds on deposit         $   4,146        $  10,839    $   9,104        $  23,988
       Stock loaned                          6,454           30,495       20,123           65,580
       Deposits                              3,829            4,497        8,321            8,667
       Other                                 2,778              909        4,203            2,557
                                        ---------------------------   ---------------------------
                                            17,207           46,740       41,751          100,792
                                        ---------------------------   ---------------------------
               Net interest              $  14,697        $  20,760    $  29,783        $  43,273
                                        ===========================   ===========================
</TABLE>

Brokerage Group. For both the three- and six-month periods ended December 31,
2001, net interest income accounted for 12% of the Company's net revenue versus
20% and 22% for the three- and six-month periods ended December 31, 2000.
Average balances of interest-earning assets and interest-bearing liabilities are
as follows (in thousands):

<TABLE>
<CAPTION>
                                                  Three months ended                Six months ended
                                           fiscal 2002     fiscal 2001      fiscal 2002     fiscal 2001
                                          --------------------------------------------------------------
<S>                                       <C>              <C>               <C>            <C>
   Average interest-earning assets:
     Customer margin balances              $   606,000     $    642,000      $  499,000       $  698,000
     Stock borrowed                          1,911,000        2,566,000       1,974,000        2,801,000
   Average interest-bearing liabilities:
     Customer funds on deposit                 869,000          776,000         769,000          866,000
     Stock loaned                            1,863,000        2,561,000       1,950,000        2,802,000
</TABLE>

Average margin balances for the second quarter of fiscal 2002 are higher than
for the six-month period ended December 31, 2001 due to an average of $274
million in margin accounts acquired from MJK. Rates on customer margin balances
and funds on deposit are influenced by changes in leading market interest rates
and competitive factors. Spreads on securities lending transactions are
influenced by the types of securities borrowed or loaned, market conditions and
counter-party risk.

Banking Group. Net interest revenue generated by the Bank accounted for
approximately 8% and 10% of net revenue for the three- and six-month periods
ended December 31, 2001 and 6% for both the three- and six-month periods ended
December 31, 2000. At the Bank, changes in net interest revenue are generally
attributable to the timing of loan payoffs and volume.

                                       19

<PAGE>

The following table sets forth an analysis of the Bank's net interest income by
each major category of interest-earning assets and interest-bearing liabilities
for the three-month periods ended December 31, 2001 and 2000 (dollars in
thousands):

<TABLE>
<CAPTION>
                                                                          Three months ended
                                                      fiscal 2002                      fiscal 2001
                                            ------------------------------------------------------------------

                                                           Interest                         Interest
                                               Average     Income/    Yield/     Average     Income/   Yield/
                                               Balance     Expense     Rate      Balance     Expense    Rate
                                            --------------------------------- --------------------------------
<S>                                         <C>            <C>        <C>     <C>           <C>        <C>
Assets:
  Interest-earning assets:
    Real estate - mortgage                       $ 170,493    $  3,229    7.6%     $  84,909   $  2,643   12.5%
    Real estate - construction                     123,499       2,087    6.8%        94,026      2,688   11.4%
    Commercial                                     114,416       2,656    9.3%        88,768      2,980   13.4%
    Individual                                      31,456       1,838   23.4%        24,061      1,545   25.7%
    Land                                            38,294         728    7.6%        37,871      1,116   11.8%
    Investments                                     10,045         148    5.9%        12,252        187    6.1%
                                                 ---------------------             --------------------
                                                   488,203    $ 10,686    8.8%       341,887   $ 11,159   13.1%
  Noninterest-earning assets:
    Cash and due from banks                          3,111                             3,813
    Other assets                                    12,686                             6,735
                                                 ---------                         ---------
                                                 $ 504,000                         $ 352,435
                                                 =========                         =========

Liabilities and Stockholders' Equity:
  Interest-bearing liabilities:
    Certificates of deposit                      $ 278,258    $  3,705    5.3%     $ 260,514   $  4,324    6.6%
    Money market accounts                           16,216          89    2.2%        12,211        140    4.6%
    Interest-bearing demand accounts                 6,775          32    1.9%         3,431         29    3.4%
    Savings accounts                                   723           3    1.7%           531          4    3.0%
    Federal Home Loan Bank ("FHLB") advances       128,959         934    2.9%        15,171        247    6.5%
    Notes payable                                      672          34   20.2%         2,733         57    8.3%
                                                 ---------------------             --------------------
                                                   431,603       4,797    4.4%       294,591      4,801    6.5%
  Noninterest-bearing liabilities:
    Non interest-bearing demand accounts            18,815                            13,420
    Other liabilities                                9,938                             8,469
                                                 ---------                         ---------
                                                   460,356                           316,480
    Stockholders' equity                            43,644                            35,955
                                                 ---------                         ---------
                                                 $ 504,000                         $ 352,435
                                                 =========                         =========

                                                              --------                         --------
    Net interest income                                       $  5,889                         $  6,358
                                                              ========                         ========
    Net yield on interest-earning assets                                  4.8%                             7.4%
                                                                        =====                            =====
</TABLE>

                                       20

<PAGE>

The following table sets forth an analysis of the Bank's net interest income by
each major category of interest-earning assets and interest-bearing liabilities
for the six-month periods ended December 31, 2001 and 2000 (dollars in
thousands):

<TABLE>
<CAPTION>
                                                                           Six months ended
                                                             fiscal 2002                      fiscal 2001
                                                   ------------------------------------------------------------------
                                                                 Interest                         Interest
                                                      Average     Income/    Yield/     Average     Income/   Yield/
                                                      Balance     Expense     Rate      Balance     Expense    Rate
                                                   --------------------------------- --------------------------------
<S>                                                   <C>          <C>        <C>       <C>         <C>       <C>
     Assets:
       Interest-earning assets:
         Real estate - mortgage                       $ 162,584     $  6,838    8.4%    $  91,074   $  5,670   12.5%
         Real estate - construction                     121,243        4,577    7.6%       90,361      5,218   11.6%
         Commercial                                     110,094        5,622   10.2%       84,061      5,539   13.2%
         Individual                                      31,574        3,691   23.4%       25,022      3,670   29.3%
         Land                                            37,686        1,536    8.2%       37,995      2,258   11.9%
         Investments                                      9,716          245    5.0%       11,472        372    6.5%
                                                   -------------------------         ------------------------
                                                        472,897     $ 22,509    9.5%      339,985   $ 22,727   13.4%
       Noninterest-earning assets:
         Cash and due from banks                          2,696                             3,932
         Other assets                                    12,350                             7,002
                                                   -------------                     -------------
                                                      $ 487,943                         $ 350,919
                                                   =============                     =============


     Liabilities and Stockholders' Equity:
      Interest-bearing liabilities:
         Certificates of deposit                      $ 284,210     $  8,012    5.6%    $ 254,041   $  8,334    6.6%
         Money market accounts                           16,667          228    2.7%       12,182        279    4.6%
         Interest-bearing demand accounts                 6,435           75    2.3%        2,969         47    3.2%
         Savings accounts                                   682            6    1.8%          514          7    2.7%
         FHLB advances                                  107,957        1,850    3.4%       24,338        810    6.7%
         Notes payable                                    1,302           86   13.2%        2,025        168   16.6%
                                                   -------------------------         ------------------------
                                                        417,253       10,257    4.9%      296,069      9,645    6.5%
       Noninterest-bearing liabilities:
         Non interest-bearing demand accounts            18,288                            13,116
         Other liabilities                                9,812                             7,174
                                                   -------------                     -------------
                                                        445,353                           316,359
         Stockholders' equity                            42,590                            34,560
                                                   -------------                     -------------
                                                      $ 487,943                         $ 350,919
                                                   =============                     =============

                                                                ------------                      -----------
         Net interest income                                        $ 12,252                        $ 13,082
                                                                ============                      ===========
         Net yield on interest-earning assets                                   5.2%                            7.7%
                                                                            ========                         ========
</TABLE>

Interest rate trends, changes in the economy and the scheduled maturities and
interest rate sensitivity of the investment and loan portfolios and deposits
affect the spreads earned by FSB. For the three- and six-month periods ended
December 31, 2001, net interest revenue has decreased over the prior year
despite higher loan balances. Although average loan balances have increased, the
decline in interest rates in the second quarter has reduced spreads at the Bank,
causing a decline in net interest revenue in the three- and six-month periods
ended December 31, 2001.

                                       21

<PAGE>

The following table sets forth a summary of the changes in the Bank's interest
earned and interest paid resulting from changes in volume and rate for the
three- and six-month periods ended December 31, 2001 and 2000 (dollars in
thousands):

<TABLE>
<CAPTION>
                                           Three months ended                                   Six months ended
                                          fiscal 2002 vs. 2001                                fiscal 2002 vs. 2001
                            -------------------------------------------------  --------------------------------------------------
                               Total              Atributed to                    Total                Attributed to
                                        -------------------------------------              --------------------------------------
                               Change      Volume       Rate         Mix          Change      Volume        Rate         Mix
                            -------------------------------------------------  --------------------------------------------------
<S>                          <C>          <C>          <C>          <C>         <C>             <C>        <C>          <C>
Interest income:
 Real estate - mortgage      $      586   $   2,664    $ (1,035)    $(1,043)    $    1,168      $ 4,452    $ (1,793)    $(1,491)
 Real estate - construction        (602)        843      (1,100)       (345)          (642)       1,785      (1,816)       (611)
 Commercial                        (324)        861        (919)       (266)            84        1,713      (1,252)       (377)
 Individual                         294         474        (138)        (42)            22          941        (744)       (175)
 Land                              (387)         13        (396)         (4)          (721)         (18)       (707)          4
 Investments                        (40)        (26)        (12)         (2)          (129)         (53)        (76)         --
                            -------------------------------------------------  --------------------------------------------------
                             $     (473)  $   4,829    $ (3,600)    $(1,702)    $     (218)     $ 8,820    $ (6,388)    $(2,650)
                            -------------------------------------------------  --------------------------------------------------
Interest expense:
 Certificates of deposit     $     (619)  $     294    $   (855)    $   (58)    $     (322)     $   984    $ (1,190)    $  (116)
 Money market accounts              (51)         46         (73)        (24)           (51)         103        (113)        (41)
 Interest-bearing demand
  accounts                            3          29         (13)        (13)            27           55         (14)        (14)
 Savings accounts                    (1)          1          (1)         (1)            (1)           2          (2)         (1)
 Federal Home Loan Bank
  advances                          687       1,806         (56)     (1,063)         1,041        2,709        (235)     (1,433)
 Notes payable                      (23)        (43)         81         (61)           (82)           9           5         (96)
                            -------------------------------------------------  --------------------------------------------------
                                     (4)      2,133        (917)     (1,220)           612        3,862      (1,549)     (1,701)
                            -------------------------------------------------  --------------------------------------------------
      Net interest income
        (expense)            $     (469)  $   2,696    $ (2,683)    $  (482)    $     (830)     $ 4,958    $ (4,839)    $  (949)
                            =================================================  ==================================================
</TABLE>

Investment Banking, Advisory and Administrative fees. Fees for the three- and
six-month periods ended December 31, 2001 have increased over the comparable
prior year periods primarily due growth in the Westwood Group. Average assets
under management have increased to $4 billion from $3.5 billion in the second
quarters of fiscal 2002 and 2001, respectively, and to $3.8 billion from $3.3
billion in the first half of fiscal 2002 and 2001, respectively. Also
contributing to the increase were increased revenues from municipal financings
and money market fees from the MJK business.

Net Gains on Principal Transactions. For the three- and six-month periods ended
December 31, 2001, net gains on principal transactions includes $1.5 million and
$3.7 million, respectively, of gains realized on the sale of Knight common stock
to fund MDB's advertising commitments. Likewise, $2.4 million and $5.3 million,
respectively, represent the sales to fund MDB's advertising for the three - and
six-month periods ended December 31, 2000. Net gains also include the previously
mentioned $4.6 million and $11.8 million gains related to SFAS No. 133 in the
three - and six-month periods ended December 31, 2001, respectively.

Excluding these gains, net gains on principal transactions from the Company's
trading operations were $7.8 million and $9.6 million for the three- and
six-month periods ended December 31, 2001, respectively, and $10 million and
$15.1 million for the three- and six-month periods ended December 31, 2000,
respectively. The decrease is attributed to a weakened trading environment in
the equity markets in the first half of fiscal 2002. Fewer trading days as a
result of the closure of the U.S. financial markets following September 11, also
impacted the six-month results.

Coverage from market making activities has increased to 936 over-the-counter
securities and 590 exchange-listed securities from 679 over-the-counter
securities and 471 listed securities. Revenue in this area can fluctuate
significantly from quarter to quarter based on market conditions.

                                       22

<PAGE>

Other Revenue. Other revenue decreased due to a one-time gain in the second
quarter of fiscal 2001. The Company received a $3.8 million distribution of
earnings from JAWS Trading LLC, a designated primary market maker on the Chicago
Board Options Exchange. The Company no longer owns the investment in JAWS
Trading LLC.

Commissions and Other Employee Compensation. Commissions and other employee
compensation are generally affected by the level of operating revenues, earnings
and the number of employees. Excluding the previously mentioned $4 million in
non-cash compensation charges incurred by the Westwood Group as a result of the
announced spin-off, compensation expense decreased $3.6 million and $7 million
in the three- and six-month periods ended December 31, 2001 over the comparable
prior year periods.

The decrease in compensation was principally due to decreased commissions and
benefits paid to revenue-producing employees generating lower levels of
operating income and due to the decrease in headcount in both operations and
information technology areas. Additionally, accruals for profit sharing and
incentive compensation decreased over the prior year due to the operating
performance of the Company. The number of full-time employees also decreased to
1,092 at December 31, 2001 compared to 1,119 at December 31, 2000.

Occupancy, Equipment and Computer Service Costs. Occupancy, equipment and
computer service costs increased for both the three- and six-month periods
ended December 31, 2000 over the same period of the prior year due to the cost
of operating the former MJK systems at Clearing.

Communications. The increase in communications expense for both the three- and
six-month periods ended December 31, 2001 is due to the expansion of the equity
trading division. The Company opened a new equity trading office in Brighton, MI
early in fiscal 2002.

Floor Brokerage. The additional clearing business acquired from MJK resulted in
increased floor brokerage expense during for both the three- and six-month
periods ended December 31, 2001.

Advertising and Promotional. Advertising and promotional expense decreased with
the completion of the MDB ad campaign in the second quarter of fiscal 2002. The
Company sold 126,000 shares and 326,000 shares of Knight common stock to offset
these advertising commitments in the three- and six-month periods ended
December 31, 2001 (see Net Gains on Principal Transactions).

Other Expense. Other expense decreased due to reduced use of contract labor and
professional consulting services in the Dallas operations and information
systems areas in the three- and six-month periods ended December 31, 2001 over
the comparable period of the prior year, as well a reduction in legal and
professional service fees. Additionally, the second quarter of the prior fiscal
year included approximately $3 million in non-cash charges related to the
repurchase of a portion of the Company's DART obligations. Offsetting these
decreases is an increase in contract labor related to processing the MJK
business in Minneapolis, MN.

FINANCIAL CONDITION

Loans and Allowance for Possible Loan Losses. The Bank grants loans to customers
primarily within the Dallas/Fort Worth, Texas metropolitan area. Also, the Bank
purchases loans, in the ordinary course of business, which have been originated
in various other areas of the United States. Although the Bank has a diversified
loan portfolio, a substantial portion of its debtors' ability to honor their
contracts is dependent upon the general economic conditions of the area.
Substantially all of the Bank's loans are collateralized with real estate or
automobiles.

                                       23

<PAGE>

Loans receivable at December 31, 2001 and June 29, 2001 are summarized as
follows (in thousands):

                                        December           June
                                      ------------------------------

      Real estate - mortgage             $ 198,582        $ 187,967
      Real estate - construction           126,497          126,771
      Commercial                           108,387           92,855
      Individuals                           29,297           31,982
      Land                                  37,546           35,399
                                      -------------    -------------
                                         $ 500,309        $ 474,974
                                      =============    =============


The following table shows the expected life of certain loans at December 31,
2001, and segregates those loans with fixed interest rates from those with
floating or adjustable rates (in thousands):

<TABLE>
<CAPTION>
                                                        1 year         1-5            Over 5
                                                       or less        years           years           Total
                                                   -------------------------------------------- --------------
<S>                                                    <C>            <C>             <C>           <C>
         Commercial                                    $  26,415      $ 28,459        $ 53,513      $ 108,387
         Real estate - construction                      124,559           549           1,389        126,497
                                                   -------------------------------------------- --------------
              Total                                    $ 150,974      $ 29,008        $ 54,902      $ 234,884
                                                   ============================================ ==============
         Amount of loans based upon:
            Fixed interest rates                       $   3,082      $  8,829        $ 29,283      $  41,194
            Floating or adjustable interest rates        148,050        20,124          25,516        193,690
                                                   -------------------------------------------- --------------
              Total                                    $ 151,132      $ 28,953        $ 54,799      $ 234,884
                                                   ============================================ ==============
</TABLE>

Loans are classified as non-performing when they are 90 days or more past due as
to principal or interest or when reasonable doubt exists as to timely
collectibility. A standardized review process exists to determine which loans
should be placed on non-accrual status. At the time a loan is placed on
non-accrual status, previously accrued and uncollected interest is reversed
against interest income. Interest income on non-accrual loans is credited to
income on a cash basis. Non-performing assets as of December 31, 2001 and June
29, 2001 are as follows (dollars in thousands):

                                                December          June
                                               -----------------------------
      Loans accounted for on a non-accrual
        basis                                      $ 5,250         $ 4,084
                                               =============    ============
      Non-performing loans as a percentage
        of total loans                                 1.0%            0.9%
                                               =============    ============
      Loans past due 90 days or more, not
        included above                              $  588          $  608
                                               =============    ============
      Troubled debt restructurings                  $  976          $  446
                                               =============    ============

                                       24



<PAGE>

An analysis of the allowance for possible loan losses for the three- and
six-month periods ended December 31, 2001 and 2000 is as follows (dollars in
thousands):

<TABLE>
<CAPTION>
                                                   Three months ended                 Six months ended
                                              fiscal 2002      fiscal 2001      fiscal 2002      fiscal 2001
                                              ---------------------------------------------------------------
      <S>                                     <C>                   <C>             <C>              <C>
      Balance at beginning of period              $ 3,370          $ 2,650          $ 3,280          $ 3,699
        Charge-offs:
            Commercial                                  3               --                3               --
            Real estate - mortgage                     29               13               29               18
            Individuals                               305              296              665            1,894
                                                  --------         --------         --------         --------
                                                      337              309              697            1,912
        Recoveries:
            Real estate - mortgage                     --                2               --                3
            Individuals                               125              176              280              200
                                                  --------         --------         --------         --------
                                                      125              178              280              203
                                                  --------         --------         --------         --------
        Net charge-offs                              (212)            (131)            (417)          (1,709)
        Additions charged to operations               287              259              582              788
                                                  --------         --------         --------         --------
      Balance at end of period                    $ 3,445          $ 2,778          $ 3,445          $ 2,778
                                                  ========         ========         ========         ========
      Ratio of net charge-offs during the
        period to average loans outstanding
        during the period                            0.04%            0.04%            0.09%            0.52%
                                                  ========         ========         ========         ========
</TABLE>

The allowance for possible loan losses is applicable to the following types of
loans as of December 31, 2001 and June 29, 2001 (dollars in thousands):

<TABLE>
<CAPTION>
                                            December                    June
                                      ----------------------    ----------------------
                                                     Percent                  Percent
                                                    of loans                 of loans
                                                    to total                 to total
                                         Amount      loans         Amount      loans
                                      ------------------------------------------------
      <S>                                <C>        <C>            <C>       <C>
      Commercial                         $   544       21.7%       $   462       19.6%
      Real estate - construction           1,101       25.3            837       26.7
      Real estate - mortgage                 766       39.7            439       39.6
      Individuals                            704        5.9            797        6.7
      Land                                   330        7.4            250        7.4
      Unallocated                             --         --            495         --
                                      ----------------------    ----------------------
                                         $ 3,445      100.0%       $ 3,280      100.0%
                                      ======================    ======================
</TABLE>


Deposits. Average deposits and the average interest rate paid on the deposits
for the three- and six-month periods ended December 31, 2001 and 2000 can be
found in the discussion of the Banking Group's Net Interest Income.

Certificates of deposit of $100,000 or greater were $152,295,000 and
$114,538,000 at December 31, 2001 and June 29, 2001, respectively.

                                       25

<PAGE>

Advances from Federal Home Loan Bank. The Bank finances its short-term borrowing
needs through advances from the FHLB. This table represents advances from the
FHLB which were due within one year, generally 2-7 days, during the three- and
six-month periods ended December 31, 2001 and 2000 (dollars in thousands):

<TABLE>
<CAPTION>
                                          Three months ended                                   Six months ended
                                 fiscal 2002              fiscal 2001              fiscal 2002               fiscal 2001
                             ---------------------    ---------------------    ---------------------     --------------------
                                           Interest                  Interest                 Interest                  Interest
                               Amount       Rate         Amount       Rate       Amount        Rate         Amount       Rate
                             --------------------------------------------------------------------------------------------------
<S>                           <C>          <C>          <C>          <C>        <C>           <C>          <C>          <C>
At end of period              $ 116,000       2.1  %    $ 19,500       6.6  %   $ 116,000       2.1  %     $ 19,500      6.6  %
Average during period           114,864       2.5  %       5,162       6.3  %      94,919       3.7  %       14,900      6.5  %
Maximum month-end balance
  during period                 144,000        --         19,500        --        144,000        --          48,100       --
</TABLE>



LIQUIDITY AND CAPITAL RESOURCES

Brokerage Group. The Company's assets are substantially liquid in nature and
consist mainly of cash or assets readily convertible into cash. These assets are
financed by the Company's equity capital, short-term bank borrowings, interest
bearing and non-interest bearing client credit balances, Correspondent deposits
and other payables. The Company maintains an allowance for doubtful accounts
which represents amounts, in the judgment of management, that are necessary to
adequately absorb losses from known and inherent risks in receivables from
clients, clients of Correspondents and Correspondents.

The Company has credit arrangements with commercial banks, which include broker
loan lines up to $360,000,000. These lines of credit are used primarily to
finance securities owned, securities held for Correspondent broker/dealer
accounts and receivables in customers' margin accounts. These lines may also be
used to release pledged collateral against day loans. These credit arrangements
are provided on an "as offered" basis and are not committed lines of credit.
These arrangements can be terminated at any time by the lender. Any outstanding
balance under these credit arrangements is due on demand and bears interest at
rates indexed to the federal funds rate. At December 31, 2001, there was
$153,050,000 outstanding under these secured arrangements which were fully
collateralized by client securities valued at $216,456,000, firm securities
valued at $55,401,000 and non-client securities valued at $20,712,000.

In addition to the broker loan lines, the Company has a $20,000,000 unsecured
line of credit that is due on demand and bears interest at rates indexed to the
federal funds rate, all of which was outstanding at December 31, 2001.

The Company has an irrevocable letter of credit agreement aggregating
$55,000,000 at December 31, 2001 pledged to support its open options positions
with an options clearing organization. The letter of credit bears interest at
the brokers' call rate, if drawn, and is renewable annually. This letter of
credit is fully collateralized by marketable securities held in client and
non-client margin accounts with a value of $115,910,000 at December 31, 2001.
The Company also has an unsecured letter of credit agreement aggregating
$4,595,000 at December 31, 2001 pledged to support its open positions with a
securities clearing organization. The unsecured letter of credit bears interest
at the prime rate plus 3%, if drawn, and is renewable semi-annually.

The Company has issued $57.5 million of Notes due June 30, 2004. At maturity,
the principal of the Notes will be paid in shares of the Class A common stock of
Knight or, at the option of the Company, their cash equivalent. The Notes, which
are in the form of DARTSSM (or, "Derivative Adjustable Ratio SecuritiesSM"),
were issued in denominations of $56.6875, the closing bid price of Knight on
June 10, 1999. At maturity, Noteholders are entitled to one share of Knight
common stock for each DARTS if the average price for the 20 days immediately
preceding the Notes' maturity is equal to or less than the DARTS issue price.
Noteholders are entitled to .833 shares of Knight common stock for each DARTS if
the average price of Knight's common stock is 20% or more greater than the
DARTS' issue price. If the average price of the Knight common stock is between
the Notes' issue price and 20% greater than the issue price, the exchange rate
will be determined by a formula. At December 31, 2001, the Company had

                                       26

<PAGE>

373,550 DARTS outstanding with a face value of $21.2 million. After adjusting
for the impact of SFAS No. 133, the DARTS are recorded at $8.8 million on the
consolidated statements of financial condition at December 31, 2001.

The Company's broker/dealer subsidiaries are subject to the requirements of the
Securities and Exchange Commission relating to liquidity, capital standards and
the use of client funds and securities. The Company has historically operated in
excess of the minimum net capital requirements.

Banking Group. FSB's asset and liability management policy is intended to manage
interest rate risk. FSB accomplishes this through management of the repricing of
its interest-earning assets and its interest-bearing liabilities. Overall
interest rate risk is monitored through reports showing both sensitivity ratios,
a simulation model, and existing "gap" data.

Liquidity is monitored daily to ensure the ability to support asset growth, meet
deposit withdrawals, lending needs, maintain reserve requirements, and otherwise
sustain operations. FSB's liquidity is maintained in the form of readily
marketable loans, balances with the FHLB, vault cash, and advances from the
FHLB. In addition, FSB has significant borrowing capacity with the FHLB for the
purpose of purchasing short-term funds should additional liquidity be needed.
Management believes that FSB's present position is adequate to meet its current
and future liquidity needs.

FSB is subject to extensive capital standards imposed by regulatory bodies,
including the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation. FSB has historically met all the capital adequacy requirements to
which it is subject.

Cash Flow. Net cash used in operating activities during the six-month period
ended December 31, 2001 was $179,205,000. The use of cash is primarily
attributable to the increase in assets segregated for regulatory purposes and
the net change in the receivable from brokers, dealers and clearing
organizations.


MARKET RISK

Market risk generally represents the risk of loss that may result from the
potential change in value of a financial instrument as a result of fluctuations
in interest rates, equity prices, and changes in credit ratings of the issuer.
The Company's exposure to market risk is directly related to its role as a
financial intermediary in customer-related transactions and to its proprietary
trading activities.

Interest Rate Risk. Interest rate risk is a consequence of maintaining inventory
positions and trading in interest-rate-sensitive financial instruments. The
Company does not maintain material positions in interest-rate-sensitive
financial instruments. The Company's fixed income activities also expose it to
the risk of loss related to changes in credit spreads. Credit spread risk arises
from the potential that changes in an issuer's credit rating or credit
perception could affect the value of financial instruments. At FSB, interest
rate risk arises when an interest-earning asset matures or when its rate of
interest changes in a timeframe different from that of the supporting
interest-bearing liability.

Equity Price Risk. The Company is exposed to equity price risk as a result of
making markets and taking proprietary positions in equity securities. Equity
price risk results from changes in the level or volatility of equity prices,
which affect the value of equity securities or instruments that derive their
value from a particular stock, a basket of stocks or a stock index.

                                       27

<PAGE>

In accordance with the Securities and Exchange Commission's risk disclosure
requirements, the following table categorizes securities owned, net of
securities sold, not yet purchased which are in the Company's trading portfolio,
as well as marketable equity securities in the Company's available-for-sale
portfolio, which are subject to interest rate and equity price risk (in
thousands):

<TABLE>
<CAPTION>
                                                                          Years to Maturity
                                                  1 or less      1 to 5        5 to 10      Over 10        Total
-----------------------------------------------------------------------------------------------------------------
<S>                                               <C>           <C>            <C>         <C>          <C>
 Trading securities, at fair value
    Municipal obligations                         $   (96)      $  7,789       $  4,994    $ 21,898     $  34,585
    U.S. Government and Government agency
      obligations                                   10,418         2,617            433         283        13,751
    Corporate obligations                            1,131         4,907          4,568      11,389        21,995
                                                  ---------------------------------------------------------------
      Total debt securities                         11,453        15,313          9,995      33,570        70,331
    Corporate equity                                    --            --             --       8,454         8,454
    Funds & trusts                                  27,261            --             --          --        27,261
                                                  ---------------------------------------------------------------
                                                  $ 38,714      $ 15,313       $  9,995    $ 42,024     $ 106,046
                                                  ===============================================================

 Weighted average yield
    Municipal obligations                              3.0%          3.2%           4.4%        4.4%          4.1%
    U.S. Government and Government agency
      obligations                                      2.3%          4.3%           5.7%        6.7%          3.7%
    Corporate obligations                              9.5%          6.0%           8.3%       10.1%          8.8%

 Available-for-sale securities, at fair value
    Marketable equity securities                  $     --      $     --       $     --    $  8,131     $   8,131
                                                  ===============================================================
</TABLE>


Exchangeable Subordinated Debt. In addition to the financial instruments
included in the above table, the Company has 373,550 DARTS outstanding with a
face value of $21.2 million. These Notes mature June 30, 2004 and bear a fixed
coupon of 5%. Market risks associated with the DARTS include equity price risk,
in that the amount that the Company will pay at maturity depends on the value of
Knight common stock. As such, these Notes contain an embedded equity derivative
which is subject to accounting treatment under SFAS No. 133. SFAS No. 133
requires fair value recognition of the DARTS' embedded derivative in the
consolidated statements of financial condition. Changes in the fair value of the
embedded derivative are required to be recognized in earnings, along with the
change in fair value of the Knight shares.

Credit Risk. Credit risk arises from the potential nonperformance by
counterparties, customers or debt security issuers. The Company is exposed to
credit risk as a trading counterparty to dealers and customers, as a holder of
securities and as a member of exchanges and clearing organizations. Credit
exposure is also associated with customer margin accounts, which are monitored
daily. The Company monitors exposure to industry sectors and individual
securities and performs sensitivity analysis on a regular basis in connection
with its margin lending activities. The Company adjusts its margin requirements
if it believes its risk exposure is not appropriate based on market conditions.

Managing Risk Exposure. The Company manages risk exposure through the
involvement of various levels of management. Position limits in trading and
inventory accounts are well established and monitored on an ongoing basis.
Current and proposed underwriting, banking and other commitments are subject to
due diligence reviews by senior management, as well as professionals in the
appropriate business and support units involved. FSB seeks to reduce the risk of
significant adverse effects of market rate fluctuations by minimizing the
difference between rate-sensitive assets and liabilities, referred to as "gap",
by maintaining an interest rate sensitivity position within a particular
timeframe. Credit risk related to various financing activities is reduced by the
industry practice of obtaining and maintaining collateral. The Company monitors
its exposure to counterparty risk through the use of credit exposure
information, the monitoring of collateral values and the establishment of credit
limits.

                                       28

<PAGE>

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information required by this item is incorporated in Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations under
the caption Market Risk.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None Reportable.

Item 2.  Changes in Securities and Use of Proceeds

None Reportable.

Item 3.  Defaults upon Senior Securities

None Reportable.

Item 4.  Submission of Matters to a Vote of Security Holders

The annual meeting of shareholders was held on November 7, 2001. The following
directors were elected at the meeting:

         Nominees                  For            Withheld
     --------------------------------------------------------

     Don A. Buchholz            14,810,496            33,701
     David Glatstein            14,390,465           454,032
     Brodie L. Cobb             14,816,776            27,421
     J. Jan Collmer             14,816,583            27,614
     R. Jan LeCroy              14,814,456            29,741
     Frederick R. Meyer         14,815,886            28,311
     Jon L. Mosle, Jr.          14,815,886            28,311


There were no abstentions.

There was one other matter on which the shareholders voted:

<TABLE>
<CAPTION>
                                                                For          Against      Abstain       Not Voted
                                                          -------------------------------------------------------
<S>                                                       <C>                <C>          <C>           <C>
  To amend the Company's certificate of incorporation
    changing the Company's name to SWS Group, Inc.           14,617,509       211,385       15,302             1
</TABLE>

Item 5.  Other Information

None Reportable (Per Instructions to Form 10-Q)

Item 6.  Exhibits and Reports on Form 8-K

On December 20, 2001, the Company filed a Report on Form 8-K to report a change
in the Company's certifying public accountant. The Company has engaged
PricewaterhouseCoopers LLP as its independent auditors, replacing KPMG LLP.

                                       29

<PAGE>

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 thereunto duly authorized.

                                      SWS Group, Inc.
                                      ------------------------------------------
                                      (Registrant)


February 14, 2002                     /s/ Don Buchholz
-------------------------             ------------------------------------------
Date                                  (Signature)
                                      Don Buchholz
                                      Chief Executive Officer
                                      (Principal Executive Officer)


February 14, 2002                     /s/ Stacy M. Hodges
-------------------------             ------------------------------------------
Date                                  (Signature)
                                      Stacy M. Hodges
                                      Treasurer and Chief Financial Officer
                                      (Principal Financial Officer)


February 14, 2002                     /s/ Laura Leventhal
-------------------------             ------------------------------------------
Date                                  (Signature)
                                      Laura Leventhal
                                      Controller
                                      (Principal Accounting Officer)

                                       30