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Response Letter

 SWS GROUP, INC.

 1201 ELM STREET

 SUITE 3500

 DALLAS, TEXAS 75270

PHONE NUMBER:

214/859-1800

FAX NUMBER:

214/859-9309

 September 9, 2005

 VIA EDGAR

 Mr. John P. Nolan

 Accounting Branch Chief

 Division of Corporation Finance

 Securities and Exchange
Commission

 100 F Street, N.E.

 Washington, DC 20549

Re:

 SWS Group, Inc.

 Form 10-K for the fiscal year
ended June 25, 2004

 Form 10-Q for the nine months ended March 31, 2005

 File No. 000-19483

 Dear Mr. Nolan:

 This letter sets forth the responses of SWS Group, Inc., a Delaware
corporation, to the comments of the staff of the Division of Corporation Finance of the Securities and Exchange Commission received by letter dated August 2, 2005, with respect to the above-referenced filings.

 For the convenience of the staff, we have set forth below the text of each of
the staff’s comments included in the comment letter followed by our response.

 Form 10-K for Year ended June 25, 2004

 MD&A,
Banking Group, page 19

1.
We refer to the statement in the “Business, Banking Group” section on page 6 that states FSB Financial purchases non-prime loans collateralized by liens on automobiles
and light trucks that are generated by car dealers and other institutions. In this regard, if material, tell us and discuss in future filings any concerns regarding the valuation of residual values of non-prime auto loans, including whether these
residual value are guaranteed or unguaranteed. Tell us and describe in future filings your accounting policies with respect to determining impairments on residual values of auto loans.

 Mr. John P. Nolan

 Accounting Branch Chief

 September 9, 2005

  Page
 2

 Response:

 We will replace the current paragraph for FSB Financial in the “Business—Products and Services—Banking
Group” with the following discussion:

 FSB Financial,
a 90% owned subsidiary of the Bank, purchases non-prime retail installment automobile loan portfolios. In order to mitigate credit risk and collateral risk, FSB Financial evaluates the payment performance of each loan, the collateral value of each
vehicle and loan to value ratios. We also purchase seasoned loans or seek limited recourse against the seller for defaults. The residual value of the loans is not guaranteed by the seller. (See also “Management’s Discussion and
Analysis—Overview—Events and Transactions” and “—Risk Management—Credit Risk—Banking Group”).

 We will include the following discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk
Management—Credit Risk—Banking Group”:

 At
FSB Financial, the valuation of residual non-prime auto loans involves both credit risk and collateral value risk. Non-prime loans involve higher loss risk due to the lower credit quality of the borrower. Creditors mitigate this risk in pricing the
loan at origination; generally, the interest rate is higher to compensate for the higher credit risk. FSB Financial further mitigates credit risk by purchasing bulk loans at a discount to increase the overall yield which compensates for inherent
losses in the purchased portfolios. We purchase seasoned loans, which reduce credit losses due to early defaults, or seek indemnifications from the seller for early defaults. Collateral value risk is addressed by adhering to established
criteria regarding vehicle age, loan-to-value ratio and vehicle mileage limitations. In addition, we will not purchase a loan if the borrower has not provided proof of insurance on the collateral vehicle.

 In evaluating impairments on residual values of auto loans FSB Financial
follows the following accounting authoritative literature:

a.
SEC Staff Accounting Bulletin No. 102

b.
FASB No. 5, Accounting for Contingencies

c.
FASB No. 114, Accounting for Impairment of a Loan

d.
EITF Topic No. D-80, Application of FASB No. 5 and No. 114 to a Loan Portfolio

e.
FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss

 Mr. John P. Nolan

 Accounting Branch Chief

 September 9, 2005

  Page
 3

f.
AICPA Audit and Accounting Guide, Depository and Lending Institutions

g.
FRR No. 28, Procedural Discipline in Determining the Allowance and Provision for Loan Losses to be reported.

 We will place the following paragraph in “Management’s Discussion
and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Allowance for Probable Loan Losses”:

 In accordance with generally accepted accounting principles, FSB Financial evaluates risk based upon large homogenous pools rather than specific
individual loans. FSB Financial evaluates its loan portfolio for inherent losses by stratifying the portfolio into risk pools based upon credit quality consistent with ratings defined by the Office of Thrift Supervision. Each pool is then evaluated
for credit risk based upon historical losses of similar credits and other relevant information. An Allowance for Probable Loan Losses is established for estimable losses for each category of loans as indicated by the analysis. This review is
performed monthly and current information is incorporated into management’s review of residual values.

2.
We refer to Note 24, “Segment Reporting” on page F-32 that shows net income of the Banking Group for fiscal 2004 and 2003 was 431% and 267% of consolidated net income
for each year. In light of the material effect of the operations of the Banking Group on consolidated operations, in future filings please expand your discussion of interest rate sensitivity to include one of the following:

•

A gap analysis that explains the matching of the maturity and rate structure of your interest-bearing assets and liabilities at a given point in time. The analysis should include
a GAP table to show your estimated rate sensitivity with respect to the repricing of assets and liabilities.

•

A balance sheet and interest rate shock analysis to explain the effects of interest rate sensitivity at hypothetical higher and lower interest rates in one and two percent
increments.

 Mr. John P. Nolan

 Accounting Branch Chief

 September 9, 2005

  Page
 4

 Response:

 We will include the following discussion in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Risk Management—Market Risk—Interest Rate Risk—Banking Group”:

 Our primary emphasis in interest rate risk management for the Bank is the matching of assets and liabilities of similar cash flow and re-pricing time
frames. This matching of assets and liabilities reduces exposure to rate movements and aids in stabilizing positive interest spreads. We strive to structure our balance sheet as a natural hedge by matching floating rate assets with variable short
term funding and by matching fixed rate liabilities with similar longer term fixed rate assets. The Bank has established percentage change limits in both interest margin and net portfolio value. To verify that the Bank is within the limits
established for interest margin, the Bank prepares an analysis of net interest margin based on various shifts in interest rates. To verify that the Bank is within the limits established for net portfolio value, the Bank analyzes data prepared by the
Office of Thrift and Supervision (“OTS”) for interest rate sensitivity of the Bank’s net portfolio. These analyses are conducted on a quarterly basis for the Bank’s Board of Directors.

 The following table illustrates the estimated change in net interest
margin based on shifts in interest rates of positive 300 basis points and negative 200 basis points:

 Hypothetical Change in Interest Rates

Projected Change in Net Interest Margin

+300

4.65
%

+200

3.10
%

+100

1.55
%

0

0
%

-100

-1.65
%

-200

-3.62
%

 Mr. John P. Nolan

 Accounting Branch Chief

 September 9, 2005

  Page
 5

 The following GAP Analysis table indicates the Bank’s interest rate sensitivity position at
June 30, 2005:

Repricing Opportunities

 (in thousands)

0-6 months

7-12 months

1-3 years

3+ years

 Earning Assets:

 Loans

$
639,544

$
41,841

$
64,406

$
25,537

 Securities and FHLB Stock

6,382

—

—

269

 Interest Bearing Deposits

7,179

—

—

—

 Total Earning Assets

653,105

41,841

64,406

25,806

 Interest Bearing Liabilities:

 Transaction Accounts and Savings

427,216

—

—

—

 Certificates of Deposit

41,730

58,238

15,750

10,540

 Borrowings

110,150

731

12,487

22,321

 Total Interest Bearing Liabilities

579,096

58,969

28,237

32,861

 GAP

$
74,009

$
(17,128
)

$
36,169

$
(7,055
)

 Cumulative GAP

$
74,009

$
56,881

$
93,050

$
85,995

 MD&A, Results of Operations,
page 20

3.
We refer to the reserve of $3.4 million provided during the first quarter of fiscal 2003 for fraudulent mortgages purchased from a New York based mortgage bank which were sold
twice by that bank. Please tell us and disclose in this section in future filings the corrective actions that have been taken by SWS to obtain reasonable assurance that this type of fraud will not occur in the future.

 Response:

 We will include the following discussion in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Events and Transactions—Fraudulent Mortgages”:

 The Bank has taken specific actions to enhance the control environment of this line of business. The Bank hired a new senior manager with extensive
experience to head the purchased mortgage loan business and hired additional staff to monitor, more closely, collateral documents and aged loans. In addition, all control procedures were reviewed and

 Mr. John P. Nolan

 Accounting Branch Chief

 September 9, 2005

  Page
 6

 enhancements were made to our funding procedures, aged loan monitoring procedures, purchase
procedures and collateral procedures. All customer relationships were thoroughly reviewed, resulting in the termination of several relationships. A detailed review of the standard customer contract resulted in significant changes to the contract.
These steps were taken subsequent to the fraud and have improved efficiency and enhanced internal controls.

 Note 1(a), Significant Accounting Policies, General and Basis of Presentation, Asset Management Group, page F-8

4.
We refer to the loan made by the Westwood Group to five executive officers of Westwood for $4.093 million that was used by the officers to acquire a 19.8% interest in Westwood.
Considering the loans were made on a full recourse basis and were payable in nine years, please disclose in future filings the current payment status of these loans. In this regard, we refer to Note 12, “Equity based compensation in 2001”
on page F-20 of the December 31, 2004 10-K of Westwood Group that states the Notes Receivable from stockholders for $4.093 million had been fully repaid by the shareholders in 2003.

 Response:

 The notes referenced in the above comment were notes receivable on the
financial statements of SWS Group, Inc.’s subsidiary, the Westwood Group, prior to the spin-off of the Westwood Group in June 2002. As noted in Westwood Holding Group, Inc.’s Form 10-K dated December 31, 2004, “the Company [defined as
Westwood Holding Group, Inc.] loaned the executive officers $4,093,000 on a full-recourse basis, evidenced by notes secured by the stock, payable in nine years and bearing interest at 3.93%.” Upon the spin-off, the notes were assets of Westwood
Holding Group, Inc., not SWS Group, Inc. As a result, we have not disclosed the payments made by the executive officers or the eventual pay-off of these loans in 2003. We are no longer disclosing the Westwood Group spin-off in our notes to the
financial statements as the transaction occurred in fiscal 2002, which is no longer in the scope of our Form 10-K’s reporting period.

 Note 1(l), Minority Interest, page F-12

5.
We note that the minority interest in consolidated subsidiaries in the consolidated income statement on page F-3 was 38% and 64% of net income before
extraordinary gain for 2004 and 2003 respectively. In future filings, please describe in this footnote how the minority interest originated and the reasons for the decrease in the minority interest in 2004.

 Mr. John P. Nolan

 Accounting Branch Chief

 September 9, 2005

  Page
 7

 Response:

 When SWS acquired First Savings Bank in April of 2000, the Bank had three subsidiaries, First Consumer Credit LLC (47%
interest), FSB Financial LLC (75%, subsequently increased to 90%) and FSB Development LLC (100%), which, in turn, owned 50% of a real estate development partnership. Minority interest in consolidated subsidiaries on the income statement for SWS is
derived from these subsidiaries. In fiscal 2002, the Bank sold its interest in First Consumer Credit. In fiscal 2003, FSB Development, a entity that primarily develops lots in single family developments, was in the final stages of selling lots in
its 50% owned partnership and consequently, produced greater than average earnings in that year. Below is a table showing the distribution of minority interest in consolidated subsidiaries from each subsidiary for fiscals 2003, 2004 and 2005.

 (in thousands)

2005

2004

2003

 Bank Entities:

 FSB Development

$
—

$
72

$
633

 FSB Financial

645

955

918

 Total Minority Interest

$
645

$
1,027

$
1,551

 We will include the
following discussion in Note 1(l) Minority Interest in the Notes to Consolidated Financial Statements:

 Minority interest in consolidated subsidiaries in the consolidated statements of financial condition and the consolidated statements of income and
comprehensive income arise from the Bank’s non-wholly owned subsidiary, FSB Financial, and FSB Development’s 50% owned partnership. These entities were acquired in conjunction with the acquisition of the Bank in fiscal 2001. See Note 1(a)
regarding the purchase of an additional interest in FSB Financial in fiscal 2005.

 We will include the following discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results
of Operations—Analysis of Operations”:

 Minority
Interest in Consolidated Subsidiaries. The decrease in minority interest in consolidated subsidiaries of $382,000 was primarily due to the increase in the Bank’s total investment in FSB Financial from 75% in fiscal 2004 to 90% in January of
fiscal 2005. See Note 1(a) in the Notes to Consolidated Financial Statements contained in this Report. Minority interest in consolidated subsidiaries decreased $524,000 from fiscal 2003

 Mr. John P. Nolan

 Accounting Branch Chief

 September 9, 2005

  Page
 8

 to fiscal 2004. In fiscal 2003, FSB Development substantially completed the sale of the lots in
its 50% owned partnership recognizing income of $1,500,000 while in 2004 income from FSB Development was $72,000 as it did not actively pursue a development in that year.

 Note 1(r), Significant Accounting Policies, Restatement of Cash Flows, page F-14

6.
We refer to the statement that SWS has restated its Statement of Cash Flows for 2002 and 2003 to appropriately reflect the gross cash receipts and disbursements for
certain banking transactions. Tell us and discuss in future filings the nature of the banking transactions and the accounting literature that supports the restatement.

 Response:

 Prior to fiscal 2004, SWS presented some of the cash flows of the Bank in
three lines on the cash flow statement: “Change in Other Assets,” “Change in Other Liabilities” and “Loan Originations and Purchases, net of Repayments,” due to the immaterial nature of the cash flows. In fiscal 2004,
some of the cash flows associated with the Bank’s assets and liabilities became material to the consolidated entity. In an effort to present comparable cash flow information for the earlier fiscal years, SWS restated its cash flow statement for
fiscal 2003 and 2002 to properly reflect the gross cash flows for these Bank assets and liabilities.

 Specifically, SWS restated the ca