<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
For the quarterly period ended March 27, 1997
Commission file number 0-19483
SOUTHWEST SECURITIES GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2040825
(State or other jurisdiction (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) 651-1800
(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 May 9, 1997, there were 8,987,912 shares of the registrant's
common stock, $.10 par value, outstanding.
<PAGE>
SOUTHWEST SECURITIES GROUP, INC. AND SUBSIDIARIES
INDEX
Part 1. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition
March 27, 1997 and June 28, l996
Consolidated Statements of Income
For the three and nine months ended March 27, 1997 and March 29, 1996
Consolidated Statements of Cash Flows
For the nine months ended March 27, 1997 and March 29, 1996
Notes to Consolidated Financial Statements
March 27, 1997
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Item 1. Legal proceedings
Item 2. Changes in Securities
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>
SOUTHWEST SECURITIES GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
March 27, 1997 and June 28, l996
(Dollars in thousands, except par values and share amounts)
<TABLE>
<CAPTION>
March June
(Unaudited)
Assets
<S> <C> <C>
Cash $ 13,407 $ 5,284
Assets segregated for regulatory purposes 310,953 204,454
Receivable from brokers, dealers and
clearing organizations 2,205,702 1,455,645
Receivable from clients, net of allowance
for doubtful accounts 507,602 475,195
Securities owned, at market value 23,001 34,593
Other assets 24,650 21,226
$ 3,085,315 $ 2,196,397
Liabilities and Stockholders' equity
Short-term borrowings $ 42,130 $ 104,984
Payable to brokers, dealers and clearing
organizations 2,088,229 1,313,455
Payable to clients 800,242 647,787
Drafts payable 28,308 25,158
Other liabilities 31,118 20,564
2,990,027 2,111,948
Stockholders' equity:
Preferred stock of $1.00 par value.
Authorized 100,000
shares; none issued. --- ---
Common stock of $.10 par value.
Authorized 20,000,000 shares.
Issued 8,792,807 and outstanding 8,783,630
at March 27, 1997 and June 28, 1996. 879 879
Additional paid-in capital 27,107 27,107
Retained earnings 67,531 56,815
Receivable from employees under the
Employee Stock Purchase Plan (155) (278)
Treasury stock, at cost, 9,177 shares. (74) (74)
Total Stockholders' equity 95,288 84,449
Commitments and contingencies
$ 3,085,315 2,196,397
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
SOUTHWEST SECURITIES GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the three and nine months ended March 27, 1997 and March 29, 1996
(Dollars in thousands, except per share and share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Revenues 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net revenues from clearing
operations $ 5,986 $ 4,921 $ 16,404 $ 12,556
Commissions 10,469 9,339 28,269 26,908
Interest 30,248 23,350 83,968 69,457
Investment banking, advisory and
administrative fees 4,654 2,703 11,254 9,040
Net gains on principal transactions 2,339 1,074 8,639 6,570
Other 2,546 2,900 7,131 6,992
56,242 44,287 155,665 131,523
Expenses
Commissions and other employee
compensation 17,470 12,644 47,321 39,569
Interest 21,105 16,772 58,283 49,964
Occupancy, equipment and computer
service costs 3,038 2,199 8,778 6,996
Communications 2,635 2,574 7,751 6,636
Floor brokerage and clearing
organization charges 1,043 969 3,014 2,917
Other 4,575 3,355 12,181 10,497
49,866 38,513 137,328 116,579
Income before income taxes 6,376 5,774 18,337 14,944
Provision for income taxes 2,130 2,050 6,304 5,249
Net income $ 4,246 $ 3,724 $ 12,033 $ 9,695
Earnings per share $ .48 $ .42 $ 1.37 $ 1.10
Weighted average shares outstanding 8,793,707 8,783,630 8,791,592 8,785,727
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
SOUTHWEST SECURITIES GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine months ended March 27, 1997 and March 29, 1996
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
Cash flows from operating activities:
<S> <C> <C>
Net income $ 12,033 $ 9,695
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 2,114 2,129
Provision for doubtful accounts 4 932
Deferred income taxes (1,005) (1,013)
Increase in assets segregated for
regulatory purposes (106,499) (44,077)
Net change in broker, dealer and
clearing organization accounts 24,717 (50,754)
Net change in client accounts 120,044 64,040
Increase in securities owned 11,592 980
Decrease in other assets 2,146 4,565
Increase in drafts payable 3,150 6,559
Increase (decrease) in other liabilities 10,916 (7,975)
Net cash provided by (used in)
operating activities 79,212 (14,919)
Cash flows from investing activities:
Purchase of furniture, equipment and
leasehold improvements (6,786) (2,116)
Proceeds from sale of fixed assets 96 232
Net cash used in investing activities (6,690) (1,884)
Cash flows from financing activities:
Proceeds from (payments on) short term
borrowings (62,854) 20,459
Purchase of treasury stock --- (74)
Proceeds from employees for Employee
Stock Purchase Plan 123 74
Net proceeds from issuance of common
stock --- 250
Payment of cash dividend on common stock (1,668) (1,010)
Net cash provided by (used in)
financing activities (64,399) 19,699
Net increase in cash 8,123 2,896
Cash at beginning of period 5,284 3,589
Cash at end of period $ 13,407 $ 6,485
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
SOUTHWEST SECURITIES GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
General and Basis of Presentation
The accompanying interim consolidated financial statements
include the accounts of Southwest Securities Group, Inc.
("Parent") and its wholly owned subsidiaries, (collectively, the
"Company"), Southwest Securities, Inc. ("Southwest"), Brokers
Transaction Services, Inc. ("BTS"), Southwest Investment
Advisors, Inc. ("Advisors"), Trust Company of Texas ("Trust
Company"), Westwood Management Corporation ("Westwood"), SW
Capital Corporation ("Capital"), SWST Computer Corporation
("Computer Corp") and Sovereign Securities, Inc. ("Sovereign").
Southwest, BTS and Sovereign are registered broker/dealers under
the Securities Exchange Act of 1934 ("1934 Act"). Advisors and
Westwood are registered investment advisors under the Investment
Advisors Act of 1940. All significant intercompany balances and
transactions have been eliminated.
The consolidated financial statements as of March 27, 1997, and
for the three and nine month periods ended March 27, 1997 and
March 29, 1996, 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 consolidated financial statements
and related notes in the Company's annual audited report as of
June 28, 1996. Amounts included for June 28, 1996 are from the
audited financial statements as filed on Form 10-K.
Cash Flow Reporting
Cash paid for interest was $56,595,000 and $49,121,000 for the
nine months ended March 27, 1997 and March 29, 1996, respectively.
Cash paid for income taxes was $5,155,000 and $3,540,000 in 1997
and 1996, respectively.
Securities Purchased Under Agreements to Resell (Reverse
Repurchase Agreements)
Southwest, from time to time, enters into reverse repurchase
agreements (collateralized by U.S. Government or U.S. Government
agency securities), for the purpose of segregating assets for the
exclusive benefit of its customers. Under a master repurchase
agreement ("Agreement") with Trust Company, securities purchased
under the reverse repurchase agreement are identified and
segregated by Trust Company on its books and records as subject
to the Agreement. Management regularly monitors the market value
of the underlying securities relating to outstanding reverse
repurchase agreements.
Assets Segregated for Regulatory Purposes
At March 27, 1997, the Company had reverse repurchase agreements
of $190,069,000 and U.S. Treasury securities with a market value
of $120,884,000 segregated in a special reserve bank account for
the exclusive benefit of customers under Rule 15c3-3 of the 1934
Act, at Trust Company. The reverse repurchase agreements were
collateralized by U.S. Government securities with a market value
of approximately $190,243,000. At June 28, 1996, the Company had
reverse repurchase agreements of $100,092,000, and U.S. Treasury
securities with a market value of $104,362,000 in this account.
The reverse repurchase agreements were collateralized by U.S.
Government securities with a market value of approximately
$101,013,000 at June 28, 1996.
<PAGE>
Receivable from and Payable to Brokers, Dealers and Clearing
Organizations
At March 27, l997 and June 28, l996, the Company had receivables
from and payables to brokers, dealers and clearing organizations
relating to the following (000's omitted):
<TABLE>
<CAPTION>
March June
Receivables:
<S> <C> <C>
Securities failed to deliver $ 10,684 $ 22,013
Securities borrowed 2,077,052 1,341,788
Correspondent broker/dealers 70,014 72,207
Clearing organizations 580 547
Other 47,372 19,090
$ 2,205,702 1,455,645
March June
Payables:
Securities failed to receive $ 16,660 $ 15,138
Securities loaned 2,052,793 1,286,199
Correspondent broker/dealers 8,609 7,293
Other 10,167 4,825
$ 2,088,229 $ 1,313,455
</TABLE>
Short-term Borrowings
Southwest has credit arrangements with commercial banks, which
include broker loan lines up to $187,000,000 to finance
securities owned, securities held for correspondent broker/dealer
accounts, and receivables in clients' 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. The
amount outstanding under these credit facilities at March 27,
1997 was $42,130,000 and was collateralized by marketable
securities owned valued at approximately $8,585,000, securities
held for correspondent broker/dealer accounts valued at
approximately $75,468,000 and clients' securities valued at
approximately $23,265,000. Additionally, Southwest had an
irrevocable letter of credit agreement at March 27, 1997
aggregating $15,600,000, pledged to support its open positions
with an options clearing corporation. 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 clients and non-clients margin
accounts with a value of $23,728,000. The amount outstanding
under these credit arrangements was $94,995,000 at June 28, 1996
and was collateralized by marketable securities owned valued at
approximately $17,772,000, securities held for correspondent
broker/dealer accounts valued at approximately $68,193,000 and
clients' securities valued at approximately $57,436,000. At June
28,1996 Southwest had securities sold under agreements to
repurchase for $9,989,000, maturing July 3, 1996.
Net Capital Requirements
The broker/dealer subsidiaries are subject to the Securities and
Exchange Commission's Uniform Net Capital Rule, which requires
the maintenance of minimum net capital. Southwest 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 $l,500,000 or 2% of
aggregate debit balances, as defined in Rule 15c3-1 under the
l934 Act. At March 27, 1997, Southwest had net capital of
$60,102,000, or approximately 10% of aggregate debit balances,
which is $47,991,000 in excess of its minimum net capital
requirement of $12,111,000 at that date. Additionally, the net
capital rule of the New York Stock Exchange, Inc. 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 March 27, l997, Southwest had net capital of
$29,825,000 in excess of 5% of aggregate debit items.
<PAGE>
BTS follows the primary (aggregate indebtedness) method under
Rule 15c3-1, which requires it to maintain minimum net capital of
$100,000 at March 27, 1997. At that date, BTS had net capital of
$154,000 which is $54,000 in excess of its minimum net capital
requirement at that date.
Sovereign also follows the primary (aggregate indebtedness) method
under Rule 15c3-1, which requires it to maintain minimum net capital
of $50,000 at March 27, 1997. At that date, Sovereign had net capital
of $154,000 which is $104,000 in excess of its minimum net capital requirement
at that date.
Trust Company is subject to the capital requirements of the Texas
Department of Banking, and has a minimum capital requirement of
$1,000,000. At March 27, 1997, Trust Company had total
stockholder's equity of $4,640,000 which is $3,640,000 in excess
of its minimum capital requirement at that time.
Employee Stock Purchase Plan
The Company adopted an Employee Stock Purchase Plan ("Plan") as
of August 30, 1994 to enable employees of the Company to purchase
up to 468,227 shares of common stock of the Company.
Substantially all full-time employees were eligible to purchase a
minimum of $2,500 up to a maximum of $50,000 of the common stock,
subject to certain limitations, at a price of $6.89 per share.
The terms of the Plan provide that the Company will loan the full
purchase price of the stock to the employee under a promissory
note due in monthly installments over a five year period bearing
interest at the Applicable Federal Rate (6.24% at March 27,
1997). A total of 61,122 shares were sold under the terms of the
Plan, resulting in loans to employees of $421,000. The amount
outstanding under these notes at March 27, 1997 was $155,000.
Stock Option Plan
On November 6, 1996, the shareholders of the Company approved the
Stock Option Plan adopted by the Board of Directors on September
17, 1996, pursuant to which options may be granted to eligible
employees of the Company or its subsidiaries for the purchase of
an aggregate of 1,000,000 shares of Common Stock of the Company.
Phantom Stock Plan
On November 6, 1996, the shareholders of the Company approved the
Phantom Stock Plan adopted by the Board of Directors on September
17, 1996. This plan allows non-employee directors to receive
directors fees in the form of common stock equivalent units. As
of March 27, 1997, no units had been issued under this plan.
Authorized Common Stock
On November 6, 1996, the shareholders of the Company approved the
authorization of an additional 10,000,000 shares of common stock.
This brings the total common shares authorized to 20,000,000
shares.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
Southwest Securities Group, Inc. (The "Company"), through its
principal subsidiary, Southwest Securities, Inc. ("Southwest"),
provides securities transaction processing and other related
services and operates a full-service brokerage, investment
banking and asset management firm. Its primary business is
delivering a broad range of securities transaction processing
services to broker/dealers. Transaction processing services
include cost-effective integrated trade execution, clearing,
client account processing and other customized services
("Transaction Processing"). Southwest also provides services
that are directly related to Transaction Processing including
margin lending and stock loan services. The Company also
provides securities brokerage and investment services primarily
to individuals, provides investment banking services to municipal
and corporate clients and trades fixed income and equity
securities. Brokers Transaction Services, Inc., ("BTS") a wholly
owned subsidiary of the Company, and a National Association of
Securities Dealers ("NASD") registered broker/dealer, contracts
with independent registered representatives for the
administration of their securities business. Southwest
Investment Advisors, Inc., a wholly owned subsidiary of the
Company is a registered investment advisor and currently
inactive. SW Capital Corporation, a wholly owned subsidiary of
the Company, administers the Local Government Investment
Cooperative ("LOGIC") program. The LOGIC program allows
participants to pool their available funds, resulting in
increased economies of scale, which allow higher returns while
maintaining a high degree of safety and liquidity. In addition,
the Company offers asset management and trust services through
its wholly owned subsidiaries, Westwood Management Corporation
and The Trust Company of Texas.
In August of 1996, the Company formed SWST Computer Corporation
("Computer Corp") which will sell data processing services. In
October of 1996, the Company formed Sovereign Securities, Inc.
which has recently received authorization to become a NASD
broker/dealer. These companies are not expected to contribute
significantly to the earnings of the Company during fiscal 1997.
One of the most important facets of the Company's operations is
Transaction Processing and related services. Substantially all
of the revenues from Transaction Processing are shown on the
Company's Consolidated Statements of Income as net revenues from
clearing operations. Increased Transaction Processing and
related services have resulted in increases in certain revenues,
including net revenues from clearing operations, interest revenue
from margin loans to clients of Southwest's Correspondents and to
Correspondents for their own security inventory positions and
money market administrative fees. The resultant increases in
retained earnings have increased the capital of the Company which
in turn has permitted the Company to expand all areas of its
operations.
Other major sources of revenues are commissions from Southwest's
client transactions and interest revenue from margin loans to its
own clients, stock loan transactions and other interest-bearing
assets. Investment banking, advisory and administrative fees
include revenues derived from the underwriting and distribution
of corporate and municipal securities, unit trusts and money
market and other mutual funds. The major expenses incurred by
the Company relate to payment of commissions, overall
compensation and benefits for both sales and administrative
personnel and the costs of funds to finance the Company's
securities operations, including short-term borrowings, stock
loan transactions and other interest-bearing obligations.
In February 1997, the Company announced an agreement, subject to due
diligence and regulatory approval, to acquire Equity Securities
Trading Company, Inc. ("ESTC"), a Minneapolis based brokerage firm,
through an exchange of stock. The acquisition was consummated on
May 1, 1997 with the issuance of 204,282 shares of the Company's common
stock. The Company expects to issue an additional 233,000
shares in the fourth quarter of fiscal 1997 related to this transaction.
The acquisition is not expected to significantly impact the earnings of
the Company in fiscal 1997.
In August 1994, the Company authorized an employee stock purchase
plan available to eligible employees. The shares available for
purchase were those purchased in the Company's series of treasury
stock acquisitions. At
March 27, 1997, the amount receivable from employees under the
Employee Stock Purchase Plan was $155,000.
On November 6, 1996, the shareholders of the Company approved the
Stock Option Plan adopted by the Board of Directors on September
17, 1996, pursuant to which options could be granted to eligible
employees of the Company or its subsidiaries for the purchase of
an aggregate of 1,000,000 shares of Common Stock of the Company.
On November 6, 1996, the shareholders of the Company approved the
Phantom Stock Plan adopted by the Board of Directors on September
17, 1996. This plan allows non-employee directors to receive
directors fees in the form of common stock equivalent units. As
of March 27, 1997, no units had been issued under this plan.
On November 6, 1996, the shareholders of the Company approved the
authorization of an additional 10,000,000 shares of common stock.
This brings the total common shares authorized to 20,000,000
shares.
<PAGE>
Three Months Ended March 27, l997 Compared With the Three Months
Ended March 29, l996
Total revenues increased by $11,955,000, or 27%, in the third
quarter of fiscal 1997 to $56,242,000 compared to $44,287,000 in
the third quarter of fiscal 1996. Improved market conditions as
well as an increase in the number of correspondents resulted in
increased revenues from Transaction Processing of $1,065,000, an
increase of 22%. Interest income increased to $30,248,000, an
increase of $6,898,000, or 30%, while interest expense increased
26%, or $4,333,000 to $21,105,000. This resulted in an increase
in net interest revenue of $2,565,000 or 39% due to increased
balances in securities lending anc customer margin accounts.
The amounts receivable and payable relating to open positions
for securities borrowed and loaned as of March 27, 1997,
were $2,077,052,000 and $2,052,793,000, respectively. As of
March 29, 1996, these amounts were $1,264,304,000 and
$1,209,594,000. Investment banking, advisory and administrative
fees increased $1,951,000 or 72% to $4,654,000 when compared to
$2,703,000 in the third quarter of fiscal 1996. Net gains on
principal transactions increased 118% or $1,265,000 to
$2,339,000, principally due to an increase in fixed income
trading income. Other income decreased $354,000 or 12% to
$2,546,000 when compared to $2,900,000 in the third quarter
of fiscal 1996.
Total expenses increased $11,353,000 or 29% to $49,866,000 when
compared to the quarter ended March 29, 1996 primarily as the
result of increased occupancy expenses and increased commission
and employee compensation expense, as well as, increased interest
expense as discussed above. Commissions and other employee
compensation increased $4,826,000 or 38% compared to the same
period last year as a result of increased incentive compensation
and an increase in the number of employees to 683 at March 27,
1997 compared to 595 at March 29, 1996. Occupancy, equipment and
computer service expenses increased $839,000 or 38% primarily due
to an upgrade in computer processing equipment. Other expenses
increased $1,220,000 or 36% to $4,575,000, primarily due to
increases in expenses associated with trading and underwriting
fixed income securities.
Nine Months Ended March 27, 1997 Compared with the Nine Months
Ended March 29, 1996
Total revenues for the nine months ended March 27, 1997 increased
$24,142,000, or 18% when compared to the same period last year.
As discussed above, improved market conditions as well as an
increase in the number of correspondents resulted in increased
revenues from Transaction Processing. Net revenues from clearing
operations increased to $16,404,000 an increase of $3,848,000 or
31% from a year ago. Interest income increased to $83,968,000,
an increase of $14,511,000, or 21%, while interest expense
increased 17%, or $8,319,000 to $58,283,000. This resulted in an
increase in net interest revenue of $6,192,000 or 32% due to
increased balances in securities lending and customer margin
accounts. Investment banking, advisory and administrative fees
and net gains on principal transactions increased due to the
reasons discussed above.
Total expenses increased $20,749,000 or 18% to $137,328,000 when
compared to the nine months ended March 29, 1996 primarily as the
result of increased interest expense, as discussed above, and
increased commission and employee compensation expense.
Commissions and other employee compensation increased $7,752,000
or 20% compared to the same period last year as a result of
increased incentive compensation and an increase in the number of
employees. Occupancy, equipment and computer service expenses
increased $1,782,000 or 25% primarily due to an upgrade in
computer processing equipment. Communications expense increased
$1,115,000, or 17%, to $7,751,000 from $6,636,000 when compared
to the period ended March 29, 1996. Other expenses increased
$1,684,000 or 16% to $12,181,000 due to the reasons discussed
above.
Liquidity and Capital Resources
Approximately 99% of the Company's assets consist of cash, assets
segregated for regulatory purposes, marketable securities and
receivables from clients (representing borrowings from Southwest
by clients to finance the purchase of securities on margin, which
are secured by marketable securities) and from brokers, dealers,
and clearing organizations. All 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. Southwest maintains
an allowance for doubtful accounts which represents amounts, in
the judgment of management, that are necessary to absorb losses
from the inherent risks in receivables from clients, clients of
correspondents and correspondents themselves. As of March 27,
1997, the allowance was approximately $4,800,000.
Southwest has credit arrangements with several commercial banks,
which include broker loan lines up to $187,000,000 to finance
securities owned, securities held for correspondent accounts and
receivables in client margin accounts. These credit arrangements
are provided on an "as offered" basis and are not committed lines
of credit. As of March 27, l997, the Company had $42,130,000
outstanding as loans under these arrangements. Outstanding
balances under these credit arrangements are due on demand, bear
interest at rates indexed to the federal funds rate, and are
collateralized by securities of Southwest and its clients. In
the opinion of management, these credit arrangements are adequate
to meet the short-term operating capital needs of Southwest.
<PAGE>
Southwest is subject to the requirements of the Securities and
Exchange Commission and the New York Stock Exchange 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.
Effects of Recently Issued Accounting Standards
On July 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("FAS 123"). FAS 123 will not have a material
impact on the Company's financial position or results of
operations, as the Company does not intend to adopt the value
based measurement concept, but will require extensive disclosures
regarding the Company's stock option plan.
Effects of Inflation
Management does not believe that changes in replacement costs of
fixed assets will materially affect the Company's operations.
The rate of inflation, however, affects the Company's expenses,
such as employee compensation, rent and communications.
Increases in these expenses may not be readily recoverable in the
price the Company charges for its services. Inflation can have
significant effects on interest rates which in turn can affect
prices and activities in the securities markets. These
fluctuations may have an adverse impact on the Company's
operations.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
None Reportable (229.103)
Item 2. Changes in Securities
None Reportable (Per Instructions to Form 10-Q)
Item 3. Defaults upon Senior Securities
None Reportable (Per Instructions to Form 10-Q)
Item 4. Submission of Matters to a Vote of Security Holders
None Reportable (Per Instructions to Form 10-Q)
Item 5. Other Information
None Reportable (Per Instructions to Form 10-Q)
Item 6. Exhibits and Reports on Form 8-K
EXHIBITS
10.1 Executive Compensation
The information required by this item regarding Executive
compensation is incorporated by reference to pages 8 through 10
of the Company's Proxy Statement dated September 26, 1996 which
was filed with the Commission pursuant to Regulation 240.14a (6)
(c) prior to October 26, 1996.
REPORTS ON FORM 8-K
None.
<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.
Southwest Securities Group, Inc.
(Registrant)
May 9, 1997 /S/ David Glatstein
Date (Signature)
David Glatstein
President and Chief Executive Officer
May 9, 1997 /S/ Kenneth R. Hanks
Date (Signature)
Kenneth R. Hanks
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-27-1997
<PERIOD-END> MAR-27-1997
<CASH> 13407
<RECEIVABLES> 2713304
<SECURITIES-RESALE> 190069
<SECURITIES-BORROWED> 2077052
<INSTRUMENTS-OWNED> 23001
<PP&E> 15840
<TOTAL-ASSETS> 3085315
<SHORT-TERM> 42130
<PAYABLES> 2888471
<REPOS-SOLD> 000
<SECURITIES-LOANED> 2052793
<INSTRUMENTS-SOLD> 1294
<LONG-TERM> 000
000
000
<COMMON> 879
<OTHER-SE> 94409
<TOTAL-LIABILITY-AND-EQUITY> 3085315
<TRADING-REVENUE> 8639
<INTEREST-DIVIDENDS> 83968
<COMMISSIONS> 28269
<INVESTMENT-BANKING-REVENUES> 11254
<FEE-REVENUE> 16404
<INTEREST-EXPENSE> 58283
<COMPENSATION> 47321
<INCOME-PRETAX> 18337
<INCOME-PRE-EXTRAORDINARY> 18377
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 12033
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.37
</TABLE>
