South Financial (TSFG) 8-K Regulation FD Disclosure

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): November 14, 2005

The South Financial Group, Inc.

(Exact name of registrant as specified in its charter)

South Carolina	0-15083	57-0824914
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification Number)

102 South Main Street, Greenville, South Carolina	29601
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (864) 255-7900

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

     o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

     o Soliciting material pursuant to Rule 14a-12 under the Securities Act (17 CFR 240.14a-12)

     o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

     o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 7.01 Regulation FD Disclosure

     The following information is being furnished to provide supplemental data regarding the impact on the historical operating results for TSFG due to the restatement referred to in TSFG’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, filed November 14, 2005.

     See Exhibits 99.1 and 99.2 attached hereto. Exhibit 99.1 furnishes revisions to the Financial Highlights, previously provided as part of TSFG’s press release dated October 20, 2005 that announced its results of operations for the quarter ended September 30, 2005. In addition, TSFG has provided a revised Supplemental Financial Package for the third quarter 2005 in the Investor Relations section of its website. Exhibit 99.2 furnishes revisions to operating earnings for the quarterly periods.

2

Item 8.01 Other Material Matters

     On October 19, 2005, management and the Audit Committee of the Board of Directors of TSFG determined that TSFG must restate its previously issued financial statements for the first two quarters of 2005 and for the years ended December 31, 2004, 2003, and 2002 and restate financial information for the year ended December 31, 2001 and each of the quarters in 2003 and 2004, and that these previously issued financial statements should no longer be relied upon, as a result of accounting treatment for certain of its interest rate swaps associated with brokered certificates of deposits (“CDs”). On November 9, 2005, TSFG determined that it also did not qualify for the “short-cut” method of hedge accounting relating to its interest rate swaps associated with Federal Home Loan Bank (“FHLB”) advances and subordinated notes.

     Since 2001, TSFG has entered into various interest rate swaps to hedge the interest rate risk inherent in certain of its brokered CDs, FHLB advances and subordinated notes. Since inception of the hedging program, TSFG has applied the “short-cut” method of hedge accounting under Statement of Financial Accounting Standards No. 133 (“SFAS 133”) to account for the interest rate swaps. Subsequent to June 30, 2005, TSFG determined that the hedging relationships did not qualify for the short-cut method. The interest rate swaps used to hedge brokered CDs were determined to be disqualified as fair value hedges under the “short-cut” method because the form of payment of the broker fee incurred to acquire the related CD was determined to have caused the swap not to have a zero value at inception. The interest rate swaps used to hedge FHLB advances were determined to be disqualified as fair value hedges under the “short-cut” method due to the presence of embedded options. The interest rate swaps used to hedge subordinated notes were determined to be disqualified as cash flow hedges under the “short-cut” method due to differences in reset dates between the interest rate swaps and subordinated notes and prepayment options in the subordinated notes. Although the impact of applying the alternative “long-haul” method of documentation using SFAS 133 and the results under the “short-cut” method are believed to result in no material difference in the hedge effectiveness of the majority of these swaps, and management believes these interest rate swaps have been effective as economic hedges, hedge accounting under SFAS 133 is not allowed for the affected periods because the proper hedge documentation was not in place at the inception of the hedge.

     TSFG is charged a fee in connection with its acquisition of brokered CDs. This fee is not paid for separately by TSFG to the CD broker, but rather is built in as part of the overall rate on the interest rate swap. In connection with the restatement, TSFG has determined that this broker fee should be accounted for separately as a prepaid fee at the origination of the brokered CD and amortized into interest expense over the maturity period of the brokered CD. If the brokered CD is called prior to maturity, the remaining unamortized broker fee is expensed at that time. Gross fees on the brokered CDs since inception of the program in 2001 were $17.9 million, and the remaining unamortized prepaid broker fees at September 30, 2005 were $9.0 million.

     As a result, the financial statements for all affected periods through June 30, 2005 reflect a cumulative charge of approximately $4.0 million (net of income taxes) to account for the interest rate swaps referred to above as if hedge accounting was never applied for them. In addition, third quarter 2005 includes a charge of approximately $11.7 million (net of income taxes) to reflect the same treatment.

     Fair value hedge accounting allows a company to record the change in fair value of the hedged item (in this case, brokered CDs and FHLB advances) as an adjustment to income as an offset to the fair value adjustment on the related interest rate swap. Eliminating the application of fair value hedge accounting reverses the fair value adjustments that have been made to the brokered CDs and FHLB advances. Additionally, the net cash settlement payments received during each of the above periods for these interest rate swaps were reclassified from interest expense on brokered CDs and FHLB advances to noninterest income. The impact of this reclassification reduced net interest income (and the net interest margin) in each of the periods and increased noninterest income.

     Cash flow hedge accounting allows a company to record the net settlement of interest payments related to the swap contracts in net interest income and the changes in fair value on the related interest rate swaps in shareholders’ equity as part of accumulated other comprehensive income. Eliminating the application of cash flow hedge accounting causes the changes in fair value of the related interest rate swaps to be included in noninterest income (instead of accumulated other comprehensive income in shareholders’ equity). Additionally, the net settlement of interest payments related to the swap contracts were reclassified from net interest income to noninterest income.

3

     TSFG plans to refile its Annual Report on Form 10-K/A for the year ended December 31, 2004 and its Quarterly Reports on Form 10-Q/A for the quarters ended March 31, 2005 and June 30, 2005 to reflect the proper accounting treatment. This Form 8-K has been filed to reflect a summary of the changes to the balance sheet and income statement line items for the periods included in these reports.

     Effects of the restatement by line item follow for the periods presented in the December 31, 2004 10-K:

	Impact to Consolidated Balance Sheets
	(In thousands)
	December 31, 2004						December 31, 2003
	As						As
	Previously			As			Previously			As
	Reported			Restated			Reported			Restated
Other assets	$	395,797		$	404,188		$	292,902		$	297,741
Total assets		13,789,814			13,798,205			10,719,401			10,724,240
Interest-bearing deposits		6,427,660			6,433,067			5,146,520			5,150,109
Total deposits		7,665,537			7,670,944			6,028,649			6,032,238
Long-term debt		2,962,143			2,972,270			2,702,879			2,711,699
Total liabilities		12,389,211			12,404,745			9,739,532			9,751,941
Retained earnings		294,202			288,002			216,678			210,087
Accumulated other comprehensive loss, net of tax		(17,553	)		(18,496	)		(6,167	)		(7,146	)
Total shareholders’ equity		1,400,603			1,393,460			979,869			972,299

4

	Impact to Consolidated Statements of Income
	(In thousands, except share data)
					Year Ended December 31,
	2004				2003				2002
	As				As				As
	Previously		As		Previously		As		Previously		As
	Reported		Restated		Reported		Restated		Reported		Restated
Interest expense on deposits	$	96,619	$	124,868	$	76,344	$	96,106	$	82,858	$	90,967
Interest expense on long-term debt		59,977		62,615		53,774		55,713		30,654		30,654
Total interest expense		175,504		206,391		141,537		163,238		135,487		143,596
Net interest income		366,728		335,841		272,591		250,890		218,252		210,143
Net interest income after provision for loan losses		331,741		300,854		252,010		230,309		195,986		187,877
Noninterest income		94,767		124,877		95,490		100,739		59,640		74,563
Income before income taxes, minority interest, discontinued operations, and cumulative effect of change in accounting principle		176,264		175,487		140,330		123,878		92,786		99,600
Income taxes		56,657		55,489		43,260		38,283		28,972		31,111
Income before minority interest, discontinued operations, and cumulative effect of change in accounting principle		119,607		119,998		97,070		85,595		63,814		68,489
Income from continuing operations		119,607		119,998		95,058		83,583		60,564		65,239
Net income		119,117		119,508		95,058		83,583		59,158		63,833
Per common share, basic:
Income from continuing operations	$	1.85	$	1.86	$	1.93	$	1.70	$	1.45	$	1.56
Net income		1.84		1.85		1.93		1.70		1.42		1.53
Per common share, diluted:
Income from continuing operations	$	1.81	$	1.81	$	1.89	$	1.66	$	1.42	$	1.53
Net income		1.80		1.80		1.89		1.66		1.38		1.49

	Impact to Consolidated Statements of Changes In Shareholders’ Equity
	and Comprehensive Income (Loss)
	(In thousands, except share data)
							Year Ended December 31,
	2004						2003						2002
	As						As						As
	Previously			As			Previously			As			Previously		As
	Reported			Restated			Reported			Restated			Reported		Restated
Total shareholders’ equity, January 1	$	979,869		$	972,299		$	646,799		$	651,683		$	458,174	$	458,383
Net income		119,117			119,508			95,058			83,583			59,158		63,833
Other comprehensive (loss) income		(11,386	)		(11,350	)		(30,317	)		(31,296	)		30,254		30,254
Total shareholders’ equity, December 31		1,400,603			1,393,460			979,869			972,299			646,799		651,683

5

	Impact to Consolidated Statements of Cash Flows
	(In thousands, except share data)
	Year Ended December 31,
	2004						2003						2002
	As						As						As
	Previously			As			Previously			As			Previously			As
	Reported			Restated			Reported			Restated			Reported			Restated
Cash Flows from Operating Activities:
Net income	$	119,117		$	119,508		$	95,058		$	83,583		$	59,158		$	63,833
(Gain) loss on trading and derivative activities		(3,209	)		(5,759	)		(1,843	)		12,394			934			(6,593	)
Change in other assets, net		(37,286	)		(35,127	)		(13,178	)		(15,940	)		(2,563	)		289
Cash flows from operating activities		229,102			229,102			183,598			183,598			297,803			297,803

Effects of the restatement by line item follow for the periods presented in the March 31, 2005 10-Q:

	Impact to Consolidated Balance Sheets
	(In thousands) (Unaudited)
	March 31, 2005						March 31, 2004
	As						As
	Previously			As			Previously		As
	Reported			Restated			Reported		Restated
Other assets	$	447,854		$	462,653		$	309,913	$	311,110
Total assets		14,684,880			14,699,679			10,874,634		10,875,831
Interest-bearing deposits		6,864,148			6,884,543			5,120,577		5,117,006
Total deposits		8,154,575			8,174,970			6,045,330		6,041,759
Long-term debt		3,197,287			3,211,887			2,524,966		2,529,422
Total liabilities		13,300,481			13,335,476			9,848,813		9,849,698
Retained earnings		317,286			298,943			240,027		240,279
Accumulated other comprehensive (loss) gain, net of tax		(64,977	)		(66,830	)		10,508		10,568
Total shareholders’ equity		1,384,399			1,364,203			1,025,821		1,026,133

6

	Impact to Consolidated Statements of Income
	(In thousands, except share data) (Unaudited)
	Three Months Ended March 31,
	2005				2004
	As				As
	Previously		As		Previously		As
	Reported		Restated		Reported		Restated
Interest expense on deposits	$	34,382	$	39,977	$	19,450	$	26,867
Interest expense on long-term debt		21,855		21,912		13,439		14,286
Total interest expense		66,348		72,000		34,998		43,262
Net interest income		103,901		98,249		82,016		73,752
Net interest income after provision for loan losses		92,939		87,287		74,294		66,030
Noninterest income		25,743		13,271		29,288		47,366
Income before income taxes and discontinued operations		52,172		34,048		46,311		56,125
Income taxes		17,217		11,236		14,018		16,989
Income from continuing operations		34,955		22,812		32,293		39,136
Net income		34,559		22,416		32,293		39,136
Per common share, basic:
Income from continuing operations	$	0.49	$	0.32	$	0.55	$	0.66
Net income		0.48		0.31		0.55		0.66
Per common share, diluted:
Income from continuing operations	$	0.48	$	0.31	$	0.53	$	0.64
Net income		0.47		0.31		0.53		0.64

	Impact to Consolidated Statements of Changes
	In Shareholders’ Equity and Comprehensive Income (Loss)
	(In thousands) (Unaudited)
	March 31, 2005						March 31, 2004
	As						As
	Previously			As			Previously		As
	Reported			Restated			Reported		Restated
Total shareholders’ equity, January 1	$	1,400,603		$	1,393,460		$	979,869	$	972,299
Net income		34,559			22,416			32,293		39,136
Other comprehensive (loss) income, net of tax		(47,424	)		(48,334	)		16,675		17,714
Total shareholders’ equity, March 31		1,384,399			1,364,203			1,025,821		1,026,133

7

	Impact to Consolidated Statements of Cash Flows
	(In thousands) (Unaudited)
	Three Months Ended
	March 31, 2005						March 31, 2004
	As						As
	Previously			As			Previously			As
	Reported			Restated			Reported			Restated
Cash Flows from Operating Activities:
Net income	$	34,559		$	22,416		$	32,293		$	39,136
(Gain) loss on trading and derivatives		(904	)		16,305			1,369			(9,707	)
Change in other assets, net		(30,244	)		(35,310	)		(7,260	)		(3,027	)
Cash flows from operating activities		58,361			58,361			57,964			57,964

Effects of the restatement by line item follow for the periods presented in the June 30, 2005 10-Q:

	Impact to Consolidated Balance Sheets
	(In thousands) (Unaudited)
	June 30, 2005						June 30, 2004
	As						As
	Previously			As			Previously			As
	Reported			Restated			Reported			Restated
Other assets	$	412,819		$	420,944		$	411,053		$	427,356
Total assets		14,879,081			14,887,206			11,475,269			11,491,572
Interest-bearing deposits		7,403,743			7,406,999			5,465,370			5,485,418
Total deposits		8,870,546			8,873,802			6,436,910			6,456,958
Long-term debt		2,891,308			2,901,532			2,569,597			2,582,795
Total liabilities		13,356,654			13,370,134			10,480,671			10,513,917
Retained earnings		333,747			329,743			261,049			245,721
Accumulated other comprehensive loss, net of tax		(25,711	)		(27,062	)		(46,233	)		(47,848	)
Total shareholders’ equity		1,522,427			1,517,072			994,598			977,655

8

	Impact to Consolidated Statements of Income
	(In thousands, except share data) (Unaudited)
	Three Months Ended								Six Months Ended
	June 30, 2005				June 30, 2004				June 30, 2005				June 30, 2004
	As				As				As				As
	Previously		As		Previously		As		Previously		As		Previously		As
	Reported		Restated		Reported		Restated		Reported		Restated		Reported		Restated
Interest expense on deposits	$	40,953	$	45,573	$	20,003	$	26,698	$	75,335	$	85,550	$	39,453	$	53,565
Interest expense on long-term debt		25,112		25,060		14,296		15,109		46,967		46,972		27,735		29,395
Total interest expense		78,048		82,616		37,572		45,080		144,396		154,616		72,570		88,342
Net interest income		106,853		102,285		80,389		72,881		210,754		200,534		162,405		146,633
Net interest income after provision for loan losses		96,909		92,341		73,393		65,885		189,848		179,628		147,687		131,915
Noninterest income		24,660		50,471		25,995		10,163		50,403		63,742		55,283		57,529
Income before income taxes and discontinued operations		42,034		63,277		44,922		21,582		94,206		97,325		91,233		77,707
Income taxes		13,661		20,565		14,935		7,175		30,878		31,801		28,953		24,164
Income from continuing operations		28,373		42,712		29,987		14,407		63,328		65,524		62,280		53,543
Net income		28,373		42,712		29,987		14,407		62,932		65,128		62,280		53,543
Per common share, basic:
Income from continuing operations	$	0.39	$	0.58	$	0.50	$	0.24	$	0.88	$	0.91	$	1.05	$	0.90
Net income		0.39		0.58		0.50		0.24		0.87		0.90		1.05		0.90
Per common share, diluted:
Income from continuing operations	$	0.38	$	0.57	$	0.49	$	0.24	$	0.86	$	0.89	$	1.02	$	0.88
Net income		0.38		0.57		0.49		0.24		0.85		0.88		1.02		0.88

	Impact to Consolidated Statements of Changes
	In Shareholders’ Equity and Comprehensive Income (Loss)
	(In thousands) (Unaudited)
	June 30, 2005						June 30, 2004
	As						As
	Previously			As			Previously			As
	Reported			Restated			Reported			Restated
Total shareholders’ equity, January 1	$	1,400,603		$	1,393,460		$	979,869		$	972,299
Net income		62,932			65,128			62,280			53,543
Other comprehensive loss, net of tax		(8,158	)		(8,566	)		(40,066	)		(40,702	)
Total shareholders’ equity, June 30		1,522,427			1,517,072			994,598			977,655

9

	Impact to Consolidated Statements of Cash Flows
	(In thousands) (Unaudited)
	Six Months Ended
	June 30, 2005						June 30, 2004
	As						As
	Previously			As			Previously			As
	Reported			Restated			Reported			Restated
Cash Flows from Operating Activities:
Net income	$	62,932		$	65,128		$	62,280		$	53,543
Loss (gain) on trading and derivatives		128			(4,940	)		(983	)		11,008
Change in other assets, net		(20,203	)		(17,331	)		(39,841	)		(43,095	)
Cash flows from operating activities		82,017			82,017			70,514			70,514

Effects of the restatement by line item follow for the periods presented in the September 30, 2005 10-Q:

	Impact to Consolidated Balance Sheets
	(In thousands) (Unaudited)
	September 30,			September 30,
	2005			2004
				As
	As			Previously			As
	Reported			Reported			Restated
Other assets	$	445,243		$	391,823		$	397,492
Total assets		14,946,052			13,651,449			13,657,118
Interest-bearing deposits		7,617,649			6,589,002			6,590,443
Total deposits		9,126,019			7,811,469			7,812,910
Long-term debt		2,751,268			2,534,850			2,543,532
Total liabilities		13,441,605			12,268,775			12,278,898
Retained earnings		338,880			279,852			276,080
Accumulated other comprehensive loss, net of tax		(54,127	)		(12,840	)		(13,522	)
Total shareholders’ equity		1,504,447			1,382,674			1,378,220

10

	Impact to Consolidated Statements of Income
	(In thousands, except share data) (Unaudited)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2005		2004				2005			2004
			As						As
	As		Previously		As		As		Previously		As
	Reported		Reported		Restated		Reported		Reported		Restated
Interest expense on deposits	$	52,333	$	27,345	$	34,353	$	137,883	$	66,798	$	87,918
Interest expense on long-term debt		26,000		14,935		15,601		72,972		42,670		44,996
Total interest expense		91,146		47,460		55,134		245,762		120,030		143,476
Net interest income		103,589		99,758		92,084		304,123		262,163		238,717
Net interest income after provision for loan losses		94,736		90,318		82,644		274,364		238,005		214,559
Noninterest income		16,428		24,083		48,266		80,170		79,366		105,795
Income before income taxes and discontinued operations		30,129		44,543		61,052		127,454		135,776		138,759
Income taxes		9,039		13,363		18,316		40,840		42,316		42,480
Income from continuing operations		21,090		31,180		42,736		86,614		93,460		96,279
Net income		21,090		31,015		42,571		86,218		93,295		96,114
Per common share, basic:
Income from continuing operations	$	0.28	$	0.45	$	0.62	$	1.19	$	1.49	$	1.54
Net income		0.28		0.45		0.62		1.18		1.49		1.54
Per common share, diluted:
Income from continuing operations	$	0.28	$	0.44	$	0.61	$	1.17	$	1.46	$	1.50
Net income		0.28		0.44		0.61		1.16		1.46		1.50

	Impact to Consolidated Statements of Changes
	In Shareholders’ Equity and Comprehensive Income (Loss)
	(In thousands) (Unaudited)
	September 30,
	2005			September 30, 2004
				As
	As			Previously			As
	Reported			Reported			Restated
Total shareholders’ equity, January 1	$	1,393,460		$	979,869		$	972,299
Net income		86,218			93,295			96,114
Other comprehensive loss, net of tax		(35,631	)		(6,673	)		(6,376	)
Total shareholders’ equity, September 30		1,504,447			1,382,674			1,378,220

11

	Impact to Consolidated Statements of Cash Flows
	(In thousands) (Unaudited)
	Nine Months Ended September 30,
	2005			2004
				As
	As			Previously			As
	Reported			Reported			Restated
Cash Flows from Operating Activities:
Net income	$	86,218		$	93,295		$	96,114
Loss (gain) on trading and derivatives		10,897			(2,133	)		(7,066	)
Change in other assets, net		(32,142	)		(11,798	)		(9,684	)
Cash flows from operating activities		148,334			144,571			144,571

     TSFG maintains disclosure controls and procedures as required under Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Corporation’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

     At December 31, 2004, March 31, 2005, and June 30, 2005, TSFG’s management carried out an evaluation, under the supervision and with the participation of TSFG’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on those evaluations, TSFG’s management initially concluded that as of December 31, 2004, March 31, 2005, and June 30, 2005, such disclosure controls and procedures were effective. However, on October 19, 2005, management and the Audit Committee of the Board of Directors of TSFG concluded that TSFG had a material weakness in its internal control over financial reporting as described below. Because of this material weakness in its internal control over financial reporting (described below) which impacted the financial statements for the first two quarters of 2005 and as of and for the years ended December 31, 2004, 2003, and 2002 and the related quarters during those years, management has, as of the date of the filing of this Form 8-K, restated its assessment for those periods, and concluded that TSFG’s disclosure controls and procedures were not effective as of December 31, 2004, March 31, 2005, June 30, 2005 or September 30, 2005. Management identified the following material weakness in internal control over financial reporting as of December 31, 2004, March 31, 2005, June 30, 2005 and September 30, 2005:

     TSFG had ineffective policies and procedures relating to the accounting for certain derivative financial instruments under Statement of Financial Accounting Standard No. 133,Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”). Specifically, TSFG’s policies and procedures did not provide for sufficient testing and verification of the criteria for the “short-cut” method to ensure proper application of the provisions of SFAS 133 at inception for certain derivative financial instruments and did not provide for periodic timely review of the proper accounting for certain derivative financial instruments for periods subsequent to inception. In addition, TSFG did not have personnel possessing sufficient technical expertise related to the application of the provisions of SFAS 133, or with a sufficient understanding of derivative instruments. This material weakness has resulted in the restatement of the Company’s financial statements for the first two quarters of 2005 and for the years ended December 31, 2004, 2003 and 2002 and the restatement of financial information for the year ended December 31, 2001 and each of the quarters in 2003 and 2004.

     TSFG plans to refile its Annual Report on Form 10-K/A for the year ended December 31, 2004 and its Quarterly Reports on Form 10-Q/A for the quarters ended March 31, 2005 and June 30, 2005 to reflect the proper accounting treatment.

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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 hereunto duly authorized.

		The South Financial Group, Inc.
November 14, 2005	By:	/s/ Timothy K. Schools
		Timothy K. Schools
		Executive Vice President and CFO

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