SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
| | Annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2006 |
Or
| | Transition report pursuant to Section 15(d) of the Securities Exchange Act of 1934
For the transition period from ___________________ |
Commission File Number 0-15083
The South Financial Group, Inc. 401(k) Plan
(Full title of the plan)
The South Financial Group, Inc.
102 South Main Street
Greenville, SC, 29601____________
(Name of Issuer of the securities held pursuant to the
plan and address of its principal executive office)
(a) The following financial statements and reports, which have been prepared pursuant to the requirements of the Employee Retirement Income Security Act of 1974, are filed as part of this Annual Report on Form 11-K:
| Page |
Independent Registered Public Accounting Firms’ Reports | F-1 |
Financial Statements: | |
Statements of Net Assets Available for Benefits as of December 31, 2006 and 2005 | F-3 |
Statement of Changes in Net Assets Available for Benefits for the year ended December 31, 2006 | F-4 |
Notes to Financial Statements | F-5 |
Schedule 1 – Schedule H, Line 4i – Schedule of Assets (Held at End of Year) | F-10 |
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The following Exhibits are filed as part of this Annual Report on Form 11-K: | |
Exhibit Index | |
Exhibit 23.1 Consent of Independent Registered Public Accounting Firm | |
Exhibit 23.2 Consent of Independent Registered Public Accounting Firm | |
2
SIGNATURES
THE PLAN. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
The South Financial Group, Inc. 401(k) Plan
(Name of Plan)
Date: June 29, 2007 | | By: | /s/ David Bell |
| Director of Compensation – Benefits |
3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The South Financial Group, Inc.
401(k) Plan
Greenville, South Carolina
We have audited the accompanying statement of net assets available for benefits of The South Financial Group, Inc. 401(k) Plan as of December 31, 2006, and the related statement of changes in net assets available for benefits for the year ended December 31, 2006. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 2006 financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2006, and the changes in net assets available for benefits for the year ended December 31, 2006 in conformity with U.S. generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets (held at end of year) is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in the audit of the basic 2006 financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic 2006 financial statements taken as a whole.
/s/ Crowe Chizek and Company LLC
Crowe Chizek and Company LLC
Oak Brook, Illinois
June 28, 2007
F-1
525 East Bay Street, Suite 100 - 29403 | Barry D. Gumb |
P.O. Box 973 | Harold R. Pratt-Thomas, Jr. |
Charleston, South Carolina 29402 | Lynne Loring Kerrison |
(843) 722-6443 • (843) 723-2647 Fax | Roy Strickland |
E-Mail: cpa@p-tg.com | Patricia B. Wilson |
www.p-tg.com | Rudolph S. Thomas |
Report of Independent Registered Public Accounting Firm
To the Administrative Committee of
The South Financial Group, Inc. 401(k) Plan:
We have audited the accompanying statements of net assets available for benefits of the The South Financial Group, Inc. 401(k) Plan (the “Plan”) as of December 31, 2005, and the related statement of changes in net assets available for benefits for the year ended December 31, 2005. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of The South Financial Group, Inc. 401(k) Plan as of and for the year ended December 31, 2004 were audited by other auditors whose report dated June 24, 2005 expressed an unqualified opinion on those statements.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as we as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits for the Plan as of December 31, 2005 and 2004, and the changes in net assets available for benefits for the year ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.
/s/ Pratt-Thomas & Gumb, CPAs
June 20, 2006
F-2
THE SOUTH FINANCIAL GROUP, INC. 401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 2006 and 2005
| 2006 | 2005 |
|---|
| ASSETS | | | | | |
| Investments (Note 4) | | $ 78,824,300 | | $ 68,652,257 | |
| Participant loans | | 1,301,710 | | 1,098,748 | |
| Cash | | 597,087 | | 386,233 | |
| | |
| Receivables | |
| Accrued Income | | 793,350 | | -- | |
| Employer contribution | | 234,478 | | 236,831 | |
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| Total assets | | 81,750,925 | | 70,374,069 | |
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| NET ASSETS AVAILABLE FOR BENEFITS | | $ 81,750,925 | | $ 70,374,069 | |
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See accompanying notes to financial statements.
F-3
THE SOUTH FINANCIAL GROUP, INC. 401(k) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Year ended December 31, 2006
| Additions to net assets attributed to: | | | |
| Investment income | |
| Net appreciation in fair value of investments (Note 4) | | $ 4,071,611 | |
| Interest & dividends | | 2,964,751 | |
| | |
| |
| Total Investment Income | | 7,036,362 | |
| | |
| Contributions | |
| Employer | | 5,367,498 | |
| Participant | | 8,173,053 | |
| Rollover | | 2,295,323 | |
| | |
| |
| Total Contributions | | 15,835,874 | |
| | |
| Total additions | | 22,872,236 | |
| | |
| Deductions from net assets attributed to: | |
| Benefits paid to participants | | 11,357,093 | |
| Administrative expenses | | 138,287 | |
| | |
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| Total deductions | | 11,495,380 | |
| | |
| Net increase | | 11,376,856 | |
| | |
| Net assets available for benefits | |
| Beginning of year | | 70,374,069 | |
| | |
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| | |
| End of year | | $ 81,750,925 | |
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See accompanying notes to financial statements.
F-4
THE SOUTH FINANCIAL GROUP, INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2006 and 2005
NOTE 1 - DESCRIPTION OF PLAN
The following description of The South Financial Group, Inc. 401(k) Plan (Plan) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan's provisions.
General: The Plan is a defined contribution plan covering all eligible employees of The South Financial Group, Inc. and its subsidiaries (collectively Company, Employer) who are age eighteen or older. An employee is eligible to receive the Employer’s matching contribution after completing a year of service. The Plan is subject to the provisions of the Employee Retirement Income Security Act (ERISA).
Contributions: Each year, participants may contribute up to 100 percent of pretax annual compensation, as defined in the Plan. Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans. Participants direct the investment of their contributions into various investment options offered by the Plan. The Company may make a discretionary employer matching contribution of a percentage of compensation that a participant contributes to the Plan. The Company may also make a discretionary non-elective contribution. Contributions are subject to certain limitations.
Participant Accounts: Each participant's account is credited with the participant's contribution and an allocation of (a) the Company's contribution, and (b) Plan earnings, and charged with an allocation of administrative expenses. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested account. Each participant directs the investment of their account to any of the investment options available under the Plan. Participants may change their investment options at any time.
Retirement, Death and Disability: A participant is entitled to 100% of his or her account balance upon retirement, death or disability.
Vesting: Participants are immediately vested in their contributions plus actual earnings thereon. Vesting in the remainder of their account plus earnings thereon is based on years of continuous service. A participant is 100% vested after five years of credited service according to the following schedule:
| Years of Service | | Vested Percentage | |
| Less than 1 | | 0% | |
| 1 | | 20% | |
| 2 | | 40% | |
| 3 | | 60% | |
| 4 | | 80% | |
| 5 or more | | 100% | |
(Continued)
F-5
THE SOUTH FINANCIAL GROUP, INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2006 and 2005
Payment of Benefits: On termination of service due to death, disability, retirement or other reasons, a participant may elect to receive a lump-sum amount equal to the value of the participant’s vested interest in his or her account.
Forfeitures: Per the Plan document, the forfeitures may first be used to pay any administrative expenses of the Plan and then to reduce future Employer contributions. As of December 31, 2006 and 2005, forfeited amounts of $338,181 and $329,780, respectively, were available. During 2006, forfeitures of $138,287 were used to pay administrative expenses, and forfeitures of $126,644 were used to reduce Employer contributions.
Loan Provisions: Participants may borrow from their accounts a minimum of $1,000 up to a maximum of $50,000 or 50% of their account balance, whichever is less. The loans are secured by the balance in the participant’s account and bear interest at rates that are commensurate with local prevailing rates as determined quarterly by the Plan administrator. Principal and interest are paid through payroll deductions.
Administrative Expenses: Certain costs incurred in the administration of the Plan have been paid by the Company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting: The financial statements of the Plan are prepared under the accrual method of accounting.
Investment Valuation and Income Recognition: The Plan's investments are stated at fair value. Quoted market prices are used to value shares of mutual funds and common stocks traded on a national exchange. Participant loans are stated at principal amounts, which approximate fair value.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Estimates: The preparation of financial statements requires management to make estimates and assumptions that affect certain reported amounts and disclosures, and actual results may differ from these estimates.
Payment of Benefits: Benefits are recorded when paid.
(Continued)
F-6
THE SOUTH FINANCIAL GROUP, INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2006 and 2005
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Risks and Uncertainties: The Plan provides for various investment options including any combination of certain mutual funds and the Company common stock. The underlying investment securities are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statement of net assets available for benefits and participants’ individual account balances.
Concentration of Credit Risk: At December 31, 2006 and 2005, approximately 21% and 29%, respectively, of the Plan's assets were invested in The South Financial Group, Inc. common stock.
NOTE 3 – RIGHTS UPON PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of plan termination, participants would become 100% vested in their employer contributions and earnings thereon.
NOTE 4 – INVESTMENTS
The following presents individual investments at fair value that represent 5 percent or more of the Plan’s net assets:
| 2006 | 2005 |
|---|
| | |
|---|
| Dodge & Cox Stock Fund | | $ 10,870,421 | | $ 7,517,091 | |
| Dodge & Cox Balanced Fund | | 5,713,634 | | 4,305,728 | |
| American Funds - Growth Fund of America | | 6,359,284 | | 3,641,811 | |
| Federated Prime Obligations Fund | | 8,026,484 | | 7,255,562 | |
| The South Financial Group Unitized Stock Fund | | 17,100,880 | | 20,417,546 | |
| Thornburg International Value Fund | | 7,205,137 | | 4,879,197 | |
| Vanguard 500 Index Fund | | 9,348,129 | | 8,832,773 | |
During the 2006, the Plan’s investments in mutual funds (including gains and losses on investments bought and sold, as well as held during the year) appreciated in value by $4,688,642, and the Plan’s investment in common stock depreciated in value by $(617,031).
(Continued)
F-7
THE SOUTH FINANCIAL GROUP, INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2006 and 2005
NOTE 5 – PARTY-IN-INTEREST TRANSACTIONS
Parties-in-interest are defined under Department of Labor regulations as any fiduciary of the Plan, any party rendering services to the Plan, the employer and certain others. The Plan paid fees of $115,243 to American Pensions, Inc., a wholly owned subsidiary of the Company for the cost of recordkeeping services during 2006. As American Pensions, Inc. is a subsidiary of the Company, the payment of these fees constitutes a party–in-interest transaction. Approximately $482,808 of cash dividends were paid to the Plan by The South Financial Group, Inc. during 2006 based on shares held by the Plan on the dates of declaration.
At year-end, the Plan held the following party-in-interest investments (at fair value):
| 2006 | 2005 |
|---|
| | | |
|---|
| The South Financial Group Unitized Stock Fund | | $ 17,100,880 | | $ 20,417,546 | |
| Loans to plan participants | | $ 1,301,710 | | $ 1,098,748 | |
NOTE 6 - TERMINATED PARTICIPANTS
Included in net assets available for benefits are amounts allocated to individuals who have elected to withdraw from the Plan, but who have not yet been paid. Plan assets allocated to these participants were $26,728 and $78,057 at December 31, 2006 and 2005, respectively.
NOTE 7 - TAX STATUS
The Internal Revenue Service has determined and informed the Company by a letter dated August 12, 2002 that the Plan and related trust are designed in accordance with applicable sections of the Internal Revenue Code (IRC). Although the Plan has been amended since receiving the determination letter, the plan administrator believes that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC.
(Continued)
F-8
THE SOUTH FINANCIAL GROUP, INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2006 and 2005
NOTE 8 - RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits per the financial statements at December 31, 2006 and 2005 to the Form 5500:
| 2006 | 2005 |
|---|
| | | |
|---|
| Net assets available for benefits per the financial statements | | | $ | 81,750,925 | | $ | 70,374,067 | |
| Amounts allocated to withdrawing participants | | | | (26,728 | ) | | (78,057 | ) |
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| Net assets available for benefits per the Form 5500 | | | $ | 81,724,197 | | $ | 70,296,010 | |
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The following is a reconciliation of 2006 benefits paid to participants per the financial statements to benefits paid to participants per the 2005 Form 5500:
| Benefits paid to participants per the financial statements | | | $ | 11,357,093 | |
| Amounts allocated to withdrawing participants at December, 31 2006 | | | | 26,728 | |
| Amounts allocated to withdrawing participants at December 31, 2005 | | | | (78,057 | ) |
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| Benefits paid to participants per the Form 5500 | | | $ | 11,305,764 | |
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F-9
THE SOUTH FINANCIAL GROUP, INC. 401(k) PLAN
SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
December 31, 2006
Schedule H, Line 4i - Assets Held for Investment Purposes at End of Year
Plan Sponsor Name: The South Financial Group, Inc.
Plan Number: 001
EIN #: 57-0824914
| (a) | (b) | | (c) | | | (d) | | | | (e) | |
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| | Identity of issue, borrower, lessor or similar party | | Description of investment
including maturity date, rate of
interest, collateral, par or
maturity value | | | Cost | | | | Current Value | |
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| | AMERICAN FUNDS - GROWTH FUND OF AMERICA | | Mutual Fund | | | ** | | | | 6,359,284 | |
| | COLUMBIA ACORN Z FUND | | Mutual Fund | | | ** | | | | 310,319 | |
| | DODGE & COX STOCK FUND | | Mutual Fund | | | ** | | | | 10,870,421 | |
| | DODGE AND COX BALANCED FUND | | Mutual Fund | | | ** | | | | 5,713,634 | |
| | FEDERATED PRIME OBLIGATIONS FUND | | Money Market Fund | | | ** | | | | 8,026,484 | |
| | KEELEY SMALL CAP VALUE FUND | | Mutual Fund | | | ** | | | | 3,821,466 | |
| | MANAGERS BOND FUND | | Mutual Fund | | | ** | | | | 1,977,325 | |
| * | PARTICIPANT LOANS | | Interest Rates from 4% to 8.25% | | | ** | | | | 1,301,710 | |
| * | THE SOUTH FINANCIAL GROUP UNITIZED STOCK FUND | | Employer Common Stock | | | ** | | | | 17,100,880 | |
| | THORNBURG INTERNATIONAL VALUE FUND | | Mutual Fund | | | ** | | | | 7,205,137 | |
| | VANGUARD PRIME MONEY MARKET FUND | | Money Market Fund | | | ** | | | | 129,619 | |
| | VANGUARD TARGET RETIREMENT FUND - 2005 | | Mutual Fund | | | ** | | | | 49,734 | |
| | VANGUARD TARGET RETIREMENT FUND - 2015 | | Mutual Fund | | | ** | | | | 124,541 | |
| | VANGUARD TARGET RETIREMENT FUND - 2025 | | Mutual Fund | | | ** | | | | 237,527 | |
| | VANGUARD TARGET RETIREMENT FUND - 2035 | | Mutual Fund | | | ** | | | | 201,445 | |
| | VANGUARD TARGET RETIREMENT FUND - 2045 | | Mutual Fund | | | ** | | | | 98,827 | |
| | VANGUARD TOTAL BOND INDEX FUND | | Mutual Fund | | | ** | | | | 1,553,253 | |
| | VANGUARD INDEX TRUST 500 FUND | | Mutual Fund | | | ** | | | | 9,348,129 | |
| | VANGUARD MID CAP INDEX FUND | | Mutual Fund | | | ** | | | | 3,118,104 | |
| | VANGUARD WELLESLEY FUND | | Mutual Fund | | | ** | | | | 2,578,171 | |
| | | | | | | | | | |
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| | | | | | | | | | | 80,126,010 |
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* Indicates party-in-interest to the Plan
** All assets are participant directed. Cost information is not required.
F-10
EXHIBIT INDEX
Exhibit No.
| Description
| Location
|
23.1 | Consent of Independent Registered Public Accounting Firm | Filed herewith |
23.2 | Consent of Independent Registered Public Accounting Firm | Filed herewith |
A-1
