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**UNITED            STATES            SECURITIES AND EXCHANGE COMMISSION**            Washington, D.C. 20549

**Form            10-Q**
|                                  |                                                                                                                                                                                    |
|---------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **(Mark                        One)** |
| **x**                                 | Quarterly report                        pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for                        the quarterly period ended September 30, 2008 |
|                                  |                                                                                                                                                                                    |
|                                  |                                                                                                                                                                                    |
| **o**                                 | Transition report                        pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for                        the transition period from____ to____        |

Commission file            number 0-15083

**The South            Financial Group, Inc.**(Exact Name of Registrant as Specified in Its Charter)
|                                                                         |   |                                                     |
|------------------------------------------------------------------------------|--------|----------------------------------------------------------|
| **South                        Carolina**                                    |   | **57-0824914**                                           |
| (State or Other                        Jurisdiction of                       |   | (IRS                        Employer Identification No.) |
| Incorporation or                        Organization)                        |   |                                                     |
|                                                                         |   |                                                     |
| **102 South Main                        Street, Greenville, South Carolina** |   | **29601**                                                |
| (Address of Principal                        Executive Offices)              |   | (Zip                        Code)                        |

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

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 ̈.
|                                                                 |                                               |   |
|----------------------------------------------------------------------|----------------------------------------------------|--------|
| Large Accelerated                        Filer x                     | Accelerated filer                        o         |   |
| Non-accelerated                        filer ̈                    | Smaller reporting                        company o |   |
| (Do not check if a                        smaller reporting company) |                                               |   |

Indicate by check mark whether            the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes             ̈ Nox.

The number of outstanding shares            of the issuer’s $1.00 par value common stock as of November 3, 2008 was            73,905,229.

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**PART I.            FINANCIAL INFORMATION**

**Item 1. *Financial            Statements***

**THE SOUTH            FINANCIAL GROUP, INC. AND SUBSIDIARIES            CONSOLIDATED BALANCE SHEETS            (in thousands, except share data) (Unaudited)**

|                                                                                                                                                                                                 |   |                                     |       |                                    |   |       |   |   |       |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|------------|-----------------------------------------|--------|------------|--------|--------|------------|--------|
|                                                                                                                                                                                                 |   | **September                        30,** |       |                                    |   |
|                                                                                                                                                                                                 |   |                                          |       | **December                        31,** |   |
|                                                                                                                                                                                                 |   | **2008**                                 |       | **2007**                                |   | **2007**   |   |
|                                                                                                                                                                                                 |   |                                          |       |                                         |   |            |   |
| **Assets**                                                                                                                                                                                           |   |                                     |       |                                    |   |       |   |   |       |   |
| Cash and due from                        banks                                                                                                                                                       |   | $                                        | 176,293    |                                    | $      | 221,529    |   | $      | 290,974    |   |
| Interest-bearing bank                        balances                                                                                                                                                |   |                                     | 35         |                                    |   | 520        |   |   | 5,551      |   |
| Securities                                                                                                                                                                                           |   |                                     |       |                                    |   |       |   |   |       |   |
| Available for sale, at                        fair value                                                                                                                                             |   |                                     | 1,995,681  |                                    |   | 2,323,241  |   |   | 1,986,212  |   |
| Held to maturity (fair                        value $24,566, $41,047, and $39,782, respectively)                                                                                                     |   |                                     | 24,518     |                                    |   | 41,174     |   |   | 39,691     |   |
|                                                                                                                                                                                                 |   |                                          |            |                                    |        |            |   |        |            |   |
| Total                        securities                                                                                                                                                              |   |                                     | 2,020,199  |                                    |   | 2,364,415  |   |   | 2,025,903  |   |
|                                                                                                                                                                                                 |   |                                          |            |                                    |        |            |   |        |            |   |
| Loans held for sale                        (includes $14,334 measured at fair value at September 30, 2008)                                                                                           |   |                                     | 37,575     |                                    |   | 19,572     |   |   | 17,867     |   |
| Loans held for                        investment                                                                                                                                                     |   |                                     | 10,299,640 |                                    |   | 10,173,237 |   |   | 10,213,420 |   |
| Less: Allowance for                        loan losses                                                                                                                                               |   |                                     | (200,748   | )                                       |   | (118,861   | )      |   | (126,427   | )      |
|                                                                                                                                                                                                 |   |                                          |            |                                    |        |            |   |        |            |   |
| Net loans held for                        investment                                                                                                                                                 |   |                                     | 10,098,892 |                                    |   | 10,054,376 |   |   | 10,086,993 |   |
|                                                                                                                                                                                                 |   |                                          |            |                                    |        |            |   |        |            |   |
| Premises and equipment,                        net                                                                                                                                                   |   |                                     | 274,258    |                                    |   | 226,784    |   |   | 233,852    |   |
| Accrued interest                        receivable                                                                                                                                                   |   |                                     | 51,207     |                                    |   | 73,383     |   |   | 70,464     |   |
| Goodwill                                                                                                                                                                                             |   |                                     | 461,458    |                                    |   | 650,637    |   |   | 651,003    |   |
| Other intangible                        assets, net                                                                                                                                                  |   |                                     | 23,112     |                                    |   | 29,032     |   |   | 27,179     |   |
| Other assets                                                                                                                                                                                         |   |                                     | 552,149    |                                    |   | 459,973    |   |   | 467,798    |   |
|                                                                                                                                                                                                 |   |                                          |            |                                    |        |            |   |        |            |   |
| Total assets                                                                                                                                                                                         |   | $                                        | 13,695,178 |                                    | $      | 14,100,221 |   | $      | 13,877,584 |   |
|                                                                                                                                                                                                 |   |                                          |            |                                    |        |            |   |        |            |   |
| **Liabilities and                        Shareholders’ Equity**                                                                                                                                |   |                                     |       |                                    |   |       |   |   |       |   |
| Liabilities                                                                                                                                                                                          |   |                                     |       |                                    |   |       |   |   |       |   |
| Deposits                                                                                                                                                                                             |   |                                     |       |                                    |   |       |   |   |       |   |
| Noninterest-bearing                        retail and commercial deposits                                                                                                                            |   | $                                        | 1,022,632  |                                    | $      | 1,164,312  |   | $      | 1,127,657  |   |
| Interest-bearing retail                        and commercial deposits                                                                                                                               |   |                                     | 6,412,343  |                                    |   | 6,353,852  |   |   | 6,402,503  |   |
|                                                                                                                                                                                                 |   |                                          |            |                                    |        |            |   |        |            |   |
| Total retail and                        commercial deposits                                                                                                                                          |   |                                     | 7,434,975  |                                    |   | 7,518,164  |   |   | 7,530,160  |   |
| Brokered                        deposits                                                                                                                                                             |   |                                     | 2,573,833  |                                    |   | 1,983,505  |   |   | 2,258,408  |   |
|                                                                                                                                                                                                 |   |                                          |            |                                    |        |            |   |        |            |   |
| Total                        deposits                                                                                                                                                                |   |                                     | 10,008,808 |                                    |   | 9,501,669  |   |   | 9,788,568  |   |
| Short-term                        borrowings                                                                                                                                                         |   |                                     | 1,188,929  |                                    |   | 2,070,581  |   |   | 1,637,550  |   |
| Long-term                        debt                                                                                                                                                                |   |                                     | 773,109    |                                    |   | 732,203    |   |   | 698,340    |   |
| Accrued interest                        payable                                                                                                                                                      |   |                                     | 61,463     |                                    |   | 73,418     |   |   | 69,288     |   |
| Other                        liabilities                                                                                                                                                             |   |                                     | 129,255    |                                    |   | 174,098    |   |   | 133,530    |   |
|                                                                                                                                                                                                 |   |                                          |            |                                    |        |            |   |        |            |   |
| Total                        liabilities                                                                                                                                                             |   |                                     | 12,161,564 |                                    |   | 12,551,969 |   |   | 12,327,276 |   |
|                                                                                                                                                                                                 |   |                                          |            |                                    |        |            |   |        |            |   |
|                                                                                                                                                                                                 |   |                                     |       |                                    |   |       |   |   |       |   |
| Commitments and                        contingencies (Note 10)                                                                                                                                       |   |                                     | —    |                                    |   | —    |   |   | —    |   |
|                                                                                                                                                                                                 |   |                                     |       |                                    |   |       |   |   |       |   |
| Shareholders’                        equity                                                                                                                                                    |   |                                     |       |                                    |   |       |   |   |       |   |
| Preferred stock-no par                        value; authorized 10,000,000 shares; issued and outstanding 249,000 shares                        at September 30, 2008                                |   |                                     | 249,000    |                                    |   | —    |   |   | —    |   |
| Common stock-par value                        $1 per share; authorized 200,000,000 shares; issued and outstanding                        73,005,766, 72,971,394, and 72,455,205 shares, respectively |   |                                     | 73,006     |                                    |   | 72,971     |   |   | 72,455     |   |
| Surplus                                                                                                                                                                                              |   |                                     | 1,104,697  |                                    |   | 1,116,361  |   |   | 1,107,601  |   |
| Retained                        earnings                                                                                                                                                             |   |                                     | 120,578    |                                    |   | 391,019    |   |   | 386,061    |   |
| Accumulated other                        comprehensive loss, net of tax                                                                                                                              |   |                                     | (13,667    | )                                       |   | (32,099    | )      |   | (15,809    | )      |
|                                                                                                                                                                                                 |   |                                          |            |                                    |        |            |   |        |            |   |
| Total                        shareholders’ equity                                                                                                                                              |   |                                     | 1,533,614  |                                    |   | 1,548,252  |   |   | 1,550,308  |   |
|                                                                                                                                                                                                 |   |                                          |            |                                    |        |            |   |        |            |   |
| Total liabilities and                        shareholders’ equity                                                                                                                              |   | $                                        | 13,695,178 |                                    | $      | 14,100,221 |   | $      | 13,877,584 |   |
|                                                                                                                                                                                                 |   |                                          |            |                                    |        |            |   |        |            |   |

See notes to            consolidated financial statements (unaudited), which are an integral part of these            statements.

1

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**THE SOUTH            FINANCIAL GROUP, INC. AND SUBSIDIARIES            CONSOLIDATED STATEMENTS OF (LOSS) INCOME            (in thousands, except per share data) (Unaudited)**

|                                                                          |   |                                                                               |    |                                                                              |   |     |   |     |     |   |   |    |   |
|-------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|---------|-----------------------------------------------------------------------------------|--------|----------|--------|----------|----------|--------|--------|---------|--------|
|                                                                          |   | **Three Months                        Ended                        September 30,** |    | **Nine Months                        Ended                        September 30,** |   |
|                                                                          |   |                                                                                    |    |                                                                                   |   |
|                                                                          |   | **2008**                                                                           |    | **2007**                                                                          |   | **2008** |   | **2007** |     |
|                                                                          |   |                                                                                    |    |                                                                                   |   |          |   |          |     |
| **Interest                        Income**                                    |   |                                                                               |    |                                                                              |   |     |   |     |     |   |   |    |   |
| Interest and fees on                        loans                             |   | $                                                                                  | 155,433 |                                                                              | $      | 195,393  |   | $        | 484,677  |   | $      | 573,982 |   |
| Interest and                        dividends on securities:                  |   |                                                                               |    |                                                                              |   |     |   |     |     |   |   |    |   |
| Taxable                                                                       |   |                                                                               | 20,186  |                                                                              |   | 25,390   |   |     | 61,169   |   |   | 81,094  |   |
| Exempt from federal                        income taxes                       |   |                                                                               | 2,422   |                                                                              |   | 2,856    |   |     | 7,594    |   |   | 8,792   |   |
|                                                                          |   |                                                                                    |         |                                                                              |        |          |   |          |          |   |        |         |   |
| Total interest and                        dividends on securities             |   |                                                                               | 22,608  |                                                                              |   | 28,246   |   |     | 68,763   |   |   | 89,886  |   |
| Interest on                        short-term investments                     |   |                                                                               | 197     |                                                                              |   | 100      |   |     | 375      |   |   | 338     |   |
|                                                                          |   |                                                                                    |         |                                                                              |        |          |   |          |          |   |        |         |   |
| Total interest                        income                                  |   |                                                                               | 178,238 |                                                                              |   | 223,739  |   |     | 553,815  |   |   | 664,206 |   |
|                                                                          |   |                                                                                    |         |                                                                              |        |          |   |          |          |   |        |         |   |
| **Interest                        Expense**                                   |   |                                                                               |    |                                                                              |   |     |   |     |     |   |   |    |   |
| Interest on                        deposits                                   |   |                                                                               | 69,071  |                                                                              |   | 94,497   |   |     | 209,357  |   |   | 275,042 |   |
| Interest on                        short-term borrowings                      |   |                                                                               | 4,036   |                                                                              |   | 20,503   |   |     | 24,325   |   |   | 62,932  |   |
| Interest on                        long-term debt                             |   |                                                                               | 9,512   |                                                                              |   | 11,965   |   |     | 31,603   |   |   | 38,399  |   |
|                                                                          |   |                                                                                    |         |                                                                              |        |          |   |          |          |   |        |         |   |
| Total interest                        expense                                 |   |                                                                               | 82,619  |                                                                              |   | 126,965  |   |     | 265,285  |   |   | 376,373 |   |
|                                                                          |   |                                                                                    |         |                                                                              |        |          |   |          |          |   |        |         |   |
| **Net Interest                        Income**                                |   |                                                                               | 95,619  |                                                                              |   | 96,774   |   |     | 288,530  |   |   | 287,833 |   |
| **Provision for                        Credit Losses**                        |   |                                                                               | 84,608  |                                                                              |   | 10,504   |   |     | 221,663  |   |   | 36,642  |   |
|                                                                          |   |                                                                                    |         |                                                                              |        |          |   |          |          |   |        |         |   |
| Net interest income                        after provision for credit losses  |   |                                                                               | 11,011  |                                                                              |   | 86,270   |   |     | 66,867   |   |   | 251,191 |   |
| **Noninterest                        Income**                                 |   |                                                                               | 27,900  |                                                                              |   | 29,917   |   |     | 91,006   |   |   | 84,570  |   |
| **Noninterest                        Expenses**                               |   |                                                                               | 93,392  |                                                                              |   | 78,739   |   |     | 449,191  |   |   | 240,367 |   |
|                                                                          |   |                                                                                    |         |                                                                              |        |          |   |          |          |   |        |         |   |
| (Loss) income before                        income taxes                      |   |                                                                               | (54,481 | )                                                                                 |   | 37,448   |   |     | (291,318 | )      |   | 95,394  |   |
| Income tax (benefit)                        expense                           |   |                                                                               | (29,526 | )                                                                                 |   | 11,609   |   |     | (54,139  | )      |   | 31,107  |   |
|                                                                          |   |                                                                                    |         |                                                                              |        |          |   |          |          |   |        |         |   |
| **Net (Loss)                        Income**                                  |   |                                                                               | (24,955 | )                                                                                 |   | 25,839   |   |     | (237,179 | )      |   | 64,287  |   |
| Preferred stock                        dividends                              |   |                                                                               | 6,250   |                                                                              |   | —  |   |     | 12,083   |   |   | — |   |
|                                                                          |   |                                                                                    |         |                                                                              |        |          |   |          |          |   |        |         |   |
| **Net (Loss) Income                        Available to Common Shareholders** |   | $                                                                                  | (31,205 | )                                                                                 | $      | 25,839   |   | $        | (249,262 | )      | $      | 64,287  |   |
|                                                                          |   |                                                                                    |         |                                                                              |        |          |   |          |          |   |        |         |   |
|                                                                          |   |                                                                               |    |                                                                              |   |     |   |     |     |   |   |    |   |
| **Average Common                        Shares Outstanding, Basic**           |   |                                                                               | 72,755  |                                                                              |   | 73,146   |   |     | 72,606   |   |   | 73,971  |   |
| **Average Common                        Shares Outstanding, Diluted**         |   |                                                                               | 72,755  |                                                                              |   | 73,606   |   |     | 72,606   |   |   | 74,505  |   |
| **Earnings Per                        Common Share, Basic**                   |   | $                                                                                  | (0.43   | )                                                                                 | $      | 0.35     |   | $        | (3.43    | )      | $      | 0.87    |   |
| **Earnings Per                        Common Share, Diluted**                 |   |                                                                               | (0.43   | )                                                                                 |   | 0.35     |   |     | (3.43    | )      |   | 0.86    |   |
| **Dividends per                        common share**                         |   |                                                                               | 0.01    |                                                                              |   | 0.18     |   |     | 0.21     |   |   | 0.54    |   |

See notes to            consolidated financial statements (unaudited), which are an integral part of these            statements.

2

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**THE SOUTH            FINANCIAL GROUP, INC. AND SUBSIDIARIES            CONSOLIDATED STATEMENTS OF CHANGES            IN SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)            (in thousands, except share and per share data) (Unaudited)**

|                                                                                           |   |                                                                     |       |                                    |   |                                       |   |        |    |                                                                                                  |   |                                                                                                               |   |      |     |   |   |    |   |   |      |   |
|------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|------------|-----------------------------------------|--------|--------------------------------------------|--------|-------------|---------|-------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------|--------|-----------|----------|--------|--------|---------|--------|--------|-----------|--------|
|                                                                                           |   | **Shares of                        Common                        Stock** |       | **Common                        Stock** |   | **Preferred                        Stock** |   | **Surplus** |    | **Retained                        Earnings                        and                        Other*** |   | **Accumulated                        Other                        Comprehensive                        Loss, Net** |   | **Total** |     |
|                                                                                           |   |                                                                          |       |                                         |   |                                            |   |             |    |                                                                                                       |   |                                                                                                                    |   |           |     |
| Balance, December 31,                        2006                                              |   |                                                                     | 75,341,276 |                                    | $      | 75,341                                     |   | $           | — |                                                                                                  | $      | 1,167,685                                                                                                          |   | $         | 367,110  |   | $      | (48,104 | )      | $      | 1,562,032 |   |
| Net income                                                                                     |   |                                                                     | —    |                                    |   | —                                    |   |        | — |                                                                                                  |   | —                                                                                                            |   |      | 64,287   |   |   | — |   |   | 64,287    |   |
| Other comprehensive                        income, net of income tax of $9,133                 |   |                                                                     | —    |                                    |   | —                                    |   |        | — |                                                                                                  |   | —                                                                                                            |   |      | —  |   |   | 16,005  |   |   | 16,005    |   |
|                                                                                           |   |                                                                     |       |                                    |   |                                       |   |        |    |                                                                                                  |   |                                                                                                               |   |      |     |   |   |    |   |        |           |   |
| Comprehensive                        income                                                    |   |                                                                     | —    |                                    |   | —                                    |   |        | — |                                                                                                  |   | —                                                                                                            |   |      | —  |   |   | — |   |   | 80,292    |   |
|                                                                                           |   |                                                                     |       |                                    |   |                                       |   |        |    |                                                                                                  |   |                                                                                                               |   |      |     |   |   |    |   |        |           |   |
| Cash dividends declared                        ($0.54 per common share)                        |   |                                                                     | —    |                                    |   | —                                    |   |        | — |                                                                                                  |   | —                                                                                                            |   |      | (39,895  | )      |   | — |   |   | (39,895   | )      |
| Common stock                        activity:                                                  |   |                                                                     |       |                                    |   |                                       |   |        |    |                                                                                                  |   |                                                                                                               |   |      |     |   |   |    |   |   |      |   |
| Repurchase of                        stock                                                     |   |                                                                     | (3,000,000 | )                                       |   | (3,000                                     | )      |        | — |                                                                                                  |   | (68,315                                                                                                            | )      |      | —  |   |   | — |   |   | (71,315   | )      |
| Exercise of stock                        options, including income tax benefit of $1,038       |   |                                                                     | 461,057    |                                    |   | 461                                        |   |        | — |                                                                                                  |   | 8,481                                                                                                              |   |      | —  |   |   | — |   |   | 8,942     |   |
| Dividend reinvestment                        plan                                              |   |                                                                     | 108,030    |                                    |   | 108                                        |   |        | — |                                                                                                  |   | 2,309                                                                                                              |   |      | —  |   |   | — |   |   | 2,417     |   |
| Restricted stock                        plan                                                   |   |                                                                     | 24,450     |                                    |   | 24                                         |   |        | — |                                                                                                  |   | 2,486                                                                                                              |   |      | (146     | )      |   | — |   |   | 2,364     |   |
| Employee stock purchase                        plan                                            |   |                                                                     | 14,902     |                                    |   | 15                                         |   |        | — |                                                                                                  |   | 320                                                                                                                |   |      | —  |   |   | — |   |   | 335       |   |
| Director                        compensation                                                   |   |                                                                     | 16,143     |                                    |   | 16                                         |   |        | — |                                                                                                  |   | 379                                                                                                                |   |      | —  |   |   | — |   |   | 395       |   |
| Acquisitions                                                                                   |   |                                                                     | 6,025      |                                    |   | 6                                          |   |        | — |                                                                                                  |   | 140                                                                                                                |   |      | —  |   |   | — |   |   | 146       |   |
| Common stock released                        by trust for deferred compensation                |   |                                                                     | —    |                                    |   | —                                    |   |        | — |                                                                                                  |   | —                                                                                                            |   |      | 88       |   |   | — |   |   | 88        |   |
| Deferred compensation                        payable in common stock                           |   |                                                                     | —    |                                    |   | —                                    |   |        | — |                                                                                                  |   | —                                                                                                            |   |      | (88      | )      |   | — |   |   | (88       | )      |
| Cumulative effect of                        initial application of FIN 48                      |   |                                                                     | —    |                                    |   | —                                    |   |        | — |                                                                                                  |   | —                                                                                                            |   |      | (488     | )      |   | — |   |   | (488      | )      |
| Stock option                        expense                                                    |   |                                                                     | —    |                                    |   | —                                    |   |        | — |                                                                                                  |   | 2,821                                                                                                              |   |      | —  |   |   | — |   |   | 2,821     |   |
| Other, net                                                                                     |   |                                                                     | (489       | )                                       |   | —                                    |   |        | — |                                                                                                  |   | 55                                                                                                                 |   |      | 151      |   |   | — |   |   | 206       |   |
|                                                                                           |   |                                                                          |            |                                    |        |                                            |   |             |         |                                                                                                  |        |                                                                                                                    |   |           |          |   |        |         |   |        |           |   |
| Balance, September 30,                        2007                                             |   |                                                                     | 72,971,394 |                                    | $      | 72,971                                     |   | $           | — |                                                                                                  | $      | 1,116,361                                                                                                          |   | $         | 391,019  |   | $      | (32,099 | )      | $      | 1,548,252 |   |
|                                                                                           |   |                                                                          |            |                                    |        |                                            |   |             |         |                                                                                                  |        |                                                                                                                    |   |           |          |   |        |         |   |        |           |   |
|                                                                                           |   |                                                                     |       |                                    |   |                                       |   |        |    |                                                                                                  |   |                                                                                                               |   |      |     |   |   |    |   |   |      |   |
| Balance, December 31,                        2007                                              |   |                                                                     | 72,455,205 |                                    | $      | 72,455                                     |   | $           | — |                                                                                                  | $      | 1,107,601                                                                                                          |   | $         | 386,061  |   | $      | (15,809 | )      | $      | 1,550,308 |   |
| Net loss                                                                                       |   |                                                                     | —    |                                    |   | —                                    |   |        | — |                                                                                                  |   | —                                                                                                            |   |      | (237,179 | )      |   | — |   |   | (237,179  | )      |
| Other comprehensive                        income, net of income tax of $1,185                 |   |                                                                     | —    |                                    |   | —                                    |   |        | — |                                                                                                  |   | —                                                                                                            |   |      | —  |   |   | 2,142   |   |   | 2,142     |   |
|                                                                                           |   |                                                                     |       |                                    |   |                                       |   |        |    |                                                                                                  |   |                                                                                                               |   |      |     |   |   |    |   |        |           |   |
| Comprehensive                        loss                                                      |   |                                                                     | —    |                                    |   | —                                    |   |        | — |                                                                                                  |   | —                                                                                                            |   |      | —  |   |   | — |   |   | (235,037  | )      |
|                                                                                           |   |                                                                     |       |                                    |   |                                       |   |        |    |                                                                                                  |   |                                                                                                               |   |      |     |   |   |    |   |        |           |   |
| Cash dividends                        declared:                                                |   |                                                                     |       |                                    |   |                                       |   |        |    |                                                                                                  |   |                                                                                                               |   |      |     |   |   |    |   |   |      |   |
| Common ($0.21 per                        common share)                                         |   |                                                                     | —    |                                    |   | —                                    |   |        | — |                                                                                                  |   | —                                                                                                            |   |      | (15,331  | )      |   | — |   |   | (15,331   | )      |
| Preferred                                                                                      |   |                                                                     | —    |                                    |   | —                                    |   |        | — |                                                                                                  |   | —                                                                                                            |   |      | (12,083  | )      |   | — |   |   | (12,083   | )      |
| Issuance of preferred                        stock                                             |   |                                                                     | —    |                                    |   | —                                    |   |        | 250,000 |                                                                                                  |   | (11,028                                                                                                            | )      |      | —  |   |   | — |   |   | 238,972   |   |
| Common stock                        activity:                                                  |   |                                                                     |       |                                    |   |                                       |   |        |    |                                                                                                  |   |                                                                                                               |   |      |     |   |   |    |   |   |      |   |
| Dividend reinvestment                        plan                                              |   |                                                                     | 206,206    |                                    |   | 206                                        |   |        | — |                                                                                                  |   | 1,626                                                                                                              |   |      | —  |   |   | — |   |   | 1,832     |   |
| Conversion of preferred                        stock                                           |   |                                                                     | 153,844    |                                    |   | 154                                        |   |        | (1,000  | )                                                                                                     |   | 846                                                                                                                |   |      | (50      | )      |   | — |   |   | (50       | )      |
| Restricted stock                        plan                                                   |   |                                                                     | 101,378    |                                    |   | 101                                        |   |        | — |                                                                                                  |   | 2,794                                                                                                              |   |      | (163     | )      |   | — |   |   | 2,732     |   |
| Director                        compensation                                                   |   |                                                                     | 49,571     |                                    |   | 50                                         |   |        | — |                                                                                                  |   | 358                                                                                                                |   |      | —  |   |   | — |   |   | 408       |   |
| Employee stock purchase                        plan                                            |   |                                                                     | 31,557     |                                    |   | 32                                         |   |        | — |                                                                                                  |   | 215                                                                                                                |   |      | —  |   |   | — |   |   | 247       |   |
| Acquisitions                                                                                   |   |                                                                     | 4,403      |                                    |   | 4                                          |   |        | — |                                                                                                  |   | 20                                                                                                                 |   |      | —  |   |   | — |   |   | 24        |   |
| Exercise of stock                        options, including income tax benefit of $6           |   |                                                                     | 3,602      |                                    |   | 4                                          |   |        | — |                                                                                                  |   | 37                                                                                                                 |   |      | —  |   |   | — |   |   | 41        |   |
| Common and preferred                        stock purchased by trust for deferred compensation |   |                                                                     | —    |                                    |   | —                                    |   |        | — |                                                                                                  |   | —                                                                                                            |   |      | (441     | )      |   | — |   |   | (441      | )      |
| Deferred compensation                        payable in common and preferred stock             |   |                                                                     | —    |                                    |   | —                                    |   |        | — |                                                                                                  |   | —                                                                                                            |   |      | 441      |   |   | — |   |   | 441       |   |
| Cumulative effect of                        initial application of:                            |   |                                                                     |       |                                    |   |                                       |   |        |    |                                                                                                  |   |                                                                                                               |   |      |     |   |   |    |   |   |      |   |
| SFAS 159, net of                        tax                                                    |   |                                                                     | —    |                                    |   | —                                    |   |        | — |                                                                                                  |   | —                                                                                                            |   |      | 60       |   |   | — |   |   | 60        |   |
| EITF 06-4                                                                                      |   |                                                                     | —    |                                    |   | —                                    |   |        | — |                                                                                                  |   | —                                                                                                            |   |      | (737     | )      |   | — |   |   | (737      | )      |
| Stock option                        expense                                                    |   |                                                                     | —    |                                    |   | —                                    |   |        | — |                                                                                                  |   | 2,287                                                                                                              |   |      | —  |   |   | — |   |   | 2,287     |   |
| Other, net                                                                                     |   |                                                                     | —    |                                    |   | —                                    |   |        | — |                                                                                                  |   | (59                                                                                                                | )      |      | —  |   |   | — |   |   | (59       | )      |
|                                                                                           |   |                                                                          |            |                                    |        |                                            |   |             |         |                                                                                                  |        |                                                                                                                    |   |           |          |   |        |         |   |        |           |   |
| Balance, September 30,                        2008                                             |   |                                                                     | 73,005,766 |                                    | $      | 73,006                                     |   | $           | 249,000 |                                                                                                  | $      | 1,104,697                                                                                                          |   | $         | 120,578  |   | $      | (13,667 | )      | $      | 1,533,614 |   |
|                                                                                           |   |                                                                          |            |                                    |        |                                            |   |             |         |                                                                                                  |        |                                                                                                                    |   |           |          |   |        |         |   |        |           |   |

|   |                                                                                                                                    |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------|
| *      | Other includes                        guarantee of employee stock ownership plan debt and deferred                        compensation. |

See notes to            consolidated financial statements (unaudited), which are an integral part of these            statements.

3

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**THE SOUTH            FINANCIAL GROUP, INC. AND SUBSIDIARIES            CONSOLIDATED STATEMENTS OF CASH FLOWS            (in thousands) (Unaudited)**

|                                                                                                                                  |   |                                                       |     |     |   |     |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|----------|----------|--------|----------|--------|
|                                                                                                                                  |   | **Nine Months Ended                        September 30,** |     |
|                                                                                                                                  |   |                                                            |     |
|                                                                                                                                  |   | **2008**                                                   |     | **2007** |   |
|                                                                                                                                  |   |                                                            |     |          |   |
| **Cash Flows from                        Operating Activities**                                                                       |   |                                                       |     |     |   |     |   |
| Net (loss)                        income                                                                                              |   | $                                                          | (237,179 | )        | $      | 64,287   |   |
| Adjustments to                        reconcile net (loss) income to net cash provided by operating                        activities |   |                                                       |     |     |   |     |   |
| Depreciation,                        amortization, and accretion, net                                                                 |   |                                                       | 28,233   |     |   | 25,305   |   |
| Provision for credit                        losses                                                                                    |   |                                                       | 221,663  |     |   | 36,642   |   |
| Share-based                        compensation expense                                                                               |   |                                                       | 6,061    |     |   | 6,110    |   |
| Goodwill                        impairment                                                                                            |   |                                                       | 188,431  |     |   | —  |   |
| (Gain) loss on                        securities                                                                                      |   |                                                       | (1,547   | )        |   | 3,335    |   |
| Gain on Visa IPO share                        redemption                                                                              |   |                                                       | (1,904   | )        |   | —  |   |
| (Gain) loss on certain                        derivative activities                                                                   |   |                                                       | (49      | )        |   | 1,202    |   |
| Gain on sale of                        mortgage loans                                                                                 |   |                                                       | (2,634   | )        |   | (4,018   | )      |
| Loss on early                        extinguishment of debt                                                                           |   |                                                       | 339      |     |   | 1,530    |   |
| Loss on disposition of                        premises and equipment                                                                  |   |                                                       | 333      |     |   | 81       |   |
| Loss on disposition of                        other real estate owned                                                                 |   |                                                       | 949      |     |   | 151      |   |
| Excess tax benefits                        from share-based compensation                                                              |   |                                                       | (6       | )        |   | (1,038   | )      |
| Origination of loans                        held for sale                                                                             |   |                                                       | (201,350 | )        |   | (330,144 | )      |
| Sale of loans held for                        sale and principal repayments                                                           |   |                                                       | 224,410  |     |   | 364,982  |   |
| (Increase) decrease in                        other assets                                                                            |   |                                                       | (38,150  | )        |   | 5,416    |   |
| (Decrease) increase in                        other liabilities                                                                       |   |                                                       | (9,503   | )        |   | 17,292   |   |
|                                                                                                                                  |   |                                                            |          |     |        |          |   |
| Net cash provided by                        operating activities                                                                      |   |                                                       | 178,097  |     |   | 191,133  |   |
|                                                                                                                                  |   |                                                            |          |     |        |          |   |
|                                                                                                                                  |   |                                                       |     |     |   |     |   |
| **Cash Flows from                        Investing Activities**                                                                       |   |                                                       |     |     |   |     |   |
| Sale of securities                        available for sale                                                                          |   |                                                       | 193,029  |     |   | 212,353  |   |
| Maturity, redemption,                        call, or principal repayments of securities available for sale                           |   |                                                       | 375,013  |     |   | 230,382  |   |
| Maturity, redemption,                        call, or principal repayments of securities held to maturity                             |   |                                                       | 15,166   |     |   | 11,194   |   |
| Purchase of securities                        available for sale                                                                      |   |                                                       | (580,138 | )        |   | (12,440  | )      |
| Purchase of securities                        held to maturity                                                                        |   |                                                       | —  |     |   | (140     | )      |
| Origination of loans                        held for investment, net of principal repayments                                          |   |                                                       | (331,593 | )        |   | (529,181 | )      |
| Sale of loans held for                        investment                                                                              |   |                                                       | 38,663   |     |   | —  |   |
| Sale of other real                        estate owned                                                                                |   |                                                       | 3,230    |     |   | 4,225    |   |
| Sale of premises and                        equipment                                                                                 |   |                                                       | 7        |     |   | 432      |   |
| Purchase of premises                        and equipment                                                                             |   |                                                       | (43,358  | )        |   | (23,475  | )      |
| Cash equivalents                        acquired, net of payment for acquisitions                                                     |   |                                                       | 3,817    |     |   | —  |   |
|                                                                                                                                  |   |                                                            |          |     |        |          |   |
| Net cash used for                        investing activities                                                                         |   |                                                       | (326,164 | )        |   | (106,650 | )      |
|                                                                                                                                  |   |                                                            |          |     |        |          |   |
|                                                                                                                                  |   |                                                       |     |     |   |     |   |
| **Cash Flows from                        Financing Activities**                                                                       |   |                                                       |     |     |   |     |   |
| Increase (decrease) in                        deposits                                                                                |   |                                                       | 200,094  |     |   | (22,749  | )      |
| (Decrease) increase in                        short-term borrowings                                                                   |   |                                                       | (449,487 | )        |   | 300,524  |   |
| Issuance of long-term                        debt                                                                                     |   |                                                       | 203,320  |     |   | 126,290  |   |
| Payment of long-term                        debt                                                                                      |   |                                                       | (132,235 | )        |   | (523,934 | )      |
| Issuance of preferred                        stock, net                                                                               |   |                                                       | 238,972  |     |   | —  |   |
| Cash dividends paid on                        common stock                                                                            |   |                                                       | (28,367  | )        |   | (40,328  | )      |
| Cash dividends paid on                        preferred stock                                                                         |   |                                                       | (5,833   | )        |   | —  |   |
| Repurchase of common                        stock                                                                                     |   |                                                       | —  |     |   | (71,315  | )      |
| Excess tax benefits                        from share-based compensation                                                              |   |                                                       | 6        |     |   | 1,038    |   |
| Other common stock                        activity                                                                                    |   |                                                       | 1,400    |     |   | 10,209   |   |
|                                                                                                                                  |   |                                                            |          |     |        |          |   |
| Net cash provided by                        (used for) financing activities                                                           |   |                                                       | 27,870   |     |   | (220,265 | )      |
|                                                                                                                                  |   |                                                            |          |     |        |          |   |
| Net decrease in cash                        and cash equivalents                                                                      |   |                                                       | (120,197 | )        |   | (135,782 | )      |
| Cash and cash                        equivalents at beginning of year                                                                 |   |                                                       | 296,525  |     |   | 357,831  |   |
|                                                                                                                                  |   |                                                            |          |     |        |          |   |
| Cash and cash                        equivalents at end of period                                                                     |   | $                                                          | 176,328  |     | $      | 222,049  |   |
|                                                                                                                                  |   |                                                            |          |     |        |          |   |
|                                                                                                                                  |   |                                                       |     |     |   |     |   |
| **Supplemental Cash                        Flow Data**                                                                                |   |                                                       |     |     |   |     |   |
| Interest paid, net of                        amounts capitalized                                                                      |   | $                                                          | 269,204  |     | $      | 370,841  |   |
| Income tax payments,                        net                                                                                       |   |                                                       | 3,599    |     |   | 25,653   |   |
| Significant non-cash                        investing and financing transactions:                                                     |   |                                                       |     |     |   |     |   |
| Decrease in unrealized                        loss on available for sale securities                                                   |   |                                                       | 431      |     |   | 13,840   |   |
| Loans transferred from                        held for investment to held for sale                                                    |   |                                                       | 61,904   |     |   | —  |   |
| Loans transferred to                        other real estate owned                                                                   |   |                                                       | 23,882   |     |   | 6,000    |   |

See notes to            consolidated financial statements (unaudited), which are an integral part of these            statements.

4

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**THE SOUTH            FINANCIAL GROUP, INC. AND SUBSIDIARIES            Notes to Consolidated Financial Statements (unaudited)**

**Note 1 –            General**

          The            foregoing unaudited Consolidated Financial Statements and Notes are presented in            accordance with the instructions for the Securities and Exchange Commission Quarterly            Report on Form 10-Q. “TSFG” refers to The South Financial Group, Inc. and            subsidiaries, except where the context requires otherwise. The information contained in            the Consolidated Financial Statements included in TSFG’s Annual Report on Form            10-K for the year ended December 31, 2007 should be referred to in connection with the            reading of these unaudited interim Consolidated Financial Statements. The Consolidated            Balance Sheet at December 31, 2007 is derived from TSFG’s Consolidated Audited            Financial Statements, but does not include all disclosures required by accounting            principles generally accepted in the United States of America. In the opinion of            management, all adjustments necessary to present a fair statement of the results for            the interim periods have been made. All such adjustments are of a normal, recurring            nature.

*Nature of            Operations*

          TSFG            is a bank holding company headquartered in Greenville, South Carolina that offers a            broad range of financial products and services, including banking, merchant processing,            mortgage, treasury services, and wealth management (which consists of benefits            administration, insurance, retail investment, and trust and investment management).            TSFG’s banking subsidiary Carolina First Bank conducts banking operations in            South Carolina and North Carolina (as Carolina First Bank), in Florida (as Mercantile            Bank), and on the Internet (as Bank Caroline). TSFG also owns several non-bank            subsidiaries. At September 30, 2008, TSFG operated through 82 branch offices in South            Carolina, 71 in Florida, and 27 in North Carolina. In South Carolina, the branches are            primarily located in the state’s largest metropolitan areas. The Florida            operations are principally concentrated in the Jacksonville, Orlando, Tampa Bay,            Southeast Florida, and Gainesville areas. The North Carolina branches are primarily            located in the Hendersonville and Asheville areas of western North Carolina and in the            Wilmington area of eastern North Carolina.

*Accounting Estimates and            Assumptions*

          The            preparation of the Consolidated Financial Statements and accompanying notes requires            management of TSFG to make a number of estimates and assumptions relating to reported            amounts of assets and liabilities and the disclosure of contingent assets and            liabilities at the date of the Consolidated Financial Statements and the reported            amounts of revenues and expenses during the period. Actual results could differ            significantly from these estimates and assumptions.

*Preferred            Stock*

          Preferred            stock ranks senior to common shares with respect to dividends and has preference in the            event of liquidation. Preferred stock is reported in shareholders’ equity unless            it is mandatorily redeemable or it embodies an unconditional obligation that the            Company must or may settle in shares whose monetary value at inception is based solely            or predominantly on any of the following: (1) a fixed amount known at inception, (2)            variations in something other than the fair value of the Company’s equity shares,            or (3) variations inversely related to changes in the fair value of the Company’s            equity shares as prescribed in Statement of Financial Accounting Standards            (“SFAS”) No. 150, “Accounting for Certain Financial Instruments with            Characteristics of both Liabilities and Equity.” Dividends declared on preferred            stock are accounted for as a reduction in retained earnings. Issuance costs are charged            against surplus.

*Principles of            Consolidation*

          The            Consolidated Financial Statements include the accounts of The South Financial Group,            Inc. and all other entities in which it has a controlling financial interest. All            significant intercompany balances and transactions have been eliminated in            consolidation.

*Reclassifications*

          Certain            prior year amounts have been reclassified to conform to the 2008            presentations.

5

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**THE SOUTH            FINANCIAL GROUP, INC. AND SUBSIDIARIES            Notes to Consolidated Financial Statements (unaudited)**

 

*Recently Adopted Accounting            Pronouncements*

*     Fair            Value Measurements*

          SFAS            No. 157 (“SFAS 157”), “Fair Value Measurements,” defines fair            value, establishes guidelines for measuring fair value and expands disclosures            regarding fair value measurements. SFAS 157 does not require any new fair value            measurements but rather eliminates inconsistencies in guidance found in various prior            accounting pronouncements. TSFG adopted SFAS 157 for its financial assets and            liabilities on January 1, 2008 with no significant impact on its Consolidated Financial            Statements. See Note 14 for fair value disclosures. Financial Accounting Standards            Board (“FASB”) Staff Position FAS 157-2 (“FSP 157-2”) delays            the effective date of SFAS 157 for nonfinancial assets and liabilities measured at fair            value on a nonrecurring basis until fiscal years beginning after November 15, 2008. As            a result, TSFG will adopt this standard for nonfinancial assets and liabilities            effective January 1, 2009.

*     Endorsement            Split-Dollar Life Insurance Arrangements*

          In            September 2006, the Emerging Issues Task Force (“EITF”) reached a final            consensus on Issue 06-4 (“EITF 06-4”), “Accounting for Deferred            Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life            Insurance Arrangements.” EITF 06-4 stipulates that an agreement by the employer            to share a portion of the proceeds of a life insurance policy with the employee during            the postretirement period is a postretirement benefit arrangement for which a liability            must be recorded. The consensus is effective for fiscal years beginning after December            15, 2007. Entities will have the option of applying the provisions of EITF 06-4 as a            cumulative effect adjustment to the opening balance of retained earnings or            retrospectively to all prior periods. TSFG currently has several arrangements within            the scope of EITF 06-4. TSFG adopted this standard effective January 1, 2008, with a            $737,000 decrease to retained earnings.

*     Fair            Value Option for Financial Assets and Financial Liabilities*

          SFAS            No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and            Financial Liabilities,” allows an entity the irrevocable option to elect fair            value for the initial and subsequent measurement for certain financial assets and            liabilities on a contract-by-contract basis. Subsequent changes in fair value of these            financial assets and liabilities would be recognized in earnings when they occur. SFAS            159 further establishes certain additional disclosure requirements. TSFG adopted this            standard effective January 1, 2008 and elected to account for its portfolio of mortgage            loans held for sale at fair value. The impact of adoption was an increase to retained            earnings of $60,000, net of income tax of $32,000. For additional information on the            fair value option, see Note 14.

* Written Loan            Commitments Recorded at Fair Value through Earnings*

          Staff            Accounting Bulletin No. 109 (“SAB 109”), “Written Loan Commitments            Recorded at Fair Value Through Earnings,” supersedes SAB No. 105,            “Application of Accounting Principles to Loan Commitments,” and indicates            that the expected net future cash flows related to the associated servicing of the loan            should be included in the measurement of all written loan commitments that are            accounted for at fair value through earnings. TSFG adopted SAB 109 effective January 1,            2008 with no significant impact on its Consolidated Financial Statements.

*     Determining            the Fair Value of a Financial Asset When the Market for That Asset Is Not            Active*

          FASB            Staff Position FAS 157-3 (“FSP FAS 157-3”), “Determining the Fair            Value of a Financial Asset When the Market for That Asset Is Not Active”            clarifies the application of SFAS 157 in a market that is not active and expands the            guidance for estimating the present value of future cash flows for some hard-to-value            financial instruments, such as collateralized debt obligations. TSFG adopted FSP FAS            157-3 effective September 30, 2008 with no significant impact on its Consolidated            Financial Statements.

6

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**THE SOUTH            FINANCIAL GROUP, INC. AND SUBSIDIARIES            Notes to Consolidated Financial Statements (unaudited)**

*    *

*Recently Issued Accounting            Pronouncements*

*     Business            Combinations*

          SFAS            No. 141R (“SFAS 141R”), “Business Combinations,” requires an            acquirer, upon initially obtaining control of another entity, to recognize the assets,            liabilities and any non-controlling interest in the acquiree at fair value as of the            acquisition date. Contingent consideration is required to be recognized and measured at            fair value on the date of acquisition rather than at a later date when the amount of            that consideration may be determinable beyond a reasonable doubt. This fair value            approach replaces the cost-allocation process required under SFAS 141 whereby the cost            of an acquisition was allocated to the individual assets acquired and liabilities            assumed based on their estimated fair value. SFAS 141R requires acquirers to expense            acquisition-related costs as incurred rather than allocating such costs to the assets            acquired and liabilities assumed, as was previously the case under SFAS 141. Under SFAS            141R, the requirements of SFAS No. 146, “Accounting for Costs Associated with            Exit or Disposal Activities,” would have to be met in order to accrue for a            restructuring plan in purchase accounting. Pre-acquisition contingencies are to be            recognized at fair value, unless it is a non-contractual contingency that is not likely            to materialize, in which case nothing should be recognized in purchase accounting and,            instead, that contingency would be subject to the probable and estimable recognition            criteria of SFAS No. 5, “Accounting for Contingencies.” SFAS 141R is            effective for business combinations closing in fiscal years beginning after December            15, 2008. TSFG expects SFAS 141R to have a significant impact on its accounting for            business combinations, if any, closing on or after January 1, 2009.

*     Noncontrolling            Interests in Consolidated Financial Statements*

          SFAS            No. 160 (“SFAS 160”), “Noncontrolling Interests in Consolidated            Financial Statements, an amendment of ARB No. 51,” establishes accounting and            reporting standards for the noncontrolling interest in a subsidiary and for the            deconsolidation of a subsidiary. SFAS 160 clarifies that a non-controlling interest in            a subsidiary, which is sometimes referred to as minority interest, is an ownership            interest in the consolidated entity that should be reported as a component of equity in            the consolidated financial statements. Among other requirements, SFAS 160 requires            consolidated net income to be reported at amounts that include the amounts attributable            to both the parent and the noncontrolling interest. It also requires disclosure, on the            face of the consolidated income statement, of the amounts of consolidated net income            attributable to the parent and to the noncontrolling interest. SFAS 160 is effective            for fiscal years beginning after December 15, 2008, and TSFG does not expect the            adoption of this standard to have a significant impact on its Consolidated Financial            Statements.

*Disclosures about Derivative            Instruments and Hedging Activities*

          SFAS            No. 161 (“SFAS 161”), “Disclosures about Derivative Instruments and            Hedging Activities, an Amendment of FASB Statement No. 133,” amends SFAS 133,            “Accounting for Derivative Instruments and Hedging Activities,” to amend            and expand the disclosure requirements of SFAS 133 to provide greater transparency            about (i) how and why an entity uses derivative instruments, (ii) how derivative            instruments and related hedge items are accounted for under SFAS 133 and its related            interpretations, and (iii) how derivative instruments and related hedged items affect            an entity’s financial position, results of operations and cash flows. To meet            those objectives, SFAS 161 requires qualitative disclosures about objectives and            strategies for using derivatives, quantitative disclosures about fair value amounts of            gains and losses on derivative instruments and disclosures about credit-risk-related            contingent features in derivative agreements. SFAS 161 is effective for fiscal years            beginning after November 15, 2008, and TSFG does not expect adoption of this standard            to have a significant impact on its Consolidated Financial Statements.

*     Determining            Whether Instruments Granted in Share-Based Payment Transactions Are Participating            Securities*

          FASB            Staff Position EITF 03-6-1 (“FSP EITF 03-6-1”), “Determining Whether            Instruments Granted in Share-Based Payment Transactions Are Participating            Securities,” states that unvested share-based payment awards that contain            nonforfeitable rights to dividends or dividend equivalents are participating securities            and shall be included in the computation of earnings per share pursuant to the            two-class method. FSP EITF 03-6-1 is effective for fiscal years beginning after            December 15, 2008, and TSFG does not expect adoption of this standard to have a            significant impact on its Consolidated Financial Statements, although the Company            continues to evaluate the effects of adoption.

7

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**THE SOUTH            FINANCIAL GROUP, INC. AND SUBSIDIARIES            Notes to Consolidated Financial Statements (unaudited)**

*     *

*     Determination            of the Useful Life of Intangible Assets*

          FASB            Staff Position FAS 142-3 (“FSP FAS 142-3”), “Determination of the            Useful Life of Intangible Assets,” amends the factors that should be considered            in developing renewal or extension assumptions used to determine the useful life of a            recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible            Assets.” FSP FAS 142-3 is effective for fiscal years beginning after December 15,            2008, and TSFG does not expect adoption of this standard to have a significant impact            on its Consolidated Financial Statements.

8

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**THE SOUTH            FINANCIAL GROUP, INC. AND SUBSIDIARIES            Notes to Consolidated Financial Statements (unaudited)**

**Note 2 – Noninterest            Income and Noninterest Expense**

          The            following presents the details for noninterest income and noninterest expense (in            thousands):

|                                                                |   |                                                                               |    |                                                                              |   |     |   |     |    |   |   |    |   |
|---------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|---------|-----------------------------------------------------------------------------------|--------|----------|--------|----------|---------|--------|--------|---------|--------|
|                                                                |   | **Three Months                        Ended                        September 30,** |    | **Nine Months                        Ended                        September 30,** |   |
|                                                                |   |                                                                                    |    |                                                                                   |   |
|                                                                |   | **2008**                                                                           |    | **2007**                                                                          |   | **2008** |   | **2007** |    |
|                                                                |   |                                                                                    |         |                                                                              |        |          |   |          |         |   |        |         |   |
| **Noninterest                        Income**                       |   |                                                                               |    |                                                                              |   |     |   |     |    |   |   |    |   |
| Service charges on                        deposit accounts          |   | $                                                                                  | 11,376  |                                                                              | $      | 11,213   |   | $        | 32,791  |   | $      | 33,049  |   |
| Debit card income,                        net (1)                   |   |                                                                               | 2,006   |                                                                              |   | 1,838    |   |     | 5,938   |   |   | 5,244   |   |
| Customer service fee                        income                  |   |                                                                               | 1,425   |                                                                              |   | 1,533    |   |     | 4,114   |   |   | 4,226   |   |
|                                                                |   |                                                                                    |         |                                                                              |        |          |   |          |         |   |        |         |   |
| Total customer fee                        income                    |   |                                                                               | 14,807  |                                                                              |   | 14,584   |   |     | 42,843  |   |   | 42,519  |   |
|                                                                |   |                                                                                    |         |                                                                              |        |          |   |          |         |   |        |         |   |
| Insurance                        income                             |   |                                                                               | 2,368   |                                                                              |   | 2,839    |   |     | 7,816   |   |   | 9,123   |   |
| Retail investment                        services, net (2)          |   |                                                                               | 2,294   |                                                                              |   | 2,064    |   |     | 5,960   |   |   | 5,799   |   |
| Trust and investment                        management income       |   |                                                                               | 1,728   |                                                                              |   | 1,642    |   |     | 5,251   |   |   | 4,970   |   |
| Benefits                        administration fees                 |   |                                                                               | 813     |                                                                              |   | 889      |   |     | 2,303   |   |   | 2,380   |   |
|                                                                |   |                                                                                    |         |                                                                              |        |          |   |          |         |   |        |         |   |
| Total wealth management                        income               |   |                                                                               | 7,203   |                                                                              |   | 7,434    |   |     | 21,330  |   |   | 22,272  |   |
|                                                                |   |                                                                                    |         |                                                                              |        |          |   |          |         |   |        |         |   |
| Bank-owned life                        insurance income             |   |                                                                               | 2,881   |                                                                              |   | 2,974    |   |     | 8,938   |   |   | 10,279  |   |
| Mortgage banking                        income                      |   |                                                                               | 879     |                                                                              |   | 834      |   |     | 4,222   |   |   | 4,780   |   |
| Merchant processing                        income, net              |   |                                                                               | 916     |                                                                              |   | 928      |   |     | 2,582   |   |   | 2,434   |   |
| Gain (loss) on                        certain derivative activities |   |                                                                               | (199    | )                                                                                 |   | 198      |   |     | 49      |   |   | (1,202  | )      |
| Gain (loss) on                        securities                    |   |                                                                               | (725    | )                                                                                 |   | 287      |   |     | 1,547   |   |   | (3,335  | )      |
| Gain on Visa IPO                        share redemption            |   |                                                                               | — |                                                                              |   | —  |   |     | 1,904   |   |   | — |   |
| Other                                                               |   |                                                                               | 2,138   |                                                                              |   | 2,678    |   |     | 7,591   |   |   | 6,823   |   |
|                                                                |   |                                                                                    |         |                                                                              |        |          |   |          |         |   |        |         |   |
| Total noninterest                        income                     |   | $                                                                                  | 27,900  |                                                                              | $      | 29,917   |   | $        | 91,006  |   | $      | 84,570  |   |
|                                                                |   |                                                                                    |         |                                                                              |        |          |   |          |         |   |        |         |   |
| **Noninterest                        Expenses**                     |   |                                                                               |    |                                                                              |   |     |   |     |    |   |   |    |   |
| Salaries and                        wages                           |   | $                                                                                  | 42,321  |                                                                              | $      | 34,535   |   | $        | 115,609 |   | $      | 106,171 |   |
| Employee                        benefits                            |   |                                                                               | 9,252   |                                                                              |   | 8,862    |   |     | 27,663  |   |   | 27,866  |   |
| Occupancy                                                           |   |                                                                               | 9,770   |                                                                              |   | 8,723    |   |     | 27,365  |   |   | 25,876  |   |
| Furniture and                        equipment                      |   |                                                                               | 6,991   |                                                                              |   | 6,543    |   |     | 20,107  |   |   | 19,491  |   |
| Professional                        services                        |   |                                                                               | 4,573   |                                                                              |   | 4,278    |   |     | 11,679  |   |   | 13,295  |   |
| Regulatory                        assessments                       |   |                                                                               | 3,020   |                                                                              |   | 300      |   |     | 7,471   |   |   | 1,164   |   |
| Advertising and                        business development         |   |                                                                               | 2,114   |                                                                              |   | 1,443    |   |     | 7,316   |   |   | 5,347   |   |
| Loan collection and                        monitoring               |   |                                                                               | 4,112   |                                                                              |   | 710      |   |     | 7,249   |   |   | 1,889   |   |
| Amortization of                        intangibles                  |   |                                                                               | 1,474   |                                                                              |   | 1,907    |   |     | 4,721   |   |   | 6,044   |   |
| Telecommunications                                                  |   |                                                                               | 1,628   |                                                                              |   | 1,404    |   |     | 4,527   |   |   | 4,215   |   |
| (Gain) loss on early                        extinguishment of debt  |   |                                                                               | (125    | )                                                                                 |   | 1,299    |   |     | 339     |   |   | 1,530   |   |
| Branch acquisition                        and conversion costs      |   |                                                                               | — |                                                                              |   | —  |   |     | 731     |   |   | — |   |
| Visa-related                        litigation                      |   |                                                                               | — |                                                                              |   | —  |   |     | (863    | )      |   | — |   |
| Goodwill                        impairment                          |   |                                                                               | — |                                                                              |   | —  |   |     | 188,431 |   |   | — |   |
| Other                                                               |   |                                                                               | 8,262   |                                                                              |   | 8,735    |   |     | 26,846  |   |   | 27,479  |   |
|                                                                |   |                                                                                    |         |                                                                              |        |          |   |          |         |   |        |         |   |
| Total noninterest                        expenses                   |   | $                                                                                  | 93,392  |                                                                              | $      | 78,739   |   | $        | 449,191 |   | $      | 240,367 |   |
|                                                                |   |                                                                                    |         |                                                                              |        |          |   |          |         |   |        |         |   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | In fourth quarter 2007,                        TSFG began presenting its debit card income net of related expenses. Debit                        card expense totaled (in thousands) $740 and $2,083, respectively, for the                        three and nine months ended September 30, 2008, and $607 and $1,781,                        respectively, for the three and nine months ended September 30, 2007.                        Amounts presented for prior periods have been reclassified to conform to                        the current presentation.                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (2)    | In fourth quarter 2007,                        TSFG began presenting its retail investment services income net of certain                        revenue sharing arrangements with a third party. Such amounts for these                        arrangements totaled (in thousands) $288 and $749, respectively, for the                        three and nine months ended September 30, 2008, and $249 and $754,                        respectively, for the three and nine months ended September 30, 2007.                        Amounts presented for prior periods have been reclassified to conform to                        the current presentation. |

9

----

**THE SOUTH            FINANCIAL GROUP, INC. AND SUBSIDIARIES            Notes to Consolidated Financial Statements (unaudited)**

**Note****3****–            Accumulated Other Comprehensive Income (Loss)**

          The            following summarizes accumulated other comprehensive income (loss), net of tax (in            thousands):

|                                                                                              |   |                                                                               |    |                                                                              |   |     |   |     |     |   |   |    |   |
|---------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|---------|-----------------------------------------------------------------------------------|--------|----------|--------|----------|----------|--------|--------|---------|--------|
|                                                                                              |   | **Three Months                        Ended                        September 30,** |    | **Nine Months                        Ended                        September 30,** |   |
|                                                                                              |   |                                                                                    |    |                                                                                   |   |
|                                                                                              |   | **2008**                                                                           |    | **2007**                                                                          |   | **2008** |   | **2007** |     |
|                                                                                              |   |                                                                                    |         |                                                                              |        |          |   |          |          |   |        |         |   |
| **Net Unrealized                        Losses on Securities Available for Sale**                 |   |                                                                               |    |                                                                              |   |     |   |     |     |   |   |    |   |
| Balance at beginning                        of period                                             |   | $                                                                                  | (34,287 | )                                                                                 | $      | (59,565  | )      | $        | (30,765  | )      | $      | (47,378 | )      |
| Other comprehensive                        income (loss):                                         |   |                                                                               |    |                                                                              |   |     |   |     |     |   |   |    |   |
| Unrealized holding                        gains (losses) arising during the period                |   |                                                                               | 4,580   |                                                                              |   | 33,088   |   |     | (1,271   | )      |   | 10,509  |   |
| Income tax benefit                        (expense)                                               |   |                                                                               | (1,708  | )                                                                                 |   | (12,263  | )      |     | 425      |   |   | (4,013  | )      |
| Less: Reclassification                        adjustment for losses included in net (loss) income |   |                                                                               | 1,664   |                                                                              |   | 36       |   |     | 1,965    |   |   | 3,331   |   |
| Income tax expense                        (benefit)                                               |   |                                                                               | (583    | )                                                                                 |   | (13      | )      |     | (688     | )      |   | (1,166  | )      |
|                                                                                              |   |                                                                                    |         |                                                                              |        |          |   |          |          |   |        |         |   |
|                                                                                              |   |                                                                               | 3,953   |                                                                              |   | 20,848   |   |     | 431      |   |   | 8,661   |   |
|                                                                                              |   |                                                                                    |         |                                                                              |        |          |   |          |          |   |        |         |   |
| Balance at end of                        period                                                   |   |                                                                               | (30,334 | )                                                                                 |   | (38,717  | )      |     | (30,334  | )      |   | (38,717 | )      |
|                                                                                              |   |                                                                                    |         |                                                                              |        |          |   |          |          |   |        |         |   |
| **Net Unrealized                        Gains (Losses) on Cash Flow Hedges**                      |   |                                                                               |    |                                                                              |   |     |   |     |     |   |   |    |   |
| Balance at beginning                        of period                                             |   |                                                                               | 16,602  |                                                                              |   | (3,806   | )      |     | 14,956   |   |   | (726    | )      |
| Other comprehensive                        income (loss):                                         |   |                                                                               |    |                                                                              |   |     |   |     |     |   |   |    |   |
| Unrealized gain on                        change in fair values                                   |   |                                                                               | 101     |                                                                              |   | 16,046   |   |     | 2,633    |   |   | 11,848  |   |
| Income tax                        expense                                                         |   |                                                                               | (36     | )                                                                                 |   | (5,616   | )      |     | (922     | )      |   | (4,146  | )      |
| Less: Amortization of                        terminated swaps                                     |   |                                                                               | — |                                                                              |   | (9       | )      |     | —  |   |   | (550    | )      |
| Income tax                        expense                                                         |   |                                                                               | — |                                                                              |   | 3        |   |     | —  |   |   | 192     |   |
|                                                                                              |   |                                                                                    |         |                                                                              |        |          |   |          |          |   |        |         |   |
|                                                                                              |   |                                                                               | 65      |                                                                              |   | 10,424   |   |     | 1,711    |   |   | 7,344   |   |
|                                                                                              |   |                                                                                    |         |                                                                              |        |          |   |          |          |   |        |         |   |
| Balance at end of                        period                                                   |   |                                                                               | 16,667  |                                                                              |   | 6,618    |   |     | 16,667   |   |   | 6,618   |   |
|                                                                                              |   |                                                                                    |         |                                                                              |        |          |   |          |          |   |        |         |   |
|                                                                                              |   | $                                                                                  | (13,667 | )                                                                                 | $      | (32,099  | )      | $        | (13,667  | )      | $      | (32,099 | )      |
|                                                                                              |   |                                                                                    |         |                                                                              |        |          |   |          |          |   |        |         |   |
|                                                                                              |
| Total other                        comprehensive income                                           |   | $                                                                                  | 4,018   |                                                                              | $      | 31,272   |   | $        | 2,142    |   | $      | 16,005  |   |
| Net (loss)                        income                                                          |   |                                                                               | (24,955 | )                                                                                 |   | 25,839   |   |     | (237,179 | )      |   | 64,287  |   |
|                                                                                              |   |                                                                                    |         |                                                                              |        |          |   |          |          |   |        |         |   |
| Comprehensive (loss)                        income                                                |   | $                                                                                  | (20,937 | )                                                                                 | $      | 57,111   |   | $        | (235,037 | )      | $      | 80,292  |   |
|                                                                                              |   |                                                                                    |         |                                                                              |        |          |   |          |          |   |        |         |   |

**Note 4 – Branch            Acquisition**

          In            June 2008, Carolina First Bank acquired five branch offices (including related loans            and deposits) in Florida from an unrelated financial institution. In connection with            this branch acquisition, the Company acquired loans of $6.4 million, premises and            equipment of $13.4 million, and deposits totaling $24.5 million, and recorded a core            deposit intangible asset of $655,000. The core deposit intangible asset is being            amortized over 5 years using an accelerated method.

10

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**THE SOUTH            FINANCIAL GROUP, INC. AND SUBSIDIARIES            Notes to Consolidated Financial Statements (unaudited)**

**Note 5****– Gross            Unrealized Losses on Investment Securities**

          Gross            unrealized losses on investment securities and the fair value of the related            securities, aggregated by investment category and length of time that individual            securities have been in an unrealized loss position, were as follows (in            thousands):

|                                                            |   |                                           |      |                                           |   |                                  |   |                                         |    |                                  |   |                                         |   |   |      |   |   |   |   |
|-----------------------------------------------------------------|--------|------------------------------------------------|-----------|------------------------------------------------|--------|---------------------------------------|--------|----------------------------------------------|---------|---------------------------------------|--------|----------------------------------------------|--------|--------|-----------|--------|--------|--------|--------|
|                                                            |   | **September 30,                        2008**  |      |
|                                                            |   |                                                |      |
|                                                            |   | **Less than 12                        Months** |      | **12                        Months or Longer** |   | **Total**                             |   |
|                                                            |   |                                                |      |                                                |   |                                       |   |
|                                                            |   | **Fair                        Value**          |      | **Unrealized                        Losses**   |   | **Fair                        Value** |   | **Unrealized                        Losses** |    | **Fair                        Value** |   | **Unrealized                        Losses** |   |
|                                                            |   |                                                |      |                                                |   |                                       |   |                                              |    |                                       |   |                                              |   |
| **Securities                        Available for Sale**        |   |                                           |      |                                           |   |                                  |   |                                         |    |                                  |   |                                         |   |   |      |   |   |   |   |
| U.S. Government                        agencies                 |   | $                                              | 301,557   |                                           | $      | 4,387                                 |   | $                                            | — |                                  | $      | —                                      |   | $      | 301,557   |   | $      | 4,387  |   |
| Agency mortgage-backed                        securities        |   |                                           | 611,009   |                                           |   | 10,447                                |   |                                         | 513,148 |                                  |   | 34,691                                       |   |   | 1,124,157 |   |   | 45,138 |   |
| Private label                        mortgage-backed securities |   |                                           | 15,152    |                                           |   | 445                                   |   |                                         | — |                                  |   | —                                      |   |   | 15,152    |   |   | 445    |   |
| State and                        municipals                     |   |                                           | 97,781    |                                           |   | 711                                   |   |                                         | 2,966   |                                  |   | 127                                          |   |   | 100,747   |   |   | 838    |   |
| Corporate                        bonds                          |   |                                           | 9,855     |                                           |   | 38                                    |   |                                         | — |                                  |   | —                                      |   |   | 9,855     |   |   | 38     |   |
| Equity                        investments                       |   |                                           | —   |                                           |   | —                               |   |                                         | 820     |                                  |   | 200                                          |   |   | 820       |   |   | 200    |   |
|                                                            |   |                                                |           |                                           |        |                                       |   |                                              |         |                                  |        |                                              |   |        |           |   |        |        |   |
|                                                            |   | $                                              | 1,035,354 |                                           | $      | 16,028                                |   | $                                            | 516,934 |                                  | $      | 35,018                                       |   | $      | 1,552,288 |   | $      | 51,046 |   |
|                                                            |   |                                                |           |                                           |        |                                       |   |                                              |         |                                  |        |                                              |   |        |           |   |        |        |   |
|                                                            |
| **Securities Held                        to Maturity**          |   |                                           |      |                                           |   |                                  |   |                                         |    |                                  |   |                                         |   |   |      |   |   |   |   |
| State and                        municipals                     |   | $                                              | 5,604     |                                           | $      | 57                                    |   | $                                            | 1,287   |                                  | $      | 26                                           |   | $      | 6,891     |   | $      | 83     |   |
|                                                            |   |                                                |           |                                           |        |                                       |   |                                              |         |                                  |        |                                              |   |        |           |   |        |        |   |

|                                                     |   |                                           |    |                                           |   |                                  |   |                                         |      |                                  |   |                                         |   |   |      |   |   |   |   |
|----------------------------------------------------------|--------|------------------------------------------------|---------|------------------------------------------------|--------|---------------------------------------|--------|----------------------------------------------|-----------|---------------------------------------|--------|----------------------------------------------|--------|--------|-----------|--------|--------|--------|--------|
|                                                     |   | **December 31,                        2007**   |    |
|                                                     |   |                                                |    |
|                                                     |   | **Less than 12                        Months** |    | **12                        Months or Longer** |   | **Total**                             |   |
|                                                     |   |                                                |    |                                                |   |                                       |   |
|                                                     |   | **Fair                        Value**          |    | **Unrealized                        Losses**   |   | **Fair                        Value** |   | **Unrealized                        Losses** |      | **Fair                        Value** |   | **Unrealized                        Losses** |   |
|                                                     |   |                                                |    |                                                |   |                                       |   |                                              |      |                                       |   |                                              |   |
| **Securities                        Available for Sale** |   |                                           |    |                                           |   |                                  |   |                                         |      |                                  |   |                                         |   |   |      |   |   |   |   |
| U.S. Government                        agencies          |   | $                                              | — |                                           | $      | —                               |   | $                                            | 51,775    |                                  | $      | 230                                          |   | $      | 51,775    |   | $      | 230    |   |
| Agency mortgage-backed                        securities |   |                                           | 67,150  |                                           |   | 512                                   |   |                                         | 1,003,886 |                                  |   | 49,702                                       |   |   | 1,071,036 |   |   | 50,214 |   |
| State and                        municipals              |   |                                           | 4,641   |                                           |   | 3                                     |   |                                         | 157,857   |                                  |   | 1,105                                        |   |   | 162,498   |   |   | 1,108  |   |
| Corporate                        bonds                   |   |                                           | 4,792   |                                           |   | 617                                   |   |                                         | —   |                                  |   | —                                      |   |   | 4,792     |   |   | 617    |   |
| Equity                        investments                |   |                                           | 3,044   |                                           |   | 935                                   |   |                                         | —   |                                  |   | —                                      |   |   | 3,044     |   |   | 935    |   |
|                                                     |   |                                                |         |                                           |        |                                       |   |                                              |           |                                  |        |                                              |   |        |           |   |        |        |   |
|                                                     |   | $                                              | 79,627  |                                           | $      | 2,067                                 |   | $                                            | 1,213,518 |                                  | $      | 51,037                                       |   | $      | 1,293,145 |   | $      | 53,104 |   |
|                                                     |   |                                                |         |                                           |        |                                       |   |                                              |           |                                  |        |                                              |   |        |           |   |        |        |   |
| **Securities Held                        to Maturity**   |   |                                           |    |                                           |   |                                  |   |                                         |      |                                  |   |                                         |   |   |      |   |   |   |   |
| State and                        municipals              |   | $                                              | 813     |                                           | $      | 1                                     |   | $                                            | 15,136    |                                  | $      | 117                                          |   | $      | 15,949    |   | $      | 118    |   |
|                                                     |   |                                                |         |                                           |        |                                       |   |                                              |           |                                  |        |                                              |   |        |           |   |        |        |   |

          At            September 30, 2008, TSFG had 467 individual investments that were in an unrealized loss            position. The unrealized losses summarized above, except for equity investments, were            primarily attributable to increases in interest rates, rather than deterioration in            credit quality. The majority of these securities are government or agency securities            and, therefore, pose minimal credit risk. TSFG believes it has the ability and intent            to hold these debt securities until a market price recovery or maturity. Therefore, at            September 30, 2008, these investments are not considered impaired on an            other-than-temporary basis.

          In            second quarter 2008, TSFG recorded $927,000 in other-than-temporary impairment on its            corporate bond portfolio due to a change in intent to hold the securities until a            recovery in value based on a change in investment strategy. In third quarter 2008, TSFG            sold approximately $8.4 million of corporate bonds and recognized a gain on sale of            approximately $129,000. In addition, in third quarter 2008, TSFG recorded $1.8 million            in other-than-temporary impairment on certain community bank-related investments            included in the equity investment portfolio. In the nine months ended September 30,            2007, TSFG recorded $2.9 million in other-than-temporary impairment on its corporate            bond portfolio.

          TSFG            also invests in limited partnerships, limited liability companies (“LLCs”)            and other privately held companies. At September 30, 2008, TSFG’s investment in            these entities, included in other assets, totaled $16.9 million, of which $4.5 million            were accounted for under the cost method and $12.4 million were accounted for under the            equity method. In the nine months ended September 30, 2008, TSFG recorded $589,000 in            other-than-temporary impairment

11

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**THE SOUTH            FINANCIAL GROUP, INC. AND SUBSIDIARIES            Notes to Consolidated Financial Statements (unaudited)**

on these            investments, although none was recorded in third quarter 2008. In the three and nine            months ended September 30, 2007, TSFG recorded $363,000 and $705,000 in            other-than-temporary impairment on these investments.

**Note****6****–****Loans**

          The            following is a summary of loans held for investment by category (in            thousands):

|                                                                      |   |                                          |       |                                         |   |       |   |
|---------------------------------------------------------------------------|--------|-----------------------------------------------|------------|----------------------------------------------|--------|------------|--------|
|                                                                      |   | **September 30,                        2008** |       | **December 31,                        2007** |   |
|                                                                      |   |                                               |       |                                              |   |
| Commercial,                        financial and agricultural             |   | $                                             | 2,333,390  |                                         | $      | 2,309,294  |   |
| Real estate -                        construction                         |   |                                          | 1,710,837  |                                         |   | 1,763,365  |   |
| Real estate -                        residential mortgages (1-4 family)   |   |                                          | 1,538,160  |                                         |   | 1,390,729  |   |
| Commercial secured                        by real estate                  |   |                                          | 3,941,121  |                                         |   | 3,946,440  |   |
| Consumer                                                                  |   |                                          | 776,132    |                                         |   | 803,592    |   |
|                                                                      |   |                                               |            |                                         |        |            |   |
| Loans held for                        investment                          |   | $                                             | 10,299,640 |                                         | $      | 10,213,420 |   |
|                                                                      |   |                                               |            |                                         |        |            |   |
|                                                                      |   |
| Included in the                        above:                             |   |                                          |       |                                         |   |       |   |
| Nonaccrual                        loans                                   |   | $                                             | 237,812    |                                         | $      | 80,191     |   |
|                                                                      |   |                                               |            |                                         |        |            |   |
| Loans past due 90                        days and still accruing interest |   | $                                             | 12,899     |                                         | $      | 5,349      |   |
|                                                                      |   |                                               |            |                                         |        |            |   |

          During            the three and nine months ended September 30, 2008, TSFG transferred loans with an            unpaid principal balance totaling $71.7 million and $111.7 million, respectively, from            the held for investment portfolio to the held for sale portfolio, and charged-off $28.1            million and $49.8 million, respectively, of these loans against the allowance for loan            losses. Of these loans, $38.7 million (net of charge-offs) were sold, leaving $23.2            million (net of charge-offs) on the balance sheet in loans held for sale at September            30, 2008, of which $22.6 million are considered nonperforming loans.

          In            accordance with SFAS No. 114 (“SFAS 114”), “Accounting by Creditors            for Impairment of a Loan,” loans are considered to be impaired when, in            management’s judgment and based on current information, the full collection of            principal and interest becomes doubtful. A loan is also considered impaired if its            terms are modified in a troubled debt restructuring. The following table summarizes            information on impaired loans (in thousands):

|                                              |   |                                                                                                                         |    |                                                                                                                 |   |   |   |
|---------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------|---------|----------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
|                                              |   | **At                        and For the                        Nine Months Ended                        September 30, 2008** |    | **At                        and For the                        Year Ended                        December 31, 2007** |   |
|                                              |   |                                                                                                                              |    |                                                                                                                      |   |
| Impaired                        loans             |   | $                                                                                                                            | 198,018 |                                                                                                                 | $      | 68,102 |   |
| Related                        allowance          |   |                                                                                                                         | 29,911  |                                                                                                                 |   | 11,340 |   |
| Interest income                        recognized |   |                                                                                                                         | 44      |                                                                                                                 |   | 59     |   |
| Foregone                        interest          |   |                                                                                                                         | 11,416  |                                                                                                                 |   | 3,437  |   |

          At            September 30, 2008 and December 31, 2007, impaired loans totaling $42.9 million and            $32.2 million, respectively, had a specific allowance of zero.

12

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**THE SOUTH            FINANCIAL GROUP, INC. AND SUBSIDIARIES            Notes to Consolidated Financial Statements (unaudited)**

**Note 7 – Allowance for            Credit Losses**

          The            allowance for loan losses, reserve for unfunded lending commitments, and allowance for            credit losses are presented below (in thousands):

|                                                                |   |                                                                                                                    |     |                                                                                                            |   |     |   |   |    |   |
|---------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------|----------|-----------------------------------------------------------------------------------------------------------------|--------|----------|--------|--------|---------|--------|
|                                                                |   | **At                        and For the                        Nine Months                        Ended September 30,** |     | **At                        and For the                        Year Ended                        December 31,** |   |
|                                                                |   |                                                                                                                         |     |                                                                                                            |
|                                                                |   | **2008**                                                                                                                |     | **2007**                                                                                                        |   | **2007** |   |
|                                                                |   |                                                                                                                         |     |                                                                                                                 |   |          |   |
| **Allowance for                        loan losses**                |   |                                                                                                                    |     |                                                                                                            |   |     |   |   |    |   |
| Balance at beginning                        of period               |   | $                                                                                                                       | 126,427  |                                                                                                            | $      | 111,663  |   | $      | 111,663 |   |
| Provision for loan                        losses                    |   |                                                                                                                    | 221,679  |                                                                                                            |   | 36,104   |   |   | 67,325  |   |
| Loans                        charged-off                            |   |                                                                                                                    | (152,664 | )                                                                                                               |   | (34,159  | )      |   | (59,408 | )      |
| Recoveries of loans                        previously charged-off   |   |                                                                                                                    | 5,306    |                                                                                                            |   | 5,253    |   |   | 6,847   |   |
|                                                                |   |                                                                                                                         |          |                                                                                                            |        |          |   |        |         |   |
| Balance at end of                        period                     |   | $                                                                                                                       | 200,748  |                                                                                                            | $      | 118,861  |   | $      | 126,427 |   |
|                                                                |   |                                                                                                                         |          |                                                                                                            |        |          |   |        |         |   |
|                                                                |
| **Reserve for                        unfunded lending commitments** |   |                                                                                                                    |     |                                                                                                            |   |     |   |   |    |   |
| Balance at beginning                        of year                 |   | $                                                                                                                       | 2,268    |                                                                                                            | $      | 1,025    |   | $      | 1,025   |   |
| Provision for                        unfunded lending commitments   |   |                                                                                                                    | (16      | )                                                                                                               |   | 538      |   |   | 1,243   |   |
|                                                                |   |                                                                                                                         |          |                                                                                                            |        |          |   |        |         |   |
| Balance at end of                        period                     |   | $                                                                                                                       | 2,252    |                                                                                                            | $      | 1,563    |   | $      | 2,268   |   |
|                                                                |   |                                                                                                                         |          |                                                                                                            |        |          |   |        |         |   |
|                                                                |
| **Allowance for                        credit losses**              |   |                                                                                                                    |     |                                                                                                            |   |     |   |   |    |   |
| Balance at beginning                        of year                 |   | $                                                                                                                       | 128,695  |                                                                                                            | $      | 112,688  |   | $      | 112,688 |   |
| Provision for credit                        losses                  |   |                                                                                                                    | 221,663  |                                                                                                            |   | 36,642   |   |   | 68,568  |   |
| Loans                        charged-off                            |   |                                                                                                                    | (152,664 | )                                                                                                               |   | (34,159  | )      |   | (59,408 | )      |
| Recoveries of loans                        previously charged-off   |   |                                                                                                                    | 5,306    |                                                                                                            |   | 5,253    |   |   | 6,847   |   |
|                                                                |   |                                                                                                                         |          |                                                                                                            |        |          |   |        |         |   |
| Balance at end of                        period                     |   | $                                                                                                                       | 203,000  |                                                                                                            | $      | 120,424  |   | $      | 128,695 |   |
|                                                                |   |                                                                                                                         |          |                                                                                                            |        |          |   |        |         |   |

**Note 8 –            Goodwill**

          The            following summarizes the changes in the carrying amount of goodwill related to each of            TSFG’s business segments (in thousands) for the period ended September 30,            2008:

|                                                                     |   |                                                                  |    |                                                                  |   |                                    |   |      |     |      |   |    |   |   |     |   |
|--------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|---------|-----------------------------------------------------------------------|--------|-----------------------------------------|--------|-----------|----------|-----------|--------|---------|--------|--------|----------|--------|
|                                                                     |   | **South                        Carolina                        Bank** |    | **North                        Carolina                        Bank** |   | **Florida                        Bank** |   | **Other** |     | **Total** |   |
|                                                                     |   |                                                                       |    |                                                                       |   |                                         |   |           |     |           |   |
| Balance, December 31,                        2007                        |   | $                                                                     | 119,267 |                                                                  | $      | 87,961                                  |   | $         | 440,538  |      | $      | 3,237   |   | $      | 651,003  |   |
| Reclassification for                        change in operating segments |   |                                                                  | (3,085  | )                                                                     |   | (343                                    | )      |      | (12,651  | )         |   | 16,079  |   |   | —  |   |
|                                                                     |   |                                                                       |         |                                                                  |        |                                         |   |           |          |      |        |         |   |        |          |   |
| Revised balance,                        December 31, 2007                |   |                                                                  | 116,182 |                                                                  |   | 87,618                                  |   |      | 427,887  |      |   | 19,316  |   |   | 651,003  |   |
| Goodwill impairment                        charge                        |   |                                                                  | — |                                                                  |   | —                                 |   |      | (188,431 | )         |   | — |   |   | (188,431 | )      |
| Purchase accounting                        adjustments                   |   |                                                                  | — |                                                                  |   | —                                 |   |      | (1,838   | )         |   | 724     |   |   | (1,114   | )      |
|                                                                     |   |                                                                       |         |                                                                  |        |                                         |   |           |          |      |        |         |   |        |          |   |
| Balance, September 30,                        2008                       |   | $                                                                     | 116,182 |                                                                  | $      | 87,618                                  |   | $         | 237,618  |      | $      | 20,040  |   | $      | 461,458  |   |
|                                                                     |   |                                                                       |         |                                                                  |        |                                         |   |           |          |      |        |         |   |        |          |   |

          Effective            January 1, 2008, TSFG changed its operating segments to exclude insurance agencies from            the geographic banking segments. The insurance line of business is now included in            “Other” (see Note 16). As a result, the goodwill balance as of December 31,            2007 has been reclassified for comparability.

          In            accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”            (“SFAS 142”), TSFG evaluates its goodwill annually for each reporting unit            as of June 30th. However, the acceleration of credit deterioration in            Florida prompted TSFG to perform an interim impairment evaluation of a significant            portion of the recorded goodwill as of March 31, 2008. As a result of this evaluation,            during first quarter 2008, TSFG recognized goodwill impairment in the Florida banking            segment primarily due to increased projected credit costs and a related decrease in            projected loan

13

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**THE SOUTH            FINANCIAL GROUP, INC. AND SUBSIDIARIES            Notes to Consolidated Financial Statements (unaudited)**

growth, as well            as changes in the measurement of segment profitability. The goodwill impairment charge            of $188.4 million was recorded in noninterest expense in the consolidated statements of            income in first quarter 2008. The fair value of the Florida reporting unit evaluated            for impairment was determined primarily using discounted cash flow models based on            internal forecasts and, to a lesser extent, market-based trading and transaction            multiples.

          The            annual impairment evaluation as of June 30, 2008 and a subsequent interim impairment            evaluation as of September 30, 2008 indicated that no additional impairment charge was            required, and there have been no events or circumstances since quarter-end indicating            additional impairment.

**Note 9 – Derivative            Financial Instruments and Hedging Activities**

          The            fair value of TSFG’s derivative assets and liabilities and their related notional            amounts (in thousands) are presented below.

|                                                                          |   |                                          |   |                                         |   |                                  |      |                                       |          |   |   |   |   |   |    |   |   |      |   |
|-------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|----------------------------------------------|--------|---------------------------------------|-----------|--------------------------------------------|---------------|--------|--------|--------|--------|--------|---------|--------|--------|-----------|--------|
|                                                                          |   | **September 30,                        2008** |   | **December 31,                        2007** |   |
|                                                                          |   |                                               |   |                                              |   |
|                                                                          |   | **Fair                        Value**         |   | **Notional                        Amount**   |   | **Fair                        Value** |      | **Notional                        Amount** |          |
|                                                                          |   |                                               |   |                                         |        |                                  |      |
|                                                                          |   | **Asset**                                     |   | **Liability**                                |   |                                  | **Asset** |                                       | **Liability** |   |   |
|                                                                          |   |                                               |   |                                              |   |                                       |      |                                            |          |        |   |        |   |
| **Cash Flow                        Hedges**                                   |   |                                          |   |                                         |   |                                  |      |                                       |          |   |   |   |   |   |    |   |   |      |   |
| Interest rate swaps                        associated with lending activities |   | $                                             | 22,069 |                                         | $      | 976                                   |      | $                                          | 1,085,000     |   | $      | 20,114 |   | $      | — |   | $      | 830,000   |   |
| Interest rate floor                        associated with lending activities |   |                                          | 5,531  |                                         |   | —                               |      |                                       | 200,000       |   |   | 4,531  |   |   | — |   |   | 200,000   |   |
|                                                                          |   |                                          |   |
| **Fair Value                        Hedges**                                  |   |                                          |   |                                         |   |                                  |      |                                       |          |   |   |   |   |   |    |   |   |      |   |
| Interest rate swaps                        associated with brokered CDs       |   |                                          | 461    |                                         |   | 4,730                                 |      |                                       | 285,352       |   |   | 672    |   |   | 8,235   |   |   | 988,477   |   |
|                                                                          |   |                                          |   |
| **Other                        Derivatives**                                  |   |                                          |   |                                         |   |                                  |      |                                       |          |   |   |   |   |   |    |   |   |      |   |
| Forward foreign                        currency contracts                     |   |                                          | 447    |                                         |   | 447                                   |      |                                       | 12,591        |   |   | 5      |   |   | 5       |   |   | 653       |   |
| Customer swap                        contracts                                |   |                                          | 8,664  |                                         |   | 8,769                                 |      |                                       | 758,951       |   |   | 5,065  |   |   | 5,065   |   |   | 238,224   |   |
| Options, interest rate                        swaps and other                 |   |                                          | 4,046  |                                         |   | 4,521                                 |      |                                       | 154,475       |   |   | 5,807  |   |   | 7,712   |   |   | 161,832   |   |
|                                                                          |   |                                               |        |                                         |        |                                       |      |                                            |               |   |        |        |   |        |         |   |        |           |   |
|                                                                          |   | $                                             | 41,218 |                                         | $      | 19,443                                |      | $                                          | 2,496,369     |   | $      | 36,194 |   | $      | 21,017  |   | $      | 2,419,186 |   |
|                                                                          |   |                                               |        |                                         |        |                                       |      |                                            |               |   |        |        |   |        |         |   |        |           |   |

          In            the three and nine months ended September 30, 2008, noninterest income included a loss            of $199,000 and a gain of $49,000, respectively, for certain derivative activities. In            the three and nine months ended September 30, 2007, noninterest income included a gain            of $198,000 and a loss of $1.2 million, respectively, for certain derivative            activities. These amounts include the following: the change in fair value of            derivatives that do not qualify for hedge accounting under SFAS 133, as well as the net            cash settlement from these interest rate swaps; hedge ineffectiveness for fair value            hedges, which totaled a loss of $127,000 and a gain of $119,000, respectively, for the            three and nine months ended September 30, 2008, and a gain of $47,000 and a loss of            $695,000, respectively, for the three and nine months ended September 30, 2007; and            other miscellaneous items.

**Note 10 – Commitments            and Contingent Liabilities**

*Legal            Proceedings*

          TSFG            is currently subject to various legal proceedings and claims that have arisen in the            ordinary course of its business. In the opinion of management based on consultation            with external legal counsel, any reasonably foreseeable outcome of such current            litigation would not be expected to materially affect TSFG’s consolidated            financial position or results of operations.

*Recourse            Reserve*

          As            part of its 2004 acquisition of Florida Banks, Inc. (“Florida Banks”), TSFG            acquired a recourse reserve associated with loans previously sold from Florida            Banks’ wholesale mortgage operation. This recourse requires the repurchase of            loans at par plus accrued interest from the buyer, upon the occurrence of certain            events. At September 30, 2008, the estimated recourse reserve liability, included in            other liabilities, totaled $6.1 million. TSFG will continue to

14

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**THE SOUTH            FINANCIAL GROUP, INC. AND SUBSIDIARIES            Notes to Consolidated Financial Statements (unaudited)**

evaluate the reserve level and            may make adjustments through earnings as more information becomes known. There can be            no guarantee that any liability or cost arising out of this matter will not exceed any            established reserves.

*Expanded Corporate            Facilities*

          During            2005, TSFG initiated plans for a “corporate campus” to meet current and            future facility needs and serve as the primary headquarters for its banking operations.            Through September 30, 2008, TSFG had invested approximately $55 million in the project            (which is included in premises and equipment on the consolidated balance sheet as            construction in progress) and had entered into additional contractual commitments of            approximately $37 million.

*CEO Retirement*

          On            September 2, 2008, the Board of Directors and Mack I. Whittle, the Company’s            Chairman, President, and Chief Executive Officer, entered into a severance agreement            pursuant to which Whittle would receive certain retirement benefits and retire on            or before December 30, 2008 (at the Board’s election). Those benefits include,            among others, a lump sum cash payment of $4.1 million, vesting of all equity awards            (see Note 13 – Share-Based Compensation), service credit under the Supplemental            Executive Retirement Plan through age 65 (incremental expense of $4.1 million, of which            approximately $2 million relates to service credit through age 65) which provides an            annual retirement payment commencing at retirement date, vested benefits under other            Company plans, continued welfare and fringe benefits for three years, and three years            of continued life insurance coverage. The incremental expense related to these benefits            is approximately $12 million, of which $4.6 million was recognized in third quarter            2008, with the remaining expense to be recognized in fourth quarter 2008. Subsequent to            quarter-end, the Executive Committee, on behalf of the Board, specified that            Whittle’s retirement would be effective October 27, 2008, which did not            materially impact the amount or timing of such benefits described above.

*Loan            Commitments*

          TSFG            is a party to financial instruments with off-balance-sheet risk in the normal course of            business to meet the financing needs of its customers. These financial instruments            include commitments to extend credit, commercial letters of credit, and standby letters            of credit. These instruments involve, to varying degrees, elements of credit and            interest rate risk in excess of the amount recognized in the consolidated balance            sheets.

          TSFG’s            exposure to credit loss is represented by the contractual amount of these instruments.            TSFG uses the same credit policies in making commitments and conditional obligations as            it does for on-balance-sheet instruments.

          Commitments            to extend credit are agreements to lend to a customer provided there is no violation of            any condition established in the contract. Commitments generally have fixed expiration            dates or other termination clauses and may require payment of a fee. Since certain of            the commitments are expected to expire without being drawn upon, the total commitment            amounts do not necessarily represent future cash requirements. TSFG evaluates each            customer’s creditworthiness on a case-by-case basis. The amount of the collateral            obtained, if deemed necessary by TSFG upon extension of credit, is based on            TSFG’s credit evaluation of the borrower.

15

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**THE SOUTH            FINANCIAL GROUP, INC. AND SUBSIDIARIES            Notes to Consolidated Financial Statements (unaudited)**

          Commercial            letters of credit and standby letters of credit are conditional commitments issued by            TSFG to guarantee the performance of a customer to a third party. The credit risk            involved in issuing letters of credit is essentially the same as that involved in            making loans to customers. TSFG generally holds collateral supporting those commitments            if deemed necessary. A summary of the contractual amounts of TSFG’s financial            instruments relating to extension of credit with off-balance-sheet risk follows (in            thousands):

|                                                                  |   |                                               |      |                                         |   |      |   |
|-----------------------------------------------------------------------|--------|----------------------------------------------------|-----------|----------------------------------------------|--------|-----------|--------|
|                                                                  |   | **Outstanding                        Commitments** |      |
|                                                                  |   |                                                    |      |
|                                                                  |   | **September 30,                        2008**      |      | **December 31,                        2007** |   |
|                                                                  |   |                                                    |      |                                              |   |
| Loan                        commitments:                              |   |                                               |      |                                         |   |      |   |
| Commercial, financial,                        agricultural, and other |   | $                                                  | 926,080   |                                         | $      | 988,962   |   |
| Commercial secured by                        real estate              |   |                                               | 467,508   |                                         |   | 698,179   |   |
| Home equity                        loans                              |   |                                               | 496,726   |                                         |   | 530,626   |   |
| Standby letters of                        credit                      |   |                                               | 147,766   |                                         |   | 184,529   |   |
| Documentary letters                        of credit                  |   |                                               | 583       |                                         |   | 153       |   |
| Unused business                        credit card lines              |   |                                               | 34,064    |                                         |   | 32,948    |   |
|                                                                  |   |                                                    |           |                                         |        |           |   |
| Total                                                                 |   | $                                                  | 2,072,727 |                                         | $      | 2,435,397 |   |
|                                                                  |   |                                                    |           |                                         |        |           |   |

**Note 11 – Preferred            Stock**

          On            May 8, 2008, TSFG issued, in the aggregate, 250,000 shares of no par value, mandatory            convertible non-cumulative preferred stock (“Preferred Stock”), at a            purchase price and liquidation preference of $1,000 per share. Dividends are payable            quarterly, if declared by the Board of Directors, at an annual rate of 10%. Each share            of Preferred Stock is mandatorily convertible into 153.846 shares of TSFG’s            common stock, based on a conversion price of $6.50 per share of common stock, on May 1,            2011. On or after July 18, 2010, the Preferred Stock is also automatically convertible            if, for a period of 20 consecutive trading days, the closing price of TSFG’s            common stock has been at least $21.00 per share. In addition, the Preferred Stock is            convertible at the option of the holder before the mandatory conversion events            described above.

          During            third quarter 2008, 1,000 shares of Preferred Stock were converted into approximately            154,000 common shares. The following is a summary of TSFG’s Preferred Stock            outstanding as of September 30, 2008:

|                                    |   |                                        |    |                                                     |   |    |   |
|-----------------------------------------|--------|---------------------------------------------|---------|----------------------------------------------------------|--------|---------|--------|
|                                    |   | **Number of                        shares** |    | **Carrying value                        (in thousands)** |   |
|                                    |   |                                             |    |                                                          |   |
| Series                        2008ND-V  |   |                                        | 55,331  |                                                     | $      | 55,331  |   |
| Series                        2008ND-NV |   |                                        | 183,949 |                                                     |   | 183,949 |   |
| Series                        2008D-V   |   |                                        | 2,248   |                                                     |   | 2,248   |   |
| Series                        2008D-NV  |   |                                        | 7,472   |                                                     |   | 7,472   |   |
|                                    |   |                                             |         |                                                     |        |         |   |
| Total                                   |   |                                        | 249,000 |                                                     | $      | 249,000 |   |
|                                    |   |                                             |         |                                                     |        |         |   |

          The            voting and conversion rights of the Preferred Stock were voted upon and approved at a            special shareholders’ meeting on July 18, 2008. As a result, all four Preferred            Stock series were considered common stock equivalents at September 30, 2008 and would            have added approximately 38.3 million shares to the computation of diluted earnings per            share, had the effect not been antidilutive.

          All            four series of Preferred Stock are in parity to each other and rank senior to common            shares both as to dividend and liquidation preferences. Since July 18, 2008, except            when they are entitled to vote as a separate class, the holders of the Preferred Stock            are entitled to vote their shares on an as-converted basis with our common stock as a            single class. The affirmative vote of two-thirds of the holders of outstanding            Preferred Stock (voting as a separate class) is required for approval of any proposed            changes in the preferences and special rights of such stock, or for certain            acquisitions announced during the first 18 months following the issuance of the            Preferred Stock. The Preferred Stock has no participation rights, unless the quarterly            cash dividend on TSFG’s common stock is increased above certain thresholds after            May 1, 2010. In that event, the Preferred Stock would be entitled to receive additional            dividends in proportion to the increase in the common stock dividend. The Preferred            Stock is not redeemable and is not subject to any sinking fund.

16

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**THE SOUTH            FINANCIAL GROUP, INC. AND SUBSIDIARIES            Notes to Consolidated Financial Statements (unaudited)**

 

          Subsequent            to quarter-end, 5,750 shares of Preferred Stock were converted into approximately            885,000 common shares.

**Note 12 – Share            Information**

          The            following is a summary of the basic and diluted average common shares outstanding and            (loss) earnings per share calculations (in thousands, except share and per share            data):

|                                                                                  |   |                                                           |       |                                                          |   |       |   |     |       |   |   |       |   |
|---------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|------------|---------------------------------------------------------------|--------|------------|--------|----------|------------|--------|--------|------------|--------|
|                                                                                  |   | **Three Months                        Ended****September 30,** |       | **Nine Months                        Ended****September 30,** |   |
|                                                                                  |   |                                                                |       |                                                               |   |
|                                                                                  |   | **2008**                                                       |       | **2007**                                                      |   | **2008**   |   | **2007** |       |
|                                                                                  |   |                                                                |       |                                                               |   |            |   |          |       |
| Net (loss)                        income                                              |   | $                                                              | (24,955    | )                                                             | $      | 25,839     |   | $        | (237,179   | )      | $      | 64,287     |   |
| Preferred stock                        dividends                                      |   |                                                           | (6,250     | )                                                             |   | —    |   |     | (12,083    | )      |   | —    |   |
|                                                                                  |   |                                                                |            |                                                          |        |            |   |          |            |   |        |            |   |
| Net (loss) income                        available to common shareholders (numerator) |   | $                                                              | (31,205    | )                                                             | $      | 25,839     |   | $        | (249,262   | )      | $      | 64,287     |   |
|                                                                                  |   |                                                                |            |                                                          |        |            |   |          |            |   |        |            |   |
| **Basic**                                                                             |   |                                                           |       |                                                          |   |       |   |     |       |   |   |       |   |
| Average common shares                        outstanding (denominator)                |   |                                                           | 72,755,480 |                                                          |   | 73,146,211 |   |     | 72,605,990 |   |   | 73,970,963 |   |
| (Loss) earnings per                        share                                      |   | $                                                              | (0.43      | )                                                             | $      | 0.35       |   | $        | (3.43      | )      | $      | 0.87       |   |
| **Diluted**                                                                           |   |                                                           |       |                                                          |   |       |   |     |       |   |   |       |   |
| Average common shares                        outstanding                              |   |                                                           | 72,755,480 |                                                          |   | 73,146,211 |   |     | 72,605,990 |   |   | 73,970,963 |   |
| Average dilutive                        potential common shares                       |   |                                                           | —    |                                                          |   | 459,541    |   |     | —    |   |   | 533,977    |   |
|                                                                                  |   |                                                                |            |                                                          |        |            |   |          |            |   |        |            |   |
| Average diluted shares                        outstanding (denominator)               |   |                                                           | 72,755,480 |                                                          |   | 73,605,752 |   |     | 72,605,990 |   |   | 74,504,940 |   |
|                                                                                  |   |                                                                |            |                                                          |        |            |   |          |            |   |        |            |   |
| (Loss) earnings per                        share                                      |   | $                                                              | (0.43      | )                                                             | $      | 0.35       |   | $        | (3.43      | )      | $      | 0.86       |   |

          For            the three and nine months ended September 30, 2008, options to purchase an additional            4.8 million shares of common stock were outstanding but were not included in the            computation of diluted earnings per share because their inclusion would have had an            antidilutive effect. Likewise, for the three and nine months ended September 30, 2007,            options to purchase an additional 2.1 million and 2.0 million shares, respectively, of            common stock were outstanding but were not included in the computation of diluted            earnings per share because their inclusion would have had an antidilutive            effect.

          Also            excluded from the computation of diluted earnings per share for the three and nine            months ended September 30, 2008 because of their antidilutive effect were 38.3 million            shares of common stock related to Preferred Stock and 873,000 shares of common stock            related to restricted stock and restricted stock units granted under equity incentive            programs.

**Note 13 – Share-Based            Compensation**

          In            the third quarter 2008, TSFG’s Board of Directors approved long-term incentive            awards for the period 2008-2010. A total of 216,550 restricted stock units            (“RSUs”) and 1.1 million stock options with a total grant-date fair value            of $5.0 million were issued. The stock options granted to the 18 most senior officers            are market-based stock options and will not vest unless the executive remains employed            by the Company at June 30, 2011 and the Company’s closing stock price for 20            consecutive trading days during the first six months of 2011 equals or exceeds $12 per            share. The compensation expense for the market-based options will be recognized on a            straight-line basis over the period from the date of grant through June 30, 2011. The            remaining stock options and all restricted stock units will vest 50% on each of January            31, 2010 and January 31, 2011, based on continued service to those respective dates,            and will be expensed ratably over the vesting period.

          Additionally,            in third quarter 2008, TSFG’s Board of Directors modified and accelerated the            vesting of several previous share-based awards to CEO/Chairman Mack Whittle in            connection with his retirement on or before December 30, 2008. As a result, expense            related to unvested tranches of the original awards was reversed, and the incremental            expense related to the modified awards ($2.0 million) will be recognized during the            third and fourth quarters of 2008.

17

----

**THE SOUTH            FINANCIAL GROUP, INC. AND SUBSIDIARIES            Notes to Consolidated Financial Statements (unaudited)**

Subsequent to            quarter-end, the Executive Committee, on behalf of the Board, specified that            Whittle’s retirement would be effective October 27, 2008.

**Note 14 – Fair Value            Disclosures**

          Effective            January 1, 2008, TSFG adopted SFAS 157 (for its financial assets and liabilities) and            SFAS 159. SFAS 157 defines fair value, establishes a consistent framework for measuring            fair value and expands disclosure requirements about fair value measurements. SFAS 157            requires, among other things, the Company to maximize the use of observable inputs and            minimize the use of unobservable inputs in its fair value measurement techniques. The            adoption of SFAS 157 resulted in no change to January 1, 2008 retained earnings. The            application of SFAS 157 in situations where the market for a financial asset is not            active was clarified by the issuance of FSP FAS 157-3 in October 2008. FSP FAS 157-3            became effective for TSFG’s interim financial statements as of September 30, 2008            and did not significantly impact the methods by which the Company determines the fair            values of its financial assets.

          SFAS            159 allows an entity the irrevocable option to elect fair value for the initial and            subsequent measurement for certain financial assets and liabilities on a            contract-by-contract basis. TSFG elected the fair value option for its portfolio of            mortgage loans held for sale in order to reduce certain timing differences and better            match changes in fair values of the loans with changes in the value of derivative            instruments used to economically hedge them. As a result of its election, TSFG recorded            the following entry to opening retained earnings (in thousands):

|                                                                                                                                 |   |                                                                                    |                            |                                                |   |                                                                                     |   |   |   |   |                            |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------|---------------------------------|-----------------------------------------------------|--------|------------------------------------------------------------------------------------------|--------|--------|--------|--------|---------------------------------|--------|
|                                                                                                                                 |   | **Opening                        Balance Sheet                        January 1, 2008** |                            | **Adoption                        Net Gain (Loss)** |   | **Adjusted                        Balance Sheet                        January 1, 2008** |   |
|                                                                                                                                 |   |                                                                                         |                            |                                                     |   |                                                                                          |   |
|                                                                                                                                 |
| Mortgage loans held for                        sale                                                                                  |   |                                                                                    | $                        17,867 |                                                |   | $                                                                                        | 92     |   |   |   | $                        17,959 |   |
|                                                                                                                                 |   |                                                                                    |                            |                                                |   |                                                                                          |        |   |   |   |                            |   |
| Pretax cumulative                        effect of adoption of the fair value option                                                 |   |                                                                                    |                            |                                                |   |                                                                                     | 92     |   |   |   |                            |   |
| Tax impact                                                                                                                           |   |                                                                                    |                            |                                                |   |                                                                                     | (32    | )      |   |   |                            |   |
|                                                                                                                                 |   |                                                                                    |                            |                                                |   |                                                                                          |        |   |   |   |                            |   |
| Cumulative effect of                        adoption of the fair value option (increase to retained                        earnings) |   |                                                                                    |                            |                                                |   | $                                                                                        | 60     |   |   |   |                            |   |
|                                                                                                                                 |   |                                                                                    |                            |                                                |   |                                                                                          |        |   |   |   |                            |   |

          Adoption            of these standards did not have a significant impact on earnings for the three and nine            months ended September 30, 2008.

          SFAS            157 defines fair value as the exchange price that would be received for an asset or            paid to transfer a liability (an exit price) in the principal or most advantageous            market for the asset or liability in an orderly transaction between market participants            on the measurement date. SFAS 157 also establishes a fair value hierarchy which            requires an entity to maximize the use of observable inputs and minimize the use of            unobservable inputs when measuring fair value. The standard describes three levels of            inputs that may be used to measure fair value:

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | Level 1 –                        Valuations are based on quoted prices in active markets for identical                        assets and liabilities. Level 1 assets include debt and equity securities                        that are traded in an active exchange market, as well as certain U.S.                        Treasury securities that are highly liquid and are actively traded in                        over-the-counter markets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| • | Level 2 –                        Valuations are based on observable inputs other than Level 1 prices, such                        as quoted prices for similar assets or liabilities; quoted prices in                        markets that are not active; or other inputs that are observable or can be                        corroborated by observable market data. Level 2 assets and liabilities                        include debt securities with quoted prices that are traded less frequently                        than exchange-traded instruments and derivative contracts whose value is                        determined using a pricing model with inputs that are observable in the                        market or can be derived principally from or corroborated by observable                        market data. This category generally includes U.S. government agencies,                        agency mortgage-backed debt securities, private-label mortgage-backed debt                        securities, state and municipal bonds, corporate bonds, certain derivative                        contracts, and mortgage loans held for sale. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| • | Level 3 –                        Valuations include unobservable inputs that are supported by little or no                        market activity and that are significant to the fair value of the assets.                        For example, certain available for sale securities included in this                        category are not readily marketable and may only be redeemed with the                        issuer at par. This category also                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

18

----

**THE SOUTH            FINANCIAL GROUP, INC. AND SUBSIDIARIES            Notes to Consolidated Financial Statements (unaudited)**

|   |                                                                                                                                                                                               |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | includes certain                        derivative contracts for which independent pricing information is not                        available for a significant portion of the underlying assets. |

          The            table below presents the balances of assets and liabilities measured at fair value on a            recurring basis (in thousands):

|                                                 |   |                                          |      |                               |   |                               |   |                               |      |   |   |    |   |
|------------------------------------------------------|--------|-----------------------------------------------|-----------|------------------------------------|--------|------------------------------------|--------|------------------------------------|-----------|--------|--------|---------|--------|
|                                                 |   | **September 30,                        2008** |      |
|                                                 |   |                                               |      |
|                                                 |   | **Total**                                     |      | **Level                        1** |   | **Level                        2** |   | **Level                        3** |      |
|                                                 |   |                                               |      |                                    |   |                                    |   |                                    |      |
|                                                 |   |                                          |      |                               |   |                               |   |                               |      |
| Securities available                        for sale |   | $                                             | 1,995,681 |                               | $      | 173,265                            |   | $                                  | 1,782,862 |   | $      | 39,554  |   |
| Mortgage loans held                        for sale  |   |                                          | 14,334    |                               |   | —                            |   |                               | 14,334    |   |   | — |   |
| Derivative                        assets             |   |                                          | 41,218    |                               |   | —                            |   |                               | 34,489    |   |   | 6,729   |   |
|                                                 |   |                                               |           |                               |        |                                    |   |                                    |           |   |        |         |   |
| Total                                                |   | $                                             | 2,051,233 |                               | $      | 173,265                            |   | $                                  | 1,831,685 |   | $      | 46,283  |   |
|                                                 |   |                                               |           |                               |        |                                    |   |                                    |           |   |        |         |   |
|                                                 |   |                                          |      |                               |   |                               |   |                               |      |   |   |    |   |
| Derivative                        liabilities        |   | $                                             | 19,443    |                               | $      | —                            |   | $                                  | 14,336    |   | $      | 5,107   |   |
|                                                 |   |                                               |           |                               |        |                                    |   |                                    |           |   |        |         |   |

 The            changes in Level 3 assets and liabilities measured at fair value on a recurring basis            are summarized as follows (in thousands):

|                                                                                                                                  |   |                                                                                    |    |                                                                                   |   |                                                                            |   |                                                                                  |    |   |   |   |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------|---------|----------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|---------|--------|--------|--------|--------|
|                                                                                                                                  |   | **Three Months                        Ended                        September 30, 2008** |    | **Nine Months                        Ended                        September 30, 2008** |   |
|                                                                                                                                  |   |                                                                                         |    |                                                                                        |   |
|                                                                                                                                  |   | **Securities                        Available                        For Sale**         |    | **Net                        Derivative****Asset                        (Liability)**  |   | **Securities                        Available                        For Sale** |   | **Net                        Derivative****Asset                        (Liability)** |    |
|                                                                                                                                  |   |                                                                                         |    |                                                                                        |   |                                                                                 |   |                                                                                       |    |
|                                                                                                                                  |
| Balance at beginning of                        period                                                                                 |   | $                                                                                       | 40,191  |                                                                                   | $      | 2,028                                                                           |   | $                                                                                     | 37,735  |   | $      | 370    |   |
| Total net (losses)                        gains included in net income                                                                |   |                                                                                    | — |                                                                                   |   | (1,371                                                                          | )      |                                                                                  | — |   |   | 855    |   |
| Purchases, sales,                        issuances and settlements, net                                                               |   |                                                                                    | (637    | )                                                                                      |   | (593                                                                            | )      |                                                                                  | 1,819   |   |   | (1,161 | )      |
| Transfers into Level                        3                                                                                         |   |                                                                                    | — |                                                                                   |   | 1,558                                                                           |   |                                                                                  | — |   |   | 1,558  |   |
|                                                                                                                                  |   |                                                                                         |         |                                                                                   |        |                                                                                 |   |                                                                                       |         |   |        |        |   |
| Balance at end of                        period                                                                                       |   | $                                                                                       | 39,554  |                                                                                   | $      | 1,622                                                                           |   | $                                                                                     | 39,554  |   | $      | 1,622  |   |
|                                                                                                                                  |   |                                                                                         |         |                                                                                   |        |                                                                                 |   |                                                                                       |         |   |        |        |   |
|                                                                                                                                  |   |                                                                                    |    |                                                                                   |   |                                                                            |   |                                                                                  |    |   |   |   |   |
| Net (losses) gains                        included in net income relating to assets held at September 30,                        2008 |   | $                                                                                       | — |                                                                                   | $      | (1,371                                                                          | )      | $                                                                                     | — |   | $      | 855    |   |
|                                                                                                                                  |   |                                                                                         |         |                                                                                   |        |                                                                                 |   |                                                                                       |         |   |        |        |   |

          The            majority of the net gains and losses in the table above were included in gain/loss on            certain derivative activities in noninterest income.

          Also,            we may be required, from time to time, to measure certain other assets at fair value on            a nonrecurring basis in accordance with generally accepted accounting principles. These            adjustments to fair value usually result from write-downs of individual assets. For            financial assets measured at fair value on a nonrecurring basis in the three and nine            months ended September 30, 2008 that were still held in the balance sheet at quarter            end, the following table provides the level of valuation assumptions used to determine            each adjustment and the carrying value of the related individual assets at quarter end            (in thousands).

19

----

**THE SOUTH            FINANCIAL GROUP, INC. AND SUBSIDIARIES            Notes to Consolidated Financial Statements (unaudited)**

         

|                                                 |   |                                                            |    |                                            |   |                                         |   |                               |    |   |   |    |   |   |    |   |   |    |   |
|------------------------------------------------------|--------|-----------------------------------------------------------------|---------|-------------------------------------------------|--------|----------------------------------------------|--------|------------------------------------|---------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
|                                                 |   |                                                            |    | **Total gains                        (losses)** |   |
|                                                 |   |                                                            |    |                                                 |   |
|                                                 |   |                                                            |    | **September 30,                        2008**   |   |
|                                                 |   | **Carrying value at                        September 30, 2008** |    |                                                 |   |
|                                                 |   |                                                                 |    | **Three Months                        Ended**   |   | **Nine Months                        Ended** |   |
|                                                 |   | **Total**                                                       |    | **Level                        1**              |   | **Level                        2**           |   | **Level                        3** |    |   |   |
|                                                 |   |                                                                 |    |                                                 |   |                                              |   |                                    |    |        |   |         |   |
|                                                 |   |                                                            |    |                                            |   |                                         |   |                               |    |   |   |    |   |   |    |   |   |    |   |
| Loans held for                        investment (1) |   | $                                                               | 168,107 |                                            | $      | —                                      |   | $                                  | — |   | $      | 168,107 |   | $      | (30,599 | )      | $      | (65,125 | )      |
| Loans held for sale                        (2)       |   |                                                            | 23,241  |                                            |   | —                                      |   |                               | — |   |   | 23,241  |   |   | (20,617 | )      |   | (22,520 | )      |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | Represents carrying                        value and related write-downs of loans for which adjustments are based on                        the appraised value of the collateral.                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (2)    | Represents carrying                        value and related write-downs of loans carried at lower of cost or fair                        value. The write-downs were recorded as charge-offs against the allowance                        for loan losses. These numbers exclude mortgage loans held for sale, which                        are measured at fair value on a recurring basis pursuant to the fair value                        option. |

          During            the nine months ended September 30, 2008, TSFG also measured certain nonfinancial            assets using fair value on a nonrecurring basis, including portions of goodwill and            certain foreclosed assets. In accordance with FSP 157-2, we have delayed application of            the provisions of SFAS 157 to those measurements, and as such they are not included in            the table above.

*     Fair            Value Option*

          At            September 30, 2008, mortgage loans held for sale for which the fair value option was            elected had an aggregate fair value and outstanding principal balance of $14.3 million.            Interest income on these loans is calculated based on the note rate of the loan and is            recorded in interest income in the income statement. During the three and nine months            ended September 30, 2008, net losses resulting from changes in fair value of these            loans of $56,000 and $75,000, respectively, were recorded in mortgage banking income.            These changes in fair value were mostly offset by hedging activities. An immaterial            portion of these amounts was attributable to changes in instrument-specific credit            risk.

**Note 15 – Income            Taxes**

          The            effective income tax rate as a percentage of pretax income was 54.2% and 18.6%,            respectively, for the three and nine months ended September 30, 2008. Income tax            expense differed from the amount computed by applying TSFG’s statutory U.S.            federal income tax rate of 35% to pretax income for the three and nine months ended            September 30, 2008 primarily as a result of the impact of the nondeductible goodwill            impairment, other nontaxable and nondeductible items, and management’s            projections.

**Note 16 – Business            Segments**

          South            Carolina Bank, North Carolina Bank, and Florida Bank are TSFG’s primary            reportable segments for management financial reporting. Effective January 1, 2008,TSFG            began to exclude its insurance operations from its banking segments due to a change in            management responsibility and changed its allocation methodology for provision for            credit losses and noninterest expenses. Results for prior periods have been restated            for comparability. Each geographic bank segment consists of commercial and consumer            lending and full service branches in its geographic region with its own management            team. The branches provide a full range of traditional banking products as well as            treasury services, merchant services, wealth management and mortgage banking services.            The “Other” column includes the investment securities portfolio, indirect            lending, treasury, parent company activities, bank-owned life insurance, net            intercompany eliminations, various nonbank subsidiaries (including insurance            subsidiaries), equity investments, and certain other activities not currently allocated            to the aforementioned segments.

          The            results for these segments are based on TSFG’s management reporting process,            which assigns balance sheet and income statement items to each segment. Unlike            financial reporting, there is no authoritative guidance for management reporting            equivalent to generally accepted accounting principles. The Company uses an internal            funding methodology to assign funding costs to assets and earning credits to            liabilities with an offset in “Other.” The management reporting process            measures the performance of the defined segments based on TSFG’s            management

20

----

**THE SOUTH            FINANCIAL GROUP, INC. AND SUBSIDIARIES            Notes to Consolidated Financial Statements (unaudited)**

structure and is not necessarily            comparable with similar information for other financial services companies or            representative of results that would be achieved if the segments operated as            stand-alone entities. If the management structure and/or allocation process changes,            allocations, transfers and assignments may change. Segment information (in thousands)            is shown in the table below.

|                                                                             |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |   |       |   |
|----------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|-----------|-----------------------------------------------------------------------|--------|-----------------------------------------|--------|-----------|-----------|-----------|--------|-----------|--------|--------|------------|--------|
|                                                                             |   | **South                        Carolina                        Bank** |      | **North                        Carolina                        Bank** |   | **Florida                        Bank** |   | **Other** |      | **Total** |   |
|                                                                             |   |                                                                       |      |                                                                       |   |                                         |   |           |      |           |   |
| **Three Months Ended                        September 30, 2008**                 |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |   |       |   |
| Net interest income                        before inter-segment income (expense) |   | $                                                                     | 36,456    |                                                                  | $      | 17,112                                  |   | $         | 30,409    |      | $      | 11,642    |   | $      | 95,619     |   |
| Inter-segment interest                        income (expense)                   |   |                                                                  | 3,216     |                                                                  |   | (3,792                                  | )      |      | 883       |      |   | (307      | )      |   | —    |   |
|                                                                             |   |                                                                       |           |                                                                  |        |                                         |   |           |           |      |        |           |   |        |            |   |
| Net interest                        income                                       |   |                                                                  | 39,672    |                                                                  |   | 13,320                                  |   |      | 31,292    |      |   | 11,335    |   |   | 95,619     |   |
| Provision for credit                        losses                               |   |                                                                  | 11,502    |                                                                  |   | 11,641                                  |   |      | 53,222    |      |   | 8,243     |   |   | 84,608     |   |
| Noninterest                        income                                        |   |                                                                  | 12,624    |                                                                  |   | 2,586                                   |   |      | 7,240     |      |   | 5,450     |   |   | 27,900     |   |
| Other noninterest                        expenses - direct (1)                   |   |                                                                  | 16,984    |                                                                  |   | 5,689                                   |   |      | 17,982    |      |   | 52,737    |   |   | 93,392     |   |
|                                                                             |   |                                                                       |           |                                                                  |        |                                         |   |           |           |      |        |           |   |        |            |   |
| Contribution before                        allocation                            |   |                                                                  | 23,810    |                                                                  |   | (1,424                                  | )      |      | (32,672   | )         |   | (44,195   | )      |   | (54,481    | )      |
| Noninterest expenses -                        allocated (2)                      |   |                                                                  | 18,711    |                                                                  |   | 5,220                                   |   |      | 15,681    |      |   | (39,612   | )      |   | —    |   |
|                                                                             |   |                                                                       |           |                                                                  |        |                                         |   |           |           |      |        |           |   |        |            |   |
| Contribution before                        income taxes                          |   | $                                                                     | 5,099     |                                                                  | $      | (6,644                                  | )      | $         | (48,353   | )         | $      | (4,583    | )      |   | (54,481    | )      |
|                                                                             |   |                                                                       |           |                                                                  |        |                                         |   |           |           |      |        |           |   |   |       |   |
| Income tax                        expense                                        |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |   | (29,526    | )      |
|                                                                             |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |        |            |   |
| Net income                                                                       |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   | $      | (24,955    | )      |
|                                                                             |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |        |            |   |
|                                                                             |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |   |       |   |
| **Nine Months Ended                        September 30, 2008**                  |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |   |       |   |
| Net interest income                        before inter-segment income (expense) |   | $                                                                     | 109,611   |                                                                  | $      | 52,204                                  |   | $         | 98,785    |      | $      | 27,930    |   | $      | 288,530    |   |
| Inter-segment interest                        income (expense)                   |   |                                                                  | 13,639    |                                                                  |   | (10,563                                 | )      |      | 1,963     |      |   | (5,039    | )      |   | —    |   |
|                                                                             |   |                                                                       |           |                                                                  |        |                                         |   |           |           |      |        |           |   |        |            |   |
| Net interest                        income                                       |   |                                                                  | 123,250   |                                                                  |   | 41,641                                  |   |      | 100,748   |      |   | 22,891    |   |   | 288,530    |   |
| Provision for credit                        losses                               |   |                                                                  | 25,720    |                                                                  |   | 27,689                                  |   |      | 150,846   |      |   | 17,408    |   |   | 221,663    |   |
| Noninterest                        income                                        |   |                                                                  | 36,380    |                                                                  |   | 7,544                                   |   |      | 22,085    |      |   | 24,997    |   |   | 91,006     |   |
| Goodwill                        impairment                                       |   |                                                                  | —   |                                                                  |   | —                                 |   |      | 188,431   |      |   | —   |   |   | 188,431    |   |
| Other noninterest                        expenses - direct (1)                   |   |                                                                  | 49,670    |                                                                  |   | 16,702                                  |   |      | 48,995    |      |   | 145,393   |   |   | 260,760    |   |
|                                                                             |   |                                                                       |           |                                                                  |        |                                         |   |           |           |      |        |           |   |        |            |   |
| Contribution before                        allocation                            |   |                                                                  | 84,240    |                                                                  |   | 4,794                                   |   |      | (265,439  | )         |   | (114,913  | )      |   | (291,318   | )      |
| Noninterest expenses -                        allocated (2)                      |   |                                                                  | 56,160    |                                                                  |   | 15,917                                  |   |      | 47,565    |      |   | (119,642  | )      |   | —    |   |
|                                                                             |   |                                                                       |           |                                                                  |        |                                         |   |           |           |      |        |           |   |        |            |   |
| Contribution before                        income taxes                          |   | $                                                                     | 28,080    |                                                                  | $      | (11,123                                 | )      | $         | (313,004  | )         | $      | 4,729     |   |   | (291,318   | )      |
|                                                                             |   |                                                                       |           |                                                                  |        |                                         |   |           |           |      |        |           |   |   |       |   |
| Income tax                        expense                                        |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |   | (54,139    | )      |
|                                                                             |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |        |            |   |
| Net income                                                                       |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   | $      | (237,179   | )      |
|                                                                             |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |        |            |   |
|                                                                             |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |   |       |   |
| **September 30,                        2008**                                    |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |   |       |   |
| Total assets                                                                     |   | $                                                                     | 4,138,157 |                                                                  | $      | 1,860,753                               |   | $         | 3,821,693 |      | $      | 3,874,575 |   | $      | 13,695,178 |   |
| Total loans held for                        investment                           |   |                                                                  | 3,954,694 |                                                                  |   | 1,778,073                               |   |      | 3,541,870 |      |   | 1,025,003 |   |   | 10,299,640 |   |
| Total                        deposits                                            |   |                                                                  | 3,254,831 |                                                                  |   | 1,063,637                               |   |      | 3,052,739 |      |   | 2,637,601 |   |   | 10,008,808 |   |

|   |                                                                                                                                                                                                                                                                                              |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | Noninterest expenses                        – direct include the direct costs of the segment’s operations                        such as facilities, personnel, and other operating expenses.                                                                                         |
|   |                                                                                                                                                                                                                                                                                              |
| (2)    | Noninterest expenses                        – allocated includes expenses not directly attributable to the                        segments, such as information services, operations, human resources,                        accounting, finance, treasury, and corporate incentive plans. |

21

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**THE SOUTH            FINANCIAL GROUP, INC. AND SUBSIDIARIES            Notes to Consolidated Financial Statements (unaudited)**

|                                                                             |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |   |       |   |
|----------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|-----------|-----------------------------------------------------------------------|--------|-----------------------------------------|--------|-----------|-----------|-----------|--------|-----------|--------|--------|------------|--------|
|                                                                             |   | **South                        Carolina                        Bank** |      | **North                        Carolina                        Bank** |   | **Florida                        Bank** |   | **Other** |      | **Total** |   |
|                                                                             |   |                                                                       |      |                                                                       |   |                                         |   |           |      |           |   |
| **Three Months Ended                        September 30, 2007**                 |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |   |       |   |
| Net interest income                        before inter-segment income (expense) |   | $                                                                     | 43,046    |                                                                  | $      | 21,490                                  |   | $         | 43,464    |      | $      | (11,226   | )      | $      | 96,774     |   |
| Inter-segment interest                        income (expense)                   |   |                                                                  | 826       |                                                                  |   | (6,961                                  | )      |      | (4,040    | )         |   | 10,175    |   |   | —    |   |
|                                                                             |   |                                                                       |           |                                                                  |        |                                         |   |           |           |      |        |           |   |        |            |   |
| Net interest                        income                                       |   |                                                                  | 43,872    |                                                                  |   | 14,529                                  |   |      | 39,424    |      |   | (1,051    | )      |   | 96,774     |   |
| Provision for credit                        losses                               |   |                                                                  | 5,119     |                                                                  |   | 2,281                                   |   |      | 1,407     |      |   | 1,697     |   |   | 10,504     |   |
| Noninterest                        income                                        |   |                                                                  | 12,041    |                                                                  |   | 2,424                                   |   |      | 6,955     |      |   | 8,497     |   |   | 29,917     |   |
| Noninterest expenses -                        direct (1)                         |   |                                                                  | 15,394    |                                                                  |   | 5,168                                   |   |      | 13,842    |      |   | 44,335    |   |   | 78,739     |   |
|                                                                             |   |                                                                       |           |                                                                  |        |                                         |   |           |           |      |        |           |   |        |            |   |
| Contribution before                        allocation                            |   |                                                                  | 35,400    |                                                                  |   | 9,504                                   |   |      | 31,130    |      |   | (38,586   | )      |   | 37,448     |   |
| Noninterest expenses -                        allocated (2)                      |   |                                                                  | 17,671    |                                                                  |   | 5,905                                   |   |      | 13,824    |      |   | (37,400   | )      |   | —    |   |
|                                                                             |   |                                                                       |           |                                                                  |        |                                         |   |           |           |      |        |           |   |        |            |   |
| Contribution before                        income taxes                          |   | $                                                                     | 17,729    |                                                                  | $      | 3,599                                   |   | $         | 17,306    |      | $      | (1,186    | )      |   | 37,448     |   |
|                                                                             |   |                                                                       |           |                                                                  |        |                                         |   |           |           |      |        |           |   |   |       |   |
| Income tax                        expense                                        |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |   | 11,609     |   |
|                                                                             |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |        |            |   |
| Net income                                                                       |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |   | 25,839     |   |
|                                                                             |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |        |            |   |
|                                                                             |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |   |       |   |
| **Nine Months Ended                        September 30, 2007**                  |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |   |       |   |
| Net interest income                        before inter-segment income (expense) |   | $                                                                     | 127,925   |                                                                  | $      | 62,887                                  |   | $         | 124,980   |      | $      | (27,959   | )      | $      | 287,833    |   |
| Inter-segment interest                        income (expense)                   |   |                                                                  | 1,835     |                                                                  |   | (20,369                                 | )      |      | (8,636    | )         |   | 27,170    |   |   | —    |   |
|                                                                             |   |                                                                       |           |                                                                  |        |                                         |   |           |           |      |        |           |   |        |            |   |
| Net interest                        income                                       |   |                                                                  | 129,760   |                                                                  |   | 42,518                                  |   |      | 116,344   |      |   | (789      | )      |   | 287,833    |   |
| Provision for credit                        losses                               |   |                                                                  | 9,286     |                                                                  |   | 14,752                                  |   |      | 7,749     |      |   | 4,855     |   |   | 36,642     |   |
| Noninterest                        income                                        |   |                                                                  | 35,365    |                                                                  |   | 6,834                                   |   |      | 21,032    |      |   | 21,339    |   |   | 84,570     |   |
| Noninterest expenses -                        direct (1)                         |   |                                                                  | 46,094    |                                                                  |   | 15,068                                  |   |      | 42,792    |      |   | 136,413   |   |   | 240,367    |   |
|                                                                             |   |                                                                       |           |                                                                  |        |                                         |   |           |           |      |        |           |   |        |            |   |
| Contribution before                        allocation                            |   |                                                                  | 109,745   |                                                                  |   | 19,532                                  |   |      | 86,835    |      |   | (120,718  | )      |   | 95,394     |   |
| Noninterest expenses -                        allocated (2)                      |   |                                                                  | 53,411    |                                                                  |   | 18,152                                  |   |      | 43,324    |      |   | (114,887  | )      |   | —    |   |
|                                                                             |   |                                                                       |           |                                                                  |        |                                         |   |           |           |      |        |           |   |        |            |   |
| Contribution before                        income taxes                          |   | $                                                                     | 56,334    |                                                                  | $      | 1,380                                   |   | $         | 43,511    |      | $      | (5,831    | )      |   | 95,394     |   |
|                                                                             |   |                                                                       |           |                                                                  |        |                                         |   |           |           |      |        |           |   |   |       |   |
| Income tax                        expense                                        |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |   | 31,107     |   |
|                                                                             |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |        |            |   |
| Net income                                                                       |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |   | 64,287     |   |
|                                                                             |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |        |            |   |
|                                                                             |
| **September 30,                        2007**                                    |   |                                                                  |      |                                                                  |   |                                    |   |      |      |      |   |      |   |   |       |   |
| Total assets                                                                     |   | $                                                                     | 4,081,151 |                                                                  | $      | 1,861,119                               |   | $         | 4,126,815 |      | $      | 4,031,136 |   | $      | 14,100,221 |   |
| Total loans held for                        investment                           |   |                                                                  | 3,846,863 |                                                                  |   | 1,740,461                               |   |      | 3,587,056 |      |   | 998,857   |   |   | 10,173,237 |   |
| Total                        deposits                                            |   |                                                                  | 3,473,451 |                                                                  |   | 1,120,939                               |   |      | 2,890,552 |      |   | 2,016,727 |   |   | 9,501,669  |   |

|   |                                                                                                                                                                                                                                                                                              |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | Noninterest expenses                        – direct include the direct costs of the segment’s operations                        such as facilities, personnel, and other operating expenses.                                                                                         |
|   |                                                                                                                                                                                                                                                                                              |
| (2)    | Noninterest expenses                        – allocated includes expenses not directly attributable to the                        segments, such as information services, operations, human resources,                        accounting, finance, treasury, and corporate incentive plans. |

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

          The            following discussion and analysis are presented to assist in understanding the            financial condition, changes in financial condition, results of operations, and cash            flows of The South Financial Group, Inc. and its subsidiaries (collectively,            “TSFG”), except where the context requires otherwise. TSFG may also be            referred to herein as “we”, “us”, or “our.” This            discussion should be read in conjunction with the consolidated financial statements            appearing in this report as well as the Annual Report of TSFG on Form 10-K for the year            ended December 31, 2007. Results of operations for the three and nine months ended            September 30, 2008 are not necessarily indicative of results that may be attained for            any other period.

     **Index            to Item 2, Management’s Discussion and Analysis of Financial Condition and            Results of Operations**

|                                                                                                                            |   |     |
|---------------------------------------------------------------------------------------------------------------------------------|--------|----------|
|                                                                                                                            |   | **Page** |
|                                                                                                                            |   |          |
|                                                                                                                            |
| Website                        Availability of Reports Filed with the Securities and Exchange                        Commission |   | 23       |
| Forward-Looking                        Statements                                                                               |   | 23       |
| Non-GAAP                        Financial Information                                                                           |   | 24       |
| Overview                                                                                                                        |   | 24       |
| Recent                        Market Developments                                                                               |   | 26       |
| Critical                        Accounting Policies and Estimates                                                               |   | 27       |
| Expanded                        Corporate Facilities                                                                            |   | 31       |
| Balance                        Sheet Review                                                                                     |   | 31       |
| Earnings                        Review                                                                                          |   | 52       |
| Enterprise                        Risk Management                                                                               |   | 58       |
| Off-Balance                        Sheet Arrangements                                                                           |   | 60       |
| Liquidity                                                                                                                       |   | 61       |
| Recently                        Adopted/Issued Accounting Pronouncements                                                        |   | 63       |

**Website            Availability of Reports Filed with the Securities and Exchange            Commission**

          All            of TSFG’s electronic filings with the Securities and Exchange Commission            (“SEC”), including its Annual Report on Form 10-K, Quarterly Reports on            Form 10-Q, Current Reports on Form 8-K and other documents filed or furnished pursuant            to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are made available at            no cost on TSFG’s web site, www.thesouthgroup.com, through the Investor Relations            link. TSFG’s SEC filings are also available through the SEC’s web site at            www.sec.gov.

**Forward-Looking            Statements**

          This            report contains certain forward-looking statements (as defined in the Private            Securities Litigation Reform Act of 1995) to assist in the understanding of anticipated            future operating and financial performance, growth opportunities, growth rates, and            other similar forecasts and statements of expectations. These forward-looking            statements may be identified by the use of such words as: “estimate”,            “anticipate”, “expect”, “believe”,            “intend”, “plan”, or words of similar meaning, or future or            conditional verbs such as “may”, “intend”, “could”,            “will”, or “should”. These forward-looking statements reflect            current views, but are based on assumptions and are subject to risks, uncertainties,            and other factors, which may cause actual results to differ materially from those in            such statements. A variety of factors may affect the operations, performance, business            strategy and results of TSFG including, but not limited to, the following:

|   |   |                                                                                                                                                                                                                                                        |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | risks from changes in                        economic, monetary policy, and industry conditions;                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                        |
|   | • | changes in interest                        rates, shape of the yield curve, deposit rates, the net interest margin,                        and funding sources;                                                                                             |
|   |   |                                                                                                                                                                                                                                                        |
|   | • | market risk (including                        net interest income at risk analysis and economic value of equity risk                        analysis) and inflation;                                                                                        |
|   |   |                                                                                                                                                                                                                                                        |
|   | • | risks                    inherent in making loans including repayment risks and changes in the value of                    collateral;                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                        |
|   | • | loan                        growth, loan sales, the adequacy of the allowance for credit losses,                        provision for credit losses, and the assessment of problem loans (including                        loans acquired via acquisition); |
|   |   |                                                                                                                                                                                                                                                        |
|   | • | the                        receipt of Troubled Asset Relief Program Capital Purchase                        proceeds;                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                        |
|   | • | the                        selection of an interim and/or permanent Chief Executive                        Officer;                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                        |
|   | • | continued deterioration                        in the overall credit environment;                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                        |
|   | • | level, composition, and                        repricing characteristics of the securities portfolio;                                                                                                                                                       |

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|   |   |                                                                                                                                                                                                                                                                           |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | deposit growth, change                        in the mix or type of deposit products, and cost of deposits;                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | loss                        of deposits due to perceived capital weakness or otherwise;                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | availability of                        wholesale funding;                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | adequacy of capital and                        future capital needs;                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | fluctuations in                        consumer spending;                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | competition in the                        banking industry and demand for our products and services;                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | continued availability                        of senior management;                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | technological                        changes;                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | ability to increase                        market share;                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | income and expense                        projections, ability to control expenses, and expense reduction                        initiatives;                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | changes in the                        compensation, benefit, and incentive plans, including compensation                        accruals;                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | risks associated with                        income taxes, including the potential for adverse adjustments;                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | acquisitions, greater                        than expected deposit attrition or customer loss, inaccuracy of related                        cost savings estimates, inaccuracy of estimates of financial results, and                        unanticipated integration issues; |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | valuation of goodwill                        and intangibles and any potential future impairment;                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | significant delay or                        inability to execute strategic initiatives designed to grow                        revenues;                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | changes in                        management’s assessment of and strategies for lines of business,                        asset, and deposit categories;                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | changes in accounting                        policies and practices;                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | changes in the                        evaluation of the effectiveness of our hedging strategies;                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | changes in regulatory                        actions, including the potential for adverse adjustments;                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | changes, costs, and                        effects of litigation, and environmental remediation; and                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                           |
|   | • | recently-enacted or                        proposed legislation.                                                                                                                                                                                                               |

          Such            forward-looking statements speak only as of the date on which such statements are made            and shall be deemed to be updated by any future filings made by TSFG with the SEC. We            undertake no obligation to update any forward-looking statement to reflect events or            circumstances after the date on which such statement is made to reflect the occurrence            of unanticipated events. In addition, certain statements in future filings by TSFG with            the SEC, in press releases, and in oral and written statements made by or with the            approval of TSFG, which are not statements of historical fact, constitute            forward-looking statements.

**Non-GAAP            Financial Information**

          This            report also contains financial information determined by methods other than in            accordance with Generally Accepted Accounting Principles (“GAAP”).            TSFG’s management uses these non-GAAP measures to analyze TSFG’s            performance. In particular, TSFG presents certain designated net interest income            amounts on a tax-equivalent basis (in accordance with common industry practice).            Management believes that these presentations of tax-equivalent net interest income aid            in the comparability of net interest income arising from both taxable and tax-exempt            sources over the periods presented. In discussing its deposits, TSFG presents            information summarizing its funding generated by customers using the following            definitions: “customer deposits,” which are defined by TSFG as total            deposits less brokered deposits, and “customer funding,” which is defined            by TSFG as total deposits less brokered deposits plus customer sweep accounts. TSFG            also discusses its funding generated from non-customer sources using the following            definition: “wholesale borrowings,” which are defined by TSFG as short-term            and long-term borrowings less customer sweep accounts plus brokered deposits.            Management believes that these presentations of “customer deposits,”            “customer funding,” and “wholesale borrowings” aid in the            identification of funding generated by its lines of business versus its treasury            department. In addition, TSFG provides data eliminating intangibles in order to present            data on a “tangible” basis. The limitations associated with operating            measures are the risk that persons might disagree as to the appropriateness of items            comprising these measures and that different companies might calculate these measures            differently. Management compensates for these limitations by providing detailed            reconciliations between GAAP and operating measures. These disclosures should not be            viewed as a substitute for GAAP measures, and furthermore, TSFG’s non-GAAP            measures may not necessarily be comparable to non-GAAP performance measures of other            companies.

**Overview**

          The            South Financial Group is a bank holding company, headquartered in Greenville, South            Carolina, with $13.7 billion in total assets and 180 branch offices in South Carolina,            Florida, and North Carolina at September 30, 2008.

24

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Founded in 1986,            TSFG focuses on attractive Southeastern banking markets with long-term growth            potential. TSFG operates Carolina First Bank, which conducts banking operations in            North Carolina and South Carolina (as Carolina First Bank), in Florida (as Mercantile            Bank), and on the Internet (as Bank Caroline). At September 30, 2008, approximately 45%            of TSFG’s customer deposits (total deposits less brokered deposits) were in South            Carolina, 41% were in Florida, and 14% were in North Carolina.

          TSFG            uses a super-community bank strategy and targets small business, middle market            companies and retail consumers. As a super-community bank, TSFG strives to combine            personalized customer service and local decision-making, typical of community banks,            with a full range of financial services normally found at larger regional            institutions.

          TSFG            reported a net loss of $237.2 million, or $3.43 per diluted share, for the first nine            months of 2008, compared with net income of $64.3 million, or $0.86 per diluted share,            for the first nine months of 2007. The net loss was primarily due to a $221.7 million            provision for credit losses resulting from continued credit deterioration, particularly            in the Florida market, and a $188.4 million goodwill impairment charge resulting from a            decrease in value of the Florida banking segment.

          At            September 30, 2008, nonperforming assets as a percentage of loans and foreclosed            property increased to 2.83% from 0.88% at December 31, 2007 and 0.58% at September 30,            2007. The increase in nonperforming assets was primarily attributable to accelerating            deterioration in residential construction and development-related loans, principally in            Florida markets. For the nine months ended September 30, 2008, annualized net loan            charge-offs totaled 1.90% of average loans held for investment, compared to 0.53% for            the year ended December 31, 2007, and 0.39% for the nine months ended September 30,            2007. TSFG’s provision for credit losses increased to $221.7 million for the            first nine months of 2008 compared to $36.6 million for the first nine months of            2007.

          In            order to strengthen its capital and liquidity position, TSFG issued $250.0 million of            mandatory convertible non-cumulative preferred stock (“Preferred Stock”) on            May 8, 2008, with net proceeds of $239.0 million. The preferred securities pay            dividends at an annual rate of 10%, have a conversion price of $6.50 per common share,            and the remaining outstanding shares (249,000 at September 30, 2008) will convert into            approximately 38.3 million common shares on or before May 1, 2011. (See Note 11 to the            Consolidated Financial Statements for additional details regarding the Preferred            Stock.)

          TSFG’s            tangible equity to tangible asset ratio increased to 7.94% at September 30, 2008, from            6.61% at December 31, 2007, due primarily to the issuance of Preferred Stock. In            addition, all regulatory capital ratios exceeded well-capitalized minimums.

          Tax-equivalent            net interest income was $292.6 million for both the first nine months of 2008 and 2007.            The net interest margin for the first nine months of 2008 was 3.13%, compared with            3.11% for the first nine months of 2007. This margin improvement is partly due to the            decline in funding costs outpacing the decline in earning asset yields, and the            issuance of preferred stock. Federal Reserve actions to reduce the targeted fed funds            rate by 225 basis points during the first nine months of 2008 led to decreased earning            asset yields and a decline in average funding costs. Noninterest income totaled $91.0            million for the first nine months of 2008, compared to $84.6 million for the first nine            months of 2007. The increase in noninterest income was largely attributable to a gain            on mandatory partial redemption of shares received in the Visa IPO of $1.9 million and            a net gain on securities of $1.6 million in the first nine months of 2008 versus a $3.3            million net loss during the first nine months of 2007. In addition, for the first nine            months of 2008, gain on certain derivative activities totaled $49,000 versus a loss of            $1.2 million for the first nine months of 2007. TSFG’s debit card income (net)            and merchant processing income (net) for the first nine months of 2008 increased over            the prior year amounts, but were offset by decreases in most other noninterest income            categories.

          Noninterest            expenses totaled $449.2 million for the first nine months of 2008, compared to $240.4            for the nine months ended September 30, 2007. This increase was primarily due to the            $188.4 million goodwill impairment charge in the first quarter of 2008. The increase in            noninterest expenses also included higher employment contract and severance expense            related to the retirement of TSFG’s CEO, higher advertising and business            development expenses, higher regulatory assessments, higher loan collection and            monitoring expenses, and branch acquisition and conversion costs related to the            acquisition of five branches in Orlando, partially offset by declines in professional            fees.

          Using            period-end balances, TSFG’s loans held for investment at September 30, 2008            increased 0.84% from December 31, 2007, and total deposit balances increased 2.2%.            Customer funding (deposits less brokered deposits plus customer sweep accounts)            decreased 2.3% from December 31, 2007 to September 30, 2008.

25

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                    On            September 2, 2008, the Board of Directors and Mack I. Whittle, the Company’s            Chairman, President, and Chief Executive Officer, entered into a severance agreement            pursuant to which Whittle would receive certain retirement benefits and retire on            or before December 30, 2008 (at the Board’s election). Those benefits include,            among others, a lump sum cash payment of $4.1 million, vesting of all equity awards,            service credit under the Supplemental Executive Retirement Plan through age 65            (incremental expense of $4.1 million, of which approximately $2 million relates to            service credit through age 65) which provides an annual retirement payment commencing            at retirement date, vested benefits under other Company plans, continued welfare and            fringe benefits for three years, and three years of continued life insurance coverage.            The incremental expense related to these benefits is approximately $12 million, of            which $4.6 million was recognized in third quarter 2008, with the remaining expense to            be recognized in fourth quarter 2008. Subsequent to quarter-end, the Executive            Committee, on behalf of the Board, specified that Whittle’s retirement would be            effective October 27, 2008.

          The            Board has appointed a Succession Committee to oversee a nationwide search for a            replacement for Whittle. In the interim, John C.B. Smith, Jr., the Company’s            former Lead Independent Director and now Chairman (see below), will lead the Board of            Directors and oversee management until such time as a principal executive officer is            named. In addition, TSFG’s three-person operating council, consisting of the            Chief Financial Officer, Chief Commercial Banking Officer, and Chief Retail Banking            Officer will guide the Company through this transition period, acting as the principal            executive officers for purposes of filings. As alluded to above, on November 3, 2008,            the Board amended TSFG’s Bylaws to consolidate the roles and responsibilities of            the Chairman and Lead Independent Director into a single Chairman position. It named            John C. B. Smith, Jr. as Chairman, and William R. Timmons III as Vice            Chairman.

**Recent Market            Developments**

          The            global and U.S. economies are experiencing significantly reduced business activity as a            result of, among other factors, disruptions in the financial system during the past            year. Dramatic declines in the housing market during the past year, with falling home            prices and increasing foreclosures and unemployment, have resulted in significant            write-downs of asset values by financial institutions, including government-sponsored            entities and major commercial and investment banks. These write-downs, initially of            residential-related loans and mortgage-backed securities, but spreading to credit            default swaps and other derivative securities have caused many financial institutions            to seek additional capital, to merge with larger and stronger institutions and, in some            cases, to fail.

          Reflecting            concern about the stability of the financial markets generally and the strength of            counterparties, many lenders and institutional investors have reduced, and in some            cases, ceased to provide funding to borrowers, including other financial institutions.            The availability of credit, confidence in the financial sector, and level of volatility            in the financial markets have been significantly adversely affected as a result. In            recent weeks, volatility and disruption in the capital and credit markets has reached            unprecedented levels. In some cases, the markets have produced downward pressure on            stock prices and credit capacity for certain issuers without regard to those            issuers’ underlying financial strength.

          In            response to the financial crises affecting the banking system and financial markets and            going concern threats to investment banks and other financial institutions, the            Emergency Economic Stabilization Act of 2008 (the “EESA”) was signed into            law on October 3, 2008. Pursuant to the EESA, the U.S. Treasury was given the authority            to, among other things, purchase up to $700 billion of mortgages, mortgage-backed            securities and certain other financial instruments from financial institutions for the            purpose of stabilizing and providing liquidity to the U.S. financial            markets.

          On            October 3, 2008, the FDIC increased its insurance coverage limits on all deposits from            $100,000 to $250,000 per account until December 31, 2009.

          On            October 14, 2008, Secretary Paulson, after consulting with the Federal Reserve and the            FDIC, announced that the Department of the Treasury will purchase equity stakes in            certain banks and thrifts. Under this program, known as the Troubled Asset Relief            Program Capital Purchase Program (the “TARP Capital Purchase Program”), the            Treasury will make $250 billion of capital available to U.S. financial institutions in            the form of preferred stock (from the $700 billion authorized by the EESA). In            conjunction with the purchase of preferred stock, the Treasury will receive warrants to            purchase common stock with an aggregate market price equal to 15% of the preferred            investment. Participating financial institutions will be required to adopt the            Treasury’s standards for executive compensation and corporate governance for the            period during which the Treasury holds equity issued under the TARP Capital Purchase            Program. Secretary Paulson also announced that nine large financial institutions agreed            to participate in the TARP Capital Purchase Program.

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                    Also            on October 14, 2008, after receiving a recommendation from the boards of the FDIC and            the Federal Reserve, and consulting with the President, Secretary Paulson signed the            systemic risk exception to the FDIC Act, enabling the FDIC to temporarily provide a            100% guarantee of the senior unsecured debt of all FDIC-insured institutions and their            holding companies, as well as deposits in noninterest-bearing transaction deposit            accounts under a Temporary Liquidity Guarantee Program through December 31, 2009.            Coverage under the Temporary Liquidity Guarantee Program is available for 30 days            without charge (subsequently extended to December 5, 2008) and thereafter at a cost of            75 basis points per annum for senior unsecured debt and 10 basis points per annum for            noninterest-bearing transaction deposits.

          TSFG has decided to pursue capital under the TARP Capital Purchase Program, which based on the programguidelines, would range from $115 to $347 million; however, no assurance can be given that TSFG will be approvedunder those guidelines. Additionally, TSFG has decided to proceed with the Temporary Liquidity Guarantee Programrelated to noninterest-bearing deposit accounts after the initial period of November 12, 2008; however, TSFGcontinues to evaluate whether it will participate in the Temporary Liquidity Guarantee Program relative to theguarantee of applicable unsecured obligations.

          It            is not clear at this time what impact the EESA, the TARP Capital Purchase Program, the            Temporary Liquidity Guarantee Program, or other liquidity and funding initiatives will            have on the financial markets and the other difficulties described above, including the            high levels of volatility and limited credit availability currently being experienced,            or on the U.S. banking and financial industries and the broader U.S. and global            economies. Further adverse effects could have an adverse effect on the Company and its            business.

**Critical            Accounting Policies and Estimates**

          TSFG’s            accounting policies are in accordance with accounting principles generally accepted in            the United States and with general practice within the banking industry. TSFG makes a            number of judgmental estimates and assumptions relating to reported amounts of assets            and liabilities and the disclosure of contingent assets and liabilities at the date of            the Consolidated Financial Statements and the reported amounts of revenues and expenses            during periods presented. Material estimates that are particularly susceptible to            significant change relate to the determination of the allowance for loan losses and            reserve for unfunded lending commitments; the effectiveness of derivatives and other            hedging activities; the fair value of certain financial instruments (loans held for            sale, securities, derivatives, privately held investments, impaired loans); income tax            assets or liabilities; share-based compensation; and accounting for acquisitions,            including the fair value determinations, the analysis of goodwill for impairment and            the analysis of valuation allowances in the initial accounting of loans acquired. To a            lesser extent, significant estimates are also associated with the determination of            contingent liabilities, discretionary compensation, and other employee benefit            agreements. Different assumptions in the application of these policies could result in            material changes in TSFG’s Consolidated Financial Statements. Accordingly, as            this information changes, the Consolidated Financial Statements could reflect the use            of different estimates, assumptions, and judgments. Certain determinations inherently            have a greater reliance on the use of estimates, assumptions, and judgments, and as            such have a greater possibility of producing results that could be materially different            than originally reported. TSFG has procedures and processes in place to facilitate            making these judgments.

     *Allowance            for Loan Losses and Reserve for Unfunded Lending Commitments*

          The            allowance for loan losses (“Allowance”) represents management’s            estimate of probable incurred losses in the lending portfolio. Management’s            ongoing evaluation of the adequacy of the Allowance considers both impaired and            unimpaired loans and takes into consideration TSFG’s past loan loss experience,            known and inherent risks in the portfolio, existing adverse situations that may affect            the borrowers’ ability to repay, estimated value of any underlying collateral, an            analysis of guarantees and an analysis of current economic factors and existing            conditions.

          Assessing            the adequacy of the Allowance is a process that requires considerable judgment.            Management considers the period-end Allowance appropriate and adequate to cover            probable incurred losses in the loan portfolio. However, management’s judgment is            based upon a number of assumptions about current events, which are believed to be            reasonable, but which may or may not prove valid. Thus, there can be no assurance that            loan losses in future periods will not exceed the current Allowance amount or that            future increases in the Allowance will not be required. No assurance can be given that            management’s ongoing evaluation of the loan portfolio in light of changing            economic conditions and other relevant circumstances will not require significant            future additions to the Allowance, thus adversely affecting the operating results of            TSFG.

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          The            methodology used to determine the reserve for unfunded lending commitments, which is            included in other liabilities, is inherently similar to that used to determine the            Allowance described above, adjusted for factors specific to binding commitments,            including the probability of funding and historical loss ratio.

          A            more detailed discussion of TSFG’s Allowance and reserve for unfunded lending            commitments is included in the “Balance Sheet Review – Allowance for Loan            Losses and Reserve for Unfunded Lending Commitments” section.

     *Derivatives            and Hedging Activities*

          TSFG            uses derivative financial instruments to reduce exposure to changes in interest rates            and market prices for financial instruments. The application of hedge accounting            requires judgment in the assessment of hedge effectiveness, identification of similarly            hedged item groupings, and measurement of changes in the fair value of derivatives and            related hedged items. TSFG believes that its methods for addressing these judgmental            areas are reasonable and in accordance with generally accepted accounting principles in            the United States. See “Derivative Financial Instruments” and “Fair            Value of Certain Financial Instruments” for additional information regarding            derivatives.

     *Fair            Value of Certain Financial Instruments*

          Effective            January 1, 2008, TSFG adopted SFAS No. 157 (“SFAS 157”), “Fair Value            Measurements” for its financial assets and liabilities and SFAS No. 159            (“SFAS 159”), “The Fair Value Option for Financial Assets and            Financial Liabilities” with no significant impact on its Consolidated Financial            Statements. These standards define fair value, establish guidelines for measuring fair            value, and allow an irrevocable option to elect fair value for the initial and            subsequent measurement for certain financial assets and liabilities on a            contract-by-contract basis.

          SFAS            157 defines fair value as the exchange price that would be received for an asset or            paid to transfer a liability (an exit price) in the principal or most advantageous            market for the asset or liability in an orderly transaction between market participants            on the measurement date. SFAS 157 also establishes a fair value hierarchy which            requires an entity to maximize the use of observable inputs and minimize the use of            unobservable inputs when measuring fair value. Fair value is based on quoted market            prices for the same or similar instruments, adjusted for any differences in terms. If            market values are not readily available, then the fair value is estimated. For example,            when TSFG has an investment in a privately held company, TSFG’s management            evaluates the fair value of these investments based on the entity’s ability to            generate cash through its operations, obtain alternative financing, and subjective            factors. Modeling techniques, such as discounted cash flow analyses, which use            assumptions for interest rates, credit losses, prepayments, and discount rates, are            also used to estimate fair value if market values are not readily available.

          TSFG            carries its available for sale securities, mortgage loans held for sale, and            derivatives at fair value. The unrealized gains or losses, net of income tax effect, on            available for sale securities and the effective component of derivatives qualifying as            cash flow hedges are included in accumulated other comprehensive income (loss), a            separate component of shareholders’ equity. The fair value adjustments for            mortgage loans held for sale and derivative financial instruments not qualifying as            cash flow hedges are included in earnings. In addition, for hedged items in a fair            value hedge, changes in the hedged item’s fair value attributable to the hedged            risk are also included in noninterest income. No fair value adjustment is allowed for            the related hedged asset or liability in circumstances where the derivatives do not            meet the requirements for hedge accounting under SFAS No. 133 (“SFAS 133”),            “Accounting for Derivative Instruments and Hedging Activities.”

          TSFG            periodically evaluates its investment securities portfolio for other-than-temporary            impairment. If a security is considered to be other-than-temporarily impaired, the            related unrealized loss is charged to operations, and a new cost basis is established.            Factors considered include the reasons for the impairment, the severity and duration of            the impairment, changes in value subsequent to period-end, and forecasted performance            of the security issuer. Impairment is considered other-than-temporary unless TSFG has            both the intent and ability to hold the security until the fair value recovers and            evidence supporting the recovery outweighs evidence to the contrary. However, for            equity securities, which typically do not have a contractual maturity with a specified            cash flow on which to rely, the ability to hold an equity security indefinitely, by            itself, does not allow for avoidance of other-than-temporary impairment.

          The            fair values of TSFG’s investments in privately held limited partnerships,            corporations and LLCs are not readily available. These investments are accounted for            using either the cost or the equity method of accounting. The accounting treatment            depends upon TSFG’s percentage ownership and degree of management influence.            TSFG’s

28

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management            evaluates its investments in limited partnerships and LLCs quarterly for impairment            based on the investee’s ability to generate cash through its operations, obtain            alternative financing, and subjective factors. There are inherent risks associated with            TSFG’s investments in privately held limited partnerships, corporations and LLCs,            which may result in income statement volatility in future periods.

          The            process for valuing financial instruments, particularly those with little or no            liquidity, is subjective and involves a high degree of judgment. Small changes in            assumptions can result in significant changes in

valuation.            Valuations are subject to change as a result of external factors beyond our control            that have a substantial degree of uncertainty. The inherent risks associated with            determining the fair value of a financial instrument may result in income statement            volatility in future periods.

          We            may be required, from time to time, to measure certain other assets at fair value on a            nonrecurring basis in accordance with generally accepted accounting principles. These            adjustments to fair value usually result from write-downs of individual assets. For            example, nonrecurring fair value adjustments to loans held for investment reflect full            or partial write-downs that are based on the loan’s observable fair value or the            fair value of the underlying collateral in accordance with SFAS No. 114,            “Accounting by Creditors for Impairment of a Loan.” Nonrecurring fair value            adjustments to loans held for sale (other than mortgage loans held for sale) reflect            the application of the principle of lower of cost or fair value.

          See            Note 14 to the Consolidated Financial Statements for more information on fair value            measurements for the three and nine months ended September 30, 2008.

     *Income            Taxes*

          Management            uses certain assumptions and estimates in determining income taxes payable or            refundable, deferred income tax liabilities and assets for events recognized            differently in its financial statements and income tax returns, and income tax expense.            Determining these amounts requires analysis of certain transactions and interpretation            of tax laws and regulations. Management exercises considerable judgment in evaluating            the amount and timing of recognition of the resulting income tax liabilities and            assets. These judgments and estimates are re-evaluated on a continual basis as            regulatory and business factors change.

          No            assurance can be given that either the tax returns submitted by management or the            income tax reported on the Consolidated Financial Statements will not be adjusted by            either adverse rulings by the U.S. Tax Court, changes in the tax code, or assessments            made by the Internal Revenue Service (“IRS”). TSFG is subject to potential            adverse adjustments, including but not limited to: an increase in the statutory federal            or state income tax rates, the permanent nondeductibility of amounts currently            considered deductible either now or in future periods, and the dependency on the            generation of future taxable income, including capital gains, in order to ultimately            realize deferred income tax assets.

          TSFG            adopted FASB Interpretation No. 48 (“FIN 48”), “Accounting for            Uncertainty in Income Taxes,” on January 1, 2007. Under FIN 48, TSFG will only            include the current and deferred tax impact of its tax positions in the financial            statements when it is more likely than not (likelihood of greater than 50%) that such            positions will be sustained by taxing authorities, with full knowledge of relevant            information, based on the technical merits of the tax position. While TSFG supports its            tax positions by unambiguous tax law, prior experience with the taxing authority, and            analysis that considers all relevant facts, circumstances and regulations, management            must still rely on assumptions and estimates to determine the overall likelihood of            success and proper quantification of a given tax position.

          TSFG            recognizes deferred tax assets and liabilities based on differences between the            financial statement carrying amounts and the tax bases of assets and liabilities.            Management regularly reviews the Company’s deferred tax assets for recoverability            based on history of earnings, expectations for future earnings and expected timing of            reversals of temporary differences. Realization of the deferred tax asset in accordance            with GAAP ultimately depends on the existence of sufficient taxable income available            under tax law, including future reversals of existing temporary differences, future            taxable income exclusive of reversing differences, taxable income in prior carryback            years, and tax planning strategies.

          Although            realization is not assured, management believes the recorded deferred tax assets,            beyond the REIT capital loss and the South Carolina non-bank net operating loss (which            currently have a valuation allowance recorded as reported in Note 16 to the            Consolidated Financial Statements included in TSFG’s Annual Report on Form 10-K            for the year ended December 31, 2007), are fully recoverable based on forecasts of            future income and current forecasts for the periods through which losses may be carried            back and/or forward. Should the assumptions of future profitability change

29

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significantly            beyond the carryback period, a valuation allowance may be established if management            believes any portion of the deferred tax asset will not be realized.

     *Share-Based            Compensation*

          TSFG            measures compensation cost for share-based awards at fair value and recognizes            compensation over the service period for awards expected to vest. The fair value of            restricted stock and restricted stock units is based on the number of shares granted            and the quoted price of our common stock, the fair value of service-based stock options            is determined using the Black-Scholes valuation model, and the fair value of            market-based stock options is determined using a Monte Carlo simulation. Both the            Black-Scholes model and the Monte Carlo simulation require the input of subjective            assumptions, changes to which can materially affect the fair value estimate. In            addition, the estimation of share-based awards that will ultimately vest requires            judgment, and to the extent actual results or updated estimates differ from our current            estimates, such amounts will be recorded as a cumulative adjustment in the period            estimates are revised. TSFG considers many factors when estimating expected            forfeitures, including types of awards, employee class, and historical experience.            Actual results, and future changes in estimates, may differ substantially from our            current estimates. For performance-based awards, TSFG estimates the degree to which            performance conditions will be met to determine the number of shares which will vest            and the related compensation expense prior to the vesting date.

     *Accounting            for Acquisitions*

          TSFG            has grown its operations, in part, through bank and non-bank acquisitions. Since 2000,            and in accordance with SFAS No. 141, “Business Combinations,” and No. 142,            “Goodwill and Other Intangible Assets,” TSFG has used the purchase method            of accounting to account for acquisitions. Under this method, TSFG is required to            record assets acquired and liabilities assumed at their fair value, which in many            instances involves estimates based on third party, internal, or other valuation            techniques. These estimates also include the establishment of various accruals for            planned facilities dispositions and employee benefit related considerations, among            other acquisition-related items. In addition, purchase acquisitions typically result in            goodwill or other intangible assets, which are subject to periodic impairment tests, on            an annual basis, or more often, if events or circumstances indicate that there may be            impairment. These tests, which TSFG performed annually as of June 30th since 2002, use            estimates such as projected cash flows, discount rates, time periods, and comparable            market values in their calculations. Furthermore, the determination of which intangible            assets have finite lives is subjective, as well as the determination of the            amortization period for such intangible assets.

          TSFG            evaluates goodwill for impairment by determining the fair value for each reporting unit            and comparing it to the carrying amount. If the carrying amount exceeds its fair value,            the potential for impairment exists, and a second step of impairment testing is            required. In the second step, the implied fair value of the reporting unit’s            goodwill is determined by allocating the reporting unit’s fair value to all of            its assets (recognized and unrecognized) and liabilities as if the reporting unit had            been acquired in a business combination at the date of the impairment test. If the            implied fair value of reporting unit goodwill is lower than its carrying amount,            goodwill is impaired and is written down to its implied fair value.

          During            first quarter 2008, the acceleration of credit deterioration in Florida prompted TSFG            to perform an updated interim impairment evaluation of a significant portion of the            recorded goodwill as of March 31, 2008. As a result of this evaluation, during first            quarter 2008, TSFG recognized goodwill impairment in the Florida banking segment            primarily due to increased projected credit costs and a related decrease in projected            loan growth, as well as changes in the measurement of segment profitability. See            “Goodwill” for additional discussion of management’s process and the            assumptions and judgments applied. The annual evaluation performed as of June 30, 2008            and a subsequent interim evaluation performed as of September 30, 2008 indicated that            no additional impairment charge was required as of those dates.

          For            several previous acquisitions, TSFG has agreed to issue contingent earn-out payments            based on the achievement of certain performance targets. Upon paying the additional            consideration, TSFG would record additional goodwill.

          TSFG’s            other intangible assets have an estimated finite useful life and are amortized over            that life in a manner that reflects the estimated decline in the economic value of the            identified intangible asset. TSFG periodically reviews its other intangible assets to            determine whether there have been any events or circumstances which indicate the            recorded amount is not recoverable from projected undiscounted cash flows. If the            projected undiscounted net operating cash flows are less than the carrying amount, a            loss is recognized to reduce the carrying amount to fair value, and when appropriate,            the amortization period is also reduced.

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**Expanded            Corporate Facilities**

          During            2007, TSFG started construction on its Expanded Corporate Facilities. Through September            30, 2008, TSFG had invested approximately $55 million in the project (which has been            capitalized in premises and equipment on the consolidated balance sheet as construction            in progress) and had entered into additional contractual commitments of approximately            $37 million. The initial phase of the facilities is expected to be placed in service            during mid-2009.

**Balance Sheet            Review**

                 *Loans*

          TSFG            focuses its lending activities on small and middle market businesses and individuals in            its geographic markets. At September 30, 2008, outstanding loans totaled $10.3 billion,            which equaled 103.3% of total deposits (139.0% of customer deposits) and 75.5% of total            assets. Loans held for investment increased $86.2 million, or 0.84%, from $10.2 billion            at December 31, 2007. The major components of the loan portfolio were commercial loans,            commercial real estate loans, and consumer loans (including both direct and indirect            loans). Substantially all loans were to borrowers located in TSFG’s market areas            in South Carolina, Florida, and North Carolina. At September 30, 2008, approximately 6%            of the portfolio was unsecured.

          As            part of its portfolio and balance sheet management strategies, TSFG reviews its loans            held for investment and determines whether its intent for specific loans or classes of            loans has changed. If management changes its intent from held for investment to held            for sale, the loans are transferred to the held for sale portfolio and recorded at the            lower of cost basis or fair value.

          During            the three and nine months ended September 30, 2008, TSFG transferred commercial real            estate loans with an unpaid principal balance totaling $71.7 million and $111.7            million, respectively, from the held for investment portfolio to the held for sale            portfolio, and charged-off $28.1 million and $49.8 million, respectively, of these            loans against the allowance for loan losses. Of these loans, $38.7 million (net of            charge-offs) were sold, leaving $23.2 million (net of charge-offs) on the balance sheet            in loans held for sale at September 30, 2008, of which $22.6 million are considered            nonperforming loans.

          TSFG            generally sells a majority of its residential mortgage loans in the secondary market.            TSFG also retains certain of its mortgage loans in its held for investment portfolio as            part of its overall balance sheet management strategy. Mortgage loans held for sale            decreased $3.5 million to $14.3 million at September 30, 2008, from $17.9 million at            December 31, 2007, primarily due to lower mortgage loan volume and timing of mortgage            sales. Effective January 1, 2008, TSFG elected to account for its mortgage loans held            for sale at fair value pursuant to SFAS 159.

          Table            1 summarizes outstanding loans held for investment by collateral type for real estate            secured loans and by borrower type for all other loans. Collateral type represents the            underlying assets securing the loan, rather than the purpose of the loan. Table 2            provides a stratification of the loan portfolio held for investment by loan purpose,            which is more meaningful in terms of portfolio management. This presentation differs            from that in Table 1, which stratifies the portfolio by collateral type and borrower            type, consistent with external regulatory reporting.

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|                                                                                            |
|-------------------------------------------------------------------------------------------------|
| **Table                        1**                                                              |
|                                                                                                 |
| **Loan Portfolio                        Composition Based on Collateral Type or Borrower Type** |
|                                                                                                 |
| **(dollars in                        thousands)**                                               |

|                                                                    |   |                                     |       |                                         |   |       |   |   |       |   |
|-------------------------------------------------------------------------|--------|------------------------------------------|------------|----------------------------------------------|--------|------------|--------|--------|------------|--------|
|                                                                    |   | **September                        30,** |       | **December 31,                        2007** |   |
|                                                                    |   |                                          |       |                                         |
|                                                                    |   | **2008**                                 |       | **2007**                                     |   |       |
|                                                                    |   |                                          |       |                                              |   |            |   |
| Commercial, financial                        and agricultural           |   | $                                        | 2,333,390  |                                         | $      | 2,289,016  |   | $      | 2,309,294  |   |
| Real estate -                        construction (1)                   |   |                                     | 1,710,837  |                                         |   | 2,160,125  |   |   | 1,763,365  |   |
| Real estate -                        residential mortgages (1-4 family) |   |                                     | 1,538,160  |                                         |   | 1,376,716  |   |   | 1,390,729  |   |
| Commercial secured by                        real estate (1)            |   |                                     | 3,941,121  |                                         |   | 3,533,700  |   |   | 3,946,440  |   |
| Consumer                                                                |   |                                     | 776,132    |                                         |   | 813,680    |   |   | 803,592    |   |
|                                                                    |   |                                          |            |                                         |        |            |   |        |            |   |
| Loans held for                        investment                        |   | $                                        | 10,299,640 |                                         | $      | 10,173,237 |   | $      | 10,213,420 |   |
|                                                                    |   |                                          |            |                                         |        |            |   |        |            |   |

|   |                                                                                                                                                                                                                                                      |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | These categories                        include loans to businesses other than real estate companies where                        owner-occupied real estate is pledged on loans to finance operations,                        equipment, and facilities. |

|                                                                        |
|-----------------------------------------------------------------------------|
| **Table                        2**                                          |
|                                                                             |
| **Loan Portfolio                        Composition Based on Loan Purpose** |
|                                                                             |
| **(dollars in                        thousands)**                           |

|                                                               |   |                                     |       |                                         |   |       |   |   |       |   |
|--------------------------------------------------------------------|--------|------------------------------------------|------------|----------------------------------------------|--------|------------|--------|--------|------------|--------|
|                                                               |   | **September                        30,** |       | **December 31,                        2007** |   |
|                                                               |   |                                          |       |                                         |
|                                                               |   | **2008**                                 |       | **2007**                                     |   |       |
|                                                               |   |                                          |       |                                              |   |            |   |
| **Commercial                        Loans**                        |   |                                     |       |                                         |   |       |   |   |       |   |
| Commercial and                        industrial (1)               |   | $                                        | 2,824,117  |                                         | $      | 2,693,973  |   | $      | 2,742,863  |   |
| Owner - occupied real                        estate (2)            |   |                                     | 1,206,597  |                                         |   | 1,042,131  |   |   | 1,070,376  |   |
| Commercial real estate                        (3)                  |   |                                     | 4,094,164  |                                         |   | 4,178,653  |   |   | 4,158,384  |   |
|                                                               |   |                                          |            |                                         |        |            |   |        |            |   |
|                                                               |   |                                     | 8,124,878  |                                         |   | 7,914,757  |   |   | 7,971,623  |   |
|                                                               |   |                                          |            |                                         |        |            |   |        |            |   |
|                                                               |   |                                     |       |                                         |   |       |   |   |       |   |
| **Consumer                        Loans**                          |   |                                     |       |                                         |   |       |   |   |       |   |
| Indirect - sales                        finance                    |   |                                     | 680,413    |                                         |   | 707,819    |   |   | 699,014    |   |
| Consumer lot                        loans                          |   |                                     | 249,062    |                                         |   | 334,971    |   |   | 311,386    |   |
| Direct retail                        (1)                           |   |                                     | 100,257    |                                         |   | 109,883    |   |   | 107,827    |   |
| Home equity                        (1)                             |   |                                     | 784,357    |                                         |   | 746,253    |   |   | 754,158    |   |
|                                                               |   |                                          |            |                                         |        |            |   |        |            |   |
|                                                               |   |                                     | 1,814,089  |                                         |   | 1,898,926  |   |   | 1,872,385  |   |
|                                                               |   |                                          |            |                                         |        |            |   |        |            |   |
|                                                               |
| **Mortgage Loans**(1)                                              |   |                                     | 360,673    |                                         |   | 359,554    |   |   | 369,412    |   |
|                                                               |   |                                          |            |                                         |        |            |   |        |            |   |
|                                                               |
| Total loans held for                        investment             |   | $                                        | 10,299,640 |                                         | $      | 10,173,237 |   | $      | 10,213,420 |   |
|                                                               |   |                                          |            |                                         |        |            |   |        |            |   |
|                                                               |   |                                     |       |                                         |   |       |   |   |       |   |
| **Percentage of Loans                        Held for Investment** |   |                                     |       |                                         |   |       |   |   |       |   |
| Commercial and                        industrial                   |   |                                     | 27.4       | %                                            |   | 26.5       | %      |   | 26.9       | %      |
| Owner - occupied real                        estate (2)            |   |                                     | 11.7       |                                         |   | 10.2       |   |   | 10.5       |   |
| Commercial real                        estate                      |   |                                     | 39.8       |                                         |   | 41.1       |   |   | 40.7       |   |
| Consumer                                                           |   |                                     | 17.6       |                                         |   | 18.7       |   |   | 18.3       |   |
| Mortgage                                                           |   |                                     | 3.5        |                                         |   | 3.5        |   |   | 3.6        |   |
|                                                               |   |                                          |            |                                         |        |            |   |        |            |   |
|                                                               |
| Total                                                              |   |                                     | 100.0      | %                                            |   | 100.0      | %      |   | 100.0      | %      |
|                                                               |   |                                          |            |                                         |        |            |   |        |            |   |

|   |                                                                                                                                                                                                                                                                                                                        |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | In second quarter 2008,                        TSFG reclassified certain loan balances. Amounts presented for prior                        periods have been reclassified to conform to the current                        presentation.                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                        |
| (2)    | In Table 1, these loans                        are included in the “Real estate – construction” and                        “Commercial secured by real estate” categories, which also                        include loans to non-real estate industry borrowers.                             |
|   |                                                                                                                                                                                                                                                                                                                        |
| (3)    | See “Commercial                        Real Estate Concentration,” “Credit Quality,” and                        “Allowance for Loan Losses and Reserve for Unfunded Lending                        Commitments” for more detail on commercial real estate                        loans. |

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payment loans,            lines of credit for periods up to a year, revolving credit facilities for periods up to            five years, and amortizing term loans for periods up to ten years.

          *Owner - occupied real estate loans* are loans to finance the purchase or expansion            of operating facilities used by businesses not engaged in the real estate business.            Typical loans are loans to finance offices, manufacturing plants, warehouse facilities,            and retail shops. Depending on the property type and the borrower’s cash flows,            amortization terms vary from ten years up to 20 years. Although secured by mortgages on            the properties financed, these loans are underwritten based on the cash flows generated            by operations of the businesses they house.

          *Commercial real estate (“CRE”) loans* are loans to finance real            properties that are acquired, developed, or constructed for sale or lease to parties            unrelated to the borrower. Our CRE products fall into four primary categories including            land, acquisition and development, construction, and income property. See            “Commercial Real Estate Concentration” below for further            details.

          *Indirect - sales finance loans* are loans to individuals to finance the purchase of            motor vehicles. They are closed at the auto dealership but approved in advance by TSFG            for immediate purchase. Loans are extended on new and used motor vehicles with terms            varying from two years to six years. During second quarter 2008, TSFG ceased            originating indirect loans in Florida, and plans to allow this portion of the portfolio            to run off over its remaining life. At September 30, 2008, this portfolio of Florida            indirect loans totaled $428.6 million.

          *Consumer lot loans* are loans to individuals to finance the purchase of residential            lots.

          *Direct retail consumer loans* are loans to individuals to finance personal, family,            or household needs. Typical loans are loans to finance auto purchases or home repairs            and additions.

          *Home equity loans* are loans to homeowners, secured primarily by junior mortgages on            their primary residences, to finance personal, family, or household needs. These loans            may be in the form of amortizing loans or lines of credit with terms up to 15 years.            TSFG’s home equity portfolio consists of loans to direct customers, with no            brokered loans.

          *Mortgage loans* are loans to individuals, secured by first mortgages on            single-family residences, generally to finance the acquisition or construction of those            residences. TSFG generally sells a majority of its residential mortgage loans at            origination in the secondary market. TSFG also retains certain of its mortgage loans in            its held for investment portfolio as part of its overall balance sheet management            strategy. TSFG’s mortgage portfolio is bank-customer related, with minimal            brokered loans or subprime exposure.

          Portfolio            risk is partially managed by maintaining a “house” lending limit at a level            significantly lower than the legal lending limit of Carolina First Bank and by            requiring approval by the Risk Committee of the Board of Directors to exceed this house            limit. At September 30, 2008, TSFG’s house lending limit was $35 million, and 10            credit relationships totaling $441.2 million were in excess of the house lending limit            (but not the legal lending limit). The 20 largest credit relationships had an aggregate            outstanding principal balance of $477.8 million, or 4.6% of total loans held for            investment at September 30, 2008, compared to 4.2% of total loans held for investment            at December 31, 2007.

          TSFG,            through its Corporate Banking group, participates in “shared national            credits” (multi-bank credit facilities of $20 million or more, or            “SNCs”), primarily to borrowers who are headquartered or conduct business            in or near our markets. At September 30, 2008, the loan portfolio included commitments            totaling $1.2 billion in SNCs. Outstanding borrowings under these commitments totaled            $701.6 million at September 30, 2008, increasing from $660.7 million at December 31,            2007. The largest commitment was $40.0 million and the largest outstanding balance was            $30.6 million at September 30, 2008. In addition to internal limits that control our            credit exposure to individual borrowers, we have established limits on the size of the            overall SNC portfolio, and have established a sub-limit for total credit exposure to            borrowers located outside of our markets. All of our SNC relationships are underwritten            and managed in a centralized Corporate Banking Group staffed with experienced bankers.            Our strategy targets borrowers whose management teams are well known to us and whose            risk profile is above average. Our ongoing strategic plan is to maintain diversity in            our portfolio and expand the profitability of our relationships through the sale of            non-credit products. Going forward, we expect to reduce the percentage of our portfolio            invested in SNCs.

                 *Commercial Real Estate Concentration*

          The            portfolio’s largest concentration is in commercial real estate loans. Real estate            development and construction are major components of the economic activity that occurs            in TSFG’s markets. We attempt to manage the risk attributable

33

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to the            concentration in commercial real estate loans by focusing our lending on markets with            which we are familiar and on borrowers with proven track records whom we believe            possess the financial means to weather adverse market conditions. Also, management            believes that diversification by geography, property type, and borrower partially            diversifies the risk of loss in its commercial real estate loan portfolio.

          TSFG’s            commercial real estate products include the following:

|                                             |   |                                                                                                                                                                                              |
|--------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **CRE                        Product**           |   | **Description**                                                                                                                                                                                   |
|                                                  |   |                                                                                                                                                                                                   |
| Completed income                        property |   | Loans to finance a                        variety of income producing properties, including apartments, retail                        centers, hotels, office buildings and industrial facilities |
|                                             |   |                                                                                                                                                                                              |
| Residential                        A&D       |   | Loans to develop                        land into residential lots                                                                                                                                |
|                                             |   |                                                                                                                                                                                              |
| Commercial                        A&D        |   | Loans to finance the                        development of raw land into sellable commercial lots                                                                                                 |
|                                             |   |                                                                                                                                                                                              |
| Commercial                        construction   |   | Loans to finance the                        construction of various types of income property                                                                                                      |
|                                             |   |                                                                                                                                                                                              |
| Residential                        construction  |   | Loans to construct                        single family housing; primarily to residential builders                                                                                                |
|                                             |   |                                                                                                                                                                                              |
| Residential                        condo         |   | Loans to construct                        or convert residential condominiums                                                                                                                     |
|                                             |   |                                                                                                                                                                                              |
| Undeveloped                        land          |   | Loans to acquire                        land for resale or future development                                                                                                                     |

          Underwriting            policies dictate the loan-to-value (“LTV”) limitations for commercial real            estate loans. Table 3 presents selected characteristics of commercial real estate loans            by product type.

|                                                                                |
|-------------------------------------------------------------------------------------|
| **Table                        3**                                                  |
|                                                                                     |
| **Selected                        Characteristics of Commercial Real Estate Loans** |
|                                                                                     |
| **(dollars in                        thousands)**                                   |

|                                             |   |                                          |   |                                                                                            |   |                                                                         |   |                                                                    |   |   |   |    |   |
|--------------------------------------------------|--------|-----------------------------------------------|--------|-------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------|--------|--------|--------|---------|--------|
|                                             |   | **September 30,                        2008** |   |
|                                             |   |                                               |   |
|                                             |   | **Policy                        LTV**         |   | **Weighted Average                        Time to Maturity                        (in months)** |   | **Weighted                        Average                        Loan Size** |   | **Largest                        Ten                        Total O/S** |   |
|                                             |   |                                               |   |                                                                                                 |   |                                                                              |   |                                                                         |   |
| Completed income                        property |   | 85                                            | %      |                                                                                            | 44.7   |                                                                         |   | $                                                                       | 488    |   | $      | 134,029 |   |
| Residential                        A&D       |   | 75                                            |   |                                                                                            | 10.7   |                                                                         |   |                                                                    | 672    |   |   | 109,616 |   |
| Commercial                        A&D        |   | 75                                            |   |                                                                                            | 11.2   |                                                                         |   |                                                                    | 1,000  |   |   | 98,939  |   |
| Commercial                        construction   |   | 80                                            |   |                                                                                            | 28.1   |                                                                         |   |                                                                    | 2,325  |   |   | 142,340 |   |
| Residential                        construction  |   | 80                                            |   |                                                                                            | 12.5   |                                                                         |   |                                                                    | 329    |   |   | 69,544  |   |
| Residential                        condo         |   | 80                                            |   |                                                                                            | 10.1   |                                                                         |   |                                                                    | 1,567  |   |   | 138,747 |   |
| Undeveloped                        land          |   | 65                                            |   |                                                                                            | 11.2   |                                                                         |   |                                                                    | 709    |   |   | 81,813  |   |
|                                             |
| Overall                                          |   |                                          |   |                                                                                            | 29.7   |                                                                         |   | $                                                                       | 597    |   | $      | 775,028 |   |

          In            addition to LTV limitations, other commercial real estate management processes are as            follows:

          *Project Hold Limits.* TSFG has implemented project hold limits (which represent the            maximum amount that TSFG will hold in its portfolio by project) tiered by the            underlying risk. These project limits act to encourage the appropriate amount of            borrower and geographic granularity within the portfolio. Since the project limits vary            by grade, TSFG attempts to reduce the exposure in correlation to the amount of assigned            risk inherent in the project.

          *Construction Advances.* TSFG monitors construction advances on all new construction            projects and existing or renewed construction projects over set thresholds to ensure            inspections are properly obtained and advances are consistent with the construction            budget. The appropriateness of the construction budget is part of the underwriting            package and considered during the approval process. The monitoring is administered by            the centralized Construction Loan Administration department on an ongoing            basis.

          *Quarterly Project Reviews.* On a quarterly basis, each commercial real estate loan            greater than $5 million is reviewed as part of a large project review process. Risk            Management and the Relationship Manager discuss recent sales activity, local market            absorption rates and the progress of each transaction in order to ensure proper            internal risk rating and borrower strategy.

          *Appraisal Policies.* It is TSFG’s policy to comply with Interagency Appraisal            and Evaluation Guidelines as issued by the Office of the Comptroller of the Currency,            the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance            Corporation, and the Office of Thrift Supervision (the “Agencies”). These            guidelines address

34

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supervisory            matters relating to real estate appraisals and evaluations used to support real            estate-related financial transactions and provide guidance to both examiners and            regulated institutions about prudent appraisal and evaluation programs. Under the            Agencies’ appraisal regulations, the appraiser is selected and engaged directly            by TSFG or its agent. Additionally, because the appraisal and evaluation process is an            integral component of the credit underwriting process, these processes should be            isolated from influence by our loan production process. TSFG orders and reviews all            appraisals for loans over a set threshold through a centralized review            function.

          Although            the Agencies’ appraisal regulations exempt certain categories of real            estate-related financial transactions from the appraisal requirements, most real estate            transactions over $250,000 are considered federally regulated transactions and thus            require appraisals. The Agencies allow us to use an existing appraisal or evaluation to            support a subsequent transaction, if we document that the existing estimate of value            remains valid. Criteria for determining whether an existing appraisal or evaluation            remains valid will vary depending upon the condition of the property and the            marketplace, and the nature of any subsequent transaction. Factors that could cause            changes to originally reported values include: the passage of time; the volatility of            the local market; the availability of financing; the inventory of competing properties;            improvement to, or lack of maintenance of, the subject property or competing            surrounding properties; changes in zoning; or environmental contamination.

          While            the Agencies’ appraisal regulations generally allow appropriate evaluations of            real estate collateral in lieu of an appraisal for loan renewals and refinancing, in            certain situations an appraisal is required. If new funds are advanced over reasonable            closing costs, we would be expected to obtain a new appraisal for the renewal of an            existing transaction when there is a material change in market conditions or the            physical aspects of the property that threatens our real estate collateral            protection.

          A            reappraisal would not be required when we advance funds to protect our interest in a            property, such as to repair damaged property, because these funds should be used to            restore the damaged property to its original condition. If a loan workout involves            modification of the terms and conditions of an existing credit, including acceptance of            new or additional real estate collateral, which facilitates the orderly collection of            the credit or reduces our risk of loss, a reappraisal or reevaluation may be prudent,            even if it is obtained after the modification occurs.

          TSFG’s            policy is to order new appraisals in the following circumstances:

|   |   |                                                                                                                                                                                                                                                      |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | Funds are being                        advanced to increase the loan above the originally committed loan amount                        and the appraisal is more than 18 months old;                                                                      |
|   |   |                                                                                                                                                                                                                                                      |
|   | • | Loan                        is downgraded to substandard or worse, and the appraisal is more than three                        years old or significant adverse changes have occurred in the market where                        the property is located; |

|   |   |                                                                                                                                                                                                                                                                                                                       |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | Loan                        is downgraded to watch, and the appraisal is more than five years old or                        significant adverse changes have occurred in the market where the property                        is located;                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                       |
|   | • | Loan                        is restructured to advance additional funds or extend the original                        amortization term, and the appraisal is over three years old or significant                        adverse changes have occurred in the market where the property is                        located; |
|   |   |                                                                                                                                                                                                                                                                                                                       |
|   | • | Property is being                        cross-pledged to another loan (other than an abundance of caution), and the                        appraisal is over three years old or significant adverse changes have                        occurred in the market where the property is located.                             |

          Credit            Officers and Special Assets Officers make the final determination of whether an updated            appraisal is required and the timing of the updated appraisal, as part of their            approval and portfolio management responsibilities.

          *Stress Testing.* TSFG has implemented a Dual Risk Rating system with nine risk            scorecards. The Risk Rating system was launched in December 2007, and fully implemented            by March 31, 2008. TSFG expects to begin stressing historical risk ratings following            proper validation of assignments and migration studies.

          Late            in first quarter 2008, the land portfolio in Florida began to exhibit indicators of            distress which prompted additional analysis of the existing portfolio and potential            losses based on existing loan to value ratios and anticipated default probabilities.            This analysis is further discussed in “Allowance for Loan Losses and Reserve for            Unfunded Lending Commitments” below. The allowance for loan losses was increased            by approximately $26 million during the first nine months of 2008 as a result of this            analysis.

35

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          Table            4 presents the commercial real estate portfolio by geography, while Table 5 presents            the commercial real estate portfolio by geography and property type. Commercial real            estate nonaccruals, past dues, and net charge-offs are presented in Tables 7, 8, and            12, respectively. TSFG monitors trends in these categories in order to evaluate the            possibility of higher credit risk in its commercial real estate portfolio.

|                                                                                      |
|-------------------------------------------------------------------------------------------|
| **Table                        4**                                                        |
|                                                                                           |
| **Commercial Real                        Estate Loans by Geographic Diversification (1)** |
|                                                                                           |
| **(dollars in                        thousands)**                                         |

|                                                                      |   |                                          |      |                                                             |   |        |   |                                                             |      |   |   |   |   |
|---------------------------------------------------------------------------|--------|-----------------------------------------------|-----------|------------------------------------------------------------------|--------|-------------|--------|------------------------------------------------------------------|-----------|--------|--------|--------|--------|
|                                                                      |   | **September 30,                        2008** |      | **December 31,                        2007**                     |   |
|                                                                      |   |                                               |      |                                                                  |   |
|                                                                      |   | **Balance**                                   |      | **%                        of                        Total CRE** |   | **Balance** |   | **%                        of                        Total CRE** |      |
|                                                                      |   |                                               |      |                                                                  |   |             |   |                                                                  |      |
| South Carolina,                        exluding Coastal:                  |   |                                          |      |                                                             |   |        |   |                                                             |      |   |   |   |   |
| Upstate South Carolina                        (Greenville)                |   | $                                             | 451,735   |                                                             |   | 11.0        | %      | $                                                                | 400,936   |   |   | 9.6    | %      |
| Midlands South Carolina                        (Columbia)                 |   |                                          | 248,121   |                                                             |   | 6.1         |   |                                                             | 300,414   |   |   | 7.2    |   |
| Greater South Charlotte                        South Carolina (Rock Hill) |   |                                          | 155,565   |                                                             |   | 3.8         |   |                                                             | 134,166   |   |   | 3.2    |   |
| Coastal South                        Carolina:                            |   |                                          |      |                                                             |   |        |   |                                                             |      |   |   |   |   |
| North Coastal South                        Carolina (Myrtle Beach)        |   |                                          | 324,300   |                                                             |   | 7.9         |   |                                                             | 297,075   |   |   | 7.2    |   |
| South Coastal South                        Carolina (Charleston)          |   |                                          | 305,943   |                                                             |   | 7.5         |   |                                                             | 231,881   |   |   | 5.6    |   |
| Western North Carolina                        (Hendersonville/Asheville)  |   |                                          | 832,527   |                                                             |   | 20.3        |   |                                                             | 868,226   |   |   | 20.9   |   |
| Central                        Florida:                                   |   |                                          |      |                                                             |   |        |   |                                                             |      |   |   |   |   |
| Central Florida                        (Orlando)                          |   |                                          | 265,675   |                                                             |   | 6.5         |   |                                                             | 278,416   |   |   | 6.7    |   |
| Marion County, Florida                        (Ocala)                     |   |                                          | 165,836   |                                                             |   | 4.1         |   |                                                             | 168,054   |   |   | 4.0    |   |
| North                        Florida:                                     |   |                                          |      |                                                             |   |        |   |                                                             |      |   |   |   |   |
| Northeast Florida                        (Jacksonville)                   |   |                                          | 299,139   |                                                             |   | 7.3         |   |                                                             | 327,877   |   |   | 7.9    |   |
| North Central                        Florida                              |   |                                          | 318,909   |                                                             |   | 7.8         |   |                                                             | 301,485   |   |   | 7.3    |   |
| South Florida (Ft.                        Lauderdale)                     |   |                                          | 249,901   |                                                             |   | 6.1         |   |                                                             | 283,937   |   |   | 6.8    |   |
| Tampa Bay                        Florida                                  |   |                                          | 476,513   |                                                             |   | 11.6        |   |                                                             | 565,917   |   |   | 13.6   |   |
|                                                                      |   |                                               |           |                                                             |        |             |   |                                                                  |           |   |        |        |   |
| Total commercial real                        estate loans                 |   | $                                             | 4,094,164 |                                                             |   | 100.0       | %      | $                                                                | 4,158,384 |   |   | 100.0  | %      |
|                                                                      |   |                                               |           |                                                             |        |             |   |                                                                  |           |   |        |        |   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | Geography is primarily                        determined by the originating operating geographic market and not                        necessarily the ultimate location of the underlying collateral.                        Note: At September 30, 2008 and December 31, 2007, average loan size for                        commercial real estate loans totaled $597,000 and $557,000,                        respectively. |

|                                                                                  |
|---------------------------------------------------------------------------------------|
| **Table                        5**                                                    |
|                                                                                       |
| **Commercial Real                        Estate Loans by Geography and Product Type** |
|                                                                                       |
| **(dollars in                        thousands)**                                     |

|                                                                    |   |                                                                                    |    |                                  |   |                                  |   |                                  |    |                                |   |                                |   |                                 |    |                                 |   |                                                        |   |   |    |   |   |      |   |   |   |   |
|-------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------|---------|---------------------------------------|--------|---------------------------------------|--------|---------------------------------------|---------|-------------------------------------|--------|-------------------------------------|--------|--------------------------------------|---------|--------------------------------------|--------|-------------------------------------------------------------|--------|--------|---------|--------|--------|-----------|--------|--------|--------|--------|
|                                                                    |   | **September 30, 2008                        Commercial Real Estate Loans by Geography** |    |
|                                                                    |   |                                                                                         |    |
|                                                                    |   | **SC, Excl                        Coastal**                                             |    | **Coastal                        SC** |   | **Western                        NC** |   | **Central                        FL** |    | **North                        FL** |   | **South                        FL** |   | **Tampa                        Bay** |    | **Total                        CRE** |   | **%                        of                        LHFI** |   |
|                                                                    |   |                                                                                         |    |                                       |   |                                       |   |                                       |    |                                     |   |                                     |   |                                      |    |                                      |   |                                                             |   |
| **Commercial Real                        Estate Loans by Product Type** |   |                                                                                    |    |                                  |   |                                  |   |                                  |    |                                |   |                                |   |                                 |    |                                 |   |                                                        |   |   |    |   |   |      |   |   |   |   |
| Completed income                        property                        |   | $                                                                                       | 427,767 |                                  | $      | 286,122                               |   | $                                     | 457,476 |                                | $      | 194,794                             |   | $                                    | 358,517 |                                 | $      | 152,861                                                     |   | $      | 206,409 |   | $      | 2,083,946 |   |   | 20.3   | %      |
| Residential                        A&D                              |   |                                                                                    | 111,484 |                                  |   | 76,460                                |   |                                  | 171,628 |                                |   | 55,919                              |   |                                 | 81,290  |                                 |   | 4,048                                                       |   |   | 54,523  |   |   | 555,352   |   |   | 5.4    |   |
| Commercial                        A&D                               |   |                                                                                    | 45,634  |                                  |   | 31,050                                |   |                                  | 42,321  |                                |   | 25,380                              |   |                                 | 10,295  |                                 |   | 12,932                                                      |   |   | 72,455  |   |   | 240,067   |   |   | 2.3    |   |
| Commercial                        construction                          |   |                                                                                    | 162,072 |                                  |   | 47,627                                |   |                                  | 26,659  |                                |   | 35,988                              |   |                                 | 47,940  |                                 |   | 11,005                                                      |   |   | 29,068  |   |   | 360,359   |   |   | 3.5    |   |
| Residential                        construction                         |   |                                                                                    | 49,514  |                                  |   | 32,329                                |   |                                  | 53,988  |                                |   | 29,018                              |   |                                 | 34,171  |                                 |   | 11,265                                                      |   |   | 15,270  |   |   | 225,555   |   |   | 2.2    |   |
| Residential                        condo                                |   |                                                                                    | 23,928  |                                  |   | 109,938                               |   |                                  | 10,295  |                                |   | 9,223                               |   |                                 | 17,541  |                                 |   | 17,484                                                      |   |   | 20,111  |   |   | 208,520   |   |   | 2.0    |   |
| Undeveloped                        land                                 |   |                                                                                    | 35,022  |                                  |   | 46,717                                |   |                                  | 70,160  |                                |   | 81,189                              |   |                                 | 68,294  |                                 |   | 40,306                                                      |   |   | 78,677  |   |   | 420,365   |   |   | 4.1    |   |
|                                                                    |   |                                                                                         |         |                                  |        |                                       |   |                                       |         |                                |        |                                     |   |                                      |         |                                 |        |                                                             |   |        |         |   |        |           |   |        |        |   |
| Total CRE                        Loans                                  |   | $                                                                                       | 855,421 |                                  | $      | 630,243                               |   | $                                     | 832,527 |                                | $      | 431,511                             |   | $                                    | 618,048 |                                 | $      | 249,901                                                     |   | $      | 476,513 |   | $      | 4,094,164 |   |   | 39.8   | %      |
|                                                                    |   |                                                                                         |         |                                  |        |                                       |   |                                       |         |                                |        |                                     |   |                                      |         |                                 |        |                                                             |   |        |         |   |        |           |   |        |        |   |
| CRE Loans as % of Total                        Loans HFI                |   |                                                                                    | 8.3     | %                                     |   | 6.1                                   | %      |                                  | 8.1     | %                                   |   | 4.2                                 | %      |                                 | 6.0     | %                                    |   | 2.4                                                         | %      |   | 4.7     | %      |   | 39.8      | %      |   |   |   |

          See            “Credit Quality” for additional commercial real estate            information.

 

36

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*     Credit            Quality*

          A            willingness to take credit risk is inherent in the decision to grant credit. Prudent            risk-taking requires a credit risk management system based on sound policies and            control processes that ensure compliance with thosepolicies. TSFG’s credit risk            management system is defined by policies approved by the Board of Directors that govern            the risk underwriting, portfolio monitoring, and problem loan administration processes.            Adherence to underwriting standards is managed through a multi-layered credit approval            process and after-the-fact review by credit risk management of loans approved by            lenders. Through daily review by credit risk managers, monthly reviews of exception            reports, and ongoing analysis of asset quality trends, compliance with underwriting and            loan monitoring policies is closely supervised. The administration of problem loans is            driven by policies that require written plans for resolution and periodic meetings with            credit risk management to review progress. Credit risk management activities are            monitored by the Risk Committee of the Board, which meets periodically to review credit            quality trends, new large credits, loans to insiders, large problem credits, credit            policy changes, and reports on independent credit reviews.

          For            TSFG’s policy regarding impairment on loans, nonaccruals, charge-offs, and            foreclosed property, refer to Item 8, Note 1 – Summary of Significant Accounting            Policies in the notes to the Consolidated Financial Statements in the Annual Report on            Form 10-K for year ended December 31, 2007.

          Table            6 presents our credit quality indicators.

|                                                 |
|------------------------------------------------------|
| **Table                        6**                   |
|                                                      |
| **Credit Quality                        Indicators** |
|                                                      |
| **(dollars in                        thousands)**    |

|                                                                                                     |   |                                     |       |                                         |   |       |   |   |       |   |
|----------------------------------------------------------------------------------------------------------|--------|------------------------------------------|------------|----------------------------------------------|--------|------------|--------|--------|------------|--------|
|                                                                                                     |   | **September                        30,** |       | **December 31,                        2007** |   |
|                                                                                                     |   |                                          |       |                                         |
|                                                                                                     |   | **2008**                                 |       | **2007**                                     |   |       |
|                                                                                                     |   |                                          |       |                                              |   |            |   |
| Loans held for                        investment                                                         |   | $                                        | 10,299,640 |                                         | $      | 10,173,237 |   | $      | 10,213,420 |   |
| Allowance for loan                        losses                                                         |   |                                     | 200,748    |                                         |   | 118,861    |   |   | 126,427    |   |
| Allowance for credit                        losses (1)                                                   |   |                                     | 203,000    |                                         |   | 120,424    |   |   | 128,695    |   |
| Nonaccrual loans -                        commercial and industrial (2)(3)                               |   |                                     | 28,309     |                                         |   | 18,056     |   |   | 22,963     |   |
| Nonaccrual loans -                        owner - occupied real estate (2)                               |   |                                     | 6,951      |                                         |   | 3,738      |   |   | 4,085      |   |
| Nonaccrual loans -                        commercial real estate (2)                                     |   |                                     | 160,479    |                                         |   | 13,972     |   |   | 36,634     |   |
| Nonaccrual loans -                        consumer (3)                                                   |   |                                     | 21,184     |                                         |   | 13,397     |   |   | 11,606     |   |
| Nonaccrual loans -                        mortgage (3)                                                   |   |                                     | 20,889     |                                         |   | 2,646      |   |   | 4,903      |   |
| Restructured loans                        accruing interest                                              |   |                                     | 2,279      |                                         |   | 1,448      |   |   | 1,440      |   |
|                                                                                                     |   |                                          |            |                                         |        |            |   |        |            |   |
| Total nonperforming                        loans held for investment                                     |   |                                     | 240,091    |                                         |   | 53,257     |   |   | 81,631     |   |
| Nonperforming loans                        held for sale - commercial real estate                        |   |                                     | 22,576     |                                         |   | —    |   |   | —    |   |
| Foreclosed property                        (other real estate owned and personal property repossessions) |   |                                     | 30,503     |                                         |   | 5,658      |   |   | 8,276      |   |
|                                                                                                     |   |                                          |            |                                         |        |            |   |        |            |   |
| Total nonperforming                        assets                                                        |   | $                                        | 293,170    |                                         | $      | 58,915     |   | $      | 89,907     |   |
|                                                                                                     |   |                                          |            |                                         |        |            |   |        |            |   |
| Loans past due 90 days                        or more (mortgage and consumer with interest accruing)     |   | $                                        | 12,899     |                                         | $      | 2,629      |   | $      | 5,349      |   |
|                                                                                                     |   |                                          |            |                                         |        |            |   |        |            |   |
| Total nonperforming                        assets as a percentage of loans and foreclosed property       |   |                                     | 2.83       | %                                            |   | 0.58       | %      |   | 0.88       | %      |
|                                                                                                     |   |                                          |            |                                         |        |            |   |        |            |   |
| Allowance for loan                        losses to nonperforming loans HFI                              |   |                                     | 0.84       | x                                            |   | 2.23       | x      |   | 1.55       | x      |
|                                                                                                     |   |                                          |            |                                         |        |            |   |        |            |   |

|   |                                                                                                                                                                                                                                               |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | The allowance for                        credit losses is the sum of the allowance for loan losses and the reserve                        for unfunded lending commitments.                                                                        |
|   |                                                                                                                                                                                                                                               |
| (2)    | At September 30, 2008,                        December 31, 2007, and September 30, 2007, commercial nonaccrual loans                        included $157,000, $218,000, and $403,000, respectively, in restructured                        loans. |
|   |                                                                                                                                                                                                                                               |
| (3)    | In second quarter 2008,                        TSFG reclassified certain loan balances. Amounts presented for prior                        periods have been reclassified to conform to the current                        presentation.           |

          TSFG’s            nonperforming asset ratio (nonperforming assets as a percentage of loans and foreclosed            property) increased to 2.83% at September 30, 2008 from 0.88% at December 31, 2007 and            0.58% at September 30, 2007. The

37

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increase in            nonperforming assets was primarily attributable to accelerating market deterioration in            residential housing and development-related loans, principally in Florida            markets.

          During            the three and nine months ended September 30, 2008, TSFG transferred loans with an            unpaid principal balance totaling $71.7 million and $111.7 million, respectively, from            the held for investment portfolio to the held for sale portfolio, and charged-off $28.1            million and $49.8 million, respectively, of these loans against the allowance for loan            losses. Of these loans, $38.7 million (net of charge-offs) were sold, leaving $23.2            million (net of charge-offs) on the balance sheet in loans held for sale at September            30, 2008, of which $22.6 million are considered nonperforming loans.

          Table            7 presents CRE nonaccrual loans by geography and product type. At September 30, 2008,            there were no CRE loans past due 90 days still accruing interest.

|                                                               |
|--------------------------------------------------------------------|
| **Table                        7**                                 |
|                                                                    |
| **Commercial Real                        Estate Nonaccrual Loans** |
|                                                                    |
| **(dollars in                        thousands)**                  |

|                                                                           |   |                                                                                                    |    |                                  |   |                                  |   |                                  |    |                                |   |                                |   |                                 |    |                                     |   |                                                           |   |   |    |   |   |    |   |   |   |   |
|--------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------|---------|---------------------------------------|--------|---------------------------------------|--------|---------------------------------------|---------|-------------------------------------|--------|-------------------------------------|--------|--------------------------------------|---------|------------------------------------------|--------|----------------------------------------------------------------|--------|--------|---------|--------|--------|---------|--------|--------|--------|--------|
|                                                                           |   | **September 30, 2008                        CRE Nonaccrual Loans HFI (“NAL”) by Geography** |    |
|                                                                           |   |                                                                                                         |    |
|                                                                           |   | **SC, Excl                        Coastal**                                                             |    | **Coastal                        SC** |   | **Western                        NC** |   | **Central                        FL** |    | **North                        FL** |   | **South                        FL** |   | **Tampa                        Bay** |    | **Total                        CRE NAL** |   | **%                        of                        NAL (1)** |   |
|                                                                           |   |                                                                                                         |    |                                       |   |                                       |   |                                       |    |                                     |   |                                     |   |                                      |    |                                          |   |                                                                |   |
| **CRE Nonaccrual Loans                        by Product Type**                |   |                                                                                                    |    |                                  |   |                                  |   |                                  |    |                                |   |                                |   |                                 |    |                                     |   |                                                           |   |   |    |   |   |    |   |   |   |   |
| Completed income                        property                               |   | $                                                                                                       | 1,830   |                                  | $      | 1,771                                 |   | $                                     | 6,043   |                                | $      | 6,775                               |   | $                                    | 1,761   |                                     | $      | 3,027                                                          |   | $      | 637     |   | $      | 21,844  |   |   | 9.2    | %      |
| Residential                        A&D                                     |   |                                                                                                    | 2,313   |                                  |   | 2,588                                 |   |                                  | 14,695  |                                |   | 7,884                               |   |                                 | 3,530   |                                     |   | 250                                                            |   |   | 26,917  |   |   | 58,177  |   |   | 24.5   |   |
| Commercial                        A&D                                      |   |                                                                                                    | 396     |                                  |   | 7,050                                 |   |                                  | 579     |                                |   | 152                                 |   |                                 | — |                                     |   | —                                                        |   |   | — |   |   | 8,177   |   |   | 3.4    |   |
| Commercial                        construction                                 |   |                                                                                                    | — |                                  |   | —                               |   |                                  | 1,424   |                                |   | —                             |   |                                 | — |                                     |   | 1,658                                                          |   |   | — |   |   | 3,082   |   |   | 1.3    |   |
| Residential                        construction                                |   |                                                                                                    | 1,288   |                                  |   | 1,859                                 |   |                                  | 5,608   |                                |   | 9,503                               |   |                                 | 1,537   |                                     |   | 11                                                             |   |   | — |   |   | 19,806  |   |   | 8.3    |   |
| Residential                        condo                                       |   |                                                                                                    | — |                                  |   | 2,349                                 |   |                                  | — |                                |   | 1,712                               |   |                                 | — |                                     |   | 8,811                                                          |   |   | 6,934   |   |   | 19,806  |   |   | 8.3    |   |
| Undeveloped                        land                                        |   |                                                                                                    | 147     |                                  |   | —                               |   |                                  | 860     |                                |   | 440                                 |   |                                 | 3,764   |                                     |   | 15,880                                                         |   |   | 8,496   |   |   | 29,587  |   |   | 12.5   |   |
|                                                                           |   |                                                                                                         |         |                                  |        |                                       |   |                                       |         |                                |        |                                     |   |                                      |         |                                     |        |                                                                |   |        |         |   |        |         |   |        |        |   |
| Total CRE Nonaccrual                        Loans                              |   | $                                                                                                       | 5,974   |                                  | $      | 15,617                                |   | $                                     | 29,209  |                                | $      | 26,466                              |   | $                                    | 10,592  |                                     | $      | 29,637                                                         |   | $      | 42,984  |   | $      | 160,479 |   |   | 67.5   | %      |
|                                                                           |   |                                                                                                         |         |                                  |        |                                       |   |                                       |         |                                |        |                                     |   |                                      |         |                                     |        |                                                                |   |        |         |   |        |         |   |        |        |   |
| CRE Nonaccrual Loans as                        % of Total Nonaccrual Loans (1) |   |                                                                                                    | 2.5     | %                                     |   | 6.6                                   | %      |                                  | 12.3    | %                                   |   | 11.1                                | %      |                                 | 4.4     | %                                        |   | 12.5                                                           | %      |   | 18.1    | %      |   | 67.5    | %      |   |   |   |

|   |                                                                                                                                                                                                                                                                                  |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | Calculated as a percent                        of nonaccrual loans held for investment, which totaled $237.8 million at                        September 30, 2008. Excludes nonaccrual loans held for sale, which totaled                        $22.6 million at September 30, 2008. |

               Table            8 provides detail regarding commercial real estate loans past due 30 days or            more.

|                                                                                                                            |
|---------------------------------------------------------------------------------------------------------------------------------|
| **Table                        8**                                                                                              |
|                                                                                                                                 |
| **Commercial Real                        Estate Loans Past Due 30 Days or More (excluding                        nonaccruals)** |
|                                                                                                                                 |
| **(dollars in                        thousands)**                                                                               |

|                                                            |   |                                          |   |                                         |   |        |   |                                |   |   |   |   |   |
|-----------------------------------------------------------------|--------|-----------------------------------------------|--------|----------------------------------------------|--------|-------------|--------|-------------------------------------|--------|--------|--------|--------|--------|
|                                                            |   | **September 30,                        2008** |   | **December 31,                        2007** |   |
|                                                            |   |                                               |   |                                              |   |
|                                                            |   | **Balance**                                   |   | **%                        of CRE**          |   | **Balance** |   | **%                        of CRE** |   |
|                                                            |   |                                               |   |                                              |   |             |   |                                     |   |
| North                        Carolina                           |   | $                                             | 14,418 |                                         |   | 0.35        | %      | $                                   | 10,029 |   |   | 0.24   | %      |
| South                        Carolina                           |   |                                          | 11,720 |                                         |   | 0.29        |   |                                | 1,889  |   |   | 0.05   |   |
| Florida                                                         |   |                                          | 24,886 |                                         |   | 0.61        |   |                                | 14,383 |   |   | 0.34   |   |
|                                                            |   |                                               |        |                                         |        |             |   |                                     |        |   |        |        |   |
| Total CRE loans past                        due 30 days or more |   | $                                             | 51,024 |                                         |   | 1.25        | %      | $                                   | 26,301 |   |   | 0.63   | %      |
|                                                            |   |                                               |        |                                         |        |             |   |                                     |        |   |        |        |   |

          In            accordance with SFAS No. 114 (“SFAS 114”), “Accounting by Creditors            for Impairment of a Loan,” loans are considered to be impaired when, in            management’s judgment and based on current information, the full collection of            principal and interest becomes doubtful. A loan is also considered impaired if its            terms are modified in a troubled debt restructuring. Table 9 summarizes information on            impaired loans.

38

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|                                              |
|---------------------------------------------------|
| **Table                        9**                |
|                                                   |
| **Impaired                        Loans**         |
|                                                   |
| **(dollars in                        thousands)** |

|                                                        |   |                                                                                                                    |    |                                                                                                                                        |   |   |   |   |   |   |
|-------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------|---------|---------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                                        |   | **At                        and For the                        Nine Months                        Ended September 30,** |    | **At                        and For the                        Year Ended                        December 31,                        2007** |   |
|                                                        |   |                                                                                                                         |    |                                                                                                                                        |
|                                                        |   | **2008**                                                                                                                |    | **2007**                                                                                                                                    |   |   |
|                                                        |   |                                                                                                                         |    |                                                                                                                                             |   |        |   |
| Impaired                        loans                       |   | $                                                                                                                       | 198,018 |                                                                                                                                        | $      | 38,060 |   | $      | 68,102 |   |
| Average investment                        in impaired loans |   |                                                                                                                    | 182,475 |                                                                                                                                        |   | 35,251 |   |   | 40,360 |   |
| Related                        allowance                    |   |                                                                                                                    | 29,911  |                                                                                                                                        |   | 11,010 |   |   | 11,340 |   |
| Foregone                        interest                    |   |                                                                                                                    | 11,416  |                                                                                                                                        |   | 2,142  |   |   | 3,437  |   |

          Potential            problem loans consist of commercial loans that are performing in accordance with            contractual terms but for which management has concerns about the ability of an obligor            to continue to comply with repayment terms because of the obligor’s potential            operating or financial difficulties. These loans are identified through our internal            risk grading processes. Management monitors these loans closely and reviews their            performance on a regular basis. Table 10 provides additional detail regarding potential            problem loans.

|                                               |
|----------------------------------------------------|
| **Table                        10**                |
|                                                    |
| **Potential Problem                        Loans** |
|                                                    |
| **(dollars in                        thousands)**  |

|                                                                        |   |                                          |   |       |                                                     |                                                                                      |   |   |   |   |
|-----------------------------------------------------------------------------|--------|-----------------------------------------------|--------|------------|----------------------------------------------------------|-------------------------------------------------------------------------------------------|--------|--------|--------|--------|
|                                                                        |   | **September 30,                        2008** |   |
|                                                                        |   |                                               |   |
|                                                                        |   |                                          |   |       | **Outstanding                        Principal Balance** |                                                                                      |
|                                                                        |   |                                          |   |       |                                                          |                                                                                      |
|                                                                        |   | **Number of                        Loans**    |   | **Amount** |                                                     | **Percentage of                        Loans Held for                        Investment** |   |
|                                                                        |   |                                               |   |            |                                                     |                                                                                           |   |
| Large potential                        problem loans ($5 million or more)   |   |                                          | 17     |       | $                                                        | 169,799                                                                                   |   |   | 1.65   | %      |
| Small potential                        problem loans (less than $5 million) |   |                                          | 811    |       |                                                     | 272,087                                                                                   |   |   | 2.64   |   |
|                                                                        |   |                                               |        |       |                                                          |                                                                                           |   |        |        |   |
| Total potential problem                        loans (1)                    |   |                                          | 828    |       | $                                                        | 441,886                                                                                   |   |   | 4.29   | %      |
|                                                                        |   |                                               |        |       |                                                          |                                                                                           |   |        |        |   |

|   |                                                                                                                                      |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | Includes commercial and                        industrial, commercial real estate, and owner-occupied real                        estate. |

*     Allowance            for Loan Losses and Reserve for Unfunded Lending Commitments*

          The            allowance for loan losses represents management’s estimate of probable incurred            losses inherent in the lending portfolio. The adequacy of the allowance for loan losses            (the “Allowance”) is analyzed quarterly. For purposes of this analysis,            adequacy is defined as a level sufficient to absorb probable incurred losses in the            portfolio as of the balance sheet date presented. The methodology employed for this            analysis is as follows.

          Management’s            ongoing evaluation of the adequacy of the Allowance considers both impaired and            unimpaired loans and takes into consideration TSFG’s past loan loss experience,            known and inherent risks in the portfolio, existing adverse situations that may affect            the borrowers’ ability to repay, estimated value of any underlying collateral, an            analysis of guarantees and an analysis of current economic factors and existing            conditions.

          TSFG,            through its lending and credit functions, continuously reviews its loan portfolio for            credit risk. TSFG employs an independent credit review area that reviews the lending            and credit functions and processes to validate that credit risks are appropriately            identified and addressed and reflected in the risk ratings. Using input from the credit            risk identification process, the Company’s credit risk management area analyzes            and validates the Company’s Allowance calculations. The analysis includes four            basic components: general allowances for loan pools segmented based on similar risk            characteristics, specific allowances for individually impaired loans, subjective and            judgmental qualitative adjustments based on identified economic factors and existing            conditions and other risk factors, and the unallocated component of the Allowance            (which is determined based on the overall Allowance level and the determination of a            range given the inherent imprecision of calculating the Allowance).

39

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          Management            reviews the methodology, calculations and results and ensures that the calculations are            appropriate and that all material risk elements have been assessed in order to            determine the appropriate level of Allowance for the inherent losses in the loan            portfolio at each quarter end. The Allowance for Credit Losses Committee is in place to            ensure that the process is systematic and consistently applied.

          The            following chart reflects the various levels of reserves included in the            Allowance:

|        |                                                                                         |
|-------------|----------------------------------------------------------------------------------------------|
| Level I     | General allowance                        calculated based upon historical losses             |
|        |                                                                                         |
| Level II    | Specific reserves                        for individually impaired loans                     |
|        |                                                                                         |
| Level III   | Subjective/judgmental                        adjustments for economic and other risk factors |
|        |                                                                                         |
| Unfunded    | Reserves for                        off-balance sheet (unadvanced) exposure                  |
|        |                                                                                         |
| Unallocated | Represents the                        imprecision inherent in the previous calculations      |
|        |                                                                                         |
| Total       | Represents summation                        of all reserves                                  |

*          Level            I Reserves.* The first reserve component is the general allowance for loan pools            segmented based on similar risk characteristics that are determined by applying            adjusted historical loss factors to each loan pool. This part of the methodology is            governed by SFAS No. 5, “Accounting for Contingencies.” The general            allowance factors are based upon recent and historical charge-off experience and are            applied to the outstanding portfolio by loan type and internal risk rating. Historical            loss analyses of the previous 12 quarters provide the basis for factors used for            homogenous pools of smaller loans, such as indirect auto and other consumer loan            categories which generally are not evaluated based on individual risk ratings but            almost entirely based on historical losses. The loss factors used in the Level I            analyses are adjusted quarterly based on loss trends and risk rating            migrations.

          TSFG            generates historical loss ratios from actual loss history for eight subsets of the loan            portfolio over a 12 quarter period (3 years). Commercial loans are sorted by risk            rating into four pools—Pass, Special Mention, Substandard, and Doubtful. Consumer            loans are sorted into four pools by product type—Direct, Indirect, Revolving, and            Mortgage.

          The            adjusted loss ratio for each pool is multiplied by the dollar amount of loans in the            pool in order to create a range. We then add and subtract five percent (5.0%) to and            from this amount to create the upper and lower boundaries of the range. The upper and            lower boundary amounts for each pool are summed to establish the total range. Although            TSFG generally uses the actual historical loss rate, on occasion management may decide            to select a higher or lower boundary based on known market trends or internal behaviors            that would impact the performance of a specific portfolio grouping. The Level I            reserves totaled $64.7 million at September 30, 2008, based on the portfolio historical            loss rates, compared to $48.7 million at December 31, 2007.

*          Level            II Reserves.* The second component of the Allowance involves the calculation of            specific allowances for each individually impaired loan in accordance with SFAS No.            114, “Accounting by Creditors for Impairment of a Loan.” In situations            where a loan is determined to be impaired (primarily because it is probable that all            principal and interest amounts due according to the terms of the note will not be            collected as scheduled), a specific reserve may or may not be warranted. Upon            examination of the collateral and other factors, it may be determined that TSFG            reasonably expects to collect all amounts due; therefore, no specific reserve is            warranted. Any loan determined to be impaired (whether a specific reserve is assigned            or not) is excluded from the Level I calculations described above.

          TSFG            tests a broad group of loans for impairment each quarter (this includes all loans over            $500,000 that have been placed in nonaccrual status). Once a loan is identified as            impaired, reserves are based on a thorough analysis of the most probable source of            repayment which is normally the liquidation of collateral, but may also include            discounted future cash flows or the market value of the loan itself. Generally, for            collateral dependent loans, current market appraisals are utilized for larger credits;            however, in situations where a current market appraisal is not available, management            uses the best available information (including appraisals for similar properties,            communications with qualified real estate professionals, information contained in            reputable publications and other observable market data) to estimate the current fair            value (less cost to sell) of the subject property. TSFG had Level II reserves of $29.9            million at September 30, 2008, compared to $11.3 million at December 31,            2007.

*          Level            III Reserves.* The third component of the Allowance represents subjective and            judgmental adjustments determined by management to account for the effect of risks or            losses that are not fully captured elsewhere. This part of the methodology is            calculated in accordance with SFAS 5 and reflects adjustments to historical loss            experience to incorporate current economic conditions and other factors which impact            the inherent losses in the portfolio. This component includes amounts for new loan            products or portfolio categories which are deemed to have risks not included

40

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in the other            reserve elements as well as macroeconomic and other factors. The qualitative risk            factors of this third allowance level are more subjective and require a high degree of            management judgment. Currently, Level III Reserves include additional reserves for            current economic conditions, the commercial real estate concentration in the portfolio,            and an additional adjustment to represent declining land values in Florida.

          During            first quarter 2008, undeveloped land loans were experiencing distressed default rates,            and higher loss severities were expected. TSFG performed two separate analyses to            determine an accurate adjustment to this category. Both analyses concluded that an            adjustment to the allowance of $23.8 million was appropriate. This adjustment was added            to the Allowance in the Florida Bank segment for the first time during first quarter            2008. This analysis was updated during third quarter 2008 with updated loan balances on            this subportfolio using an adjusted appraisal discount, which resulted in the new Level            III allowance component increasing to $25.9 million.

          TSFG            also experienced an increase in losses in the indirect portfolio, as $9.1 million was            charged-off during the first nine months of 2008, compared to $3.8 million in the first            nine months of 2007. As a result of that recognizable increase, an adjustment was made            to the component of economic conditions increasing that portion of the Allowance by            $10.5 million.

          As            a result of the two areas mentioned above, the Level III Reserves increased to $102.6            million at September 30, 2008, from $66.4 million at December 31, 2007.

*          Reserve            for Unfunded Commitments.* At September 30, 2008 and December 31, 2007, the reserve            for unfunded commitments was $2.3 million. This reserve is determined by formula;            historical loss ratios are multiplied by potential usage levels (i.e., the difference            between actual usage levels and the second highest historical usage level).

*          Unallocated            Reserves.* The calculated Level I, II and III reserves are then segregated into            allocated and unallocated components. The allocated component is the sum of the loss            estimates at the lower end of the probable loss ranges, and is distributed to the loan            categories based on the mix of loans in each category. The unallocated portion is            calculated as the sum of the differences between the actual calculated Allowance and            the lower boundary amounts for each category in our model. The sum of these differences            at September 30, 2008 was $11.6 million, up from $7.7 million at June 30, 2008 and $6.0            million at December 31, 2007. The unallocated Allowance is the result of            management’s best estimate of risks inherent in the portfolio, economic            uncertainties and other subjective factors, including industry trends, as well as the            imprecision inherent in estimates used for the allocated portions of the Allowance.            Management reviews the overall level of the Allowance as well as the unallocated            component and considers the level of both amounts in determining the appropriate level            of reserves for the overall inherent risk in TSFG’s total loan            portfolio.

          Changes            in the Level II reserves (and the overall Allowance) may not correlate to the relative            change in impaired loans depending on a number of factors including whether the            impaired loans are secured, the collateral type, and the estimated loss severity on            individual loans. Specifically, impaired loans increased to $198.0 million at September            30, 2008 from $68.1 million at December 31, 2007, primarily attributable to commercial            real estateloans in            Florida. Most of the loans contributing to the increase were over $500,000 and were            evaluated for whether a specific reserve was warranted based on the analysis of the            most probable source of repayment including liquidation of the collateral. Based on            this analysis, the Level II Reserves increased 164% compared to the 191% increase in            impaired loans.

          Changes            in the other components of the Allowance (reserves for Level I, Level III, unallocated,            and unfunded commitments) are not related to specific loans but reflect changes in loss            experience and subjective and judgmental adjustments made by management. For example,            due to indicators of stress on the land portfolio in Florida and other credit quality            indicators, these reserves were increased by $26 million during the first nine months            of 2008.

          Assessing            the adequacy of the Allowance is a process that requires considerable judgment.            Management’s judgments are based on numerous assumptions about current events,            which we believe to be reasonable, but which may or may not be valid. Thus, there can            be no assurance that loan losses in future periods will not exceed the current            Allowance amount or that future increases in the Allowance will not be required. No            assurance can be given that management’s ongoing evaluation of the loan portfolio            in light of changing economic conditions and other relevant circumstances will not            require significant future additions to the Allowance, thus adversely affecting the            operating results of TSFG.

          The            Allowance is also subject to examination and adequacy testing by regulatory agencies,            which may consider such factors as the methodology used to determine adequacy and the            size of the Allowance relative to that of peer institutions, and other adequacy tests.            In addition, such regulatory agencies could require us to adjust our Allowance based on            information available to them at the time of their examination.

41

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          Table            11 summarizes the changes in the allowance for loan losses, reserve for unfunded            lending commitments, and allowance for credit losses and provides certain related            ratios.

|                                                                  |
|-----------------------------------------------------------------------|
| **Table                        11**                                   |
|                                                                       |
| **Summary of Loan                        and Credit Loss Experience** |
|                                                                       |
| **(dollars in                        thousands)**                     |

|                                                                                                     |   |                                                                                                                    |       |                                                                                                                                        |   |       |   |   |       |   |
|----------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|--------|--------|------------|--------|
|                                                                                                     |   | **At                        and For the                        Nine Months                        Ended September 30,** |       | **At                        and For the                        Year Ended                        December 31,                        2007** |   |
|                                                                                                     |   |                                                                                                                    |       |
|                                                                                                     |   |                                                                                                                    |       |
|                                                                                                     |   |                                                                                                                         |       |                                                                                                                                        |
|                                                                                                     |   | **2008**                                                                                                                |       | **2007**                                                                                                                                    |   |       |
|                                                                                                     |   |                                                                                                                         |       |                                                                                                                                             |   |            |   |
| Allowance for loan                        losses, beginning of year                                      |   | $                                                                                                                       | 126,427    |                                                                                                                                        | $      | 111,663    |   | $      | 111,663    |   |
| Net                        charge-offs:                                                                  |   |                                                                                                                    |       |                                                                                                                                        |   |       |   |   |       |   |
| Loans                        charged-off                                                                 |   |                                                                                                                    | (152,664   | )                                                                                                                                           |   | (34,159    | )      |   | (59,408    | )      |
| Loans                        recovered                                                                   |   |                                                                                                                    | 5,306      |                                                                                                                                        |   | 5,253      |   |   | 6,847      |   |
|                                                                                                     |   |                                                                                                                         |            |                                                                                                                                        |        |            |   |        |            |   |
|                                                                                                     |   |                                                                                                                    | (147,358   | )                                                                                                                                           |   | (28,906    | )      |   | (52,561    | )      |
| Additions to allowance                        through provision expense                                  |   |                                                                                                                    | 221,679    |                                                                                                                                        |   | 36,104     |   |   | 67,325     |   |
|                                                                                                     |   |                                                                                                                         |            |                                                                                                                                        |        |            |   |        |            |   |
| Allowance for loan                        losses, end of period                                          |   | $                                                                                                                       | 200,748    |                                                                                                                                        | $      | 118,861    |   | $      | 126,427    |   |
|                                                                                                     |   |                                                                                                                         |            |                                                                                                                                        |        |            |   |        |            |   |
|                                                                                                     |
| Reserve for unfunded                        lending commitments, beginning of year                       |   | $                                                                                                                       | 2,268      |                                                                                                                                        | $      | 1,025      |   | $      | 1,025      |   |
| Provision for unfunded                        lending commitments                                        |   |                                                                                                                    | (16        | )                                                                                                                                           |   | 538        |   |   | 1,243      |   |
|                                                                                                     |   |                                                                                                                         |            |                                                                                                                                        |        |            |   |        |            |   |
| Reserve for unfunded                        lending commitments, end of period                           |   | $                                                                                                                       | 2,252      |                                                                                                                                        | $      | 1,563      |   | $      | 2,268      |   |
|                                                                                                     |   |                                                                                                                         |            |                                                                                                                                        |        |            |   |        |            |   |
|                                                                                                     |
| Allowance for credit                        losses, beginning of year                                    |   | $                                                                                                                       | 128,695    |                                                                                                                                        | $      | 112,688    |   | $      | 112,688    |   |
| Net                        charge-offs:                                                                  |   |                                                                                                                    |       |                                                                                                                                        |   |       |   |   |       |   |
| Loans                        charged-off                                                                 |   |                                                                                                                    | (152,664   | )                                                                                                                                           |   | (34,159    | )      |   | (59,408    | )      |
| Loans                        recovered                                                                   |   |                                                                                                                    | 5,306      |                                                                                                                                        |   | 5,253      |   |   | 6,847      |   |
|                                                                                                     |   |                                                                                                                         |            |                                                                                                                                        |        |            |   |        |            |   |
|                                                                                                     |   |                                                                                                                    | (147,358   | )                                                                                                                                           |   | (28,906    | )      |   | (52,561    | )      |
| Additions to allowance                        through provision expense                                  |   |                                                                                                                    | 221,663    |                                                                                                                                        |   | 36,642     |   |   | 68,568     |   |
|                                                                                                     |   |                                                                                                                         |            |                                                                                                                                        |        |            |   |        |            |   |
| Allowance for credit                        losses, end of period                                        |   | $                                                                                                                       | 203,000    |                                                                                                                                        | $      | 120,424    |   | $      | 128,695    |   |
|                                                                                                     |   |                                                                                                                         |            |                                                                                                                                        |        |            |   |        |            |   |
|                                                                                                     |
| Average loans held for                        investment                                                 |   | $                                                                                                                       | 10,366,359 |                                                                                                                                        | $      | 9,925,410  |   | $      | 9,985,751  |   |
| Loans held for                        investment, end of period                                          |   |                                                                                                                    | 10,299,640 |                                                                                                                                        |   | 10,173,237 |   |   | 10,213,420 |   |
| Net charge-offs as a                        percentage of average loans held for investment (annualized) |   |                                                                                                                    | 1.90       | %                                                                                                                                           |   | 0.39       | %      |   | 0.53       | %      |
| Allowance for loan                        losses as a percentage of loans held for investment            |   |                                                                                                                    | 1.95       |                                                                                                                                        |   | 1.17       |   |   | 1.24       |   |
| Allowance for credit                        losses as a percentage of loans held for investment          |   |                                                                                                                    | 1.97       |                                                                                                                                        |   | 1.18       |   |   | 1.26       |   |
| Allowance for loan                        losses to nonperforming loans held for investment              |   |                                                                                                                    | 0.84       | x                                                                                                                                           |   | 2.23       | x      |   | 1.55       | x      |
|                                                                                                     |   |                                                                                                                    |       |                                                                                                                                        |   |       |   |   |       |   |

          The            provision for credit losses for the first nine months of 2008 totaled $221.7 million,            which exceeded net loan charge-offs by $74.3 million. The higher provision largely            reflected credit deterioration due to continued weakness in housing markets,            particularly in Florida. The allowance for credit losses as a percentage of loans held            for investment increased to 1.97% at September 30, 2008 from 1.26% at December 31, 2007            and 1.18% at September 30, 2007. Table 12 provides additional detail for net            charge-offs.

42

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|                                                       |
|------------------------------------------------------------|
| **Table                        12**                        |
|                                                            |
| **Net Charge-Offs                        by Product Type** |
|                                                            |
| **(dollars in                        thousands)**          |

|                                                                     |   |                                                                                                                                        |    |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                                       |   |    |    |   |                                                                                   |   |                                                       |   |   |   |
|--------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|---------|---------------------------------------|--------|---------------------------------------|--------|---------------------------------------|--------|-------------------------------------|--------|-------------------------------------|--------|--------------------------------------|---------|------------------------------------------|--------|------------------------------------------------------------|--------|---------|---------|--------|----------------------------------------------------------------------------------------|--------|------------------------------------------------------------|--------|--------|--------|
|                                                                     |   |                                                                                                                                        |    |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                                       |   |    |    |   | **Nine Months                        Ended                        September 30, 2008** |   |
|                                                                     |   |                                                                                                                                        |    |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                                       |   |    |    |   |                                                                                        |   |
|                                                                     |   |                                                                                                                                        |    |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                                       |   |    |    |   | **Amount**                                                                             |   | **%                        of                        NCO** |   |
|                                                                     |   |                                                                                                                                        |    |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                                       |   |    |    |   |                                                                                        |   |                                                            |   |
| Commercial and                        industrial                         |   |                                                                                                                                        |    |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                                       | $      | 24,516  |    |   | 16.6                                                                                   | %      |
| Owner-occupied real                        estate                        |   |                                                                                                                                        |    |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                                       |   | 1,742   |    |   | 1.2                                                                                    |   |
| Commercial real                        estate                            |   |                                                                                                                                        |    |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                                       |   | 95,474  |    |   | 64.8                                                                                   |   |
| Indirect - sales                        finance                          |   |                                                                                                                                        |    |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                                       |   | 9,137   |    |   | 6.2                                                                                    |   |
| Home equity                                                              |   |                                                                                                                                        |    |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                                       |   | 3,612   |    |   | 2.5                                                                                    |   |
| Mortgage and consumer                        lot                         |   |                                                                                                                                        |    |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                                       |   | 11,920  |    |   | 8.1                                                                                    |   |
| Direct                        retail                                     |   |                                                                                                                                        |    |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                                       |   | 957     |    |   | 0.6                                                                                    |   |
|                                                                     |   |                                                                                                                                        |    |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                                       |   |    |    |   |                                                                                        |        |                                                       |        |        |   |
| Total Net                        Charge-Offs                             |   |                                                                                                                                        |    |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                                       | $      | 147,358 |    |   | 100.0                                                                                  | %      |
|                                                                     |   |                                                                                                                                        |    |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                                       |   |    |    |   |                                                                                        |        |                                                       |        |        |   |
|                                                                     |   |                                                                                                                                        |    |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                                       |   |    |    |   |                                                                                   |   |                                                       |   |   |   |
|                                                                     |   | **Nine Months Ended                        September 30, 2008 CRE Net Charge-Offs (“NCO”) by                        Geography** |    |
|                                                                     |   |                                                                                                                                             |    |
|                                                                     |   | **SC, Excl                        Coastal**                                                                                                 |    | **Coastal                        SC** |   | **Western                        NC** |   | **Central                        FL** |   | **North                        FL** |   | **South                        FL** |   | **Tampa                        Bay** |    | **Total                        CRE NCO** |   | **%                        of                        NCO** |   |
|                                                                     |   |                                                                                                                                             |    |                                       |   |                                       |   |                                       |   |                                     |   |                                     |   |                                      |    |                                          |   |                                                            |   |
| **CRE Net Charge-Offs                        by Product Type**           |   |                                                                                                                                        |    |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                                       |   |    |    |   |                                                                                   |   |                                                       |   |   |   |
| Completed income                        property                         |   | $                                                                                                                                           | 542     |                                  | $      | 219                                   |   | $                                     | 2,153  |                                | $      | 1,052                               |   | $                                    | 388     |                                     | $      | —                                                    |   | $       | 533     |   | $                                                                                      | 4,887  |                                                       |   | 3.3    | %      |
| Residential                        A&D                               |   |                                                                                                                                        | 497     |                                  |   | 234                                   |   |                                  | 1,859  |                                |   | 10,409                              |   |                                 | 11,124  |                                     |   | —                                                    |   |    | 6,134   |   |                                                                                   | 30,257 |                                                       |   | 20.5   |   |
| Commercial                        A&D                                |   |                                                                                                                                        | 245     |                                  |   | —                               |   |                                  | 211    |                                |   | 150                                 |   |                                 | — |                                     |   | 625                                                        |   |    | 8,425   |   |                                                                                   | 9,656  |                                                       |   | 6.6    |   |
| Commercial                        construction                           |   |                                                                                                                                        | — |                                  |   | —                               |   |                                  | (45    | )                                   |   | —                             |   |                                 | — |                                     |   | 2,856                                                      |   |    | — |   |                                                                                   | 2,811  |                                                       |   | 1.9    |   |
| Residential                        construction                          |   |                                                                                                                                        | 928     |                                  |   | 670                                   |   |                                  | 949    |                                |   | 1,174                               |   |                                 | 2,292   |                                     |   | —                                                    |   |    | — |   |                                                                                   | 6,013  |                                                       |   | 4.1    |   |
| Residential                        condo                                 |   |                                                                                                                                        | — |                                  |   | 1,000                                 |   |                                  | 185    |                                |   | 465                                 |   |                                 | 140     |                                     |   | 4,209                                                      |   |    | 16,972  |   |                                                                                   | 22,971 |                                                       |   | 15.6   |   |
| Undeveloped                        land                                  |   |                                                                                                                                        | 150     |                                  |   | —                               |   |                                  | 1,426  |                                |   | 621                                 |   |                                 | 10,153  |                                     |   | 5,849                                                      |   |    | 680     |   |                                                                                   | 18,879 |                                                       |   | 12.8   |   |
|                                                                     |   |                                                                                                                                             |         |                                  |        |                                       |   |                                       |        |                                |        |                                     |   |                                      |         |                                     |        |                                                            |   |         |         |   |                                                                                        |        |                                                       |        |        |   |
| Total CRE Net                        Charge-Offs                         |   | $                                                                                                                                           | 2,362   |                                  | $      | 2,123                                 |   | $                                     | 6,738  |                                | $      | 13,871                              |   | $                                    | 24,097  |                                     | $      | 13,539                                                     |   | $       | 32,744  |   | $                                                                                      | 95,474 |                                                       |   | 64.8   | %      |
|                                                                     |   |                                                                                                                                             |         |                                  |        |                                       |   |                                       |        |                                |        |                                     |   |                                      |         |                                     |        |                                                            |   |         |         |   |                                                                                        |        |                                                       |        |        |   |
|                                                                     |   |                                                                                                                                        |    |                                  |   |                                  |   |                                  |   |                                |   |                                |   |                                 |    |                                     |   |                                                       |   |    |    |   |                                                                                   |   |                                                       |   |   |   |
| CRE Net Charge-Offs as                        % of Total Net Charge-Offs |   |                                                                                                                                        | 1.6     | %                                     |   | 1.4                                   | %      |                                  | 4.6    | %                                   |   | 9.4                                 | %      |                                 | 16.4    | %                                        |   | 9.2                                                        | %      |    | 22.2    | %      |                                                                                   | 64.8   | %                                                          |   |   |   |

*     Securities*

          TSFG            uses the investment securities portfolio for several purposes. It serves as a vehicle            to manage interest rate risk, to generate interest and dividend income, to provide            liquidity to meet funding requirements, and to provide collateral for pledges on public            deposits, FHLB advances, and securities sold under repurchase agreements. TSFG strives            to provide adequate flexibility to proactively manage cash flow as market conditions            change. Cash flow may be used to pay-off borrowings, to fund loan growth, or to            reinvest in securities at then current market rates. Table 13 shows the carrying values            of the investment securities portfolio.

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|                                                                   |
|------------------------------------------------------------------------|
| **Table                        13**                                    |
|                                                                        |
| **Investment                        Securities Portfolio Composition** |
|                                                                        |
| **(dollars in                        thousands)**                      |

|                                                                     |   |                                     |      |                                    |   |      |   |   |      |   |
|--------------------------------------------------------------------------|--------|------------------------------------------|-----------|-----------------------------------------|--------|-----------|--------|--------|-----------|--------|
|                                                                     |   | **September                        30,** |      |                                    |   |      |
|                                                                     |   |                                          |      | **December                        31,** |   |
|                                                                     |   | **2008**                                 |      | **2007**                                |   | **2007**  |   |
|                                                                     |   |                                          |      |                                         |   |           |   |
| **Available for                        Sale** (at fair value)            |   |                                     |      |                                    |   |      |   |   |      |   |
| U.S.                        Treasury                                     |   | $                                        | 28,084    |                                    | $      | 168,614   |   | $      | 27,592    |   |
| U.S. Government                        agencies                          |   |                                     | 327,933   |                                    |   | 659,681   |   |   | 503,571   |   |
| Agency mortgage-backed                        securities                 |   |                                     | 1,312,116 |                                    |   | 1,119,547 |   |   | 1,088,427 |   |
| Private label                        mortgage-backed securities          |   |                                     | 15,152    |                                    |   | —   |   |   | —   |   |
| State and                        municipal                               |   |                                     | 260,532   |                                    |   | 303,388   |   |   | 302,586   |   |
| Other                        investments:                                |   |                                     |      |                                    |   |      |   |   |      |   |
| Corporate                        bonds                                   |   |                                     | 9,855     |                                    |   | 20,680    |   |   | 20,380    |   |
| Federal Home Loan Bank                        (“FHLB”) stock |   |                                     | 38,478    |                                    |   | 43,060    |   |   | 35,333    |   |
| Community bank                        stocks                             |   |                                     | 1,555     |                                    |   | 4,789     |   |   | 4,988     |   |
| Other equity                        investments                          |   |                                     | 1,976     |                                    |   | 3,482     |   |   | 3,335     |   |
|                                                                     |   |                                          |           |                                    |        |           |   |        |           |   |
|                                                                     |   |                                     | 1,995,681 |                                    |   | 2,323,241 |   |   | 1,986,212 |   |
|                                                                     |   |                                          |           |                                    |        |           |   |        |           |   |
| **Held to Maturity**                        (at amortized cost)          |   |                                     |      |                                    |   |      |   |   |      |   |
| State and                        municipal                               |   |                                     | 24,418    |                                    |   | 40,934    |   |   | 39,451    |   |
| Other                        investments                                 |   |                                     | 100       |                                    |   | 240       |   |   | 240       |   |
|                                                                     |   |                                          |           |                                    |        |           |   |        |           |   |
|                                                                     |   |                                     | 24,518    |                                    |   | 41,174    |   |   | 39,691    |   |
|                                                                     |   |                                          |           |                                    |        |           |   |        |           |   |
| Total                                                                    |   | $                                        | 2,020,199 |                                    | $      | 2,364,415 |   | $      | 2,025,903 |   |
|                                                                     |   |                                          |           |                                    |        |           |   |        |           |   |
|                                                                     |
| Total securities as a                        percentage of total assets  |   |                                     | 14.8      | %                                       |   | 16.8      | %      |   | 14.6      | %      |
|                                                                     |   |                                          |           |                                    |        |           |   |        |           |   |
|                                                                     |
| **Percentage of Total                        Securities Portfolio**      |   |                                     |      |                                    |   |      |   |   |      |   |
| U.S.                        Treasury                                     |   |                                     | 1.4       | %                                       |   | 7.1       | %      |   | 1.4       | %      |
| U.S. Government                        agencies                          |   |                                     | 16.2      |                                    |   | 27.9      |   |   | 24.8      |   |
| Agency mortgage-backed                        securities                 |   |                                     | 64.9      |                                    |   | 47.3      |   |   | 53.7      |   |
| Private label                        mortgage-backed securities          |   |                                     | 0.8       |                                    |   | —   |   |   | —   |   |
| State and                        municipal                               |   |                                     | 14.1      |                                    |   | 14.6      |   |   | 16.9      |   |
| Other                        investments                                 |   |                                     | 2.6       |                                    |   | 3.1       |   |   | 3.2       |   |
|                                                                     |   |                                          |           |                                    |        |           |   |        |           |   |
| Total                                                                    |   |                                     | 100.0     | %                                       |   | 100.0     | %      |   | 100.0     | %      |
|                                                                     |   |                                          |           |                                    |        |           |   |        |           |   |

          Securities            (i.e., securities available for sale and securities held to maturity) excluding the            unrealized loss on securities available for sale averaged $2.1 billion in the first            nine months of 2008, 20.8% below the average for the corresponding period in 2007 of            $2.6 billion.

          The            average tax-equivalent portfolio yield decreased for the nine months ended September            30, 2008 to 4.67% from 4.81% for the nine months ended September 30, 2007.

          The            expected duration of the debt securities portfolio was approximately 4.0 years at            September 30, 2008, an increase from approximately 3.3 years at December 31, 2007. If            interest rates rise, the duration of the debt securities portfolio may extend.            Conversely, if interest rates fall, the duration of the debt securities portfolio may            decline. Since total securities include callable bonds and mortgage-backed securities,            security paydowns are likely to accelerate if interest rates fall or decline if            interest rates rise. Changes in interest rates and related prepayment activity impact            yields and fair values of TSFG’s securities.

          The            available for sale portfolio constituted 98.8% of total securities at September 30,            2008. Management believes that maintaining most of its securities in the available for            sale category provides greater flexibility in the management of the overall investment            portfolio. The majority of these securities are government or agency securities and,            therefore, pose minimal credit risk.                      Approximately 62% of            mortgage-backed securities (“MBS”) are collateralized mortgage obligations            (“CMOs”) with an average duration of 5.3 years. The majority of these            securities are government agency securities. At September 30,

44

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2008,            approximately 14% of the MBS portfolio was variable rate or hybrid variable rate, where            the rate adjusts on an annual basis after a specified fixed rate period, generally            ranging from one to ten years.

          In            second quarter 2008, TSFG recorded $927,000 in other-than-temporary impairment on its            corporate bond portfolio due to a change in intent to hold the securities until a            recovery in value based on a change in investment strategy. In third quarter 2008, TSFG            sold approximately $8.4 million of corporate bonds and recognized a gain on sale of            approximately $129,000. In addition, in third quarter 2008, TSFG recorded $1.8 million            in other-than-temporary impairment on certain community bank-related investments            included in the equity investment portfolio due to the severity and/or duration of the            impairment. In the nine months ended September 30, 2007, TSFG recorded $2.9 million in            other-than-temporary impairment on its corporate bond portfolio. In third quarter 2007,            TSFG sold approximately $70 million of corporate bonds.

          At            September 30, 2008, TSFG had equity investments in four community banks located in the            Southeast with a fair value of $1.6 million. In each case, TSFG owns less than 5% of            the community bank’s outstanding common stock. These investments in community            banks are included in securities available for sale. As mentioned above, in third            quarter 2008, TSFG recorded $1.8 million in other-than-temporary impairment on certain            of these investments and certain community bank-related investments included in other            equity investments.

          The            net unrealized loss on securities available for sale (pre-tax) totaled $48.1 million at            September 30, 2008, compared with a $48.8 million loss at December 31, 2007. If            interest rates increase, credit spreads continue to widen, and/or market illiquidity            worsens, TSFG expects its net unrealized loss on securities available for sale to            increase. See Item 1, Note 5 to the Consolidated Financial Statements for information            about TSFG’s securities in unrealized loss positions.

          Table            14 shows the credit risk profile of the securities portfolio.

45

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|                                                                           |
|--------------------------------------------------------------------------------|
| **Table                        14**                                            |
|                                                                                |
| **Investment                        Securities Portfolio Credit Risk Profile** |
|                                                                                |
| **(dollars in                        thousands)**                              |

|                                                                                                                                 |   |                                          |      |                                         |   |        |   |                                  |      |   |   |    |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|-----------|----------------------------------------------|--------|-------------|--------|---------------------------------------|-----------|--------|--------|---------|--------|
|                                                                                                                                 |   | **September 30,                        2008** |      | **December 31,                        2007** |   |
|                                                                                                                                 |   |                                               |      |                                              |   |
|                                                                                                                                 |   | **Balance**                                   |      | **%                        of Total**        |   | **Balance** |   | **%                        of Total** |      |
|                                                                                                                                 |   |                                               |      |                                              |   |             |   |                                       |      |
| **Government and                        agency**                                                                                     |   |                                          |      |                                         |   |        |   |                                  |      |   |   |    |   |
| U.S.                        Treasury                                                                                                 |   | $                                             | 28,084    |                                         |   | 1.4         | %      | $                                     | 27,592    |   |   | 1.4     | %      |
| U.S. Government                        agencies (1)                                                                                  |   |                                          | 327,933   |                                         |   | 16.2        |   |                                  | 503,571   |   |   | 24.9    |   |
| Agency mortgage-backed                        securities (MBS) (1)(2)                                                                |   |                                          | 1,312,116 |                                         |   | 64.9        |   |                                  | 1,088,427 |   |   | 53.7    |   |
| Federal Home Loan Bank                        Stock                                                                                  |   |                                          | 38,478    |                                         |   | 1.9         |   |                                  | 35,333    |   |   | 1.7     |   |
|                                                                                                                                 |   |                                               |           |                                         |        |             |   |                                       |           |   |        |         |   |
| Total government and                        agency                                                                                   |   |                                          | 1,706,611 |                                         |   | 84.4        |   |                                  | 1,654,923 |   |   | 81.7    |   |
|                                                                                                                                 |   |                                               |           |                                         |        |             |   |                                       |           |   |        |         |   |
| **State and municipal                        (3)(4)(5)**                                                                             |   |                                          |      |                                         |   |        |   |                                  |      |   |   |    |   |
| Pre-funded with                        collateral or AAA-rated backed by Texas Permanent School Fund                                 |   |                                          | 187,635   |                                         |   | 9.3         |   |                                  | 214,675   |   |   | 10.6    |   |
| Underlying issuer or                        collateral rated A or better (including South Carolina State                        Aid) |   |                                          | 80,740    |                                         |   | 4.0         |   |                                  | 102,187   |   |   | 5.1     |   |
| Underlying issuer or                        collateral rated BBB                                                                     |   |                                          | 7,331     |                                         |   | 0.4         |   |                                  | 12,930    |   |   | 0.6     |   |
| Non-rated                                                                                                                            |   |                                          | 9,244     |                                         |   | 0.4         |   |                                  | 12,245    |   |   | 0.6     |   |
|                                                                                                                                 |   |                                               |           |                                         |        |             |   |                                       |           |   |        |         |   |
| Total state and                        municipal                                                                                     |   |                                          | 284,950   |                                         |   | 14.1        |   |                                  | 342,037   |   |   | 16.9    |   |
|                                                                                                                                 |   |                                               |           |                                         |        |             |   |                                       |           |   |        |         |   |
| **Corporate                        bonds**                                                                                           |   |                                          |      |                                         |   |        |   |                                  |      |   |   |    |   |
| AA or                        A-rated                                                                                                 |   |                                          | 9,855     |                                         |   | 0.5         |   |                                  | 17,068    |   |   | 0.8     |   |
| BBB-rated                                                                                                                            |   |                                          | —   |                                         |   | —     |   |                                  | 3,312     |   |   | 0.2     |   |
|                                                                                                                                 |   |                                               |           |                                         |        |             |   |                                       |           |   |        |         |   |
| Total corporate                        bonds                                                                                         |   |                                          | 9,855     |                                         |   | 0.5         |   |                                  | 20,380    |   |   | 1.0     |   |
|                                                                                                                                 |   |                                               |           |                                         |        |             |   |                                       |           |   |        |         |   |
| **Private label                        mortgage-backed securities AAA-rated (2)**                                                    |   |                                          | 15,152    |                                         |   | 0.8         |   |                                  | —   |   |   | — |   |
|                                                                                                                                 |   |                                               |           |                                         |        |             |   |                                       |           |   |        |         |   |
| **Community bank                        stocks and other**                                                                           |   |                                          | 3,631     |                                         |   | 0.2         |   |                                  | 8,563     |   |   | 0.4     |   |
|                                                                                                                                 |   |                                               |           |                                         |        |             |   |                                       |           |   |        |         |   |
| Total                        securities                                                                                              |   | $                                             | 2,020,199 |                                         |   | 100.0       | %      | $                                     | 2,025,903 |   |   | 100.0   | %      |
|                                                                                                                                 |   |                                               |           |                                         |        |             |   |                                       |           |   |        |         |   |
| Percent of total                        securities: (4)                                                                              |   |                                          |      |                                         |   |        |   |                                  |      |   |   |    |   |
| Rated A or                        higher                                                                                             |   |                                          |      |                                         |   | 99.0        | %      |                                  |      |   |   | 98.2    | %      |
| Investment                        grade                                                                                              |   |                                          |      |                                         |   | 99.4        |   |                                  |      |   |   | 99.0    |   |

|   |                                                                                                                                                                                                                                                                                                                                                                      |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | At September 30, 2008,                        these numbers include, in the aggregate, $169.7 million and $1.3 billion                        related to senior debt and MBS, respectively, issued by FNMA and                        FHLMC.                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                      |
| (2)    | Current policies                        restrict MBS/CMO purchases to agency-backed and a small percent of                        private-label securities and prohibit securities collateralized by                        sub-prime assets.                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                      |
| (3)    | At September 30, 2008                        and December 31, 2007, state and municipal securities include $24.4 million                        and $39.5 million, respectively, of securities held to maturity at                        amortized cost.                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                      |
| (4)    | Ratings shown above do                        not reflect the benefit of guarantees by bond insurers. At September 30,                        2008, $34.5 million of municipal bonds are guaranteed by bond insurers. At                        December 31, 2007, $43.5 million of municipal bonds are guaranteed by bond                        insurers.               |
|   |                                                                                                                                                                                                                                                                                                                                                                      |
| (5)    | At September 30, 2008,                        the breakdown by current bond rating is as follows: $187.6 million                        pre-funded with collateral or AAA-rated backed by Texas Permanent School                        Fund, $8.9 million AAA-rated, $83.5 million AA or A-rated, $600,000                        BBB-rated, and $4.3 million non-rated. |
|   |                                                                                                                                                                                                                                                                                                                                                                      |
| Note:  | Within each category,                        securities are ordered based on risk assessment from lowest to highest.                        TSFG holds no collateralized debt obligations, or subordinated debt or                        equity investments in FNMA or FHLMC.                                                                                            |

*          Investments            Included in Other Assets.* TSFG also invests in limited partnerships, limited            liability companies (“LLCs”) and other privately held companies. These            investments are included in other assets. During the first nine months of 2008, TSFG            sold $1.9 million of such investments for a net gain of $4.1 million and recorded            $589,000 in other-than-temporary impairment on these investments. At September 30,            2008, TSFG’s investment in these entities totaled $16.9 million, of which $4.5            million were accounted for under the cost method and $12.4 million were accounted for            under the equity method.

46

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*     Goodwill*

          In            accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”            (“SFAS 142”), TSFG evaluates its goodwill annually for each reporting unit            as of June 30th. However, the acceleration of credit deterioration in            Florida prompted TSFG to perform an interim impairment evaluation of a significant            portion of the recorded goodwill as of March 31, 2008. As a result of this evaluation,            during first quarter 2008, TSFG recognized goodwill impairment in the Florida banking            segment primarily due to increased projected credit costs and a related decrease in            projected loan growth. In addition, during first quarter 2008, TSFG refined its            methodology for allocating certain previously unallocated noninterest expenses to its            banking segments, which resulted in higher allocated expenses to each of those            segments; such costs were then utilized in the discounted cash flow analysis to            determine the fair value of the Florida banking segment. The goodwill impairment charge            of $188.4 million was recorded in noninterest expense in the consolidated statements of            income. The fair value of the Florida reporting unit tested for impairment was            determined primarily using discounted cash flow models based on internal forecasts and,            to a lesser extent, market-based trading and transaction multiples. Internal forecasts            include certain assumptions made by management, including expectations about growth in            earning assets, credit losses, and expenses.

          The            goodwill impairment analysis is performed on the Company’s reporting units and            closely follows its operating segments. These reporting units, as well as the            assumptions and forecasts used in the discounted cash flow model and the market            approach, have varying degrees of subjectivity and may not be comparable to the            reporting units, assumptions, and forecasts used by other companies in evaluating their            goodwill for impairment.

          The            annual impairment evaluation as of June 30, 2008 and a subsequent interim evaluation as            of September 30, 2008 indicated that no additional impairment charge was required, and            there have been no events or circumstances since quarter-end indicating impairment.            Management will continue to update its analysis as circumstances change, and as market            conditions continue to be volatile and unpredictable. Additional impairment charges            could result in the future if continued credit deterioration occurs, if fair values            continue to decline in the current environment, or if management reduces its            expectations for segment cash flows.

*     Derivative            Financial Instruments*

          Derivative            financial instruments used by TSFG may include interest rate swaps, caps, collars,            floors, options, futures and forward contracts. Derivative contracts are primarily used            to hedge identified risks and also to provide risk-management products to customers.            TSFG has derivatives that qualify for hedge accounting under SFAS No. 133,            “Accounting for Derivative Instruments and Hedging Activities” (“SFAS            133”), derivatives that do not qualify for hedge accounting under SFAS 133 but            otherwise achieve economic hedging goals (“economic hedges”), as well as            derivatives that are used in trading and customer hedging programs. See Note 9 to the            Consolidated Financial Statements for disclosure of the fair value of TSFG’s            derivative assets and liabilities (which are included in other assets and other            liabilities, respectively, in the Consolidated Financial Statements) and their related            notional amounts. TSFG’s trading derivatives, economic hedges, and customer            hedging programs are included in Other Derivatives in the table in Note 9.

          In            the three and nine months ended September 30, 2008, noninterest income included a loss            of $199,000 and a gain of $49,000, respectively, for derivative activities. These            amounts include the following: the change in fair value of derivatives that do not            qualify for hedge accounting under SFAS 133, as well as the net cash settlement from            these interest rate swaps; hedge ineffectiveness; and other miscellaneous            items.

*          Credit            Risk of Derivative Financial Instruments.* Entering into derivative financial            contracts creates credit risk for potential amounts contractually due to TSFG from the            derivative counterparties. Derivative credit risk is generally measured as the net            replacement cost to TSFG in the event that a counterparty to a contract in a gain            position to TSFG completely fails to perform under the terms of the contract.            Derivative credit risk related to existing bank customers (in the case of            “customer loan swaps” and foreign exchange contracts) is monitored through            existing credit policies and procedures. The effects of changes in interest rates or            foreign exchange rates are evaluated across a range of possible options to limit the            maximum exposures to individual customers. Customer loan swaps are generally            cross-collateralized with the related loan. In addition, customers may also be required            to provide margin collateral to further limit TSFG’s derivative credit            risk.

          Counterparty            credit risk with other derivative counterparties (generally money-center and            super-regional financial institutions) is evaluated through existing policies and            procedures. This evaluation considers the total relationship between TSFG and each of            the counterparties. Individual limits are established by management and

47

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          A            deterioration of the credit standing of one or more of the counterparties to these            contracts may result in the related hedging relationships being deemed ineffective or            in TSFG not achieving its desired economic hedging outcome.

          During            third quarter 2008, TSFG terminated swaps with a counterparty that was experiencing            financial difficulty and replaced those swaps with a different counterparty. In            addition, credit deterioration of another swap counterparty negatively affected the            valuation of certain swaps during third quarter 2008, and moved the value of these            swaps from Level 2 to Level 3 in the SFAS 157 hierarchy (see Note 14 to the            Consolidated Financial Statements).

*     Deposits*

          Deposits            remain TSFG’s primary source of funds. Average customer deposits equaled 62.0% of            average total funding in the first nine months of 2008. TSFG faces strong competition            from other banking and financial services companies in gathering deposits. TSFG also            maintains short and long-term wholesale sources including federal funds, repurchase            agreements, Federal Reserve borrowings, brokered CDs, and FHLB advances to fund a            portion of loan demand and, if appropriate, any increases in investment            securities.

          Table            15 shows the breakdown of total deposits by type of deposit and the respective            percentage of total deposits, while Table 16 shows the breakdown of customer funding by            type.

|                                              |
|---------------------------------------------------|
| **Table                        15**               |
|                                                   |
| **Type of                        Deposits**       |
|                                                   |
| **(dollars in                        thousands)** |

|                                                       |   |                                     |       |                                         |   |      |   |   |      |   |
|------------------------------------------------------------|--------|------------------------------------------|------------|----------------------------------------------|--------|-----------|--------|--------|-----------|--------|
|                                                       |   | **September                        30,** |       |                                         |   |
|                                                       |   |                                          |       | **December 31,                        2007** |   |
|                                                       |   | **2008**                                 |       | **2007**                                     |   |      |
|                                                       |   |                                          |       |                                              |   |           |   |
| Noninterest-bearing                        demand deposits |   | $                                        | 1,022,632  |                                         | $      | 1,164,312 |   | $      | 1,127,657 |   |
| Interest-bearing                        checking           |   |                                     | 1,090,874  |                                         |   | 1,100,428 |   |   | 1,117,850 |   |
| Money market                        accounts               |   |                                     | 1,806,143  |                                         |   | 2,184,822 |   |   | 2,188,261 |   |
| Savings                        accounts                    |   |                                     | 150,150    |                                         |   | 169,091   |   |   | 158,092   |   |
| Time deposits under                        $100,000        |   |                                     | 1,840,363  |                                         |   | 1,384,094 |   |   | 1,442,030 |   |
| Time deposits of                        $100,000 or more   |   |                                     | 1,524,813  |                                         |   | 1,515,417 |   |   | 1,496,270 |   |
|                                                       |   |                                          |            |                                         |        |           |   |        |           |   |
| Customer deposits                        (1)               |   |                                     | 7,434,975  |                                         |   | 7,518,164 |   |   | 7,530,160 |   |
| Brokered                        deposits                   |   |                                     | 2,573,833  |                                         |   | 1,983,505 |   |   | 2,258,408 |   |
|                                                       |   |                                          |            |                                         |        |           |   |        |           |   |
| Total                        deposits                      |   | $                                        | 10,008,808 |                                         | $      | 9,501,669 |   | $      | 9,788,568 |   |
|                                                       |   |                                          |            |                                         |        |           |   |        |           |   |
| **Percentage of                        Deposits**          |   |                                     |       |                                         |   |      |   |   |      |   |
| Noninterest-bearing                        demand deposits |   |                                     | 10.2       | %                                            |   | 12.2      | %      |   | 11.5      | %      |
| Interest-bearing                        checking           |   |                                     | 10.9       |                                         |   | 11.6      |   |   | 11.4      |   |
| Money market                        accounts               |   |                                     | 18.1       |                                         |   | 23.0      |   |   | 22.4      |   |
| Savings                        accounts                    |   |                                     | 1.5        |                                         |   | 1.8       |   |   | 1.6       |   |
| Time deposits under                        $100,000        |   |                                     | 18.4       |                                         |   | 14.6      |   |   | 14.7      |   |
| Time deposits of                        $100,000 or more   |   |                                     | 15.2       |                                         |   | 15.9      |   |   | 15.3      |   |
|                                                       |   |                                          |            |                                         |        |           |   |        |           |   |
| Customer deposits                        (1)               |   |                                     | 74.3       |                                         |   | 79.1      |   |   | 76.9      |   |
| Brokered                        deposits                   |   |                                     | 25.7       |                                         |   | 20.9      |   |   | 23.1      |   |
|                                                       |   |                                          |            |                                         |        |           |   |        |           |   |
| Total                        deposits                      |   |                                     | 100.0      | %                                            |   | 100.0     | %      |   | 100.0     | %      |
|                                                       |   |                                          |            |                                         |        |           |   |        |           |   |

|   |                                                                                            |
|--------|-------------------------------------------------------------------------------------------------|
| (1)    | TSFG defines customer                        deposits as total deposits less brokered deposits. |

 

48

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|                                                |
|-----------------------------------------------------|
| **Table                        16**                 |
|                                                     |
| **Type of Customer                        Funding** |
|                                                     |
| **(dollars in                        thousands)**   |

|                                              |   |                                     |      |                                         |   |      |   |   |      |   |
|---------------------------------------------------|--------|------------------------------------------|-----------|----------------------------------------------|--------|-----------|--------|--------|-----------|--------|
|                                              |   | **September                        30,** |      |                                         |   |
|                                              |   |                                          |      | **December 31,                        2007** |   |
|                                              |   | **2008**                                 |      | **2007**                                     |   |      |
|                                              |   |                                          |      |                                              |   |           |   |
| Customer deposits                        (1)      |   | $                                        | 7,434,975 |                                         | $      | 7,518,164 |   | $      | 7,530,160 |   |
| Customer sweep                        accounts(2) |   |                                     | 551,559   |                                         |   | 599,021   |   |   | 648,311   |   |
|                                              |   |                                          |           |                                         |        |           |   |        |           |   |
| Customer                        funding           |   | $                                        | 7,986,534 |                                         | $      | 8,117,185 |   | $      | 8,178,471 |   |
|                                              |   |                                          |           |                                         |        |           |   |        |           |   |

|   |                                                                                                                                            |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | TSFG defines customer                        deposits as total deposits less brokered deposits.                                                 |
|   |                                                                                                                                            |
| (2)    | TSFG includes customer                        sweep accounts in short-term borrowings on its consolidated balance                        sheet. |

          At            September 30, 2008, period-end customer funding decreased $191.9 million, or 2.3%, from            December 31, 2007, as increases in time deposits due to several promotions during the            quarter were more than offset by decreases in all other customer deposit categories and            customer sweeps. Public deposits totaled approximately $627 million at September 30,            2008, compared to $582 million at December 31, 2007. This increase was more than offset            by a decrease in commercial deposits at September 30, 2008 relative to December 31,            2007 due in part to lower overall liquidity from commercial customers and customers            seeking diversification among banks to avoid deposit levels in excess of FDIC insurance            limits (which increased to $250,000 in October 2008).

          TSFG            plans to participate in the Temporary Liquidity Guarantee Program’s full coverage            of noninterest-bearing deposit transaction accounts regardless of dollar amount through            December 31, 2009 (see “Recent Market Developments”). In addition,            subsequent to quarter-end, TSFG began participating in Certificate of Deposit Account            Registry Services (“CDARS”), a program that allows TSFG’s customers            the ability to benefit from full FDIC insurance on CD investments of up to $50            million.

          While            reported in short-term borrowings on the consolidated balance sheet, customer sweep            accounts represent excess overnight cash from commercial customer operating accounts            and are a source of funding for TSFG. Currently, sweep balances are generated through            two products: 1) collateralized customer repurchase agreements ($468.4 million at            September 30, 2008) and 2) uninsured Eurodollar deposits ($83.1 million at September            30, 2008). These balances are tied directly to commercial customer checking accounts,            and these sweep accounts generate treasury services noninterest income.

          TSFG            uses brokered deposits and other borrowed funds as an alternative funding source while            continuing its efforts to maintain and grow its local customer funding base. Brokered            deposits increased as a percentage of total deposits since December 31, 2007 as TSFG            replaced certain customer funding and other wholesale funding sources with brokered            deposits.

          Table            19 in “Earnings Review - Net Interest Income” details average balances for            the deposit portfolio for the three and nine months ended September 30, 2008 and 2007.            Comparing the nine months ended September 30, 2008 and 2007, average customer funding            decreased $155.3 million, or 1.9%. Within customer funding, the mix continues to shift            toward higher cost products, with increases in average time deposits and customer sweep            accounts more than offset by a decrease in noninterest-bearing deposits, interest            checking, savings and money markets. Average brokered deposits increased $189.3            million, or 9.4%.

          Average            customer funding equaled 66.9% of average total funding in the first nine months of            2008 compared to 67.1% in the first nine months of 2007. As part of its overall funding            strategy, TSFG expects to continue its focus on lowering its funding costs by trying to            improve the customer funding level, mix, and rate paid. TSFG attempts to enhance its            deposit mix by working to attract lower-cost transaction accounts through actions such            as new transaction account opening goals, new checking products, and changing incentive            plans to place a greater emphasis on lower-cost customer deposit growth. Deposit            pricing is very competitive, and we expect this pricing environment to continue,            together with customer behavior driving the mix towards higher rate deposit            products—money markets and CDs.

*     Borrowed            Funds*

          Table            17 shows the breakdown of borrowed funds by type.

49

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|                                              |
|---------------------------------------------------|
| **Table                        17**               |
|                                                   |
| **Type of Borrowed                        Funds** |
|                                                   |
| **(dollars in                        thousands)** |

|                                                                        |   |                                     |      |                                         |   |      |   |   |      |   |
|-----------------------------------------------------------------------------|--------|------------------------------------------|-----------|----------------------------------------------|--------|-----------|--------|--------|-----------|--------|
|                                                                        |   | **September                        30,** |      |                                         |   |
|                                                                        |   |                                          |      | **December 31,                        2007** |   |
|                                                                        |   | **2008**                                 |      | **2007**                                     |   |      |
|                                                                        |   |                                          |      |                                              |   |           |   |
| **Short-Term                        Borrowings**                            |   |                                     |      |                                         |   |      |   |   |      |   |
| Federal funds purchased                        and repurchase agreements    |   | $                                        | 137,927   |                                         | $      | 595,272   |   | $      | 206,216   |   |
| Customer sweep                        accounts                              |   |                                     | 551,559   |                                         |   | 599,021   |   |   | 648,311   |   |
| Federal Reserve                        borrowings                           |   |                                     | 30,000    |                                         |   | —   |   |   | —   |   |
| FHLB                        advances                                        |   |                                     | —   |                                         |   | 175,000   |   |   | —   |   |
| Commercial                        paper                                     |   |                                     | 19,068    |                                         |   | 32,601    |   |   | 30,828    |   |
| Treasury, tax and loan                        note                          |   |                                     | 450,375   |                                         |   | 668,687   |   |   | 752,195   |   |
|                                                                        |   |                                          |           |                                         |        |           |   |        |           |   |
| **Total short-term                        borrowings**                      |   |                                     | 1,188,929 |                                         |   | 2,070,581 |   |   | 1,637,550 |   |
|                                                                        |   |                                          |           |                                         |        |           |   |        |           |   |
|                                                                        |   |                                     |      |                                         |   |      |   |   |      |   |
| **Long-Term                        Borrowings**                             |   |                                     |      |                                         |   |      |   |   |      |   |
| Repurchase                        agreements                                |   |                                     | 200,000   |                                         |   | 200,000   |   |   | 200,000   |   |
| FHLB                        advances                                        |   |                                     | 298,119   |                                         |   | 223,093   |   |   | 223,087   |   |
| Subordinated                        notes                                   |   |                                     | 216,704   |                                         |   | 242,478   |   |   | 216,704   |   |
| Mandatorily redeemable                        preferred stock of subsidiary |   |                                     | 56,800    |                                         |   | 64,800    |   |   | 56,800    |   |
| Note payable                                                                |   |                                     | 779       |                                         |   | 797       |   |   | 786       |   |
| Employee stock                        ownership plan note payable           |   |                                     | —   |                                         |   | —   |   |   | —   |   |
| Purchase accounting                        premiums, net of amortization    |   |                                     | 707       |                                         |   | 1,035     |   |   | 963       |   |
|                                                                        |   |                                          |           |                                         |        |           |   |        |           |   |
| **Total long term                        borrowings**                       |   |                                     | 773,109   |                                         |   | 732,203   |   |   | 698,340   |   |
|                                                                        |   |                                          |           |                                         |        |           |   |        |           |   |
| **Total                        borrowings**                                 |   |                                     | 1,962,038 |                                         |   | 2,802,784 |   |   | 2,335,890 |   |
| Less: Customer sweep                        accounts                        |   |                                     | (551,559  | )                                            |   | (599,021  | )      |   | (648,311  | )      |
| Add: Brokered deposits                        (1)                           |   |                                     | 2,573,833 |                                         |   | 1,983,505 |   |   | 2,258,408 |   |
|                                                                        |   |                                          |           |                                         |        |           |   |        |           |   |
| **Total wholesale                        borrowings**                       |   | $                                        | 3,984,312 |                                         | $      | 4,187,268 |   | $      | 3,945,987 |   |
|                                                                        |   |                                          |           |                                         |        |           |   |        |           |   |
|                                                                        |   |                                     |      |                                         |   |      |   |   |      |   |
| Wholesale borrowings as                        a % of total assets          |   |                                     | 29.1      | %                                            |   | 29.7      | %      |   | 28.4      | %      |

|   |                                                                                                        |
|--------|-------------------------------------------------------------------------------------------------------------|
| (1)    | TSFG includes brokered                        deposits in total deposits on its consolidated balance sheet. |

          TSFG            uses both short-term and long-term borrowings to fund growth of earning assets in            excess of deposit growth. In the first nine months of 2008, average borrowings totaled            $2.4 billion, compared with $2.5 billion for the same period in 2007.

          Period-end            wholesale borrowings increased to $4.0 billion at September 30, 2008, compared to $3.9            billion at December 31, 2007 as TSFG replaced certain customer funding with brokered            deposits. Average wholesale borrowings totaled $4.0 billion in the first nine months of            2008 and 2007. TSFG plans to continue efforts to lower its reliance on wholesale            borrowings, principally by growth in customer funding.

          Daily            funding needs are met through federal funds purchased and short-term brokered CDs, term            treasury, tax and loan notes (“TT&L”), repurchase agreements, Federal            Reserve borrowings, and FHLB advances. Balances in these accounts can fluctuate on a            day-to-day basis based on availability and overall funding needs.

          In            December 2007, the Federal Reserve announced the establishment of a temporary Term            Auction Facility (“TAF”) in which the Federal Reserve would auction term            funds to depository institutions. The program is similar to term TT&L auctions in            that institutions place bids for the borrowing and the rate on the awarded amount is            based on the results of the auction. The collateral used to secure the borrowings is            the same that is currently held at the Discount Window (see            “Liquidity”).

          FHLB            advances are a source of funding that TSFG uses depending on the current level of            deposits and the availability of collateral to secure FHLB borrowings. At September 30,            2008, TSFG had $633.3 million of unused borrowing capacity from the FHLB. See            “Liquidity” for further discussion.

50

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          During            the first nine months of 2008, TSFG recognized a net loss on early extinguishment of            debt of $339,000, primarily due to prepayment penalties for FHLB advances partially            offset by gains on calls of interest rate swaps hedging brokered CDs.

*     Capital            Resources and Dividends*

          Total            shareholders’ equity totaled $1.5 billion, or 11.2% of total assets, at September            30, 2008 and December 31, 2007. Shareholders’ equity remained basically flat as            the net loss for the first nine months of 2008 (which includes the $188.4 million            goodwill impairment charge) and cash dividends paid were largely offset by the net            proceeds from the issuance of Preferred Stock.

          On            May 8, 2008, TSFG issued $250.0 million of mandatory convertible non-cumulative            preferred stock, with net proceeds of $239.0 million. The preferred securities pay            dividends at an annual rate of 10%, have a conversion price of $6.50 per common share,            and the remaining outstanding shares (249,000 at September 30, 2008) will convert into            approximately 38.3 million common shares by May 1, 2011. Although this issuance            strengthened TSFG’s overall capital and liquidity position and regulatory capital            ratios, it had a dilutive effect on book value per share and tangible book value per            share and will have a dilutive effect on earnings per share. (For the three and nine            months ended September 30, 2008, the Preferred Stock is antidilutive and, as such, is            excluded from the calculation of earnings per share.)

          During            third quarter 2008, 1,000 shares of Preferred Stock were converted into approximately            154,000 common shares. Subsequent to quarter-end, 5,750 shares of Preferred Stock were            converted into approximately 885,000 common shares.

          Common            book value per common share at September 30, 2008 (assuming conversion of the Preferred            Stock) and December 31, 2007 was $13.78 and $21.40, respectively. Common tangible book            value per common share at September 30, 2008 (assuming conversion of the Preferred            Stock) and December 31, 2007 was $9.42 and $12.04, respectively. Tangible book value            was below book value as a result of goodwill and intangibles associated with            acquisitions of entities and assets accounted for as purchases. Since TSFG’s net            loss for the nine months ended September 30, 2008 was largely due to the $188.4 million            goodwill impairment charge which was reported in first quarter 2008, book value per            share decreased much more than tangible book value per share. At September 30, 2008,            goodwill totaled $461.5 million, or $6.32 per share ($4.15 per share assuming            conversion of the Preferred Stock), and is not being amortized, while other intangibles            totaled $23.1 million and will continue to be amortized.

          TSFG            is subject to the risk-based capital guidelines administered by bank regulatory            agencies. The guidelines are designed to make regulatory capital requirements more            sensitive to differences in risk profiles among banks and bank holding companies, to            account for off-balance sheet exposure and to minimize disincentives for holding liquid            assets. Under these guidelines, assets and certain off-balance sheet items are assigned            to broad risk categories, each with appropriate weights. The resulting capital ratios            represent capital as a percentage of total risk-weighted assets and certain off-balance            sheet items. TSFG and Carolina First Bank exceeded the well-capitalized regulatory            requirements at September 30, 2008. Failure to meet minimum capital requirements can            initiate certain mandatory, and possibly additional discretionary actions by            regulators, that, if undertaken, could have a direct material effect on our            Consolidated Financial Statements.

          Table            18 sets forth various capital ratios for TSFG and Carolina First Bank. Under current            regulatory guidelines, debt associated with trust preferred securities qualifies for            tier 1 capital treatment. At September 30, 2008, trust preferred securities included in            tier 1 capital totaled $200.5 million.

51

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|                                      |
|-------------------------------------------|
| **Table                        18**       |
|                                           |
| **Capital                        Ratios** |
|                                           |

|                                             |   |                                          |   |                                                                           |   |   |   |
|--------------------------------------------------|--------|-----------------------------------------------|--------|--------------------------------------------------------------------------------|--------|--------|--------|
|                                             |   | **September 30,                        2008** |   | **Well                        Capitalized                        Requirement** |   |
|                                             |   |                                               |   |                                                                                |   |
| **TSFG**                                         |   |                                          |   |                                                                           |   |   |   |
| Total risk-based                        capital  |   | 12.68                                         | %      |                                                                           | n/a    |   |   |
| Tier 1 risk-based                        capital |   | 11.18                                         |   |                                                                           | n/a    |   |   |
| Leverage                        ratio            |   | 9.70                                          |   |                                                                           | n/a    |   |   |
|                                             |
| **Carolina First                        Bank**   |   |                                          |   |                                                                           |   |   |   |
| Total risk-based                        capital  |   | 11.59                                         | %      |                                                                           | 10.00  | %      |   |
| Tier 1 risk-based                        capital |   | 9.86                                          |   |                                                                           | 6.00   |   |   |
| Leverage                        ratio            |   | 8.54                                          |   |                                                                           | 5.00   |   |   |
|                                             |   |                                          |   |                                                                           |   |   |   |

          The            regulatory agencies have proposed rules to reduce the risk-weighting for FNMA and FHLMC            securities (excluding preferred or common stock) from 20% to 10%, and to reduce the            amount of the goodwill deducted from tier 1 capital by any associated deferred tax            liability. If approved, management expects TSFG’s tier 1 and total capital ratios            to improve. In addition, TSFG has decided to pursue capital under the TARP Capital Purchase Program (see “Recent Market Developments”), whichbased on the program guidelines, would range from $115 to $347 million; however, no assurance can be given that TSFG will be approvedunder those guidelines.

          At            September 30, 2008, TSFG’s tangible equity to tangible asset ratio totaled 7.94%,            an increase from 6.61% at December 31, 2007, due primarily to the issuance of Preferred            Stock.

          Carolina            First Bank is subject to certain regulatory restrictions on the amount of dividends it            is permitted to pay. Currently, Carolina First Bank may not pay a dividend to TSFG            without regulatory approval. TSFG presently intends to pay a quarterly cash dividend on            its common stock; however, future dividends will depend upon a number of factors,            including payment of the Preferred Stock dividend, financial performance, capital            requirements and assessment of capital needs. On May 2, 2008, TSFG announced a            reduction in its quarterly common stock cash dividend to $0.01 per share.

          TSFG,            through a real estate investment trust subsidiary, had 568 mandatorily redeemable            preferred shares outstanding at September 30, 2008 with a stated value of $100,000 per            share. At September 30, 2008, these preferred shares, which are reported as long-term            debt on the consolidated balance sheet, totaled $56.8 million. Under Federal Reserve            Board guidelines, $26.3 million qualified as tier 1 capital, and $18.3 million            qualified as tier 2 capital. The terms for the preferred shares include certain asset            coverage and cash flow tests, which if not satisfied, may prohibit its real estate            trust subsidiary from paying dividends to Carolina First Bank, which in turn may limit            its ability to pay dividends to TSFG.

**Earnings            Review**

*     Net            Interest Income*

          Net            interest income is TSFG’s primary source of revenue. Net interest income is the            difference between the interest earned on assets, including loan fees and dividends on            investment securities, and the interest incurred for the liabilities to support such            assets. The net interest margin measures how effectively a company manages the            difference between the yield on earning assets and the rate incurred on funds used to            support those assets. Fully tax-equivalent net interest income adjusts the yield for            assets earning tax-exempt income to a comparable yield on a taxable basis based on a            35% marginal federal income tax rate. Table 19 presents average balance sheets and a            net interest income analysis on a tax-equivalent basis for the three and nine months            ended September 30, 2008 and 2007.

52

----

|                                                                       |
|----------------------------------------------------------------------------|
| **Table                        19**                                        |
|                                                                            |
| **Comparative                        Average Balances - Yields and Costs** |
|                                                                            |
| **(dollars in                        thousands)**                          |

|                                                                                    |   |                                                        |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
|-----------------------------------------------------------------------------------------|--------|-------------------------------------------------------------|------------|--------------------------------------------|--------|----------------------------------------|--------|--------------------------------------------|--------|--------------------------------------------|--------|----------------------------------------|--------|--------|---------|--------|--------|--------|--------|
|                                                                                    |   | **Three Months Ended                        September 30,** |       |
|                                                                                    |   |                                                             |       |
|                                                                                    |   | **2008**                                                    |       | **2007**                                   |   |
|                                                                                    |   |                                                             |       |                                            |   |
|                                                                                    |   | **Average                        Balance**                  |       | **Income/                        Expense** |   | **Yield/                        Rate** |   | **Average                        Balance** |   | **Income/                        Expense** |   | **Yield/                        Rate** |   |
|                                                                                    |   |                                                             |       |                                            |   |                                        |   |                                            |   |                                            |   |                                        |   |
| **Assets**                                                                              |   |                                                        |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Earning                        assets                                                   |   |                                                        |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Loans                        (1)                                                        |   | $                                                           | 10,458,765 |                                       | $      | 155,433                                |   |                                       | 5.91   | %                                          | $      | 10,065,454                             |   | $      | 195,393 |   |   | 7.70   | %      |
| Investment securities,                        taxable (2)                               |   |                                                        | 1,768,461  |                                       |   | 20,186                                 |   |                                       | 4.57   |                                       |   | 2,121,044                              |   |   | 25,390  |   |   | 4.79   |   |
| Investment                        securities,                        nontaxable (2) (3) |   |                                                        | 290,431    |                                       |   | 3,726                                  |   |                                       | 5.13   |                                       |   | 351,584                                |   |   | 4,394   |   |   | 5.00   |   |
|                                                                                    |   |                                                             |            |                                       |        |                                        |   |                                       |   |                                       |        |                                        |   |        |         |   |   |   |   |
| Total investment                        securities                                      |   |                                                        | 2,058,892  |                                       |   | 23,912                                 |   |                                       | 4.65   |                                       |   | 2,472,628                              |   |   | 29,784  |   |   | 4.82   |   |
| Federal funds sold and                        interest-bearing bank balances            |   |                                                        | 37,149     |                                       |   | 197                                    |   |                                       | 2.11   |                                       |   | 6,574                                  |   |   | 100     |   |   | 6.03   |   |
|                                                                                    |   |                                                             |            |                                       |        |                                        |   |                                       |   |                                       |        |                                        |   |        |         |   |   |   |   |
| Total earning                        assets                                             |   |                                                        | 12,554,806 |                                       | $      | 179,542                                |   |                                       | 5.69   |                                       |   | 12,544,656                             |   | $      | 225,277 |   |   | 7.13   |   |
|                                                                                    |   |                                                        |       |                                       |        |                                        |   |                                       |   |                                       |   |                                   |   |        |         |   |   |   |   |
| Non-earning                        assets                                               |   |                                                        | 1,281,130  |                                       |   |                                   |   |                                       |   |                                       |   | 1,477,862                              |   |   |    |   |   |   |   |
|                                                                                    |   |                                                             |            |                                       |   |                                   |   |                                       |   |                                       |        |                                        |   |   |    |   |   |   |   |
| Total assets                                                                            |   | $                                                           | 13,835,936 |                                       |   |                                   |   |                                       |   |                                       | $      | 14,022,518                             |   |   |    |   |   |   |   |
|                                                                                    |   |                                                             |            |                                       |   |                                   |   |                                       |   |                                       |        |                                        |   |   |    |   |   |   |   |
|                                                                                    |   |                                                        |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| **Liabilities and                        Shareholders’ Equity**                   |   |                                                        |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Liabilities                                                                             |   |                                                        |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Interest-bearing                        liabilities                                     |   |                                                        |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Interest-bearing                        deposits                                        |   |                                                        |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Interest-bearing                        checking                                        |   | $                                                           | 1,130,079  |                                       | $      | 2,481                                  |   |                                       | 0.87   |                                       | $      | 1,122,793                              |   | $      | 5,571   |   |   | 1.97   |   |
| Savings                                                                                 |   |                                                        | 143,014    |                                       |   | 255                                    |   |                                       | 0.71   |                                       |   | 172,110                                |   |   | 697     |   |   | 1.61   |   |
| Money market                                                                            |   |                                                        | 1,949,001  |                                       |   | 11,293                                 |   |                                       | 2.31   |                                       |   | 2,236,493                              |   |   | 22,390  |   |   | 3.97   |   |
| Time deposits,                        excluding brokered deposits                       |   |                                                        | 3,259,783  |                                       |   | 30,522                                 |   |                                       | 3.72   |                                       |   | 2,905,426                              |   |   | 36,594  |   |   | 5.00   |   |
| Brokered                        deposits                                                |   |                                                        | 2,574,430  |                                       |   | 24,520                                 |   |                                       | 3.79   |                                       |   | 2,208,381                              |   |   | 29,245  |   |   | 5.25   |   |
|                                                                                    |   |                                                             |            |                                       |        |                                        |   |                                       |   |                                       |        |                                        |   |        |         |   |   |   |   |
| Total interest-bearing                        deposits                                  |   |                                                        | 9,056,307  |                                       |   | 69,071                                 |   |                                       | 3.03   |                                       |   | 8,645,203                              |   |   | 94,497  |   |   | 4.34   |   |
| Customer sweep                        accounts                                          |   |                                                        | 536,526    |                                       |   | 2,251                                  |   |                                       | 1.67   |                                       |   | 559,906                                |   |   | 6,237   |   |   | 4.42   |   |
| Other borrowings                        (4)                                             |   |                                                        | 1,453,196  |                                       |   | 11,297                                 |   |                                       | 3.09   |                                       |   | 1,858,800                              |   |   | 26,231  |   |   | 5.60   |   |
|                                                                                    |   |                                                             |            |                                       |        |                                        |   |                                       |   |                                       |        |                                        |   |        |         |   |   |   |   |
| Total interest-bearing                        liabilities                               |   |                                                        | 11,046,029 |                                       | $      | 82,619                                 |   |                                       | 2.98   |                                       |   | 11,063,909                             |   | $      | 126,965 |   |   | 4.55   |   |
|                                                                                    |   |                                                        |       |                                       |        |                                        |   |                                       |   |                                       |   |                                   |   |        |         |   |   |   |   |
| Noninterest-bearing                        liabilities                                  |   |                                                        |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Noninterest-bearing                        deposits                                     |   |                                                        | 1,059,565  |                                       |   |                                   |   |                                       |   |                                       |   | 1,198,350                              |   |   |    |   |   |   |   |
| Other                        noninterest-bearing liabilities                            |   |                                                        | 177,735    |                                       |   |                                   |   |                                       |   |                                       |   | 240,771                                |   |   |    |   |   |   |   |
|                                                                                    |   |                                                             |            |                                       |   |                                   |   |                                       |   |                                       |        |                                        |   |   |    |   |   |   |   |
| Total                        liabilities                                                |   |                                                        | 12,283,329 |                                       |   |                                   |   |                                       |   |                                       |   | 12,503,030                             |   |   |    |   |   |   |   |
| Shareholders’                        equity                                       |   |                                                        | 1,552,607  |                                       |   |                                   |   |                                       |   |                                       |   | 1,519,488                              |   |   |    |   |   |   |   |
|                                                                                    |   |                                                             |            |                                       |   |                                   |   |                                       |   |                                       |        |                                        |   |   |    |   |   |   |   |
| Total liabilities and                        shareholders’ equity                 |   | $                                                           | 13,835,936 |                                       |   |                                   |   |                                       |   |                                       | $      | 14,022,518                             |   |   |    |   |   |   |   |
|                                                                                    |   |                                                             |            |                                       |   |                                   |   |                                       |   |                                       |        |                                        |   |   |    |   |   |   |   |
|                                                                                    |   |                                                        |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Net interest income                        (tax-equivalent)                             |   |                                                        |       |                                       | $      | 96,923                                 |   |                                       | 3.08   | %                                          |   |                                   |   | $      | 98,312  |   |   | 3.12   | %      |
| Less: tax-equivalent                        adjustment (3)                              |   |                                                        |       |                                       |   | 1,304                                  |   |                                       |   |                                       |   |                                   |   |   | 1,538   |   |   |   |   |
|                                                                                    |   |                                                        |       |                                       |        |                                        |   |                                       |   |                                       |   |                                   |   |        |         |   |   |   |   |
| Net interest                        income                                              |   |                                                        |       |                                       | $      | 95,619                                 |   |                                       |   |                                       |   |                                   |   | $      | 96,774  |   |   |   |   |
|                                                                                    |   |                                                        |       |                                       |        |                                        |   |                                       |   |                                       |   |                                   |   |        |         |   |   |   |   |
|                                                                                    |   |                                                        |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Supplemental                        data:                                               |   |                                                        |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Customer funding                        (5)                                             |   | $                                                           | 8,077,968  |                                       | $      | 46,802                                 |   |                                       | 2.30   | %                                          | $      | 8,195,078                              |   | $      | 71,489  |   |   | 3.46   | %      |
| Wholesale                        borrowings (6)                                         |   |                                                        | 4,027,626  |                                       |   | 35,817                                 |   |                                       | 3.54   |                                       |   | 4,067,181                              |   |   | 55,476  |   |   | 5.41   |   |
|                                                                                    |   |                                                             |            |                                       |        |                                        |   |                                       |   |                                       |        |                                        |   |        |         |   |   |   |   |
| Total funding                        (7)                                                |   | $                                                           | 12,105,594 |                                       | $      | 82,619                                 |   |                                       | 2.72   | %                                          | $      | 12,262,259                             |   | $      | 126,965 |   |   | 4.11   | %      |
|                                                                                    |   |                                                             |            |                                       |        |                                        |   |                                       |   |                                       |        |                                        |   |        |         |   |   |   |   |

|                                                                           |                                                                                                                                                                                                                                                                                                                                                    |
|--------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)                                                                            | Nonaccrual loans are                        included in average balances for yield computations.                                                                                                                                                                                                                                                        |
|                                                                           |                                                                                                                                                                                                                                                                                                                                                    |
| (2)                                                                            | The average balances                        for investment securities exclude the unrealized loss recorded for                        available for sale securities.                                                                                                                                                                                    |
|                                                                           |                                                                                                                                                                                                                                                                                                                                                    |
| (3)                                                                            | The tax-equivalent                        adjustment to net interest income adjusts the yield for assets earning                        tax-exempt income to a comparable yield on a taxable basis.                                                                                                                                                     |
|                                                                           |                                                                                                                                                                                                                                                                                                                                                    |
| (4)                                                                            | During the three months                        ended September 30, 2008 and 2007, TSFG capitalized $424,000 and $188,000,                        respectively, of interest in conjunction with the construction of its                        expanded corporate facilities.                                                                            |
|                                                                           |                                                                                                                                                                                                                                                                                                                                                    |
| (5)                                                                            | Customer funding                        includes total deposits (total interest-bearing plus noninterest-bearing                        deposits) less brokered deposits plus customer sweep accounts.                                                                                                                                                  |
|                                                                           |                                                                                                                                                                                                                                                                                                                                                    |
| (6)                                                                            | Wholesale borrowings                        include borrowings less customer sweep accounts plus brokered deposits. For                        purposes of this table, wholesale borrowings equal the sum of other                        borrowings and brokered deposits, as customer sweep accounts are presented                        separately. |
|                                                                           |                                                                                                                                                                                                                                                                                                                                                    |
| (7)                                                                            | Total funding includes                        customer funding and wholesale borrowings.                                                                                                                                                                                                                                                                |
|                                                                           |                                                                                                                                                                                                                                                                                                                                                    |
| Note: Average                        balances are derived from daily balances. |

53

----

|                                                                       |
|----------------------------------------------------------------------------|
| **Table 19                        (continued)**                            |
|                                                                            |
| **Comparative                        Average Balances - Yields and Costs** |
|                                                                            |
| **(dollars in                        thousands)**                          |

|                                                                                    |   |                                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
|-----------------------------------------------------------------------------------------|--------|------------------------------------------------------------|------------|--------------------------------------------|--------|----------------------------------------|--------|--------------------------------------------|--------|--------------------------------------------|--------|----------------------------------------|--------|--------|---------|--------|--------|--------|--------|
|                                                                                    |   | **Nine Months Ended                        September 30,** |       |
|                                                                                    |   |                                                            |       |
|                                                                                    |   | **2008**                                                   |       | **2007**                                   |   |
|                                                                                    |   |                                                            |       |                                            |   |
|                                                                                    |   | **Average                        Balance**                 |       | **Income/                        Expense** |   | **Yield/                        Rate** |   | **Average                        Balance** |   | **Income/                        Expense** |   | **Yield/                        Rate** |   |
|                                                                                    |   |                                                            |       |                                            |   |                                        |   |                                            |   |                                            |   |                                        |   |
| **Assets**                                                                              |   |                                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Earning                        assets                                                   |   |                                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Loans                        (1)                                                        |   | $                                                          | 10,384,557 |                                       | $      | 484,677                                |   |                                       | 6.23   | %                                          | $      | 9,955,125                              |   | $      | 573,982 |   |   | 7.71   | %      |
| Investment securities,                        taxable (2)                               |   |                                                       | 1,772,581  |                                       |   | 61,169                                 |   |                                       | 4.60   |                                       |   | 2,259,935                              |   |   | 81,094  |   |   | 4.79   |   |
| Investment                        securities,                        nontaxable (2) (3) |   |                                                       | 305,312    |                                       |   | 11,683                                 |   |                                       | 5.10   |                                       |   | 364,692                                |   |   | 13,526  |   |   | 4.95   |   |
|                                                                                    |   |                                                            |            |                                       |        |                                        |   |                                       |   |                                       |        |                                        |   |        |         |   |   |   |   |
| Total investment                        securities                                      |   |                                                       | 2,077,893  |                                       |   | 72,852                                 |   |                                       | 4.67   |                                       |   | 2,624,627                              |   |   | 94,620  |   |   | 4.81   |   |
| Federal funds sold and                        interest-bearing bank balances            |   |                                                       | 22,095     |                                       |   | 375                                    |   |                                       | 2.27   |                                       |   | 7,087                                  |   |   | 338     |   |   | 6.38   |   |
|                                                                                    |   |                                                            |            |                                       |        |                                        |   |                                       |   |                                       |        |                                        |   |        |         |   |   |   |   |
| Total earning                        assets                                             |   |                                                       | 12,484,545 |                                       | $      | 557,904                                |   |                                       | 5.97   |                                       |   | 12,586,839                             |   | $      | 668,940 |   |   | 7.10   |   |
|                                                                                    |   |                                                       |       |                                       |        |                                        |   |                                       |   |                                       |   |                                   |   |        |         |   |   |   |   |
| Non-earning                        assets                                               |   |                                                       | 1,365,056  |                                       |   |                                   |   |                                       |   |                                       |   | 1,500,585                              |   |   |    |   |   |   |   |
|                                                                                    |   |                                                            |            |                                       |   |                                   |   |                                       |   |                                       |        |                                        |   |   |    |   |   |   |   |
| Total assets                                                                            |   | $                                                          | 13,849,601 |                                       |   |                                   |   |                                       |   |                                       | $      | 14,087,424                             |   |   |    |   |   |   |   |
|                                                                                    |   |                                                            |            |                                       |   |                                   |   |                                       |   |                                       |        |                                        |   |   |    |   |   |   |   |
|                                                                                    |   |                                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| **Liabilities and                        Shareholders’ Equity**                   |   |                                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Liabilities                                                                             |   |                                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Interest-bearing                        liabilities                                     |   |                                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Interest-bearing                        deposits                                        |   |                                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Interest-bearing                        checking                                        |   | $                                                          | 1,135,385  |                                       | $      | 9,817                                  |   |                                       | 1.15   |                                       | $      | 1,161,835                              |   | $      | 17,535  |   |   | 2.02   |   |
| Savings                                                                                 |   |                                                       | 150,600    |                                       |   | 986                                    |   |                                       | 0.87   |                                       |   | 177,381                                |   |   | 2,139   |   |   | 1.61   |   |
| Money market                                                                            |   |                                                       | 2,081,789  |                                       |   | 39,748                                 |   |                                       | 2.55   |                                       |   | 2,302,298                              |   |   | 68,455  |   |   | 3.98   |   |
| Time deposits,                        excluding brokered deposits                       |   |                                                       | 3,070,785  |                                       |   | 93,345                                 |   |                                       | 4.06   |                                       |   | 2,903,159                              |   |   | 108,582 |   |   | 5.00   |   |
| Brokered                        deposits                                                |   |                                                       | 2,198,237  |                                       |   | 65,461                                 |   |                                       | 3.98   |                                       |   | 2,008,977                              |   |   | 78,331  |   |   | 5.21   |   |
|                                                                                    |   |                                                            |            |                                       |        |                                        |   |                                       |   |                                       |        |                                        |   |        |         |   |   |   |   |
| Total interest-bearing                        deposits                                  |   |                                                       | 8,636,796  |                                       |   | 209,357                                |   |                                       | 3.24   |                                       |   | 8,553,650                              |   |   | 275,042 |   |   | 4.30   |   |
| Customer sweep                        accounts                                          |   |                                                       | 598,186    |                                       |   | 10,344                                 |   |                                       | 2.31   |                                       |   | 503,676                                |   |   | 16,746  |   |   | 4.45   |   |
| Other borrowings                        (4)                                             |   |                                                       | 1,816,963  |                                       |   | 45,584                                 |   |                                       | 3.35   |                                       |   | 2,037,836                              |   |   | 84,585  |   |   | 5.55   |   |
|                                                                                    |   |                                                            |            |                                       |        |                                        |   |                                       |   |                                       |        |                                        |   |        |         |   |   |   |   |
| Total interest-bearing                        liabilities                               |   |                                                       | 11,051,945 |                                       | $      | 265,285                                |   |                                       | 3.21   |                                       |   | 11,095,162                             |   | $      | 376,373 |   |   | 4.54   |   |
|                                                                                    |   |                                                       |       |                                       |        |                                        |   |                                       |   |                                       |   |                                   |   |        |         |   |   |   |   |
| Noninterest-bearing                        liabilities                                  |   |                                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Noninterest-bearing                        deposits                                     |   |                                                       | 1,074,100  |                                       |   |                                   |   |                                       |   |                                       |   | 1,217,798                              |   |   |    |   |   |   |   |
| Other                        noninterest-bearing liabilities                            |   |                                                       | 185,846    |                                       |   |                                   |   |                                       |   |                                       |   | 235,366                                |   |   |    |   |   |   |   |
|                                                                                    |   |                                                            |            |                                       |   |                                   |   |                                       |   |                                       |        |                                        |   |   |    |   |   |   |   |
| Total                        liabilities                                                |   |                                                       | 12,311,891 |                                       |   |                                   |   |                                       |   |                                       |   | 12,548,326                             |   |   |    |   |   |   |   |
| Shareholders’                        equity                                       |   |                                                       | 1,537,710  |                                       |   |                                   |   |                                       |   |                                       |   | 1,539,098                              |   |   |    |   |   |   |   |
|                                                                                    |   |                                                            |            |                                       |   |                                   |   |                                       |   |                                       |        |                                        |   |   |    |   |   |   |   |
| Total liabilities and                        shareholders’ equity                 |   | $                                                          | 13,849,601 |                                       |   |                                   |   |                                       |   |                                       | $      | 14,087,424                             |   |   |    |   |   |   |   |
|                                                                                    |   |                                                            |            |                                       |   |                                   |   |                                       |   |                                       |        |                                        |   |   |    |   |   |   |   |
|                                                                                    |   |                                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Net interest income                        (tax-equivalent)                             |   |                                                       |       |                                       | $      | 292,619                                |   |                                       | 3.13   | %                                          |   |                                   |   | $      | 292,567 |   |   | 3.11   | %      |
| Less: tax-equivalent                        adjustment (3)                              |   |                                                       |       |                                       |   | 4,089                                  |   |                                       |   |                                       |   |                                   |   |   | 4,734   |   |   |   |   |
|                                                                                    |   |                                                       |       |                                       |        |                                        |   |                                       |   |                                       |   |                                   |   |        |         |   |   |   |   |
| Net interest                        income                                              |   |                                                       |       |                                       | $      | 288,530                                |   |                                       |   |                                       |   |                                   |   | $      | 287,833 |   |   |   |   |
|                                                                                    |   |                                                       |       |                                       |        |                                        |   |                                       |   |                                       |   |                                   |   |        |         |   |   |   |   |
|                                                                                    |   |                                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Supplemental                        data:                                               |   |                                                       |       |                                       |   |                                   |   |                                       |   |                                       |   |                                   |   |   |    |   |   |   |   |
| Customer funding                        (5)                                             |   | $                                                          | 8,110,845  |                                       | $      | 154,240                                |   |                                       | 2.54   | %                                          | $      | 8,266,147                              |   | $      | 213,457 |   |   | 3.45   | %      |
| Wholesale                        borrowings (6)                                         |   |                                                       | 4,015,200  |                                       |   | 111,045                                |   |                                       | 3.69   |                                       |   | 4,046,813                              |   |   | 162,916 |   |   | 5.38   |   |
|                                                                                    |   |                                                            |            |                                       |        |                                        |   |                                       |   |                                       |        |                                        |   |        |         |   |   |   |   |
| Total funding                        (7)                                                |   | $                                                          | 12,126,045 |                                       | $      | 265,285                                |   |                                       | 2.92   | %                                          | $      | 12,312,960                             |   | $      | 376,373 |   |   | 4.09   | %      |
|                                                                                    |   |                                                            |            |                                       |        |                                        |   |                                       |   |                                       |        |                                        |   |        |         |   |   |   |   |

|                                                                           |                                                                                                                                                                                                                                                                                                                                                    |
|--------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)                                                                            | Nonaccrual loans are                        included in average balances for yield computations.                                                                                                                                                                                                                                                        |
|                                                                           |                                                                                                                                                                                                                                                                                                                                                    |
| (2)                                                                            | The average balances                        for investment securities exclude the unrealized loss recorded for                        available for sale securities.                                                                                                                                                                                    |
|                                                                           |                                                                                                                                                                                                                                                                                                                                                    |
| (3)                                                                            | The tax-equivalent                        adjustment to net interest income adjusts the yield for assets earning                        tax-exempt income to a comparable yield on a taxable basis.                                                                                                                                                     |
|                                                                           |                                                                                                                                                                                                                                                                                                                                                    |
| (4)                                                                            | During the nine months                        ended September 30, 2008 and 2007, TSFG capitalized $1.1 million and                        $188,000, respectively, of interest in conjunction with the construction of                        its expanded corporate facilities.                                                                         |
|                                                                           |                                                                                                                                                                                                                                                                                                                                                    |
| (5)                                                                            | Customer funding                        includes total deposits (total interest-bearing plus noninterest-bearing                        deposits) less brokered deposits plus customer sweep accounts.                                                                                                                                                  |
|                                                                           |                                                                                                                                                                                                                                                                                                                                                    |
| (6)                                                                            | Wholesale borrowings                        include borrowings less customer sweep accounts plus brokered deposits. For                        purposes of this table, wholesale borrowings equal the sum of other                        borrowings and brokered deposits, as customer sweep accounts are presented                        separately. |
|                                                                           |                                                                                                                                                                                                                                                                                                                                                    |
| (7)                                                                            | Total funding includes                        customer funding and wholesale borrowings.                                                                                                                                                                                                                                                                |
|                                                                           |                                                                                                                                                                                                                                                                                                                                                    |
| Note: Average                        balances are derived from daily balances. |

54

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          Fully            tax-equivalent net interest income remained constant at $292.6 million for both the            first nine months of 2008 and 2007. TSFG’s average earning assets declined 0.8%            to $12.5 billion for the first nine months of 2008 from $12.6 billion for the first            nine months of 2007 due primarily to the planned reduction of securities which exceeded            loan growth. At September 30, 2008, approximately 61% of TSFG’s accruing loans            were variable rate loans, the majority of which are tied to the prime rate. TSFG has            entered into receive-fixed interest rate swaps to hedge the forecasted interest income            from certain prime-based commercial loans as part of its overall interest rate risk            management. Certain of these swaps with a notional amount of $300 million mature in            fourth quarter 2008. TSFG also has an interest rate floor that is designated as a hedge            of variable rate commercial loans and is intended to mitigate earnings exposure to            falling interest rates.

          The            net interest margin for the first nine months of 2008 was 3.13%, compared with 3.11%            for the first nine months of 2007, partly due to the net proceeds from the Preferred            Stock issuance. The yield on average earning assets decreased 113 basis points,            primarily due to decreased loan yields, which were down 148 basis points. The decrease            in earning asset yields was more than offset by a decrease in the average cost of            funding of 117 basis points. The Federal Reserve has decreased the federal funds target            rate by 275 basis points through September 30, 2008 since September 30,            2007.

          Fully            tax-equivalent net interest income for third quarter 2008 totaled $96.9 million, a            decrease of $4.6 million from $101.5 million for second quarter 2008 and $1.4 million            from $98.3 million for third quarter 2007. The net interest margin for third quarter            2008 was 3.08%, compared to 3.24% for second quarter 2008, and 3.12% for third quarter            2007. This linked-quarter decrease was primarily due to higher funding costs driven by            a change in our funding mix (a shift towards longer-term, but more expensive, funding            sources) and increased reversals of interest income on loans moving to nonaccrual            status. Continued actions by the Federal Reserve to reduce interest rates (together            with the fact that the competitive environment may not allow TSFG to lower rates on            customer deposits) and the maturity of interest rate swaps on the loan portfolio could            negatively affect our net interest margin in fourth quarter 2008. Subsequent to            quarter-end, the Federal Reserve has decreased the federal funds target rate by 100            basis points.

*     Provision            for Credit Losses*

          The            provision for credit losses is recorded in amounts sufficient to bring the allowance            for loan losses and the reserve for unfunded lending commitments to a level deemed            appropriate by management. Management determines this amount based upon many factors,            including its assessment of loan portfolio quality, loan growth, changes in loan            portfolio composition, net loan charge-off levels, and expected economic conditions.            The provision for credit losses was $221.7 million in the first nine months of 2008,            compared to $36.6 million in the first nine months of 2007. The higher provision            largely reflected credit deterioration due to continued weakness in housing markets,            particularly in Florida, and additional specific reserves for nonperforming loans and            the land development portfolios in Florida.

          For            third quarter 2008, the provision for credit losses totaled $84.6 million, compared to            $63.8 million for second quarter 2008 and $10.5 million for third quarter 2007. Third            quarter provision exceeded net loan charge-offs by $9.2 million. Management expects the            level of charge-offs and provision expense to remain elevated relative to historical            trends due to the current credit environment.

          Net            loan charge-offs were $147.4 million, or 1.90% of average loans held for investment,            for the first nine months of 2008, compared with $28.9 million, or 0.39% of average            loans held for investment, for the first nine months of 2007. The allowance for credit            losses equaled 1.97% of loans held for investment as of September 30, 2008, compared to            1.26% for December 31, 2007 and 1.18% for September 30, 2007. See “Loans,”            “Credit Quality,” and “Allowance for Loan Losses and Reserve for            Unfunded Lending Commitments.”

55

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*     Noninterest            Income*

          Table            20 shows the components of noninterest income.

|                                                                |   |                                                                               |    |                                                                              |   |     |   |     |   |   |   |    |   |
|---------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|---------|-----------------------------------------------------------------------------------|--------|----------|--------|----------|--------|--------|--------|---------|--------|
| **Table                        20**                                 |
|                                                                     |
| **Components of                        Noninterest Income**         |
|                                                                     |
| **(dollars in                        thousands)**                   |
|                                                                |   | **Three Months                        Ended                        September 30,** |    | **Nine Months                        Ended                        September 30,** |   |
|                                                                |   |                                                                                    |    |                                                                                   |   |
|                                                                |   | **2008**                                                                           |    | **2007**                                                                          |   | **2008** |   | **2007** |   |
|                                                                |   |                                                                                    |    |                                                                                   |   |          |   |          |   |
|                                                                |   |                                                                               |    |                                                                              |   |     |   |     |   |
| Service charges on                        deposit accounts          |   | $                                                                                  | 11,376  |                                                                              | $      | 11,213   |   | $        | 32,791 |   | $      | 33,049  |   |
| Debit card income,                        net                       |   |                                                                               | 2,006   |                                                                              |   | 1,838    |   |     | 5,938  |   |   | 5,244   |   |
| Customer service fee                        income                  |   |                                                                               | 1,425   |                                                                              |   | 1,533    |   |     | 4,114  |   |   | 4,226   |   |
|                                                                |   |                                                                                    |         |                                                                              |        |          |   |          |        |   |        |         |   |
| Total customer fee                        income                    |   |                                                                               | 14,807  |                                                                              |   | 14,584   |   |     | 42,843 |   |   | 42,519  |   |
|                                                                |   |                                                                                    |         |                                                                              |        |          |   |          |        |   |        |         |   |
|                                                                |
| Insurance                        income                             |   |                                                                               | 2,368   |                                                                              |   | 2,839    |   |     | 7,816  |   |   | 9,123   |   |
| Retail investment                        services, net              |   |                                                                               | 2,294   |                                                                              |   | 2,064    |   |     | 5,960  |   |   | 5,799   |   |
| Trust and investment                        management income       |   |                                                                               | 1,728   |                                                                              |   | 1,642    |   |     | 5,251  |   |   | 4,970   |   |
| Benefits administration                        fees                 |   |                                                                               | 813     |                                                                              |   | 889      |   |     | 2,303  |   |   | 2,380   |   |
|                                                                |   |                                                                                    |         |                                                                              |        |          |   |          |        |   |        |         |   |
| Total wealth management                        income               |   |                                                                               | 7,203   |                                                                              |   | 7,434    |   |     | 21,330 |   |   | 22,272  |   |
|                                                                |   |                                                                                    |         |                                                                              |        |          |   |          |        |   |        |         |   |
|                                                                |
| Bank-owned life                        insurance income             |   |                                                                               | 2,881   |                                                                              |   | 2,974    |   |     | 8,938  |   |   | 10,279  |   |
| Mortgage banking                        income                      |   |                                                                               | 879     |                                                                              |   | 834      |   |     | 4,222  |   |   | 4,780   |   |
| Gain (loss) on                        securities                    |   |                                                                               | (725    | )                                                                                 |   | 287      |   |     | 1,547  |   |   | (3,335  | )      |
| Gain on Visa IPO share                        redemption            |   |                                                                               | — |                                                                              |   | —  |   |     | 1,904  |   |   | — |   |
| Merchant processing                        income, net              |   |                                                                               | 916     |                                                                              |   | 928      |   |     | 2,582  |   |   | 2,434   |   |
| Gain (loss) on certain                        derivative activities |   |                                                                               | (199    | )                                                                                 |   | 198      |   |     | 49     |   |   | (1,202  | )      |
| Other                                                               |   |                                                                               | 2,138   |                                                                              |   | 2,678    |   |     | 7,591  |   |   | 6,823   |   |
|                                                                |   |                                                                                    |         |                                                                              |        |          |   |          |        |   |        |         |   |
| Total noninterest                        income                     |   | $                                                                                  | 27,900  |                                                                              | $      | 29,917   |   | $        | 91,006 |   | $      | 84,570  |   |
|                                                                |   |                                                                                    |         |                                                                              |        |          |   |          |        |   |        |         |   |

          Noninterest            income increased 7.6% to $91.0 million in the first nine months of 2008 due primarily            to a gain on mandatory partial redemption of shares received in the Visa IPO of $1.9            million and a net gain on securities of $1.5 million in the first nine months of 2008            compared to a $3.3 million net loss on securities in the first nine months of 2007. The            2008 gain includes other-than-temporary impairment recorded on corporate bonds,            community bank-related stock, and other investments (see “Securities”),            which was more than offset by other gains on sales. In addition, for the first nine            months of 2008, gain on certain derivative activities totaled $49,000 versus a loss of            $1.2 million for the first nine months of 2007.

          Total            customer fee income increased slightly in the first nine months of 2008 compared to the            same period in 2007, primarily due to increased debit card usage, and merchant            processing income (net of direct processing costs) increased 6.1% in the first nine            months of 2008 compared to the same period in 2007 as a result of increased            transactions. Bank-owned life insurance decreased in the first nine months of 2008            relative to 2007 due to the receipt of fewer life insurance proceeds.

          Mortgage            banking income decreased 11.7% in the first nine months of 2008 when compared to the            same period in 2007. Mortgage loans originated by TSFG originators totaled $229.7            million and $412.0 million in the first nine months of 2008 and 2007, respectively. The            decrease in mortgage banking income was principally the result of lower origination            volumes in response to industry conditions.

          For            third quarter 2008, noninterest income totaled $27.9 million, compared to $32.2 million            in second quarter 2008 and $29.9 million in third quarter 2007. The decrease from            second quarter 2008 to third quarter 2008 was largely attributable to the swing in            gains/losses on securities and lower mortgage banking income, partly offset by modest            increases in service charges on deposit accounts (in keeping with seasonal trends),            retail investment services, and merchant processing. The increase from third quarter            2007 to third quarter 2008 was primarily due to the swing in gains/losses on            securities, derivative activities, and loss on sales of other real estate            owned.

56

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*     Noninterest            Expenses*

          Table            21 shows the components of noninterest expenses.

|                                                                         |   |                                                                               |    |                                                                              |   |     |   |     |    |   |   |    |   |
|------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|---------|-----------------------------------------------------------------------------------|--------|----------|--------|----------|---------|--------|--------|---------|--------|
| **Table                        21**                                          |
|                                                                              |
| **Components of                        Noninterest Expenses**                |
|                                                                              |
| **(dollars in                        thousands)**                            |   |                                                                               |    |                                                                              |   |     |   |     |    |   |   |    |   |
|                                                                         |   | **Three Months                        Ended                        September 30,** |    | **Nine Months                        Ended                        September 30,** |   |
|                                                                         |   |                                                                                    |    |                                                                                   |   |
|                                                                         |   | **2008**                                                                           |    | **2007**                                                                          |   | **2008** |   | **2007** |    |
|                                                                         |   |                                                                                    |    |                                                                                   |   |          |   |          |    |
|                                                                         |   |                                                                               |    |                                                                              |   |     |   |     |    |
| Salaries and wages,                        excluding contracts and severance |   | $                                                                                  | 37,700  |                                                                              | $      | 34,535   |   | $        | 108,689 |   | $      | 103,865 |   |
| Employee                        benefits                                     |   |                                                                               | 9,252   |                                                                              |   | 8,862    |   |     | 27,663  |   |   | 27,866  |   |
| Occupancy                                                                    |   |                                                                               | 9,770   |                                                                              |   | 8,723    |   |     | 27,365  |   |   | 25,876  |   |
| Furniture and                        equipment                               |   |                                                                               | 6,991   |                                                                              |   | 6,543    |   |     | 20,107  |   |   | 19,491  |   |
| Professional                        services                                 |   |                                                                               | 4,573   |                                                                              |   | 4,278    |   |     | 11,679  |   |   | 13,295  |   |
| Advertising and                        business development                  |   |                                                                               | 2,114   |                                                                              |   | 1,443    |   |     | 7,316   |   |   | 5,347   |   |
| Regulatory                        assessments                                |   |                                                                               | 3,020   |                                                                              |   | 300      |   |     | 7,471   |   |   | 1,164   |   |
| Loan collection and                        monitoring                        |   |                                                                               | 4,112   |                                                                              |   | 710      |   |     | 7,249   |   |   | 1,889   |   |
| Amortization of                        intangibles                           |   |                                                                               | 1,474   |                                                                              |   | 1,907    |   |     | 4,721   |   |   | 6,044   |   |
| Telecommunications                                                           |   |                                                                               | 1,628   |                                                                              |   | 1,404    |   |     | 4,527   |   |   | 4,215   |   |
| Employment contracts                        and severance                    |   |                                                                               | 4,621   |                                                                              |   | —  |   |     | 6,920   |   |   | 2,306   |   |
| Branch acquisition and                        conversion costs               |   |                                                                               | — |                                                                              |   | —  |   |     | 731     |   |   | — |   |
| (Gain) loss on early                        extinguishment of debt           |   |                                                                               | (125    | )                                                                                 |   | 1,299    |   |     | 339     |   |   | 1,530   |   |
| Goodwill                        impairment                                   |   |                                                                               | — |                                                                              |   | —  |   |     | 188,431 |   |   | — |   |
| Visa-related                        litigation                               |   |                                                                               | — |                                                                              |   | —  |   |     | (863    | )      |   | — |   |
| Other                                                                        |   |                                                                               | 8,262   |                                                                              |   | 8,735    |   |     | 26,846  |   |   | 27,479  |   |
|                                                                         |   |                                                                                    |         |                                                                              |        |          |   |          |         |   |        |         |   |
| Total noninterest                        expenses                            |   | $                                                                                  | 93,392  |                                                                              | $      | 78,739   |   | $        | 449,191 |   | $      | 240,367 |   |
|                                                                         |   |                                                                                    |         |                                                                              |        |          |   |          |         |   |        |         |   |

          During            first quarter 2008, the acceleration of credit deterioration in Florida prompted TSFG            to perform an interim evaluation of the goodwill associated with its Florida banking            segment. The evaluation reflected decreases in projected cash flows for the Florida            banking segment, and accordingly the estimated fair value of the segment declined. This            decline resulted in the recognition of a goodwill impairment charge of $188.4 million.            See “Goodwill.”

          Salaries            and wages (excluding contracts and severance) and employee benefits increased $4.6            million, in the first nine months of 2008 compared with the same period in 2007,            partially due to normal salary increases and lower loan origination salary deferrals.            In addition, the number of full-time equivalent employees increased to 2,535 at            September 30, 2008 from 2,457 at September 30, 2007, partly due to the acquisition of            five branch offices in Orlando and three de-novo branch openings.

          Employment            contracts and severance increased as a result of expenses related to the retirement of            Mack Whittle (see “Overview”). The incremental expense related to            Whittle’s retirement benefits is approximately $12 million, of which $4.6 million            was recognized in third quarter 2008, with the remaining expense to be recognized in            fourth quarter 2008.

          Advertising            and business development increased 36.8% for the first nine months of 2008 compared            with the first nine months of 2007, primarily due to costs related to customer funding            initiatives. In addition, regulatory assessments increased as the credit which had been            offsetting FDIC premiums for all of 2006 and the first three quarters of 2007 was fully            utilized in fourth quarter 2007. FDIC insurance premiums are expected to increase based            on TSFG’s decision to proceed with the Temporary Liquidity Guarantee Program            related to noninterest-bearing deposit accounts (see “Recent Market            Developments”) and across-the-board rate increases beginning in 2009 (designed to            replenish the FDIC’s Deposit Insurance Fund). Loan collection and monitoring            expense increased $5.4 million for the first nine months of 2008 compared with the            first nine months of 2007 due to the current credit environment, and may continue to            increase.

57

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          Professional            services decreased by 12.2% for the first nine months of 2008 compared with the first            nine months of 2007, primarily due to a decrease in legal fees and expenses related to            development of TSFG’s strategic initiatives.

          During            the first nine months of 2008, TSFG recognized a loss on early extinguishment of debt            of $339,000, which reflects prepayment penalties on FHLB advances, offset by calls of            interest rate swaps hedging brokered CDs, versus a loss of $1.5 million in the first            nine months of 2007. See “Borrowed Funds.”

          TSFG            incurred branch acquisition and conversion costs during the first half of 2008 related            to the June 6, 2008 purchase of five retail branch offices in the Orlando area. This            transaction also contributed to higher occupancy expense.

          Third            quarter 2008 noninterest expenses increased $5.8 million from second quarter 2008 and            $14.7 million from third quarter 2007 due primarily to salaries and wages, loan            collection and monitoring, regulatory assessments, occupancy, and expenses related to            Whittle’s retirement.

*     Income            Taxes*

          The            effective income tax rate as a percentage of pretax income was 18.6% for the first nine            months of 2008 and 32.6% for the first nine months of 2007. The 2008 tax rate was            driven by the impact of the nondeductible goodwill impairment, other nontaxable and            nondeductible items, and management’s projections. The effective income tax rate            for fourth quarter 2008 could be significantly impacted by variances between            management’s projections and actual results. The statutory U.S. federal income            tax rate was 35% for both 2008 and 2007.

          On            an ongoing basis, TSFG evaluates its deferred tax assets for realizability (see            “Critical Accounting Policies and Estimates – Income Taxes”). As of            September 30, 2008, management determined that no additional valuation allowance            against deferred tax assets was required.

          In            October 2008, TSFG was awarded a $100 million allocation under the New Markets Tax            Credits (“NMTC”) program from the Community Development Financial            Institution Fund (“CDFI”) of the Department of the Treasury. This award is            in addition to the $100 million allocation which TSFG received in fourth quarter 2007.            The program is designed to attract private-sector investment to help finance community            development projects, stimulate economic growth and create jobs in lower income            communities by providing tax credits to lenders who have an allocation. The NMTC            provides tax credits aggregating 39% of the invested amount over seven years, although            a portion of the value gained via the tax credits must be used to benefit the            respective projects.

**Enterprise            Risk Management**

          Pages            51 through 54 of TSFG’s Annual Report on Form 10-K for the year ended December            31, 2007 provides a discussion of overall Enterprise Risk Management, Derivatives and            Hedging Activities, Economic Risk, Operational Risk, and Compliance and Litigation            Risks.

*     Credit            Risk*

          Credit            risk is the potential for financial loss resulting from the failure of a borrower or            counterparty to honor its financial or contractual obligation. Credit risk arises in            many of TSFG’s business activities, most prominently in its lending activities,            derivative activities, ownership of debt securities, and when TSFG acts as an            intermediary on behalf of its customers and other third parties. TSFG has a risk            management system designed to help ensure compliance with its policies and control            processes. See “Critical Accounting Policies and Estimates – Allowance for            Loan Losses and Reserve for Unfunded Lending Commitments,” “Credit            Quality,” and “Derivative Financial Instruments” for updated credit            risk disclosures.

*     Liquidity            Risks*

          TSFG’s            business is also subject to liquidity risk, which arises in the normal course of            business. TSFG’s liquidity risk is that we will be unable to meet a financial            commitment to a customer, creditor, or investor when due. See “Liquidity”            for updated liquidity disclosures.

58

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*     Market            Risk and Asset/Liability Management*

          There            has been no significant change to the market risk and asset/liability management            methodology as disclosed in TSFG’s 2007 Form 10-K. The interest sensitivity            analysis which follows has been updated for September 30, 2008 numbers.

*          Interest            Sensitivity Analysis.* As discussed on pages 51 and 52 of TSFG’s 2007 Form            10-K, TSFG uses a simulation model to analyze various interest rate scenarios in order            to monitor interest rate risk. The information presented in Tables 22 and 23 are not            projections, and are presented with static balance sheet positions. This methodology            allows for an analysis of our inherent risk associated with changes in interest rates.            There are some similar assumptions used in both Table 22 and 23. These include, but are            not limited to, the following:

|   |                                                                                                                                                                                                                                                             |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | a                        static balance sheet for net interest income analysis;                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                             |
| • | as                        assets and liabilities mature or reprice they are reinvested at current                        rates and keep the same characteristics (i.e., remain as either variable or                        fixed rate) for net income analysis; |
|   |                                                                                                                                                                                                                                                             |
| • | mortgage backed                        securities prepayments are based on historical industry data;                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                             |
| • | loan                        prepayments are based upon historical bank-specific analysis and historical                        industry data;                                                                                                                    |
|   |                                                                                                                                                                                                                                                             |
| • | deposit retention and                        average lives are based on historical bank-specific analysis;                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                             |
| • | whether                        callable/puttable assets and liabilities are called/put is based on the                        implied forward yield curve for each interest rate scenario; and                                                                   |
|   |                                                                                                                                                                                                                                                             |
| • | management takes no                        action to counter any change.                                                                                                                                                                                         |

          Table            22 reflects the sensitivity of net interest income to changes in interest rates. It            shows the effect that the indicated changes in interest rates would have on net            interest income over the next 12 months compared with the base case or flat interest            rate scenario. The base case or flat scenario assumes interest rates stay at September            30, 2008 and 2007 levels, respectively.

          Estimated            impacts of interest rate movements are based on sensitivity over the next 12 months            assuming a static balance sheet. For shorter periods, the earnings impact may be higher            or lower than shown due to timing differences in repricing of assets versus liabilities            or differences in timing of new asset versus liability originations.

          During            October, the Federal Reserve lowered the federal funds target rate by 100 basis points,            to a level of 1%. As shown below, we have exposure to declining interest rates, with a            100 gradual rate decline adversely impacting net interest income by an estimated 1.2%            over the next year, relative to our base case. The impact of October’s rate            reductions could be more adverse to the extent the competitive environment does not            allow TSFG to lower rates paid on customer deposits as assumed, in response to decline            in wholesale interest rates.

          Near-term,            the adverse impact of lower rates may be offset by the positive impact of recent            widening of spreads between two key short-term market benchmark rates. As a result of            volatility in financial markets, short-term LIBOR rates rose sharply in September, with            the spread between 1 month LIBOR and the federal funds target rate widening by 250            basis points. Though this spread narrowed by more than 100 basis points in recent            weeks, the spread remains wider than normal, which positively impacts TSFG’s net            interest income, as we have approximately $2 billion of assets for which pricing is            tied to LIBOR versus only $1 billion of funding and interest rate swaps tied to            LIBOR.

59

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|                                                            |                                                                                                                                                    |   |     |   |     |   |
|-----------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|
| **Table                        22**                             |
|                                                                 |
| **Net Interest                        Income at Risk Analysis** |
|                                                                 |
|                                                            |                                                                                                                                                    |
| **Interest Rate                        Scenario (1)**           | **Annualized                        Hypothetical Percentage Change in                        Net Interest Income                        September 30,** |
|                                                            |                                                                                                                                                         |
|                                                            |                                                                                                                                                    |   | **2008** |   | **2007** |   |
|                                                            |                                                                                                                                                    |   |          |   |          |   |
| 2.00                                                            | %                                                                                                                                                       |   | 2.0      | %      | (1.4     | )%     |
| 1.00                                                            |                                                                                                                                                    |   | 1.0      |   | (0.7     | )      |
| Flat                                                            |                                                                                                                                                    |   | —  |   | —  |   |
| (1.00                                                           | )                                                                                                                                                       |   | (1.2     | )      | 0.3      |   |
| (2.00                                                           | )                                                                                                                                                       |   | n/a      |   | 0.7      |   |

|   |                                                                                                                                   |
|--------|----------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | Net interest income                        sensitivity is shown for gradual rate shifts over a 12 month                        period. |

          Table            23 reflects the sensitivity of the economic value of equity (“EVE”) to            changes in interest rates. EVE is a measurement of the inherent, long-term balance            sheet-related economic value of TSFG (defined as the fair value of all assets minus the            fair value of all liabilities and their associated off balance sheet amounts) at a            given point in time. Table 23 shows the effect that the indicated changes in interest            rates would have on the fair value of net assets at September 30, 2008 and 2007,            respectively, compared with the base case or flat interest rate scenario. The base case            or flat scenario assumes interest rates stay at September 30, 2008 and 2007 levels,            respectively.

|                                                              |                                                                                                                                                         |   |     |   |     |   |
|-------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|
| **Table                        23**                               |
|                                                                   |
| **Economic Value of                        Equity Risk Analysis** |
|                                                                   |
|                                                              |                                                                                                                                                         |
| **Interest Rate                        Scenario (1)**             | **Annualized                        Hypothetical Percentage Change in                        Economic Value of Equity                        September 30,** |
|                                                              |                                                                                                                                                              |
|                                                              |                                                                                                                                                         |   | **2008** |   | **2007** |   |
|                                                              |                                                                                                                                                         |   |          |   |          |   |
| 2.00                                                              | %                                                                                                                                                            |   | (7.6     | )%     | (10.2    | )%     |
| 1.00                                                              |                                                                                                                                                         |   | (2.8     | )      | (4.3     | )      |
| Flat                                                              |                                                                                                                                                         |   | —  |   | —  |   |
| (1.00                                                             | )                                                                                                                                                            |   | 2.4      |   | 1.4      |   |
| (2.00                                                             | )                                                                                                                                                            |   | n/a      |   | (2.1     | )      |

|   |                                                                                                                                                                                                                                                            |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | The rising 100 and 200                        basis point and falling 100 and 200 basis point interest rate scenarios                        assume an instantaneous and parallel change in interest rates along the                        entire yield curve. |

          There            are material limitations with TSFG’s models presented in Tables 22 and 23, which            include, but are not limited to, the following:

|   |                                                                                                                                                                                                                                                                                       |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | the                        flat scenarios are base case and are not indicative of historical                        results;                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                       |
| • | they                        do not project an increase or decrease in net interest income or the fair                        value of net assets, but rather the risk to net interest income and the                        fair value of net assets because of changes in interest rates; |
|   |                                                                                                                                                                                                                                                                                       |
| • | they                        present the balance sheet in a static position; however, when assets and                        liabilities mature or reprice, they do not necessarily keep the same                        characteristics (e.g., variable or fixed interest rate);           |
|   |                                                                                                                                                                                                                                                                                       |
| • | the                        computation of prospective effects of hypothetical interest rate changes                        are based on numerous assumptions and should not be relied upon as                        indicative of actual results; and                                     |

|   |                                                                                                                                                                    |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | the                        computations do not contemplate any additional actions TSFG could undertake                        in response to changes in interest rates. |

**Off-Balance            Sheet Arrangements**

          In            the normal course of operations, TSFG engages in a variety of financial transactions            that, in accordance with generally accepted accounting principles, are not recorded in            the financial statements, or are recorded in amounts that differ from the notional            amounts. These transactions involve, to varying degrees, elements of credit, interest            rate, and liquidity risk. Such transactions are used by TSFG for general corporate            purposes or for customer needs. Corporate purpose

60

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transactions are            used to help manage credit, interest rate, and liquidity risk or to optimize capital.            Customer transactions are used to manage customers’ requests for            funding.

*          Lending            Commitments.* Lending commitments include loan commitments, standby letters of            credit, unused business credit card lines, and documentary letters of credit. These            instruments are not recorded in the consolidated balance sheet until funds are advanced            under the commitments. TSFG provides these lending commitments to customers in the            normal course of business. TSFG estimates probable losses related to binding unfunded            lending commitments and records a reserve for unfunded lending commitments in other            liabilities on the consolidated balance sheet. See Note 10 to the Consolidated            Financial Statements for disclosure of the amounts of lending commitments.

*          Derivatives.*            In accordance with SFAS 133, TSFG records derivatives at fair value, as either assets            or liabilities, on the consolidated balance sheets. Derivative transactions are            measured in terms of the notional amount, but this amount is not recorded on the            balance sheets and is not, when viewed in isolation, a meaningful measure of the risk            profile of the instrument. The notional amount is not exchanged, but is used only as            the basis upon which interest and other payments are calculated.

          See            “Derivative Financial Instruments” under “Balance Sheet Review”            and Note 9 to the Consolidated Financial Statements for additional information            regarding derivatives.

**Liquidity**

          Liquidity            management ensures that adequate funds are available to meet deposit withdrawals, fund            loan and capital expenditure commitments, maintain reserve requirements, pay operating            expenses, provide funds for dividends and debt service, manage operations on an ongoing            basis, and capitalize on new business opportunities.

          Liquidity            is managed at two levels. The first is the liquidity of the parent company, which is            the holding company that owns Carolina First Bank, the banking subsidiary. The second            is the liquidity of the banking subsidiary. The management of liquidity at both levels            is essential because the parent company and banking subsidiary each have different            funding needs and sources, and each are subject to certain regulatory guidelines and            requirements. Through the Asset Liability Committee (“ALCO”), Corporate            Treasury is responsible for planning and executing the funding activities and            strategy.

          TSFG’s            liquidity policy strives to ensure a diverse funding base, with limits established by            wholesale funding source as well as aggregate wholesale funding. Daily and short-term            liquidity needs are principally met with deposits from customers, payments on loans,            maturities and paydowns of investment securities, and wholesale borrowings, including            brokered CDs, federal funds purchased (as available), repurchase agreements, and,            depending on the availability of collateral, treasury tax and loan notes, and            borrowings from the Federal Reserve and FHLB. In light of current market conditions,            TSFG has reduced its usage of short-term unsecured wholesale borrowings. TSFG is            focusing additional efforts aimed at acquiring new deposits from its customer base            through its established branch network to enhance liquidity and reduce reliance on            wholesale borrowing. Liquidity needs are a factor in developing the deposit pricing            structure, which may be altered to retain or grow deposits if deemed            necessary.

          Longer            term funding needs are typically met through a variety of wholesale sources, which have            a broader range of maturities than customer deposits and add flexibility in liquidity            planning and management. These wholesale sources include advances from the FHLB with            longer maturities, brokered CDs, and instruments that qualify as regulatory capital,            including trust preferred securities and subordinated debt. In addition, the Company            may also issue equity capital to address liquidity or capital needs.

          Under            normal business conditions, the sources above are adequate to meet both the short-term            and longer-term funding needs of the Company; however, TSFG’s contingency funding            plan establishes early warning triggers to alert management to potentially negative            liquidity trends. The plan provides a framework to manage through various scenarios            – including identification of alternative actions and an executive management            team to navigate through a crisis. Limits ensure that liquidity is sufficient to manage            through crises of various degrees of severity, triggered by TSFG-specific events, such            as significant adverse changes to earnings, credit quality or credit ratings, or            general industry or market events, such as market instability or rapid adverse changes            in the economy. We have no debt for which a downgrade of our credit ratings would            trigger additional collateral requirements or early termination. As of September 30,            2008, we had more than $4 billion of secured liquidity reserves in the form of            borrowing capacity from the Federal Reserve ($3.6 billion), FHLB ($633.3 million) and            unpledged investment securities ($453.1 million), which represent

61

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ample liquidity            to manage through a severe liquidity scenario. Following a severe liquidity scenario,            we would consider various actions to replenish liquidity, including potential asset            sales.

          In            addition to the primary funding sources discussed above, secondary sources of liquidity            include sales of investment securities which are not held for pledging purposes and            other classes of assets. Securities classified as available for sale which are not            pledged may be sold or pledged against new borrowings in response to changes in            interest rates or liquidity needs. A significant portion of TSFG’s securities are            pledged as collateral for repurchase agreements and public funds deposits, although            $453.1 million was unpledged as of September 30, 2008..

          Management            believes that TSFG’s available borrowing capacity and efforts to grow deposits            are sufficient to provide the necessary funding for the remainder of 2008 and 2009.            However, management is prepared to take other actions if needed to manage through            adverse liquidity conditions.

          Regarding            the Temporary Liquidity Guarantee Programs offered by the FDIC, TSFG will participate            in the program providing full coverage of noninterest-bearing deposit transaction            accounts regardless of dollar amount through December 31, 2009, and TSFG is considering            participation in the program whereby the FDIC will guarantee new senior unsecured debt            issued by the end of June 2009. These programs will further stabilize and strengthen            our liquidity position.

          In            managing its liquidity needs, TSFG focuses on its existing assets and liabilities, as            well as its ability to enter into additional borrowings, and on the manner in which            they combine to provide adequate liquidity to meet our needs. Table 24 summarizes            future contractual obligations based on maturity dates as of September 30, 2008. Table            24 does not include payments which may be required under employment and deferred            compensation agreements. In addition, Table 24 does not include payments required for            interest and income taxes (see Item 1, Consolidated Statements of Cash Flows for            details on interest and income taxes paid for the nine months ended September 30,            2008).

|                                                           |   |                                              |      |                                                                |   |                                                            |   |                                                            |      |              |   |    |   |   |    |   |
|----------------------------------------------------------------|--------|---------------------------------------------------|-----------|---------------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|-----------------------------------------------------------------|-----------|-------------------|--------|---------|--------|--------|---------|--------|
| **Table                        24**                            |
|                                                                |
| **Contractual                        Obligations**             |
|                                                                |
| **(dollars in                        thousands)**              |
|                                                           |   |
|                                                           |   | **Payments Due by                        Period** |      |
|                                                           |   |                                                   |      |
|                                                           |   | **Total**                                         |      | **Remainder                        of                        2008** |   | **2009                        and                        2010** |   | **2011                        and                        2012** |      | **After****2012** |   |
|                                                           |   |                                                   |      |                                                                     |   |                                                                 |   |                                                                 |      |                   |   |
| Time                        deposits                           |   | $                                                 | 5,939,009 |                                                                | $      | 1,464,569                                                       |   | $                                                               | 3,956,765 |              | $      | 277,463 |   | $      | 240,212 |   |
| Short-term                        borrowings                   |   |                                              | 1,188,929 |                                                                |   | 1,188,929                                                       |   |                                                            | —   |              |   | — |   |   | — |   |
| Long-term                        debt                          |   |                                              | 772,402   |                                                                |   | 41                                                              |   |                                                            | 69,948    |              |   | 256,416 |   |   | 445,997 |   |
| Operating                        leases                        |   |                                              | 193,347   |                                                                |   | 4,831                                                           |   |                                                            | 37,813    |              |   | 33,599  |   |   | 117,104 |   |
| Expanded corporate                        facilities contracts |   |                                              | 37,252    |                                                                |   | 9,173                                                           |   |                                                            | 28,079    |              |   | — |   |   | — |   |
|                                                           |   |                                                   |           |                                                                |        |                                                                 |   |                                                                 |           |              |        |         |   |        |         |   |
| Total contractual                        obligations           |   | $                                                 | 8,130,939 |                                                                | $      | 2,667,543                                                       |   | $                                                               | 4,092,605 |              | $      | 567,478 |   | $      | 803,313 |   |
|                                                           |   |                                                   |           |                                                                |        |                                                                 |   |                                                                 |           |              |        |         |   |        |         |   |

          TSFG            has the ability to borrow from the FHLB and maintain short-term lines of credit from            unrelated banks. FHLB advances outstanding as of September 30, 2008 totaled $298.1            million. At September 30, 2008, TSFG had $633.3 million of unused borrowing capacity            from the FHLB. TSFG funds its short-term needs principally with deposits, including            brokered deposits, federal funds purchased, repurchase agreements, FHLB advances,            Federal Reserve borrowings, treasury tax and loan notes, and the principal run-off of            investment securities. At September 30, 2008, TSFG had unused short-term lines of            credit totaling $194.2 million (which may be canceled at the lender’s option and            which are subject to funds availability at the lender), compared to $1.9 billion at            December 31, 2007.

          A            collateralized borrowing relationship with the Federal Reserve Bank of Richmond is in            place for Carolina First Bank. At September 30, 2008, TSFG had qualifying collateral to            secure advances up to $3.6 billion, of which $30.0 million was outstanding.

          TSFG            enters into agreements in the normal course of business to extend credit to meet the            financial needs of its customers. For amounts and types of such agreements at September            30, 2008, see “Off-Balance Sheet Arrangements.” Increased demand for funds            under these agreements would reduce TSFG’s available liquidity and could require            additional sources of liquidity.

62

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          Typically,            the primary sources of funding for the parent company include dividends received from            its banking subsidiary, proceeds from the issuance of subordinated debt, equity, and            commercial paper. Currently, dividends are not payable from Carolina First Bank to the            parent without regulatory approval. The primary uses of funds for the parent company            include repayment of maturing debt and commercial paper, share repurchases, dividends            paid to common and preferred shareholders, and capital contributions to subsidiaries.            At September 30, 2008, the parent company had one $10.0 million short-term unused line            of credit. During the first nine months of 2008, two of its lines of credit totaling            $25.0 million were cancelled.

          During            second quarter 2008, TSFG issued $250 million of mandatory convertible non-cumulative            Preferred Stock (with net proceeds of $239.0 million) and reduced its quarterly common            stock cash dividend to $0.01 per share in an effort to strengthen its capital and            liquidity position. The parent company contributed $125 million of the preferred            capital proceeds to Carolina First Bank during second quarter 2008.

**Recently            Adopted/Issued Accounting Pronouncements**

          See            Note 1 – Recently Adopted Accounting Pronouncements and Recently Issued            Accounting Pronouncements in the accompanying Notes to the Consolidated Financial            Statements for details of recently adopted and recently issued accounting            pronouncements and their expected impact on the Company’s Consolidated Financial            Statements.

**Item 3.            *Quantitative and Qualitative Disclosures about Market Risk***

          See            “Enterprise Risk Management” in Item 2, Management Discussion and Analysis            of Financial Condition and Results of Operations for quantitative and qualitative            disclosures about market risk, which information is incorporated herein by            reference.

**Item 4.            *Controls and Procedures***

*     Evaluation            of Disclosure Controls and Procedures*

          At            September 30, 2008, TSFG’s management, under the supervision and with the            participation of its Chief Executive Officer and Chief Financial Officer, evaluated its            disclosure controls and procedures as currently in effect. Based on this evaluation,            TSFG’s management concluded that as of September 30, 2008, TSFG’s            disclosure controls and procedures were effective (1) to provide reasonable assurance            that information required to be disclosed by TSFG in the reports filed or submitted by            it under the Exchange Act was recorded, processed, summarized and reported within the            time periods specified in the SEC’s rules and forms, and (2) to provide            reasonable assurance that information required to be disclosed by TSFG in such reports            was accumulated and communicated to TSFG’s management, including its Chief            Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions            regarding required disclosure.

*     Changes            in Internal Controls over Financial Reporting*

          TSFG            continually assesses the adequacy of its internal control over financial reporting and            strives to enhance its controls in response to internal control assessments and            internal and external audit and regulatory recommendations. There were no changes in            TSFG’s internal control over financial reporting identified in connection with            its assessment during the quarter ended September 30, 2008 or through the date of this            Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely            to materially affect, TSFG’s internal control over financial            reporting.

63

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PART II. OTHER            INFORMATION

**Item 1.            *Legal Proceedings***

          See            Note 10 to the Consolidated Financial Statements for a discussion of legal            proceedings.

**Item 1A.            *Risk Factors***

          The            following are additional risk factors for TSFG, to be read in conjunction with Item 1A            (pages 9-11) of TSFG’s Annual Report on Form 10-K for the year ended December 31,            2007.

**          TSFG            may be adversely affected by the soundness of other financial institutions.**            Financial services institutions are interrelated as a result of trading, clearing,            counterparty, or other relationships. TSFG has exposure to many different industries            and counterparties, and routinely executes transactions with counterparties in the            financial services industry, including commercial banks, brokers and dealers,            investment banks, and other institutional clients. Many of these transactions expose            TSFG to credit risk in the event of a default by a counterparty or client. In addition,            TSFG’s credit risk may be exacerbated when the collateral held by the Company            cannot be realized upon or is liquidated at prices not sufficient to recover the full            amount of the credit or derivative exposure due to the Company. Any such losses could            have a material adverse affect on TSFG’s financial condition and results of            operations.

**          Recent            government actions in response to market conditions may affect TSFG.** It is not            clear at this time what impact EESA, the TARP Capital Purchase Program, the Temporary            Liquidity Guarantee Program, or other liquidity and funding initiatives (or            TSFG’s participation or non-participation in any of these) will have on TSFG.            There can also be no assurance as to the impact that the above measures will have on            the financial markets, including the high levels of volatility and limited credit            availability currently being experienced, or on the U.S. banking and financial            industries and the broader U.S. and global economies. The failure of EESA to help            stabilize the financial markets and a continuation or worsening of current financial            market conditions could materially and adversely affect our business, financial            condition, results of operations, access to credit, or the trading price of our common            stock.

64

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**Item 2.            *Unregistered Sales of Equity Securities and Use of Proceeds***

          TSFG            has repurchased shares of our common stock in private transactions and open-market            purchases, as authorized by our Board. The amount and timing of stock repurchases will            be based on factors, including but not limited to, management’s assessment of            TSFG’s capital structure and liquidity, the market price of TSFG’s common            stock compared to management’s assessment of the stock’s underlying value,            and applicable regulatory, legal, and accounting matters. The following table presents            information about our stock repurchases for the three months ended September 30,            2008.

|                                                             |   |                                                                                                      |    |                                                                                                  |   |                                                                                                                                                                                                                           |   |                                                                                                                                                                                                                                                                     |    |   |   |    |   |
|------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------|---------|-------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|--------|--------|---------|--------|
| **Issuer Purchases of                        Equity Securities** |   |
|                                                             |   |
| **Period**                                                       |   | **Total                        Number                        of Shares                        Purchased** |    | **Average                        Price                        Paid per                        Share** |   | **Total                        Number of                        Shares Purchased                        as Part                        of Publicly                        Announced Plans                        or Programs** |   | **Approximate                        Dollar Value of                        Shares that                        May Yet Be                        Purchased                        Under Plans or                        Programs                        (in thousands)** |    |
|                                                                  |   |                                                                                                           |    |                                                                                                       |   |                                                                                                                                                                                                                                |   |                                                                                                                                                                                                                                                                          |    |
| July 1, 2008 to July                        31, 2008             |   |                                                                                                      | — |                                                                                                  | $      | —                                                                                                                                                                                                                        |   |                                                                                                                                                                                                                                                                     | — |   | $      | — |   |
| August 1, 2008 to                        August 31, 2008         |   |                                                                                                      | 204     |  (1                        )                                                                     |   | 6.84                                                                                                                                                                                                                           |   |                                                                                                                                                                                                                                                                     | — |   |   | — |   |
| September 1, 2008 to                        September 30, 2008   |   |                                                                                                      | — |                                                                                                  |   | —                                                                                                                                                                                                                        |   |                                                                                                                                                                                                                                                                     | — |   |   | — |   |
|                                                             |   |                                                                                                           |    |                                                                                                       |   |                                                                                                                                                                                                                                |   |                                                                                                                                                                                                                                                                          |    |
| Total                                                            |   |                                                                                                      | 204     |                                                                                                  | $      | 6.84                                                                                                                                                                                                                           |   |                                                                                                                                                                                                                                                                     | — |   | $      | — |   |
|                                                             |   |                                                                                                           |    |                                                                                                       |   |                                                                                                                                                                                                                                |   |                                                                                                                                                                                                                                                                          |    |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | These shares were                        canceled in connection with exercise of options, vesting of restricted                        stock, or distribution from the deferred compensation plan. Pursuant to                        TSFG’s stock option plans, participants may exercise stock options by                        surrendering shares of TSFG common stock the participants already own or,                        in some cases, by surrendering fully vested stock options as payment of the                        option exercise price. Pursuant to TSFG’s restricted stock plans,                        participants may tender shares of vested restricted stock as payment for                        taxes due at the time of vesting. Pursuant to TSFG’s Executive                        Deferred Compensation Plan, participants may tender shares of stock as                        payment for taxes due at the time of distribution. Shares surrendered by                        participants of these plans are repurchased at current market value                        pursuant to the terms of the applicable stock option, restricted stock, or                        deferred compensation plan and not pursuant to publicly announced share                        repurchase programs. |

**Item 3.            *Defaults upon Senior Securities***

          None.

**Item 4.            *Submission of Matters to a Vote of Securities Holders***

          On            July 18, 2008, TSFG held a Special Meeting of Shareholders. The results of the Special            Meeting of Shareholders follow.

          **Proposal #1 – Approve conversion terms and general voting rights of our Mandatory            Convertible Non-cumulative Preferred Stock.** This Proposal was approved with            40,742,129 shares, or 95.2%, voting in favor, 2,039,554 shares voting against, and            398,388 shares abstaining.

          **Proposal #2 – Approve adjournment of the special meeting to solicit additional            proxies if there are insufficient votes at the time of the Special Meeting to adopt            Proposal #1 or a quorum is not present at the time of the Special Meeting.** This            Proposal was approved with 37,832,623 shares, or 87.6%, voting in favor, 4,859,378            shares voting against, and 488,070 shares abstaining.

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**Item 5.            *Other Information***

**          Amendments            to Articles of Incorporation or Bylaws; Change in Fiscal Year**

          On            November 3, 2008, the Board of Directors of The South Financial Group, Inc. amended its            bylaws to consolidate into a single “Chairman” position, the rights and            responsibilities of the positions of “Lead Independent Director” and            “Chairman” set forth in its Bylaws immediately prior to such            amendment.

          Upon            amending its Bylaws, the Board named John C. B. Smith, Jr. as Chairman, and William R.            Timmons III as Vice Chairman.

**          Appointment            of Principal Executive Officers**

          Solely            for purposes of the Company’s filings under the Exchange Act, the Audit Committee            of the Board of Directors has designated James R. Gordon, H. Lynn Harton and            Christopher T. Holmes as the principal executive officers.

**Item 6.            *Exhibits***

|   |                                                                                                                                                                                                                                                                           |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1    | Bylaws of                        TSFG                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                           |
| 31.1   | Certificate of the                        Principal Executive Officers pursuant to Rule 13a-14a/15(d)-14(a) of                        Securities Exchange Act of 1934, as amended, as adopted pursuant to Section                        302 of the Sarbanes-Oxley Act of 2002 |
|   |                                                                                                                                                                                                                                                                           |
| 31.2   | Certificate of the                        Principal Financial Officer pursuant to Rule 13a-14a/15(d)-14(a) of                        Securities Exchange Act of 1934, as amended, as adopted pursuant to Section                        302 of the Sarbanes-Oxley Act of 2002  |
|   |                                                                                                                                                                                                                                                                           |
| 32.1+  | Certificate of                        Principal Executive Officers pursuant to 18 U.S.C. 1350, as adopted                        pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                     |
|   |                                                                                                                                                                                                                                                                           |
| 32.2+  | Certificate of Chief                        Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to                        Section 906 of the Sarbanes-Oxley Act of 2002                                                                                          |

+ This exhibit            shall not be deemed “filed” for purposes of Section 18 of the Securities            Exchange Act of 1934, or otherwise subject to the liability of that section, and shall            not be deemed to be incorporated by reference into any filing under the Securities Act            of 1933 or the Securities Exchange Act of 1934.

Note for            non-filed versions of this Form 10-Q

The above            exhibits may be found on TSFG’s electronic filing of its September 30, 2008            Quarterly Report on Form 10-Q with the Securities and Exchange Commission            (“SEC”) and is accessible at no cost on TSFG’s web site,            www.thesouthgroup.com, through the Investor Relations link. TSFG’s SEC filings            are also available through the SEC’s web site at www.sec.gov.

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**SIGNATURES**

          Pursuant            to the requirements of the Securities Exchange Act of 1934, TSFG has duly caused this            report to be signed on its behalf by the undersigned thereunto duly            authorized.

|                                          |   |                                                                                                    |
|-----------------------------------------------|--------|---------------------------------------------------------------------------------------------------------|
|                                          |   | The South Financial                        Group, Inc.                                                  |
|                                          |   |                                                                                                    |
| Date: November 6,                        2008 |   | */s/ James R.                        Gordon*                                                            |
|                                          |   |                                                                                                         |
|                                          |   | James R.                        Gordon                                                                  |
|                                          |   | Senior Executive                        Vice President and                                              |
|                                          |   | Chief Financial                        Officer                                                          |
|                                          |   | (Duly Authorized                        Officer and                        Principal Financial Officer) |

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